FIRST YEARS INC, 10-K405, 2000-03-28

FIRST YEARS INC
10-K405, 2000-03-28
MISCELLANEOUS PLASTICS PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------

FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999; OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-7024

THE FIRST YEARS INC.
(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C>
MASSACHUSETTS 04-2149581
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE KIDDIE DRIVE,
AVON, MASSACHUSETTS 02322
(Address of Principal Executive Offices) (Zip Code)
</TABLE>

508-588-1220
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
NONE NONE
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $.10 PAR VALUE
(Title of Class)

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 twelve 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 __.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]

The aggregate market value of the Common Stock held by nonaffiliates of the
Company was $64,401,098, based on the price at which the stock was sold over the
counter on the Nasdaq National Market, as reported at the close of business on
February 29, 2000.

The number of shares of Registrant's Common Stock outstanding on December
31, 1999 was 9,616,235.
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<PAGE> 2

DOCUMENTS INCORPORATED BY REFERENCE

The Company intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1999. The following sections of such definitive proxy statement are hereby
incorporated by reference into Items 10, 11, 12 and 13 of Part III of this Form
10-K: "Common Stock Ownership of Certain Beneficial Owners and Management;"
"Election of Directors;" "Executive Compensation" (other than the Board
Compensation Committee Report on Executive Compensation and the Performance
Chart); and "Compliance with Section 16(a) of the Securities Exchange Act of
1934."
<PAGE> 3

PART I

ITEM 1. BUSINESS

The First Years Inc. (the "Company") is a leading developer and worldwide
marketer of a broad line of products for infants and toddlers. Major channels
through which the Company sells its products include mass merchants,
supermarkets, drug stores, department stores, wholesale clubs, convenience
stores, specialty stores, internet-based retailers, mail-order catalogs and
catalog showrooms.

The Company was incorporated in 1952 in Massachusetts under the name Kiddie
Products, Inc. The Company changed its name to The First Years Inc. in May,
1995, and is headquartered in Avon, Massachusetts. The Company also has a
wholly-owned subsidiary, the First Years Inc., which is incorporated in Delaware
and headquartered in California.

Except as expressly indicated or unless the context otherwise requires, as
used in this report, the "Company" means The First Years Inc. a Massachusetts
corporation, and its subsidiaries.

Products

The Company's product line, which contains approximately 250 items that
range in retail price from approximately $0.99 to $69.99, is categorized and
marketed into five distinct product categories as follows:

Feeding & Soothing. The Feeding & Soothing category is comprised of
bottles and accessories, nipples, pacifiers, teethers, bowls, drinking cups,
dishes, flatware, bibs, breast-feeding accessories and feeding sets. This
category includes the TumbleMates line of training cups, bowls, plates and
utensils, designed for serving, storing and transporting drinks and snacks, and
which features a system of interchangeable cups and lids. This category also
includes the Natural Feeding System of nipples and bottles, and the new
Reclining 3-Stage Feeding Seat.

Play & Discover. The Play & Discover category consists of an extensive
line of entertaining, skill-developing toys for infants and toddlers including
crib toys, floor toys, hand-held toys, and large play items. This category
includes the Company's Washables line of 100% washable, dishwasher-safe toys. In
1999, the Company introduced the 3-in-1 Tummy Play set.

Care & Safety. The Care & Safety category consists of a broad line of
bathing and grooming accessories, home safety and monitoring products such as
door and cabinet latches, toilet-training products and products appropriate for
the health and hygiene needs of infants. This category includes the Crisp &
Clear Plus 900MHz Nursery Monitor and the new Hands-Free Gate, a foot-pedal
operated gate.

Winnie the Pooh. The Winnie the Pooh category consists of numerous basic
products including teethers, rattles, bibs, bottles, bathing accessories and
gift sets featuring Winnie the Pooh characters. In 1999, the Company introduced
numerous additional items in this category including a 2-in-1 Bathtub and Color
Change Bathseat.

Sesame Street. The Sesame Street category consists of numerous basic
products including teethers, pacifiers, bottles, drinking cups, dishes,
flatware, healthcare products, car sun shade, hooded towels, rattles and a
toilet trainer. In 1999, the Company introduced a new Fold-Down Bed Rail.
------------------------

THE FIRST YEARS(R) Ideas Inspired by Parents(R), TumbleMates(R),
Firstronics(R), and Washables(R) are registered trademarks of The First Years
Inc. Crisp & Clear Plus(TM) and ComforTemp(TM) are trademarks of The First Years
Inc. SESAME STREET is a registered trademark of Children's Television Workshop.
WINNIE THE POOH(R) and POOH(R) are registered trademarks of Disney Enterprises,
Inc.

FINANCIAL INFORMATION ABOUT SEGMENTS

The Company has one operating segment. It engages in a single line of
business of developing and marketing one class of similar products for infants
and toddlers through the same retail channels. For financial information
regarding such single operating segment, please see Item 14(a).1. "Consolidated
Financial Statements."

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PRODUCT DESIGN, DEVELOPMENT AND MARKETING

The Company devotes substantial resources to product development. The
Company employs a staff of professionals engaged in the creation of new products
and uses a diverse group of outside designers and developers. For the past 19
years the Company's product line also has been designed in consultation with Dr.
T. Berry Brazelton, the well-known pediatrician and authority on child
development, and staff members of the Child Development Unit at Children's
Hospital in Boston, Massachusetts (the "CDU"), of which Dr. Brazelton is founder
and Director Emeritus.

The Company spent approximately $3.8, $3.3 and $2.6 million on new product
development in 1999, 1998, and 1997, respectively. Most of the Company's new
products are shown at the Juvenile Products Manufacturers Association Trade
Show, in Dallas, Texas in the fall of each year, and a variety of other national
and international toy and baby fairs.

SALES

The Company's products are sold nationally and internationally to a broad
spectrum of customers including mass merchants, national variety and drug
stores, supermarkets, wholesale clubs, convenience stores, toy specialty stores,
wholesale distributors, department stores, internet-based retailers, mail order
catalogs and catalog stores. The Company sells its products in a large number of
countries throughout the world. Major customers include Wal*Mart, Toys "R" Us,
Target, Kmart, Kroger, Sears, Eckerd Drugs, Rite Aid, Albertsons, and J.C.
Penney.

The Company's products are sold in the United States and Canada primarily
through the Company's internal sales staff and a large network of independent
sales representatives. The Company's sales staff is responsible for supervising
and training the sales representatives. Such training is conducted at the
Company's headquarters and throughout the United States.

The Company's wholly-owned subsidiary, The First Years Inc., a Delaware
corporation ("TFY-Delaware"), handles the Company's sales and distribution
operations in the western part of the United States. TFY-Delaware has sales
offices in Missouri, Arkansas and California, and is the Company's exclusive
sales agent for certain states in the western part of the United States.

In Europe and the Middle East, the Company's products are sold by the
Company's internal staff at its sales office in Cirencester, England, which is
headed by the Vice President -- International Sales/Europe. This staff manages a
network of foreign distributors and independent sales representatives. In
Central and South America and the Pacific Rim, the Company's products are sold
by its internal sales staff which manages a network of foreign distributors and
independent sales representatives in such areas.

During 1999, Wal*Mart, Toys "R" Us, and Target accounted for approximately
28%, 19%, and 14% of the Company's net sales, respectively. A significant
reduction in purchases by any one of these customers could have a material
adverse effect on the Company's business.

Backlog is not a significant and material aspect of the Company's business.
Customers place orders on an as needed basis. As the Company's sales have
increased, the amount of unfilled orders at any time has not been indicative of
future results.

LICENSED CHARACTER PRODUCTS

Since 1996, the Company has entered into and renewed various agreements
which provide for the payment of royalties on certain of the Company's products
featuring licensed cartoon characters. The agreements have various terms and
require minimum royalty payments of $6,007,000 during the terms of these
agreements. A major licensing agreement was renewed in 1999 and will expire at
the end of 2000. Sales of products licensed under this major license agreement
amounted to 34% of the Company's total net sales for the year ended December 31,
1999. While management currently anticipates negotiating a renewal of the
license, non-renewal of this licensing agreement or, renewal on terms not
favorable to the Company could have a material adverse affect on the Company's
business (see Exhibit 99 to this Report, "Important Factors That May Affect
Future Results" and "Notes to Consolidated Financial Statements," Numbers 6 and
8).

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MANUFACTURING AND SOURCES OF SUPPLY

The Company does not own or operate its own manufacturing facilities. In
1999, all of the Company's products were manufactured either using the Company's
custom tools (molds and dies) or to the Company's specifications by
approximately 25 manufacturers located in the United States, Canada, China,
Taiwan, Thailand, and Mexico. Approximately 54% of all of its products sold in
1999 were manufactured in Asia, primarily in China. A large percentage of the
Company's furnishings and other large products were manufactured in 1999 by
suppliers in the United States and Canada because of the significantly higher
shipping costs from the Far East.

Generally the Company uses one manufacturer to make each product from its
supplier base in Asia, Canada, and the United States. Due to the high cost of
developing duplicate tooling (predominantly molds and dies), most of the
Company's products are made using one set of tools; however, the Company has
developed duplicate tools for several of its key and high-volume products. In
December, 1996, the Company entered into an agreement with Exergen Corporation
to jointly design and develop the Company's ComforTemp thermometer. The
ComforTemp is an instant underarm thermometer which uses an infrared
temperature-taking technology developed and patented by Exergen. The Company is
dependent on Exergen for Exergen's technology and proprietary components. The
Company introduced the Comfortemp to the market in 1997. There can be no
assurance that the Company will continue to obtain such proprietary components
from Exergen or that the ComforTemp thermometer, will result in substantial
sales. The Company believes it has alternative manufacturing sources available
for all of its other products. Because it owns its tools, it could shift its
sources of manufacturing for such other products to an alternative supplier.

In 1999, the Company's largest supplier, which is based in the United
States, accounted for products that represented approximately 12% of its sales
in 1999. Other than as described above, the Company has not entered into
long-term contractual arrangements with any of its suppliers.

The principal raw materials used in the production and sale of the
Company's products are plastic, paperboard and cloth. Raw materials are
purchased by the manufacturers who deliver completed products to the Company.
Because the primary source used in manufactured plastic is petroleum, the cost
and availability of plastic for use in the Company's products varies to a great
extent with the price of petroleum. The inability of the Company's suppliers to
acquire sufficient plastic and paperboard at a reasonable price could have a
material adverse effect on the Company's profitability. The Company did not
experience any difficulties in obtaining materials in 1999.

The Company purchases its products from its suppliers primarily in the U.S.
dollar and the Hong Kong dollar which is currently pegged to the U.S. dollar.
The Company also purchases a small percentage of its products in Canadian
dollars from one supplier. Generally, the Company's suppliers ship the products
on the basis of open credit terms or upon the acceptance of products by the
Company. The Company also enters into foreign exchange contracts. (See "Notes to
Consolidated Financial Statements," Numbers 1 and 5).

Foreign manufacturing is subject to a number of risks including
transportation delays and interruptions, the imposition of tariffs, quotas, and
other import or export controls, currency fluctuations, misappropriation of
intellectual property, political and economic disruptions, and changes in
governmental policies. From time to time, the United States Congress has
attempted to impose additional restrictions on trade with China. Enactment of
legislation or the imposition of restrictive regulations conditioning or
revoking China's Normal Trade Relations ("NTR") trading status could have a
material adverse effect upon the Company's business because products originating
from China could be subjected to substantially higher rates of duty. China's NTR
trading status has been extended through July 3, 2000. Unless Congress takes
action to override this decision, China will continue to enjoy NTR treatment
during this period. The European Community (the "EC") has enacted a quota and
tariff system with respect to the importation into the EC of certain toy
products originating in China. The Company, therefore, continues to evaluate
alternative sources of supply outside of China.

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produced in the United States. As a result, the Company is required to carry
significant amounts of inventory to meet rapid delivery requirements of
customers and to assure itself of continuous allotment of goods from suppliers.

WORKING CAPITAL ITEMS

See Item 7, "Management Discussion and Analysis of Financial Condition and
Results of Operation."

COMPETITION

The juvenile products industry is highly competitive and includes numerous
domestic and foreign competitors, some of which are substantially larger and
have greater financial and other resources than the Company. The Company
competes with a number of different competitors, depending on the product
category, and it competes against no single company across all product
categories. Its competition includes large, diversified health care product
companies, specialty infant products makers, toy makers and specialty health
care products companies. The Company competes principally on the basis of brand
name recognition and price/value relationship. In addition, the Company believes
that it competes favorably with respect to product quality, customer service and
breadth of product line.

DISTRIBUTION

The Company distributes its products in the United States from its
warehouse facility in Avon, Massachusetts and from a public warehouse in
Fontana, California. The Company distributes its products in Canada from a
public warehouse in Toronto, Ontario. In Europe, the Company distributes its
products from a public warehouse in Ghent, Belgium. Warehouse services at the
various public warehouses are performed by warehouse operators unaffiliated with
the Company.

TRADEMARKS, PATENTS AND COPYRIGHTS

The Company's principal trademark THE FIRST YEARS and design, is registered
in the United States and in a number of foreign countries. The Company also uses
other trademarks for certain of its products and product categories, some of
which are registered in the United States and in various foreign countries.

The Company, also owns patents, design patents and design registrations, as
well as pending applications in the United States and certain foreign countries.
Although the Company believes such are important to its business, it does not
believe that any single patent, design patent, or design registration, including
any which may be issued on a pending application, is material to its business.
There can be no assurance that such patents, design patents, or design
registrations, including those that may be issued on pending applications, will
offer any significant competitive advantage for the Company's products.

The Company, also owns copyrights, some of which are registered in the
United States. The Company does not believe that any single copyright is
material to its business. There can be no assurance that such copyrights will
offer any significant competitive advantage for the Company's products.

EMPLOYEES

As of December 31, 1999, the Company employed 150 full-time and 5 part-time
employees, of whom 4 are senior executive officers and all of the other
employees of the Company are in sales, marketing and product development,
materials, purchasing, quality assurance, data processing, finance,
administration and clerical, and warehousing positions. None of the Company's
employees is represented by a union, and the Company has not experienced any
work stoppages. The Company believes that relations with employees are good.

GOVERNMENT REGULATIONS

The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act, the Federal Hazardous Substances Act, as amended,
the Federal Flammable Fabrics Act, and the Child Safety Protection Act, and the
regulations promulgated thereunder (the "Acts"). The Company's nursery monitors
are subject to regulations of the Federal Communications Commission. The
Company's medical devices and

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drug products are subject to the regulations of the Food and Drug
Administration. The Acts enable the Consumer Product Safety Commission (the
"CPSC") to protect children from hazardous toys and other articles. The CPSC has
the authority to exclude from the market certain consumer products which are
found to be hazardous. The CPSC's determination is subject to court review. The
CPSC can require the repurchase by the manufacturer of articles which are
banned. The Federal Flammable Fabrics Act enables the CPSC to regulate and
enforce flammability standards for fabrics used in consumer products. Similar
laws exist in some states and cities and in various international markets. The
Company designs and tests its products to ensure compliance with the various
federal, state and international requirements. Any recall of a product could
have a material adverse effect on the Company, depending on the particular
product.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

The Company's domestic sales in 1999, 1998 and 1997 were approximately
$122.2, $116, and $104.5 million, respectively, and accounted for approximately
89.4%, 87.4% and 86.5% of the Company's total net sales in 1999, 1998, and 1997,
respectively. The Company's international sales (primarily in Europe, Canada,
South America and the Pacific Rim) were approximately $14.5, $16.7, and $16.2
million, respectively, and accounted for approximately 10.6%, 12.6% and 13.5% of
the Company's total net sales in 1999, 1998, and 1997, respectively. (See "Notes
to Consolidated Financial Statements", Number 8.)

For information regarding the Company's long-lived assets in the U.S.A. and
foreign countries, please see the Company's "Consolidated Balance Sheet as of
December 31, 1999 and 1998" and "Notes to Consolidated Financial Statements",
Number 12.

For information regarding the risks attendant to the Company's
international sales and operations, please see "Manufacturing and Sources of
Supply" on Page I-3 and "Competition" on Page I-4.

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The names of the Company's Executive Officers and Directors and certain
information about them are set forth below. Officers have served in the capacity
indicated in the table below for at least five years, unless otherwise indicated
in the notes.

<TABLE>
<CAPTION>
OFFICER OR
DIRECTOR
NAME AGE POSITION SINCE
---- --- -------- ----------
<S> <C> <C> <C>
Ronald J. Sidman.......................... 53 President, Chairman of the Board of
Directors, and Chief Executive Officer 1975
Jerome M. Karp............................ 72 Director 1969
Benjamin Peltz............................ 60 Director 1975
Evelyn Sidman............................. 86 Clerk and Director 1979
Fred T. Page.............................. 53 Director 1988
Kenneth R. Sidman......................... 54 Director 1998
Lewis M. Weston........................... 73 Director 1998
Walker J. Wallace......................... 55 Director 1999
John R. Beals............................. 45 Treasurer, Senior Vice President -- Finance
and Chief Financial Officer 1990
Wayne Shea................................ 45 Senior Vice President -- Worldwide Sales
and Merchandising 1991
Bruce Baron............................... 39 Senior Vice President -- Operations 1997
</TABLE>

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Mr. Sidman has been the President of the Company since January 1989 and
Chairman of the Board of Directors and Chief Executive Officer since March 1995.

Mr. Karp served as Vice Chairman of the Board of the Company from January,
1989 until his retirement from the Company in August, 1999.

Mr. Peltz served as the Treasurer of the Company from May, 1970 to January,
1998 and as the Senior Vice President of the Company from January 1980 until
June 30, 1997 when he retired from the Company.

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Mr. Page was with Southern New England Telecommunications Corporation
("SNET"), a subsidiary of Southwestern Bell, for thirty years from 1969 to 1999.
From January, 1994 to March, 1999 he served as President -- Network Services of
SNET.

Kenneth R. Sidman has been Vice President, Business & Technology
Development, at Saint-Gobain Performance Plastics Corp., Wayne, NJ, (formerly
Norton Performance Plastics Corp.), since 1997. Mr. Sidman joined Saint-Gobain
Performance Plastics Corp. in 1984 as Director, New Business Development, and
from 1992 to 1997, was Vice President, Marketing & New Business Development.

Mr. Lewis M. Weston is a Retired Partner of Goldman, Sachs & Co. and was a
Limited Partner of Goldman Sachs from 1978 to 1999. He had been with Goldman
Sachs since 1951 and was made a General Partner in 1967. He was Partner in
charge of the Syndicate Department from 1969 to 1978, a period during which he
was also active with the National Association of Securities Dealers (NASD),
serving three years as a member of the NASD's Board of Governors. Currently, Mr.
Weston is a board member of South East Asia Venture Investment Company (SEAVIC)
and SEAVIC, III, Singapore, and the Thai Prime Fund, Singapore, as well as a
member of the International Advisory Board of Banco Finantia, Lisbon, Portugal.
He also serves on the Investors Representative Committee of the China Dynamic
Investment Fund.

Walker J. Wallace was with Proctor & Gamble for 30 years, from 1967 to
1997. He was made a Vice President of Proctor & Gamble in 1991 and served as
Vice President -- Worldwide Strategic Planning for various core product
categories (laundry and cleaning products, paper products, diapers) from 1993 to
1997. Mr. Wallace is on the Board of the Student Loan Funding Resources in
Cincinnati, Ohio.

Mr. Beals has been Senior Vice President -- Finance since March, 1998 and
Treasurer of the Company since January, 1998. He has been Chief Financial
Officer of the Company since July, 1997. From July, 1997 to March, 1998 he was
Vice President -- Finance of the Company and from January, 1990 to June, 1997,
he was the Assistant Treasurer and Controller of the Company.

Mr. Shea has been Senior Vice President of Worldwide Sales & Merchandising
since July, 1997. From January, 1995 to June, 1997, Mr. Shea was Vice President
Worldwide Sales & Merchandising and from July, 1991 to December, 1994, Mr. Shea
was Vice President of Service and Merchandising of the Company.

Mr. Baron has been Senior Vice President -- Operations since August, 1997.
Prior to that time, Mr. Baron was Vice President of Operations at Crabtree &
Evelyn from 1988 to July, 1997.

ITEM 2. PROPERTIES

The Company owns its executive and administrative offices and principal
warehouse which are located in a 124,000 square-foot building at One Kiddie
Drive, Avon, Massachusetts. The Company also has sales offices in leased
premises in Cirencester, England. The Company's subsidiary, TFY-Delaware has
sales offices in leased premises in Missouri, Arkansas and California.

The Company also uses public warehouses located in Toronto, Canada;
Fontana, California; and in Ghent, Belgium.

The Company believes that its properties (owned and leased) are in good
condition and adequate for its current needs.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in legal proceedings which have arisen in the
ordinary course of business. The Company believes that there are no claims or
litigation pending, the outcome of which could have a material adverse effect on
the Company's financial condition or operating results. (See also "Notes to
Consolidated Financial Statements," Number 11).

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of the Company.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) MARKET INFORMATION

The Company's Common Stock is traded on the Nasdaq National Market. Below
is a summary of the actual high and low sales prices of the Company's Common
Stock for each quarter of 1999 and 1998 as reported by Nasdaq and retroactively
adjusted to reflect the Company's 2-for-1 stock split effected on June 29, 1998.

1999

<TABLE>
<CAPTION>
QUARTER LOW HIGH
------- --- ----
<S> <C> <C>
First....................................................... $12 3/4 $18
Second...................................................... 13 5/8 17 3/4
Third....................................................... 9 1/4 15
Fourth...................................................... 6 3/4 10 1/2
</TABLE>

1998

<TABLE>
<CAPTION>
QUARTER LOW HIGH
------- --- ----
<S> <C> <C>
First....................................................... $10 1/2 $18 1/8
Second...................................................... 15 1/4 20
Third....................................................... 12 19 1/2
Fourth...................................................... 9 18 1/4
</TABLE>

(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS

<TABLE>
<CAPTION>
APPROXIMATE NUMBER
OF RECORD HOLDERS
TITLE OF CLASS (AS OF DECEMBER 31, 1999)
-------------- -------------------------
<S> <C>
Common Stock, $.10 Par Value 169
</TABLE>

In 1998 and 1999, the Company paid cash dividends on its Common Stock of
$0.06 per share, which were paid on June 29, 1998 and June 15, 1999,
respectively. The Company currently expects that comparable cash dividends will
continue to be paid in the future. However, the declaration and payment of any
such cash dividends in the future will depend upon the Company's earnings,
financial condition, capital needs, and other factors deemed relevant by the
Board of Directors. There can be no assurance that the Company will continue to
pay dividends in the future.

The Company's Board of Directors declared on May 8, 1998, a 2-for-1 stock
split effected in the form of a 100% stock dividend payable on June 29, 1998 to
holders of record on May 29, 1998.

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ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT
DATA:
Net sales.................... $136,651,751 $132,716,379 $120,695,988 $93,110,361 $75,757,322
Cost of products sold........ 79,645,326 80,737,193 71,185,634 55,463,255 45,108,546
Selling, general and
administrative expenses.... 42,303,932 39,011,893 37,165,878 28,580,039 23,961,206
Interest expense............. -- -- 27,709 358,637 186,338
Interest income.............. 582,640 590,822 168,922 27,349 16,718
Offering expenses............ -- -- -- -- 310,457
Income before income taxes... 15,285,133 13,558,115 12,485,689 8,735,779 6,207,493
Provision for income taxes... 6,190,500 5,545,300 5,040,900 3,494,300 2,483,000
Net income................... 9,094,633 8,012,815 7,444,789 5,241,479 3,724,493
Basic earnings per share**... $0.89 $0.78 $0.75 $0.55 $0.41
Diluted earnings per
share**.................... $0.87 $0.75 $0.71 $0.53 $0.40
Dividends paid per share*.... $0.06 $0.06 $0.05 $0.05 $0.05
Basic weighted average number
of shares outstanding**.... 10,226,470 10,338,857 10,003,774 9,466,356 9,014,116
Diluted weighted average
number of shares
outstanding**.............. 10,402,297 10,669,503 10,453,062 9,891,982 9,326,982
SELECTED BALANCE SHEET DATA:
Total assets................. $ 67,913,856 $ 69,275,895 $ 60,571,561 $47,049,537 $41,712,080
Long-term debt............... -- -- -- -- 100,001
Stockholders' equity......... 51,702,426 52,647,404 44,009,004 35,866,440 25,763,259
Stockholders' equity per
share**.................... $4.97 $4.93 $4.21 $3.63 $2.76
</TABLE>

- ---------------
* Adjusted to reflect the two-for-one stock split effected on June 29, 1998 and
December 29, 1995, respectively.

** Adjusted to reflect the two-for-one stock split effected on June 29, 1998 and
December 29, 1995, respectively and restated to reflect adoption of Statement
of Financial Accounting Standard No. 128 in the fourth quarter of 1997.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

STATEMENT OF FORWARD LOOKING INFORMATION:

Statements in this Report on Form 10-K 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, expect, anticipate, intend, are confident, estimate and similar
expressions which by their nature refer to future events. Actual future results
may differ materially from those anticipated depending on a variety of factors
which include but are not limited to the Company's need for continued innovative
product development, and timely product introductions; the Company's reliance on
sales of licensed products, consumer preferences, major customers and foreign
manufacturers; changes in the retail industry; competition in the juvenile
products market; cost and availability of certain materials; risks related to
inventory, international sales, products liability, the Company's intellectual
property and litigation; importance of brand recognition; currency fluctuation
risks; impact of government regulations; and the dependence on, and need for,
key personnel. Information with respect to risk factors are contained in Exhibit
99 of this Annual Report on Form 10-K, and quarterly reports on Form 10-Q as
filed with the Securities and Exchange Commission. Readers are cautioned not to
place undo reliance on these forward-looking statements, which

II-2
<PAGE> 11

speak only as of the date hereof. The Company assumes no obligation to update
the information contained in this press release.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Net sales in 1999 were $136.7 million, an increase of $4.0 million or 3.0%,
as compared to $132.7 million in 1998. The increase was due to increased demand
for the First Years brand products which was partially offset by decreased
demand for licensed products in domestic and foreign markets. As a percentage of
sales, sales of licensed products decreased to 39.6% in 1999 from 48.4% in 1998
as consumer demand for licensed products lessened, particularly for several
items that had been selling well in 1998. Sales of the First Years brand
products increased to 60.4% in 1999 from 51.6% in 1998 due primarily to new
product introductions. The Company anticipates that the percent of the First
Years branded products to total sales will continue to increase as a result of
recent trends. An additional factor affecting net sales in 1999 and 1998 was the
accounting for sales returns of certain products containing diisononyl
phthalate, ("DINP"). As fully disclosed in Note 10 of the Company's financial
statements, 1998 net sales reflect a charge of $3.0 million for an accrual of
sales returns and 1999 net sales reflect an increase of $0.4 million for a
reversal of a portion of the 1998 accrual. As a percent of sales, net sales to
foreign markets decreased to 10.6% in 1999 from 12.6% in 1998 as reduced sales
in Latin America and Europe were partially offset by sales increases in Canada
and the Pacific Rim. The Company currently believes that substantial long term
opportunity exists in the foreign markets and will continue to pursue increased
sales potential in those markets.

Cost of products sold in 1999 was $79.6 million, a decrease of $1.1 million
or (1.4)%, as compared to $80.7 million in 1998. As a percentage of net sales,
cost of products sold in 1999 decreased to 58.3% from 60.8% in the comparable
period of 1998. The decrease was primarily due to the lower than expected
inventory writeoffs of certain products containing DINP for which a charge was
previously recorded in the fourth quarter of 1998 as well as lower costs
associated with the increased percentage of sales of non-licensed higher margin
products in 1999.

Selling general and administrative expenses in 1999 were $42.3 million, an
increase of $3.3 million, or 8.4%, as compared to $39.0 million of such expenses
in 1998. The increase was primarily due to costs related to the settlement of a
patent lawsuit, legal expenses related to the lawsuit, and market research
expenses. As a percentage of net sales, selling, general, and administrative
expenses increased to 31.0% in 1999 from 29.4% in the comparable period of 1998.
The increase reflects the costs associated with the lawsuit issue as selling,
general and administrative expenses as a percent of net sales would be
consistent with 1998 if the related costs were excluded.

Income tax expense as a percentage of pretax income decreased to 40.5% in
1999 from 40.9% in 1998 as the Company's taxable income was subject to a
slightly lower aggregate effective rate on the state level.

YEAR 2000 ISSUE

The "Year 2000 Issue" (Y2K) related to potential problems resulting 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". The Company was adequately prepared
for Y2K and did not experience any meaningful disruptions related to the
Company's information technology (IT) and non-IT systems. Additionally, the
Company did not encounter any disruptions in service or communications with its
mission critical service vendors, suppliers of products, logistics vendors or
it's customers.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Net sales in 1998 were $132.7 million, an increase of $12.0 million, or
10.0%, as compared to $120.7 million in 1997. The increase was due to new
product introductions and expanded retail distribution in domestic and foreign
markets. An additional factor affecting sales was a charge of $3.0 million
relating to

II-3
<PAGE> 12

expected sales returns of certain products containing diisononyl phthalate
("DINP"), a plastic softener. As a percent of sales, net sales to foreign
markets decreased to 12.6% in 1998 from 13.5% in 1997 as sales increases in
Europe were partially offset by reduced sales in Latin America and the Pacific
Rim due to poor economic conditions. The Company currently believes economic
conditions in Latin America and the Pacific Rim may negatively affect sales
potential during the short to medium term but that in the long term substantial
opportunity exists. As a percentage of net sales, sales of licensed products
increased to 48.4% in 1998 from 43.1% in 1997. The Company derives a significant
portion of its sales from products under license. A major licensing agreement,
which was to expire at the end of 1998, had been extended through March 31,
1999. Sales of products licensed under the agreement amounted to 42% of the
Company's total sales for the year ended December 31, 1998.

Cost of products sold in 1998 was $80.7 million, an increase of $9.5
million or 13.4%, as compared to $71.2 million in 1997. As a percentage of net
sales, cost of products sold in 1998 increased to 60.8% from 59.0% in the
comparable period of 1997. The increase was primarily due to a charge of $1.1
million relating to write-off of inventory of certain products containing DINP.
Without the charge related to DINP, cost of products sold would have remained
consistent at 58.9% in 1998 and 59.0% in 1997, respectively.

Selling general and administrative expenses in 1998 were $39.0 million, an
increase of $1.8 million, or 5.0%, as compared to $37.2 million of such expenses
in 1997. The increase was primarily due to costs related to increased sales
volume and payroll and payroll related costs. As a percentage of net sales,
selling, general, and administrative expenses decreased to 29.4% in 1998 from
30.8% in the comparable period of 1997. The decrease reflects a reduction in
advertising expenses in 1998 as well as the continued effective management of
selling, general, and administrative expenses.

Income tax expense as a percentage of pretax income increased to 40.9% in
1998 from 40.4% in 1997 as a portion of the Company's taxable income was taxed
at a higher statutory rate.

LIQUIDITY AND CAPITAL RESOURCES

Net working capital decreased by $2.5 million to $43.0 million at December
31, 1999 from $45.5 million at December 31, 1998 primarily due to decreases in
cash. Cash decreased by $6.4 million primarily as a result of the purchase of
$10.0 million of treasury shares under the stock repurchase program and
purchases of property, plant and equipment associated with the new warehouse
computer and racking systems at the Company's Avon facility. The decrease in
cash was partially offset by profitable operations.

An unsecured line of credit of $10 million which is subject to annual
renewal in August of 2000, is available from a bank. Amounts outstanding under
the line are payable upon demand by the bank. During 1999 and 1998, the Company
had no borrowings under the line of credit. As of December 31, 1999 and 1998 no
balances were outstanding.

The Company paid a cash dividend of $0.06 per share of Common Stock in June
of 1999 and 1998, respectively.

The Company expects cash flow from operations and availability under the
Company's lines of credit to be sufficient to meet cash needs for working
capital expenditures for the next two years.

INFLATION AND FOREIGN CURRENCY FLUCTUATIONS

Inflation has not had a material effect on the Company's operating results
over the past three years.

The Company enters into forward exchange contracts to minimize the impact
of fluctuations in currency exchange rates on future cash flows emanating from
sales denominated in foreign currencies. The Company does not purchase such
contracts for trading purposes. During 1999, the Company entered into forward
exchange contracts with a bank whereby the Company is committed to deliver
foreign currency at predetermined rates. The contracts expire within one year.
The Company's commitment under these contracts approximated $3.8 million as of
December 31, 1999. At December 31, 1999, the exchange rates for such currencies
covered by the contracts approximated the predetermined rates included therein.
The Company

II-4
<PAGE> 13

routinely assesses the financial strength of the bank which is counterparty to
the forward exchange contracts. As of December 31, 1999, management believes it
had no significant exposure to credit risk relative to such contracts.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The statement, as amended, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2001. Management of the
Company are currently evaluating the effect of implementing SFAS No. 133 on the
consolidated financial statements.

Effective January 1, 1999, the Company adopted the AICPA Statement of
Position 98-1 "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The adoption of this statement resulted in no
changes to the consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See discussion in second paragraph of Item 7, "Inflation and Foreign
Currency Fluctuations", for required quantitative and qualitative disclosure
about primary exposure to market risk.

The foreign currencies to which the Company has the most significant
exchange rate exposure is the British pound. Based on a hypothetical ten percent
adverse movement in foreign currency exchange rates, the potential losses in
future earnings, fair value of risk-sensitive instruments, and cash flows are
immaterial, although the actual effects may differ materially from the
hypothetical analysis.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements listed under Item 14.(a) 1. are included in Part IV.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There is nothing to report relating to this Item.

II-5
<PAGE> 14

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is included in the Registrant's
definitive proxy statement for the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is included in the Registrant's
definitive proxy statement for the 2000 Annual Meeting of Stockholders, except
that the sections in said definitive proxy statement entitled "Board
Compensation Committee Report on Executive Compensation" and the "Stock
Performance Chart" shall not be deemed incorporated herein by reference to this
10-K Report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is included in the Registrant's
definitive proxy statement for the 2000 Annual Meeting of Stockholders.

III-1
<PAGE> 15

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

14.(a) 1. CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Report

Consolidated Balance Sheets as of December 31, 1999 and 1998

Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997

(a) 2. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997

Other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
given in the financial statements or notes thereto.

14.(a) 3. EXHIBITS

The following are either (i) filed herewith as exhibits to this 10-K Report
or (ii) have been filed as exhibits to filings under the Securities Act of 1933
or the Securities Exchange Act of 1934 and are incorporated herein by reference
as exhibits to this 10-K Report.

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(3)(i) Restated Articles of Organization as currently in effect
(filed as Exhibit (3.1) to Amendment No. 1 to Form S-1
Registration Statement filed with the Commission on October
5, 1995 and incorporated herein by reference).
(3)(ii) By-laws of the Company as currently in effect. IV-19
(10)(a) Agreement with Disney Enterprises, Inc. regarding the
licensing of Winnie the Pooh characters dated as of November
16, 1998 (filed as Exhibit (10)(r) on Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by
reference; certain portions of such Agreement are subject to
confidential treatment).
(10)(b) Agreement with Disney Enterprises, Inc. dated as of November
16, 1998 regarding the licensing of Disney standard
characters, Disney classic cartoon characters and Disney
Babies (filed as Exhibit 10(s) on Form 10-Q for the quarter
ended June 30, 1999 and incorporated herein by reference;
certain portions of such Agreement are subject to
confidential treatment).
(10)(c) Agreement with the Children's Television Workshop dated July
1, 1996 regarding the licensing of Sesame Street characters
(filed as Exhibit (10)(g) on Form 10-K for the year ended
December 31, 1996 and incorporated herein by reference;
certain portions of such Agreement are subject to
confidential treatment).
(10)(d) Letter Agreement with Children's Television Workshop dated
as of July 1, 1999 regarding the renewal of the licensing of
Sesame Street characters (certain portions of which are
subject to confidential treatment). IV-19

Management Contracts and Compensatory Plans

(10)(e) The First Years Inc. 1993 Equity Incentive Plan, as amended
through May 20, 1999 (filed as Exhibit (10)(t) on Form 10-Q
for the quarter ended September 30, 1999 and incorporated
herein by reference).
(10)(f) The First Years Inc. 1993 Stock Option Plan for Directors,
as amended through October 1, 1999. IV-19
(10)(g) Letter Agreement between The First Years Inc. and Jerome M.
Karp dated August 8, 1999 (filed as Exhibit 10(v) on Form
10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference).
</TABLE>

IV-1
<PAGE> 16

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(10)(h) Employment Agreement between The First Years Inc. and Ronald
J. Sidman, dated September 30, 1999 (filed as Exhibit 10(u)
on Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by reference).
(10)(i) The First Years Inc., a Massachusetts Corporation, and
Affiliates -- 1998 Annual Incentive Plan, effective as of
January 1, 1998 (filed as Exhibit 10(n) on Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference).
(10)(j) Agreement between The First Years Inc. and Wayne Shea dated
August 12, 1997 (filed as Exhibit (10)(o) on Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference).
(10)(k) Agreement between The First Years Inc. and Bruce Baron dated
July 10, 1997 (filed as Exhibit 10(p) on Form 10-K for the
year ended December 31, 1998 and incorporated herein by
reference).
(10)(l) Agreement between The First Years Inc. and James N. Turner
dated June 15, 1998 (filed as Exhibit 10(q) on Form 10-K for
the year ended December 31, 1998 and incorporated herein by
reference).
- ------------------------------------------------------------------------------

(21) List of Subsidiaries of the Registrant. IV-19
(23) Consent of Deloitte & Touche LLP dated March 30, 2000. IV-19
(27) Financial Data Schedule -- 12/31/99 IV-19
(99) Important Factors That May Affect Future Results. IV-19
</TABLE>

14.(b) REPORT ON FORM 8-K

The Company filed one report on Form 8-K with the Securities and Exchange
Commission during the quarter ended December 31, 1999. The report on Form 8-K
was filed on December 29, 1999 to report the settlement of a patent infringement
lawsuit.

IV-2
<PAGE> 17

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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)

By: /s/ RONALD J. SIDMAN
..................................
RONALD J. SIDMAN, CHIEF EXECUTIVE
OFFICER,
CHAIRMAN OF THE BOARD OF
DIRECTORS, AND PRESIDENT
Date: March 16, 2000
By: /s/ JOHN R. BEALS
.................................
JOHN R. BEALS, TREASURER AND
SENIOR VICE PRESIDENT --
FINANCE(CHIEF FINANCIAL OFFICER
AND CHIEF
ACCOUNTING OFFICER)
Date: March 16, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 16, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD J. SIDMAN Chief Executive Officer Chairman March 16, 2000
........................................ of the Board of Directors and
RONALD J. SIDMAN President

/s/ JEROME M. KARP Director March 16, 2000
........................................
JEROME M. KARP

/s/ EVELYN SIDMAN Director March 16, 2000
........................................
EVELYN SIDMAN

/s/ BENJAMIN PELTZ Director March 16, 2000
........................................
BENJAMIN PELTZ

/s/ FRED T. PAGE Director March 16, 2000
........................................
FRED T. PAGE

/s/ KENNETH R. SIDMAN Director March 16, 2000
........................................
KENNETH R. SIDMAN

/s/ LEWIS M. WESTON Director March 16, 2000
........................................
LEWIS M. WESTON

/s/ WALKER J. WALLACE Director March 16, 2000
........................................
WALKER J. WALLACE
</TABLE>

IV-3
<PAGE> 18

THE FIRST YEARS INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ IV-5
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and
1998.................................................. IV-6
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998, and 1997..................... IV-7
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998, and 1997......... IV-8
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997............... IV-9
Notes to Consolidated Financial Statements............. IV-10-17
Financial Statement Schedule II -- Valuation and Qualifying
Accounts for the Years Ended December 31, 1999, 1998, and
1997...................................................... IV-18
</TABLE>

IV-4
<PAGE> 19

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
The First Years Inc.
Avon, Massachusetts

We have audited the accompanying consolidated balance sheets of The First
Years Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statement schedule listed in the accompanying index. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The First Years Inc. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 2, 2000

IV-5
<PAGE> 20

THE FIRST YEARS INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 8).............. $13,400,728 $19,776,897
Accounts receivable (less allowance for doubtful
accounts of $270,000 in 1999 and 1998) (Note 8)....... 21,587,886 19,013,127
Inventories (Note 1)................................... 20,352,845 18,520,023
Prepaid expenses and other assets...................... 1,308,974 2,638,634
Deferred tax asset (Notes 1 and 3)..................... 1,675,000 1,424,500
----------- -----------
Total current assets.............................. 58,325,433 61,373,181
----------- -----------
Property, Plant, and Equipment (Note 1):
Land................................................... 167,266 167,266
Building............................................... 5,154,845 4,199,790
Machinery and molds.................................... 7,536,378 7,878,103
Furniture and equipment................................ 4,820,691 4,571,636
----------- -----------
Total............................................. 17,679,180 16,816,795
Less accumulated depreciation.......................... 8,090,757 8,914,081
----------- -----------
Property, plant, and equipment -- net............. 9,588,423 7,902,714
----------- -----------
Total Assets...................................... $67,913,856 $69,275,895
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable....................................... $10,329,899 $ 9,400,966
Accrued royalty expense (Note 6)....................... 1,792,475 2,130,027
Accrued payroll expenses............................... 113,409 1,200,966
Accrued selling expenses............................... 3,048,547 3,098,232
----------- -----------
Total current liabilities......................... 15,284,330 15,830,191
----------- -----------
Deferred Tax Liability (Notes 1 and 3)...................... 927,100 798,300
----------- -----------
Commitments and Contingencies (Notes 5, 6 and 8)
Stockholders' Equity (Notes 4, 7, and 9):
Common stock -- authorized, 15,000,000 shares; issued
10,570,329 and 10,461,408; outstanding, 9,616,235 and
10,440,014 as of December 31, 1999 and 1998,
respectively.............................................. 1,057,033 1,046,141
Paid-in-capital............................................. 8,052,623 7,472,398
Retained earnings........................................... 52,907,819 44,438,589
Less treasury stock at cost, 954,094 and 21,394 shares as of
December 31, 1999 and 1998, respectively.................. (10,315,049) (309,724)
----------- -----------
Total stockholders' equity........................ 51,702,426 52,647,404
----------- -----------
Total Liabilities and Stockholders' Equity........ $67,913,856 $69,275,895
=========== ===========
</TABLE>

See notes to consolidated financial statements.
IV-6
<PAGE> 21

THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales (Notes 1, 6, 8 and 10)................. $136,651,751 $132,716,379 $120,695,988
Cost of Products Sold (Notes 1 and 10)........... 79,645,326 80,737,193 71,185,634
------------ ------------ ------------
Gross Profit..................................... 57,006,425 51,979,186 49,510,354
Selling, General, and Administrative Expenses
(Notes 1, 7 and 11)............................ 42,303,932 39,011,893 37,165,878
------------ ------------ ------------
Operating Income................................. 14,702,493 12,967,293 12,344,476
Other Income (Expense):
Interest expense............................... -- -- (27,709)
Interest income................................ 582,640 590,822 168,922
------------ ------------ ------------
Income Before Income Taxes....................... 15,285,133 13,558,115 12,485,689
Provision for Income Taxes (Notes 1 and 3)....... 6,190,500 5,545,300 5,040,900
------------ ------------ ------------
Net Income (Note 10)............................. $ 9,094,633 $ 8,012,815 $ 7,444,789
============ ============ ============
Basic Earnings Per Share (Notes 1 and 9)......... $0.89 $0.78 $0.75
===== ===== =====
Diluted Earnings Per Share (Notes 1 and 9)....... $0.87 $0.75 $0.71
===== ===== =====
</TABLE>

See notes to consolidated financial statements.
IV-7
<PAGE> 22

THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
COMMON STOCK
------------------------ PAID-IN RETAINED TREASURY
SHARES PAR VALUE CAPITAL EARNINGS STOCK
----------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997......... 4,948,980 $ 494,898 $5,271,875 $30,099,667 $ --
Stock issued under stock option
plans (Note 7).............. 139,020 13,902 804,433 -- --
Tax benefit derived from option
compensation deduction...... -- -- 458,000 -- --
Dividends paid................. -- -- -- (496,747) --
Repurchase of 3,409 shares for
treasury.................... (3,409) -- -- -- (81,813)
Net income..................... -- -- -- 7,444,789 --
----------- ---------- ---------- ----------- ------------
Balance, December 31, 1997....... 5,084,591 508,800 6,534,308 37,047,709 (81,813)
Stock issued under stock option
plans (Note 7).............. 183,205 18,321 916,510 -- --
Tax benefit derived from option
compensation deduction...... -- -- 540,600 -- --
Dividends paid................. -- -- -- (621,935)
Repurchase of 10,576 shares for
treasury.................... (10,576) -- -- -- (227,911)
Stock split, two-for-one (Note
4).......................... 5,182,794 519,020 (519,020) -- --
Net income..................... -- -- -- 8,012,815 --
----------- ---------- ---------- ----------- ------------
Balance, December 31, 1998....... 10,440,014 1,046,141 7,472,398 44,438,589 (309,724)
Stock issued under stock option
plans (Note 7).............. 108,921 10,892 457,725 -- --
Tax benefit derived from option
compensation deduction...... -- -- 122,500 -- --
Dividends paid................. -- -- -- (625,403) --
Repurchase of 932,700 shares
for treasury................ (932,700) -- -- -- (10,005,325)
Net income..................... -- -- -- 9,094,633 --
----------- ---------- ---------- ----------- ------------
Balance, December 31, 1999....... 9,616,235 $1,057,033 $8,052,623 $52,907,819 $(10,315,049)
=========== ========== ========== =========== ============
</TABLE>

See notes to consolidated financial statements.
IV-8
<PAGE> 23

THE FIRST YEARS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................................... $ 9,094,633 $ 8,012,815 $ 7,444,789
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation...................................... 1,679,252 1,415,525 1,397,078
Provision for doubtful accounts................... 78,968 176,034 147,541
Loss on disposal of equipment..................... 1,232,322 548,469 617,693
Increase (decrease) arising from working capital
items:
Accounts receivable............................. (2,653,727) 773,065 (4,180,302)
Inventories..................................... (1,832,822) 5,852,858 (5,784,837)
Prepaid expenses and other assets............... 1,452,160 (1,683,270) (39,447)
Accounts payable................................ 928,933 (762,878) 3,652,730
Accrued royalty expense......................... (337,552) 78,306 1,203,050
Accrued payroll expenses........................ (1,087,557) 57,903 55,761
Accrued selling expenses........................ (49,685) 711,203 981,020
Change in deferred income taxes................... (121,700) (164,100) (287,700)
------------ ----------- -----------
Net cash provided by operating activities.... 8,383,225 15,015,930 5,207,376
------------ ----------- -----------
Cash Flows from Investing Activities
Purchase of property, plant, and equipment............. (4,597,283) (3,021,058) (1,814,698)
------------ ----------- -----------
Cash Flows from Financing Activities:
Repayment of industrial revenue bonds................ -- -- (100,000)
Dividends paid....................................... (625,403) (621,935) (496,747)
Purchase of treasury stock........................... (10,005,325) (227,911) (81,813)
Common stock issued under stock option plans......... 468,617 934,831 818,335
------------ ----------- -----------
Net cash (used for) provided by financing
activities................................. (10,162,111) 84,985 139,775
------------ ----------- -----------
Increase (decrease) in Cash and Cash Equivalents....... (6,376,169) 12,079,857 3,532,453

Cash and Cash Equivalents, Beginning of Year........... 19,776,897 7,697,040 4,164,587
------------ ----------- -----------
Cash and Cash Equivalents, End of Year................. $ 13,400,728 $19,776,897 $ 7,697,040
============ =========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest........................................ $ 0 $ 0 $ 27,709
============ =========== ===========
Income taxes.................................... $ 5,292,295 $ 7,584,400 $ 4,684,690
============ =========== ===========
Non-cash transactions:
Tax benefit of stock option exercises........... $ 122,500 $ 540,600 $ 458,000
============ =========== ===========
</TABLE>

See notes to consolidated financial statements.
IV-9
<PAGE> 24

THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business -- The First Years Inc. (the "Company") is a developer, marketer,
and distributor of certain basic accessory and related products for infants and
toddlers. The Company was founded and incorporated in 1952. Since its inception,
the Company has engaged in this single line of business, with one class of
similar products. The following is a summary of the Company's significant
accounting policies.

Basis of Reporting -- The consolidated financial statements include the
accounts of all the Company's wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.

Revenue Recognition -- Revenue is recognized when products are shipped.

Cash Equivalents -- Highly liquid investments with a maturity of three
months or less when purchased have been classified as cash equivalents in the
accompanying financial statements. Such investments are carried at cost, which
approximates market value.

Inventories -- Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist principally of finished goods,
unpackaged components, and supplies.

Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost. Depreciation is provided based on the estimated useful lives of the
various classes of assets (building, 15 to 40 years; machinery and molds, 5 to
10 years; furniture and equipment, 5 to 10 years) using the straight-line
method.

Income Taxes -- Deferred tax assets and liabilities are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.

Employee Stock-Based Compensation -- The Company uses the intrinsic
value-based method of Accounting Principles Board Opinion ("APB") No. 25 to
account for employee stock-based compensation plans.

Earnings Per Share -- In 1997, the Company adopted SFAS No. 128 "Earnings
Per Share." All earnings per share amounts for all periods presented have been
restated to conform to the requirements of SFAS No. 128.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The primary estimates underlying the Company's
consolidated financial statements include allowances for doubtful accounts and
obsolete inventories and estimates related to the DINP charges (See footnote
10). Actual results could differ from those estimates.

Research and Development Costs -- Research and development costs are
expensed as incurred. During 1999, 1998, and 1997, research and development
costs approximated $3,780,000, $3,320,000, and $2,584,000, respectively.

Foreign Currency Translation -- The Company's functional currency is the
U.S. dollar. Accordingly, monetary assets and liabilities of the Company's
foreign operations are translated from the respective local currency to the U.S.
dollar using year-end exchange rates while nonmonetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year. Accordingly, translation adjustments and
transaction gains and losses are recognized as income in the year of occurrence
and are recorded as a component of cost of sales.

Foreign Exchange Contracts -- The Company enters into forward exchange
contracts to minimize the impact of fluctuations in currency exchange rates on
future cash flows emanating from sales denominated in foreign currencies. The
Company does not purchase such contracts for trading purposes. Gains and losses
related to foreign exchange contracts which qualify as accounting hedges of firm
commitments are deferred
IV-10
<PAGE> 25
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and recognized in income when the hedged transaction occurs. Gains and losses
related to foreign exchange contracts which do not qualify for hedge accounting
are marked to market currently and recognized as a foreign currency transaction
gain or loss.

Fair Value of Financial Instruments -- The fair value of the Company's
assets and liabilities which constitute financial instruments as defined in SFAS
No. 107 approximate their recorded value.

Reclassifications -- Certain reclassifications were made to prior year
amounts in order to conform with the current year presentation.

Reporting Comprehensive Income -- Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income," which requires businesses to disclose Comprehensive
income and its components in their general-purpose financial statements.
Comprehensive income was equal to net income for the years ended December 31,
1999 and 1998.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative, including certain
derivative instruments embedded in other contracts, and for hedging activities.
The statement, as amended, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2001. Management of the Company are currently
evaluating the effect of implementing SFAS No. 133 on the consolidated financial
statements.

2. DEBT

During 1999 and 1998, the Company had available an unsecured line of credit
totaling $10,000,000 with one bank. The line is subject to annual renewal and
requires no compensating balances. The line bears interest at the prime rate or
the LIBOR rate plus 1.75%. No short-term borrowings were incurred by the Company
during 1999 or 1998. As of December 31, 1999 and 1998 no balance was
outstanding. The line of credit will expire in August of 2000.

3. INCOME TAXES

Components of the Company's net deferred tax asset at December 31 are as
follows:

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible................ $ 417,800 $ 411,400
Capitalized packaging costs not currently
deductible..................................... 643,900 586,500
Capitalized inventory costs not currently
deductible..................................... 519,800 393,700
Other............................................ 93,500 32,900
---------- ----------
1,675,000 1,424,500
---------- ----------
Deferred tax liabilities:
Excess tax depreciation over financial reporting
depreciation................................... 927,100 793,800
Other............................................ 0 4,500
---------- ----------
927,100 798,300
---------- ----------
Net deferred tax asset................................ $ 747,900 $ 626,200
========== ==========
</TABLE>

IV-11
<PAGE> 26
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There was no valuation allowance for the years ended December 31, 1999,
1998, and 1997.

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current.............................. $4,985,600 $4,318,600 $4,157,200
Deferred............................. (121,700) (164,100) (287,700)
---------- ---------- ----------
Total federal................ 4,863,900 4,154,500 3,869,500
State.................................. 1,326,600 1,390,800 1,171,400
---------- ---------- ----------
Provision for income taxes............. $6,190,500 $5,545,300 $5,040,900
========== ========== ==========
</TABLE>

A reconciliation of the statutory federal income tax rate and the effective
tax rate as a percentage of pretax income is as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate......................................... 35.0% 35.0% 34.0%
State income taxes, net of federal income tax
benefit.............................................. 5.9 6.5 6.4
Other.................................................. (0.4) (0.6) --
---- ---- ----
Effective tax rate..................................... 40.5% 40.9% 40.4%
==== ==== ====
</TABLE>

4. COMMON STOCK

In May 1998, the Company's Board of Directors (the Board) declared a
two-for-one split of the Company's common stock. The 1998 stock split, effected
in the form of a stock dividend, was distributed on June 29, 1998 (to
stockholders of record on May 29, 1998). Earnings per share amounts shown in the
accompanying financial statements have been retroactively adjusted to reflect
the 1998 stock split.

5. COMMITMENTS AND CONTINGENCIES

Forward Exchange Contracts -- During 1999 and 1998, the Company entered
into forward exchange contracts with a bank whereby the Company is committed to
deliver foreign currency at predetermined rates. The contracts expire within one
year. The Company's future commitment under these contracts approximated
$3,817,000 and $494,000 as of December 31, 1999 and 1998, respectively. At
December 31, 1999 and 1998, the fair market value of the contracts approximated
their carrying amount.

Other Commitments -- At December 31, 1999 and 1998, letters of credit
outstanding aggregated approximately $33,000.

During 1999, the Company entered into an employment agreement with an
executive officer which provides for annual base salary of $364,000 thru
September 30, 2004, subject to any increases established from time to time at
the discretion of the Compensation Committee of the Board of Directors. In the
event of termination, the agreement provides for certain payments depending on
the nature of the termination.

Contingencies -- The Company is involved in legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
these proceedings will not have a material adverse impact on the Company's
financial condition or operating results.

6. ROYALTIES

During the past several years, the Company entered into various agreements
which provide for the payment of royalties on sales of certain character and
patent licensed products. The agreements have terms

IV-12
<PAGE> 27
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ranging from one to fifteen years and require minimum royalty payments of
$10,127,000 and $1,363,000 for agreements signed during 1999 and 1998,
respectively. At December 31, 1999 and 1998 future outstanding minimum royalty
commitments under all agreements amounted to $6,057,000 and $289,000,
respectively. Royalty expense aggregated $7,909,000, $8,311,000, and $6,356,000
in 1999, 1998 and 1997, respectively.

7. BENEFIT PLANS

Defined Contribution Plans -- The Company has a defined contribution
trusteed benefit plan covering eligible employees, requiring annual
contributions based upon certain percentages of salaries of employees. The
Company's policy is to fund pension expense as accrued. Pension expense
aggregated $599,000, $566,000, and $545,000 in 1999, 1998, and 1997,
respectively. The Company sponsors a 401(k) defined contribution plan covering
substantially all Company employees pursuant to which the Company is obligated
to match, up to specified amounts, employee contributions. Company contributions
to this plan were not material for the periods presented.

Stock Option Plans -- In May 1993, the Company's stockholders approved the
adoption of The First Years Inc. 1993 Equity Incentive Plan and The First Years
Inc. 1993 Stock Option Plan for Non-employee Directors (the "plans") which cover
employees and directors of the Company. The Board has reserved 2,680,000 shares
for issuance under the plans (all share amounts adjusted to reflect the
two-for-one stock split effected on June 29, 1998.) The exercise price for the
options granted may not be less than the fair market value of the optioned stock
at the date of grant, 110% of fair market value in the case of options granted
to a 10% stockholder.

Under the plans, employees of the Company may purchase stock on the
exercise of their options through the delivery of existing shares of the
Company's common stock. The shares delivered to the Company by the employee must
have been outstanding for at least six months. The Company acquired 8,400 and
14,576 shares of its common stock for the years ended December 31, 1999 and
1998, respectively, through the exercise of employee stock options.

Options granted must be exercised within the period prescribed by the
Committee; the options vest in accordance with the vesting provisions prescribed
at the time of grant.

IV-13
<PAGE> 28
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of activity (all years adjusted to reflect the two-for-one stock
split effected on June 29, 1998) of stock options granted under the plans is as
follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE NUMBER OF
PRICE NUMBER OF OPTIONS
PER OPTIONS AVAILABLE
SHARE OUTSTANDING FOR GRANT
-------- ----------- ---------
<S> <C> <C> <C>
January 1, 1997............................................ $ 3.69 875,576 399,504

Granted.................................................. 9.16 194,140 (194,140)
Canceled................................................. 7.11 (56,610) 56,610
Exercised................................................ 2.96 (278,040) --
-------- ---------
December 31, 1997.......................................... 5.16 735,066 261,974

Authorized............................................... -- 1,340,000
Granted.................................................. 14.51 258,029 (258,029)
Canceled................................................. 9.96 (13,131) 13,131
Exercised................................................ 3.27 (285,408) --
-------- ---------
December 31, 1998.......................................... 9.30 694,556 1,357,076

Granted.................................................. 14.24 244,896 (244,896)
Canceled................................................. 12.97 (45,909) 45,909
Exercised................................................ 4.30 (108,921) --
Expired.................................................. 11.44 (18,000) --
-------- ---------
December 31, 1999.......................................... $11.27 766,622 1,158,089
======== =========
Exercisable at December 31, 1997......................... $ 3.66 465,712
Exercisable at December 31, 1998......................... $ 5.88 341,902
Exercisable at December 31, 1999......................... $ 9.46 428,615
</TABLE>

The grant date fair value for options granted in 1999, 1998 and 1997 was
$8.24, $7.43 and $4.80, respectively.

The following table sets forth information regarding stock options
outstanding at December 31, 1999 under the Stock Option Plans as described
above:

<TABLE>
<CAPTION>
NUMBER AVERAGE
NUMBER WEIGHTED WEIGHTED CURRENTLY EXERCISE
OF OPTIONS RANGE OF AVERAGE AVERAGE EXERCISABLE PRICE FOR
OUTSTANDING EXERCISE EXERCISE REMAINING AT OPTIONS
AT 12/31/99 PRICES PRICE LIFE 12/31/99 EXERCISABLE
- ----------- --------------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
12,000 ............................... $ 2.75 - $ 4.13 $ 2.78 3.92 12,000 $ 2.52
137,182 ............................... 4.13 - 6.19 4.97 1.63 137,182 4.97
129,167 ............................... 6.19 - 9.28 7.96 6.17 99,445 8.14
350,327 ............................... 9.28 - 13.92 13.62 8.71 113,097 12.55
137,946 ............................... 13.92 - 20.88 15.39 9.13 66,891 15.54
- ----------- ------ ---- ------- ------
766,622 ............................... $11.27 7.01 428,615 $10.37
=========== ====== ==== ======= ======
</TABLE>

IV-14
<PAGE> 29
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRO FORMA DISCLOSURES

As described in Note 1, the Company applies the intrinsic value method of
APB No. 25 and related interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share for the years
ended December 31, 1999, 1998 and 1997 would have been as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income................................. $7,597,937 $7,233,876 $7,023,195
Basic earnings per share................... $0.74 $0.70 $0.70
Diluted earnings per share................. $0.73 $0.68 $0.67
</TABLE>

For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during 1999, 1998 and 1997 was
estimated on the date of grant using the Binomial option pricing model. Key
assumptions used to apply this pricing model are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Risk free interest rate...................... 5.09% 5.49% 6.41%
Expected life of option grants............... 8.47 years 7.85 years 9.5 years
Expected volatility of underlying stock...... 44.82% 38.40% 35.27%
Expected dividend payment rate............... 0.85% 0.85% 0.85%
</TABLE>

The pro forma disclosures include the effects of options granted in 1999,
1998, 1997 and 1996.

8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
equivalents, trade receivables and forward exchange contracts (see Note 5). The
Company's cash equivalents consist of money market funds placed with major banks
and financial institutions. The Company's trade receivables principally include
amounts due from retailers who are geographically dispersed. The Company's three
largest customers accounted for 62% and 57% of the trade receivables outstanding
at December 31, 1999 and 1998, respectively. The Company routinely assesses the
financial strength of its customers and purchases credit insurance to limit its
potential exposure to trade receivable credit risks. The Company routinely
assesses the financial strength of the bank which is the counterparty to the
forward exchange contracts. As of December 31, 1999, management believes it had
no significant exposure to credit risks.

Major Customers and Export Sales -- The Company derived 10% or more of its
sales from its three largest customers. The Company's largest customer accounted
for sales of $40,600,000, $42,622,000, and $33,643,000 in 1999, 1998, and 1997,
respectively. The Company's second largest customer accounted for sales of
$26,688,000, $24,413,000, and $23,075,000 in 1999, 1998, and 1997, respectively.
The Company's third largest customer accounted for sales of $20,026,000,
$15,706,000 and 13,315,000 in 1999, 1998, and 1997. No other customer accounted
for 10% or more of the Company's sales. Export sales, primarily to Europe,
Canada, South America and the Pacific Rim, were approximately $14,459,000,
$16,735,000 and $16,250,000 in 1999, 1998, and 1997, respectively.

Reliance on Licensed Products -- The Company derives a significant portion
of its sales from products under license. A major licensing agreement (see Note
6), will expire at the end of 2000. Sales of products licensed under a major
licensing agreement amount to 34% and 42% of the Company's total sales for the
years ended December 31, 1999 and 1998, respectively. While management currently
anticipates negotiating a

IV-15
<PAGE> 30
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

renewal of the agreement, non-renewal of the agreement or, renewal on terms not
favorable to the Company could have a materially adverse affect on the Company's
business.

Reliance on Foreign Manufacturers -- The Company does not own or operate
its own manufacturing facilities. In 1999, 1998, and 1997, the Company derived
approximately 54%, 65%, and 60%, respectively, of its sales from products
manufactured by others in the Far East, mainly in China. A change in suppliers
could cause a delay in manufacturing and a possible loss of sales, which could
affect operating results adversely, depending on the particular product.

9. COMPUTATION OF EARNINGS PER SHARE

Computation of the earnings per share ("EPS") in accordance with SFAS No.
128 are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Average shares outstanding.............................. 10,226,470 10,338,857 10,003,774
Effect of dilutive shares............................... 175,827 330,646 449,288
----------- ----------- -----------
Average diluted shares outstanding...................... 10,402,297 10,669,503 10,453,062
=========== =========== ===========
Net Income.............................................. $ 9,094,633 $ 8,012,815 $ 7,444,789
=========== =========== ===========
Basic earnings per share................................ $0.89 $0.78 $0.75
----- ----- -----
----- ----- -----
Diluted earnings per share.............................. $0.87 $0.75 $0.71
----- ----- -----
----- ----- -----
</TABLE>

As of December 31, 1999, options to purchase 518,840 shares of common stock
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average price of the common shares. The
options, which expire in 2002 to 2009, had exercise prices ranging from 8 3/4 to
17 3/4 per share. The options were still outstanding at the end of 1999.

As of December 31, 1998, options to purchase 130,254 shares of common stock
were not included in the computation of diluted EPS because the options'
exercise price was greater than the average price of the common shares. The
options, which expire in 2003 to 2008, had exercise prices ranging from 15 to 17
3/4 per share. The options were still outstanding at the end of 1998.

As of December 31, 1997, options to purchase 30,000 shares of common stock
at $13 1/2 per share were not included in the computation of diluted EPS because
the options' exercise price was greater than the average price of the common
shares. The options, which expire in 2007, were still outstanding at the end of
1997.

10. DIISONONYL PHTHALATE MATTER

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 year ended December 31, 1998 reflect a charge of $3,000,000 related to
the sales returns of certain DINP products. Cost of sales for the year ended
December 31, 1998 reflect a charge of $1,100,000 related to the write-off of
inventory of certain products containing DINP. Net income for the year ended
December 31, 1998 reflects a total after-tax charge of $2,400,000 related to the
DINP matter.

During the third quarter of 1999, the Company increased net sales by
$384,000 and cost of sales were decreased by $629,000 due to the lower than
expected sales returns and inventory writeoffs of certain products

IV-16
<PAGE> 31
THE FIRST YEARS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

containing DINP for which a charge was previously recorded in the fourth quarter
of 1998. Net income for the year ended December 31, 1999 reflects the total
after-tax increase of $603,000 related to the DINP matter.

11. LEGAL SETTLEMENT

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 alleged that the Company's TumbleMates(C) valved drinking cups infringed
U.S. Patent 5,186,347. Although the Company vigorously defended the action, it
negotiated a settlement of $1,450,000 to remove any uncertainties of a trial and
to avoid future legal costs. The settlement reflects no wrong doing on the part
of the Company and allows the Company to continue to sell the valved drinking
cups without restriction. The expense has been recorded as part of the selling,
general and administrative costs in the consolidated financial statements.

12. SEGMENT INFORMATION

During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." This statement establishes new
standards for the definition and disclosure of information pertaining to the
Company's business segments. SFAS No. 131 requires identification of segments
based upon a company's internal structure and reporting methodology.

The Company has identified one operating segment as it engages in a single
line of business of developing and marketing one class of similar products for
infants and toddlers distributed through the same channels.

The Company has $1,629,126 of molds located in various foreign countries
which are considered long-lived assets under SFAS No. 131.

See footnote 8 for discussion of major customers and export sales.

* * * * * *

IV-17
<PAGE> 32

SCHEDULE II

THE FIRST YEARS INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
ADDITIONS
BALANCE, CHARGED
BEGINNING TO COSTS AND BALANCE
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS END OF YEAR
----------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Valuations Accounts Deducted from Assets
to which they Apply --
Allowance for doubtful accounts:
1999............................ $ 270,000 $ 78,967 $ 78,967(1) $ 270,000
========== ========== ========== ==========
1998............................ $ 185,000 $ 261,034 $ 176,034(1) $ 270,000
========== ========== ========== ==========
1997............................ $ 185,000 $ 147,541 $ 147,541(1) $ 185,000
========== ========== ========== ==========
Allowance for obsolete inventory:
1999............................ $ 250,000 $ 140,000 $ 0 $ 390,000
========== ========== ========== ==========
1998............................ $ 250,000 $ 0 $ 0 $ 250,000
========== ========== ========== ==========
1997............................ $ 0 $ 250,000 $ 0 $ 250,000
========== ========== ========== ==========
Allowance for Diisononyl Phthalate
product returns:
1999............................ $2,874,000 $ 0 $2,874,000(2) $ 0
========== ========== ========== ==========
1998............................ $ 0 $3,000,000 $ 126,000 $2,874,000
========== ========== ========== ==========
</TABLE>

- ---------------
(1) Net accounts written off.

(2) Represents actual returns of $2,490,000 and a $384,000 reversal of allowance
due to lower than expected sales returns related to the phthalate matter.

IV-18
<PAGE> 33

THE FIRST YEARS INC.
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>

(3)(ii) By-Laws of the Company, as currently in effect.

10(d) Letter Agreement with Children's Television Workshop dated
as of July 1, 1999 regarding the renewal of the licensing of
Sesame Street characters (certain portions of which are
subject to confidential treatment).

10(f) The First Years Inc. 1993 Stock Option Plan for Directors,
as amended through October 1, 1999.

21 List of Subsidiaries of the Registrant.

23 Consent of Deloitte & Touche LLP dated March 27, 2000.

27 Financial Data Schedule -- 12/31/99.

99 Important Factors That May Affect Future Results.
</TABLE>

IV-19

<PAGE> 1

EXHIBIT 3(ii)
AMENDED BY-LAWS OF
THE FIRST YEARS, INC.

(AMENDED AS OF JANUARY 19, 1995)

ARTICLE 1. ARTICLES OF ORGANIZATION

SECTION 1. The purposes of the Corporation shall be as set forth in the
Articles of organization and these By-laws. The powers of the Corporation and of
its Directors and Stockholders, and all matters concerning the conduct and
regulation of the business of the Corporation shall be subject to such
provisions, if any, in regard thereto as are set forth in the Articles of
organization.

SECTION 2. All reference in these By-laws to the Articles of
organization shall be construed to mean the Articles of organization as from
time to time amended.

ARTICLE II. STOCKHOLDERS

SECTION 1. ANNUAL MEETING. The annual meeting of stock- holders shall
be held within six months after the end of the Corporation's fiscal year
specified in these By-laws, at such time and place within the United States as
may be designated in the notice or waiver of notice of such meeting. The date
and hour of the annual meeting shall be fixed by the Directors. The purposes for
which the annual meeting is to be held, in addition to those prescribed by law,
by the Articles of organization or by these By-laws, may be specified by the
Directors or the President. In the event that no date for the annual meeting is
established or if no annual meeting is held in accordance with the foregoing
provisions, a special meeting may be held in lieu thereof, and any action taken
at such meeting shall have the same effect as if taken at the annual meeting.
(Amended 1/19/95).

SECTION 2. SPECIAL MEETINGS. So long as the Corporation has a class of
voting stock registered under the Securities Exchange Act of 1934, as amended,
special meetings of the stockholders may be called by the President or by the
Directors and shall be called by the Clerk, or in case of the death, absence,
incapacity or refusal of the Clerk, by any other officer, upon written
application of one or more stockholders who hold at least forty percent in
interest of the capital stock entitled to vote at the meeting. (Amended
1/19/95).

SECTION 3. NOTICE OF BUSINESS. At any meeting of the stockholders, only
such business shall be conducted as shall have been brought before the meeting
(a) by or at the direction of the Board of Directors or (b) by any stockholder
of the Corporation who is a stockholder of record at the time of giving of the
notice provided for in this Section, who shall be entitled to vote at such

<PAGE> 2

meeting and who complies with the notice procedures set forth in this Section.
For business to be properly brought before a stockholder meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Clerk of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation in the case of an annual meeting not less than 150 days prior to the
date such meeting was held in the prior year, or in the case of any other
meeting not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholders to be timely must be received no later than the close
of business on the seventh day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever is
earlier. A stockholder's notice to the Clerk shall set forth as to each matter
the stockholder proposes to bring before the meeting (a) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (b) the name and address, as they
appear on the Corporation's books, of the stockholder proposing such business,
and any other stockholders known by such stockholder to be supporting such
proposal; (c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and any other stockholders known by such
stockholder to be supporting such proposal; and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the By-laws to the
contrary, no business shall be conducted at a stockholder meeting except in
accordance with the procedures set forth in this Section. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of the By- laws, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this
Section, a stockholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section.

SECTION 4. NOTICE OF STOCKHOLDERS' MEETING. A written notice of each
meeting of the stockholders, stating the place, day and hour thereof and
purposes for which the meeting is called, shall be given by the Clerk, or
assistant Clerk, if any, to each stockholder entitled to vote thereat, and to
each stockholder who, under the Articles of organization or any amendment
thereof, is entitled to such notice, by leaving such notice with him or at his
residence or usual place of business, or by mailing it, postage prepaid, and
addressed to such stockholder at his residence as it appears on the books of the
Corporation, at least seven days before

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<PAGE> 3

the meeting. In case of the death, absence, incapacity, or refusal of the Clerk,
or assistant Clerk, if any, such notices may be given by the President or by any
other officer or by a person designated either by the Clerk or by the person or
persons calling the meeting, or by the Board of Directors. No notice need be
given to any stockholder if a written waiver of notice, executed before or after
the meeting of the stockholders by the stockholder or his attorney thereunto
authorized is filed with the records of the meeting. No notice of any adjourned
stockholders, meeting shall be required. (Added 1/19/95).

SECTION 5. QUORUM. At any meeting of the stockholders a quorum for the
transaction of business shall consist of one or more stockholders appearing in
person or by proxy and owning or representing a majority of all of the shares of
the Corporation then outstanding and entitled to vote. If a quorum is not
present, a lesser number may make a reasonable adjournment of such meeting until
a quorum is obtained.

SECTION 6. PROXIES AND VOTING. Stockholders entitled to vote shall have
one vote for each share of stock held by them. A stockholder may vote either in
person or by written proxy which shall be signed by the stockholder, dated not
more than six months before the meeting named therein, and filed at the meeting
or any adjournment thereof before being voted. Such proxy shall entitle the
holder thereof to vote at any adjournment of such meeting, but shall not be
valid after the final adjournment of such meeting. An executor, administrator,
guardian, conservator, trustee or person in any other representative or
fiduciary capacity shall represent the shares of his trust at all meetings of
the Corporation and may vote as a stockholder. A proxy purporting to be executed
by or on behalf of a stockholder shall be deemed valid unless challenged or at
prior to its exercise. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless at or prior to
exercise of the proxy the Corporation receives a specific written notice to the
contrary from any one of them.

SECTION 7. ACTION AT MEETING. Except as otherwise required by law, the
Articles of organization or these By-laws, any matter coming before any meeting
of the stockholders at which a quorum is present shall be adopted as the act and
deed of the stockholders if approved by the vote of the holders of a majority of
the shares present or represented at such meeting and entitled to vote thereon,
provided, however, that at all elections by stockholders a plurality of the
votes cast for any nominee or nominees shall elect. No ballot shall be required
for any election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.

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<PAGE> 4

SECTION 8. ACTION WITHOUT MEETING. Any action required or permitted
at any meeting of the stockholders, may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action by a writing
filed with the records of the meetings of stockholders. Such consent shall be
treated for all purposes as a vote at a meeting.

ARTICLE III. BOARD OF DIRECTORS

SECTION 1. POWERS. The Board of Directors may exercise all the powers
of the Corporation except such as are reserved to the stockholders by law, by
the Articles of organization or by these By-laws. The Directors shall have the
power to issue the whole or any part of the unissued balance of the authorized
capital stock of the Corporation upon such terms and conditions as they shall
determine.

SECTION 2. NOMINATION: ELIGIBILITY TO SERVE. Except as otherwise
provided in Section 5 of this Article concerning the filling of vacancies on the
Board of Directors, only persons who are nominated in accordance with the
procedures set forth in this Section shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders (a) by or at the direction of the Board
of Directors or (b) by any stockholder of the Corporation who is a stockholder
of record at the time of giving of notice provided for in this Section, who
shall be entitled to vote for the election of directors at the meeting and who
complies with the notice procedures set forth in this Section. Such nominations,
other than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Clerk. To be timely, a
stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days, notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholders to be timely must
be so received not later than the close of business on the seventh day following
the day on which such notice of the date of the meeting was mailed or such
public disclosure was made, whichever is earlier. Such stockholder I s notice
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, all information relating to such
persons that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected), and (b) as to the stockholder giving
the notice, (i) the names and addresses, as they appear on the Corporation's
books, of such stockholder and

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<PAGE> 5

any other stockholders known by such stockholder to be supporting the election
of the proposed nominee(s) and (ii) the class and number of shares of the
Corporation which are beneficially owned by such stockholder and any other
stockholders known by such stockholder to be supporting the election of the
proposed nominee(s). At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Clerk that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the By-laws, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded. Notwithstanding the foregoing provisions of
this Section, a stockholder shall also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this Section.
(Added 1/19/95)

SECTION 3. NUMBER OF DIRECTORS. The number of Directors shall be not
less than three (3) except whenever there shall be only two (2) stockholders,
the number of directors shall be not less than two (2) and whenever there shall
be only one stockholder, the number of directors shall be not less than one (1).
Except as otherwise provided by these By-laws or in the Articles of
Organization, the number of directors that shall constitute the whole Board of
Directors shall be fixed, and the directors elected, by the stockholders at the
Annual Meeting, the notice of which will specify the election or reduction in
the number of directors as an item of business for such meeting. No director
need be a stockholder. (Amended 1/19/95).

SECTION 4. ELECTION. The initial Board of Directors shall be elected by
the incorporators at the first meeting thereof and thereafter by the
stockholders at their annual meeting or at any special meeting, the notice or
waiver of notice of which specifies the election of directors as an item of
business for such meeting.

SECTION S. VACANCIES. Unless otherwise provided by law, any vacancy at
any time existing in the Board of Directors, whether resulting from an increase
in the size of the Board of Directors, from the death, resignation,
disqualification or removal of a director or otherwise, shall be filled solely
by the affirmative vote of a majority of the remaining directors then in office.
(Amended 1/19/95).

SECTION 6. ENLARGEMENT OF THE BOARD OF DIRECTORS. The number of
Directors may be increased by the Directors by the affirmative vote of a
majority of the Directors then in office or by the stockholders at any meeting.
(Amended 1/19/95).

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<PAGE> 6

SECTION 7. TENURE AND RESIGNATION. Except as otherwise provided by
law, by the Articles of organization or by these By-laws, Directors shall hold
office until the next annual meeting of stockholders and thereafter until their
successors are chosen and qualified. Any Director may resign by delivering or
mailing, postage prepaid, his written resignation to the Corporation at its
principal office or to the President, Clerk or Assistant Clerk, if any. Such
resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.

SECTION 8. REMOVAL. A Director, whether elected by the stockholders or
Directors, may be removed from office with or without cause by vote of a
majority of the stockholders entitled to vote in the election of Directors, or
for cause by a vote of a majority of the Directors then in office; provided,
however, that a Director may be removed for cause only after reasonable notice
and opportunity to be heard before the body proposing to remove him.

SECTION 9. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such times and such places within or without the United States
as the Board may, from time to time, determine. A regular meeting of the Board
of Directors shall be held without notice immediately after, and at the same
place as, the annual meeting of the stockholders or the special meeting of the
stockholders held in place of such annual meeting unless a quorum of the
Directors is not then present.

SECTION 10. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time and at any place when called by the President,
Treasurer, or two or more Directors.

SECTION 11. NOTICE OF SPECIAL MEETINGS. The Clerk or Assistant Clerk,
if any, shall give reasonable notice of each special meeting of the Board of
Directors to each Director. In case of the death, absence, incapacity, or
refusal of the Clerk and Assistant Clerk, if any, notice shall be given by the
person designated by the Board of Directors to act in the absence of the Clerk,
or by the President or Treasurer, or by the officer or Directors calling the
meeting. Notice need not be given to any Director if a written waiver of notice,
executed by him before or after the meeting or meetings, is filed with the
records of the meeting, or to any Director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him. A
notice or waiver of notice of a Directors' meeting need not specify the purposes
of the meeting.

SECTION 12. AGENDA. Any lawful business whatsoever may be transacted at a
meeting of the Board of Directors, notwithstanding

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the nature of the business may not have been specified in notice or waiver of
notice of the meeting. the

SECTION 13. QUORUM. At any meeting of the Directors, a majority of the
Directors then in office shall constitute a quorum for the transaction of
business, provided always that any number of Directors (whether one or more and
whether or not constituting a quorum) present at any meeting or at any adjourned
meeting may make any reasonable adjournment thereof. Any motion adopted by vote
of the majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors. (Amended 1/19/95)

SECTION 14. ACTION BY CONSENT. Any action by the Directors may be taken
without a meeting if a written consent thereto is signed by all the Directors
and filed with the records of the Directors' meetings. Such consent shall be
treated for all purposes as a vote of the Directors.

SECTION 15. COMMITTEES. The Board of Directors may, by the affirmative
vote of a majority of the Directors then in office, appoint an executive
committee or other committees and may by like vote delegate thereto some or all
of their powers except those which, by law, the Articles of organization or
these By-laws, they are prohibited from delegating. A majority of any such
committee may determine its action and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The Board of Directors
shall have power at any time to fill vacancies in, change the membership of, or
discharge any such committee.

ARTICLE IV. OFFICERS

SECTION 1. ENUMERATION. The officers of the Corporation shall be a
President, a Treasurer, a Clerk, and such Vice Presidents, Assistant Treasurers,
Assistant Clerks, Secretary, Assistant Secretaries and other officers as may
from time to time be determined by the Directors. (Amended 1/19/95).

SECTION 2. ELECTION. The President, Treasurer, and Clerk shall
initially be elected by the incorporators at the first meeting thereof;
thereafter the President, Treasurer and Clerk shall be elected annually by the
Directors at their first meeting following the annual meeting of stockholders.
other officers may be chosen by the directors at such meeting or any other
meeting.

SECTION 3. QUALIFICATION. An officer may, but need not, be a Director
or stockholder. Any two or more offices may be held by the same person. The
Clerk shall be a resident of Massachusetts unless the Corporation has a resident
agent appointed for the purpose of service of process. Any officer may be
required by the

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<PAGE> 8

Directors to give bond for the faithful performance of his duties to the
Corporation in such amount and with such sureties as the Directors may
determine.

SECTION 4. TENURE AND REMOVAL. The term of office of all officers shall
be one year or until their respective successors are elected and qualified. Any
officer may be removed from office, with or without cause, by the affirmative
vote of a majority of the Directors then in office, provided, however, than an
officer may be removed for cause only after reasonable notice and opportunity to
be heard by the Board of Directors prior to action thereon.

SECTION 5. RESIGNATION. Any officer may resign by delivering or
mailing, postage prepaid, his written resignation to the Corporation at its
principal office or to the President, Clerk, or Assistant Clerk, if any, and
such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.

SECTION 6. VACANCIES. A vacancy in any office arising from any cause
may be filled for the unexpired portion of the term by the Board of Directors.

SECTION 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
Corporation shall be appointed by the Directors and shall, subject to the
control of the Directors, have general charge and supervision of the business of
the Corporation. If no such designation is made, the President shall be the
Chief Executive Officer. Unless the Board of Directors otherwise specifies, if
there is no Chairman of the Board, the Chief Executive officer shall preside, or
designate the person who shall preside, at all meetings of the stockholders and
of the Board of Directors. (Added 1/19/95).

SECTION 8. CHAIRMAN OF THE BOARD. If a Chairman of the Board of
Directors is elected, he shall have the duties and powers as are determined by
the Directors. Unless the Board of Directors otherwise specifies, the Chairman
of the Board shall preside, or designate the person who shall preside, at all
meetings of the stockholders and of the Board of Directors. (Added 1/19/95)

SECTION 9. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation except as the Board of Directors may otherwise
provide. It shall be his duty and he shall have the power to see that all orders
and resolutions of the Directors are carried into effect. He shall, from time to
time, report to the Directors all matters within his knowledge which the
interests of the Corporation may require to be brought to its notice. The
President shall perform such duties and have such powers additional to the
foregoing as the Directors shall designate. (Amended 1/19/95).

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SECTION 10. VICE PRESIDENTS. In the absence or disability of the
President, his powers and duties shall be performed by the Vice President if
only one, or, if more than one, by the one designated for the purposes by the
Directors. Each Vice President shall have such other powers and perform such
other duties as the Directors shall from time to time designate. The Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President, and any other title selected by the Directors. (Added 1/19/95).

SECTION 11. TREASURER. Except as the Directors shall otherwise
determine, the Treasurer shall be the Chief Financial and Accounting officer of
the Corporation, and shall be in charge of its funds and valuable papers, books
of account and accounting records, and shall have such other duties and powers
as may be designated from time to time by the Directors. (Amended 1/19/95)

SECTION 12. ASSISTANT TREASURERS. In the absence or disability of the
Treasurer, his powers and duties shall be performed by the Assistant Treasurer,
if only one, or, if more than one, by the one designated for the purpose by the
Directors. Each Assistant Treasurer shall have such other powers and perform
such other duties as the Directors shall from time to time designate. (Added
1/19/95).

SECTION 13. CLERK. The Clerk shall record in books kept for the purpose
all votes and proceedings of the stockholders and, if there be no Secretary or
Assistant Secretary, of the Directors at their meetings. Unless the Directors
shall appoint a transfer agent and/or registrar or other officer or officers for
the purpose, the Clerk shall be charged with the duty of keeping, or causing to
be kept, accurate records of all stock outstanding, stock certificates issued
and stock transfers; and, subject to such other or different rules as shall be
adopted from time to time by the Directors, such records may be kept solely in
the stock certificate books. The Clerk shall perform such duties and have such
powers additional to the foregoing as the Directors shall designate. (Amended
1/19/95).

SECTION 14. ASSISTANT CLERKS. In the absence of the Clerk from any
meeting of the stockholders or, if there be no Secretary or Assistant Secretary,
from any meeting of the Directors, the Assistant Clerk, if one be elected, or,
if there be more than one, the one designated for the purpose by the Directors,
otherwise a Temporary Clerk designated by the person presiding at the meeting,
shall perform the duties of the Clerk. Each Assistant Clerk shall have such
other powers and perform such other duties as the Directors may from time to
time designate. (Added 1/19/95).

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SECTION 15. SECRETARY AND ASSISTANT SECRETARIES. If a Secretary is
elected, he shall keep a record of the meetings of the Directors and in his
absence, an Assistant Secretary, if one be elected, or, if there be more than
one, the one designated for the purpose by the Directors, otherwise a Temporary
Secretary designated by the person presiding at the meeting, shall perform the
duties of the Secretary. Each Assistant Secretary shall have such other powers
and perform such other duties as the Directors may from time to time designate.
(Added 1/19/95).

ARTICLE V. INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Corporation shall indemnify each person who is or was a Director,
officer, employee or agent of the Corporation, or of any other corporation which
he served as such at the request of the Corporation, or who served in any
capacity with respect to any employee benefit plan at the request of the
Corporation, against any and all liability and reasonable expense that may be
incurred by him in connection with or resulting from any claim, action, suit or
proceeding (whether brought by or in the name of the Corporation or such other
corporation or otherwise), civil or criminal, or in connection with an appeal
relating thereto, in which he may become involved as a party or otherwise by
reason of his being or having been a Director, officer, employee or agent of the
Corporation or of such other corporation, or serving or having served in any
capacity with respect to any employee benefit plan at the request of the
Corporation, or by reason of any past or future action taken or not taken in his
capacity as such Director, officer, employee or agent, or in the course of
serving in any capacity with respect to any employee benefit plan at the request
of the Corporation, whether or not he continues to be such at the time such
liability or expense is incurred, provided such person acted in good faith in
what he reasonably believed to be the best interest of the Corporation, such
other corporation, or to the extent that such matter relates to service with
respect to an employee benefit plan, in the best interests of the participants
or beneficiaries of such employee benefit plan, as the case may be, and, in
addition, in any criminal action or proceeding, had no reasonable cause to
believe that his conduct was unlawful, provided, however, that no
indemnification shall be provided for any person, whether acting as a Director
or otherwise, with respect to any matter as to which he shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Corporation, such other
corporation, or such employee benefit plan. As used in this Article, the terms
"liability" and "expense" shall include, but shall not be limited to, counsel
fees and disbursements and amounts of judgments, fines or penalties against and
amounts paid in settlement by a Director, officer, employee or agent, other than
amounts paid to the Corporation to such other corporation or to such employee
benefit plan. Any such Director, officer, employee or agent referred to

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<PAGE> 11

in this Article who has been wholly successful, on merits or otherwise, with
respect to any claim, action, suit or proceeding of the character described
herein shall be entitled to indemnification as of right. Expenses incurred with
respect to any such claim, action, suit or proceeding may be advanced by the
Corporation prior to the final disposition thereof upon receipt of an
undertaking by or on behalf of the recipient to repay such amount unless it
shall ultimately be determined that he is entitled to indemnification under this
Article. The rights of indemnification provided in this Article shall be in
addition to any rights to which any person concerned may otherwise be entitled
by contract or as a matter of law, and shall inure to the benefit of their
heirs, executors and administrators of any such person. (Added 6/3/87).

ARTICLE VI. CAPITAL STOCK
SECTION 1. DESCRIPTION. Each stockholder shall be entitled to a
certificate of the capital stock of the Corporation owned by him in such form as
shall, in conformity to law, be prescribed from time to time by the Board of
Directors. Such certificate shall be signed by the President or Vice President
and the Treasurer or an Assistant Treasurer, may bear the seal of the
Corporation, shall express an its face its number, date of issue, class, the
number of shares for which and the name of the person to whom it is issued. The
signature of the President, Vice President, Treasurer and Assistant Treasurer
may be facsimile if the stock certificate is signed by a transfer agent and a
registrar.

If an officer who has signed, or whose facsimile signature has been
placed on, a certificate shall have ceased to be such officer before such
certificate is issued, it may be issued with the same effect as if he were such
officer at the time of its issue.

SECTION 2. TRANSFER OF SHARES. Title to a certificate of stock and to
the shares represented thereby shall be transferred only by delivery of the
certificate properly endorsed or by delivery of the certificate accompanied by a
written assignment of the same, or a properly-executed written power of attorney
to sell, assign, or transfer the same or the shares represented thereby. Upon
surrender of a certificate for the shares being transferred, a new certificate
or certificates shall be issued according to the interest of the parties. The
person registered on the books of the Corporation as the owner of shares shall
have the exclusive right to receive dividends thereon and to vote thereon as
such owner, and, except only as may be otherwise required by law, may in all
respects be treated by the Corporation as the exclusive owner thereof and the
holder in fact thereof, and the Corporation shall not be bound to recognize any
equitable or other claim to, or interest in, such shares on the part of any
other person except as may be otherwise expressly provided by law.

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SECTION 3. TRANSFER AGENT AND REGISTRAR FOR SHARES OF CORPORATION. The
Board of Directors may appoint a Transfer Agent and a Registrar of the
certificates of the Corporation. The Transfer Agent shall maintain, among other
records, a Shareholders, Ledger, setting forth, among other things, the names
and addresses of the holders of all issued shares of the Corporation, the number
of shares held by each, the certificate numbers representing such shares, and
the date of issue of the certificates representing such shares. The Registrar
shall maintain, among other records, a Share Register, setting forth, among
other things, the total number of shares of each class of shares which the
Corporation is authorized to issue, and the total number of shares actually
issued. The Shareholders' Ledger and the Share Register are hereby identified as
the Stock Transfer Books of the Corporation; but as between the Shareholders'
Ledger and the Share Register, the names and addresses of shareholders, as they
appear on the Shareholders' Ledger maintained by the Transfer Agent, shall be
the official list of shareholders of record of the Corporation. The name and
address of each shareholder of record, as they appear upon the Shareholders'
Ledger, shall be conclusive evidence of who are the shareholders entitled to
receive notice of the meetings of shareholders, to vote at such meetings, to
examine a complete list of the shareholders entitled to vote at meetings, and to
own, enjoy and exercise any other property or rights deriving from such shares
against the Corporation. Shareholders, but not the Corporation, its Directors,
officers, agents or attorneys, shall be responsible for notifying the Transfer
Agent, in writing, of any changes in their names and addresses from time to
time, and failure to do so will relieve the Corporation, its other shareholders,
Directors, officers, agents and attorneys, and its Transfer Agent and Registrar,
of liability for failure to direct notices or other documents, or pay over or
transfer dividends or other property or rights, to a name and address other than
the name and address appearing in the Shareholders' Ledger maintained by the
Transfer Agent.

SECTION 4. RECORD DATE. The Board of Directors may fix in advance a
time which shall not be more than 60 days before the date of any dividend, or
making any distribution to stockholders, or the last day on which the consent or
dissent of stockholders may be effectively expressed for any purpose as the
record date for determining the stockholders having the right to notice of, and
to vote at, such meetings and any adjournment thereof, or to give such consent
or dissent. only stockholders of record on such record date shall have such
right, notwithstanding any transfer of stock on the books of the Corporation
after the record date. Without fixing a record date, the Board of Directors may
for any such purpose close the transfer books for all or any part of such
period.

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SECTION 5. LOSS OF CERTIFICATES. In case of the loss, destruction or
mutilation of a certificate of stock, a replacement certificate may be issued in
place thereof upon such terms as the Board of Directors may prescribe,
including, in the discretion of the Board of Directors, a requirement of bond
and indemnity to the Corporation.

SECTION 6. RESTRICTIONS OF TRANSFER. Every certificate for shares of
stock which are subject to any restriction on transfer pursuant to the Articles
of organization, the By-laws, or any agreement to which the Corporation is a
party, shall have the face of the restriction noted conspicuously on the
certificate and shall also set forth on the face or back either the full text of
the restriction or a statement that the Corporation will furnish a copy to the
holder of such certificate upon written request and without charge.

SECTION 7. MISCELLANEOUS. The amount and classes of the capital stock
and the par value, if any, of the shares, shall be as fixed in the Articles of
Organization. At all times where there are two or more classes of stock,, the
several classes of stock shall conform to the description and the terms, and
have the respective preferences, voting powers, restrictions and qualifications
set forth in the Articles of organization and these By-laws. Every certificate
issued when the Corporation is authorized to issue more than one class or series
of stock shall set forth on its face or back either the full text of the
preferences, voting powers, qualifications and special and relative rights of
the shares of each class and series authorized to be issued, or a statement of
the existence of such preferences, powers, qualifications and rights, and a
statement that the Corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.

SECTION 8. UNCERTIFICATED SHARES. The Directors may provide by
resolution that some or all of any or all classes and series of its shares shall
be uncertificated shares. Such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered to the Corporation. If
the Corporation entitles any stockholder of a class or series to receive a
certificate representing shares of such class or series, all other holders of
shares of such class or series shall be so entitled. The initial transaction
statement sent with respect to the issuance or transfer of uncertificated shares
which are subject to any restriction on transfer pursuant to the Articles of
organization, the By-laws or any agreement to which the Corporation is a party,
shall have such restriction noted conspicuously on the statement and shall also
set forth either the full text of the restriction or a statement of the
existence of such restriction and a statement that the Corporation will furnish
a copy of such restriction to the holder of such uncertificated share upon
written request and

- 13 -

<PAGE> 14

without charge. The initial transaction statement sent with respect to the
issuance of transfer of uncertificated shares when the Corporation is authorized
to issue more than one class or series of stock shall set forth either the full
text of the preferences, voting powers, qualifications and special and
relative rights of shares of each class and series, if any, authorized to be
issued as set forth in Articles of organization, or a statement of the existence
of such preferences, powers, qualifications and rights, and a statement that the
Corporation will furnish a copy thereof to the holder of such uncertificated
share upon written request and without charge. (Added 1/19/95).

ARTICLE VII. DIVIDENDS

Except as otherwise required by law or by the Articles of
Organization, the Board of Directors may in its discretion declare what, if any,
dividends shall be paid from the surplus or from the net profits of the
Corporation upon the stock of the Corporation, provided, however, that no
dividend shall be declared or paid the payment of which would diminish the
amount of the paid-in capital. Dividends shall be payable upon such dates as the
Board of Directors may designate. Before the payment of any dividend and before
making any distribution of profits, the Board of Directors, from time to time,
and in its absolute discretion, shall have power to set aside out of the surplus
or net profits of the Corporation, such sum or sums as the Board deems proper
and sufficient as a reserve fund or for such other purpose as the Board shall
deem to be in the best interest of the Corporation.

ARTICLE VIII. VOTING OF SHARES IN OTHER CORPORATIONS

The Treasurer or any person authorized by the Board of Directors shall
have power to vote upon shares of stock held by this Corporation in any other
corporation and/or to give a proxy to vote upon such shares.

ARTICLE IX. FISCAL YEAR

Except as from time to time otherwise provided by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
December in each year.

ARTICLE X. ASSESSMENTS

Shares of stock of this Corporation, when issued, shall be fully paid
and non-assessable except for unpaid installments of installment stock.

- 14 -

<PAGE> 15

ARTICLE XI. POWERS OF OFFICERS TO CONTRACT WITH THE CORPORATION

Any and all of the Directors and officers of the Corporation,
notwithstanding their official relations to it, may enter into, negotiate,
consummate and perform any contract or agreement of any name or nature between
the Corporation and themselves, or any and all of the individuals from time to
time constituting the Board of Directors of the Corporation or any firm or
corporation in which any such Director may be interested, directly or
indirectly, whether such individuals or individual, firm or corporation thus
contracting with the Corporation shall thereby derive personal or corporate
profits or benefits or otherwise, provided such interest is made known to this
Corporation prior to the making of such contract or agreement, the intent hereof
being to relieve each and every person who may be or become a Director of the
Corporation or any corporation in which he may be interested in any way, from
any disability that might otherwise exist from contracting with the Corporation.
Any Director of the Corporation whether an officer of the Corporation or not,
who is interested in any transaction in any manner, as aforesaid, may
nevertheless be counted in determining the existence of a quorum at any meeting
of the Board of Directors which shall authorize or ratify any such transaction,
and any vote thereat to authorize or ratify any such transaction with like force
and effect as if he were not so interested. This Article shall not be construed
to invalidate any contract or other transaction which would otherwise be valid
under the common or statutory law applicable thereto.

ARTICLE XII. STOCK OPTIONS

The Board of Directors may, from time to time, grant to such persons,
including Directors, officers or employees of the Corporation, or of a parent or
subsidiary corporation, as the Board may determine, option for the purchase of
unissued stock which the Corporation may be authorized to issue or of treasury
stock, either with or without a general or specific plan with respect to the
granting of such options, on such terms and for such number of shares as the
Board may determine.

ARTICLE XIII. CHARITABLE CONTRIBUTIONS

The Board of Directors may authorize from time to time contributions to
be made by the Corporation in such amounts as it may determine to be reasonable
to corporations, trusts, funds or foundations organized and operated exclusively
for charitable, scientific or educational purposes, no part of the net earnings
of which inures to the private benefit of any stockholders or individual.

- 15 -

<PAGE> 16

ARTICLE XIV. EVIDENCES OF AUTHORITY

A certificate by the Clerk or any Assistant Clerk as to any action
taken by the stockholders, Directors or any officer or representative of the
Corporation shall, as to all persons who rely thereon in good faith, be
conclusive evidence of such action. The exercise of any power which by law, by
the Articles of Organization, or by these By-laws, or under any vote of the
stockholders or the Board of Directors, may be exercised by an officer or any
other contingency, shall bind the Corporation in favor of anyone relying thereon
in good faith, whether or not such absence or contingency existed.

ARTICLE XV. EXECUTION OF INSTRUMENTS.

All deeds, leases, transfers, contracts, bonds, notes and other
obligations authorized to be executed by an officer of the Corporation in its
behalf shall be signed by the President or the Treasurer except as the Directors
may generally or in particular cases otherwise determine.

ARTICLE XVI. CORPORATE RECORDS.

The original or attested copies of the Articles of Organization,
By-laws, and records of all meetings of the incorporators and stockholders, and
the stock and transfer records which shall contain the names of all stockholders
and the record address and the amount of stock held by each, shall be kept in
Massachusetts at the principal office of the Corporation, or at any office of
its transfer agent or of the Clerk or of the Assistant Clerk, if any. Said
copies and records need not all be kept in the same office. They shall be
available at all reasonable times to inspection of any stockholder for any
purpose but not to secure a list of stockholders for the purpose of selling said
list or copies thereof or of using the same for a purpose other than in the
interest of the applicant as a stockholder, relative to the affairs of the
Corporation.

ARTICLE XVII. CONTROL SHARES ACQUISITION

The provisions of Chapter 11OD of the Massachusetts General Laws
relating to regulation of "Control Shares Acquisitions," as they may be amended
from time to time, shall not apply to control share acquisitions (as defined in
said Chapter 11OD) of the Corporation. (Added 1/19/95).

ARTICLE XVIII. SEAL

This Corporation shall have a seal consisting of a circular die with
the word "Massachusetts" together with the name of the Corporation and the year
of its organization cut or engraved

- 16 -

<PAGE> 17

thereon. The Board of Directors may change the form of the seal and the
inscription thereon at any time.

ARTICLE XIX. AMENDMENTS

These By-laws (other than Article V) may be altered, amended or
repealed by vote of a majority of the Directors then in office, except that the
Directors shall not take any action prohibited by law or in conflict with the
Articles of organization. The stockholders shall have the power to amend, alter
or repeal any provision of these By-laws as provided by law. (Amended 1/19/95).

- 17 -

<PAGE> 1
EXHIBIT 10(d)

NOTE: THE OMITTED PORTIONS OF THIS DOCUMENT MARKED WITH AN ASTERISK ARE SUBJECT
TO A CONFIDENTIAL TREATMENT REQUEST AND HAVE BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.

CHILDREN'S TELEVISION WORKSHOP

Dated as of July 1, 1999

The First Years, Inc.
One Kiddie Drive
Avon, Massachusetts 02322

Dear Sirs:

The following, when signed by you ("Licensee") and by us ("CTW"), will
constitute a renewal of the agreement between Licensee and CTW dated as of the
1st day of July, 1996, as the same may have heretofore been amended and/or
extended (hereinafter referred to as the "Agreement"), effective as of the date
hereof:

The Term of the Agreement, with respect to the distribution and sale of Products
in the United States, is hereby renewed for an additional period of * years
commencing July 1, 1999 and ending *, upon all the terms and conditions therein
contained, except as herein otherwise specified:

1. Effective as of the date hereof, the term of the letter of extension,
dated as of July 1, 1999, shall be deemed null and void.

2. During the Term of this renewal, Licensee shall have the right to
continue to manufacture, distribute and sell the following product items
specified below:

FEEDING & SOOTHING ITEMS
------------------------

Reuseable & Disposable Bottles
Pacifiers and Pacifier Attachers
Teethers (the packaging of which shall be carded)
Suction Bowls
Melamine Set consisting of Section Dish Bowl and Cup
Stainless Flatware with Plastic Handles
Plastic Snack Containers
Splat Mat (for under high chair)
Snack Totes (soft fabric, shaped tote to hold snacks)
Cups: Trainer Cups, Spout Cups, Straw Cups, Spill Proof Cups
Giftset Combinations consisting of the above Products
Bibs (The Marketing Date for such Products shall be
January 1, 2000)

<PAGE> 2

The First Years Inc. Page -2- Dated as of July 1, 1999

PLAY & DISCOVER ITEMS
---------------------

Rattles - the packaging of which shall be carded:

Plastic Rattles (with or without sound)
Soft Fabric Rattles:
Rattling Ring Pals, Ring Rattles, Foot Rattles
Chewy Buddy Rattles
Wrist Rattles

CARE & SAFETY ITEMS:
--------------------

Hooded Towels
Wash Mitts
Baby Bather
Comb & Brush sets
Nightlights (cordless plug-ins)
Car Sunshades
Bed Rails (The Marketing Date for such Products shall be
October 31, 1999)
Harness & Handstrap
Boo Boo Cold Packs
Medicine Feeders
Thermometers
Step Stools (plastic)
Toilet Trainers (3-in-1 Learning Potty)
Booties
Neck Supports - (Licensee's right to sell existing design of
such neck supports shall expire on May 1, 2000)

3. Licensee guarantees that CTW's earnings, during the Term of this
renewal, shall be as follows:

4. The Royalty that is payable to CTW pursuant to subparagraph 5(a) of the
Agreement and Item D of Exhibit 1 to the Agreement shall be as follows:

* of Gross Proceeds during the period 7/1/99 - 12/31/99,
thereafter * of Gross Proceeds
* F.O.B.

<PAGE> 3

The First Years Inc. Page -3- Dated as of July 1, 1999

5. Licensee's channels of distribution with respect to the sales of
Products hereunder shall be through MASS MARKET and MID-TIER DEPARTMENT STORE
CHANNELS (as defined in the Agreement).

Except as herein expressly modified and/or amended, the Agreement shall remain
in full force and effect according to the terms thereof and, as herein modified,
amended and/or extended, is hereby expressly ratified and confirmed. This
modification, its construction and effect shall be determined in accordance with
the laws of the State of New York with respect to agreements to be fully
performed therein.

If the foregoing accords with your understanding, please sign this modification
at the place set forth below.

Very truly yours,

CHILDREN'S TELEVISION WORKSHOP ACCEPTED AND AGREED TO:

By: /s/ Joseph T. Diaz THE FIRST YEARS, INC.
------------------------------------- By: /s/ Ronald J. Sidman
Joseph T. Diaz, Group President ---------------------------
Products and International Television

<PAGE> 1
EXHIBIT 10(f)
THE FIRST YEARS INC.

1993 STOCK OPTION PLAN FOR DIRECTORS
(as amended through October 1, 1999)

1. PURPOSE

The purpose of this 1993 Stock Option Plan for Directors (the "Plan") is to
advance the interests of The First Years Inc. (the "Company"), by enhancing the
ability of the Company to attract and retain directors who are in a position to
make significant contributions to the success of the Company and to reward
directors for such contributions through ownership of shares of the Company's
common stock (the "Stock").

2. ADMINISTRATION

The Plan shall be administered by a committee (the "Committee") of the Board of
Directors (the "Board") of the Company designated by the Board for that purpose.
Unless and until a Committee is appointed, the Plan shall be administered by the
entire Board, and references in the Plan to the "Committee" shall be deemed
references to the Board. The Committee shall have authority, not inconsistent
with the express provisions of the Plan (a) to issue options granted in
accordance with the formula set forth in this Plan to such directors as are
eligible to receive options and to amend the formula from time to time; (b) to
issue options on a discretionary basis to such eligible directors as the
Committee shall choose; (c) to prescribe the form or forms of instruments
evidencing options and any other instruments required under the Plan and to
change such forms from time to time; (d) to adopt, amend and rescind rules and
regulations for the administration of the Plan and to waive any conditions of
any award; and (e) to interpret the Plan and to decide any questions and settle
all controversies and disputes that may arise in connection with the Plan. Such
determinations of the Committee shall be conclusive and shall bind all parties.

3. EFFECTIVE DATE AND TERM OF THE PLAN

The Plan shall become effective on the date on which the Plan is approved by the
Board of Directors of the Company, subject

<PAGE> 2

to approval by the stockholders of the Company. No option shall be granted under
the Plan after the completion of ten years from the date on which the Plan was
adopted by the Board, but options previously granted may extend beyond that
date.

4. SHARES SUBJECT TO THE PLAN

(a) NUMBER OF SHARES. Subject to adjustment as provided in Section 4(c), the
aggregate number of shares of Stock that may be delivered upon the exercise
of options granted under the Plan shall be 560,000. If any option granted
under the Plan terminates without having been exercised in full, the number
of Shares of Stock as to which such option was not exercised shall be
available for future grants within the limits set forth in this Section
4(a). 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 withholding
requirement on an Award, the number of shares of Stock delivered to or held
back by the Company shall not be available for future grants.

(b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be authorized
but unissued Stock or, if the Board so decides in its sole discretion,
previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock shall be delivered under the Plan.

(c) CHANGES IN STOCK. In the event of a stock dividend, stock split or
combination of shares, recapitalization or other change in the Company's
capital stock, after the effective date of the Plan, the number and kind of
shares of stock or securities of the Company subject to options then
outstanding or subsequently granted under the Plan, the maximum number of
shares or securities that may be delivered under the Plan, the exercise
price, and other relevant provisions shall be appropriately adjusted by the
Committee, whose determination shall be binding on all persons.

5. ELIGIBILITY FOR OPTIONS

Directors eligible to receive options ("Eligible Directors") shall be those
directors of the Company who are not employees

<PAGE> 3

of the Company or of any subsidiary of the Company; provided that the Committee
may in its discretion choose to designate as an Eligible Director, for some or
all purposes of this Plan, a director of a subsidiary of the Company, whether or
not employed by the Company or a subsidiary.

6. TERMS AND CONDITIONS OF OPTIONS

(a) NUMBER OF OPTIONS.

(i) Each Eligible Director, upon his or her election to the Board, shall be
awarded an option covering 20,000 shares of Stock, which will become fully
vested in three equal annual installments commencing on the first
anniversary of such election. On the date of each annual meeting, following
the election of directors, each Eligible Director who served on the Board
for the entire previous twelve months shall be awarded an option covering
6,000 shares of Stock; each Eligible Director who did not serve on the
Board for the entire previous twelve months shall be awarded an option
covering a pro-rated number of shares of Stock equal to 500 multiplied by
the number of months served on the Board during the previous twelve months.
The options awarded under this paragraph (a)(i) shall be collectively
referred to as the "Formula Options."

(ii) The Committee shall also have the authority under the Plan to award
options to purchase stock to Eligible Directors in such amounts and on such
terms not inconsistent with this Plan, as it shall determine at the time of
the award. The options awarded under this paragraph (a)(ii) shall be
collectively referred to as the "Discretionary Options."

(b) EXERCISE PRICE. The exercise price of each option shall be 100% of the fair
market value per share of the Stock at the time the option is granted. In
no event, however, shall the option price be less, in the case of an
original issue of authorized stock, than par value per share. For purposes
of this paragraph, (A) the fair market value of a share of Stock on any
date shall be the Closing Price on such day or, if there were no Closing
Price on such day, the latest day prior thereto on which there was a
Closing Price; and (B) the "Closing Price" of the Stock on any business day
will be the last sale price as reported on the principal market on which

<PAGE> 4

the Stock is traded or, if no last sale is reported, then the mean between
the highest bid and lowest asked prices on that day.

(c) DURATION OF OPTIONS. The latest date on which an option may be exercised
(the "Final Exercise Date") shall be the date which is ten years from the
date the option was granted.

(d) EXERCISE OF OPTIONS.

(i) Each Formula Option shall become exercisable to the full extent of
all shares covered thereby immediately upon the date of the grant;
provided, however, that the options covering 20,000 shares of Stock
awarded upon an Eligible Director's initial election shall become
exercisable in three equal annual installments commencing on the
first anniversary of such election.

(ii) Each Discretionary Option shall become exercisable at such time or
times as the Committee shall determine.

(iii) Any exercise of any option shall be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1)
any documentation required by the Committee and (2) payment in full
for the number of shares for which the option is exercised.

(iv) The Committee shall withhold from the number of shares otherwise
issuable to the individual upon exercise a number of shares with a
fair market value equal to any federal, state, or local withholding
tax requirements due upon the exercise of the option.

(v) If an option is exercised by the executor or administrator of a
deceased director, or by the person or persons to whom the option
has been transferred by the director's will or the applicable laws
of descent and distribution, the Company shall be under no
obligation to deliver Stock pursuant to such exercise until the

<PAGE> 5

Company is satisfied as to the authority of the person or persons
exercising the option.

(e) PAYMENT FOR AND DELIVERY OF STOCK. Stock purchased under the Plan shall be
paid for as follows: (i) 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; (ii) through the delivery of shares
of Stock (which, in the case of shares of Stock acquired from the Company, have
been outstanding for at least six months) having a fair market value on the last
business day preceding the date of exercise equal to the purchase price; (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 form 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 shall be paid other than with a personal check or promissory note of
the option holder.

An Option Holder shall not have the rights of a stockholder with regard to
awards under the Plan except as to Stock actually received by him or her under
the Plan.

The Company shall not be obligated to deliver any shares of Stock (a) until, in
the opinion of the Company's counsel, all applicable federal and state laws and
regulations have been complied with; (b) 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 issuance;
and (c) until all other legal matters in connection with the issuance 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 option, 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.

(f) NONTRANSFERABILITY OF OPTIONS. Except as otherwise specified by the
Committee, no option may be transferred other than by will, by the laws of
descent and distribution, or to immediate family members as defined in Rule
16a-1(e)

<PAGE> 6

under the Securities and Exchange Act of 1934, to a trust for the benefit of
immediate family members, or to partnerships and corporations whose sole equity
owners are immediate family members, and during a director's lifetime an option
may be exercised only by him or her, or by a valid transferee under this Section
6(f).

(g) DEATH. Upon the death of any Eligible Director granted options under this
Plan, unless the Committee determines otherwise, all options not then
exercisable shall terminate. All options held by the director that are
exercisable immediately prior to death may be exercised by his or her executor
or administrator, or by the person or persons to whom the option is transferred
by will or the applicable laws of descent or distribution, at any time within
one year after the director's death (subject, however, to the limitations of
Section 6(c) regarding the maximum exercise period for such option). After
completion of that one-year period, such options shall terminate to the extent
not previously exercised.

(h) OTHER TERMINATION OF STATUS OF DIRECTOR. Except as the Committee may
otherwise specify, if a director's service with the Company terminates for any
reason other than death, all options held by the director that are not then
exercisable shall terminate. Options that are exercisable on the date of
termination shall continue to be exercisable for a period of one year (subject
to Section6(c)). After completion of that one-year period, such options shall
terminate to the extent not previously exercised, expired or terminated.

(i) MERGERS, ETC. In the event of a consolidation or merger in which the Company
is not the surviving corporation (other than a consolidation or merger in which
the holders of Stock of the Company acquire a majority of the voting stock of
the surviving corporation) or which results in the acquisition of substantially
all the Company's outstanding Stock by a single person or entity or by a group
of persons and/or entities acting in concert, or in the event of a sale or
transfer of substantially all of the Company's assets or a dissolution or
liquidation of the Company, all options hereunder will terminate; provided that
20 days prior to the effective date of any such merger, consolidation, sale,
dissolution, or liquidation, all options outstanding hereunder that are not
otherwise exercisable shall become immediately exercisable.

<PAGE> 7

Notwithstanding the foregoing, in the event that a transaction covered by this
Section 6(i) is a merger or consolidation intended to qualify as a pooling of
interests for accounting purposes, then the acquiring or surviving corporation
shall assume, or otherwise provide replacement options for, all options
outstanding under this Plan, with such adjustments to the number of shares
covered by such option and the exercise price thereof as may be necessary to
reflect the exchange ratio provided for in the merger or consolidation. Such
substitute options shall otherwise be on terms and conditions substantially
equivalent to those set forth in this Plan, shall be immediately exercisable
and, except as to Eligible Directors who become directors of the acquiring or
surviving corporation, shall terminate on the 180th day following the
consummation of the merger or consolidation. Options held by Eligible Directors
who become directors of the acquiring or surviving corporation shall be
governed, mutatis mutandis, by the provisions of this Plan and the agreement
evidencing the option surrendered in substitution.

7. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT, TERMINATION AND
EFFECTIVENESS

Neither adoption of the Plan nor the grant of options to a director shall affect
the Company's right to grant to such director options that are not subject to
the Plan, to issue to such directors Stock as a bonus or otherwise, or to adopt
other plans or arrangements under which Stock may be issued to directors.

The Committee may at any time terminate the Plan as to any further grants of
options. The Committee may at any time or times amend the Plan for any purpose
which may at the time be permitted by law.

<PAGE> 1
EXHIBIT (21)

--------------------
List of Subsidiaries
of the Registrant
--------------------

The First Years Inc., a
Delaware Corporation

<PAGE> 1

EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in Registration Statements No.
33-67880, No. 33-87196, No. 33-94888, and No. 333-60617 of The First Years Inc.
(the "Company") on Form S-8 of our report dated March 2, 2000, appearing in this
Annual Report on Form 10-K of The First Years Inc. for the year ended December
31, 1999.

DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 27, 2000

IV-20

<PAGE> 1
EXHIBIT 99

IMPORTANT FACTORS THAT MAY
AFFECT FUTURE RESULTS

Certain written or oral statements made from time to time by The First Years
Inc. or its representatives in this report, other reports filed with the
Securities & Exchange Commission (the "SEC"), press releases and telephone
conference calls contain forward-looking statements that set out anticipated
results based on management's plans and assumptions. Forward-looking statements
include any statement that may predict, forecast, indicate, or imply future
results or performance and may contain the words "believe," "anticipate,"
"expect," "estimate," "will be," "will continue," "are confident," or words and
phrases with similar meaning. Forward-looking statements involve risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statement. The risks and uncertainties are detailed from time to
time in reports filed by The First Years Inc. with the SEC including Forms 10-Q,
10-K, and 8-K and include, among others, the factors detailed below.

The risks included here are not exclusive. Other sections of this report may
include additional factors which could adversely impact The First Years'
business and financial performance. Moreover, The First Years operates in a very
competitive environment. New risk factors emerge from time to time and it is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such risk factors on The First Years' business or the extent to
which any factor or combination of factors may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.

NEED FOR CONTINUED PRODUCT INNOVATION

The growth of the Company has been, and will continue to be, dependent upon its
ability to create new innovative products and to introduce such new products to
the market in a timely fashion. There can be no assurance that the Company will
continue to generate new product ideas, that such products will be brought to
the market in a timely fashion, or that such new products will be well-received
by retailers or consumers. The continued growth of the Company will also depend
in part on the successful introduction of higher-priced products. There can be
no assurance that the Company will be able to successfully develop and introduce
such products.
<PAGE> 2
TIMELINESS OF PRODUCT INTRODUCTIONS

The Company is under increasing pressure to introduce new innovative products
more often and more quickly because the life cycle of many products has
significantly shortened over the last several years. This is due partly to the
ability of competitors to introduce similar products that compete directly with
the Company's successful new products. Timely product introductions are also
essential in the juvenile products industry because the Company's orders are
cancelable by customers and, in some cases, subject to monetary penalties
imposed by customers, if agreed-upon delivery dates are not met. As a result,
the inability to introduce products in a timely fashion could have an adverse
impact on the Company's sales.

RELIANCE ON LICENSED PRODUCTS

A substantial factor contributing to the growth in the Company's net sales in
the past few years has been its sale of products featuring cartoon characters
licensed from other parties, including the use of Winnie the Pooh characters
licensed from Disney Enterprises, Inc. and Sesame Street characters licensed
from The Children's Television Workshop in the USA and in various countries all
over the world. These licenses have fixed terms and limit the type of products
that may be sold under the licenses. A major licensing agreement was renewed in
1999 and will expire at the end of 2000. Sales of products licensed under this
major license amounted to 34% of the Company's total net sales for the year
ended December 31, 1999. While management expects this licensing agreement to be
renewed, non-renewal of this major licensing agreement or renewal on terms not
favorable to the Company could have a material adverse effect on the Company's
business.

DEPENDENCE ON CONSUMER PREFERENCES

The continued success of the Company's business depends in part on the continued
consumer demand for its products and the Company's ability to anticipate, gauge,
and respond to changing consumer demands for juvenile products in a timely
manner. In 1999 the Company experienced a slowdown in sales of its products
featuring cartoon characters licensed from third parties. Changes in consumer
preferences, such as consumers abandoning traditional retailers, shopping on the
internet, general economic decline, or less favorable demographic trends related
to childbirth, among other factors, could have a material adverse effect on the
Company's sales and earnings.

DEPENDENCE UPON A FEW MAJOR CUSTOMERS

The Company's three largest customer, Wal-Mart, Toys "R" Us, and Target
accounted for approximately 28%, 19% and 14% of net sales

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<PAGE> 3
in 1999, respectively. A significant reduction of purchases by any one of these
customers could have a material adverse effect on the Company's sales. There
could also be a negative effect on the Company's business if any significant
customer becomes insolvent or otherwise fails to pay its debts.

CHANGES IN THE RETAIL INDUSTRY

The Company could be materially adversely affected by conditions in the retail
industry in general, including the continuing consolidation in the retail
industry and the resulting decline in the number of retailers, and other
cyclical economic factors. Also, changes in the way retailers and particularly
mass merchandisers do business, such as the creation of competing private-label
brands by such retailers, could result in significant reduction of purchases of
the Company's products by such retailers and thereby have a materially adverse
effect on the Company's sales and earnings.

COMPETITIVE RISKS IN THE JUVENILE PRODUCTS MARKET

Competition is intense in the juvenile products markets in which the Company
sells its products. The Company competes with a large number of other companies
both domestic and foreign, some of which have diversified product lines,
well-known brands and financial, distribution, and marketing and consumer
advertising resources substantially greater than those of the Company. Other
major factors that affect competition in the markets in which the Company
competes include price competition from competitors, and the Company's ability
to maintain or increase the amount of retail shelf space allocated to a
particular product. Also, a major technological breakthrough or marketing
success by a competitor could adversely affect the Company's competitive
position. In addition, in countries where the juvenile products market is
mature, particularly in the USA, sales growth is partly dependent on the
Company's increasing its market share at the expense of its competitors. There
can be no assurance that the Company will be able to continue to compete
effectively in the juvenile products market.

RELIANCE ON CONTRACT AND FOREIGN MANUFACTURERS

The Company does not own or operate its own manufacturing facilities. The
Company depends upon independent manufacturers to manufacture high-quality
products in a timely manner and relies upon the availability of sufficient
production capacity at its existing manufacturers or the ability to utilize
alternative sources of supply. A failure by one or more of the Company's
significant manufacturers to meet established criteria for pricing, product
quality or timeliness could negatively impact the Company's sales and
profitability. In addition, if the Company were to experience significant
shortages in raw materials or

-3-
<PAGE> 4
components used in its products, it could have a negative effect on the
Company's business, including increased cost or difficulty in delivering
products.

A substantial portion of the Company's products sold in 1999 was manufactured in
Asia. The Company is subject to the usual risks of a business involving foreign
suppliers, such as currency fluctuations, government regulation of fund
transfers, export and import duties, trade limitations imposed by the United
States or foreign governments, and political and labor instability. Enactment of
legislation or the imposition of restrictive regulations conditioning or
revoking China's Normal Trade Relations ("NTR") trading status could have a
material adverse effect upon the Company's business because products originating
from China could be subjected to substantially higher rates of duty. Although
the Company continues to evaluate alternative sources of supply outside of
China, there can be no assurance that the Company will be able to develop
alternative sources of supply in a timely and cost-effective manner.

The Company has no long-term manufacturing agreements with its suppliers and
competes with other juvenile product companies, including companies that are
much larger than the Company, for access to production facilities.

The Company, because of its substantial reliance on suppliers in foreign
countries, is required to order products further in advance of customer orders
than would generally be the case if such products were produced in the United
States. The risk of ordering products in this manner is greater during the
initial introduction of new products since it is difficult to determine the
demand for such products.

INVENTORY RISK

Many of the Company's products have relatively long lead times for design and
production of product and thus the Company must commit to production tooling
and to production in advance of orders. If the Company fails to accurately
forecast consumer demand or if there are changes in consumer preferences or
market demand after the Company has made such production commitments, the
Company may encounter difficulty in filling customer orders or in liquidating
excess inventory; may find that retailers are canceling orders or returning
product; and may have to write off the cost of molds for certain unsuccessful
products, all of which may have an adverse effect on the Company's sales, its
margins, profit, and brand image.

COST AND AVAILABILITY OF CERTAIN MATERIALS AND TRANSPORTATION

Plastic, paperboard, other materials, and shipping/transportation costs are
significant cost components of the Company's products

-4-
<PAGE> 5
and packaging. Because the primary resource used in manufacturing plastic is
petroleum, the cost and availability of plastic for use in the Company's
products varies to a great extent with the price of petroleum. The cost of
transporting the Company's products also varies with the cost of oil. High
transportation costs or the inability of the Company's suppliers to acquire
sufficient plastic, paperboard, and other materials at reasonable prices would
adversely affect the Company's ability to maintain its profit margins in the
short term.

RISKS ASSOCIATED WITH INTERNATIONAL SALES

The continued growth of the Company will also depend in part on increasing its
international sales. The Company's international sales in 1999 accounted for
approximately 10.6% of the Company's total net sales. In foreign markets,
particularly the U.K., France, Germany and Canada, the Company competes against
long-established companies with well-known brand names. In these countries
where the juvenile products markets are mature, the Company's sales growth is
particularly dependent on the Company's increasing its market share at the
expense of the well-established local competitors. International sales are also
subject to downturns in the economies and fluctuations in the currencies of
foreign countries, and changes in the economic conditions and buying power of
consumers in foreign markets, particularly in Asia, Russia, Latin and South
America. There can be no assurance that the Company will be successful in
expanding its international sales operations.

PRODUCT LIABILITY RISKS

The Company's juvenile products are used for and by small children and infants.
The Company carries product liability insurance in amounts which management
deems adequate to cover risks associated with such use; however, there can be
no assurance that existing or future insurance coverage will be sufficient to
cover all product liability risks.

IMPACT OF GOVERNMENT REGULATION

Consumer products in general, and in particular products for babies and
infants, are coming under increased regulation both domestically and
internationally. In addition, consumer activist groups are putting increasing
pressure on governments around the world to increase their regulations
regarding the safety of the materials used to make juvenile products for babies
and infants, such as certain kinds of plastic.

The Company's products are subject to the provisions of the Federal Consumer
Safety Act, the Federal Hazardous Substances Act, the Federal Flammable Fabrics
Act, and the Child Safety Protection Act (the "Acts") and the regulations
promulgated thereunder. The

-5-
<PAGE> 6
Acts authorize the Consumer Product Safety Commission (the "CPSC") to protect
the public from products which present a substantial risk of injury. The CPSC
can require the repurchase or recall by the manufacturer of articles which are
found to be defective, and impose fines or penalties on the manufacturer, or to
recommend the recall of products containing chemicals or other materials deemed
by the CPSC to be harmful to children and infants. Similar laws exist in some
states and cities and in other countries in which the Company markets its
products. Any recall of its products could have a material adverse effect on the
Company, depending on the particular product.

YEAR 2000 COMPLIANCE

The Company is dependent on its suppliers and distributors to implement changes
to their computer systems in order to be and remain Year 2000 compliant. The
Company is also dependent on the infrastructure and the utility systems of the
countries in which its products are made and delivered to, to be operating
normally in the year 2000 and beyond. The failure of its suppliers,
distributors, utility companies, shipping carriers and other similar third
parties in the countries in which the Company's products are made or delivered
to be and remain Year 2000 compliant could have a material adverse effect on
the Company's sales and earnings.

BRAND RECOGNITION

A company's brand recognition is becoming increasingly important with consumers
of juvenile products. Some of the Company's competitors have more recognizable
brands than the Company. The Company intends to enhance its brand recognition,
but there can be no assurance that such endeavors will be successful. The
Company's inability to enhance its brand recognition could have a material
adverse impact on the Company's sales.

RISK OF CURRENCY FLUCTUATION

The Company conducts operations in various foreign countries and a portion of
its sales are transacted in local currencies. As a result, the Company's
revenues are subject to foreign exchange rate fluctuations. The Company enters
into forward currency exchange contracts to hedge its exposure. However, no
assurance can be given that fluctuations in foreign currency exchange rates
will not have an adverse impact on the Company's revenues, net profits, or
financial condition.

INTELLECTUAL PROPERTY

From time to time the Company has been and in the future may be the subject of
litigation challenging its ownership of certain intellectual property. Loss of
the Company's principal trademark,

-6-
<PAGE> 7
"The First Years" could have a serious impact on the Company's business. Because
of the importance of the Company's intellectual property, the Company's business
is subject to the risk of claims for intellectual property infringement.

LITIGATION

The Company is subject to the normal risk of litigation with respect to its
business operations and intellectual property.

DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL

The Company is currently dependent upon the ability and experience of its senior
management team and other key employees. The Company is currently in the process
of an executive search to fill certain key positions. Competition for qualified
personnel is intense, and the process of hiring such qualified personnel can be
lengthy. The loss of the services of key personnel or the inability to attract
and retain additional qualified personnel could have an adverse effect on the
Company's operations.

-7-

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