<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 September 30, 1999
- --------------------------------------------------------------------------------
Commission File Number 0-7024
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
(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 October 31,
1999 was 9,994,657.
<PAGE> 2
THE FIRST YEARS INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets Page 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Notes to Condensed Consolidated Financial Statements 4 - 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
PART II - OTHER INFORMATION
Other Information 11
Signatures 12
Exhibit Index 13
</TABLE>
<PAGE> 3
THE FIRST YEARS INC.
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $13,887,320 $19,776,897
Accounts receivable, net 22,404,289 19,013,127
Inventories 19,052,378 18,520,023
Prepaid expenses and other assets 476,555 2,638,634
Deferred tax assets 1,424,500 1,424,500
----------- -----------
Total current assets 57,245,042 61,373,181
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT:
Land 167,266 167,266
Building 5,114,510 4,199,790
Machinery and molds 8,685,541 7,878,103
Furniture and equipment 4,498,513 4,571,636
----------- -----------
Total 18,465,830 16,816,795
Less accumulated depreciation 8,616,158 8,914,081
----------- -----------
Property, plant, and equipment - net 9,849,672 7,902,714
----------- -----------
TOTAL ASSETS $67,094,714 $69,275,895
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,870,590 $ 9,400,966
Accrued royalty expense 2,002,653 2,130,027
Accrued payroll expenses 283,402 1,200,966
Accrued selling expenses 2,234,783 3,098,232
----------- -----------
Total current liabilities 12,391,428 15,830,191
----------- -----------
DEFERRED TAX LIABILITY 798,300 798,300
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock 1,057,025 1,046,141
Paid-in capital 8,056,666 7,472,398
Retained earnings 51,864,321 44,438,589
Less treasury stock at cost, 575,594
and 21,394 shares as of September 30,
1999 and December 31, 1998, respectively (7,073,026) (309,724)
----------- -----------
Total stockholders' equity 53,904,986 52,647,404
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $67,094,714 $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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $31,794,094 $32,735,238 $103,594,089 $103,219,645
COST OF PRODUCTS SOLD 17,682,789 18,951,345 59,945,118 61,038,625
----------- ----------- ------------ ------------
GROSS PROFIT 14,111,305 13,783,893 43,648,971 42,181,020
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 10,137,311 9,241,221 30,526,706 29,451,127
----------- ----------- ------------ ------------
OPERATING INCOME 3,973,994 4,542,672 13,122,265 12,729,893
OTHER INCOME:
Interest income 124,798 188,259 417,459 390,738
----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 4,098,792 4,730,931 13,539,724 13,120,631
PROVISION FOR INCOME TAXES 1,660,000 1,916,000 5,483,600 5,313,800
----------- ----------- ------------ ------------
NET INCOME $ 2,438,792 $ 2,814,931 $ 8,056,124 $ 7,806,831
=========== =========== ============ ============
BASIC EARNINGS PER SHARE $ 0.24 $ 0.27 $ 0.78 $ 0.76
=========== =========== ============ ============
DILUTED EARNINGS PER SHARE $ 0.24 $ 0.26 $ 0.76 $ 0.73
=========== =========== ============ ============
CASH DIVIDENDS PAID PER SHARE $ 0.00 $ 0.00 $ 0.06 $ 0.06
=========== =========== ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE> 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,056,124 $ 7,806,831
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation 1,403,128 1,260,768
Provision for doubtful accounts 76,712 115,000
Loss on disposal of equipment 452,271 476,067
Increase (decrease) arising from working
capital items:
Accounts receivable (3,467,874) (1,979,406)
Inventories (532,355) 5,051,281
Prepaid expenses and other assets 2,162,079 (18,957)
Accounts payable and accrued expenses (1,407,876) (75,513)
Accrued royalties (127,374) 10,825
Accrued payroll expense (917,564) 133,971
Accrued selling expenses (863,449) 626,395
------------ ------------
Net cash provided by (used for)
operating activities 4,833,822 13,407,262
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant,
and equipment (3,802,357) (1,424,169)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividend (630,392) (621,935)
Common stock issued under stock
option plans 378,077 625,820
Purchase of treasury stock (6,668,727) --
------------ ------------
Net cash provided by (used for)
financing activities (6,921,042) 3,885
------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (5,889,577) 11,986,978
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 19,776,897 7,697,040
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,887,320 $ 19,684,018
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 762 $ 850
============ ============
Income taxes $ 4,189,226 $ 4,656,800
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Tax benefit of stock option exercises $ 122,500 $ 506,400
============ ============
Issuance of treasury stock $ 94,575 $ 227,911
============ ============
</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 September 30, 1999, and the
results of operations and cash flows for the periods ended September 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 9,994,657 and 10,440,014 shares issued and outstanding as of September
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 September 30, 1999 the company purchased 545,800
shares of the company's common stock on the open market. The cost of the
shares amounted to $6,668,727 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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE SHARES OUTSTANDING 10,204,475 10,391,816 10,353,059 10,306,828
EFFECT OF DILUTIVE SHARES 142,179 305,155 206,450 352,809
----------- ----------- ----------- -----------
AVERAGE DILUTED
SHARES OUTSTANDING 10,346,654 10,696,971 10,559,509 10,659,637
=========== =========== =========== ===========
NET INCOME $ 2,438,792 $ 2,814,931 $ 8,056,124 $ 7,806,831
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE $ 0.24 $ 0.27 $ 0.78 $ 0.76
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE $ 0.24 $ 0.26 $ 0.76 $ 0.73
=========== =========== =========== ===========
</TABLE>
Page 4
<PAGE> 7
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. (cont):
As of September 30, 1999, options to purchase 510,295 shares of common
stock 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, expiring from 2007 to 2009, had exercise
prices ranging from 12 3/16 to 17 3/4 per share.
As of September 30, 1998, options to purchase 33,964 shares of common
stock 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, expiring from 2008 to 2009, had exercise
prices ranging from 15 15/16 to 17 3/4 per share.
4. The results of operations for the nine-month period ended September 30,
1999 and 1998 are not necessarily indicative of the results to be expected
for the full year.
5. During the first nine 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
in May, 1999 by SFAS No. 137 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, as amended, which will be effective for the year beginning January
1, 2001.
7. During 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.
Page 5
<PAGE> 8
THE FIRST YEARS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. During the fourth quarter of 1998, the Company incurred a charge relating
to sales returns and the write-off of inventory of certain products
containing diisononyl phthalate ("DINP"), a plastic softener. Although the
results of a study on DINP conducted by the U.S. Consumer Product Safety
Commission resulted in the Commission not recommending a ban on products
containing DINP, some retailers decided to return certain products
containing this material.
Net sales for the three months and nine months ended September 30, 1999
increased by $384,000 and cost of sales decreased by $629,000 for the same
period due to lower than expected sales returns and inventory write offs of
certain products containing diisononyl phthalate, for which a charge was
previously recorded in the fourth quarter of 1998. Net income for the three
months and the nine months ended September 30, 1999 reflect the total
after-tax increase of $603,000 related to the phthalate issue.
Page 6
<PAGE> 9
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, is confident, 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 successful introduction of new products,
growth in international sales, the outcome of a patent lawsuit, efficiencies
resulting from new order entry and warehouse systems, dependence on licensed
products, 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 nine months of 1999 were $103.6 million, an increase of
$.4 million or 0.4%, as compared to $103.2 million for the comparable period
last year. The increase was primarily due to a reversal of a portion of a 1998
accrual for sales returns of certain products containing diisononyl phthalate
("DINP"), a plastic softener, for which a charge was previously recorded in the
fourth quarter of 1998. The reversal is due to lower than expected sales returns
of such products. Excluding the effect on sales due to DINP, net sales remained
consistent at $103.2 million and were effected by a decline in sales of licensed
products. The decline in licensed products is part of an industry-wide trend
that reflects the cyclical nature of licenses in the juvenile industry. The
decreases were offset by increases in demand for non-licensed products.
Cost of products sold for the first nine months of 1999 was $59.9 million, a
decrease of $1.1 million, as compared to $61.0 million for the comparable period
last year. As a percentage of sales, cost of products sold in the first nine
months of 1999 decreased to 57.9% from 59.1% in the same period of 1998
resulting from lower than expected inventory write-offs of certain products
containing DINP for which a charge was previously recorded in the fourth quarter
of 1998. Without the adjustment related to DINP, cost of products sold, as a
percent of sales, would have decreased slightly to 58.8% from 59.1% due to
normal business fluctuations.
Page 7
<PAGE> 10
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
Selling, general, and administrative expenses for the first nine months of 1999
were $30.5 million, an increase of $1.0 million or 3.7%, as compared to $29.5
million over such expenses for the first nine months of 1998. The increase
resulted primarily from costs related to legal expenses incurred in the defense
of a patent infringement lawsuit as well as expenses resulting from upgraded
logistics systems implemented in the Company's Avon Massachusetts warehouse. As
a percentage of net sales, selling, general, and administrative expenses for the
first nine months of 1999 increased to 29.5% from 28.5% in the comparable period
of 1998.
Income tax expense as a percentage of pretax income remained consistent at 40.5%
for the first nine months of 1999 and 1998.
Net working capital decreased by $0.6 million in the first nine months of 1999
primarily due to a decrease in cash related to the investing and financing
activities of the Company. Cash decreased by $5.9 million primarily due to the
repurchase of treasury stock shares amounting to $6.7 million and the purchase
of $3.8 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. The cash outlays for the
investing and financing activities were offset by cash generated from profitable
operations which included an increase in accounts receivable of $3.5 million, a
decrease in accounts payable and accrued expenses of $1.5 million and a decrease
in prepaid expenses of $2.2 million. The changes in operational activity
accounts are due to normal business fluctuations.
On October 28, 1999 the Company announced that its Board of Directors has
approved an increase in the total dollar amount that can be used by the Company
to repurchase shares of common stock of the Company under the Company's
discretionary stock repurchase program. The total amount authorized by the Board
has been increased by 50% to $15 million from the original amount of $10
million. As of September 30, 1999, the Company has purchased 545,800 shares of
the Company's common stock at a cost of $6.7 million.
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 nine months of 1999 and 1998, the Company incurred no borrowings under
the line and had no balances outstanding as of September 30, 1999 and 1998,
respectively.
Page 8
<PAGE> 11
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Con't)
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.
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 those
systems are substantially Y2K compliant.
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 has concluded that it's mission critical
third party vendors are representing to the Company that they have addressed
their Y2K issues and will be Y2K compliant by year end.
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 has evaluated general operational
issues that may be affected by Y2K problems not limited to direct third party
relationships and has incorporated potential issues into a formal contingency
plan. The contingency plan development is substantially complete and various
aspects of the plan have been incorporated into the work processes and plans of
the Company so they are in place as Year 2000 approaches.
Page 9
<PAGE> 12
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
$200,000 to address the Y2K issue. Additional expenses related to implementation
of the contingency plans, specifically, storage related to safety inventory, may
approximate $50,000 to $100,000 and is not anticipated to be material.
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 currently 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 has
substantially completed the review of results of a vendor compliance survey
which facilitated the risk assessment and contingency planning phase of non-IT
related issues which included 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," as amended in
May, 1999 by SFAS No. 137 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, as amended, which
will be effective for the year beginning January 1, 2001.
Page 10
<PAGE> 13
THE FIRST YEARS INC.
PART II - OTHER INFORMATION
Item 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 5 - Not Applicable
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10(t) The First Years Inc. 1993 Equity Incentive Plan,
as amended through May 20, 1999.
10(u) Employment Agreement between The First Years Inc. and
Ronald J. Sidman dated September 30, 1999.
10(v) Letter Agreement between The First Years Inc. and Jerome
M. Karp dated August 8, 1999.
27 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K have been filed during the past quarter covered
by this report.
Item 7A: Quantitative and Qualitative Disclosure about Market Risk
At September 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 $1,341,000
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 10K filed with the Securities and Exchange Commission.
Page 11
<PAGE> 14
THE FIRST YEARS INC.
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 11/12/99 /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
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C>
10(t) The First Years Inc. 1993 Equity Incentive Plan, as amended through
May 20, 1999.
10(u) Employment Agreement between The First Years Inc. and Ronald J.
Sidman dated September 30, 1999.
10(v) Letter Agreement between The First Years Inc. and Jerome M. Karp
dated August 8, 1999.
27 Financial Data Schedule
</TABLE>
Page 13
<PAGE> 1
Exhibit 10(t)
THE FIRST YEARS INC.
1993 EQUITY INCENTIVE PLAN
(AS AMENDED THROUGH MAY 20, 1999)
1. PURPOSE
The purpose of this 1993 Equity Incentive Plan (the "Plan") is to advance the
interests of The First Years Inc. (the "Company") by enhancing its ability to
attract and retain employees and other persons or entities who are in a position
to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's common stock
("Stock").
The Plan is intended to accomplish these goals by enabling the Company to grant
Awards in the form of Options, Stock Appreciation Rights, Restricted Stock or
Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans or
Supplement Grants, or combinations thereof, all as more fully described below.
2. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan will be administered by a Committee of the Board designated
for such purpose (the "Committee"). The Committee shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. So long as the Stock is registered under the Securities
Exchange Act of 1934 (the "1934 Act"), all members of the Committee shall be
non-employee directors within the meaning of Rule 16b-3 under the 1934 Act. The
Committee will have authority, not inconsistent with the express provisions of
the Plan and in addition to other authority granted under the Plan, to (a) grant
Awards at such time or times as it may choose; (b) determine the size of each
Award, including the number of shares of Stock subject to the Award; (c)
determine the type or types of each Award; (d) determine the terms and
<PAGE> 2
conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an award is canceled, grant another Award in
its place on such terms as the Board shall specify), except that the Board may
not, without the consent of the holder of an Award, take any action under this
clause with respect to such Award if such action would adversely affect the
rights of such holder; (g) prescribe the form or forms of instruments that are
required or deemed appropriate under the Plan, including any written notices and
elections required of Participants, and change such forms from time to time; (h)
adopt, amend and rescind rules and regulations for the administration of the
Plan; and (I) interpret the Plan and decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations and actions of the Committee, and all other determinations and
actions of the Committee made or taken under authority granted by any provision
of the Plan, will be conclusive and will bind all parties. Nothing in this
paragraph shall be construed as limiting the power of the Committee to make
adjustments under Section 7.3 or Section 8.6.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. No Award may be granted under the Plan after ten
years following the date of stockholder approval, but Awards previously granted
may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate number
of shares of Stock that may be delivered under the Plan will be 2,420,000. If
any Award requiring exercise by the Participant for delivery of Stock terminates
without having been exercised in full, or if any Award payable in Stock or cash
is satisfied in cash rather than Stock, the number of shares of Stock as to
which such Award was not exercised or for which cash was substituted will be
available for future grants. If any Stock purchased on exercise of an Option is
paid for through the delivery of shares of Stock or if shares of Stock are held
back by the Company, or delivered to the Company, to satisfy a tax
2
<PAGE> 3
withholding requirement on an Award, the number of shares of Stock delivered to
or held back by the Company shall be available for future grants.
The maximum number of shares for which Options and Stock Appreciation Rights may
be granted to any individual over the life of the Plan shall be 1,200,000, which
limitation shall be construed and applied consistently with the rules under
Section 162(m) of the Internal Revenue Code of 1986 as amended (the "Code").
Stock delivered under the Plan may be either authorized but unissued Stock or
previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be persons
in the employ of the Company or any of its subsidiaries ("Employees") and other
persons or entities (including without limitation non-Employee directors of the
Company or a subsidiary of the Company or Employee directors of a subsidiary of
the Company) who, in the opinion of the Committee, are in a position to make a
significant contribution to the success of the Company or its subsidiaries. A
"subsidiary" for purposes of the Plan will be a corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
6. TYPES OF AWARDS
6.1 OPTIONS
(a) NATURE OF OPTIONS. An Option is an Award entitling the recipient
on exercise thereof to purchase stock at a specified exercise
price.
Both "incentive stock options," as defined in Section 422 of the
Code (any Option intended to qualify as an incentive stock option
being hereinafter referred to as an "ISO"), and Options that are
not incentive stock options may be granted under the Plan. ISOs
shall be awarded only to Employees.
3
<PAGE> 4
(b) EXERCISE PRICE. The exercise price of an Option will be determined
by the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110%
in the case of an ISO granted to a ten-percent stockholder) of
the fair market value of the Stock subject to the Option,
determined as of the time the Option is granted. A
"ten-percent stockholder" is any person who at the time of
grant owns, directly or indirectly, or is deemed to own by
reason of the attribution rules of section 424(d) of the Code,
stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any of its
subsidiaries.
(2) In no case may the exercise price paid for Stock which is part
of an original issue of authorized Stock be less than the par
value per share of the Stock.
(3) The Committee may reduce the exercise price of an Option at
any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the
Participant.
(c) DURATION OF OPTIONS. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the
case of an ISO granted to a ten-percent stockholder) of the day
immediately preceding the date the Option was granted, or such
earlier date as may have been specified by the Committee at the
time the Option was granted.
(d) EXERCISE OF OPTIONS. Options granted under any single Award will
become exercisable at such time or times, and on such conditions,
as the Committee may specify. The Committee may at any time and
from time to time accelerate the time at which all or any part of
the Option may be exercised.
4
<PAGE> 5
Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1)
any documents required by the Committee and (2) payment in full in
accordance with paragraph (e) below for the number of shares for
which the Option is exercised.
(e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must
be paid for as follows: (1) in cash or by check (acceptable to the
Company in accordance with guidelines established for this
purpose), bank draft or money order payable to the order of the
Company, or (2), if so permitted by the instrument evidencing the
Option (or in the case of an Option which is not an ISO, by the
Committee at or after grant of the Option), (i) through the
delivery of shares of Stock which have been outstanding for at
least six months (unless the Committee expressly approves a
shorter period) and which have a fair market value on the last
business day preceding the date of exercise equal to the exercise
price, or (ii) by delivery of a promissory note of the Option
holder to the Company, payable on such terms as are specified by
the Committee, or (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price, or (iv) by any
combination of the permissible forms of payment; provided, that if
the Stock delivered upon exercise of the Option is an original
issue of authorized Stock, at least so much of the exercise price
as represents the par value of such Stock must be paid other than
by the Option holder's promissory note or personal check.
(f) DISCRETIONARY PAYMENTS. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with
a Stock Appreciation Right as described in Section 6.2 below)
exceeds the exercise price of the Option at the time of its
exercise, the Committee may cancel the Option and cause the
Company to pay in cash or in shares of Common Stock (at a price
per share equal to the fair market value per share) to the person
exercising the Option an amount equal to
5
<PAGE> 6
the difference between the fair market value of the Stock which
would have been purchased pursuant to the exercise (determined on
the date the Option is canceled) and the aggregate exercise price
which would have been paid. The Committee may exercise its
discretion to take such action only if it has received a written
request from the person exercising the Option, but such a request
will not be binding on the Committee.
6.2 STOCK APPRECIATION RIGHTS.
(a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation right is
an Award entitling the recipient on exercise of the right to
receive an amount, in cash or Stock or a combination thereof (such
form to be determined by the Committee), determined in whole or in
part by reference to appreciation in Stock value.
In general, a Stock Appreciation Right entitles the Participant to
receive, with respect to each share of Stock as to which the Right
is exercised, the excess of the share's fair market value on the
date of exercise over its fair market value on the date the Right
was granted. However, the Committee may provide at the time of
grant that the amount the recipient is entitled to receive will be
adjusted upward or downward under rules established by the
Committee to take into account the performance of the Stock in
comparison with the performance of other stocks or an index or
indices of other stocks. The Committee may also grant Stock
Appreciation Rights providing that following a Change of Control
of the Company as defined in Paragraph 7.3 ("Change of Control"),
as determined by the Committee, the holder of such Right will be
entitled to receive, with respect to each share of Stock subject
to the Right, an amount equal to the excess of a specified value,
(which may include an average of values) for a share of Stock
during a period preceding such Change of Control over the fair
market value of a share of Stock on the date the Right was
granted.
(b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may
be granted in tandem with,
6
<PAGE> 7
or independently of, Options granted under the Plan. A Stock
Appreciation Right granted in tandem with an Option which is not
an ISO may be granted either at or after the time the Option is
granted. A Stock Appreciation Right granted in tandem with an ISO
may be granted only at the time the Option is granted.
(c) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation Rights
are granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the
procedure required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related
Option, except that a Stock Appreciation Right granted with
respect to less than the full number of shares covered by an
Option will not be reduced until the number of shares as to
which the related Option has been exercised or has terminated
exceeds the number of shares not covered by the Stock
Appreciation right.
(3) The Option will terminate and no longer be exercisable upon
the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with
the related Option.
(5) A Stock Appreciation right granted in tandem with an ISO may
be exercised only when the market price of the Stock subject
to the Option exceeds the exercise price of such option.
(d) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock
Appreciation right not granted in tandem with an Option will
become exercisable at such
7
<PAGE> 8
time or times, and on such conditions, as the Committee may
specify. The Committee may at any time accelerate the time at
which all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to
the Company, accompanied by any other documents required by the
Committee.
6.3. RESTRICTED AND UNRESTRICTED STOCK.
(a) NATURE OF RESTRICTED STOCK AWARD. A Restricted Stock Award
entitles the recipient to acquire, for a purchase price equal to
par value, shares of Stock subject to the restrictions described
in paragraph (d) below ("Restricted Stock").
(b) ACCEPTANCE OF AWARD. A Participant who is granted a Restricted
Stock Award will have no rights with respect to such Award unless
the Participant accepts the Award by written instrument delivered
or mailed to the Company accompanied by payment in full of the
specified purchase price, if any, of the shares covered by the
Award. Payment may be by certified or bank check or other
instrument acceptable to the Committee.
(c) RIGHTS AS A STOCKHOLDER. A Participant who receives Restricted
Stock will have all the rights of a stockholder with respect to
the Stock, including voting and dividend rights, subject to the
restrictions described in paragraph (d) below and any other
conditions imposed by the Committee at the time of grant. Unless
the Committee otherwise determines, certificates evidencing shares
of Restricted Stock will remain in the possession of the Company
until such shares are free of all restrictions under the Plan.
(d) RESTRICTIONS. Except as otherwise specifically provided by the
Plan, Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of, and if the
Participant ceases to be an Employee or otherwise suffers a Status
Change (as defined in Section 7.2(a) below)
8
<PAGE> 9
for any reason, must be offered to the Company for purchase for
the amount of cash paid for the Stock, or forfeited to the Company
if no cash was paid. These restrictions will lapse at such time or
times, and on such conditions, as the Committee may specify. The
Committee may at any time accelerate the time at which the
restrictions on all or any part of the shares will lapse.
(e) NOTICE OF ELECTION. Any Participant making an election under
Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within 10 days of the filing
of such election with the Internal Revenue Service.
(f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at
the time any Award described in this Section 6 is granted, provide
that any or all the Stock delivered pursuant to the Award will be
Restricted Stock.
(g) UNRESTRICTED STOCK. The Committee may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of
restrictions under the Plan for a price which is not less than the
par value of the Stock.
6.4 DEFERRED STOCK.
A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will
take place at such time or times, and on such conditions, as the
Committee may specify. The Committee may at any time accelerate
the time at which delivery of all or any part of the Stock will
take place. At the time any Award described in this Section 6 is
granted, the Committee may provide that, at the time Stock would
otherwise be delivered pursuant to the Award, the Participant will
instead receive an instrument evidencing the Participant's right
to future delivery of Deferred Stock.
6.5 PERFORMANCE AWARDS; PERFORMANCE GOALS.
9
<PAGE> 10
(a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock
or a combination thereof (such form to be determined by the
Committee) following the attainment of Performance Goals.
Performance Goals may be related to personal performance,
corporate performance, departmental performance or any other
category of performance deemed by the Committee to be important to
the success of the Company. The Committee will determine the
Performance Goals, the period or periods during which performance
is to be measured, and all other terms and conditions applicable
to the Award.
(b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee may,
at the time any Award described in this Section 6 is granted,
impose the condition (in addition to any conditions specified or
authorized in this Section 6 or any other provision of the Plan)
that Performance Goals be met prior to the Participant's
realization of any payment or benefit under the Award.
6.6. LOANS AND SUPPLEMENTAL GRANTS.
(a) LOANS. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the
Participant. A Loan may be made either in connection with the
purchase of Stock under the Award or with the payment of any
Federal, state and local income tax with respect to income
recognized as a result of the Award. The Committee will have full
authority to decide whether to make a Loan and to determine the
amount, terms and conditions of the Loan, including the interest
rate (which may be zero), whether the Loan is to be secured or
unsecured or with or without recourse against the borrower, the
terms on which the Loan is to be repaid, and the conditions, if
any, under which it may be forgiven. However, no Loan may have a
term (including extensions) exceeding ten years in duration.
(b) SUPPLEMENTAL GRANTS. In connection with any Award, the Committee
may at the time such Award is
10
<PAGE> 11
made or at a later date, provide for and grant a cash award to the
Participant ("Supplemental Grant") not to exceed an amount equal
to (1) the amount of any federal, state and local income tax on
ordinary income for which the Participant may be liable with
respect to the Award, determined by assuming taxation at the
highest marginal rate, plus (2) and additional amount on a
grossed-up basis intended to make the Participant whole on an
after-tax basis after discharging all the Participant's income tax
liabilities arising from all payments under this Section 6. Any
payments under this subsection (b) will be made at the time the
Participant incurs Federal income tax liability with respect to
the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1 DEATH.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be
exercised by the Participant's executor or administrator or the
person or persons to whom the Option or Right is transferred by
will or the applicable laws of descent and distribution, at any
time within the one year period ending with the first anniversary
of the Participant's death (or such shorter or longer period as
the Committee may determine), and shall thereupon terminate. In no
event, however, shall an Option or Stock Appreciation Right remain
exercisable beyond the latest date on which it could have been
exercised without regard to this Section 7. Except as otherwise
determined by the Committee, all Options and Stock Appreciation
Rights held by a Participant immediately prior to death that are
not then exercisable shall terminate at death.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant must be transferred to the Company
(and, in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted
11
<PAGE> 12
Stock will be so transferred without any further action by the
Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not
irrevocably entitled prior to death will be forfeited and the
Award canceled as of the time of death, unless otherwise
determined by the Committee.
7.2 TERMINATION OF SERVICE (OTHER THAN BY DEATH).
If a Participant who is an Employee ceases to be an Employee for any
reason other than death, or if there is a termination (other than by
reason of death) of the consulting, service or similar relationship in
respect of which a non-Employee Participant was granted an Award
hereunder (such termination of the employment or other relationship
being hereinafter referred to as a "Status Change"), the following will
apply:
(a) Except as otherwise determined by the Committee, all Options and
Stock Appreciation Rights held by the Participant that were not
exercisable immediately prior to the Status Change shall terminate
at the time of the Status Change. Any Options or Rights that were
exercisable immediately prior to the Status Change will continue
to be exercisable for a period of three months (or such longer
period as the Committee may determine), and shall thereupon
terminate, unless the Award provides by its terms for immediate
termination in the event of a Status Change or unless the Status
Change results from a discharge for cause which in the opinion of
the Committee casts such discredit on the Participant as to
justify immediate termination of the Award. In no event, however,
shall an Option or Stock Appreciation Right remain exercisable
beyond the latest date on which it could have been exercised
without regard to this Section 7. For purposes of this paragraph,
in the case of a Participant who is an Employee, a Status Change
shall not be deemed to have resulted by reason of (i) a sick leave
or other bona fide leave of absence approved for purposes of the
Plan by the Committee, so long
12
<PAGE> 13
as the Employee's right to reemployment is guaranteed either by
statute or by contract, or (ii) a transfer of employment between
the Company and a subsidiary or between subsidiaries, or to the
employment of a corporation (or a parent or subsidiary corporation
of such corporation) issuing or assuming an option in a
transaction to which section 424(a) of the Code applies.
(b) Except as otherwise determined by the Committee, all Restricted
Stock held by the Participant at the time of the Status Change
must be transferred to the Company (and, in the event the
certificates representing such Restricted Stock are held by the
Company, such Restricted Stock will be so transferred without any
further action by the Participant) in accordance with Section 6.3
above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not
irrevocably entitled prior to the Status Change will be forfeited
and the Award canceled as of the date of such Status Change unless
otherwise determined by the Committee.
7.3 CERTAIN CORPORATE TRANSACTIONS.
Upon the occurrence of a Change of Control as defined in this Section
7.3:
(a) Each outstanding Option shall automatically become fully
exercisable, notwithstanding any provision to the contrary herein
and shall remain exercisable until the expiration of the term of
the Option.
(b) The Committee, in its sole discretion, may determine to make each
Stock Appreciation Right exercisable in full; remove the
restrictions from each outstanding share of Restricted Stock;
cause the Company to make payment under each outstanding Deferred
Stock Award, Performance Award and Supplemental Grant; forgive all
or any portion of the principal or interest on a loan; and remove
or waive any condition or restriction on any Award to the extent
it may determine appropriate.
13
<PAGE> 14
(c) A "Change of Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have
occurred:
(1) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company) representing 25% or more
of the combined voting power of the Company's then outstanding
securities, excluding any Person who becomes a Beneficial
Owner in connection with a transaction described in Clause (i)
of Paragraph (3) below; or,
(2) the following individuals cease for any reason to constitute a
majority of the number of directors then serving; individuals
who, on May 20, 1999, constitute the Board of Directors and
any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest), whose appointment or election by
the Board was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors on the date hereof or whose appointment,
election or nomination for election was previously so approved
or recommended; or
(3) there is consummated a merger or consolidation of the Company
with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of
the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity or any parent thereof) at least 60% of
the combined voting power of the securities of the Company or
such surviving entity or any parent thereof outstanding
immediately after such merger or
14
<PAGE> 15
consolidation; or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such
Person any securities acquired directly from the Company)
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition of the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at
least 60% of the combined voting power of the voting
securities of which are owned by stockholders of the Company
in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
For purposes of this Section 7.3(c), "Beneficial Owner" shall have the
meaning set forth in Rule 13d-3 under the Exchange Act; "Exchange Act"
shall mean the Securities and Exchange Act of 1934, as amended from
time to time; and "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof, except that such term shall not include (i) the Company
or any of its subsidiaries; (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
"affiliates" within the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act; (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities; or (iv)
a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company.
15
<PAGE> 16
8. GENERAL PROVISIONS
8.1 DOCUMENTATION OF AWARDS.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Committee from time to time. Such instruments may be
in the form of agreements to be executed by both the Participant and
the Company, or certificates, letters or similar instruments, which
need not be executed by the Participant but acceptance of which will
evidence agreement to the terms thereof.
8.2 RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the participant
will obtain such rights, subject to any limitations imposed by the Plan
or the instrument evidencing the Award, upon actual receipt of Stock.
However, the Committee may, on such conditions as it deems appropriate,
provide that a Participant will receive a benefit in lieu of cash
dividends that would have been payable on any or all Stock subject to
the Participant's Award had such Stock been outstanding. Without
limitation, the Committee may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future,
or for the investment of such amounts on behalf of the Participant.
8.3 CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously
delivered under the Plan (a) until all conditions of the Award have
been satisfied or removed, (b) until, in the opinion of the Company's
counsel, all applicable federal and state laws and regulation have been
complied with, (c) if the outstanding Stock is at the time listed on
any stock exchange, until the shares to be delivered have been listed
or authorized to be listed on such exchange upon official notice of
notice of issuance, and (d) until all other legal matters in connection
with the issuance
16
<PAGE> 17
and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the
Securities Act of 1933, as amended, the Company may require, as a
condition to exercise of the Award, such representations or agreements
as counsel for the Company may consider appropriate to avoid violation
of such Act and may require that the certificates evidencing such Stock
bear an appropriate legend restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of such
representative.
8.4 TAX WITHHOLDING.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local
withholding tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Committee will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy
the withholding requirements, or make other arrangements satisfactory
to the Committee with regard to such requirements, prior to the
delivery of any Stock. If and to the extent that such withholding is
required, the Committee may permit the Participant or such other person
to elect at such time and in such manner as the Committee provides to
have the Company hold back from the shares to be delivered, or to
deliver to the company, Stock having a value calculated to satisfy the
withholding requirement. The Committee may make such share withholding
mandatory with respect to any Award at the time such Award is made to a
Participant.
If at the time an ISO is exercised the Committee determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Committee may
require as a condition of exercise that the person exercising the ISO
agree (a) to inform the Company promptly of any disposition (within the
meaning of
17
<PAGE> 18
section 424(c) of the Code) of Stock received upon exercise, and (b) to
give such security as the Committee deems adequate to meet the
potential liability of the Company for the withholding requirements and
to augment such security from time to time in any amount reasonably
deemed necessary by the Committee to preserve the adequacy of such
security.
8.5 NON-TRANSFERABILITY OF AWARDS
Except as otherwise specified by the Committee, no Award (other than an
Award in the form of an outright transfer of cash or Unrestricted
Stock) may be transferred other than by will or by the laws of descent
and distribution, and during an employee's lifetime an Award requiring
exercise may be exercised only by the Participant (or in the event of
the Participant's incapacity, the person or persons legally appointed
to act on the Participant's behalf).
8.6 ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS
(a) In the event of a stock dividend, stock split or combination of
shares, re-capitalization or other changes in the Company's
capitalization, or other distribution to common stockholders other
than normal cash dividends, after the effective date of the Plan,
the Committee will make any appropriate adjustments to the maximum
number of shares that may be delivered under the Plan under
Section 4 above.
(b) In the event referred to in paragraph (a), the Committee will also
make any appropriate adjustments to the number and kind of shares
of stock or securities subject to Awards then outstanding or
subsequently granted, any exercise prices relating to Awards and
any other provision of Awards affected by such change. The
Committee may also make such adjustments to take into account
material changes in law or in accounting practices or principles,
mergers, consolidations, acquisitions, dispositions or similar
corporate transactions, or any other event, if it is determined by
the Committee that adjustments are appropriate to avoid distortion
in the operation of the Plan.
18
<PAGE> 19
8.7 EMPLOYMENT RIGHTS, ETC.
Neither the adoption of the Plan nor the grant of Awards will
confer upon any person any right to continued retention by the
Company or any subsidiary as an Employee or otherwise, or affect
in any way the right of the Company or subsidiary to terminate an
employment, service or similar relationship at any time. Except as
specifically provided by the Committee in any particular case, the
loss of existing or potential profit in Awards granted under the
Plan will not constitute an element of damages in the event of
termination of an employment, service, or similar relationship
even if the termination is in violation of an obligation of the
Company to the Participant.
8.8 DEFERRAL OF PAYMENTS.
The Committee may agree at any time, upon request of the
Participant, to defer the date on which any payment under an Award
will be made.
8.9 PAST SERVICES AS CONSIDERATION.
Where a Participant purchases Stock under an Award for a price
equal to the par value of the Stock the Committee may determine
that such price has been satisfied by past services rendered by
the Participant.
8.10 FORFEITURE PROVISIONS.
The Committee may establish provisions that require the
Participant to forfeit an Award, or the economic value of an
Award, upon the occurrence of certain events that it may specify,
including breach by a Participant of agreements with the Company.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a
Participant will affect the Company's right to grant to such
Participant awards that are
19
<PAGE> 20
not subject to the Plan, to issue to such Participant Stock as a
bonus or otherwise, or to adopt other plans or arrangements under
which Stock may be issued to Employees.
The Committee may at any time or times amend the Plan or any
outstanding Award for any purpose which may at the time be
permitted by law, or may at any time terminate the Plan as to any
further grants of Awards, provided that (except to the extent
expressly required or permitted by the Plan) no such amendment
will, without the approval of the stockholders of the Company
effectuate a change for which stockholder approval is required in
order for the Plan to continue to qualify for the award of ISOs
under section 422 of the Code.
20
<PAGE> 1
Exhibit 10(u)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of the 30th
day of September, 1999 (the "Effective Date") by and between THE FIRST YEARS
INC., a Massachusetts corporation (the "Company") and RONALD J. SIDMAN, of
Marstons Mills, Massachusetts (the "Executive").
The Executive is currently serving as Chairman, President and Chief Executive
Officer of the Company, and the Board of Directors of the Company (the "Board of
Directors") desires to secure the continued employment of the Executive in
accordance herewith;
The Company is party to an employment agreement (the "Employment Agreement")
with the Executive dated March 23, 1995 and amended on January 16, 1997;
The Executive is willing to commit himself to be employed by the Company on the
terms and conditions herein set forth and in lieu of the terms and conditions of
the Employment Agreement; and
The parties desire to enter into this Agreement as of the Effective Date,
setting forth the terms and conditions for the employment relationship of the
Executive with the Company;
NOW, THEREFORE, in consideration of the mutual premises and the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. OPERATION OF AGREEMENT, EMPLOYMENT AND TERM.
(a) OPERATION. This Agreement shall commence on the Effective Date,
immediately upon its execution by the parties.
(b) EMPLOYMENT. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, in accordance with
the terms and provisions of this Agreement.
<PAGE> 2
(c) TERM.
(i) INITIAL TERM. The term of this Agreement shall commence on
the Effective Date and shall continue until the fifth (5th)
anniversary of the Effective Date (the "Initial Term"),
subject to earlier termination of the Agreement in
accordance with Section 4 of this Agreement.
(ii) RENEWAL TERMS. Unless either party gives to the other party
at least ninety (90) days prior written notice that the
Agreement shall terminate on the expiration of the Initial
Term or any subsequent Renewal Term of this Agreement, this
Agreement shall continue in full force and effect for
further successive terms of five (5) years on the same terms
and conditions as are set forth herein, subject to earlier
termination of this Agreement in accordance with Section 4
of this Agreement and any written amendments agreed to by
the parties. For purposes of this Agreement, a "Renewal
Term" shall be defined as any successive term of five (5)
years following the Initial Term and the "Term" shall be
defined as the Initial Term and any subsequent Renewal
Terms.
2. DUTIES AND POWERS OF EXECUTIVE.
(a) POSITION.
(i) During the Term, the Executive shall serve in his current
positions as Chairman, President, and Chief Executive
Officer of the Company. The Executive shall report directly
and solely to the Board of Directors. During the Term, the
Board shall not remove the Executive from the positions of
Chairman, President, and Chief Executive Officer of the
Company.
(ii) During the Term, and excluding any periods of vacation, sick
leave, and disability to
2
<PAGE> 3
which the Executive is entitled, the Executive shall devote
substantially all of his attention and time during normal
business hours to the business and affairs of the Company
and shall use his reasonable best efforts to carry out his
responsibilities faithfully and efficiently. It shall not
be considered a violation of the foregoing for the Executive
to serve on corporate, industry, civic or charitable boards
or committees, as long as such activities do not materially
interfere with the performance of his responsibilities with
the Company in accordance with this Agreement.
(b) BOARD MEMBERSHIP. The Company agrees to nominate the Executive for
election to the Board as a member of the management slate at each
Annual Meeting of Stockholders during the Term at which the
Executive's director class comes up for election. The Executive
agrees to serve on the Board if elected.
(c) LOCATION. The Company's current headquarters and executive offices
are in Avon, Massachusetts. The Executive's services shall be
performed at such location except for such reasonable travel
obligations as are substantially consistent with the Executive's
travel obligations as of the Effective Date. Throughout the Term,
the Executive shall be provided with appropriate office space and
secretarial services commensurate with his title, position, and on
a basis no less favorable than that of the Executive on the
Effective Date.
3. COMPENSATION.
The Executive shall receive the following compensation for his services
hereunder to the Company:
(a) SALARY. During the Term, the Executive's annual base salary ("Base
Salary") shall be THREE HUNDRED SIXTY-FOUR THOUSAND DOLLARS
($364,000), payable in accordance with the Company's general
payroll practices as are in effect from time to time.
3
<PAGE> 4
Executive's Base Salary shall be reviewed at least annually by the
Compensation Committee of the Board of Directors (the "Committee")
or by the Board of Directors, and may be increased from time to
time by the Committee or the Board of Directors during the Term.
The Executive's Base Salary shall not be reduced after any
increase in Base Salary is made by the Committee or the Board of
Directors, and the term "Base Salary" as used in this Agreement
shall refer to the Base Salary as so increased. Notwithstanding
the discretion of the Committee and the Board of Directors to
increase the Executive's Base Salary, if the Committee does not
increase the Base Salary for any fiscal year during the Term, the
Base Salary nonetheless will automatically be increased for such
fiscal year by an amount equal to the average of the increases in
Base Salary in respect of the (3) fiscal years ended prior to such
fiscal year.
(b) ANNUAL INCENTIVE COMPENSATION. During the Term, the Executive
shall be eligible to participate in all annual incentive
compensation plans, including all cash-based and equity-based
compensation plans, on a basis no less favorable than that of the
Executive on the Effective Date and in accordance with the
Company's practices in effect on the Effective Date and in effect
from time to time throughout the Term.
(c) LIFE AND DISABILITY INSURANCE POLICIES. The Company shall, during
the Term, pay the annual premium or premiums on (i) a life
insurance policy or policies, the total face amount of which shall
not exceed seven and a half million dollars ($7,500,000); and (ii)
a long-term disability insurance policy with the Paul Revere Life
Insurance Company or a similar long-term disability insurance
policy with any other insurance carrier providing substantially
similar benefits.
(d) BENEFITS. During the Term, the Executive shall be eligible to
participate in all savings, retirement, pension, profit-sharing,
401-K, and welfare (including without limitation, group medical,
dental, hospitalization, disability, life insurance) plans, the
medical reimbursement plan
4
<PAGE> 5
for certain officers of the Company, and fringe benefit plans,
practices, policies and programs on a basis no less favorable than
that of the Executive on the Effective Date (the "Benefits").
(e) AUTOMOBILE. During the Term, the Company shall make available to
the Executive, at the Company's cost and expense, an automobile of
a type and quality similar to the automobile being provided to the
Executive on the Effective Date. The Company will also pay all
expenses related to the repair, maintenance, and operation of such
automobile.
(f) FINANCIAL, TAX PLANNING AND ESTATE PLANNING. During the Term, the
Company shall provide the Executive with financial planning
services, including tax-related advice and estate planning
services, without cost or expense to him.
(g) VACATION AND OTHER ABSENCES. The Executive shall be entitled to
paid vacation and other paid absences, whether for holidays,
illness, personal time, or any similar purposes during the Term in
accordance with the Company's policies applicable to the Executive
as of the Effective Date, provided however that the Executive
shall always be entitle to at least five (5) weeks of paid
vacation in each calendar year.
(h) EXPENSES. The Company shall reimburse the Executive for all
reasonable expenses, including those for travel and entertainment,
incurred by him in the performance of his duties hereunder, in
accordance with policies established from time to time by the
Board of Directors or the Compensation Committee of the Board of
Directors.
4. TERMINATION OF EMPLOYMENT.
(a) BY THE COMPANY FOR ANY REASON OTHER THAN FOR CAUSE PRIOR TO A
CHANGE OF CONTROL. The Company may terminate the Executive's
employment for any reason prior to the occurrence of a Change of
Control. If the Company terminates the Executive's employment for
any reason other than for Cause prior to the occurrence of a
Change of Control, the Executive
5
<PAGE> 6
shall be entitled to the payments and benefits set forth in
Section 5(a) of this Agreement.
(b) BY THE EXECUTIVE FOR GOOD REASON PRIOR TO A CHANGE OF CONTROL. The
Executive may terminate his employment for Good Reason prior to
the occurrence of a Change of Control. If the Executive terminates
his employment for Good Reason prior to the occurrence of a Change
of Control, the Executive shall be entitled to the payments and
benefits set forth in Section 5(a) of this Agreement. For purposes
of this Agreement, "Good Reason" shall mean the occurrence,
without the written consent of the Executive, of an event
constituting a material breach of this Agreement (including
without limitation, a breach of any clause of Sections 2 or 3 of
this Agreement) by the Company that has not been fully cured
within ten (10) days after written notice thereof has been given
by the Executive to the Company.
(c) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death or Disability, in which
case the Executive shall be entitled to the applicable payments
and benefits set forth in Section 5(b) of this Agreement. For
purposes of this Agreement, "Disability" shall be deemed to occur
if, as a result of the Executive's incapacity due to physical or
mental illness, (i) the Executive shall have been absent from the
full-time performance of his duties with the Company for a period
of twelve (12) consecutive months; (ii) the Company shall have
given the Executive a Notice of Termination for Disability (as
defined in Paragraph (i) of this Section 4) and, (iii) within
thirty (30) days after such Notice of Termination is given, the
Executive shall not have returned to the full-time performance of
his duties.
(d) BY THE EXECUTIVE FOR ANY REASON FOLLOWING A CHANGE OF CONTROL. The
Executive may terminate his employment for any reason, in his
discretion, within three (3) years following the occurrence of a
Change of Control, in which case the Executive shall be entitled
to the payments and benefits set forth in Section 5(c) of this
Agreement. For
6
<PAGE> 7
purposes of this Agreement, the Executive's termination of his
employment within three (3) months prior to the occurrence of a
Change of Control shall be treated as a termination of employment
within three (3) years following a Change of Control.
(e) BY THE COMPANY FOR ANY REASON FOLLOWING A CHANGE OF CONTROL. The
Company may terminate the Executive's employment for any reason
within three (3) years following the occurrence of a Change of
Control, and in such case the Executive shall be entitled to the
payments and benefits set forth in Section 5(c) of this Agreement.
For purposes of this Agreement, the Company's termination of the
Executive's employment other than for Disability or death within
three (3) months prior to the occurrence of a Change of Control
shall be treated as a termination within three (3) years following
a Change of Control.
(f) BY THE COMPANY FOR CAUSE PRIOR TO A CHANGE OF CONTROL. The Company
may terminate the Executive's employment for Cause, but only prior
to the occurrence of a Change of Control, and in such case, the
Executive shall be entitled to the payments and benefits set forth
in Section 5(d) of this Agreement. For purposes of this Agreement,
"Cause" shall mean (i) the willful and continued failure by the
Executive to substantially perform the Executive's duties with the
Company (other than any such failure resulting from the
Executive's incapacity due to physical or mental illness) after a
written demand for substantial performance is delivered to the
Executive by the Board of Directors, which demand specifically
identifies the manner in which such Board believes that the
Executive has not substantially performed the Executive's duties;
or (ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Executive's part
shall be deemed "willful" unless done, or omitted to be done, by
the Executive not in good faith and without reasonable belief that
the Executive's act, or failure to act,
7
<PAGE> 8
was in the best interest of the Company, and (y) in the event of a
dispute concerning the application of this provision, no claim by
the Company that Cause exists shall be given effect unless the
Company establishes to the Board of Directors by clear and
convincing evidence that Cause exists in accordance with Section
4(i).
(g) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON PRIOR TO THE
OCCURRENCE OF A CHANGE OF CONTROL. The Executive may terminate his
employment other than for Good Reason prior to the occurrence of a
Change of Control, and in such case the Executive shall be
entitled to the payments and benefits set forth in Section 5(d) of
this Agreement.
(h) DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall be
deemed to have occurred if the event set forth in any one of the
following paragraphs shall have occurred:
(i) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any
securities acquired directly from the Company) representing
25% or more of the combined voting power of the Company's
then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a
transaction described in Clause (i) of paragraph (iii)
below; or
(ii) the following individuals cease for any reason to constitute
a majority of the number of directors then serving;
individuals who, on the date hereof, constitute the Board of
Directors and any new director (other than a director whose
initial assumption of office is in connection with an actual
or threatened election contest), whose appointment or
election by the Board was approved or recommended by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors on the
8
<PAGE> 9
date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(iii) there is consummated a merger or consolidation of the
Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities
of the Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof) at
least 60% of the combined voting power of the securities of
the Company or such surviving entity or any parent thereof
outstanding immediately after such merger or consolidation;
or (B) a merger or consolidation effected to implement a
re-capitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including
in the securities beneficially owned by such Person any
securities acquired directly from the Company) representing
25% or more of the combined voting power of the Company's
then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition of the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at
least 60% of the combined voting power of the voting
securities of which are owned by stockholders of the Company
in substantially the same proportions as their ownership of
the Company immediately prior to such sale.
9
<PAGE> 10
For purposes of this Section 4(h) "Beneficial Owner" shall
have the meaning set forth in Rule 13d-3 under the Exchange
Act; "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time; and "Person" shall
have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (A) the
Company or any of its subsidiaries; (B) a trustee or other
fiduciary holding securities under an employee benefit plan
of the Company or any of its "affiliates" within the meaning
set forth in Rule 12b-2 promulgated under Section 12 of the
Exchange Act; (C) an underwriter temporarily holding
securities pursuant to an offering of such securities; or
(D) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(i) NOTICE OF TERMINATION. Any termination by the Company or by
the Executive shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section
10(b) of this Agreement. For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this
Agreement, relied upon; (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the
Executive's employment under the provision so indicated; and
(iii) if the Date of Termination (as defined in Section
4(j)) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more
than thirty (30) days after the giving of such notice). The
failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any
right of the Executive hereunder or preclude the Executive
from asserting such fact or circumstance in enforcing the
Executive's rights hereunder. Further, a Notice of
Termination for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less
10
<PAGE> 11
than three-quarters (3/4) of the membership of the Board of
Directors (excluding the Executive if the Executive is then
a member of such Board) at a meeting of such Board which was
called and held for the purpose of considering such
termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's
counsel, to be heard before such Board) finding that, in the
good faith opinion of such Board, the Executive was guilty
of conduct set forth in clauses (i) or (ii) of the
definition of Cause herein, and specifying the particulars
thereof in detail.
(j) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Executive for
Good Reason, or for any reason, the date of receipt of the
Notice of Termination or any later date specified therein,
as the case may be; (ii) if the Executives' employment is
terminated by the Company, the date on which the Company
notifies the Executive of such termination (except in the
event of a termination for Cause); (iii) if the Executive's
employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the
Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day
period); and (iv) if the Executive's employment is
terminated by reason of death, the date of death.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) TERMINATION BY THE EXECUTIVE FOR GOOD REASON OR BY THE COMPANY
OTHER THAN FOR CAUSE PRIOR TO A CHANGE OF CONTROL. If the
Executive shall terminate his employment for Good Reason prior to
a Change of Control, or if the Company shall terminate the
Executive's employment for any reason other than for Cause prior
to the occurrence of a Change of Control, the Executive shall be
entitled to the following benefits:
(i) ACCRUED OBLIGATION. The Company shall pay to the Executive a
lump sum amount in cash equal to the sum of (A) the
Executive's
11
<PAGE> 12
Base Salary through the Date of Termination to the extent
not theretofore paid; and (B), any accrued vacation pay and
any other amounts due the Executive as of the Date of
Termination, in each case to the extent not theretofore
paid. (The amounts specified in Clauses (A) and (B) shall be
hereinafter referred to as the "Accrued Obligation".) The
amounts specified in this Section 5(a)(i) shall be paid
within ten (10) days after the Date of Termination;
(ii) PAYMENTS. The Company shall pay to the Executive within ten
(10) days following the Date of Termination a lump sum
amount in cash equal to the greater of:
(A) the sum of (x) Executive's Base Salary which would have
been paid to the Executive for the remaining years and
months of the Initial or the Renewal Term then in effect on
the Date of Termination at the annual Base Salary rate then
in effect on the Date of Termination, and (y) the targeted
amount of Annual Incentive Compensation which would have
been paid to the Executive for the remaining years and
months of the Initial or Renewal Term but at an annual rate
no less than the highest amount of Annual Incentive
Compensation in respect of the three most recent fiscal
years of the Company ended prior to the Date of Termination;
or,
(B) three (3) times the sum of the Executive's Base Salary
then in effect on the Date of Termination, and the highest
amount of Annual Incentive Compensation paid to the
Executive in respect of the three most recent fiscal years
of the Company ended prior to the Date of Termination;
(iii) BENEFITS. The Executive will continue to participate in the
Benefits set forth in Sections 3(d), (e), (f), (g), and (h)
of this Agreement, in effect on the Date of
12
<PAGE> 13
Termination, for a period equal to the greater of (A) the
remainder of the Initial or Renewal Term then in effect on
the Date of Termination, or (B) three (3) years from the
Date of Termination (the "Benefit Period"). For purposes of
the application of all Benefit plans, the Executive shall be
treated as if he had remained in the employ of the Company
for the Benefit Period. In the event the Executive is not
permitted to participate in any Benefit plan, including
without limitation any pension or 401-K plans, the Company
will make equivalent payments to the Executive on an
after-tax basis equal to the payments which would have been
made to such plans;
(iv) MEDICAL BENEFITS. Notwithstanding the foregoing Paragraph
(iii), with respect to medical, dental, hospitalization and
medical reimbursement benefits provided to the Executive on
the Date of Termination ("Medical Benefits"), the Executive
will continue to participate in such Medical Benefits until
the Executive is eligible for and entitled to coverage under
Medicare; provided, however, that to the extent such Medical
Benefits cannot be provided to Executive under the terms of
any Plan, the Company shall pay to the Executive, on an
after-tax basis, an amount necessary for Executive to
acquire substantially equivalent Medical Benefits until the
Executive is eligible for and entitled to coverage under
Medicare, and provided further that such Medical Benefits
shall terminate if the Executive becomes employed by or is
otherwise affiliated with another party that provides
benefits substantially equivalent to the Medical Benefits;
(v) LIFE AND DISABILITY INSURANCE. For a period equal to the
greater of (A) the remainder of the Initial or Renewal Term
then in effect on the Date of Termination or (B) three (3)
years from the Date of
13
<PAGE> 14
\
Termination, the Company will continue to pay the annual
premium or premiums on the life insurance policy or policies
and the long-term disability insurance policy as described
in Section 3(c) of this Agreement; and
(vi) STOCK OPTIONS. With respect to each option to purchase
common stock of the Company held by the Executive on the
Date of Termination, all such options shall become
immediately exercisable in full and each option may be
exercised by the Executive until the earlier of (A) the
three (3) year anniversary date of the Date of Termination
or the expiration of the Initial or Renewal Term then in
effect on the Date of Termination, whichever is longer; or
(B), the expiration date of such option. Notwithstanding the
foregoing, any incentive stock options ("ISO's") held by
the Executive on the Date of Termination may not be
exercised more than three (3) months after the Date of
Termination.
(b) TERMINATION BY REASON OF DISABILITY OR DEATH. If the Executive's
employment terminates by reason of Disability or death, the
Executive shall be entitled to the following benefits:
(i) ACCRUED OBLIGATION. The Company shall pay to the Executive
(or, in the event of his death, to his legal representative)
the Accrued Obligation within ten (10) days after the Date
of Termination;
(ii) BASE SALARY. The Company shall continue to pay the Executive
(or, in the event of his death, his legal representative)
(A) for a period of one (1) year following the Date of
Termination the Executive's Base Salary in effect
immediately prior to the Date of Termination, in accordance
with the Company's general payroll practices; provided,
however, that in the event of termination of Executive's
employment by reason of Disability, such Base Salary
payments shall
14
<PAGE> 15
be reduced by the amount of any disability insurance
proceeds paid to the Executive under any individual or group
policies, the premiums of which had been paid by the Company
or by the Executive and reimbursed by the Company; and (B),
a pro-rata portion of any Annual Incentive Compensation
earned by the Executive in respect of the fiscal year in
which occurs the Date of Termination, payable in accordance
with the Company's practices with respect to the payment of
bonuses;
(iii) STOCK OPTIONS. With respect to any vested options to
purchase the common stock of the Company, including ISO's,
held by the Executive on the Date of Termination, the
Executive (or, in the event of his death, his legal
representative) may exercise such options until the earlier
of one (1) year from the Date of Termination or the
expiration date of such option. With respect to any unvested
non-qualified stock options held by the Executive on the
Date of Termination, such non-qualified options shall
continue to vest for a period of one (1) year from the Date
of Termination; and
(iv) BENEFITS. In the event of termination by reason of
Disability, the Executive shall, for a period of one (1)
year from the Date of Termination, continue to participate
in all the Benefits set forth in Section 3(d) of this
Agreement, in effect on the Date of Termination; provided,
however, that if such Benefits cannot be provided because of
a prohibition in the terms of any Benefit plan, the Company
shall provide a substantially equivalent Benefit on an
after-tax basis.
(c) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the Company shall
terminate the Executive's employment within three (3) years
following the occurrence of a Change of Control, or if the
Executive shall terminate his employment for any reason, at his
discretion, within three (3) years
15
<PAGE> 16
following a Change of Control, the Executive shall be entitled to
the following benefits:
(i) ACCRUED OBLIGATION. The Company shall pay to the Executive
the Accrued Obligation within ten (10) days after the Date
of Termination.
(ii) PAYMENTS. The Company shall pay to the Executive a lump sum
amount in cash, within ten (10) days following the Date of
Termination, equal to two and ninety-nine one-hundredths
(2.99) times the sum of (A) the Executive's Base Salary then
in effect on the Date of Termination, and (B) the highest
amount of Annual Incentive Compensation paid to the
Executive in respect of the three most recent fiscal years
of the Company ended prior to the Date of Termination;
(iii) BENEFITS. The Executive will continue to participate in the
benefits set forth in Sections 3(d), (e), (f), (g), and (h)
of this Agreement, in effect on the Date of Termination, for
a period of three (3) years from the Date of Termination.
For purposes of the application of all Benefit plans, the
Executive shall be treated as if he had remained in the
employ of the Company for such three-year period. In the
event the Executive is not permitted to participate in any
Benefit plan, including without limitation any pension or
401-K plans, the Company will make equivalent payments to
the Executive on an after-tax basis equal to the payments
which would have been made to such plans;
(iv) MEDICAL BENEFITS. Notwithstanding the foregoing Paragraph
(iii), with respect to medical, dental, hospitalization and
medical reimbursement benefits provided to the Executive on
the Date of Termination ("Medical Benefits), the Executive
will continue to participate in such Medical Benefits until
the Executive is eligible for and entitled to coverage under
Medicare; provided, however, that to the extent such
16
<PAGE> 17
Medical Benefits cannot be provided to Executive under the
terms of any Plan, the Company shall pay to the Executive,
on an after-tax basis, an amount necessary for Executive to
acquire substantially equivalent Medical Benefits until the
Executive is eligible for and entitled to coverage under
Medicare; and provided further that such Medical Benefits
shall terminate if the Executive becomes employed by or is
otherwise affiliated with another party that provides
benefits substantially equivalent to the Medical Benefits;
(v) LIFE AND DISABILITY INSURANCE. For a period of three (3)
years from the Date of Termination, the Company will
continue to pay the annual premium or premiums on the life
insurance policy or policies and the long-term disability
insurance policy as described in Section 3(c) of this
Agreement; and
(vi) STOCK OPTIONS. With respect to each option to purchase
common stock of the Company held by the Executive on the
Date of Termination, all such options shall become
immediately exercisable in full, and each option may be
exercised by the Executive until the earlier of (A) the
three (3) year anniversary date of the Date of Termination
or (B) the expiration date of such option. Notwithstanding
the foregoing, any incentive stock options ("ISO's") held by
the Executive on the Date of Termination may not be
exercised more than three (3) months after the Date of
Termination.
(d) TERMINATION FOR OTHER REASON. If the Executive's employment shall
be terminated by the Company for Cause prior to the occurrence of
a Change of Control, or by the Executive other than for Good
Reason prior to the occurrence of a Change of Control, the Company
shall not have any further obligations to the Executive under this
Agreement other than the obligation to pay to the Executive the
Accrued Obligation within ten (10) days of the Date of Termination
and any post-employment
17
<PAGE> 18
benefits to which the Executive is entitled under the terms of the
Company's employee benefit plans.
(e) LEGAL FEES. The Company shall also pay to the Executive all
reasonable legal fees and expenses incurred by the Executive in
disputing in good faith any issue hereunder relating to the
termination of the Executive's employment, in seeking in good
faith to obtain or enforce any benefit or right provided by this
Agreement, or in connection with any tax audit or proceeding to
the extent attributable to the application of Section 4999 of the
Internal Revenue Code (the "Code") to any payment or benefit
provided hereunder. Such payments shall be made within ten (10)
business days after delivery of the Executive's written requests
for payment accompanied with such evidence of fees and expenses
incurred as is reasonable.
(f) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(i) Anything in this Agreement to the contrary notwithstanding,
in the event that any "payments in the nature of
compensation" within the meaning of Section 280G of the Code
by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments
required under this Section 5(f) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (the excise tax
imposed by Section 4999 of the Code, together with any such
interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall
be entitled to receive an additional payment (a "Gross-up
Payment") in an amount such that after payment by the
Executive of all taxes imposed upon the Gross-up Payment,
including without limitation, any income taxes, FICA taxes
(and
18
<PAGE> 19
any interest and penalties imposed with respect to income
taxes or any other taxes) and Excise Tax, the Executive
retains an amount of the Gross-up Payment equal to the
Excise Tax imposed upon the Payment.
(ii) Subject to the provisions of Section 5(f)(iii) below, all
determinations required to be made under this Section 5(f),
including whether and when a Gross-up Payment is required
and the amount of such Gross-up Payment, and the assumptions
to be utilized in arriving at such determination, shall be
made by the accounting firm representing the Company at such
time (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event
that the Accounting Firm is serving as accountant or auditor
for the individual, entity or group effecting the Change of
Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be paid by the
Executive and then reimbursed to him by the Company. Any
Gross-up Payment, as determined pursuant to this Section
5(f), shall be paid by the Company to the Executive within
five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no
Excise Tax is payable, it shall furnish the Executive with a
written opinion that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the
uncertainty in the application of
19
<PAGE> 20
Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is
possible that Gross-up Payments which will not have been
made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its
remedies pursuant to Section 5(f)(iii) and the Executive
thereafter is required to make a payment of any Excise Tax,
the Accounting Firm shall determine the amount of the
Underpayment that has occurred within 15 business days of
receipt of notice from the Executive that there has been an
Under-payment, and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(iii) The Executive shall notify the Company in writing of any
assertion by the Internal Revenue Service that, if
successful, would require the payment by the Company of the
Gross-up Payment (An "Assertion"). Such notification shall
be given as soon as practicable after the Executive is
informed in writing of such Assertion, and shall apprise the
Company of the nature of such Assertion and the date on
which such Assertion is requested to be paid. The Executive
shall not pay such Assertion prior to the expiration of the
thirty (30) day period following the date on which it gives
such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such
Assertion is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it
desires to contest such Assertion, the Executive shall:
(A) give the Company any information reasonably requested by
the Company relating to such Assertion;
(B) take such action in connection with contesting such
Assertion as the
20
<PAGE> 21
Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such Assertion by an
attorney selected by the Company and reasonably
acceptable to the Executive;
(C) cooperate with the Company in good faith in order
effectively to contest such Assertion; and
(D) permit the Company to participate in any proceedings
relating to such Assertion; provided, however, that the
Company shall bear and pay directly all costs and
expenses (including additional interest and penalties)
incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and payment
of costs and expenses. Without limitation on the
foregoing provisions of this Section 5(f)(iii), the
Company shall control all proceedings taken in
connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such Assertion and may, at its
sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the Assertion in
any permissible manner; and the Executive agrees to
prosecute such contest to a determination before any
administrative tribunal in a court of initial
jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the
Company directs the Executive to pay such Assertion and
sue for a
21
<PAGE> 22
refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and
shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and
further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such
contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with
respect to which a Gross-up Payment would be payable
hereunder, and the Executive shall be entitled to settle
or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing
authority.
(iv) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 5(f)(iii), the Executive
becomes entitled to receive any refund with respect to such
Assertion, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)(iii))
promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to
Section 5(f)(iii), a determination is made that the
Executive shall not be entitled to any refund with respect
to such Assertion, and the Company does not notify the
executive in writing of its intent to contest such denial of
refund prior to the expiration of thirty (30) days after
such determination, then such advance shall be
22
<PAGE> 23
forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof,
the amount of Gross-up Payment required to be paid.
6. RESTRICTIONS AND OBLIGATIONS OF THE EXECUTIVE.
The parties agree and acknowledge that the principal consideration for
the agreement to make and provide the payments and benefits provided in
Section 5(a) of this Agreement from the Company to the Executive is the
Executive's compliance with the undertakings set forth in this Section.
(a) Except as provided below, Executive agrees if his employment is
terminated for any of the reasons set forth in Sections 4(a) or
4(b), then for a period of three (3) years following the Date of
Termination he shall not (i) directly or indirectly, whether as
owner, partner, shareholder, agent, consultant, co-venturer,
employee or otherwise, or through any person as hereafter defined,
engage in the business of developing or selling products which are
competitive with the products that at the termination of his
employment are being sold or under development by the Company in
any of the countries in which the Company is doing business on the
Date of Termination ("Restricted Business"); or (ii) employ,
recruit, or otherwise solicit or induce any employee, agent,
distributor, supplier, customer, or consultant of the Company to
terminate their employment or otherwise cease their relationship
with the Company.
(b) This Section 6(a) shall not bind the Executive following the
termination of the Executive's employment if a Change of Control
occurs after the Date of Termination of his employment during the
three (3) year period referenced in Section 6(a).
(c) For purposes of this section, the term "Person" shall mean an
individual, a corporation, an association, a partnership, an
estate, a trust, and any other entity or organization.
23
<PAGE> 24
(d) Notwithstanding the foregoing, the Executive may purchase, for
passive investment purposes not intended to circumvent this
Agreement, on a national securities exchange or in the
"over-the-counter" market any securities listed on such exchange
or in such market, but such purchases shall not exceed 5% of any
class of such securities of any Restricted Business.
(e) In the event that any provision of this section is determined by
any court of competent jurisdiction to be unenforceable by reason
of its extending for too great a period of time, or over too great
a range of activities, it shall be interpreted to extend only over
the maximum period of time, or range of activities, as to which it
may be enforceable.
7. FULL SETTLEMENT; MITIGATION.
The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform their obligations hereunder shall
not be subject to any set-off, counterclaim, recoupment, defense or
other Assertion, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of
the amounts (including amounts for damages for breach) payable to the
Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
8. CONFIDENTIAL INFORMATION.
The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret, confidential information, knowledge or data
relating to the Company or any of its affiliates and their respective
businesses which shall have been obtained by the Executive during his
employment by the Company or any of their affiliates and that shall not
have been or now or hereafter have become public knowledge (other than
by acts by the Executive or representatives of the Executive in
violation of this Agreement). The Executive shall not, without the
prior written consent of the Company or as may otherwise be required by
law or legal process,
24
<PAGE> 25
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it.
9. SUCCESSORS.
(a) ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the
Executive and, without the prior written consent of the Company,
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the Company and their respective successors
and assigns.
(c) ASSUMPTIONS. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets thereof to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform this Agreement if no
succession had taken place.
10. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts,
without reference to its principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be
amended, modified, repealed, waived, extended or discharged except
by an agreement in writing signed by the party against whom
enforcement of such amendment, modification, repeal, waiver,
extension or discharge is sought. No person, other than pursuant
to a resolution of the Board of Directors, shall have authority on
behalf of the Company to agree to amend, modify, repeal, waive,
extend or discharge any provision of
25
<PAGE> 26
this Agreement or take any other action in respect thereto.
(b) NOTICES. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed to the Company's headquarters and, in
the case of the executive, to the address on the signature page of
this Agreement or, in either case, to such other address as any
party shall have subsequently furnished to the other parties in
writing. Notice and communications shall be effective when
actually received by the addressee.
(c) SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(d) TAXES. The Company may withhold from any amounts due and payable
under this Agreement such federal, state or local taxes as shall
be required to be withheld pursuant to any applicable law or
regulation.
(e) NO WAIVER. Any party's failure to insist upon strict compliance
with any provision hereof or the failure to assert any right such
party may have hereunder, including, without limitation, the right
of the Executive to terminate his employment pursuant to Sections
4(b), 4(d) and 4(g) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right
of this Agreement.
(f) ENTIRE AGREEMENT; SURVIVAL. This Agreement entered into as of the
date hereof between the Company and the Executive contains the
entire agreement of the Executive and the Company with respect to
the subject matter of the Agreement, and all promises,
representations, understandings, arrangements and prior
agreements, including without limitation the Employment Agreement,
are merged into, and superseded by, this Agreement. Any provision
hereof which by its terms applies in whole or part
26
<PAGE> 27
after a termination of the Executive's employment hereunder shall
survive such termination.
IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant to
due authorization from its Board of Directors, the company has caused this
Agreement to be executed as of the day and year first above written.
THE FIRST YEARS INC.
/s/ Ronald J. Sidman By: /s/ John R. Beals
- --------------------------- ---------------------------
Ronald J. Sidman
Name: John R. Beals
-------------------------
Title: Senior Vice President,
----------------------
Treasurer and Chief
----------------------
Financial Officer
----------------------
27
<PAGE> 1
Exhibit 10(v)
August 8, 1999
Mr. Jerome M. Karp
131 Windward Drive
Palm Beach Garden, FL 33418
Dear Mr. Karp:
This letter sets forth the payments and benefits you have received or will
receive as compensation while you are serving as (i) a director of The First
Years Inc., the Massachusetts corporation (the "Parent Company") and (ii) as a
director and non-employee, non-executive President and Chairman of The First
Years Inc., the Delaware corporation and subsidiary of the Parent Company (the
"Delaware Subsidiary").
You will receive the following payments and benefits commencing on August 8,
1999, the date of (i) the termination of the Transition Agreement dated August
8, 1994 between you and the Parent Company (the "Transition Agreement"), and
(ii) your retirement from the Parent Company as Vice-Chairman of the Board;
provided however, that for calendar year 1999 you will receive such payments and
benefits in full without any pro-ration. You agree that notwithstanding the
termination of the Transition Agreement, your obligations under Paragraphs 7, 8,
9, and 10 of the Transition Agreement shall continue in full force and effect.
I. DIRECTOR OF PARENT COMPANY. So long as and provided you are serving as
a director of the Parent Company, you will receive the following:
1. ONE-TIME STOCK OPTION FOR 20,000 SHARES. In order to bring you in
line with the other non-employee directors of the Parent Company
(who received a one-time option for 20,000 shares upon their
initial election to the Board of Directors of the
<PAGE> 2
Parent Company), and to align your interests with the interests of
outside stockholders of the Parent Company, you were granted in
1999 a one-time non-qualified stock option for 20,000 shares of
the Parent Company's common stock under the Parent Company's 1993
Stock Option Plan for Directors.
2. ANNUAL RETAINER FEE. The annual retainer fee paid to non-employee
directors of the Parent Company, as established from time to time
by the Board of Directors of the Parent Company (the "Board"). The
Board has established $17,500 as the annual retainer fee for
calendar year 1999.
3. MEETINGS ATTENDED FEES. The fee paid to non-employee directors of
the Parent Company for each meeting of the Board attended, as
established from time to time by the Board. The Board has
established $1,050 as the fee for meetings attended for calendar
year 1999.
4. ANNUAL STOCK OPTION. You will receive the annual equity-based
award or such other award granted each year to non-employee
directors under the Parent Company's 1993 Stock Option Plan for
Directors (the "Directors Plan"), the 1993 Equity Incentive Plan,
or any other similar plan of the Parent Company in effect from
time to time. Currently, under the Directors Plan, the date of
grant is the date of each Annual Meeting of Stockholders of the
Parent Company; the amount of the option, exercise price, the
vesting and duration of the option are all subject each year to
the terms of the Directors Plan and the discretion of the Board or
the Committee administering the Directors Plan. The amount of the
option under the Directors Plan granted to you in calendar year
1999 was equal to 6,000 shares of the Parent Company's common
stock.
5. MEDICAL BENEFITS. You and your spouse will continue to be provided
coverage under the Parent Company's group health plan, so long as
and provided that you are serving as a director of the Parent
Company and provided further that the Parent Company's current
health insurance carrier of such plan (and any subsequent carrier)
is willing to provide coverage to non-employee directors of the
Company. You will
2
<PAGE> 3
also continue to be provided coverage under the medical
reimbursement plan being provided to you as of this date, so long
as and provided that you are serving as a director of the Parent
Company; and provided further that the Parent Company's current
carrier for such policy (and any subsequent carrier) is willing to
provide coverage to non-employee directors; that the Company
continues to provide such plan to certain senior officers and
non-employee directors; and that such coverage will only be
provided within the limits for such reimbursement established by
the Company.
6. GROUP LIFE INSURANCE. You will continue to be provided coverage of
up to, but not to exceed, a face amount of fifty thousand dollars
($50,000.) under the Parent Company's group life insurance plan,
for a one-year period commencing August 8, 1999 and terminating on
August 8, 2000, so long as and provided that the Parent Company's
current group life insurance carrier of such plan (and any
subsequent carrier) is willing to provide coverage for
non-employee directors of the Company.
7. AUTOMOBILE. The Company will, at its expense, continue to provide
you only the leased car currently provided to you until the lease
for such car that is in effect on this date expires. The Company
will pay the cost of insuring such car and all other expenses
including maintenance and repairs.
8. NO OTHER BENEFITS. Upon your retirement from the Parent Company on
August 8, 1999, contributions on your behalf from the Parent
Company to the pension plan and 401(K) plan of the Parent Company
will terminate as of such date.
II. DIRECTOR, PRESIDENT, AND CHAIRMAN OF DELAWARE SUBSIDIARY. So long as
and provided that you are serving as a director and non-employee,
non-executive President and Chairman of the Delaware Subsidiary, you
will receive the following:
1. ANNUAL RETAINER FEE. An annual retainer fee equal to one-half
(1/2) of the annual retainer fee paid to non-employee directors of
the Parent Company as
3
<PAGE> 4
established from time to time by the Board of the Parent Company.
For calendar year 1999, one half (1/2) of the annual retainer fee
paid to non-employee Directors of the Board of the Parent Company
is equal to $8,750.
2. MEETINGS ATTENDED FEE AND EXPENSES. A fee for each meeting
attended of the Board of Directors of the Delaware Subsidiary in
an amount equal to the meetings attended fee paid to non-employee
directors of the Parent Company, as established form time to time
by the Board of the Parent Company. For calendar year 1999, the
meetings attended fee paid to non-employee directors of the Parent
Company is equal to $1,050. You will also be reimbursed for all
expenses which you incur related to your service to the Delaware
Subsidiary.
3. ANNUAL STOCK OPTION. You will receive the annual award equal to
one half (1/2) of the annual equity-based award or such other
award granted to non-employee directors of the Parent Company
under the Parent Company's 1993 Stock Option Plan for Directors,
the 1993 Equity Incentive Plan, or any other similar plan of the
Parent Company in effect from time to time. Currently, under the
Directors Plan, the date of grant is the date of each Annual
Meeting of Stockholders of the Parent Company; the amount of such
option, exercise price, the duration and vesting, are all subject
each year to the terms of the Directors Plan and the discretion of
the Board or the Committee administering the Directors Plan. The
option granted to you for calendar year 1999 under the Directors
Plan was equal to 3,000 shares of the Parent Company's common
stock.
III. NO EMPLOYMENT RELATIONSHIP. You agree that this letter does not
constitute an employment agreement with the Parent Company or the
Delaware Subsidiary, that you are not an employee of the Parent Company
(as of August 8, 1999) or the Delaware Subsidiary and that you shall
render your services to the Delaware Subsidiary as an independent
contractor. You agree that your directorships on the Boards of the
Parent Company and the Delaware Subsidiary are subject to the
nomination by the respective Boards of each Company and election by the
stockholders of the each Company.
4
<PAGE> 5
IV. TERMINATION. Either you or the Parent Company may terminate the
Agreement without cause upon thirty (30) days prior written notice to
the other.
V. GOVERNING LAW AND OTHER MISCELLANEOUS TERMS. This letter Agreement
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts without reference to its principles of
conflicts of law. This Agreement shall not be amended except by an
agreement in writing signed by both parties. This Agreement contains
the entire agreement between the parties with respect to the subject
matter of this Agreement and all other understandings, arrangements,
and prior agreements are merged into and superceded by this Agreement,
except that your obligations under Paragraphs 7, 8, 9, and 10 of the
Transition Agreement will continue in full force and effect.
Please acknowledge your assent to the terms of this letter Agreement by signing
below.
Sincerely yours,
THE FIRST YEARS INC.
By: /s/ Ronald J. Sidman
------------------------
Title: President and CEO
---------------------
Agreed and Accepted by:
/s/ Jerome M. Karp Date: 11/11/99
- ----------------------- -----------------------
Jerome M. Karp
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 13,887,320
<SECURITIES> 0
<RECEIVABLES> 22,644,014
<ALLOWANCES> 239,725
<INVENTORY> 19,052,378
<CURRENT-ASSETS> 57,245,042
<PP&E> 18,465,830
<DEPRECIATION> 8,616,158
<TOTAL-ASSETS> 67,094,714
<CURRENT-LIABILITIES> 12,391,428
<BONDS> 0
1,057,025
0
<COMMON> 0
<OTHER-SE> 52,847,961
<TOTAL-LIABILITY-AND-EQUITY> 67,094,714
<SALES> 103,594,089
<TOTAL-REVENUES> 104,011,548
<CGS> 59,945,118
<TOTAL-COSTS> 90,471,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,539,724
<INCOME-TAX> 5,483,600
<INCOME-CONTINUING> 8,056,124
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,056,124
<EPS-BASIC> 0.78
<EPS-DILUTED> 0.76
</TABLE>
