<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For The Quarter Ended June 30, 1999
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Commission file number 0-7024
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THE FIRST YEARS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2149581
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
One Kiddie Drive, Avon, Massachusetts 02322-1171
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(Address of principal executive offices) (Zip Code)
(508) 588-1220
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ].
The number of shares of Registrant's common stock outstanding on July 31, 1999
was 10,319,157.
<PAGE> 2
THE FIRST YEARS INC.
INDEX
PART I - FINANCIAL INFORMATION: Page
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4-5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-9
PART II - OTHER INFORMATION
Other information 10-12
SIGNATURES 12
EXHIBIT INDEX 13
<PAGE> 3
THE FIRST YEARS INC.
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $10,314,167 $19,776,897
Accounts receivable, net 24,383,831 19,013,127
Inventories 23,579,200 18,520,023
Prepaid expenses and other assets 628,152 2,638,634
Deferred tax assets 1,424,500 1,424,500
----------- -----------
Total current assets 60,329,850 61,373,181
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land 167,266 167,266
Building 5,014,636 4,199,790
Machinery and molds 8,997,269 7,878,103
Furniture and equipment 5,467,084 4,571,636
----------- -----------
Total 19,646,255 16,816,795
Less accumulated depreciation 9,622,089 8,914,081
----------- -----------
Property, plant, and equipment - net 10,024,166 7,902,714
----------- -----------
TOTAL ASSETS $70,354,016 $69,275,895
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,963,695 $ 9,400,966
Accrued royalty expense 2,192,557 2,130,027
Accrued payroll expenses 302,315 1,200,966
Accrued selling expenses 2,029,545 3,098,232
----------- -----------
Total current liabilities 14,488,112 15,830,191
----------- -----------
DEFERRED TAX LIABILITY 798,300 798,300
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 1,054,365 1,046,141
Paid-In capital 7,934,239 7,472,398
Retained earnings 49,425,529 44,438,589
Less treasury stock at cost, 224,494
and 21,394 shares as of June 30, 1999
and December 31, 1998, respectively (3,346,529) (309,724)
----------- -----------
Total stockholders' equity 55,067,604 52,647,404
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,354,016 $69,275,895
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 1
<PAGE> 4
THE FIRST YEARS INC.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $36,553,805 $34,797,802 $71,799,995 $70,484,407
COST OF PRODUCTS SOLD 21,741,732 20,649,650 42,262,329 42,087,280
----------- ----------- ----------- -----------
GROSS PROFIT 14,812,073 14,148,152 29,537,666 28,397,127
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 10,485,837 9,821,800 20,389,395 20,209,906
----------- ----------- ----------- -----------
OPERATING INCOME 4,326,236 4,326,352 9,148,271 8,187,221
OTHER INCOME:
Interest income 125,965 125,020 292,661 202,479
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,452,201 4,451,372 9,440,932 8,389,700
PROVISION FOR INCOME TAXES 1,803,200 1,802,800 3,823,600 3,397,800
----------- ----------- ----------- -----------
NET INCOME $ 2,649,001 $ 2,648,572 $ 5,617,332 $ 4,991,900
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.25 $ 0.26 $ 0.54 $ 0.49
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.25 $ 0.25 $ 0.53 $ 0.47
=========== =========== =========== ===========
CASH DIVIDENDS PAID PER SHARE $ 0.06 $ 0.06 $ 0.06 $ 0.06
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE> 5
THE FIRST YEARS INC.
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,617,332 $ 4,991,900
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 920,717 888,746
Provision for doubtful accounts 63,708 243,308
Loss on disposal of equipment 86,932 181,458
Increase (decrease) arising from working capital items:
Accounts receivable (5,434,412) 844,550
Inventories (5,059,177) 2,490,181
Prepaid expenses and other assets 2,010,482 (139,859)
Accounts payable and accrued expenses 685,229 (288,820)
Accrued royalties 62,530 284,407
Accrued payroll expense (898,651) 323,862
Accrued selling expenses (1,068,687) 223,812
----------- -----------
Net cash provided by (used for)
operating activities (3,013,997) 10,043,545
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant, and equipment (3,129,101) (664,686)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Dividend (630,392) (621,935)
Common stock issued under stock option plans 317,315 558,252
Purchase of treasury stock (3,006,555) --
----------- -----------
Net cash provided by (used for) financing activities (3,319,632) (63,683)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,462,730) 9,315,176
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,776,897 7,697,040
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $10,314,167 $17,012,216
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 2,536,000 $ 3,164,400
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Tax benefit of stock option exercises $ 122,500 $ 490,300
=========== ===========
Issuance of treasury stock $ 30,250 $ 139,957
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE> 6
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Amounts in the accompanying balance sheet as of December 31, 1998 are
condensed from the Company's audited balance sheet as of that date. All
other condensed financial statements are unaudited but, in the opinion of
the Company, contain all normal and recurring adjustments necessary to
present fairly the financial position as of June 30, 1999, and the results
of operations and cash flows for the periods ended June 30, 1999 and 1998.
Certain reclassifications were made to the prior year amounts in order to
conform with the current year presentation.
2. The Company has 50,000,000 authorized shares of $.10 par value common stock
with 10,319,157 and 10,440,014 shares issued and outstanding as of June 30,
1999 and December 31, 1998, respectively.
On May 6, 1999 the Board of Directors authorized a $0.06 per share annual
cash dividend payable on June 15, 1999 to holders of record at the close of
business on May 28, 1999.
During the period ended June 30, 1999 the Company purchased 200,900 shares
of the Company's common stock on the open market. The cost of the shares
amounted to $3,006,555 and are currently being held as treasury stock.
3. Computation of the Earnings Per Share ("EPS") in accordance with SFAS No.
128 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
AVERAGE SHARES OUTSTANDING 10,414,785 10,329,748
EFFECT OF DILUTIVE SHARES 226,701 381,895
----------- -----------
AVERAGE DILUTED SHARES OUTSTANDING 10,641,486 10,711,643
=========== ===========
NET INCOME $ 2,649,001 $ 2,648,572
=========== ===========
BASIC EARNINGS PER SHARE $ 0.25 $ 0.26
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.25 $ 0.25
=========== ===========
</TABLE>
Page 4
<PAGE> 7
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Computation of the Earnings Per Share ("EPS") in accordance with SFAS No.
128 are as follows (cont):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1999 1998
----------- ------------
<S> <C> <C>
AVERAGE SHARES OUTSTANDING 10,427,312 10,263,916
EFFECT OF DILUTIVE SHARES 238,586 388,915
----------- -----------
AVERAGE DILUTED SHARES OUTSTANDING 10,665,898 10,652,831
=========== ===========
NET INCOME $ 5,617,332 $ 4,991,900
=========== ===========
BASIC EARNINGS PER SHARE $ 0.54 $ 0.49
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.53 $ 0.47
=========== ===========
</TABLE>
As of June 30, 1999, options to purchase 1,964, 20,000, 12,000, 39,000 and
20,000 shares of common stock at $15 15/16, $17 3/4, $17, $15 6/16, and $16
1/8 per share, respectively were not included in the computation of diluted
EPS because the option's exercise price was greater than the average price
of the common shares. The options, which expire in 2008 and 2009 are still
outstanding at June 30, 1999.
As of June 30, 1998, no options were anti-dilutive.
4. The results of operations for the six month period ended June 30, 1999 and
1998 are not necessarily indicative of the results to be expected for the
full year.
5. During the first six months of 1999 and 1998, the Company did not borrow
against its unsecured line of credit totaling $10,000,000 available from a
bank.
6. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 137 issued in June 1999, which will require recognition of all
derivatives as either assets or liabilities on the balance sheet at fair
value. The Company is currently evaluating the effect of implementing SFAS
No. 133, which will be effective for the year beginning January 1, 2001.
Page 5
<PAGE> 8
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Statements in this Report on Form 10-Q that are not strictly historical are
"forward-looking" statements, as defined in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are typically identified by the
words: believe, expects, anticipates, intends, estimates and similar expressions
which by their nature refer to future events. Forward-looking statements involve
risks, uncertainties or other factors which may cause material differences in
actual results or performance. These factors include, but are not limited to,
the ability to introduce new products, dependence on licensed products, and the
renewal of licenses, reliance upon major customers and foreign suppliers,
competitive market pressures, changes in consumer preferences and in the retail
industry, risks related to year 2000 compliance and other factors, described
more fully in Exhibit 99 of the Annual Report on Form 10K for the year ended
December 31, 1998, filed with the Securities and Exchange Commission. Forward
looking statements speak only as of the date they are made and the Company
undertakes no obligation to update such statements in light of new information
or future events.
Net sales for the first six months of 1999 were $71.8 million, an increase of
$1.3 million or 1.9%, as compared to $70.5 million for the comparable period
last year. The increase was primarily due to expanded retail distribution in
domestic markets as well as increased demand for non-licensed products. The
increases were partially offset by decreased sales of licensed products due to
maturing demand for licensed items.
Cost of products sold for the first six months of 1999 was $42.3 million, a
decrease of $0.2 million, as compared to $42.1 million for the comparable period
last year. As a percentage of sales, cost of products sold in the first six
months of 1999 decreased slightly to 58.9% from 59.7% in the same period of 1998
due to normal business fluctuations.
Selling, general, and administrative expenses for the first six months of 1999
were $20.4 million, an increase of $0.2 million or 0.9%, as compared to $20.2
million over such expenses for the first six months of 1998. The increase
resulted primarily from costs related to increased sales volume and decreased
payroll related costs. As a percentage of net sales, selling, general, and
administrative expenses for the first six months of 1999 decreased to 28.4% from
28.7% in the comparable period of 1998. The decrease reflects the continued
effective management of selling, general, and administrative costs and the
reduction of payroll and payroll related expenses.
Page 6
<PAGE> 9
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
Income tax expense as a percentage of pretax income remained consistent at 40.5%
for the first six months of 1999 and 1998.
Net working capital increased by $0.3 million in the first six months of 1999
mainly due to profitable operations. Accounts receivable increased by $5.4
million as a result of increased sales as compared to the similar period of
1998. Inventories increased by $5.0 million primarily as a result of normal
business fluctuations to support sales growth combined with the effect of
decreased sales of licensed products.
Cash decreased by $9.5 million primarily due to the payment of an annual
dividend of $0.6 million, repurchase of treasury stock shares amounting to $3.0
million and purchases of $3.2 million for property, plant, and equipment
primarily for product molds, new information technology systems and a new
inventory racking system for the Company's Avon Massachusetts warehouse
facility.
An unsecured bank line of credit of $10.0 million is subject to annual renewal.
Amounts outstanding under this line are payable upon demand by the bank. During
the first six months of 1999 and 1998, the Company incurred no borrowings under
the line and had no balances outstanding as of June 30, 1999 and 1998,
respectively.
YEAR 2000 Issue
The "Year 2000 Issue" (Y2K) relates to problems that may result from the
incorrect processing of information using dates or date sensitive data by
computers and other machines utilizing embedded microprocessors. The problem is
attributable to the computer or software recognizing the year as a two digit
number "00" as opposed to the Year "2000". As Year 2000 approaches, uncertainty
relating to these Y2K issues must be addressed in order to correct the problem
or properly plan contingencies to handle anticipated issues, if any.
Page 7
<PAGE> 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
YEAR 2000 Issue (con't)
The Company started addressing the Y2K issue in 1996 and has been following a
plan, in phases, to identify, inventory, prioritize and correct all known Y2K
issues. The project plan incorporates the various phases and will evaluate both
information technology (IT) related hardware and software as well as non-IT
issues such as facilities operations and product related technology.
The project will also attempt to obtain assurance from mission critical vendors
(banks, transfer agents, manufacturing suppliers, utilities and other suppliers
of critical services to the Company) about their Y2K readiness and develop
contingency plans for issues that may arise from the failure of those vendors as
well as customers to achieve Y2K compliance. The Company has substantially
completed its review of all IT related systems and currently believes it will be
Y2K compliant by the end of the third quarter of 1999.
The Company substantially completed the identification and inventory phase of
the review of non-IT systems and mission critical third party relationships.
Based on the review of responses from third-party vendors, which has been
substantially completed, the Company expects to prioritize the corrective
actions required, if any, and commence the correction phase of the project
during the third quarter of 1999.
The Company has initiated the contingency planning phase of the Y2K project. A
committee, including members of senior management, has been formed to evaluate
the responses from mission critical third parties regarding assurance of their
Y2K readiness. Additionally, the committee is evaluating general operational
issues that may be affected by Y2K problems not limited to direct third party
relationships and is in the process of incorporating all issues into a formal
contingency plan. The contingency plan development is progressing according to
the overall Y2K plan and is currently expected to be complete by the end of the
third quarter of 1999.
Page 8
<PAGE> 11
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
YEAR 2000 Issue (con't)
The costs to address the Y2K Issue have not been and are not expected to be
material to the Company's financial position or have a material impact on
operating results. Since 1996 the Company has incurred expenses of approximately
$100,000 to address the Y2K issue and anticipates incurring an additional
$100,000 related to the Y2K issue. Anticipated additional costs do not consider
costs, if any, related to the failure of third party relationships to become
"Year 2000" compliant. All expenses incurred to date have been recognized as
expense in the Company's consolidated financial statements in the period
incurred. Costs, if any, related to the correction of Y2K issues caused by a
third party's failure to be Y2K compliant would be expensed as incurred.
Based on the Y2K assessment information obtained and corrections implemented to
date, the Company believes that the "Year 2000" Issue will not have a material
adverse effect on its financial position or results of operations. The Company
believes that its most reasonably likely, worst case scenario may involve
non-compliant third parties, including the failure of suppliers, distributors,
shipping carriers, utility companies and other similar third parties to provide
their services to the Company. The Company is currently reviewing results of a
vendor compliance survey which will facilitate the risk assessment and
contingency planning phase of non-IT related issues which will include planning
for worst case scenarios. However, there can be no assurance that the failure to
ensure "Year 2000" capability by a supplier, customer, or another third party
would not have a material adverse effect on the Company.
New Accounting Pronouncements:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137 issued on June 1999, which will require recognition of all
derivatives as either assets or liabilities on the balance sheet at fair value.
The Company is currently evaluating the effect of implementing SFAS No. 133,
which will be effective for the year beginning January 1, 2001.
Page 9
<PAGE> 12
THE FIRST YEARS INC.
PART II - OTHER INFORMATION
Items 1: Legal Proceedings.
On February 11, 1999, Mark A. Freeman and Timothy K. Stringer brought a
civil action against the Company in the United States District Court for
the District of Kansas, Civil Action No. 99 2058 KHV. The Complaint in the
civil action alleges that the Company's Tumble Mates(R) valved drinking
cups infringe U.S. Patent 5,186,347 and seeks injunctive relief, treble
damages in an amount unspecified, and attorney fees. It is the Company's
position that it does not infringe any valid claims of U.S. Patent
5,186,347 and the Company is vigorously defending the civil action.
Items 2 through 3 - Not Applicable
Item 4: Submission of Matters to a Vote of Security holders.
(a) An Annual Meeting of the Stockholders of The First Years Inc. was held
on May 20, 1999.
(c) The following matters were voted upon at such Annual Meeting and the
following votes were cast as to each such matter:
i. Election of Class I Directors:
<TABLE>
<CAPTION>
Number of Shares
-----------------------
Withheld
For Authority
--------- ---------
<S> <C> <C>
Jerome M. Karp 8,010,127 1,109,239
Fred T. Page 8,012,377 1,106,989
Kenneth R. Sidman 7,989,327 1,130,039
ii. Proposal to approve an amendment to the Company's Articles of
Organization to increase the number of authorized shares of the
Company's common stock from 15,000,000 to 50,000,000 $.10 par value.
<CAPTION>
Number of Shares
----------------
<S> <C>
For 6,336,470
Against 2,314,561
Abstain 467,935
Del N-Vote 400
</TABLE>
Page 10
<PAGE> 13
THE FIRST YEARS INC.
PART II - OTHER INFORMATION (con't)
Item 4: Submission of Matters to a Vote of Security holders. (con't)
iii. Proposal to ratify the selection of Deloitte & Touche LLP as auditors
for the Company for the fiscal year 1999.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 9,091,382
Against 8,096
Abstain 19,888
</TABLE>
Item 5: Not Applicable
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this Report:
Exhibit Description
10(r) Agreement with Disney Enterprises Inc. dated November
16, 1998 relating to the licensing of Winnie the Pooh
cartoon characters (certain portions of which are
subject to confidential treatment request).
10(s) Agreement with Disney Enterprises Inc. dated November
16, 1998 relating to the licensing of Disney Standard,
Disney Babies and Disney Classics cartoon characters
(certain portions of which are subject to confidential
treatment request).
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the past quarter covered
by this report.
Page 11
<PAGE> 14
THE FIRST YEARS INC.
PART II -- OTHER INFORMATION (con't)
Item 7A: Quantitative and Qualitative Disclosure about Market Risk
At June 30, 1999, the Company held foreign currency forward 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 totaled approximately $2,636,000 and the fair
market value of the contracts approximated their predetermined rates included
therein.
Also see the discussion of the Company's disclosure regarding Market Risk in
Item 7A of Form 10-K filed with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE FIRST YEARS INC.
-------------------------------
Registrant
Date 8/13/99 /s/ John R. Beals
-------------------------------
John R. Beals, Senior Vice
President and Treasurer,
Duly Authorized Officer and
Principal Financial Officer
Page 12
<PAGE> 15
THE FIRST YEARS INC.
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
10(r) Agreement with Disney Enterprises Inc. dated
November 16, 1998 relating to the licensing
of Winnie the Pooh cartoon characters
(certain portions of which are subject to
confidential treatment request).
10(s) Agreement with Disney Enterprises Inc. dated
November 16, 1998 relating to the licensing
of Disney Standard, Disney Babies and Disney
Classics cartoon characters (certain portions
of which are subject to confidential
treatment request).
27 Financial Data Schedule
Page 13
<PAGE> 1
Exhibit 10(r)
NOTE: THE OMITTED PORTIONS OF THIS DOCUMENT MARKED WITH AN ASTERISK ARE SUBJECT
TO A CONFIDENTIAL TREATMENT REQUEST AND HAVE BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
LICENSE AGREEMENT
-----------------
Date: November 16, 1998
Re: POOH - JUVENILE BRAND
This license agreement ("Agreement") is entered into by and between Disney
Enterprises, Inc. ("Disney"), with a principal place of business at 500 South
Buena Vista Street, Burbank, California 91521, and THE FIRST YEARS, Inc.
("Licensee"), with its principal place of business at One Kiddie Drive, Avon, MA
02322-1171. Disney and Licensee agree as follows:
1. MEANING OF TERMS
----------------
A. "LICENSED MATERIAL" means the graphic representations of the
following characters, but only depictions of such characters and
accompanying design elements as may be designated by Disney:
WINNIE THE POOH, CHRISTOPHER ROBIN, PIGLET, RABBIT, EEYORE,
TIGGER, OWL, GOPHER, KANGA AND ROO, ALL IN THE STYLE AS
DESIGNED BY DISNEY.
B. "Trademarks" means "WALT DISNEY", "DISNEY", the representations of
Licensed Material included in Paragraph 1.A. above, and the
following brand name(s) (including the logo(s) Disney will provide
to Licensee):
POOH (JUVENILE)
C. "ARTICLES" means the items set forth on Schedule A, which is
attached to this Agreement and incorporated herein by this
reference, on or in connection with which the Licensed Material
and/or the Trademarks are reproduced or used, and includes each and
every stock keeping unit ("SKU") of each Article.
D. "MINIMUM PER ARTICLE ROYALTY" means for each Article identified
herein which is sold the sum indicated herein:
None.
E. "TERM" means the period commencing January 1, 1999, and ending * .
<PAGE> 2
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 2
F. "TERRITORY" means the United States, United States PX's wherever
located, and United States territories and possessions, excluding
Puerto Rico, Guam, Commonwealth of Northern Mariana Islands and
Palau. However, if sales are made to chain stores in the United
States which have stores in Puerto Rico, such chain stores may
supply Articles to such stores in Puerto Rico.
G. "ROYALTIES" means a royalty in the amounts set forth below in
Paragraphs 1.G.(1)(a), (b), and (c) and Royalties shall be further
governed by the provisions contained in Paragraphs 1.G.(2)-(6):
(1)(a) * percent ( * %) of Licensee's Net Invoiced Billings to
authorized Retailers for Articles shipped by or on behalf
of Licensee from a location within or outside the
Territory for delivery to a customer located in the
Territory ("F.O.B. In Sales"); or
(b) * percent ( * %) of Licensee's Net Invoiced Billings to
authorized Retailers when Licensee's customer located in
the Territory takes title to the Articles outside the
Territory and/or bears the risk of loss of Articles
manufactured and shipped to the customer from outside the
Territory ("F.O.B. Out Sales"); or
(c) if a Minimum Per Article Royalty has been specified in
Paragraph 1.D. above, and it would result in a higher
royalty to be paid for the Articles, Licensee agrees to
pay the higher royalty amount.
(2) The sums paid to Disney as Royalties on any sales to
Licensee's Affiliates shall be no less than the sums paid
on sales to customers not affiliated with Licensee.
(3) All sales of Articles shipped to a customer outside the
Territory pursuant to a distribution permission shall bear
a Royalty at the rate for F.O.B. Out Sales. However, sales
of Articles to Disney's Affiliates outside the Territory
shall bear a Royalty at the rate for F.O.B. In Sales.
(4) No Royalties are payable on the mere manufacture of
Articles.
(5) The full Royalty percentage shall be payable on close-out
or other deep discount sales of Articles, including sales
to employees.
<PAGE> 3
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 3
(6) Royalties reported on sales of Articles which have been
returned to Licensee for credit or refund and on which a
refund has been made or credit memo issued may be credited
against Royalties due. The credit shall be taken in the
Royalty Payment Period in which the refund is given or
credit memo issued. Unused credits may be carried forward,
but in no event shall Licensee be entitled to a refund of
Royalties.
H. "NET INVOICED BILLINGS" means the following:
(1) actual invoiced billings (i.e., sales quantity multiplied
by Licensee's selling price) for Articles sold, and all
other receivables of any kind whatsoever, received in
payment for the Articles, whether received by Licensee or
any of Licensee's Affiliates, except as provided in
Paragraph 1.H.(2), less "Allowable Deductions" as
hereinafter defined.
(2) The following are not part of Net Invoiced Billings:
invoiced charges for transportation of Articles within the
Territory which are separately identified on the sales
invoice, and sales taxes.
I. "ALLOWABLE DEDUCTIONS" means the following:
(1) volume discounts, and other discounts from the invoice
price (or post-invoice credits) unilaterally imposed in
the regular course of business by Licensee's customers, so
long as Licensee documents such discounts (or credits) to
Disney's satisfaction. In the event a documented
unilateral discount (or credit) is taken with respect to
combined sales of Articles and other products not licensed
by Disney, and Licensee cannot document the portion of the
discount (or credit) applicable to the Articles, Licensee
may apply only a pro rata portion of the discount (or
credit) to the Articles. Unilateral discounts or credits
are never deductible if they represent items listed below
in Paragraph 1.I.(2).
(2) The following are not Allowable Deductions, whether
granted on sales invoices or unilaterally imposed as
discounts or as post-invoice credits: cash discounts
granted as terms of payment; early payment discounts;
allowances or discounts relating to advertising; mark down
allowances; new store allowances; defective goods
allowances or allowances taken by customers in lieu of
returning goods; costs incurred in manufacturing,
importing, selling or advertising Articles;
<PAGE> 4
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freight costs incorporated in the selling price; and
uncollectible accounts.
J. "ROYALTY PAYMENT PERIOD" means each calendar quarterly period
during the Term and during the sell-off period, if granted.
K. "ADVANCE" means the following sum(s) payable by the following
date(s) as an advance on Royalties to accrue in the following
period(s):
*
L. "GUARANTEE" means the following sum(s) which Licensee guarantees to
pay as minimum Royalties on Licensee's cumulative sales in the
following period(s):
*
M. "SAMPLES" means six (6) samples of each SKU of each Article, from
the first production run of each supplier of each SKU of each
Article.
N. "PROMOTION COMMITMENT" means the following sum(s) which Licensee
agrees to spend in the following way(s):
(1) Licensee agrees to participate in Disney's common
marketing and promotional fund (the "Common Marketing
Fund" or "CMF") as provided in this Paragraph 1.N. The
amount of the CMF contribution shall be calculated as *
percent ( * %) of Licensee's Net Invoiced Billings and
shall be payable concurrently with Royalties (but by
separate payment to such account as Disney specifies) due
each Royalty Payment Period, as set forth in greater
detail in Paragraph 20.A. hereof. Any subsequent reduction
of Net Invoiced Billings for any reason shall not result
in any adjustment of any CMF payment. In addition,
Licensee shall pay a "CMF Guarantee", meaning the sum(s)
which Licensee guarantees to pay Disney as a minimum
amount of the CMF payment on Licensee's cumulative sales
in the relevant period. The "CMF Guarantee" shall be the
amount equal to * percent ( * %) of the quotient of the
Guarantee divided by the Royalty rate for F.O.B. In Sales.
Licensee also may be required to pay one or more payments
of "CMF Advances" which shall be non-refundable
installments of the CMF Guarantee, each to be due and
payable on a date to be specified by Disney, in its
absolute discretion.
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(2) Licensee's CMF payments shall be expended by Disney and
Disney's designees (but not paid to Disney's own employees
for services they render) in the amounts and in the manner
Disney deems most appropriate in order to provide national
or local advertising, marketing and promotion, and related
market research, regarding the Licensed Material, the
Trademarks and/or the brand(s) licensed hereunder or other
Disney properties in the same property classification.
However, Disney does not ensure that Licensee or any other
particular licensee will benefit directly or pro-rata from
the operation of the Common Marketing Fund. Disney will
apprise Licensee of the operations and proposed
expenditures of the Common Marketing Fund from time to
time and seek Licensee's advice on how the CMF monies
relating to the Licensed Material, the Trademarks and/or
the brand(s) should be spent. Licensee shall not be
entitled to any audit rights with regard to the CMF
system.
O. "MARKETING DATE" means the following date(s) by which the following
Article(s) shall be available for purchase by the public at the
retail outlets authorized pursuant to Paragraph 2.A.:
By January 1, 1999, for all Articles.
P. "AFFILIATE" means, with regard to Licensee, any corporation or
other entity which directly or indirectly controls, is controlled
by, or is under common control with Licensee; with regard to
Disney, "Affiliate" means any corporation or other entity which
directly or indirectly controls, is controlled by, or is under
common control with Disney. "Control" of an entity shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies of such entity, whether through
ownership of voting securities, by contract or otherwise.
Q. "LAWS" means any and all applicable laws, rules, and regulations,
including but not limited to, local and national laws, rules and
regulations, treaties, voluntary industry standards, association
laws, codes or other obligations pertaining to the grant and
exercise of the license granted herein and to any of Licensee's
activities under this Agreement, including but not limited to those
applicable to any tax, and to the manufacture, pricing, sale and/or
distribution of the Articles.
R. "RETAILER" means independent and chain retail outlets which have
storefronts and business licenses, and which customers walk into,
not up to; "WHOLESALER" means a seller of items to retailers, not
consumers, and includes the term "distributor". The following do
not qualify as authorized
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Page 6
sales outlets for Articles under this Agreement under any
circumstances: swap meets, flea markets, street peddlers,
unauthorized kiosks, and the like.
S. "MANUFACTURER" means any of Licensee's third-party manufacturers,
suppliers and facilities (and their sub-manufacturers, suppliers
and facilities) which reproduce or use the Licensed Material and/or
Trademarks on Articles, or components thereof, and/or which
assemble such Articles.
2. RIGHTS GRANTED
--------------
A. (1) In consideration for Licensee's promise to pay and Licensee's
payment of all monetary obligations required hereunder, Disney
grants Licensee the non-exclusive right, during the Term, and
only within the Territory, to reproduce the Licensed Material
only on or in connection with the Articles, to use such
Trademarks and uses thereof as may be approved when each SKU of
the Articles is approved and only on or in connection with the
Articles, and to manufacture, distribute for sale and sell the
Articles as authorized by this Paragraph 2.A.
(2) Licensee will sell the Articles only to the following Retailers
in the Territory for resale to the public in the Territory: (1)
mass market Retailers (including such Retailers as Target, Toys
R Us, WalMart and Kmart), (2) value-oriented department stores
(including such Retailers as Sears and Mervyn's), (3)
value-oriented specialty stores, (4) drug chains, and (5)
supermarkets and food chains; provided, however, that the
Article identified as Article Number C.13 may be sold only to
the infant buyers of such Retailers. In addition, Licensee may
sell the Articles identified as Numbers A.1. through A.4.,
A.9., A.13., B.2., B.5., B.14., B.21., B.25., C.1., C.2., C.5.
through C.8., and C.11., to the following Retailers in the
Territory for resale to the public in the Territory: (1)
upscale Retailers (including such Retailers as Robinsons-May,
Nordstrom and Bloomingdale's), (2) better specialty stores
(including such Retailers as Bergstrom's), and (3) mid-tier
department stores (including such Retailers as J.C. Penney and
Kohl's). Licensee also may sell the Articles to Wholesalers
which sell to drug chains, supermarkets and food chains, and
value-oriented specialty stores. If there is a question as to
whether a particular customer falls within any of the
categories specified above, Disney's determination shall be
binding.
(3) Licensee may not sell the Articles by direct marketing methods,
which includes but is not limited to, computer on-line selling,
direct mail and door-to-door solicitation. Licensee may not
sell the
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Page 7
Articles to Retailers selling merchandise on a duty-free basis,
unless such Retailer has a then-current license agreement with
Disney or any of Disney's Affiliates permitting it to make such
duty-free sales.
(4) Licensee may sell the Articles to authorized customers for
resale through the pre-approved mail order catalogs listed on
the Mass Catalog Schedule to this Agreement. In addition,
Articles Numbers A.1 through A.4, A.9., A.13., B.2, B.5, B.14.,
B.21, B.25., C.1, C.2, C.5 through C.8 and C.11 may be sold
through Upscale Catalogs. Licensee shall pay Royalties on such
sales at the rate specified for Retailers in Paragraph
1.G.(1)(a) or (b), as applicable.
(5) All rights not expressly granted to Licensee herein are
reserved to Disney.
B. Unless Disney consents in writing, Licensee shall not sell or
otherwise provide Articles for use as premiums (including those in
purchase-with-purchase promotions), promotions, give-aways,
fund-raisers, or entries in sweepstakes, or through unapproved
direct marketing methods, including but not limited to, home
shopping television programs, or to customers for inclusion in
another product. Licensee shall not sell Articles to any customer
who Licensee knows or reasonably should know engages in illegal
business practices or ethically questionable distribution methods.
If Licensee wishes to sell the Articles to customers for resale
through mail order catalogs other than those listed on the Catalog
Schedules hereto, Licensee must obtain Disney's prior written
consent in each instance. However, Licensee may solicit orders by
mail from those Retailers authorized pursuant to Paragraph 2.A.(2)
above, and Licensee may sell to such authorized Retailers which
sell predominantly at retail, but which include the Articles in
their mail order catalogs, or otherwise sell Articles by direct
marketing methods as well as at retail.
C. The prohibition of computer on-line selling referenced in Paragraph
2.A. includes, but is not limited to, the display, promotion or
offering of Articles in or on any on-line venues (e.g. Websites),
except as specifically permitted in the next two sentences.
Articles approved by Disney may be displayed and promoted on
Disney-controlled on-line venues, only within the Territory. In
addition, Articles approved by Disney may be displayed and promoted
on Licensee's own on-line venue, and may be displayed, promoted and
sold on authorized Retailers' on-line venues, subject to Disney's
applicable policies and guidelines; however, Licensee must obtain
Disney's prior written approval of all creative and editorial
elements of such uses, in accordance with the provisions of
Paragraph 7 of this Agreement.
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Page 8
D. Unless Disney consents in writing, Licensee shall not give away or
donate Articles to Licensee's accounts or other persons for the
purpose of promoting sales of Articles, except for minor quantities
or samples which are not for onward distribution.
E. Nothing contained herein shall preclude Licensee from selling
Articles to Disney or to any of Disney's Affiliates, or to
Licensee's or Disney's employees, subject to the payment to Disney
of Royalties on such sales.
F. Disney further grants Licensee the right to reproduce the Licensed
Material and to use the approved Trademarks, only within the
Territory, during the Term, on containers, packaging and display
material for the Articles, and in advertising for the Articles.
G. Nothing contained in this Agreement shall be deemed to imply any
restriction on Licensee's freedom and that of Licensee's customers
to sell the Articles at such prices as Licensee or they shall
determine.
H. Licensee recognizes and acknowledges the vital importance to Disney
of the characters and other proprietary material Disney owns and
creates, and the association of the Disney name with them. In order
to prevent the denigration of Disney's products and the value of
their association with the Disney name, and in order to ensure the
dedication of Licensee's best efforts to preserve and maintain that
value, Licensee agrees that, during the Term and any extension
hereof, Licensee will not manufacture or distribute any merchandise
embodying or bearing any artwork or other representation which
Disney determines, in Disney's reasonable discretion, is
confusingly similar to Disney's characters or other proprietary
material.
3. ADVANCE
-------
A. Licensee agrees to pay the Advance, which shall be on account of
Royalties to accrue during the Term only, and only with respect to
sales in the Territory; provided, however, that if any part of the
Advance is specified hereinabove as applying to any period less
than the Term, such part shall be on account of Royalties to accrue
during such lesser period only. If said Royalties should be less
than the Advance, no part of the Advance shall be repayable.
B. Royalties accruing during any sell-off period or extension of the
Term shall not be offset against the Advance unless otherwise
agreed in writing. Royalties accruing during any extension of the
Term or any other term shall be offset only against an advance paid
with respect to such extended term.
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Page 9
C. In no event shall Royalties accruing by reason of any sales to
Disney or any of Disney's Affiliates or by reason of sales outside
the Territory pursuant to a distribution permission be offset
against the Advance or any subsequent advance.
4. GUARANTEE
---------
A. Licensee shall, with Licensee's statement for each Royalty Payment
Period ending on a date indicated in Paragraph 1.L. hereof defining
"Guarantee," or upon termination if the Agreement is terminated
prior to the end of the Term, pay Disney the amount, if any, by
which cumulative Royalties paid with respect to sales in the
Territory during any period or periods covered by the Guarantee
provision, or any Guarantee provision contained in any agreement
extending the term hereof, fall short of the amount of the
Guarantee for such period.
B. Advances applicable to Royalties due on sales in the period to
which the Guarantee relates apply towards meeting the Guarantee.
C. In no event shall Royalties paid with respect to sales to Disney or
to any of Disney's Affiliates, or with respect to sales outside the
Territory pursuant to a distribution permission, apply towards the
meeting of the Guarantee or any subsequent guarantee.
5. PRE-PRODUCTION APPROVALS
------------------------
A. As early as possible, and in any case before commercial production
of any Article, Licensee shall submit to Disney for Disney's review
and written approval (to utilize such materials in preparing a
pre-production sample) all concepts, all preliminary and proposed
final artwork, and all three-dimensional models which are to appear
on or in any and all SKUs of the Article. Thereafter, Licensee
shall submit to Disney for Disney's written approval a
pre-production sample of each SKU of each Article. Disney shall
endeavor to respond to such requests within a reasonable time, but
such approvals should be sought as early as possible in case of
delays. In addition to the foregoing, as early as possible, and in
any case no later than sixty (60) days following written conceptual
approval, Licensee shall supply to Disney for Disney's use for
internal purposes, a mock-up, prototype or pre-production sample of
each SKU of each Article on or in connection with which the
Licensed Material is used. Licensee acknowledges that Disney may
not approve concepts or artwork submitted near the end of the Term,
or concepts or artwork perceived to be for selling periods beyond
the Term. Any pre-production approval Disney may give will not
constitute or imply a
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Agreement dated November 16, 1998
Page 10
representation or belief by Disney that such materials comply with
any applicable Laws.
B. Approval or disapproval shall lie solely in Disney's discretion,
and any SKU of any Article not so approved in writing shall be
deemed unlicensed and shall not be manufactured or sold. If any
unapproved SKU of any Article is being sold, Disney may, together
with other remedies available to Disney, including but not limited
to, immediate termination of this Agreement, by written notice
require such SKU of such Article to be immediately withdrawn from
the market. Any modification of any SKU of an Article, including,
but not limited to, change of materials, color, design or size of
the representation of Licensed Material must be submitted in
advance for Disney's written approval as if it were a new SKU of an
Article. Approval of any SKU of an Article which uses particular
artwork does not imply approval of such artwork for use with a
different Article. The fact that artwork has been taken from a
Disney publication or a previously approved Article does not mean
that its use will necessarily be approved in connection with an
Article licensed hereunder.
C. If Licensee submits for approval artwork from an article or book
manufactured or published by another licensee of Disney's or of any
of Disney's Affiliates, Licensee must advise Disney in writing of
the source of such artwork. If Licensee fails to do so, any
approval which Disney may give for use by Licensee of such artwork
may be withdrawn by giving Licensee written notice thereof, and
Licensee may be required by Disney not to sell Articles using such
artwork.
D. Licensee is responsible for the consistent quality and safety of
the Articles and their compliance with applicable Laws. Disney will
not unreasonably object to any change in the design of an Article
or in the materials used in the manufacture of the Article or in
the process of manufacturing the Articles which Licensee advises
Disney in writing is intended to make the Article safer or more
durable.
E. If Disney has supplied Licensee with forms for use in applying for
approval of artwork, models, pre-production and production samples
of Articles, Licensee shall use such forms when submitting anything
for Disney's approval.
6. APPROVAL OF PRODUCTION SAMPLES
------------------------------
A. Before shipping an Article to any customer, Licensee agrees to
furnish to Disney, from the first production run of each supplier
of each of the Articles, for Disney's approval of all aspects of
the Article in question, the number of
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Page 11
Samples with packaging which is hereinabove set forth, which shall
conform to the approved artwork, three-dimensional models and
pre-production sample. Approval or disapproval of the artwork as it
appears on any SKU of the Article, as well as of the quality of the
Article, shall lie in Disney's sole discretion and may, among other
things, be based on unacceptable quality of the artwork or of the
Article as manufactured. Any SKU of any Article not so approved
shall be deemed unlicensed, shall not be sold and, unless otherwise
agreed by Disney in writing, shall be destroyed. Such destruction
shall be attested to in a certificate signed by one of Licensee's
officers. Production samples of Articles for which Disney has
approved a pre-production sample shall be deemed approved, unless
within twenty (20) days of Disney's receipt of such production
sample Disney notifies Licensee to the contrary. Any approval of a
production sample attributable to Disney will not constitute or
imply a representation or belief by Disney that such production
sample complies with any applicable Laws.
B. Licensee agrees to make available at no charge such additional
samples of any or all SKUs of each Article as Disney may from time
to time reasonably request for the purpose of comparison with
earlier samples, or for Disney's anti-piracy efforts, or to test
for compliance with applicable Laws, and to permit Disney to
inspect Licensee's manufacturing operations and testing records
(and those of Licensee's Manufacturers) for the Articles in
accordance with Paragraphs 11 and 24.
C. Licensee acknowledges that Disney may disapprove any SKU of an
Article or a production run of any SKU of an Article because the
quality is unacceptable to Disney, and accordingly, Disney
recommends that Licensee submit production samples to Disney for
approval before committing to a large original production run or to
purchase a large shipment from a new supplier.
D. No modification of an approved production sample shall be made
without Disney's further prior written approval. All SKUs of
Articles being sold must conform in all respects to the approved
production sample. It is understood that if in Disney's reasonable
judgment the quality of any SKU of an Article originally approved
has deteriorated in later production runs, or if the SKU has
otherwise been altered, Disney may, in addition to other remedies
available to Disney, by written notice require such SKU of the
Article to be immediately withdrawn from the market.
E. The rights granted hereunder do not permit the sale of "seconds" or
"irregulars". All Articles not meeting the standard of approved
samples shall be destroyed or all Licensed Material and Trademarks
shall be removed or obliterated therefrom.
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Page 12
F. Licensee is responsible for the consistent quality and safety of
the Articles and their compliance with applicable Laws. Disney will
not unreasonably object to any change in the design of an Article
or in the materials used in the manufacture of the Article or in
the process of manufacturing the Articles which Licensee advises
Disney in writing is intended to make the Article safer or more
durable.
G. Disney shall have the right, by written notice to Licensee, to
require modification of any SKU of any Article approved by Disney
under this or any previous agreement between the parties pertaining
to Licensed Material. Likewise, if the Term of this Agreement is
extended by mutual agreement, Disney shall have the right, by
written notice to Licensee, to require modification of any SKU of
any Article approved by Disney under this Agreement. It is
understood that there is no obligation upon either party to extend
the Agreement.
H. If Disney notifies Licensee of a required modification under
Paragraph 6.G. with respect to any SKU of a particular Article,
such notification shall advise Licensee of the nature of the
changes required, and Licensee shall not accept any order for any
such Article until the subject SKU has been resubmitted to Disney
with such changes and Licensee has received Disney's written
approval of the Article as modified. However, Licensee may continue
to distribute Licensee's inventory of the previously approved
Articles until such inventory is exhausted (unless such Articles
are dangerously defective or are alleged to be violative of any
third party rights, as determined by Disney).
I. Upon Disney's request, Licensee agrees to give Disney written
notice of the first ship date for each Article.
J. If Disney has inadvertently approved a concept, pre-production
sample, or production sample of a product which is not included in
the Articles under this Agreement, or if Disney has inadvertently
approved an Article using artwork and/or trademarks not included in
the Agreement, such approval may be revoked at any time without any
obligation whatsoever on Disney's part to Licensee. Any such
product as to which Disney's approval is revoked shall be deemed
unauthorized and shall not be distributed or sold by or for
Licensee.
7. APPROVAL OF PACKAGING, PROMOTIONAL
----------------------------------
MATERIAL, AND ADVERTISING
-------------------------
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Page 13
A. All containers, packaging, display material, promotional material,
catalogs, and all advertising, including but not limited to,
television advertising and press releases, for Articles must be
submitted to Disney and receive Disney's written approval before
use. To avoid unnecessary expense if changes are required, Disney's
approval thereof should be procured when such is still in rough or
storyboard format. Disney shall endeavor to respond to requests for
approval within a reasonable time. Approval or disapproval shall
lie in Disney's sole discretion, and the use of unapproved
containers, packaging, display material, promotional material,
catalogs or advertising is prohibited. Disney's approval of any
containers, packaging, display material, promotional material,
catalogs or advertising under this Agreement will not constitute or
imply a representation or belief by Disney that such materials
comply with any applicable Laws. Whenever Licensee prepares catalog
sheets or other printed matter containing illustrations of
Articles, Licensee will furnish to Disney five (5) copies thereof
when they are published.
B. If Disney has supplied Licensee with forms for use in applying for
approval of materials referenced in this Paragraph 7, Licensee
shall use such forms when submitting anything for Disney's
approval.
C. Disney has designed character artwork and/or a brand name logo(s)
to be used by all licensees in connection with the packaging of all
merchandise using the Licensed Material, and, if applicable, on
hang tags and garment labels for such merchandise. Disney will
supply Licensee with reproduction artwork thereof, and Licensee
agrees to use such artwork and/or logo(s) on the packaging of the
Articles, and, if applicable, on hang tags and garment labels,
which Licensee will have printed and attached to each Article at
Licensee's cost. Disney recommends that Licensee source the hang
tags and garment labels from Disney's authorized manufacturer (if
any) of pre-approved hang tags and garment labels, the name of
which will be provided to Licensee upon request. However, Licensee
may use another manufacturer for the required hang tags and garment
labels if the hang tags and garment labels manufactured are of
equivalent quality and are approved by Disney in accordance with
Disney's usual approval process.
<PAGE> 14
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Page 14
8. ARTWORK
-------
Licensee shall pay Disney, within thirty (30) days of receiving an invoice
therefor, for Style Guides and for artwork done at Licensee's request by
Disney or third parties under contract to Disney in the development and
creation of Articles, display, packaging or promotional material (including
any artwork which in Disney's opinion is necessary to modify artwork
initially prepared by Licensee and submitted to Disney for approval, subject
to Licensee's prior written approval) at Disney's then prevailing commercial
art rates. Estimates of artwork charges are available upon request. While
Licensee is not obligated to utilize the services of Disney's Art
Department, Licensee is encouraged to do so in order to minimize delays
which may occur if outside artists do renditions of Licensed Material which
Disney cannot approve and to maximize the attractiveness of the Articles.
Artwork will be returned to Licensee by overnight courier, at Licensee's
cost (unless other arrangements are made).
9. PRINT, RADIO OR TV ADVERTISING
------------------------------
Licensee will obtain all approvals necessary in connection with print, radio
or television advertising, if any, which Disney may authorize. Licensee
represents and warrants that all advertising and promotional materials shall
comply with all applicable Laws. Disney's approval of copy or storyboards
for such advertising will not constitute or imply a representation or belief
by Disney that such copy or storyboards comply with any applicable Laws.
This Agreement does not grant Licensee any rights to use the Licensed
Material in animation. Licensee may not use any animation or live action
footage from the motion picture from which the Licensed Material comes
without Disney's prior written approval in each instance. In the event
Disney approves the use of film clips of the motion picture from which the
Licensed Material comes, for use in a television commercial, Licensee shall
be responsible for any re-use fees which may be applicable, including SAG
payments for talent. No reproduction of the film clip footage shall be made
except for inclusion, as approved by Disney, in such commercial and there
shall be no modifications of the film clip footage. All film clip footage
shall be returned to Disney immediately after its inclusion in such
commercial. Disney shall have the right to prohibit Licensee from
advertising the Articles by means of television and/or billboards. Such
right shall be exercised within Disney's absolute discretion, including
without limitation for reasons of overexposure of the Licensed Material.
10. LICENSEE NAME AND ADDRESS ON ARTICLES
-------------------------------------
A. Licensee's name, trade name (or Licensee's trademark which Licensee has
advised Disney in writing that Licensee is using) and Licensee's address
(at least city and state) will appear on permanently affixed labeling on
each
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Agreement dated November 16, 1998
Page 15
Article and, if the Article is sold to the public in packaging or a
container, printed on such packaging or a container so that the public
can identify the supplier of the Article. On soft goods "permanently
affixed" shall mean sewn on. RN numbers do not constitute a sufficient
label under this paragraph.
B. Licensee shall advise Disney in writing of all trade names or trademarks
Licensee wishes to use on Articles being sold under this license.
Licensee may sell the Articles only under mutually agreed upon trade
names or trademarks.
11. COMPLIANCE WITH APPROVED SAMPLES AND
------------------------------------
APPLICABLE LAWS AND STANDARDS
-----------------------------
A. Licensee covenants that each Article and component thereof distributed
hereunder shall be of good quality and free of defects in design,
materials and workmanship, and shall comply with all applicable Laws,
and such specifications, if any, as may have been specified in
connection with this Agreement (e.g., Disney's Apparel Performance
Specification Manual, if the Articles are items of apparel), and shall
conform to the Sample thereof approved by Disney. Licensee covenants
that it will comply with all applicable Laws in performing this
Agreement, including but not limited to, those pertaining to the
manufacture, pricing, sale and distribution of the Articles.
B. Without limiting the foregoing, Licensee covenants on behalf of
Licensee's own manufacturing facilities, and agrees to require all
Manufacturers to covenant by signing the Consent/Manufacturer's
Agreement (referenced in Paragraph 24), as follows:
(1) Licensee and the Manufacturers agree not to use child labor in the
manufacturing, packaging or distribution of Disney merchandise. The
term "child" refers to a person younger than the local legal
minimum age for employment or the age for completing compulsory
education, but in no case shall any child younger than fifteen (15)
years of age (or fourteen (14) years of age where local law allows)
be employed in the manufacturing, packaging or distribution of
Disney merchandise. Licensee and the Manufacturers employing young
persons who do not fall within the definition of "children" agree
also to comply with any Laws applicable to such persons.
(2) Licensee and the Manufacturers agree only to employ persons whose
presence is voluntary. Licensee and the Manufacturers agree not to
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use any forced or involuntary labor, whether prison, bonded,
indentured or otherwise.
(3) Licensee and the Manufacturers agree to treat each employee with
dignity and respect, and not to use corporal punishment, threats of
violence, or other forms of physical, sexual, psychological or
verbal harassment or abuse.
(4) Unless required by applicable Laws to treat a specific group of
employees differently, Licensee and the Manufacturers agree not to
discriminate in hiring and employment practices, including salary,
benefits, advancement, discipline, termination, or retirement, on
the basis of race, religion, age, nationality, social or ethnic
origin, sexual orientation, gender, political opinion or
disability.
(5) Licensee and the Manufacturers recognize that wages are essential
to meeting employees' basic needs. Licensee and Manufacturers agree
to comply, at a minimum, with all applicable wage and hour Laws,
including minimum wage, overtime, maximum hours, piece rates and
other elements of compensation, and to provide legally mandated
benefits. If local Laws do not provide for overtime pay, Licensee
and Manufacturers agree to pay at least regular wages for overtime
work. Except in extraordinary business circumstances, Licensee and
the Manufacturers will not require employees to work more than the
lesser of (a) 48 hours per week and 12 hours overtime or (b) the
limits on regular and overtime hours allowed by local law, or,
where local law does not limit the hours of work, the regular work
week in such country plus 12 hours overtime. In addition, except in
extraordinary business circumstances, employees will be entitled to
at least one day off in every seven-day period. Licensee and the
Manufacturers agree that, where local industry standards are higher
than applicable legal requirements, they will meet the higher
standards.
(6) Licensee and the Manufacturers agree to provide employees with a
safe and healthy workplace in compliance with all applicable Laws,
ensuring, at a minimum, reasonable access to potable water and
sanitary facilities, fire safety, and adequate lighting and
ventilation. Licensee and the Manufacturers also agree to ensure
that the same standards of health and safety are applied in any
housing they provide for employees. Licensee and the Manufacturers
agree to provide Disney with all information Disney may request
about manufacturing, packaging and distribution facilities for the
Articles.
<PAGE> 17
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(7) Licensee and the Manufacturers agree to respect the rights of
employees to associate, organize and bargain collectively in a
lawful and peaceful manner, without penalty or interference, in
accordance with applicable Laws.
(8) Licensee and the Manufacturers agree to comply with all applicable
environmental Laws.
(9) Licensee and the Manufacturers agree to comply with all applicable
Laws, including those pertaining to the manufacture, pricing, sale
and distribution of the Articles.
(10) Licensee and the Manufacturers agree that Disney and its designated
agents (including third parties) may engage in monitoring
activities to confirm compliance with this Paragraph 11, including
unannounced on-site inspections of manufacturing, packaging and
distribution facilities, and employer-provided housing, such
inspections to include reviews of books and records relating to
employment matters and private interviews with employees. Licensee
and the Manufacturers agree to maintain on site all documentation
necessary to demonstrate compliance with this Paragraph 11.
Licensee agrees to promptly reimburse Disney for the actual costs
of inspections performed pursuant to this Paragraph 11 when any of
Licensee's manufacturing facilities or any Manufacturer does not
pass the inspection(s).
(11) Licensee and the Manufacturers agree to take appropriate steps to
ensure that the provisions of this Code of Conduct are communicated
to employees, including the prominent posting of a copy of the Code
of Conduct for Manufacturers (copy attached) in the local language
and in a place readily accessible to employees at all times.
C. Licensee agrees to be bound by the Code of Conduct for Licensees (copy
attached), including but not limited to, taking appropriate steps, in
consultation with Disney, to develop, implement and maintain procedures
to evaluate and monitor the Manufacturers it uses to manufacture the
Articles or components thereof, and to ensure compliance with Paragraph
11.B., including but not limited to, unannounced on-site inspections of
manufacturing, packaging and distribution facilities and
employer-provided housing, reviews of books and records relating to
employment matters and private interviews with employees.
<PAGE> 18
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D. Both before and after Licensee puts Articles on the market, Licensee
shall follow reasonable and proper procedures for testing that Articles
comply with all applicable product safety Laws, and shall permit
Disney's designees to inspect testing, manufacturing and quality control
records and procedures and to test the Articles for compliance with
product safety and other applicable Laws. Licensee agrees to promptly
reimburse Disney for the actual costs of such testing. Licensee shall
also give due consideration to any recommendations by Disney that
Articles exceed the requirements of applicable Laws. Articles not
manufactured, packaged or distributed in accordance with applicable Laws
shall be deemed unapproved, even if previously approved by Disney, and
shall not be shipped unless and until they have been brought into full
compliance therewith.
12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL
---------------------------------------------------
Licensee acknowledges that the copyrights and all other proprietary rights
in and to Licensed Material are exclusively owned by and reserved to Disney
or its licensor. Licensee shall neither acquire nor assert copyright
ownership or any other proprietary rights in the Licensed Material or in any
derivation, adaptation, variation or name thereof. Without limiting the
foregoing, Licensee hereby assigns to Disney all Licensee's worldwide right,
title and interest in the Licensed Material and in any material objects
consisting of or to the extent that they incorporate drawings, paintings,
animation cels, or sculptures of Licensed Material, or other adaptations,
compilations, collective works, derivative works, variations or names of
Licensed Material, heretofore or hereafter created by or for Licensee or any
of Licensee's Affiliates. All such new materials shall be included in the
definition of "Licensed Material" under this Agreement. If any third party
makes or has made any contribution to the creation of any new materials
which are included in the definition of Licensed Material under this
Paragraph 12, Licensee agrees to obtain from such party a full assignment of
rights so that the foregoing assignment by Licensee shall vest full rights
to such new materials in Disney. Licensee further covenants that any such
new materials created by Licensee or by any third party Licensee has engaged
are original to Licensee or such third party and do not violate the rights
of any other person or entity; this covenant regarding originality shall not
extend to any materials Disney supplies to Licensee, but does apply to all
materials Licensee or Licensee's third party contractors may add thereto.
The foregoing assignment to Disney of material objects shall not include
that portion of Licensee's displays, catalogs, or promotional material not
containing Licensed Material, or the physical items constituting the
Articles, unless such items are in the shape of the Licensed Material.
13. COPYRIGHT NOTICE
----------------
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As a condition to the grant of rights hereunder, each Article and any other
matter containing Licensed Material shall bear a properly located
permanently affixed copyright notice in Disney's name (e.g., "(C) Disney"),
or such other notice as Disney specifies to Licensee in writing. Licensee
will comply with such instructions as to form, location and content of the
notice as Disney may give from time to time. Without limiting the foregoing,
Licensee agrees to include on the Article, or the packaging for the Article,
or the hang tag for the Article (if applicable), the following language:
Based on the "Winnie The Pooh" works, copyright A.A. Milne and E.H. Shepard.
Licensee will not, without Disney's prior written consent, affix to any
Article or any other matter containing Licensed Material a copyright notice
in any other name. If through inadvertence or otherwise a copyright notice
on any Article or other such matter should appear in Licensee's name or the
name of a third party, Licensee hereby agrees to assign to Disney the
copyright represented by any such copyright notice in Licensee's name and,
upon request, cause the execution and delivery to Disney of whatever
documents are necessary to convey to Disney that copyright represented by
any such copyright notice. If by inadvertence a proper copyright notice is
omitted from any Article or other matter containing Licensed Material,
Licensee agrees at Licensee's expense to use all reasonable efforts to
correct the omission on all such Articles or other matter in process of
manufacture or in distribution. Licensee agrees to advise Disney promptly
and in writing of the steps being taken to correct any such omission and to
make the corrections on existing Articles which can be located.
14. NON-ASSOCIATION OF OTHER FANCIFUL
---------------------------------
CHARACTERS WITH LICENSED MATERIAL
---------------------------------
To preserve Disney's identification with Disney's characters and to avoid
confusion of the public, Licensee agrees not to associate other characters
or licensed properties with the Licensed Material or the Trademarks either
on the Articles or in their packaging, or, without Disney's written
permission, on advertising, promotional or display materials. If Licensee
wishes to use a character which constitutes Licensee's trademark on the
Articles or their packaging, or otherwise in connection with the Articles,
Licensee agrees to obtain Disney's prior written permission.
15. ACTIVE MARKETING OF ARTICLES
----------------------------
Licensee agrees to manufacture (or have manufactured for Licensee) and
actively offer for sale all the Articles and to actively exercise the rights
granted herein. Licensee agrees that by the Marketing Date applicable to a
particular Article or, if such a date is not specified in Paragraph 1.O., by
six (6) months from the commencement of the Term or the date of any
applicable amendment, shipments to customers of such Article will have taken
place in sufficient time that such Article shall be available for purchase
in commercial quantities by the public at the retail
<PAGE> 20
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Page 20
outlets in all distribution channels authorized pursuant to Paragraph 2.A.
In any case in which such sales have not taken place or when the Article is
not then and thereafter available for purchase in commercial quantities by
the public, Disney may either invoke Disney's remedies under Paragraph 28,
or withdraw such Article from the list of Articles licensed in this
Agreement, or withdraw the applicable distribution channel, without
obligation to Licensee other than to give Licensee written notice thereof.
16. PROMOTION COMMITMENT
--------------------
Licensee agrees to carry out the Promotion Commitment, if any, as defined in
Paragraph 1.N.
17. TRADEMARK RIGHTS AND OBLIGATIONS
--------------------------------
A. All uses of the Trademarks by Licensee hereunder shall inure to Disney's
benefit. Licensee acknowledges that Disney or its licensor is the
exclusive owner of all the Trademarks, and of any trademark
incorporating all or any part of a Trademark or any Licensed Material,
and the trademark rights created by such uses. Without limiting the
foregoing, Licensee hereby assigns to Disney all the Trademarks, and any
trademark incorporating all or any part of a Trademark or any Licensed
Material, and the trademark rights created by such uses, together with
the goodwill attaching to that part of the business in connection with
which such Trademarks or trademarks are used. Licensee agrees to execute
and deliver to Disney such documents as Disney requires to register
Licensee as a Registered User or Permitted User of the Trademarks or
such trademarks and to follow Disney's instructions for proper use
thereof in order that protection and/or registrations for the Trademarks
and such trademarks may be obtained or maintained.
B. Licensee agrees not to use any Licensed Material or Trademarks, or any
trademark incorporating all or any part of a Trademark or of any
Licensed Material, on any business sign, business cards, stationery or
forms (except as licensed herein), or to use any Licensed Material or
Trademark as the name of Licensee's business or any division thereof,
unless otherwise agreed by Disney in writing.
C. Nothing contained herein shall prohibit Licensee from using Licensee's
own trademarks on the Articles or Licensee's copyright notice on the
Articles when the Articles contain independent material which is
Licensee's property. Nothing contained herein is intended to give Disney
any rights to, and Disney shall not use, any trademark, copyright or
patent used by Licensee in connection with the Articles which is not
derived or adapted from Licensed Material, Trademarks, or other
materials owned by Disney or its licensor.
<PAGE> 21
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Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 21
18. REGISTRATIONS
-------------
Except with Disney's written consent, neither Licensee nor any of Licensee's
Affiliates will register or attempt in any country to register copyrights
in, or to register as a trademark, service mark, design patent or industrial
design, or business designation, any of the Licensed Material, Trademarks or
derivations or adaptations thereof, or any word, symbol or design which is
so similar thereto as to suggest association with or sponsorship by Disney
or any of Disney's Affiliates. In the event of breach of the foregoing,
Licensee agrees, at Licensee's expense and at Disney's request, immediately
to terminate the unauthorized registration activity and promptly to execute
and deliver, or cause to be delivered, to Disney such assignments and other
documents as Disney may require to transfer to Disney all rights to the
registrations, patents or applications involved.
19. UNLICENSED USE OF LICENSED MATERIALS
------------------------------------
A. Licensee agrees that Licensee will not use the Licensed Material, or the
Trademarks, or any other material the copyright to which is owned or
licensed by Disney in any way other than as herein authorized (or as is
authorized in any other written contract in effect between the parties).
In addition to any other remedy Disney may have, Licensee agrees that
all revenues from any use thereof on products other than the Articles
(unless authorized by Disney in writing), and all revenues from the use
of any other copyrighted material of Disney's or its licensor's without
written authorization, shall be immediately payable to Disney.
B. Licensee agrees to give Disney prompt written notice of any unlicensed
use by third parties of Licensed Material or Trademarks, and that
Licensee will not, without Disney's written consent, bring or cause to
be brought any criminal prosecution, lawsuit or administrative action
for infringement, interference with or violation of any rights to
Licensed Material or Trademarks. Because of the need for and the high
costs of an effective anti-piracy enforcement program, Licensee agrees
to cooperate with Disney, and, if necessary, to be named by Disney as a
sole complainant or co-complainant in any action against an infringer of
the Licensed Material or Trademarks and, notwithstanding any right of
Licensee to recover same, legal or otherwise, Licensee agrees to pay to
Disney, and hereby waives all claims to, all damages or other monetary
relief recovered in such action by reason of a judgment or settlement
whether or not such damages or other monetary relief, or any part
thereof, represent or are intended to represent injury sustained by
Licensee as a licensee hereunder; in any such action against an
infringer, Disney agrees to reimburse Licensee for reasonable expenses
<PAGE> 22
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Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 22
incurred at Disney's request, including reasonable attorney's fees if
Disney has requested Licensee to retain separate counsel.
20. STATEMENTS AND PAYMENTS OF ROYALTIES
------------------------------------
A. Licensee agrees to furnish to Disney by the 25th day after each Royalty
Payment Period full and accurate statements on statement forms Disney
designates for Licensee's use, showing all information requested by such
forms, including but not limited to, the quantities, Net Invoiced
Billings and applicable Royalty rate(s) of Articles invoiced during the
preceding Royalty Payment Period, and the quantities and invoice value
of Articles returned for credit or refund in such period. At the same
time Licensee will pay Disney all Royalties and CMF payments (if
applicable) due on billings shown by such statements. To the extent that
any Royalties or CMF payments are not paid, Licensee authorizes Disney
to offset Royalties and/or CMF payments due against any sums which
Disney or any of Disney's Affiliates may owe to Licensee or any of
Licensee's Affiliates. No deduction or withholding from Royalties
payable to Disney shall be made by reason of any tax. Any applicable tax
on the manufacture, distribution and sale of the Articles shall be borne
by Licensee.
B. The statement forms Disney designates for Licensee's use may be changed
from time to time, and Licensee agrees to use the most current form
designated by Disney (including, for example, forms to be sent by
electronic transmission). If it is necessary for Licensee to adapt its
system to be able to report statements by electronic transmission, all
costs of such adaptation shall be borne entirely by Licensee. Licensee
agrees to fully comply with all instructions supplied by Disney for
completing any reporting forms, or adhering to any required format. Upon
at least six (6) months' notice from Disney, the Royalty Payment Period
may be changed from quarterly to monthly, unless this Agreement already
provides for a monthly Royalty Payment Period.
C. In addition to the other information requested by the statement forms,
Licensee's statement shall with respect to all Articles report
separately:
(1) F.O.B. In Sales;
(2) F.O.B. Out Sales;
(3) sales of Articles outside the Territory pursuant to a distribution
permission (indicating the country involved);
<PAGE> 23
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(4) Licensee's sales of Articles to any of Disney's licensees or
Disney's Affiliates' licensees who are licensed to sell the
Articles, and who are reselling such Articles and paying Disney
royalties on such resales; in such cases, Licensee need only report
the sales on the statements, because double royalties are not owed
to Disney on these sales;
(5) sales of Articles to Disney or any of Disney's Affiliates;
(6) sales of Articles to Licensee's or Disney's employees;
(7) sales of Articles under any brand or property identified in
Paragraph 1.B. hereinabove;
(8) sales of Articles to or for distribution through any mail order
catalogs approved under this Agreement.
D. Sales of items licensed under contracts with Disney other than this
Agreement shall not be reported on the same statement as sales of
Articles under this Agreement.
E. Licensee's statements and payments, including all Royalties, shall be
delivered to Wachovia South Metro Center, DEI Account, P.O. Box 101947,
Atlanta, Georgia 30392. A copy of each statement must be sent to Disney
at 500 South Buena Vista Street, Burbank, California 91521-6687, to the
attention of the Contract Administrator, Consumer Products Division. If
Licensee wishes to send statements and payments by overnight courier,
please use the following address: Wachovia South Metro Center, DEI
Account, 3585 Atlanta Avenue, Hapeville, GA 30354, Attention Peggy
Morris, Reference Lock box 101947. However, Advances should be mailed
directly to Disney at 500 South Buena Vista Street, Burbank, California
91521-6687, to the attention of the Contract Administrator or Legal
Department, Consumer Products Division.
F. Insofar as is necessary to provide for full performance of this
Agreement, including but not limited to, proper payment of Royalties,
Licensee represents and warrants that it will take all required steps to
ensure that its information systems, including, without limitation, all
its proprietary and all third party hardware and software, process dates
correctly prior to, during and after the calendar year 2000 ("Year 2000
Compliance"). Year 2000 Compliance shall include,
<PAGE> 24
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Page 24
without limitation, correct century recognition, calculations that
properly accommodate same century and multi-century formulas and date
values, and interface values that reflect the appropriate century.
Necessary steps to ensure Year 2000 Compliance shall include, without
limitation, analysis of all components of Licensee's information systems
and, as necessary, development, installation and testing of software
fixes, patches and updates. Licensee represents and warrants that its
information systems will be Year 2000 Compliant by September 30, 1999.
Such representation and warranty is a material term of this Agreement.
Upon a breach by Licensee of its obligation under this paragraph, Disney
shall be entitled to terminate this Agreement in accordance with the
provisions for termination set forth herein.
21. CONFIDENTIALITY
---------------
Licensee agrees not to issue any press release regarding this Agreement
without obtaining Disney's prior written consent. Licensee agrees to keep
the terms and conditions of this Agreement confidential, and Licensee shall
not disclose such terms and conditions to any third party without obtaining
Disney's prior written consent; provided, however, that this Agreement may
be disclosed on a need-to-know basis to Licensee's attorneys and accountants
who agree to be bound by this confidentiality provision. In addition,
Licensee may have access to information concerning Disney's and/or its
Affiliates' business and operations, and/or information concerning works in
progress, artwork, plots, characters or other matters relating to Disney's
and/or its Affiliates' artistic creations, which information may not be
accessible or known to the general public. Licensee agrees not to use or
disclose such information to any third party without obtaining Disney's
prior written consent. In the event Licensee is required to disclose this
Agreement, or any part thereof, pursuant to any law, court order or process,
the rules and regulations of any governmental department, agency or
authority (including, but not limited to, the Securities and Exchange
Commission) or any generally accepted accounting rules mandating disclosure
in Licensee's financial statements, Licensee agrees to give Disney prior
written notice and to use its best efforts to obtain confidential treatment
of this Agreement. Upon Disney's request, Licensee agrees to incorporate
Disney's comments into Licensee's request for confidential treatment,
provided such request and comments are received in writing by Licensee
within five (5) business days after Disney's receipt of the notice referred
to in the preceding sentence.
22. INTEREST
--------
Royalties or any other payments due to Disney hereunder which are received
after the due date shall bear interest at the rate of 18% per annum from the
due date (or the maximum permissible by law if less than 18%).
23. AUDITS AND MAINTAINING RECORDS
------------------------------
<PAGE> 25
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Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 25
A. Licensee agrees to keep accurate records of all transactions relating to
this Agreement and any prior agreement with Disney regarding the
Licensed Material, including, without limitation, shipments to Licensee
of Articles and components thereof, inventory records, records of sales
and shipments by Licensee, and records of returns, and to preserve such
records for the lesser of seven (7) years or two (2) years after the
expiration or termination of this Agreement.
B. Disney, or Disney's representatives, shall have the right from time to
time, during Licensee's normal business hours, but only for the purpose
of confirming Licensee's performance hereunder, to examine and make
extracts from all such records, including the general ledger, invoices
and any other records which Disney reasonably deems appropriate to
verify the accuracy of Licensee's statements or Licensee's performance
hereunder, including records of Licensee's Affiliates and/or
unaffiliated sublicensees if they are involved in activities which are
the subject of this Agreement. In particular, Licensee's invoices shall
identify the Articles separately from goods which are not licensed
hereunder. Licensee acknowledges that Disney may furnish Licensee with
an audit questionnaire, and Licensee agrees to fully and accurately
complete such questionnaire, and return it to Disney within the
designated time. Disney's use of an audit questionnaire shall not limit
Disney's ability to conduct any on-site audit(s) as provided above.
Licensee acknowledges that an audit conducted by Disney or its
representatives, may involve one or more license agreements at a time.
C. If in an audit of Licensee's records it is determined that there is a
short fall of five percent (5%) or more in Royalties reported for any
Royalty Payment Period, Licensee shall upon request from Disney
reimburse Disney for the full out-of-pocket costs of the audit,
including the costs of employee auditors calculated at $60 per hour per
person for travel time during normal working hours and actual working
time.
D. If Licensee has failed to keep adequate records for one or more Royalty
Payment Periods, Disney will assume that the Royalties owed to Disney
for such Royalty Payment Period(s) are equal to a reasonable amount,
determined in Disney's absolute discretion, which may be up to but will
not exceed the highest Royalties owed to Disney in a Royalty Payment
Period for which Licensee has kept adequate records; if Licensee has
failed to keep adequate records for any Royalty Payment Period, Disney
will assume a reasonable amount of Royalties which Licensee will owe to
Disney, based on the records Licensee has kept and other reasonable
assumptions Disney deems appropriate.
<PAGE> 26
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Pooh - Juvenile brand
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Page 26
24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS
----------------------------------------------------
A. Licensee agrees to supply Disney with the names and addresses of all of
its own manufacturing facilities for the Articles. If Licensee at any
time desires to have Articles or components thereof containing Licensed
Material and/or Trademarks manufactured by a third party, whether the
third party is located within or outside the United States, Licensee
must, as a condition to the continuation of this Agreement, notify
Disney of the accurate name and complete address of such Manufacturer
and the Articles or components involved and obtain Disney's prior
written permission to do so. If Disney is prepared to grant permission,
Disney will do so if Licensee and each of Licensee's Manufacturers sign
a Consent/Manufacturer's Agreement in a form which Disney will furnish
to Licensee and Disney receives all such agreements properly signed.
Licensee must immediately notify Disney if Licensee is no longer using
the Manufacturer to manufacture Articles or components thereof.
(A SAMPLE OF SAID AGREEMENT FORM IS AVAILABLE ON REQUEST)
B. It is not Disney's policy to reveal the names of Licensee's
Manufacturers to third parties or to any Disney division involved with
buying products, except as may be necessary to enforce Disney's contract
rights or protect Disney's trademarks and copyrights.
C. If any such Manufacturer utilizes Licensed Material or Trademarks for
any unauthorized purpose, Licensee shall cooperate fully in bringing
such utilization to an immediate halt. If, by reason of Licensee's not
having supplied the above mentioned agreements to Disney or not having
given Disney the name of any Manufacturer, Disney makes any
representation or takes any action and is thereby subjected to any
penalty or expense, Licensee will fully compensate Disney for any cost
or loss Disney sustains (in addition to any other legal or equitable
remedies available to Disney).
D. If any Manufacturer fails to pass a compliance inspection as referenced
in Paragraph 11, and thereafter fails to remedy the cited failure(s)
within the time designated by Disney, or if the Manufacturer otherwise
breaches the Consent/Manufacturer's Agreement, the
Consent/Manufacturer's Agreement for such Manufacturer may be terminated
immediately by Disney, and Licensee shall not thereafter use such
Manufacturer to manufacture Articles or components thereof. If Licensee
fails to notify Disney that it has ceased using a particular
Manufacturer, and Disney or its designated agent conducts a compliance
inspection of such Manufacturer, Licensee remains obligated to work with
the Manufacturer to remedy any cited failure(s), or, in the
<PAGE> 27
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Pooh - Juvenile brand
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Page 27
alternative, the Consent/Manufacturer's Agreement shall be deemed
terminated for purposes of Paragraph 28.B.(8), and Licensee shall
promptly reimburse Disney for the actual costs of the compliance
inspection.
25. INDEMNITY
---------
A. Licensee shall indemnify Disney during and after the term hereof against
all claims, demands, suits, judgments, losses, liabilities (including
settlements entered into in good faith with Licensee's consent, not to
be unreasonably withheld) and expenses of any nature (including
reasonable attorneys' fees) arising out of Licensee's activities under
this Agreement, including but not limited to, any actual or alleged: (1)
negligent acts or omissions on Licensee's part, (2) defect (whether
obvious or hidden and whether or not present in any Sample approved by
Disney) in an Article, (3) personal injury, (4) infringement of any
rights of any other person by the manufacture, sale, possession or use
of Articles, (5) breach on Licensee's part of any covenant,
representation or warranty contained in this Agreement, or (6) failure
of the Articles or by Licensee to comply with applicable Laws. The
parties indemnified hereunder shall include Disney Enterprises, Inc.,
its licensor, and its and their parent, Affiliates and successors, and
its and their officers, directors, employees and agents. The indemnity
shall not apply to any claim or liability relating to any infringement
of the copyright of a third party caused by Licensee's utilization of
the Licensed Material and the Trademarks in accordance with the
provisions hereof, unless such claim or liability arises out of
Licensee's failure to obtain the full assignment of rights referenced in
Paragraph 12.
B. Disney shall indemnify Licensee during and after the term hereof against
all claims, demands, suits, judgments, losses, liabilities (including
settlements entered into in good faith with Disney's consent, not to be
unreasonably withheld) and expenses of any nature (including reasonable
attorneys' fees) arising out of any claim that Licensee's use of any
representation of the Licensed Material or the Trademarks approved in
accordance with the provisions of this Agreement infringes the copyright
of any third party or infringes any right granted by Disney to such
third party, except for claims arising out of Licensee's failure to
obtain the full assignment of rights referenced in Paragraph 12.
Licensee shall not, in any case, be entitled to recover for lost
profits.
C. Additionally, if by reason of any claims referred to in Paragraph 25.B.,
Licensee is precluded from selling any stock of Articles or utilizing
any materials in Licensee's possession or which come into Licensee's
possession by reason of any required recall, Disney shall be obligated
to purchase such Articles and materials from Licensee at their
out-of-pocket cost to Licensee,
<PAGE> 28
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Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 28
excluding overheads, but Disney shall have no other responsibility or
liability with respect to such Articles or materials.
D. Disney gives no warranty or indemnity with respect to any liability or
expense arising from any claim that use of the Licensed Material or the
Trademarks on or in connection with the Articles hereunder or any
packaging, advertising or promotional material infringes on any
trademark right of any third party or otherwise constitutes unfair
competition by reason of any prior rights acquired by such third party,
other than rights acquired from Disney. It is expressly agreed that it
is Licensee's responsibility to carry out such investigations as
Licensee may deem appropriate to establish that Articles, packaging, and
promotional and advertising material which are manufactured or created
hereunder, including any use made of the Licensed Material and the
Trademarks therewith, do not infringe such right of any third party, and
Disney shall not be liable to Licensee if such infringement occurs.
E. Licensee and Disney agree to give each other prompt written notice of
any claim or suit which may arise under the indemnity provisions set
forth above. Without limiting the foregoing, Licensee agrees to give
Disney written notice of any product liability claim made or suit filed
with respect to any Article, any investigations or directives regarding
the Articles issued by the Consumer Product Safety Commission ("CPSC")
or other federal, state or local consumer safety agency, and any notices
sent by Licensee to, or received by Licensee from, the CPSC or other
consumer safety agency regarding the Articles within fourteen (14) days
of Licensee's receipt or promulgation of the claim, suit, investigation,
directive, or notice.
26. INSURANCE
---------
Licensee shall maintain in full force and effect at all times while this
Agreement is in effect and for three years thereafter commercial general
liability insurance on a per occurrence form, including broad form coverage
for contractual liability, property damage, products liability and personal
injury liability (including bodily injury and death), waiving subrogation,
with minimum limits of no less than two million dollars (US $2,000,000.00)
per occurrence, and naming as additional insureds those indemnified in
Paragraph 25 hereof. Licensee also agrees to maintain in full force and
effect at all times while this Agreement is in effect such Worker's
Compensation Insurance as is required by applicable law and Employer's
Liability Insurance with minimum limits of one million dollars (US
$1,000,000.00) per occurrence. All insurance shall be primary and not
contributory. Licensee shall deliver to Disney a certificate or certificates
of insurance evidencing satisfactory coverage and indicating that Disney
shall receive thirty (30) days unrestricted prior written notice of
cancellation, non-renewal or of any material change in coverage.
<PAGE> 29
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 29
Licensee's insurance shall be carried by an insurer with a BEST Guide rating
of B + VII or better. Compliance herewith in no way limits Licensee's
indemnity obligations, except to the extent that Licensee's insurance
company actually pays Disney amounts which Licensee would otherwise pay
Disney.
27. WITHDRAWAL OF LICENSED MATERIAL
-------------------------------
Licensee agrees that Disney may, without obligation to Licensee other than
to give Licensee written notice thereof, withdraw from the scope of this
Agreement any Licensed Material which by the Marketing Date or, if such a
date is not specified in Paragraph 1.O., by six (6) months from the
commencement of the Term or the date of any applicable amendment, is not
being used on or in connection with the Articles. Disney may also withdraw
any Licensed Material or Articles the use or sale of which under this
Agreement would infringe or reasonably be claimed to infringe the rights of
a third party, other than rights granted by Disney, in which case Disney's
obligations to Licensee shall be limited to the purchase at cost of Articles
and other materials utilizing such withdrawn Licensed Material which cannot
be sold or used. In the case of any withdrawal under the preceding sentence,
the Advances and Guarantees shall be adjusted to correspond to the time
remaining in the Term, or the number of Articles remaining under the
Agreement, at the date of withdrawal.
28. TERMINATION
-----------
Without prejudice to any other right or remedy available to Disney:
A. Disney shall have the right at any time to terminate this Agreement by
giving Licensee written notice thereof, if Licensee fails to
manufacture, sell and distribute the Articles in accordance with this
Agreement, or fails to timely furnish statements and timely pay
Royalties or any other payments due to Disney hereunder, or fails to
notify Disney of the accurate name and complete address of its own
manufacturing facilities or any Manufacturer of the Articles, or fails
to have any such Manufacturer execute the Consent/Manufacturer's
Agreement, or if Licensee otherwise breaches the terms of this
Agreement, and if any such failure or other breach is not corrected
within thirty (30) days (or, in the case of non-payment of any monetary
obligations due Disney under the Agreement within fifteen (15) days)
after Disney sends Licensee written notice thereof.
B. Disney shall have the right at any time to terminate this Agreement
immediately by giving Licensee written notice thereof:
(1) if Licensee delivers to any customer without Disney's written
authorization merchandise containing representations of Licensed
<PAGE> 30
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 30
Material or other material the copyright or other proprietary
rights to which are owned or licensed by Disney other than Articles
listed herein and approved in accordance with the provisions
hereof;
(2) if Licensee delivers Articles outside the Territory or knowingly
sells Articles to a third party for delivery outside the Territory,
unless pursuant to a written distribution permission or separate
written license agreement with Disney or any of Disney's
Affiliates;
(3) if a breach occurs which is of the same nature, and which violates
the same provision of this Agreement, as a breach of which Disney
has previously given Licensee written notice;
(4) if Licensee breaches any material term of any other license
agreement between the parties, and Disney terminates such agreement
for cause;
(5) if Licensee shall make any assignment for the benefit of creditors,
or file a petition in bankruptcy, or is adjudged bankrupt, or
becomes insolvent, or is placed in the hands of a receiver, or if
the equivalent of any such proceedings or acts occurs, though known
by some other name or term;
(6) if Licensee is not permitted or is unable to operate Licensee's
business in the usual manner, or is not permitted or is unable to
provide Disney with assurance satisfactory to Disney that Licensee
will so operate Licensee's business, as debtor in possession or its
equivalent, or is not permitted, or is unable to otherwise meet
Licensee's obligations under this Agreement or to provide Disney
with assurance satisfactory to Disney that Licensee will meet such
obligations;
(7) if Licensee breaches any covenant set forth in Paragraph 11 of this
Agreement; and/or
(8) if more than three Consent/Manufacturer's Agreements are terminated
in any twelve-month period by Disney for the Manufacturers' failure
to pass compliance inspections as referenced in Paragraphs 11 and
24.
C. If Disney terminates this Agreement pursuant to this Paragraph 28,
Licensee shall not be permitted to seek injunctive relief to contest
Disney's
<PAGE> 31
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 31
determination that a termination event has occurred or to otherwise
affect Disney's full and absolute control of the Licensed Material and
the Trademarks; provided however, Licensee may bring an action for
damages, but prior to and during any such action, Disney shall have full
and absolute control over the Licensed Material and the Trademarks.
29. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
-----------------------------------------------------
A. Upon the expiration or termination of this Agreement, all rights herein
granted to Licensee shall revert to Disney, any unpaid portion of the
Guarantee shall be immediately due and payable, and Disney shall be
entitled to retain all Royalties and other things of value paid or
delivered to Disney. Licensee agrees that the Articles shall be
manufactured during the Term in quantities consistent with anticipated
demand therefor so as not to result in an excessive inventory build-up
immediately prior to the end of the Term. Licensee agrees that from the
expiration or termination of this Agreement Licensee shall neither
manufacture nor have manufactured for Licensee any Articles, that
Licensee will deliver to Disney any and all artwork (including Style
Guides, animation cels and drawings) which may have been used or created
by Licensee in connection with this Agreement, that Licensee will at
Disney's option either sell to Disney at cost or destroy or efface any
molds, plates and other items used to reproduce Licensed Material or
Trademarks, and that, except as hereinafter provided, Licensee will
cease selling Articles. Any unauthorized distribution of Articles after
the expiration or termination of this Agreement shall constitute
copyright infringement.
B. If Licensee has any unsold Articles in inventory on the expiration or
termination date, Licensee shall provide Disney with a full statement of
the kinds and numbers of such unsold Articles. If such statement has
been provided to Disney and if Licensee has fully complied with the
terms of this Agreement, including the payment of all Royalties due and
the Guarantee, upon notice from Disney, Licensee shall have the right
for a limited period of three (3) calendar months from such expiration
or earlier termination date to sell off and deliver such Articles as
authorized under Paragraph 2.A. Licensee shall furnish Disney statements
covering such sales and pay Disney Royalties in respect of such sales.
Such Royalties shall not be applied against the Advance or towards
meeting the Guarantee. If the sell-off period is extended by Disney to a
date which is not the last day of the Royalty Payment Period, Licensee's
statement and Royalties for such sell-off period shall be due
twenty-five (25) days after the last day of the sell-off period. All
rights and remedies available to Disney during the Term shall be equally
available to Disney during the sell-off period.
<PAGE> 32
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 32
C. In recognition of Disney's interest in maintaining a stable and viable
market for the Articles during and after the Term and any sell-off
period, Licensee agrees to refrain from "dumping" the Articles in the
market during the Term and any sell-off period granted to Licensee.
"Dumping" shall mean the distribution of product at volume levels
significantly above Licensee's prior sales practices with respect to the
Articles, and at price levels so far below Licensee's prior sales
practices with respect to the Articles as to disparage the Articles;
provided, however, that nothing contained herein shall be deemed to
restrict Licensee's ability to set product prices at Licensee's
discretion.
D. Except as otherwise agreed by Disney in writing, any inventory of
Articles in Licensee's possession or control after the expiration or
termination hereof and of any sell-off period granted hereunder shall be
destroyed, or all Licensed Material and Trademarks removed or
obliterated therefrom.
E. If Disney supplies Licensee with forms regarding compliance with this
Paragraph 29, Licensee agrees to complete, execute and return such forms
to Disney expeditiously.
F. Notwithstanding any provision to the contrary, in the case of
termination under Paragraph 28.B. (5) or (6), in order to protect the
value of the Articles and to avoid any disparagement of the Articles
which could occur as a result of the circumstances of termination,
Disney shall have the option, in Disney's absolute discretion, to
purchase any or all unsold Articles in Licensee's inventory on the
termination date at 20% over Licensee's cost of goods for such Articles
(not including overhead).
30. WAIVERS
-------
A waiver by either party at any time of a breach of any provision of this
Agreement shall not apply to any breach of any other provision of this
Agreement, or imply that a breach of the same provision at any other time
has been or will be waived, or that this Agreement has been in any way
amended, nor shall any failure by either party to object to conduct of the
other be deemed to waive such party's right to claim that a repetition of
such conduct is a breach hereof.
31. PURCHASE OF ARTICLES BY DISNEY
------------------------------
If Disney wishes to purchase Articles, Licensee agrees to sell such Articles
to Disney or any of Disney's Affiliates at as low a price as Licensee
charges for similar quantities sold to Licensee's regular customers and to
pay Disney Royalties on any such sales.
<PAGE> 33
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 33
32. NON-ASSIGNABILITY
-----------------
A. This Agreement is personal to Licensee, who was specifically chosen by
Disney to be licensed hereunder because of Licensee's particular
expertise and ability to perform the Agreement. Licensee shall not
voluntarily or by operation of law assign, sub-license, transfer,
encumber or otherwise dispose of all or any part of Licensee's interest
in this Agreement (including, but not limited to, any encumbrance of the
Articles) without Disney's prior written consent, to be granted or
withheld in Disney's absolute discretion. Any attempted assignment,
sub-license, transfer, encumbrance or other disposal without such
consent shall be void and shall constitute a material default and breach
of this Agreement. "Transfer" within the meaning of this Paragraph 32
shall include any merger or consolidation involving Licensee or any
directly or indirectly controlling Affiliate(s) of Licensee
("Controlling Affiliate"); any sale or transfer of all or substantially
all of Licensee's or its Controlling Affiliate(s)' assets; any transfer
of Licensee's rights and/or obligations hereunder to a division,
business segment or other entity different from the one specifically
referenced on page 1 hereof (or any sale or attempted sale of Articles
under a trademark or trade name of such division, business segment or
other entity); any public offering, or series of public offerings,
whereby a cumulative total of thirty-three and one-third percent (33
1/3%) or more of the voting stock of Licensee or its Controlling
Affiliate(s) is offered for purchase; and any acquisition, or series of
acquisitions, by any person or entity, or group of related persons or
entities, of a cumulative total of thirty-three and one-third percent
(33-1/3%) or more of the voting stock of Licensee or its Controlling
Affiliate(s), or the right to vote such percentage (or, if Licensee is a
partnership, resulting in the transfer of thirty-three and one-third
percent (33-1/3%) or more of the profit and loss participation in
Licensee, or the occurrence of any of the foregoing with respect to any
general partner of Licensee).
B. Licensee agrees to provide Disney with at least thirty (30) days prior
written notice of any desired assignment of this Agreement or other
transfer as defined in Paragraph 32.A. At the time Licensee gives such
notice, Licensee shall provide Disney with the information and
documentation necessary to evaluate the contemplated transaction.
Disney's consent (if given) to any assignment of this Agreement or other
transfer as defined in Paragraph 32.A. shall be subject to such terms
and conditions as Disney deems appropriate, including but not limited
to, payment of a transfer fee. The amount of the transfer fee shall be
determined by Disney based upon the circumstances of the particular
assignment or transfer, taking into account such factors as the
estimated value of the license being assigned or otherwise transferred;
the risk of business interruption or loss of quality, production or
control Disney may suffer as a result of the assignment or other
transfer; the identity,
<PAGE> 34
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 34
reputation, creditworthiness, financial condition and business
capabilities of the proposed assignee or other entity involved in the
transfer; and Disney's internal costs related to the assignment or other
transfer; provided, however, in no event shall the transfer fee be in an
amount less than $ * for each Disney license, brand and/or property (if
applicable) involved in an assignment or other transfer. The foregoing
transfer fee shall not apply if this Agreement is assigned to one of
Licensee's Affiliates as part of a corporate reorganization exclusively
among some or all of the entities existing in Licensee's corporate
structure when this Agreement is signed; provided, however, that
Licensee must give Disney written notice of such assignment and a
description of the reorganization. Notwithstanding the foregoing, a
transfer fee will not be triggered by any of the following transfers of
voting stock, unless occurring as part of a transaction that would
trigger a transfer fee: (1) distribution(s) on employee stock option
plans, or (2) transfers among the current shareholders who are members
of the Sidman family (including their spouses and children), for estate
planning purposes, so long as Licensee maintains substantially the same
management and continues to operate in substantially the same fashion as
prior to such transfer; provided, however, that in any event, any of the
transfers described above shall remain subject to Disney's consent as
set forth in Paragraph 32.A. The provisions of this Paragraph 32 shall
supersede any conflicting provisions on this subject in any merchandise
license agreement previously entered into between the parties for this
Territory.
C. Licensee acknowledges that it has read and understands the Transfer Fee
Policy attached hereto, which governs transfer fee procedures under this
Agreement. The Transfer Fee Policy is incorporated herein by this
reference.
D. Notwithstanding Paragraphs 32.A. and B., Licensee may, upon Disney's
prior written consent, sublicense Licensee's rights and/or obligations
hereunder to any of Licensee's Affiliates, provided that each such
Affiliate agrees to be bound by all of the terms and conditions of this
Agreement, and provided that each such Affiliate agrees to guarantee
Licensee's full performance of this Agreement (including, but not
limited to, Paragraph 25) and to indemnify Disney for any failure of
such performance, and further provided that Licensee and each such
Affiliate agree to provide Disney with satisfactory documentation of
such agreement(s), guarantee(s), and indemnification upon Disney's
request therefor. Licensee hereby represents and irrevocably and
unconditionally guarantees that any and all Affiliates sublicensed
hereunder will observe and perform all of Licensee's obligations under
this Agreement, including, but not limited to, the provisions governing
approvals, and compliance with approved samples, applicable Laws, and
all other provisions hereof, and that they will otherwise adhere
strictly to all of
<PAGE> 35
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 35
the terms hereof and act in accordance with Licensee's obligations
hereunder. Any involvement of an Affiliate in the activities which are
the subject of this Agreement shall be deemed carried on pursuant to
such a sublicense and thus covered by such guarantee; however, unless
Licensee has obtained Disney's consent to sublicense an Affiliate in
each instance, such Affiliate shall be deemed to be included in the term
"Licensee" for all purposes under this Agreement, and Disney may treat
such unapproved involvement of the Affiliate as a breach of the
Agreement. In the event of any sublicense to an Affiliate hereunder, the
reference in Paragraph 32.A. to "Controlling Affiliate" shall include
such Affiliate sublicensee.
33. RELATIONSHIP
------------
This Agreement does not provide for a joint venture, partnership, agency or
employment relationship between the parties, or any other relationship than
that of licensor and licensee.
34. CONSTRUCTION
------------
The language of all parts of this Agreement shall in all cases be construed
as a whole, according to its fair meaning and not strictly for or against
any of the parties. Headings of paragraphs herein are for convenience of
reference only and are without substantive significance.
35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT
---------------------------------------------
Except as otherwise provided herein, this Agreement can only be extended or
modified by a writing signed by authorized representatives of both parties;
provided, however, that certain modifications shall be effective if signed
by the party to be charged and communicated to the other party.
36. NOTICES
-------
All notices which either party is required or may desire to serve upon the
other party shall be in writing, addressed to the party to be served at the
address set forth on page 1 of this Agreement, and may be served personally
or by depositing the same addressed as herein provided (unless and until
otherwise notified), postage prepaid, in the United States mail. Such notice
shall be deemed served upon personal delivery or upon the date of mailing;
provided, however, that Disney shall be deemed to have been served with a
notice of a request for approval of materials under this Agreement only upon
Disney's actual receipt of the request and of any required accompanying
materials. Any notice sent to Disney hereunder shall be sent to the
attention of "Vice President, Licensing", unless Disney advises Licensee in
writing otherwise.
<PAGE> 36
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 36
37. MUSIC
-----
Music is not licensed hereunder. Any charges, fees or royalties payable for
music rights or any other rights not covered by this Agreement shall be
additional to the Royalties and covered by separate agreement.
38. PREVIOUS AGREEMENTS
-------------------
This Agreement, and any confidentiality agreement Licensee may have signed
pertaining to any of the Licensed Material, contains the entire agreement
between the parties concerning the subject matter hereof and supersedes any
pre-existing or contemporaneous agreement and any oral or written
communications between the parties.
39. CHOICE OF LAW AND FORUM
-----------------------
This Agreement shall be deemed to be an executory agreement entered into in
California and shall be governed and interpreted according to the laws of
the State of California applicable to contracts made and to be fully
performed in California. Any legal actions pertaining to this Agreement
shall be commenced within the State of California and within either Los
Angeles or Orange Counties, and Licensee consents to the jurisdiction of the
courts located in Los Angeles or Orange Counties.
40. EQUITABLE RELIEF
----------------
Licensee acknowledges that Disney will have no adequate remedy at law if
Licensee continues to manufacture, sell, advertise, promote or distribute
the Articles upon the expiration or termination of this Agreement. Licensee
acknowledges and agrees that, in addition to any and all other remedies
available to Disney, Disney shall have the right to have any such activity
by Licensee restrained by equitable relief, including, but not limited to, a
temporary restraining order, a preliminary injunction, a permanent
injunction, or such other alternative relief as may be appropriate, without
the necessity of Disney posting any bond.
41. GOODWILL
--------
Licensee acknowledges that the rights and powers retained by Disney
hereunder are necessary to protect Disney's or its licensor's copyrights and
property rights, and, specifically, to conserve Disney's and its licensor's
goodwill and good name, and the name "Disney", and therefore Licensee agrees
that Licensee will not allow the same to become involved in matters which
will, or could, detract from or impugn the public acceptance and popularity
thereof, or impair their legal status.
<PAGE> 37
The First Years
Pooh - Juvenile brand
Agreement dated November 16, 1998
Page 37
42. POWER TO SIGN
-------------
The parties warrant and represent that their respective representatives
signing this Agreement have full power and proper authority to sign this
Agreement and to bind the parties.
43. SURVIVAL OF OBLIGATIONS
-----------------------
The respective obligations of the parties under this Agreement, which by
their nature would continue beyond the termination, cancellation or
expiration of this Agreement, including but not limited to indemnification,
insurance, payment of Royalties, and Paragraph 29, shall survive
termination, cancellation or expiration of this Agreement.
44. SEVERABILITY OF PROVISIONS
--------------------------
The terms of this Agreement are severable and the invalidity of any term of
this Agreement shall not affect the validity of any other term.
Please sign below under the word "Agreed". When signed by both parties this
shall constitute an agreement between Disney and Licensee.
AGREED:
DISNEY ENTERPRISES, INC.
/s/ Steve Cipolla
By: ___________________________
Title: Vice President, Licensing
May 17, 1999
Date: __________________________
THE FIRST YEARS, INC.
/s/ Ronald J. Sidman
By: ___________________________
President
Title: __________________________
<PAGE> 38
THE FIRST YEARS, INC.
POOH - JUVENILE BRAND
AGREEMENT DATED NOVEMBER 16, 1998
SCHEDULE A
A. FEEDING AND SOOTHING
--------------------
1. Bottles (reusable and disposable)
2. Bibs
3. Cups
4. Pacifiers and attachers
5. Bowls
6. Dishes
7. Feeding utensils
8. Snack containers
9. Cool totes
10. Placemats
11. Floormats
12. Burp cloths
13. Toddler sports bottles
B. CARE AND SAFETY
---------------
1. Changing pads
2. Carriers (front and back)
3. Handheld showers
4. Sponges
5. Spout guards
6. Shampoo visors
7. Car organizers
8. Non-activity crib lights
9. Combs and brushes
10. Night lights
11. Car shades
12. Diaper pins
13. Tub thermometers
14. Tub organizers
15. Infant bath tubs
16. Baby bathers
<PAGE> 39
THE FIRST YEARS, INC.
POOH - JUVENILE BRAND
AGREEMENT DATED NOVEMBER 16, 1998
SCHEDULE A (continued)
B. CARE AND SAFETY
---------------
17. Hooded towels
18 Wash cloths/wash mitts
19. Booster seats
20. Step stools
21. Infant toothbrushes and toothcare organizers
22. Bed rails
23. Monitors
24. Scratch mitts
25. Bath mats
C. PLAYTHINGS
----------
1. Hand-held rattles
2. Teethers
3. Suction toys
4. Linking toys
5. Electronic hand-held toys (with rattle or squeaker function)
6. Bath toys
7. Crib toys
8. Foot rattles and wrist rattles
9. Squeeze toys
10. Infant rings
11. Chime balls
12. Bouncy seats
13. Accessory toys (i.e., stroller toys, carrier toys, high chair toys)
<PAGE> 40
TRANSFER FEE POLICY
As provided in Paragraph 32.B. of the License Agreement, it is Disney's
policy to charge a transfer fee in connection with any permitted assignment
of the license or other "transfer," as that term is defined in Paragraph
32.A. The amount of the transfer fee is based on the circumstances of the
particular assignment or transfer, taking into account such factors as:
- the estimated value of the license being assigned or involved in the
transfer
- the risk of business interruption
- the risk of loss of quality, production or control
- the identity, reputation, creditworthiness, financial condition and
business capabilities of the proposed assignee or entity involved in the
transfer
- Disney's internal costs related to the assignment or transfer
At a minimum, the transfer fee will be $ * , and it could be as high as * ,
depending on the circumstances of the particular case. No Licensee or any
company involved with a Licensee in an assignment or transfer situation
should rely upon any express or implied verbal representations that are
purported to be made on Disney's behalf as to the amount of any given fee to
be assessed. Disney Licensing's Finance Department will communicate the
actual amount of the fee calculated in each approved transaction.
In any prospective assignment or transfer situations, Licensees must inform
the persons and companies with which they are dealing that no assignment or
transfer may occur without Disney's prior written consent, to be granted or
withheld in Disney's absolute discretion, and that any approved transaction
will also entail a transfer fee. Licensees must give Disney at least 30 days
prior written notice of any desired assignment or other transfer, together
with any information and documentation necessary to evaluate the
contemplated transaction. Licensees should not endanger the closing of their
desired transactions by failing to comply with these provisions of the
License Agreement.
If Disney grants consent to a proposed transaction subject to the payment of
a transfer fee, and the transaction is concluded but the transfer fee is not
paid within the designated time, the subject License Agreement(s) shall
automatically terminate and any Guarantee shortfall(s) shall be immediately
due and payable to Disney. If Disney does not grant consent to a proposed
assignment or transfer and the Licensee nevertheless closes the transaction,
the subject License Agreement(s) shall automatically terminate and any
Guarantee shortfall(s) shall be immediately due and payable to Disney.
Disney's consent to any assignment or other transfer should in no way be
understood to be a guarantee or promise by Disney of a grant of any future
license(s), as those determinations will continue to be made on a contract
by contract basis.
<PAGE> 41
CODE OF CONDUCT FOR MANUFACTURERS
At The Walt Disney Company, we are committed to:
- a standard of excellence in every aspect of our business and in every
corner of the world;
- ethical and responsible conduct in all of our operations;
- respect for the rights of all individuals; and
- respect for the environment.
We expect these same commitments to be shared by all manufacturers of Disney
merchandise. At a minimum, we require that all manufacturers of Disney
merchandise meet the following standards:
CHILD LABOR Manufacturers will not use child labor.
The term "child" refers to a person younger than 15 (or 14
where local law allows) or, if higher, the local legal
minimum age for employment or the age for completing
compulsory education.
Manufacturers employing young persons who do not fall
within the definition of "children" will also comply with
any laws and regulations applicable to such persons.
INVOLUNTARY LABOR Manufacturers will not use any forced or involuntary labor,
whether prison, bonded, indentured or otherwise.
COERCION AND
HARASSMENT Manufacturers will treat each employee with dignity and
respect, and will not use corporal punishment, threats of
violence or other forms of physical, sexual, psychological
or verbal harassment or abuse.
NONDISCRIMINATION Manufacturers will not discriminate in hiring and
employment practices, including salary, benefits,
advancement, discipline, termination or retirement, on the
basis of race, religion, age, nationality, social or ethnic
origin, sexual orientation, gender, political opinion or
disability.
ASSOCIATION Manufacturers will respect the rights of employees to
associate, organize and bargain collectively in a lawful
and peaceful manner, without penalty or interference.
HEALTH AND SAFETY Manufacturers will provide employees with
a safe and healthy workplace in compliance with all
applicable laws and regulations, ensuring at a minimum,
reasonable access to potable water and sanitary facilities,
fire safety, and adequate lighting and ventilation.
Manufacturers will also ensure that the same standards of
health and safety are applied in any housing that they
provide for employees.
<PAGE> 42
COMPENSATION We expect manufacturers to recognize that wages are
essential to meeting employees' basic needs. Manufacturers
will, at a minimum, comply with all applicable wage and
hour laws and regulations, including those relating to
minimum wages, overtime, maximum hours, piece rates and
other elements of compensation, and provide legally
mandated benefits. If local laws do not provide for
overtime pay, manufacturers will pay at least regular wages
for overtime work. Except in extraordinary business
circumstances, manufacturers will not require employees to
work more than the lesser of (a) 48 hours per week and 12
hours overtime or (b) the limits on regular and overtime
hours allowed by local law or, where local law does not
limit the hours of work, the regular work week in such
country plus 12 hours overtime. In addition, except in
extraordinary business circumstances, employees will be
entitled to at least one day off in every seven-day period.
Where local industry standards are higher than applicable
legal requirements, we expect manufacturers to meet the
higher standards.
PROTECTION OF THE
ENVIRONMENT Manufacturers will comply with all applicable environmental
laws and regulations.
OTHER LAWS Manufacturers will comply with all applicable
laws and regulations, including those pertaining to the
manufacture, pricing, sale and distribution of merchandise.
All references to "applicable laws and regulations" in this
Code of Conduct include local and national codes, rules and
regulations as well as applicable treaties and voluntary
industry standards.
SUBCONTRACTING Manufacturers will not use subcontractors for the
manufacture of Disney merchandise or components thereof
without Disney's express written consent, and only after
the subcontractor has entered into a written commitment
with Disney to comply with this Code of Conduct.
MONITORING AND
COMPLIANCE Manufacturers will authorize Disney and its designated
agents (including third parties) to engage in monitoring
activities to confirm compliance with this Code of Conduct,
including unannounced on-site inspections of manufacturing
facilities and employer-provided housing; reviews of books
and records relating to employment matters; and private
interviews with employees. Manufacturers will maintain on
site all documentation that may be needed to demonstrate
compliance with this Code of Conduct.
PUBLICATION Manufacturers will take appropriate steps to ensure that
the provisions of this Code of Conduct are communicated to
employees, including the prominent posting of a copy of
this Code of Conduct, in the local language and in a place
readily accessible to employees, at all times.
<PAGE> 43
CODE OF CONDUCT FOR LICENSEES
At The Walt Disney Company, we are committed to:
- a standard of excellence in every aspect of our business and in every
corner of the world;
- ethical and responsible conduct in all of our operations;
- respect for the rights of all individuals; and
- respect for the environment.
We expect these same commitments to be shared by all Disney licensees and
the manufacturers with which they work in the production of Disney
merchandise. At a minimum, we require that all Disney licensees meet the
following standards:
CONDUCT OF
MANUFACTURING Licensees that engage directly in the manufacturing of
Disney merchandise will comply with all of the standards
set forth in Disney's Code of Conduct for Manufacturers, a
copy of which is attached.
Licensees will ensure that each manufacturer other than the
licensee also enters into a written commitment with Disney
to comply with the standards set forth in Disney's Code of
Conduct for Manufacturers.
Licensees will prohibit manufacturers from subcontracting
the manufacture of Disney merchandise or components thereof
without Disney's express written consent, and only after
the subcontractor has entered into a written commitment
with Disney to comply with Disney's Code of Conduct for
Manufacturers.
MONITORING AND
COMPLIANCE Licensees will take appropriate steps, in consultation with
Disney, to develop, implement and maintain procedures to
evaluate and monitor manufacturers of Disney merchandise
and ensure compliance with Disney's Code of Conduct for
Manufacturers, including unannounced on-site inspections of
manufacturing facilities and employer-provided housing;
review of books and records relating to employment matters;
and private interviews with employees.
Licensees will authorize Disney and its designated agents
(including third parties) to engage in similar monitoring
activities to confirm Licensees' compliance with this Code
of Conduct. Licensees will maintain on site all
documentation that may be needed to demonstrate such
compliance.
<PAGE> 1
Exhibit 10(s)
NOTE: THE OMITTED PORTIONS OF THIS DOCUMENT MARKED WITH AN ASTERISK ARE SUBJECT
TO A CONFIDENTIAL TREATMENT REQUEST AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.
LICENSE AGREEMENT
-----------------
Date: November 16, 1998
Re: DISNEY CLASSICS
This license agreement ("Agreement") is entered into by and between Disney
Enterprises, Inc. ("Disney"), with a principal place of business at 500 South
Buena Vista Street, Burbank, California 91521, and THE FIRST YEARS, INC.
("Licensee"), with its principal place of business at One Kiddie Drive, Avon, MA
02322-1171. Disney and Licensee agree as follows:
1. MEANING OF TERMS
A. "LICENSED MATERIAL" means the graphic representations of the
following properties:
(1) DISNEY BABIES (i.e., BABY MICKEY MOUSE, BABY MINNIE
MOUSE, BABY DONALD DUCK, BABY DAISY DUCK, BABY PLUTO,
AND BABY GOOFY), but only depictions of such
characters and accompanying design elements, as may
be designated by Disney;
(2) DISNEY'S STANDARD CHARACTERS (i.e., MICKEY MOUSE,
MINNIE MOUSE, DONALD DUCK, DAISY DUCK, PLUTO AND
GOOFY (BUT NOT SPORT GOOFY)), but only depictions of
such characters, and accompanying design elements, as
may be designated by Disney;
and the following properties, collectively known as "DISNEY
CLASSICS" (hereinafter "DISNEY CLASSICS PROPERTIES"):
(3) WALT DISNEY'S BAMBI characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by
Disney;
(4) WALT DISNEY'S SLEEPING BEAUTY characters, but only
such characters and depictions of such characters,
and accompanying design elements, as may be
designated by Disney;
(5) WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS
characters, but only such characters and depictions
of such characters, and accompanying design elements,
as may be designated by Disney;
<PAGE> 2
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 2
(6) WALT DISNEY'S THE JUNGLE BOOK characters, but only
such characters and depictions of such characters,
and accompanying design elements, as may be
designated by Disney;
(7) WALT DISNEY'S CINDERELLA characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by
Disney;
(8) WALT DISNEY'S DUMBO characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by
Disney;
(9) WALT DISNEY'S LADY AND THE TRAMP characters, but only
such characters and depictions of such characters,
and accompanying design elements, as may be
designated by Disney;
(10) WALT DISNEY'S PINOCCHIO characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by
Disney;
(11) WALT DISNEY'S ALICE IN WONDERLAND characters, but
only such characters and depictions of such
characters, and accompanying design elements, as may
be designated by Disney;
(12) WALT DISNEY'S PETER PAN characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by
Disney;
(13) DISNEY'S THE ARISTOCATS characters, but only such
characters and depictions of such characters, and
accompanying design elements, as may be designated by
Disney;
(14) DISNEY'S ALADDIN characters, but only such characters
and depictions of such characters, and accompanying
design elements, as may be designated by Disney;
(15) DISNEY'S BEAUTY AND THE BEAST characters, but only
such characters and depictions of such characters,
and accompanying design elements, as may be
designated by Disney;
and designated still scenes from the motion pictures
identified in Paragraph 1.B. hereafter.
<PAGE> 3
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 3
The Licensed Material as it appears under any of the
properties licensed hereunder shall not be used together with
the Licensed Material as it appears under any other property
licensed hereunder on the same Articles. Furthermore,
Licensee's right to use the adult representations of the
characters from Disney's Standard Characters property is
limited to the Article identified on Schedule A as Article
Number B.11, which Article shall be branded under the Disney
Babies brand.
B. "TRADEMARKS" means "WALT DISNEY", "DISNEY", the
representations of Licensed Material included in Paragraph
1.A. above, and the logos of the Disney Babies brand and the
following motion pictures in which Licensed Material included
in Paragraph 1.A. above appears:
WALT DISNEY'S BAMBI
WALT DISNEY'S SLEEPING BEAUTY
WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS
WALT DISNEY'S THE JUNGLE BOOK
WALT DISNEY'S CINDERELLA
WALT DISNEY'S DUMBO
WALT DISNEY'S LADY AND THE TRAMP
WALT DISNEY'S PINOCCHIO
WALT DISNEY'S ALICE IN WONDERLAND
WALT DISNEY'S PETER PAN
DISNEY'S THE ARISTOCATS
DISNEY'S ALADDIN
DISNEY'S BEAUTY AND THE BEAST
DISNEY BABIES
C. "ARTICLES" means the items set forth on Schedule A, which is
attached to this Agreement and incorporated herein by this
reference, on or in connection with which the Licensed
Material and/or the Trademarks are reproduced or used, and
includes each and every stock keeping unit ("SKU") of each
Article. Notwithstanding the foregoing, the Licensed Material
from the DISNEY BABIES and DISNEY'S STANDARD CHARACTERS
properties, and the DISNEY BABIES Trademark, may be used only
on or in connection with the Article identified on Schedule A
as Article Number B.11.
<PAGE> 4
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 4
D. "MINIMUM PER ARTICLE ROYALTY" means for each Article
identified herein which is sold the sum indicated herein:
None.
E. "TERM" means the period commencing October 26, 1998, and
ending * .
F. "TERRITORY" means the United States, United States PX's
wherever located, and United States territories and
possessions, excluding Puerto Rico, Guam, Commonwealth of
Northern Mariana Islands and Palau. However, if sales are made
to chain stores in the United States which have stores in
Puerto Rico, such chain stores may supply Articles to such
stores in Puerto Rico.
G. "ROYALTIES" means a royalty in the amounts set forth below in
Paragraphs 1.G.(1)(a), (b), and (c) and Royalties shall be
further governed by the provisions contained in Paragraphs
1.G.(2)-(6):
(1) (a) * percent ( * %) of Licensee's Net Invoiced
Billings to authorized Retailers and Wholesalers
for Articles shipped by or on behalf of Licensee
from a location within or outside the Territory
for delivery to a customer located in the
Territory ("F.O.B. In Sales"); or
(b) * percent (* %) of Licensee's Net Invoiced
Billings to authorized Retailers and Wholesalers
when Licensee's customer located in the Territory
takes title to the Articles outside the Territory
and/or bears the risk of loss of Articles
manufactured and shipped to the customer from
outside the Territory ("F.O.B. Out Sales"); or
(c) if a Minimum Per Article Royalty has been
specified in Paragraph 1.D. above, and it would
result in a higher royalty to be paid for the
Articles, Licensee agrees to pay the higher
royalty amount.
(2) The sums paid to Disney as Royalties on any sales
to Licensee's Affiliates shall be no less than the
sums paid on sales to customers not affiliated
with Licensee.
(3) All sales of Articles shipped to a customer
outside the Territory pursuant to a distribution
permission shall bear a Royalty at the rate for
F.O.B. Out Sales. However, sales of Articles to
Disney's
<PAGE> 5
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 5
Affiliates outside the Territory shall bear a
Royalty at the rate for F.O.B. In Sales.
(4) No Royalties are payable on the mere manufacture
of Articles.
(5) The full Royalty percentage shall be payable on
close-out or other deep discount sales of
Articles, including sales to employees.
(6) Royalties reported on sales of Articles which have
been returned to Licensee for credit or refund and
on which a refund has been made or credit memo
issued may be credited against Royalties due. The
credit shall be taken in the Royalty Payment
Period in which the refund is given or credit memo
issued. Unused credits may be carried forward, but
in no event shall Licensee be entitled to a refund
of Royalties.
H. "NET INVOICED BILLINGS" means the following:
(1) actual invoiced billings (i.e., sales quantity
multiplied by Licensee's selling price) for Articles
sold, and all other receivables of any kind
whatsoever, received in payment for the Articles,
whether received by Licensee or any of Licensee's
Affiliates, except as provided in Paragraph 1.H.(2),
less "Allowable Deductions" as hereinafter defined.
(2) The following are not part of Net Invoiced Billings:
invoiced charges for transportation of Articles
within the Territory which are separately identified
on the sales invoice, and sales taxes.
I. "ALLOWABLE DEDUCTIONS" means the following:
(1) volume discounts, and other discounts from the
invoice price (or post-invoice credits) unilaterally
imposed in the regular course of business by
Licensee's customers, so long as Licensee documents
such discounts (or credits) to Disney's satisfaction.
In the event a documented unilateral discount (or
credit) is taken with respect to combined sales of
Articles and other products not licensed by Disney,
and Licensee cannot document the portion of the
discount (or credit) applicable to the Articles,
Licensee may apply only a pro rata portion of the
discount (or credit) to the Articles. Unilateral
discounts or credits are never deductible if they
represent items listed below in Paragraph 1.I.(2).
<PAGE> 6
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 6
(2) The following are not Allowable Deductions, whether
granted on sales invoices or unilaterally imposed as
discounts or as post-invoice credits: cash discounts
granted as terms of payment; early payment discounts;
allowances or discounts relating to advertising; mark
down allowances; new store allowances; defective
goods allowances or allowances taken by customers in
lieu of returning goods; costs incurred in
manufacturing, importing, selling or advertising
Articles; freight costs incorporated in the selling
price; and uncollectible accounts.
J. "ROYALTY PAYMENT PERIOD" means each calendar quarterly period
during the Term and during the sell-off period, if granted.
K. "ADVANCE" means the following sum(s) payable by the following
date(s) as an advance on Royalties to accrue in the following
period(s):
$ * payable upon Licensee's signing of this
Agreement for the Term.
L. "GUARANTEE" means the following sum(s) which Licensee
guarantees to pay as minimum Royalties on Licensee's
cumulative sales in the following period(s):
$ * for the Term.
M. "SAMPLES" means six (6) samples of each SKU of each Article,
from the first production run of each supplier of each SKU of
each Article.
N. "PROMOTION COMMITMENT" means the following sum(s) which
Licensee agrees to spend in the following way(s):
(1) Licensee agrees to participate in Disney's common
marketing and promotional fund (the "Common Marketing
Fund" or "CMF") as provided in this Paragraph 1.N.
Licensee agrees to make its CMF payments within
fifteen (15) days after Disney's request(s), or on a
calendar quarterly or other periodic basis if so
requested by Disney. Licensee's CMF obligation shall
not exceed * percent ( * %) of Disney's reasonable
advance estimate of Licensee's Net Invoiced Billings
for Articles (with no subsequent adjustment if actual
Net Invoiced Billings are less than the reasonable
advance estimate); and Licensee's total CMF
obligation shall never be less than * percent ( * %)
of the quotient of the Guarantee divided by the
Royalty rate for F.O.B. In Sales. Licensee's CMF
payments shall be expended by
<PAGE> 7
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Disney Classics
Agreement dated November 16, 1998
Page 7
Disney and Disney's designees (but not paid to
Disney's own employees for services they render) in
the amounts and in the manner Disney deems most
appropriate in order to provide national or local
advertising, marketing and promotion, and related
market research, regarding the Licensed Material and
the Trademarks licensed hereunder or other Disney
properties in the same property classification.
However, Disney does not ensure that Licensee or any
other particular licensee will benefit directly or
pro-rata from the operation of the Common Marketing
Fund. Disney will apprise Licensee of the operations
and proposed expenditures of the Common Marketing
Fund from time to time and seek Licensee's advice on
how the CMF monies relating to the Licensed Material
and the Trademarks should be spent. Licensee shall
not be entitled to any audit rights with regard to
the Common Marketing Fund.
(2) Effective on or before January 1, 1999, upon prior
written notice from Disney, the foregoing CMF system
shall be converted to a different system to provide
greater efficiency in its administration.
(i) The amount of the CMF contribution shall be
calculated as * percent ( * %) of Licensee's Net
Invoiced Billings and shall be payable concurrently
with Royalties (but by separate payment to such
account as Disney specifies) due each Royalty Payment
Period, as set forth in greater detail in Paragraph
20.A. hereof. Any subsequent reduction of Net
Invoiced Billings for any reason shall not result in
any adjustment of any CMF payment. In addition, such
modified CMF system shall require Licensee's payment
of a "CMF Guarantee", meaning the sum(s) which
Licensee guarantees to pay Disney as a minimum amount
of the CMF payment on Licensee's cumulative sales in
the relevant period. The amount of the CMF Guarantee
shall be in an amount as agreed between the parties,
but in no event less than * percent ( * %) of the
quotient of the Guarantee divided by the Royalty rate
for F.O.B. In Sales. The revised CMF system shall
also call for a payment of one or more payments of
"CMF Advances" which shall be non-refundable
installments of the CMF Guarantee, each to be due and
payable on a date to be specified by Disney, in its
absolute discretion, and which may be as much as six
to nine months prior to the release date for the
filmed entertainment property that is the subject of
this Agreement, based on Disney's assessment of the
appropriate marketing requirements for the property.
(ii) As with the prior system, Licensee's CMF
payments shall be expended by Disney and Disney's
designees (but not paid to Disney's
<PAGE> 8
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 8
own employees for services they render) in the
amounts and in the manner Disney deems most
appropriate in order to provide national or local
advertising, marketing and promotion, and related
market research, regarding the Licensed Material and
the Trademarks licensed hereunder or other Disney
properties in the same property classification.
However, Disney does not ensure that Licensee or any
other particular licensee will benefit directly or
pro-rata from the operation of the Common Marketing
Fund. Disney will apprise Licensee of the operations
and proposed expenditures of the Common Marketing
Fund from time to time and seek Licensee's advice on
how the CMF monies relating to the Licensed Material
and the Trademarks should be spent. Licensee shall
not be entitled to any audit rights with regard to
the modified CMF system.
O. "MARKETING DATE" means the following date(s) by which the
following Article(s) shall be available for purchase by the
public at the retail outlets authorized pursuant to Paragraph
2.A.:
(1) Any time during the Term of this Agreement for all
Articles (except Article Number B.11) using all
Disney Classics Properties constituting the Licensed
Material; and
(2) By July 1, 1999 for Article Number B.11.
P. "AFFILIATE" means, with regard to Licensee, any corporation or
other entity which directly or indirectly controls, is
controlled by, or is under common control with Licensee; with
regard to Disney, "Affiliate" means any corporation or other
entity which directly or indirectly controls, is controlled
by, or is under common control with Disney. "Control" of an
entity shall mean possession, directly or indirectly, of power
to direct or cause the direction of management or policies of
such entity, whether through ownership of voting securities,
by contract or otherwise.
Q. "LAWS" means any and all applicable laws, rules, and
regulations, including but not limited to, local and national
laws, rules and regulations, treaties, voluntary industry
standards, association laws, codes or other obligations
pertaining to the grant and exercise of the license granted
herein and to any of Licensee's activities under this
Agreement, including but not limited to those applicable to
any tax, and to the manufacture, pricing, sale and/or
distribution of the Articles.
R. "RETAILER" means independent and chain retail outlets which
have storefronts and business licenses, and which customers
walk into, not up to;
<PAGE> 9
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 9
"WHOLESALER" means a seller of items to retailers, not
consumers, and includes the term "distributor". The following
do not qualify as authorized sales outlets for Articles under
this Agreement under any circumstances: swap meets, flea
markets, street peddlers, unauthorized kiosks, and the like.
S. "MANUFACTURER" means any of Licensee's third-party
manufacturers, suppliers and facilities (and their
sub-manufacturers, suppliers and facilities) which reproduce
or use the Licensed Material and/or Trademarks on Articles, or
components thereof, and/or which assemble such Articles.
2. RIGHTS GRANTED
A. (1) In consideration for Licensee's promise to pay and
Licensee's payment of all monetary obligations
required hereunder, Disney grants Licensee the
non-exclusive right, during the Term, and only within
the Territory, to reproduce the Licensed Material
only on or in connection with the Articles, to use
such Trademarks and uses thereof as may be approved
when each SKU of the Articles is approved and only on
or in connection with the Articles, and to
manufacture, distribute for sale and sell the
Articles as authorized by this Paragraph 2.A.
(2) Licensee will sell the Articles only to Retailers in
the Territory for resale to the public in the
Territory; provided, however, that the Article
identified on Schedule A as Article Number A.2 (bibs)
may be sold only to mass market Retailers (including
such Retailers as Target, Toys R Us, WalMart and
Kmart). For purposes of this Agreement, "Retailers"
shall include drug chains, supermarkets and food
chains. Licensee may also sell the Articles to
Wholesalers which sell to drug chains, supermarkets
and food chains and value-oriented specialty stores.
Licensee will not sell the Articles to other
Retailers, or to other Wholesalers. If there is a
question as to whether a particular customer falls
within any of the categories specified above,
Disney's determination shall be binding.
(3) Licensee may not sell the Articles by direct
marketing methods, which includes but is not limited
to, computer on-line selling, direct mail and
door-to-door solicitation. Licensee may not sell the
Articles to Retailers selling merchandise on a
duty-free basis, unless such Retailer has a
then-current license agreement with Disney or any of
Disney's Affiliates permitting it to make such
duty-free sales.
<PAGE> 10
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 10
(4) Licensee may sell the Articles to authorized
customers for resale through the pre-approved mail
order catalogs listed on the Catalog Schedules to
this Agreement, and Licensee shall pay Royalties on
such sales at the rate specified for Retailers in
Paragraph 1.G.(1)(a) or (b), as applicable.
(5) All rights not expressly granted to Licensee herein
are reserved to Disney.
B. Unless Disney consents in writing, Licensee shall not sell or
otherwise provide Articles for use as premiums (including
those in purchase-with-purchase promotions), promotions,
give-aways, fund-raisers, or entries in sweepstakes, or
through unapproved direct marketing methods, including but not
limited to, home shopping television programs, or to customers
for inclusion in another product. Licensee shall not sell
Articles to any customer who Licensee knows or reasonably
should know engages in illegal business practices or ethically
questionable distribution methods. If Licensee wishes to sell
the Articles to customers for resale through mail order
catalogs other than those listed on the Catalog Schedules
hereto, Licensee must obtain Disney's prior written consent in
each instance. However, Licensee may solicit orders by mail
from Retailers, and Licensee may sell to Retailers which sell
predominantly at retail, but which include the Articles in
their mail order catalogs, or otherwise sell Articles by
direct marketing methods as well as at retail.
C. The prohibition of computer on-line selling referenced in
Paragraph 2.A. includes, but is not limited to, the display,
promotion or offering of Articles in or on any on-line venues
(e.g. Websites), except as specifically permitted in the next
two sentences. Articles approved by Disney may be displayed
and promoted on Disney-controlled on-line venues, only within
the Territory. In addition, Articles approved by Disney may be
displayed and promoted on Licensee's own on-line venue, and
may be displayed, promoted and sold on authorized Retailers'
on-line venues, subject to Disney's applicable policies and
guidelines; however, Licensee must obtain Disney's prior
written approval of all creative and editorial elements of
such uses, in accordance with the provisions of Paragraph 7 of
this Agreement.
D. Unless Disney consents in writing, Licensee shall not give
away or donate Articles to Licensee's accounts or other
persons for the purpose of promoting sales of Articles, except
for minor quantities or samples which are not for onward
distribution.
<PAGE> 11
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Disney Classics
Agreement dated November 16, 1998
Page 11
E. Nothing contained herein shall preclude Licensee from selling
Articles to Disney or to any of Disney's Affiliates, or to
Licensee's or Disney's employees, subject to the payment to
Disney of Royalties on such sales.
F. Disney further grants Licensee the right to reproduce the
Licensed Material and to use the approved Trademarks, only
within the Territory, during the Term, on containers,
packaging and display material for the Articles, and in
advertising for the Articles.
G. Nothing contained in this Agreement shall be deemed to imply
any restriction on Licensee's freedom and that of Licensee's
customers to sell the Articles at such prices as Licensee or
they shall determine.
H. Licensee recognizes and acknowledges the vital importance to
Disney of the characters and other proprietary material Disney
owns and creates, and the association of the Disney name with
them. In order to prevent the denigration of Disney's products
and the value of their association with the Disney name, and
in order to ensure the dedication of Licensee's best efforts
to preserve and maintain that value, Licensee agrees that,
during the Term and any extension hereof, Licensee will not
manufacture or distribute any merchandise embodying or bearing
any artwork or other representation which Disney determines,
in Disney's reasonable discretion, is confusingly similar to
Disney's characters or other proprietary material.
I. Licensee acknowledges that the individual Disney Classics
Properties constituting the Licensed Material are Disney's
original animated features, some or all of which may be
released on video during the Term, and include any theatrical
re-releases of said Disney Classics Properties. Licensee
further acknowledges that Licensee's license hereunder does
not extend to any live action versions of these Disney
Classics Properties (whether or not animation is included in
such versions), any remakes, prequels or sequels of these
Disney Classics Properties, any direct to video remakes,
prequels or sequels of these or any other derivation or
adaptation of these Disney Classics Properties in any media
whatsoever. All of the foregoing variations shall be referred
to as "Alternative Releases." In the event there is an
Alternative Release of any of the Disney Classics Properties
during the Term of this Agreement, upon written notice from
Disney, Licensee shall have the right to negotiate with Disney
as to the terms and conditions applicable to a license for any
such Alternative Release. If after good faith negotiations for
up to thirty (30) days, the parties are not able to reach
agreement as to the terms and conditions for any such license,
Disney may, upon written notice to Licensee, withdraw the
affected Disney Classics Property(ies) from the Licensed
Material. In such case, Licensee will immediately cease
<PAGE> 12
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Disney Classics
Agreement dated November 16, 1998
Page 12
manufacturing Articles using such Disney Classics
Property(ies) except as necessary to fulfill orders in hand,
and Licensee may continue to sell its then current inventory
of Articles using such Disney Classics Property(ies) until the
end of the Term or ninety (90) days after Disney's written
notice, whichever is earlier. Disney shall also consider, in
good faith, whether there should be a reduction of the
Guarantee because of the deletion of any Disney Classics
Property.
3. ADVANCE
A. Licensee agrees to pay the Advance, which shall be on account
of Royalties to accrue during the Term only, and only with
respect to sales in the Territory; provided, however, that if
any part of the Advance is specified hereinabove as applying
to any period less than the Term, such part shall be on
account of Royalties to accrue during such lesser period only.
If said Royalties should be less than the Advance, no part of
the Advance shall be repayable.
B. Royalties accruing during any sell-off period or extension of
the Term shall not be offset against the Advance unless
otherwise agreed in writing. Royalties accruing during any
extension of the Term or any other term shall be offset only
against an advance paid with respect to such extended term.
C. In no event shall Royalties accruing by reason of any sales to
Disney or any of Disney's Affiliates or by reason of sales
outside the Territory pursuant to a distribution permission be
offset against the Advance or any subsequent advance.
4. GUARANTEE
A. Licensee shall, with Licensee's statement for each Royalty
Payment Period ending on a date indicated in Paragraph 1.L.
hereof defining "Guarantee," or upon termination if the
Agreement is terminated prior to the end of the Term, pay
Disney the amount, if any, by which cumulative Royalties paid
with respect to sales in the Territory during any period or
periods covered by the Guarantee provision, or any Guarantee
provision contained in any agreement extending the term
hereof, fall short of the amount of the Guarantee for such
period.
B. Advances applicable to Royalties due on sales in the period to
which the Guarantee relates apply towards meeting the
Guarantee.
<PAGE> 13
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Agreement dated November 16, 1998
Page 13
C. In no event shall Royalties paid with respect to sales to
Disney or to any of Disney's Affiliates, or with respect to
sales outside the Territory pursuant to a distribution
permission, apply towards the meeting of the Guarantee or any
subsequent guarantee.
5. PRE-PRODUCTION APPROVALS
A. As early as possible, and in any case before commercial
production of any Article, Licensee shall submit to Disney for
Disney's review and written approval (to utilize such
materials in preparing a pre-production sample) all concepts,
all preliminary and proposed final artwork, and all
three-dimensional models which are to appear on or in any and
all SKUs of the Article. Thereafter, Licensee shall submit to
Disney for Disney's written approval a pre-production sample
of each SKU of each Article. Disney shall endeavor to respond
to such requests within a reasonable time, but such approvals
should be sought as early as possible in case of delays. In
addition to the foregoing, as early as possible, and in any
case no later than sixty (60) days following written
conceptual approval, Licensee shall supply to Disney for
Disney's use for internal purposes, a mock-up, prototype or
pre-production sample of each SKU of each Article on or in
connection with which the Licensed Material is used. Licensee
acknowledges that Disney may not approve concepts or artwork
submitted near the end of the Term, or concepts or artwork
perceived to be for selling periods beyond the Term. Any
pre-production approval Disney may give will not constitute or
imply a representation or belief by Disney that such materials
comply with any applicable Laws.
B. Approval or disapproval shall lie solely in Disney's
discretion, and any SKU of any Article not so approved in
writing shall be deemed unlicensed and shall not be
manufactured or sold. If any unapproved SKU of any Article is
being sold, Disney may, together with other remedies available
to Disney, including but not limited to, immediate termination
of this Agreement, by written notice require such SKU of such
Article to be immediately withdrawn from the market. Any
modification of any SKU of an Article, including, but not
limited to, change of materials, color, design or size of the
representation of Licensed Material must be submitted in
advance for Disney's written approval as if it were a new SKU
of an Article. Approval of any SKU of an Article which uses
particular artwork does not imply approval of such artwork for
use with a different Article. The fact that artwork has been
taken from a Disney publication or a previously approved
Article does not mean that its use will necessarily be
approved in connection with an Article licensed hereunder.
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Disney Classics
Agreement dated November 16, 1998
Page 14
C. If Licensee submits for approval artwork from an article or
book manufactured or published by another licensee of Disney's
or of any of Disney's Affiliates, Licensee must advise Disney
in writing of the source of such artwork. If Licensee fails to
do so, any approval which Disney may give for use by Licensee
of such artwork may be withdrawn by giving Licensee written
notice thereof, and Licensee may be required by Disney not to
sell Articles using such artwork.
D. Licensee is responsible for the consistent quality and safety
of the Articles and their compliance with applicable Laws.
Disney will not unreasonably object to any change in the
design of an Article or in the materials used in the
manufacture of the Article or in the process of manufacturing
the Articles which Licensee advises Disney in writing is
intended to make the Article safer or more durable.
E. If Disney has supplied Licensee with forms for use in applying
for approval of artwork, models, pre-production and production
samples of Articles, Licensee shall use such forms when
submitting anything for Disney's approval.
6. APPROVAL OF PRODUCTION SAMPLES
A. Before shipping an Article to any customer, Licensee agrees to
furnish to Disney, from the first production run of each
supplier of each of the Articles, for Disney's approval of all
aspects of the Article in question, the number of Samples with
packaging which is hereinabove set forth, which shall conform
to the approved artwork, three-dimensional models and
pre-production sample. Approval or disapproval of the artwork
as it appears on any SKU of the Article, as well as of the
quality of the Article, shall lie in Disney's sole discretion
and may, among other things, be based on unacceptable quality
of the artwork or of the Article as manufactured. Any SKU of
any Article not so approved shall be deemed unlicensed, shall
not be sold and, unless otherwise agreed by Disney in writing,
shall be destroyed. Such destruction shall be attested to in a
certificate signed by one of Licensee's officers. Production
samples of Articles for which Disney has approved a
pre-production sample shall be deemed approved, unless within
twenty (20) days of Disney's receipt of such production sample
Disney notifies Licensee to the contrary. Any approval of a
production sample attributable to Disney will not constitute
or imply a representation or belief by Disney that such
production sample complies with any applicable Laws.
B. Licensee agrees to make available at no charge such additional
samples of any or all SKUs of each Article as Disney may from
time to time reasonably
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Agreement dated November 16, 1998
Page 15
request for the purpose of comparison with earlier samples, or
for Disney's anti-piracy efforts, or to test for compliance
with applicable Laws, and to permit Disney to inspect
Licensee's manufacturing operations and testing records (and
those of Licensee's Manufacturers) for the Articles in
accordance with Paragraphs 11 and 24.
C. Licensee acknowledges that Disney may disapprove any SKU of an
Article or a production run of any SKU of an Article because
the quality is unacceptable to Disney, and accordingly, Disney
recommends that Licensee submit production samples to Disney
for approval before committing to a large original production
run or to purchase a large shipment from a new supplier.
D. No modification of an approved production sample shall be made
without Disney's further prior written approval. All SKUs of
Articles being sold must conform in all respects to the
approved production sample. It is understood that if in
Disney's reasonable judgment the quality of any SKU of an
Article originally approved has deteriorated in later
production runs, or if the SKU has otherwise been altered,
Disney may, in addition to other remedies available to Disney,
by written notice require such SKU of the Article to be
immediately withdrawn from the market.
E. The rights granted hereunder do not permit the sale of
"seconds" or "irregulars". All Articles not meeting the
standard of approved samples shall be destroyed or all
Licensed Material and Trademarks shall be removed or
obliterated therefrom.
F. Licensee is responsible for the consistent quality and safety
of the Articles and their compliance with applicable Laws.
Disney will not unreasonably object to any change in the
design of an Article or in the materials used in the
manufacture of the Article or in the process of manufacturing
the Articles which Licensee advises Disney in writing is
intended to make the Article safer or more durable.
G. Disney shall have the right, by written notice to Licensee, to
require modification of any SKU of any Article approved by
Disney under this or any previous agreement between the
parties pertaining to Licensed Material. Likewise, if the Term
of this Agreement is extended by mutual agreement, Disney
shall have the right, by written notice to Licensee, to
require modification of any SKU of any Article approved by
Disney under this Agreement. It is understood that there is no
obligation upon either party to extend the Agreement.
<PAGE> 16
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Disney Classics
Agreement dated November 16, 1998
Page 16
H. If Disney notifies Licensee of a required modification under
Paragraph 6.G. with respect to any SKU of a particular
Article, such notification shall advise Licensee of the nature
of the changes required, and Licensee shall not accept any
order for any such Article until the subject SKU has been
resubmitted to Disney with such changes and Licensee has
received Disney's written approval of the Article as modified.
However, Licensee may continue to distribute Licensee's
inventory of the previously approved Articles until such
inventory is exhausted (unless such Articles are dangerously
defective or are alleged to be violative of any third party
rights, as determined by Disney).
I. Upon Disney's request, Licensee agrees to give Disney written
notice of the first ship date for each Article.
J. If Disney has inadvertently approved a concept, pre-production
sample, or production sample of a product which is not
included in the Articles under this Agreement, or if Disney
has inadvertently approved an Article using artwork and/or
trademarks not included in the Agreement, such approval may be
revoked at any time without any obligation whatsoever on
Disney's part to Licensee. Any such product as to which
Disney's approval is revoked shall be deemed unauthorized and
shall not be distributed or sold by or for Licensee.
7. APPROVAL OF PACKAGING, PROMOTIONAL
MATERIAL, AND ADVERTISING
A. All containers, packaging, display material, promotional
material, catalogs, and all advertising, including but not
limited to, television advertising and press releases, for
Articles must be submitted to Disney and receive Disney's
written approval before use. To avoid unnecessary expense if
changes are required, Disney's approval thereof should be
procured when such is still in rough or storyboard format.
Disney shall endeavor to respond to requests for approval
within a reasonable time. Approval or disapproval shall lie in
Disney's sole discretion, and the use of unapproved
containers, packaging, display material, promotional material,
catalogs or advertising is prohibited. Disney's approval of
any containers, packaging, display material, promotional
material, catalogs or advertising under this Agreement will
not constitute or imply a representation or belief by Disney
that such materials comply with any applicable Laws. Whenever
Licensee prepares catalog sheets or other printed matter
containing illustrations of Articles, Licensee will furnish to
Disney five (5) copies thereof when they are published.
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Agreement dated November 16, 1998
Page 17
B. If Disney has supplied Licensee with forms for use in applying
for approval of materials referenced in this Paragraph 7,
Licensee shall use such forms when submitting anything for
Disney's approval.
C. Disney has designed character artwork and/or a brand name
logo(s) to be used by all licensees in connection with the
packaging of all merchandise using the Licensed Material, and,
if applicable, on hang tags and garment labels for such
merchandise. Disney will supply Licensee with reproduction
artwork thereof, and Licensee agrees to use such artwork
and/or logo(s) on the packaging of the Articles, and, if
applicable, on hang tags and garment labels, which Licensee
will have printed and attached to each Article at Licensee's
cost. Disney recommends that Licensee source the hang tags and
garment labels from Disney's authorized manufacturer (if any)
of pre-approved hang tags and garment labels, the name of
which will be provided to Licensee upon request. However,
Licensee may use another manufacturer for the required hang
tags and garment labels if the hang tags and garment labels
manufactured are of equivalent quality and are approved by
Disney in accordance with Disney's usual approval process.
8. ARTWORK
Licensee shall pay Disney, within thirty (30) days of receiving an
invoice therefor, for Style Guides and for artwork done at Licensee's
request by Disney or third parties under contract to Disney in the
development and creation of Articles, display, packaging or promotional
material (including any artwork which in Disney's opinion is necessary
to modify artwork initially prepared by Licensee and submitted to
Disney for approval, subject to Licensee's prior written approval) at
Disney's then prevailing commercial art rates. Estimates of artwork
charges are available upon request. While Licensee is not obligated to
utilize services of Disney's Art Department, Licensee is encouraged to
do so in order to minimize delays which may occur if outside artists do
renditions of Licensed Material which Disney cannot approve and to
maximize the attractiveness of the Articles. Artwork will be returned
to Licensee by overnight courier, at Licensee's cost (unless other
arrangements are made).
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The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 18
9. PRINT, RADIO OR TV ADVERTISING
Licensee will obtain all approvals necessary in connection with print,
radio or television advertising, if any, which Disney may authorize.
Licensee represents and warrants that all advertising and promotional
materials shall comply with all applicable Laws. Disney's approval of
copy or storyboards for such advertising will not constitute or imply a
representation or belief by Disney that such copy or storyboards comply
with any applicable Laws. This Agreement does not grant Licensee any
rights to use the Licensed Material in animation. Licensee may not use
any animation or live action footage from the motion picture from which
the Licensed Material comes without Disney's prior written approval in
each instance. In the event Disney approves the use of film clips of
the motion picture from which the Licensed Material comes, for use in a
television commercial, Licensee shall be responsible for any re-use
fees which may be applicable, including SAG payments for talent. No
reproduction of the film clip footage shall be made except for
inclusion, as approved by Disney, in such commercial and there shall be
no modifications of the film clip footage. All film clip footage shall
be returned to Disney immediately after its inclusion in such
commercial. Disney shall have the right to prohibit Licensee from
advertising the Articles by means of television and/or billboards. Such
right shall be exercised within Disney's absolute discretion, including
without limitation for reasons of overexposure of the Licensed
Material.
10. LICENSEE NAME AND ADDRESS ON ARTICLES
A. Licensee's name, trade name (or Licensee's trademark which
Licensee has advised Disney in writing that Licensee is using)
and Licensee's address (at least city and state) will appear
on permanently affixed labeling on each Article and, if the
Article is sold to the public in packaging or a container,
printed on such packaging or a container so that the public
can identify the supplier of the Article. On soft goods
"permanently affixed" shall mean sewn on. RN numbers do not
constitute a sufficient label under this paragraph.
B. Licensee shall advise Disney in writing of all trade names or
trademarks Licensee wishes to use on Articles being sold under
this license. Licensee may sell the Articles only under
mutually agreed upon trade names or trademarks.
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The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 19
11. COMPLIANCE WITH APPROVED SAMPLES AND
APPLICABLE LAWS AND STANDARDS
A. Licensee covenants that each Article and component thereof
distributed hereunder shall be of good quality and free of
defects in design, materials and workmanship, and shall comply
with all applicable Laws, and such specifications, if any, as
may have been specified in connection with this Agreement
(e.g., Disney's Apparel Performance Specification Manual, if
the Articles are items of apparel), and shall conform to the
Sample thereof approved by Disney. Licensee covenants that it
will comply with all applicable Laws in performing this
Agreement, including but not limited to, those pertaining to
the manufacture, pricing, sale and distribution of the
Articles.
B. Without limiting the foregoing, Licensee covenants on behalf
of Licensee's own manufacturing facilities, and agrees to
require all Manufacturers to covenant by signing the
Consent/Manufacturer's Agreement (referenced in Paragraph 24),
as follows:
(1) Licensee and the Manufacturers agree not to use child
labor in the manufacturing, packaging or distribution
of Disney merchandise. The term "child" refers to a
person younger than the local legal minimum age for
employment or the age for completing compulsory
education, but in no case shall any child younger
than fifteen (15) years of age (or fourteen (14)
years of age where local law allows) be employed in
the manufacturing, packaging or distribution of
Disney merchandise. Licensee and the Manufacturers
employing young persons who do not fall within the
definition of "children" agree also to comply with
any Laws applicable to such persons.
(2) Licensee and the Manufacturers agree only to employ
persons whose presence is voluntary. Licensee and the
Manufacturers agree not to use any forced or
involuntary labor, whether prison, bonded, indentured
or otherwise.
(3) Licensee and the Manufacturers agree to treat each
employee with dignity and respect, and not to use
corporal punishment, threats of violence, or other
forms of physical, sexual, psychological or verbal
harassment or abuse.
(4) Unless required by applicable Laws to treat a
specific group of employees differently, Licensee and
the Manufacturers agree not to
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The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 20
discriminate in hiring and employment practices,
including salary, benefits, advancement, discipline,
termination, or retirement, on the basis of race,
religion, age, nationality, social or ethnic origin,
sexual orientation, gender, political opinion or
disability.
(5) Licensee and the Manufacturers recognize that wages
are essential to meeting employees' basic needs.
Licensee and Manufacturers agree to comply, at a
minimum, with all applicable wage and hour Laws,
including minimum wage, overtime, maximum hours,
piece rates and other elements of compensation, and
to provide legally mandated benefits. If local Laws
do not provide for overtime pay, Licensee and
Manufacturers agree to pay at least regular wages for
overtime work. Except in extraordinary business
circumstances, Licensee and the Manufacturers will
not require employees to work more than the lesser of
(a) 48 hours per week and 12 hours overtime or (b)
the limits on regular and overtime hours allowed by
local law, or, where local law does not limit the
hours of work, the regular work week in such country
plus 12 hours overtime. In addition, except in
extraordinary business circumstances, employees will
be entitled to at least one day off in every
seven-day period. Licensee and the Manufacturers
agree that, where local industry standards are higher
than applicable legal requirements, they will meet
the higher standards.
(6) Licensee and the Manufacturers agree to provide
employees with a safe and healthy workplace in
compliance with all applicable Laws, ensuring, at a
minimum, reasonable access to potable water and
sanitary facilities, fire safety, and adequate
lighting and ventilation. Licensee and the
Manufacturers also agree to ensure that the same
standards of health and safety are applied in any
housing they provide for employees. Licensee and the
Manufacturers agree to provide Disney with all
information Disney may request about manufacturing,
packaging and distribution facilities for the
Articles.
(7) Licensee and the Manufacturers agree to respect the
rights of employees to associate, organize and
bargain collectively in a lawful and peaceful manner,
without penalty or interference, in accordance with
applicable Laws.
(8) Licensee and the Manufacturers agree to comply with
all applicable environmental Laws.
<PAGE> 21
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 21
(9) Licensee and the Manufacturers agree to comply with
all applicable Laws, including those pertaining to
the manufacture, pricing, sale and distribution of
the Articles.
(10) Licensee and the Manufacturers agree that Disney and
its designated agents (including third parties) may
engage in monitoring activities to confirm compliance
with this Paragraph 11, including unannounced on-site
inspections of manufacturing, packaging and
distribution facilities, and employer-provided
housing, such inspections to include reviews of books
and records relating to employment matters and
private interviews with employees. Licensee and the
Manufacturers agree to maintain on site all
documentation necessary to demonstrate compliance
with this Paragraph 11. Licensee agrees to promptly
reimburse Disney for the actual costs of inspections
performed pursuant to this Paragraph 11 when any of
Licensee's manufacturing facilities or any
Manufacturer does not pass the inspection(s).
(11) Licensee and the Manufacturers agree to take
appropriate steps to ensure that the provisions of
this Code of Conduct are communicated to employees,
including the prominent posting of a copy of the Code
of Conduct for Manufacturers (copy attached) in the
local language and in a place readily accessible to
employees at all times.
C. Licensee agrees to be bound by the Code of Conduct for
Licensees (copy attached), including but not limited to,
taking appropriate steps, in consultation with Disney, to
develop, implement and maintain procedures to evaluate and
monitor the Manufacturers it uses to manufacture the Articles
or components thereof, and to ensure compliance with Paragraph
11.B., including but not limited to, unannounced on-site
inspections of manufacturing, packaging and distribution
facilities and employer-provided housing, reviews of books and
records relating to employment matters and private interviews
with employees.
D. Both before and after Licensee puts Articles on the market,
Licensee shall follow reasonable and proper procedures for
testing that Articles comply with all applicable product
safety Laws, and shall permit Disney's designees to inspect
testing, manufacturing and quality control records and
procedures and to test the Articles for compliance with
product safety and other applicable Laws. Licensee agrees to
promptly reimburse Disney for the actual costs of such
testing. Licensee shall also give due consideration to any
recommendations by Disney that Articles exceed the
requirements of
<PAGE> 22
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 22
applicable Laws. Articles not manufactured, packaged or
distributed in accordance with applicable Laws shall be deemed
unapproved, even if previously approved by Disney, and shall
not be shipped unless and until they have been brought into
full compliance therewith.
12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL
Licensee acknowledges that the copyrights and all other proprietary
rights in and to Licensed Material are exclusively owned by and
reserved to Disney. Licensee shall neither acquire nor assert copyright
ownership or any other proprietary rights in the Licensed Material or
in any derivation, adaptation, variation or name thereof. Without
limiting the foregoing, Licensee hereby assigns to Disney all
Licensee's worldwide right, title and interest in the Licensed Material
and in any material objects consisting of or to the extent that they
incorporate drawings, paintings, animation cels, or sculptures of
Licensed Material, or other adaptations, compilations, collective
works, derivative works, variations or names of Licensed Material,
heretofore or hereafter created by or for Licensee or any of Licensee's
Affiliates. All such new materials shall be included in the definition
of "Licensed Material" under this Agreement. If any third party makes
or has made any contribution to the creation of any new materials which
are included in the definition of Licensed Material under this
Paragraph 12, Licensee agrees to obtain from such party a full
assignment of rights so that the foregoing assignment by Licensee shall
vest full rights to such new materials in Disney. Licensee further
covenants that any such new materials created by Licensee or by any
third party Licensee has engaged are original to Licensee or such third
party and do not violate the rights of any other person or entity; this
covenant regarding originality shall not extend to any materials Disney
supplies to Licensee, but does apply to all materials Licensee or
Licensee's third party contractors may add thereto. The foregoing
assignment to Disney of material objects shall not include that portion
of Licensee's displays, catalogs, or promotional material not
containing Licensed Material, or the physical items constituting the
Articles, unless such items are in the shape of the Licensed Material.
13. COPYRIGHT NOTICE
As a condition to the grant of rights hereunder, each Article and any
other matter containing Licensed Material shall bear a properly located
permanently affixed copyright notice in Disney's name (e.g., "SYMBOL
211 \f "Symbol" Disney"), or such other notice as Disney specifies to
Licensee in writing. Licensee will comply with such instructions as to
form, location and content of the notice as Disney may give from time
to time. Licensee will not, without Disney's prior written consent,
affix to any Article or any other matter containing Licensed Material a
copyright notice in any other name. If through inadvertence or
otherwise a copyright notice on any Article or other such matter should
appear in Licensee's name or the name of a third party, Licensee hereby
agrees to assign to Disney the copyright represented by any such
copyright notice in Licensee's name and, upon request, cause the
execution and delivery to Disney of whatever documents are necessary to
convey to Disney that copyright represented by any such copyright
notice. If by inadvertence a proper copyright
<PAGE> 23
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 23
notice is omitted from any Article or other matter containing Licensed
Material, Licensee agrees at Licensee's expense to use all reasonable
efforts to correct the omission on all such Articles or other matter in
process of manufacture or in distribution. Licensee agrees to advise
Disney promptly and in writing of the steps being taken to correct any
such omission and to make the corrections on existing Articles which
can be located.
14. NON-ASSOCIATION OF OTHER FANCIFUL
CHARACTERS WITH LICENSED MATERIAL
To preserve Disney's identification with Disney's characters and to
avoid confusion of the public, Licensee agrees not to associate other
characters or licensed properties with the Licensed Material or the
Trademarks either on the Articles or in their packaging, or, without
Disney's written permission, on advertising, promotional or display
materials. If Licensee wishes to use a character which constitutes
Licensee's trademark on the Articles or their packaging, or otherwise
in connection with the Articles, Licensee agrees to obtain Disney's
prior written permission.
15. ACTIVE MARKETING OF ARTICLES
Licensee agrees to manufacture (or have manufactured for Licensee) and
actively offer for sale all the Articles and to actively exercise the
rights granted herein. Licensee agrees that by the Marketing Date
applicable to a particular Article shipments to customers of such
Article will have taken place in sufficient time that such Article
shall be available for purchase in commercial quantities by the public
at the retail outlets in all distribution channels authorized pursuant
to Paragraph 2.A. In any case in which such sales have not taken place
or when the Article is not then and thereafter available for purchase
in commercial quantities by the public, Disney may invoke any and all
remedies available to it, including but not limited to those arising
under Paragraph 28.
<PAGE> 24
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 24
16. PROMOTION COMMITMENT
Licensee agrees to carry out the Promotion Commitment, if any, as
defined in Paragraph 1.N.
17. TRADEMARK RIGHTS AND OBLIGATIONS
A. All uses of the Trademarks by Licensee hereunder shall inure
to Disney's benefit. Licensee acknowledges that Disney is the
exclusive owner of all the Trademarks, and of any trademark
incorporating all or any part of a Trademark or any Licensed
Material, and the trademark rights created by such uses.
Without limiting the foregoing, Licensee hereby assigns to
Disney all the Trademarks, and any trademark incorporating all
or any part of a Trademark or any Licensed Material, and the
trademark rights created by such uses, together with the
goodwill attaching to that part of the business in connection
with which such Trademarks or trademarks are used. Licensee
agrees to execute and deliver to Disney such documents as
Disney requires to register Licensee as a Registered User or
Permitted User of the Trademarks or such trademarks and to
follow Disney's instructions for proper use thereof in order
that protection and/or registrations for the Trademarks and
such trademarks may be obtained or maintained.
B. Licensee agrees not to use any Licensed Material or
Trademarks, or any trademark incorporating all or any part of
a Trademark or of any Licensed Material, on any business sign,
business cards, stationery or forms (except as licensed
herein), or to use any Licensed Material or Trademark as the
name of Licensee's business or any division thereof, unless
otherwise agreed by Disney in writing.
C. Nothing contained herein shall prohibit Licensee from using
Licensee's own trademarks on the Articles or Licensee's
copyright notice on the Articles when the Articles contain
independent material which is Licensee's property. Nothing
contained herein is intended to give Disney any rights to, and
Disney shall not use, any trademark, copyright or patent used
by Licensee in connection with the Articles which is not
derived or adapted from Licensed Material, Trademarks, or
other materials owned by Disney.
18. REGISTRATIONS
Except with Disney's written consent, neither Licensee nor any of
Licensee's Affiliates will register or attempt in any country to
register copyrights in, or to register as a trademark, service mark,
design patent or industrial design, or business
<PAGE> 25
The First Years, Inc.
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Agreement dated November 16, 1998
Page 25
designation, any of the Licensed Material, Trademarks or derivations or
adaptations thereof, or any word, symbol or design which is so similar
thereto as to suggest association with or sponsorship by Disney or any
of Disney's Affiliates. In the event of breach of the foregoing,
Licensee agrees, at Licensee's expense and at Disney's request,
immediately to terminate the unauthorized registration activity and
promptly to execute and deliver, or cause to be delivered, to Disney
such assignments and other documents as Disney may require to transfer
to Disney all rights to the registrations, patents or applications
involved.
19. UNLICENSED USE OF LICENSED MATERIALS
A. Licensee agrees that Licensee will not use the Licensed
Material, or the Trademarks, or any other material the
copyright to which is owned by Disney in any way other than as
herein authorized (or as is authorized in any other remedy
Disney may have, Licensee agrees that all revenues from any
use thereof products other than the Articles (unless
authorized by Disney in writing), and all revenues from the
use of any other copyrighted material of Disney's without
written authorization, shall be immediately payable to Disney.
B. Licensee agrees to give Disney prompt written notice of any
unlicensed use by third parties of Licensed Material or
Trademarks, and that Licensee will not, without Disney's
written consent, bring or cause to be brought any criminal
prosecution, lawsuit or administrative action for
infringement, interference with or violation of any rights to
Licensed Material or Trademarks. Because of the need for and
the high costs of an effective anti-piracy enforcement
program, Licensee agrees to cooperate with Disney, and, if
necessary, to be named by Disney as a sole complainant or
co-complainant in any action against an infringer of the
Licensed Material or Trademarks and, notwithstanding any right
of Licensee to recover same, legal or otherwise, Licensee
agrees to pay to Disney, and hereby waives all claims to, all
damages or other monetary relief recovered in such action by
reason of a judgment or settlement whether or not such damages
or other monetary relief, or any part thereof, represent or
are intended to represent injury sustained by Licensee as a
licensee hereunder; in any such action against an infringer,
Disney agrees to reimburse Licensee for reasonable expenses
incurred at Disney's request, including reasonable attorney's
fees if Disney has requested Licensee to retain separate
counsel.
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The First Years, Inc.
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Agreement dated November 16, 1998
Page 26
20. STATEMENTS AND PAYMENTS OF ROYALTIES
A. Licensee agrees to furnish to Disney by the 25th day after
each Royalty Payment Period full and accurate statements on
statement forms Disney designates for Licensee's use, showing
all information requested by such forms, including but not
limited to, the quantities, Net Invoiced Billings and
applicable Royalty rate(s) of Articles invoiced during the
preceding Royalty Payment Period, and the quantities and
invoice value of Articles returned for credit or refund in
such period. At the same time Licensee will pay Disney all
Royalties and CMF payments (if applicable) due on billings
shown by such statements. To the extent that any Royalties or
CMF payments are not paid, Licensee authorizes Disney to
offset Royalties and/or CMF payments due against any sums
which Disney or any of Disney's Affiliates may owe to Licensee
or any of Licensee's Affiliates. No deduction or withholding
from Royalties payable to Disney shall be made by reason of
any tax. Any applicable tax on the manufacture, distribution
and sale of the Articles shall be borne by Licensee.
B. The statement forms Disney designates for Licensee's use may
be changed from time to time, and Licensee agrees to use the
most current form designated by Disney (including, for
example, forms to be sent by electronic transmission). If it
is necessary for Licensee to adapt its system to be able to
report statements by electronic transmission, all costs of
such adaptation shall be borne entirely by Licensee. Licensee
agrees to fully comply with all instructions supplied by
Disney for completing any reporting forms, or adhering to any
required format. Upon at least six (6) months' notice from
Disney, the Royalty Payment Period may be changed from
quarterly to monthly, unless this Agreement already provides
for a monthly Royalty Payment Period.
C. In addition to the other information requested by the
statement forms, Licensee's statement shall with respect to
all Articles report separately:
(1) F.O.B. In Sales;
(2) F.O.B. Out Sales;
(3) Licensee shall report all information required
under the Agreement separately by individual
Disney Classics Property;
(4) sales of Articles outside the Territory pursuant
to a distribution permission (indicating the
country involved);
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(5) Licensee's sales of Articles to any of Disney's
licensees or Disney's Affiliates' licensees who
are licensed to sell the Articles, and who are
reselling such Articles and paying Disney
royalties on such resales; in such cases, Licensee
need only report the sales on the statements,
because double royalties are not owed to Disney on
these sales;
(6) sales of Articles to Disney or any of Disney's
Affiliates;
(7) sales of Articles to Licensee's or Disney's
employees;
(8) sales of Articles under any brand or property
identified in Paragraph 1.B. hereinabove;
(9) sales of Articles to or for distribution through
any mail order catalogs approved under this
Agreement.
D. Sales of items licensed under contracts with Disney other than
this Agreement shall not be reported on the same statement as
sales of Articles under this Agreement.
E. Licensee's statements and payments, including all Royalties,
shall be delivered to Wachovia South Metro Center, DEI
Account, P.O. Box 101947, Atlanta, Georgia 30392. A copy of
each statement must be sent to Disney at 500 South Buena Vista
Street, Burbank, California 91521-6687, to the attention of
the Contract Administrator, Consumer Products Division. If
Licensee wishes to send statements and payments by overnight
courier, please use the following address: Wachovia South
Metro Center, DEI Account, 3585 Atlanta Avenue, Hapeville, GA
30354, Attention Peggy Morris, Reference Lock box 101947.
However, Advances should be mailed directly to Disney at 500
South Buena Vista Street, Burbank, California 91521-6687, to
the attention of the Contract Administrator or Legal
Department, Consumer Products Division.
F. Insofar as is necessary to provide for full performance of
this Agreement, including but not limited to, proper payment
of Royalties, Licensee represents and warrants that it will
take all required steps to ensure that its information
systems, including, without limitation, all its proprietary
and all third party hardware and software, process dates
correctly prior to, during and after the calendar year 2000
("Year 2000 Compliance"). Year 2000 Compliance shall include,
without limitation, correct century recognition, calculations
that properly accommodate same century and multi-century
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formulas and date values, and interface values that reflect
the appropriate century. Necessary steps to ensure Year 2000
Compliance shall include, without limitation, analysis of all
components of Licensee's information systems and, as
necessary, development, installation and testing of software
fixes, patches, and updates. Licensee represents and warrants
that its information systems will be Year 2000 Compliant by
September 30, 1999. Such representation and warranty is a
material term of this Agreement. Upon a breach by Licensee of
its obligation under this paragraph, Disney shall be entitled
to terminate this Agreement in accordance with the provisions
for termination set forth herein.
21. CONFIDENTIALITY
Licensee agrees not to issue any press release regarding this Agreement
without obtaining Disney's prior written consent. Licensee agrees to
keep the terms and conditions of this Agreement confidential, and
Licensee shall not disclose such terms and conditions to any third
party without obtaining Disney's prior written consent; provided,
however, that this Agreement may be disclosed on a need-to-know basis
to Licensee's attorneys and accountants who agree to be bound by this
confidentiality provision. In addition, Licensee may have access to
information concerning Disney's and/or its Affiliates' business and
operations, and/or information concerning works in progress, artwork,
plots, characters or other matters relating to Disney's and/or its
Affiliates' artistic creations, which information may not be accessible
or known to the general public. Licensee agrees not to use or disclose
such information to any third party without obtaining Disney's prior
written consent. In the event Licensee is required to disclose this
Agreement, or any part thereof, pursuant to any law, court order or
process, the rules and regulations of any governmental department,
agency or authority (including, but not limited to, the Securities and
Exchange Commission) or any generally accepted accounting rules
mandating disclosure in Licensee's financial statements, Licensee
agrees to give Disney prior written notice and to use its best efforts
to obtain confidential treatment of this Agreement. Upon Disney's
request, Licensee agrees to incorporate Disney's comments into
Licensee's request for confidential treatment, provided such request
and comments are received in writing by Licensee within five (5)
business days after Disney's receipt of the notice referred to in the
preceding sentence.
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22. INTEREST
Royalties or any other payments due to Disney hereunder which are
received after the due date shall bear interest at the rate of 18% per
annum from the due date (or the maximum permissible by law if less than
18%).
23. AUDITS AND MAINTAINING RECORDS
A. Licensee agrees to keep accurate records of all transactions
relating to this Agreement and any prior agreement with Disney
regarding the Licensed Material, including, without
limitation, shipments to Licensee of Articles and components
thereof, inventory records, records of sales and shipments by
Licensee, and records of returns, and to preserve such records
for the lesser of seven (7) years or two (2) years after the
expiration or termination of this Agreement.
B. Disney, or Disney's representatives, shall have the right from
time to time, during Licensee's normal business hours, but
only for the purpose of confirming Licensee's performance
hereunder, to examine and make extracts from all such records,
including the general ledger, invoices and any other records
which Disney reasonably deems appropriate to verify the
accuracy of Licensee's statements or Licensee's performance
hereunder, including records of Licensee's Affiliates and/or
unaffiliated sublicensees if they are involved in activities
which are the subject of this Agreement. In particular,
Licensee's invoices shall identify the Articles separately
from goods which are not licensed hereunder. Licensee
acknowledges that Disney may furnish Licensee with an audit
questionnaire, and Licensee agrees to fully and accurately
complete such questionnaire, and return it to Disney within
the designated time. Disney's use of an audit questionnaire
shall not limit Disney's ability to conduct any on-site
audit(s) as provided above. Licensee acknowledges that an
audit conducted by Disney or its representatives, may involve
one or more license agreements at a time.
C. If in an audit of Licensee's records it is determined that
there is a short fall of five percent (5%) or more in
Royalties reported for any Royalty Payment Period, Licensee
shall upon request from Disney reimburse Disney for the full
out-of-pocket costs of the audit, including the costs of
employee auditors calculated at $60 per hour per person for
travel time during normal working hours and actual working
time.
D. If Licensee has failed to keep adequate records for one or
more Royalty Payment Periods, Disney will assume that the
Royalties owed to Disney for
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such Royalty Payment Period(s) are equal to a reasonable
amount, determined in Disney's absolute discretion, which may
be up to but will not exceed the highest Royalties owed to
Disney in a Royalty Payment Period for which Licensee has kept
adequate records; if Licensee has failed to keep adequate
records for any Royalty Payment Period, Disney will assume a
reasonable amount of Royalties which Licensee will owe to
Disney, based on the records Licensee has kept and other
reasonable assumptions Disney deems appropriate.
24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS
A. Licensee agrees to supply Disney with the names and addresses
of all of its own manufacturing facilities for the Articles.
If Licensee at any time desires to have Articles or components
thereof containing Licensed Material and/or Trademarks
manufactured by a third party, whether the third party is
located within or outside the United States, Licensee must, as
a condition to the continuation of this Agreement, notify
Disney of the accurate name and complete address of such
Manufacturer and the Articles or components involved and
obtain Disney's prior written permission to do so. If Disney
is prepared to grant permission, Disney will do so if Licensee
and each of Licensee's Manufacturers sign a
Consent/Manufacturer's Agreement in a form which Disney will
furnish to Licensee and Disney receives all such agreements
properly signed. Licensee must immediately notify Disney if
Licensee is no longer using the Manufacturer to manufacture
Articles or components thereof.
(A SAMPLE OF SAID AGREEMENT FORM IS AVAILABLE ON REQUEST)
B. It is not Disney's policy to reveal the names of Licensee's
Manufacturers to third parties or to any Disney division
involved with buying products, except as may be necessary to
enforce Disney's contract rights or protect Disney's
trademarks and copyrights.
C. If any such Manufacturer utilizes Licensed Material or
Trademarks for any unauthorized purpose, Licensee shall
cooperate fully in bringing such utilization to an immediate
halt. If, by reason of Licensee's not having supplied the
above mentioned agreements to Disney or not having given
Disney the name of any Manufacturer, Disney makes any
representation or takes any action and is thereby subjected to
any penalty or expense, Licensee will fully compensate Disney
for any cost or loss Disney sustains (in addition to any other
legal or equitable remedies available to Disney).
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D. If any Manufacturer fails to pass a compliance inspection as
referenced in Paragraph 11, and thereafter fails to remedy the
cited failure(s) within the time designated by Disney, or if
the Manufacturer otherwise breaches the Consent/Manufacturer's
Agreement, the Consent/Manufacturer's Agreement for such
Manufacturer may be terminated immediately by Disney, and
Licensee shall not thereafter use such Manufacturer to
manufacture Articles or components thereof. If Licensee fails
to notify Disney that it has ceased using a particular
Manufacturer, and Disney or its designated agent conducts a
compliance inspection of such Manufacturer, Licensee remains
obligated to work with the Manufacturer to remedy any cited
failure(s), or, in the alternative, the Consent/Manufacturer's
Agreement shall be deemed terminated for purposes of Paragraph
28.B. (8), and Licensee shall promptly reimburse Disney for
the actual costs of the compliance inspection.
25. INDEMNITY
A. Licensee shall indemnify Disney during and after the term
hereof against all claims, demands, suits, judgments, losses,
liabilities (including settlements entered into in good faith
with Licensee's consent, not to be unreasonably withheld) and
expenses of any nature (including reasonable attorneys' fees)
arising out of Licensee's activities under this Agreement,
including but not limited to, any actual or alleged: (1)
negligent acts or omissions on Licensee's part, (2) defect
(whether obvious or hidden and whether or not present in any
Sample approved by Disney) in an Article, (3) personal injury,
(4) infringement of any rights of any other person by the
manufacture, sale, possession or use of Articles, (5) breach
on Licensee's part of any covenant, representation or warranty
contained in this Agreement, or (6) failure of the Articles or
by Licensee to comply with applicable Laws. The parties
indemnified hereunder shall include Disney Enterprises, Inc.
and its Affiliates and successors, and its and their officers,
directors, employees and agents. The indemnity shall not apply
to any claim or liability relating to any infringement of the
copyright of a third party caused by Licensee's utilization of
the Licensed Material and the Trademarks in accordance with
the provisions hereof, unless such claim or liability arises
out of Licensee's failure to obtain the full assignment of
rights referenced in Paragraph 12.
B. Disney shall indemnify Licensee during and after the term
hereof against all claims, demands, suits, judgments, losses,
liabilities (including settlements entered into in good faith
with Disney's consent, not to be unreasonably withheld) and
expenses of any nature (including reasonable attorneys' fees)
arising out of any claim that Licensee's use of any
representation of the Licensed Material or the Trademarks
approved in accordance with the provisions of this Agreement
infringes the copyright of any third party or
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infringes any right granted by Disney to such third party,
except for claims arising out of Licensee's failure to obtain
the full assignment of rights referenced in Paragraph 12.
Licensee shall not, in any case, be entitled to recover for
lost profits.
C. Additionally, if by reason of any claims referred to in
Paragraph 25.B., Licensee is precluded from selling any stock
of Articles or utilizing any materials in Licensee's
possession or which come into Licensee's possession by reason
of any required recall, Disney shall be obligated to purchase
such Articles and materials from Licensee at their
out-of-pocket cost to Licensee, excluding overheads, but
Disney shall have no other responsibility or liability with
respect to such Articles or materials.
D. Disney gives no warranty or indemnity with respect to any
liability or expense arising from any claim that use of the
Licensed Material or the Trademarks on or in connection with
the Articles hereunder or any packaging, advertising or
promotional material infringes on any trademark right of any
third party or otherwise constitutes unfair competition by
reason of any prior rights acquired by such third party, other
than rights acquired from Disney. It is expressly agreed that
it is Licensee's responsibility to carry out such
investigations as Licensee may deem appropriate to establish
that Articles, packaging, and promotional and advertising
material which are manufactured or created hereunder,
including any use made of the Licensed Material and the
Trademarks therewith, do not infringe such right of any third
party, and Disney shall not be liable to Licensee if such
infringement occurs.
E. Licensee and Disney agree to give each other prompt written
notice of any claim or suit which may arise under the
indemnity provisions set forth above. Without limiting the
foregoing, Licensee agrees to give Disney written notice of
any product liability claim made or suit filed with respect to
any Article, any investigations or directives regarding the
Articles issued by the Consumer Product Safety Commission
("CPSC") or other federal, state or local consumer safety
agency, and any notices sent by Licensee to, or received by
Licensee from, the CPSC or other consumer safety agency
regarding the Articles within fourteen (14) days of Licensee's
receipt or promulgation of the claim, suit, investigation,
directive, or notice.
26. INSURANCE
Licensee shall maintain in full force and effect at all times while
this Agreement is in effect and for three years thereafter commercial
general liability insurance on a per occurrence form, including broad
form coverage for contractual liability,
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property damage, products liability and personal injury liability
(including bodily injury and death), waiving subrogation, with minimum
limits of no less than two million dollars (US $2,000,000.00) per
occurrence, and naming as additional insureds those indemnified in
Paragraph 25 hereof. Licensee also agrees to maintain in full force and
effect at all times while this Agreement is in effect such Worker's
Compensation Insurance as is required by applicable law and Employer's
Liability Insurance with minimum limits of one million dollars (US
$1,000,000.00) per occurrence. All insurance shall be primary and not
contributory. Licensee shall deliver to Disney a certificate or
certificates of insurance evidencing satisfactory coverage and
indicating that Disney shall receive thirty (30) days unrestricted
prior written notice of cancellation, non-renewal or of any material
change in coverage. Licensee's insurance shall be carried by an insurer
with a BEST Guide rating of B + VII or better. Compliance herewith in
no way limits Licensee's indemnity obligations, except to the extent
that Licensee's insurance company actually pays Disney amounts which
Licensee would otherwise pay Disney.
27. WITHDRAWAL OF LICENSED MATERIAL
Licensee agrees that Disney may, without obligation to Licensee other
than to give Licensee written notice thereof, withdraw from the scope
of this Agreement any Licensed Material or Articles the use or sale of
which under this Agreement would infringe or reasonably be claimed to
infringe the rights of a third party, other than rights granted by
Disney, in which case Disney's obligations to Licensee shall be limited
to the purchase at cost of Articles and other materials utilizing such
withdrawn Licensed Material which cannot be sold or used. In the case
of any withdrawal under the preceding sentence, the Advances and
Guarantees shall be adjusted to correspond to the time remaining in the
Term, or the number of Articles remaining under the Agreement, at the
date of withdrawal.
28. TERMINATION
Without prejudice to any other right or remedy available to Disney:
A. Disney shall have the right at any time to terminate this
Agreement by giving Licensee written notice thereof, if
Licensee fails to manufacture, sell and distribute the
Articles in accordance with this Agreement, or fails to timely
furnish statements and timely pay Royalties or any other
payments due to Disney hereunder, or fails to notify Disney of
the accurate name and complete address of its own
manufacturing facilities or any Manufacturer of the Articles,
or fails to have any such Manufacturer execute the
Consent/Manufacturer's Agreement, or if Licensee otherwise
breaches the terms of this Agreement, and if any such failure
or other breach is not corrected within thirty (30) days (or,
in the case of non-payment of any
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monetary obligations due Disney under the Agreement within
fifteen (15) days) after Disney sends Licensee written notice
thereof.
B. Disney shall have the right at any time to terminate this
Agreement immediately by giving Licensee written notice
thereof:
(1) if Licensee delivers to any customer without
Disney's written authorization merchandise
containing representations of Licensed Material or
other material the copyright or other proprietary
rights to which are owned by Disney other than
Articles listed herein and approved in accordance
with the provisions hereof;
(2) if Licensee delivers Articles outside the
Territory or knowingly sells Articles to a third
party for delivery outside the Territory, unless
pursuant to a written distribution permission or
separate written license agreement with Disney or
any of Disney's Affiliates;
(3) if a breach occurs which is of the same nature,
and which violates the same provision of this
Agreement, as a breach of which Disney has
previously given Licensee written notice;
(4) if Licensee breaches any material term of any
other license agreement between the parties, and
Disney terminates such agreement for cause;
(5) if Licensee shall make any assignment for the
benefit of creditors, or file a petition in
bankruptcy, or is adjudged bankrupt, or becomes
insolvent, or is placed in the hands of a
receiver, or if the equivalent of any such
proceedings or acts occurs, though known by some
other name or term;
(6) if Licensee is not permitted or is unable to
operate Licensee's business in the usual manner,
or is not permitted or is unable to provide Disney
with assurance satisfactory to Disney that
Licensee will so operate Licensee's business, as
debtor in possession or its equivalent, or is not
permitted, or is unable to otherwise meet
Licensee's obligations under this Agreement or to
provide Disney with assurance satisfactory to
Disney that Licensee will meet such obligations;
(7) if Licensee breaches any covenant set forth in
Paragraph 11 of this Agreement; and/or
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(8) if more than three Consent/Manufacturer's
Agreements are terminated in any twelve-month
period by Disney for the Manufacturers' failure to
pass compliance inspections as referenced in
Paragraphs 11 and 24.
C. If Disney terminates this Agreement pursuant to this Paragraph
28, Licensee shall not be permitted to seek injunctive relief
to contest Disney's determination that a termination event has
occurred or to otherwise affect Disney's full and absolute
control of the Licensed Material and the Trademarks; provided
however, Licensee may bring an action for damages, but prior
to and during any such action, Disney shall have full and
absolute control over the Licensed Material and the
Trademarks.
29. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
A. Upon the expiration or termination of this Agreement, all
rights herein granted to Licensee shall revert to Disney, any
unpaid portion of the Guarantee shall be immediately due and
payable, and Disney shall be entitled to retain all Royalties
and other things of value paid or delivered to Disney.
Licensee agrees that the Articles shall be manufactured during
the Term in quantities consistent with anticipated demand
therefor so as not to result in an excessive inventory
build-up immediately prior to the end of the Term. Licensee
agrees that from the expiration or termination of this
Agreement Licensee shall neither manufacture nor have
manufactured for Licensee any Articles, that Licensee will
deliver to Disney any and all artwork (including Style Guides,
animation cels and drawings) which may have been used or
created by Licensee in connection with this Agreement, that
Licensee will at Disney's option either sell to Disney at cost
or destroy or efface any molds, plates and other items used to
reproduce Licensed Material or Trademarks, and that, except as
hereinafter provided, Licensee will cease selling Articles.
Any unauthorized distribution of Articles after the expiration
or termination of this Agreement shall constitute copyright
infringement.
B. If Licensee has any unsold Articles in inventory on the
expiration or termination date, Licensee shall provide Disney
with a full statement of the kinds and numbers of such unsold
Articles. If such statement has been provided to Disney and if
Licensee has fully complied with the terms of this Agreement,
including the payment of all Royalties due and the Guarantee,
upon notice from Disney, Licensee shall have the right for a
limited period of two (2) calendar months from such expiration
or earlier termination date to sell off and deliver such
Articles as authorized under Paragraph 2.A.
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Licensee shall furnish Disney statements covering such sales
and pay Disney Royalties in respect of such sales. Such
Royalties shall not be applied against the Advance or towards
meeting the Guarantee. If the sell-off period is extended by
Disney to a date which is not the last day of the Royalty
Payment Period, Licensee's statement and Royalties for such
sell-off period shall be due twenty-five (25) days after the
last day of the sell-off period. All rights and remedies
available to Disney during the Term shall be equally available
to Disney during the sell-off period.
C. In recognition of Disney's interest in maintaining a stable
and viable market for the Articles during and after the Term
and any sell-off period, Licensee agrees to refrain from
"dumping" the Articles in the market during the Term and any
sell-off period granted to Licensee. "Dumping" shall mean the
distribution of product at volume levels significantly above
Licensee's prior sales practices with respect to the Articles,
and at price levels so far below Licensee's prior sales
practices with respect to the Articles as to disparage the
Articles; provided, however, that nothing contained herein
shall be deemed to restrict Licensee's ability to set product
prices at Licensee's discretion.
D. Except as otherwise agreed by Disney in writing, any inventory
of Articles in Licensee's possession or control after the
expiration or termination hereof and of any sell-off period
granted hereunder shall be destroyed, or all Licensed Material
and Trademarks removed or obliterated therefrom.
E. If Disney supplies Licensee with forms regarding compliance
with this Paragraph 29, Licensee agrees to complete, execute
and return such forms to Disney expeditiously.
F. Notwithstanding any provision to the contrary, in the case of
termination under Paragraph 28.B. (5) or (6), in order to
protect the value of the Articles and to avoid any
disparagement of the Articles which could occur as a result of
the circumstances of termination, Disney shall have the
option, in Disney's absolute discretion, to purchase any or
all unsold Articles in Licensee's inventory on the termination
date at 20% over Licensee's cost of goods for such Articles
(not including overhead).
30. WAIVERS
A waiver by either party at any time of a breach of any provision of
this Agreement shall not apply to any breach of any other provision of
this Agreement, or imply that a breach of the same provision at any
other time has been or will be waived, or that this Agreement has been
in any way amended, nor shall any failure by either party
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to object to conduct of the other be deemed to waive such party's right
to claim that a repetition of such conduct is a breach hereof.
31. PURCHASE OF ARTICLES BY DISNEY
If Disney wishes to purchase Articles, Licensee agrees to sell such
Articles to Disney or any of Disney's Affiliates at as low a price as
Licensee charges for similar quantities sold to Licensee's regular
customers and to pay Disney Royalties on any such sales.
32. NON-ASSIGNABILITY
A. This Agreement is personal to Licensee, who was specifically
chosen by Disney to be licensed hereunder because of
Licensee's particular expertise and ability to perform the
Agreement. Licensee shall not voluntarily or by operation of
law assign, sub-license, transfer, encumber or otherwise
dispose of all or any part of Licensee's interest in this
Agreement (including, but not limited to, any encumbrance of
the Articles) without Disney's prior written consent, to be
granted or withheld in Disney's absolute discretion. Any
attempted assignment, sub-license, transfer, encumbrance or
other disposal without such consent shall be void and shall
constitute a material default and breach of this Agreement.
"Transfer" within the meaning of this Paragraph 32 shall
include any merger or consolidation involving Licensee or any
directly or indirectly controlling Affiliate(s) of Licensee
("Controlling Affiliate"); any sale or transfer of all or
substantially all of Licensee's or its Controlling
Affiliate(s)' assets; any transfer of Licensee's rights and/or
obligations hereunder to a division, business segment or other
entity different from the one specifically referenced on page
1 hereof (or any sale or attempted sale of Articles under a
trademark or trade name of such division, business segment or
other entity); any public offering, or series of public
offerings, whereby a cumulative total of thirty-three and
one-third percent (33 1/3%) or more of the voting stock of
Licensee or its Controlling Affiliate(s) is offered for
purchase; and any acquisition, or series of acquisitions, by
any person or entity, or group of related persons or entities,
of a cumulative total of thirty-three and one-third percent
(33-1/3%) or more of the voting stock of Licensee or its
Controlling Affiliate(s), or the right to vote such percentage
(or, if Licensee is a partnership, resulting in the transfer
of thirty-three and one-third percent (33-1/3%) or more of the
profit and loss participation in Licensee, or the occurrence
of any of the foregoing with respect to any general partner of
Licensee).
B. Licensee agrees to provide Disney with at least thirty (30)
days prior written notice of any desired assignment of this
Agreement or other transfer as
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defined in Paragraph 32.A. At the time Licensee gives such
notice, Licensee shall provide Disney with the information and
documentation necessary to evaluate the contemplated
transaction. Disney's consent (if given) to any assignment of
this Agreement or other transfer as defined in Paragraph 32.A.
shall be subject to such terms and conditions as Disney deems
appropriate, including but not limited to, payment of a
transfer fee. The amount of the transfer fee shall be
determined by Disney based upon the circumstances of the
particular assignment or transfer, taking into account such
factors as the estimated value of the license being assigned
or otherwise transferred; the risk of business interruption or
loss of quality, production or control Disney may suffer as a
result of the assignment or other transfer; the identity,
reputation, creditworthiness, financial condition and business
capabilities of the proposed assignee or other entity involved
in the transfer; and Disney's internal costs related to the
assignment or other transfer; provided, however, in no event
shall the transfer fee be in an amount less than $ * for each
Disney license, brand and/or property (if applicable) involved
in an assignment or other transfer. The foregoing transfer fee
shall not apply if this Agreement is assigned to one of
Licensee's Affiliates as part of a corporate reorganization
exclusively among some or all of the entities existing in
Licensee's corporate structure when this Agreement is signed;
provided, however, that Licensee must give Disney written
notice of such assignment and a description of the
reorganization. Notwithstanding the foregoing, a transfer fee
will not be triggered by any of the following transfers of
voting stock, unless occurring as part of a transaction that
would trigger a transfer fee: (1) distribution(s) on employee
stock options, or (2) transfers among the current shareholders
who are members of the Sidman family (including their spouses
and children), for estate planning purposes, so long as
Licensee maintains substantially the same management and
continues to operate in substantially the same fashion as
prior to such transfer; provided, however, that in any event,
any of the transfers described above shall remain subject to
Disney's consent as set forth in Paragraph 32.A. The
provisions of this Paragraph 32 shall supersede any
conflicting provisions on this subject in any merchandise
license agreement previously entered into between the parties
for this Territory.
C. Licensee acknowledges that it has read and understands the
Transfer Fee Policy attached hereto, which governs transfer
fee procedures under this Agreement. The Transfer Fee Policy
is incorporated herein by this reference.
D. Notwithstanding Paragraphs 32.A. and B., Licensee may, upon
Disney's prior written consent, sublicense Licensee's rights
and/or obligations hereunder to any of Licensee's Affiliates,
provided that each such Affiliate
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agrees to be bound by all of the terms and conditions of this
Agreement, and provided that each such Affiliate agrees to
guarantee Licensee's full performance of this Agreement
(including, but not limited to, Paragraph 25) and to indemnify
Disney for any failure of such performance, and further
provided that Licensee and each such Affiliate agree to
provide Disney with satisfactory documentation of such
agreement(s), guarantee(s), and indemnification upon Disney's
request therefor. Licensee hereby represents and irrevocably
and unconditionally guarantees that any and all Affiliates
sublicensed hereunder will observe and perform all of
Licensee's obligations under this Agreement, including, but
not limited to, the provisions governing approvals, and
compliance with approved samples, applicable Laws, and all
other provisions hereof, and that they will otherwise adhere
strictly to all of the terms hereof and act in accordance with
Licensee's obligations hereunder. Any involvement of an
Affiliate in the activities which are the subject of this
Agreement shall be deemed carried on pursuant to such a
sublicense and thus covered by such guarantee; however, unless
Licensee has obtained Disney's consent to sublicense an
Affiliate in each instance, such Affiliate shall be deemed to
be included in the term "Licensee" for all purposes under this
Agreement, and Disney may treat such unapproved involvement of
the Affiliate as a breach of the Agreement. In the event of
any sublicense to an Affiliate hereunder, the reference in
Paragraph 32.A. to "Controlling Affiliate" shall include such
Affiliate sublicensee.
33. RELATIONSHIP
This Agreement does not provide for a joint venture, partnership,
agency or employment relationship between the parties, or any other
relationship than that of licensor and licensee.
<PAGE> 40
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 40
34. CONSTRUCTION
The language of all parts of this Agreement shall in all cases be
construed as a whole, according to its fair meaning and not strictly
for or against any of the parties. Headings of paragraphs herein are
for convenience of reference only and are without substantive
significance.
35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT
Except as otherwise provided herein, this Agreement can only be
extended or modified by a writing signed by authorized representatives
of both parties; provided, however, that certain modifications shall be
effective if signed by the party to be charged and communicated to the
other party.
36. NOTICES
All notices which either party is required or may desire to serve upon
the other party shall be in writing, addressed to the party to be
served at the address set forth on page 1 of this Agreement, and may be
served personally or by depositing the same addressed as herein
provided (unless and until otherwise notified), postage prepaid, in the
United States mail. Such notice shall be deemed served upon personal
delivery or upon the date of mailing; provided, however, that Disney
shall be deemed to have been served with a notice of a request for
approval of materials under this Agreement only upon Disney's actual
receipt of the request and of any required accompanying materials. Any
notice sent to Disney hereunder shall be sent to the attention of "Vice
President, Licensing", unless Disney advises Licensee in writing
otherwise.
37. MUSIC
Music is not licensed hereunder. Any charges, fees or royalties payable
for music rights or any other rights not covered by this Agreement
shall be additional to the Royalties and covered by separate agreement.
38. PREVIOUS AGREEMENTS
This Agreement, and any confidentiality agreement Licensee may have
signed pertaining to any of the Licensed Material, contains the entire
agreement between the parties concerning the subject matter hereof and
supersedes any pre-existing or contemporaneous agreement and any oral
or written communications between the parties.
<PAGE> 41
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 41
39. CHOICE OF LAW AND FORUM
This Agreement shall be deemed to be an executory agreement entered
into in California and shall be governed and interpreted according to
the laws of the State of California applicable to contracts made and to
be fully performed in California. Any legal actions pertaining to this
Agreement shall be commenced within the State of California and within
either Los Angeles or Orange Counties, and Licensee consents to the
jurisdiction of the courts located in Los Angeles or Orange Counties.
40. EQUITABLE RELIEF
Licensee acknowledges that Disney will have no adequate remedy at law
if Licensee continues to manufacture, sell, advertise, promote or
distribute the Articles upon the expiration or termination of this
Agreement. Licensee acknowledges and agrees that, in addition to any
and all other remedies available to Disney, Disney shall have the right
to have any such activity by Licensee restrained by equitable relief,
including, but not limited to, a temporary restraining order, a
preliminary injunction, a permanent injunction, or such other
alternative relief as may be appropriate, without the necessity of
Disney posting any bond.
41. GOODWILL
Licensee acknowledges that the rights and powers retained by Disney
hereunder are necessary to protect Disney's copyrights and property
rights, and, specifically, to conserve the goodwill and good name of
Disney's products and company, and the name "Disney", and therefore
Licensee agrees that Licensee will not allow the same to become
involved in matters which will, or could, detract from or impugn the
public acceptance and popularity thereof, or impair their legal status.
42. POWER TO SIGN
The parties warrant and represent that their respective representatives
signing this Agreement have full power and proper authority to sign
this Agreement and to bind the parties.
43. SURVIVAL OF OBLIGATIONS
The respective obligations of the parties under this Agreement, which
by their nature would continue beyond the termination, cancellation or
expiration of this Agreement, including but not limited to
indemnification, insurance, payment of Royalties, and Paragraph 29,
shall survive termination, cancellation or expiration of this
Agreement.
<PAGE> 42
The First Years, Inc.
Disney Classics
Agreement dated November 16, 1998
Page 42
44. SEVERABILITY OF PROVISIONS
The terms of this Agreement are severable and the invalidity of any
term of this Agreement shall not affect the validity of any other term.
Please sign below under the word "Agreed". When signed by both parties this
shall constitute an agreement between Disney and Licensee.
AGREED:
DISNEY ENTERPRISES, INC.
By: /s/ Steve Cipolla
-----------------------------
Title: Vice President, Licensing
-------------------------
Date: June 15, 1999
THE FIRST YEARS, INC.
By: /s/ Ronald J. Sidman
------------------------------
Title: President
---------------------------
<PAGE> 43
THE FIRST YEARS, INC.
DISNEY CLASSICS
AGREEMENT DATED NOVEMBER 16, 1998
SCHEDULE A
A. FEEDING AND SOOTHING
1. Bottles
2. Bibs
3. Cups (sculpted and decorated)
4. Fork and spoon
5. Pacifiers
6. Toddler sports bottles
B. PLAYTHINGS
1. Hand-held rattles (must contain teething or visible rattle component)
2. Electronic hand-held toys
3. Suction toys
4. Bath toys
5. Linking toys
6. Musical plush with teething and/or rattle
7. Crib activity toys
8. Crib activity lights
9. Teethers
10. Squeeze toys
11. Chime balls (DISNEY BABIES brand only)
C. CARE AND SAFETY
1. Night lights
2. Car shades
3. Combs and brushes
<PAGE> 44
TRANSFER FEE POLICY
As provided in Paragraph 32.B. of the License Agreement, it is Disney's policy
to charge a transfer fee in connection with any permitted assignment of the
license or other "transfer," as that term is defined in Paragraph 32.A. The
amount of the transfer fee is based on the circumstances of the particular
assignment or transfer, taking into account such factors as:
o the estimated value of the license being assigned or involved in the
transfer
o the risk of business interruption
o the risk of loss of quality, production or control
o the identity, reputation, creditworthiness, financial condition and
business capabilities of the proposed assignee or entity involved in the
transfer
o Disney's internal costs related to the assignment or transfer
At a minimum, the transfer fee will be $ * , and it could be as high as * ,
depending on the circumstances of the particular case. No Licensee or any
company involved with a Licensee in an assignment or transfer situation should
rely upon any express or implied verbal representations that are purported to be
made on Disney's behalf as to the amount of any given fee to be assessed. Disney
Licensing's Finance Department will communicate the actual amount of the fee
calculated in each approved transaction.
In any prospective assignment or transfer situations, Licensees must inform the
persons and companies with which they are dealing that no assignment or transfer
may occur without Disney's prior written consent, to be granted or withheld in
Disney's absolute discretion, and that any approved transaction will also entail
a transfer fee. Licensees must give Disney at least 30 days prior written notice
of any desired assignment or other transfer, together with any information and
documentation necessary to evaluate the contemplated transaction. Licensees
should not endanger the closing of their desired transactions by failing to
comply with these provisions of the License Agreement.
If Disney grants consent to a proposed transaction subject to the payment of a
transfer fee, and the transaction is concluded but the transfer fee is not paid
within the designated time, the subject License Agreement(s) shall automatically
terminate and any Guarantee shortfall(s) shall be immediately due and payable to
Disney. If Disney does not grant consent to a proposed assignment or transfer
and the Licensee nevertheless closes the transaction, the subject License
Agreement(s) shall automatically terminate and any Guarantee shortfall(s) shall
be immediately due and payable to Disney.
Disney's consent to any assignment or other transfer should in no way be
understood to be a guarantee or promise by Disney of a grant of any future
license(s), as those determinations will continue to be made on a contract by
contract basis.
<PAGE> 45
CODE OF CONDUCT FOR MANUFACTURERS
At The Walt Disney Company, we are committed to:
o a standard of excellence in every aspect of our business and in every
corner of the world;
o ethical and responsible conduct in all of our operations;
o respect for the rights of all individuals; and
o respect for the environment.
We expect these same commitments to be shared by all manufacturers of Disney
merchandise. At a minimum, we require that all manufacturers of Disney
merchandise meet the following standards:
CHILD LABOR Manufacturers will not use child labor.
The term "child" refers to a person younger than 15
(or 14 where local law allows) or, if higher, the
local legal minimum age for employment or the age for
completing compulsory education.
Manufacturers employing young persons who do not fall
within the definition of "children" will also comply
with any laws and regulations applicable to such
persons.
INVOLUNTARY LABOR Manufacturers will not use any forced or
involuntary labor, whether prison, bonded, indentured
or otherwise.
COERCION AND
HARASSMENT Manufacturers will treat each employee with dignity
and respect, and will not use corporal punishment,
threats of violence or other forms of physical,
sexual, psychological or verbal harassment or abuse.
NONDISCRIMINATION Manufacturers will not discriminate in hiring and
employment practices, including salary, benefits,
advancement, discipline, termination or retirement,
on the basis of race, religion, age, nationality,
social or ethnic origin, sexual orientation, gender,
political opinion or disability.
ASSOCIATION Manufacturers will respect the rights of employees to
associate, organize and bargain collectively in a
lawful and peaceful manner, without penalty or
interference.
HEALTH AND SAFETY Manufacturers will provide employees with
a safe and healthy workplace in compliance with all
applicable laws and regulations, ensuring at a
minimum, reasonable access to potable water and
sanitary facilities, fire safety, and adequate
lighting and ventilation.
Manufacturers will also ensure that the same
standards of health and safety are applied in any
housing that they provide for employees.
<PAGE> 46
COMPENSATION We expect manufacturers to recognize that wages are
essential to meeting employees' basic needs.
Manufacturers will, at a minimum, comply with all
applicable wage and hour laws and regulations,
including those relating to minimum wages, overtime,
maximum hours, piece rates and other elements of
compensation, and provide legally mandated benefits.
If local laws do not provide for overtime pay,
manufacturers will pay at least regular wages for
overtime work. Except in extraordinary business
circumstances, manufacturers will not require
employees to work more than the lesser of (a) 48
hours per week and 12 hours overtime or (b) the
limits on regular and overtime hours allowed by local
law or, where local law does not limit the hours of
work, the regular work week in such country plus 12
hours overtime. In addition, except in extraordinary
business circumstances, employees will be entitled to
at least one day off in every seven-day period.
Where local industry standards are higher than
applicable legal requirements, we expect
manufacturers to meet the higher standards.
PROTECTION OF THE
ENVIRONMENT Manufacturers will comply with all applicable
environmental laws and regulations.
OTHER LAWS Manufacturers will comply with all applicable laws
and regulations, including those pertaining to the
manufacture, pricing, sale and distribution of
merchandise.
All references to "applicable laws and regulations"
in this Code of Conduct include local and national
codes, rules and regulations as well as applicable
treaties and voluntary industry standards.
SUBCONTRACTING Manufacturers will not use subcontractors for the
manufacture of Disney merchandise or components
thereof without Disney's express written consent, and
only after the subcontractor has entered into a
written commitment with Disney to comply with this
Code of Conduct.
MONITORING AND
COMPLIANCE Manufacturers will authorize Disney and its
designated agents (including third parties) to engage
in monitoring activities to confirm compliance with
this Code of Conduct, including unannounced on-site
inspections of manufacturing facilities and
employer-provided housing; reviews of books and
records relating to employment matters; and private
interviews with employees. Manufacturers will
maintain on site all documentation that may be needed
to demonstrate compliance with this Code of Conduct.
PUBLICATION Manufacturers will take appropriate steps to ensure
that the provisions of this Code of Conduct are
communicated to employees, including the prominent
posting of a copy of this Code of Conduct, in the
local language and in a place readily accessible to
employees, at all times.
<PAGE> 47
CODE OF CONDUCT FOR LICENSEES
At The Walt Disney Company, we are committed to:
o a standard of excellence in every aspect of our business and in every
corner of the world;
o ethical and responsible conduct in all of our operations;
o respect for the rights of all individuals; and
o respect for the environment.
We expect these same commitments to be shared by all Disney licensees and the
manufacturers with which they work in the production of Disney merchandise. At a
minimum, we require that all Disney licensees meet the following standards:
CONDUCT OF
MANUFACTURING Licensees that engage directly in the manufacturing
of Disney merchandise will comply with all of the
standards set forth in Disney's Code of Conduct for
Manufacturers, a copy of which is attached.
Licensees will ensure that each manufacturer other
than the licensee also enters into a written
commitment with Disney to comply with the standards
set forth in Disney's Code of Conduct for
Manufacturers.
Licensees will prohibit manufacturers from
subcontracting the manufacture of Disney merchandise
or components thereof without Disney's express
written consent, and only after the subcontractor has
entered into a written commitment with Disney to
comply with Disney's Code of Conduct for
Manufacturers.
MONITORING AND
COMPLIANCE Licensees will take appropriate steps, in
consultation with Disney, to develop, implement and
maintain procedures to evaluate and monitor
manufacturers of Disney merchandise and ensure
compliance with Disney's Code of Conduct for
Manufacturers, including unannounced on-site
inspections of manufacturing facilities and
employer-provided housing; review of books and
records relating to employment matters; and private
interviews with employees.
Licensees will authorize Disney and its designated
agents (including third parties) to engage in similar
monitoring activities to confirm Licensees'
compliance with this Code of Conduct. Licensees will
maintain on site all documentation that may be needed
to demonstrate such compliance.
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<PERIOD-START> JAN-01-1999
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