<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 No. 0-21404
------
SAFETY 1ST, INC.
(Exact Name of Registrant as specified in its Charter)
------
Massachusetts 04-2836423
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
210 Boylston Street
Chestnut Hill, Massachusetts 02167
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code:
(617) 964-7744
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
The aggregate number of Registrant's shares outstanding on July 31,
1996 was 7,155,616 shares of Common Stock, $.01 par value.
---------
<PAGE> 2
SAFETY 1ST, INC.
INDEX
Page 2
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS AS OF DECEMBER 31,
1995 AND JUNE 30, 1996 (UNAUDITED) 3
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 1995
AND 1996 5
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 6
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1995
AND 1996 7
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 12
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
<PAGE> 3
Page 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,456 $ 72,296
Accounts receivable, less allowance
for doubtful accounts of $1,900,000
and $5,700,000, respectively 26,923,557 26,787,101
Inventory 26,286,881 28,234,743
Prepaid expenses 2,956,653 2,393,703
Prepaid income taxes 2,311,275 5,294,439
Deferred income taxes 882,000 781,523
----------- -----------
Total current assets 59,384,822 63,563,805
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $4,544,025
and $6,641,919, respectively 18,085,001 21,553,877
----------- -----------
OTHER ASSETS:
Deposits 6,261,906 1,830,748
Goodwill, net of amortization of $151,185 -- 8,096,466
Deferred acquisition costs 1,492,678 --
Patents and trademarks, net of amortization of
$217,306 and $282,969, respectively 783,361 826,079
Other 311,023 782,587
----------- -----------
8,848,968 11,535,880
----------- -----------
$86,318,791 $96,653,562
=========== ===========
</TABLE>
The Condensed Balance Sheet at December 31, 1995 has been derived from
the audited financial statements at that date.
The accompanying notes are an integral part of these
Condensed Financial Statements
<PAGE> 4
Page 4
SAFETY 1ST, INC.
CONDENSED BALANCE SHEETS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $25,390,000 $39,930,000
Accounts payable and accrued expenses 12,511,676 11,434,871
Notes payable, current portion -- 2,475,649
----------- -----------
Total current liabilities 37,901,676 53,840,520
OTHER LIABILITIES
Notes payable, net of current portion -- 825,000
Deferred income taxes 2,398,000 2,398,000
----------- -----------
Total liabilities 40,299,676 57,063,520
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value,
100,000 shares authorized, no
shares outstanding -- --
Common stock, $.01 par value, 15,000,000
shares authorized, 7,150,616 and
7,155,616 issued at December 31, 1995
and June 30, 1996, respectively 71,506 71,556
Additional Paid In Capital 33,588,361 33,648,308
Retained earnings 12,359,248 5,870,178
----------- -----------
Total Stockholders' equity 46,019,115 39,590,042
----------- -----------
$86,318,791 $96,653,562
=========== ===========
</TABLE>
The Condensed Balance Sheet at December 31, 1995 has been derived from
the audited financial statements at that date.
The accompanying notes are an integral part of these
Condensed Financial Statements
<PAGE> 5
Page 5
SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net sales $ 27,629,595 $ 28,609,210
Cost of sales (includes inventory valuation adjustment
of $4,100,000 in 1996) 17,406,746 23,323,042
------------ ------------
Gross profit 10,222,849 5,286,168
Selling, general and administrative
expenses (includes property and equipment write-off
of $2,800,000 in 1996) 7,115,993 17,599,877
------------ ------------
Operating income (loss) 3,106,856 (12,313,709)
Interest expense 225,812 866,383
------------ ------------
Income (loss) before income taxes 2,881,044 (13,180,092)
Income taxes expense (benefit) 1,124,000 (4,987,007)
------------ ------------
Net income (loss) $ 1,757,044 $ (8,193,085)
============ ============
Net income (loss) per share $ .25 $ (1.14)
------------ ------------
Weighted average shares outstanding 7,132,447 7,155,616
============ ============
</TABLE>
The accompanying notes are an integral part of these
Condensed Financial Statements
<PAGE> 6
Page 6
SAFETY 1ST, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Net sales $ 54,204,704 $ 60,615,648
Cost of sales (includes inventory valuation adjustment of
$4,100,000 in 1996) 34,387,370 42,610,813
------------ ------------
Gross profit 19,817,334 18,004,835
Selling, general and administrative
expenses (includes property and equipment write-off
of $2,800,000 in 1996) 13,200,657 26,937,880
------------ ------------
Operating income (loss) 6,616,667 (8,933,045)
Interest expense 286,594 1,509,203
------------ ------------
Income (loss) before income taxes 6,330,083 (10,442,248)
Income taxes expense (benefit) 2,468,000 (3,953,178)
------------ ------------
Net income (loss) $ 3,862,083 $ (6,489,070)
============ ============
Net income (loss) per share $ .54 $ (.91)
============ ============
Weighted average shares outstanding 7,121,083 7,155,616
============ ============
</TABLE>
The accompanying notes are an integral part of these
Condensed Financial Statements
<PAGE> 7
Page 7
SAFETY 1ST, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,862,083 $ (6,489,070)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation 1,053,984 2,063,325
Amortization 36,000 262,632
Write-off property and equipment -- 2,800,000
------------ ------------
Net cash provided by (used in) operating activities
before changes in assets and liabilities: 4,952,067 (1,363,113)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (12,111,116) (3,886,339)
Inventory (8,750,117) 1,467,197
Prepaid expenses 223,871 439,373
Prepaid income tax 421,000 (3,113,437)
Deferred income taxes 440,000 100,477
Other assets -- 61,866
Increase (decrease) in:
Accounts payable and accrued expenses 4,299,146 (1,243,384)
------------ ------------
Net cash used in operating activities (10,525,149) (7,537,360)
------------ ------------
Cash flows used in investing activities:
Acquisitions -- (2,304,263)
Acquisition of property and equipment (8,668,532) (1,815,094)
(Increase) decrease in deposits 4,141,512 (1,729,341)
Acquisition of patents and trademarks (128,289) (108,381)
------------ ------------
Net cash used in investing activities (4,655,309) (5,957,079)
------------ ------------
Cash flows provided by (used in) financing activities:
Net proceeds on revolving credit facility 14,645,000 14,540,000
Repayment of bank debt assumed -- (683,385)
Proceeds from exercised stock options 509,955 60,000
Loan acquisition fees -- (374,336)
------------ ------------
Net cash provided by financing activities 15,154,955 13,542,279
------------ ------------
Net increase (decrease) in cash (25,503) 47,840
Cash and cash equivalents - beginning
of period 119,181 24,456
------------ ------------
Cash and cash equivalents - end of period $ 93,678 $ 72,296
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest $ 289,500 $ 1,147,887
============ ============
Taxes $ 1,607,000 $ 57,000
============ ============
Non-Cash investing activities:
Deposits transferred to property and equipment -- $ 6,160,499
============
See Note 2 to the financial statements for details of other non-cash
items related to acquisitions
</TABLE>
The accompanying notes are an integral part of
these Condensed Financial Statements
<PAGE> 8
Page 8
SAFETY 1ST, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The Company is a developer, marketer and distributor of child safety and
child care, convenience and activity products and home security products.
The accompanying unaudited condensed financial statements of the Company
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"), and, in the opinion of management, reflect
all adjustments (consisting of only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and cash
flows for the periods presented.
Certain information and footnote disclosures included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial
statements should be read in conjunction with the audited financial
statements and notes thereto included in the financial statements filed as
part of the Company's Annual Report on Form 10-K filed for the year ended
December 31, 1995.
Common stock equivalents are not reflected in the net income per share
computation presented in the condensed statements of income, as the dilutive
effect is less than 3%.
Assets and liabilities of foreign subsidiaries, where the functional
currency is the local currency, are translated at current exchange rates and
the related translation adjustments are reported as a component of
stockholders' equity. Income statement accounts are translated at the
average rates during the period. Foreign currency transaction gains and
losses, as well as translation adjustments for assets and liabilities of
foreign subsidiaries where the functional currency is the dollar, are
included in net income.
The results of the operations for the six months ended June 30, 1996 are not
necessarily indicative of the operating results for the full year.
NOTE 2. ACQUISITIONS
On January 4, 1996, the Company acquired all of the outstanding stock of
EEZI Group Holdings Ltd., a United Kingdom manufacturer and distributor of
child care products, now named Safety 1st (Europe) Ltd., for cash of
$265,000, issuance of notes payable of $1,650,000 (subject to post-closing
adjustments), and payment of acquisition costs of $1,291,000, of which
$1,109,000 was paid in 1995. In addition, the acquisition agreement
provides that if Safety 1st (Europe) Ltd. were to exceed certain net income
thresholds during the first five years subsequent to the acquisition date,
the purchase price would be increased by not more than $3,200,000
(subsequently adjusted to an amount not more than $2,700,000); however, due
to lower than anticipated pre-acquisition earnings by EEZI Group Holdings,
the Company believes that its obligations under this provision will be
significantly less than the maximum potential. The fair value of assets
acquired, including goodwill, was $3,214,000 and liabilities assumed was
$154,000. The acquisition has been recorded using the purchase method of
accounting. The excess of the aggregate purchase price over the fair value
of net assets acquired ($2,729,000) was recognized as goodwill and is being
amortized over 25 years. The net assets acquired primarily included
inventory and fixed assets.
On March 15, 1996, effective February 1, 1996, the Company acquired all of
the outstanding stock of Orleans Juvenile Products Inc., the Canadian
distributor of the Company's products, for cash of $1,067,000, issuance of
notes payable of $1,651,000, and payment of acquisition costs of $845,000,
of which $384,000 was paid in 1995. The fair value of assets acquired,
including goodwill, was $9,407,000 and liabilities assumed was $6,058,000.
The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to the net assets acquired based upon their
estimated fair value. The excess of the purchase price over the fair value
of assets acquired ($5,519,000) was recognized as goodwill and is being
amortized over 25 years. The net assets acquired primarily included accounts
receivable, inventory, accounts payable and bank debt.
<PAGE> 9
Page 9
NOTE 2. ACQUISITIONS (continued)
The above allocations of the purchase price to the net assets acquired were
based on preliminary estimates and may be revised at a later date.
The accompanying consolidated statements of income reflect the operating
results of the acquired entities since the effective date of the
acquisitions. Pro forma financial statements have not been presented as
these acquisitions are not considered material to the 1995 results of
operations.
NOTE 3. OTHER MATTERS
Due primarily to certain charges described in this Report in Item 2 of
Part 1 recognized in the second quarter of 1996, as of June 30, 1996, the
Company failed to meet certain financial covenants contained in the
revolving credit facility between the Company and its lenders. The Company
and its lenders have commenced negotiating a restructured credit facility
containing revised financial covenants and other terms and conditions.
Pending the completion of a restructured credit facility, the parties
entered into a forbearance agreement, which expires on September 6, 1996.
Under the terms of the forbearance agreement, the credit facility has been
amended to provide, among other matters, as follows: reduction of the
Company's maximum line of credit from $50 million to $46.6 million;
increase in the rate of interest from prime to prime plus 1/2 percentage
point (with the option to pay interest based on a LIBOR rate eliminated);
and provision by Michael Lerner, the Company's President and Chief
Executive Officer, of a limited personal guarantee of the Company's
indebtedness under the credit facility.
The Company believes that it will be able to successfully negotiate with
its lenders a restructured credit facility containing revised financial
covenants and other terms with which the Company will be in compliance.
However, there can be no assurance that the Company will be successful in
negotiating such a restructured credit facility acceptable to it and the
lenders or that it will be able to comply with the financial covenants
contained in the current credit facility if no such restructuring is
effected.
A lawsuit was filed on August 17, 1995 in the United States District
Court for the District of Massachusetts against the Company and various of
its senior executives alleging certain violations of the securities laws.
The action, filed by Sandra Esner, seeks certification as a class. On July
17, 1996, the parties executed a Memorandum of Understanding settling the
action. The amount of payment required to be made by the Company pursuant
to the settlement will not be material. The parties have consented to
conduct limited discovery to confirm the settlement on behalf of the class
and to consummate the settlement on a timely basis. Although the Company
believes that it has meritorious defenses to the action and disclaims any
wrongdoing, it believes that the settlement is in the best interests of the
Company and its stockholders.
<PAGE> 10
Page 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Statement of Forward-Looking Information:
The Company may occasionally make forward-looking statements and estimates, such
as forecasts and projections of the Company's future performance or statements
of management's plans and objectives. These forward-looking statements may be
contained in SEC filings, Annual Reports to Shareholders, Press Releases and
oral statements, among others, made by the Company. Actual results could differ
materially from those in such forward-looking statements. Therefore, no
assurances can be given that the results in such forward-looking statements
will be achieved. Important factors that could cause the Company's actual
results to differ from those contained in such forward-looking statements
include, among others, those factors set forth in Exhibit 99 to the Company's
Report on Form 10-Q for the period ended March 31, 1996, and incorporated
herein by reference.
Results of Operations:
Three Months Ended June 30, 1996 and 1995
Net sales for the three months ended June 30, 1996 increased 3.5% to
approximately $28,609,000 from $27,630,000 in the comparable period in 1995. The
increase is primarily due to increases in sales of existing juvenile products
(consisting of bulk and peggable products) home security and hardware products,
and sales of new products introduced for sale in 1996.
Gross profit decreased 48.3% to approximately $5,286,000 from $10,223,000 in the
comparable period in 1995. Gross profit as a percentage of net sales decreased
to 18.5% compared to 37.0% for the three months ended June 30, 1995 due to a
charge of $4,100,000 for inventory valuation adjustments primarily relating to
the Company's plans to discontinue and restructure lower margin products and a
charge of $1,765,000 for vendor credits and customer credit adjustments. In
addition, the Company sold approximately $1,500,000 of inventory at cost as part
of its inventory reduction plan. Absent the charges for inventory, reserves, and
vendor credits, the gross profit as a percentage of sales would have been 38%
for the three months ended June 30, 1996.
Selling, general and administrative expenses were approximately $17,600,000 in
the second quarter of 1996. For the same period ending 1995, selling, general
and administrative expenses were approximately $7,116,000. This increase of
approximately $10,484,000 was partly attributable to a charge of $3,355,000
relating to increases in the reserves for customer credits on accounts
receivable, additional charges of $1,780,000 related to write-offs of certain
prepaid and other assets and increased accruals for professional and related
fees, and a write down of molds and other capital assets in the amount of
$2,800,000 relating primarily to the planned discontinuance of certain product
lines. The remaining increases in selling, general and administrative expenses
are primarily attributed to increases in payroll and payroll related costs
associated with the continued development of the Company's infrastructure as
well as increases in advertising, professional and legal expenses.
As a result of the above factors, the Company incurred an operating loss of
$12,314,000 in the second quarter of 1996 versus operating income of $3,107,000
in the second quarter of 1995.
Net interest expense increased from $225,812 for the three months ended June 30,
1995 to $866,383 for the same period in 1996 due to increased borrowings.
Six Months Ended June 30, 1996 and 1995
Net sales for the six months ended June 30, 1996 increased 11.8% to
approximately $60,616,000 from $54,205,000 in the comparable period in 1995,
mainly due to increases in sales of existing juvenile products (consisting of
bulk and peggable products) home security and hardware products, and sales of
new products introduced for sale in 1996.
<PAGE> 11
Page 11
Gross Profit decreased 9.1% to approximately $18,005,000 from $19,817,000 in the
comparable period in 1995. Gross profit as a percentage of net sales decreased
to 29.7% compared to 36.6% for the six months ended June 30, 1995 largely due to
a charge of $4,100,000 for inventory valuation adjustments primarily relating to
the Company's plans to discontinue and restructure lower margin products and a
charge of $1,765,000 for vendor credits and customer credit adjustments. In
addition, the Company sold approximately $1,500,000 of inventory at cost as part
of its inventory reduction plan.
Selling, general and administrative expenses were approximately $26,938,000
during the six months ended June 30, 1996. For the same period ending 1995,
selling, general and administrative expenses were approximately $13,201,000.
This increase of approximately $13,737,000 was partly attributable to a charge
of $3,355,000 relating to increases in the reserves for customer credits on
accounts receivable, additional charges of $1,780,000 related to write-offs of
certain prepaid and other assets and increased accruals for professional and
related fees and a write down of molds and other capital assets in the amount of
$2,800,000 relating primarily to the planned discontinuance of certain product
lines. Selling, general and administrative expenses also increased due to
increases in payroll and payroll related costs associated with the continued
development of the Company's infrastructure, and increases in advertising,
professional and legal expenses.
As a result of the above factors, the Company incurred an operating loss of
$8,933,000 for the six months ended June 30, 1996 versus operating income of
$6,617,000 during the same period in 1995.
Net interest expense increased from $286,594 for the six months ended June
30,1995 to $1,509,203 for the same period in 1996 due to increased borrowings.
Liquidity and Capital Resources
Net cash used in operations decreased from $10,525,000 for the six months ended
June 30, 1995 to $7,537,000 for the six months ended June 30,1996. Accounts
receivable increased approximately $3,886,000 to $26,787,000 at June 30, 1996.
This increase was primarily due to increased sales offset by certain accounts
receivable reserve adjustments. Inventory decreased by $1,467,000 to $28,235,000
in the period ended June 30, 1996 due to an inventory valuation adjustment,
offset by an increase in the inventory balance.
Cash flows used in investing activities was $5,957,000 as a result of the
acquisition of Orleans Juvenile Products Inc. and EEZI Group Holdings Limited
for cash and issuance of notes payable as well as the continued purchase of
property and equipment and other assets, mainly molds for new products
introduced in 1996. During 1996, net cash provided by financing activities was
$13,542,000 related to proceeds from the Company's revolving credit facility.
The Company finances its short-term liquidity requirements through its
$50,000,000 revolving credit facility ($39,930,000 was outstanding at June 30,
1996). Due primarily to the charges described above, recognized in the second
quarter of 1996, as of June 30, 1996, the Company failed to meet certain
financial covenants contained in the revolving credit facility between the
Company and its lenders. The Company and its lenders have commenced negotiating
a restructured credit facility containing revised financial covenants and other
terms and conditions. Pending the completion of a restructured credit facility,
the parties entered into a forbearance agreement, which expires on September 6,
1996. Under the terms of the forbearance agreement, the credit facility was
amended to provide, among other matters, as follows: reduction of the
Company's maximum line of credit from $50 million to $46.6 million; increase in
the rate of interest from prime to prime plus 1/2 percentage point (with the
option to pay interest based on a LIBOR rate eliminated); and provision by
Michael Lerner, the Company's President and Chief Executive Officer, of a
limited personal guarantee of the Company's indebtedness under the credit
facility.
The Company believes that it will be able to successfully negotiate with its
lenders a restructured credit facility containing revised financial covenants
and other terms with which the Company will be in compliance. However, there
can be no assurance that the Company will be successful in negotiating such a
restructured credit facility acceptable to it and the lenders or that it will
be able to comply with the financial covenants contained in the current credit
facility if no such restructuring is effected.
<PAGE> 12
Page 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
A lawsuit was filed on August 17, 1995 in the United States District
Court for the District of Massachusetts against the Company and various of its
senior executives alleging certain violations of the securities laws. The
action, filed by Sandra Esner, seeks certification as a class. On July 17, 1996
the parties executed a Memorandum of Understanding settling the action. The
amount of payment required to be made by the Company pursuant to the settlement
will not be material. The parties have consented to conduct limited discovery
to confirm the settlement on behalf of the class and to consummate the
settlement on a timely basis. Although the Company believes that it has
meritorious defenses to the action and disclaims any wrongdoing, it believes
that the settlement is in the best interests of the Company and its
stockholders.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Due primarily to certain charges described in this Report in Item 2 of
Part 1 recognized in the second quarter of 1996, as of June 30, 1996, the
Company failed to meet certain financial covenants contained in the revolving
credit facility between the Company and its lenders. The Company and its
lenders have commenced negotiating a restructured credit facility containing
revised financial covenants and other terms and conditions. Pending the
completion of a restructured credit facility, the parties entered into a
forbearance agreement, which expires on September 6, 1996. Under the terms of
the forbearance agreement, the credit facility has been amended to provide,
among other matters, as follows: reduction of the Company's maximum line of
credit from $50 million to $46.6 million; increase in the rate of interest
from prime to prime plus 1/2 percentage point (with the option to pay interest
based on a LIBOR rate eliminated); and provision by Michael Lerner, the
Company's President and Chief Executive Officer, of a limited personal
guarantee of the Company's indebtedness under the credit facility.
The Company believes that it will be able to successfully negotiate with its
lenders a restructured credit facility containing revised financial covenants
and other terms with which the Company will be in compliance. However, there can
be no assurance that the Company will be successful in negotiating such a
restructured credit facility acceptable to it and the lenders or that it will be
able to comply with the financial covenants contained in the current credit
facility if no such restructuring is effected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) An Annual Meeting of Stockholders of the Company was held on May 21,
1996.
(b) The directors listed in subsection (c) were elected at the meeting.
The Company has no other directors whose terms of office continued
after the meeting.
(c) The results of the proposals submitted for vote were as follows:
(i) Election of Directors
<TABLE>
<CAPTION>
Number of Shares
----------------
For Withhold
--- Authority
---------
<S> <C> <C>
Michael Lerner 4,840,062 11,716
Michael S. Bernstein 4,838,962 12,816
Curt R. Feuer 4,838,962 12,816
</TABLE>
<PAGE> 13
Page 13
<TABLE>
<S> <C> <C>
Robert J. Drummond 4,838,962 12,816
Laurence S. Levy 4,838,962 12,816
</TABLE>
(ii) Proposal to ratify the appointment of Grant Thorton LLP as
independent accountants for the current fiscal year.
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 4,833,798
Against 12,725
Abstain 5,255
Broker non-votes --
</TABLE>
ITEM 5. OTHER INFORMATION.
Ronald J. Jackson was elected to the Company's Board of Directors on August
5, 1996. Mr. Jackson, 52, was previously Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. Prior to joining Fisher-Price in 1990, Mr. Jackson
was President and Chief Executive Officer of Kenner Parker Toys, Inc.
<PAGE> 14
Page 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The following exhibits are filed as part of this report:
<TABLE>
<CAPTION>
Exhibit Description
- - - ------- -----------
<S> <C>
10.1 Letter Amendment dated May 1, 1996, to Loan Agreement
Dated March 28, 1996, among Registrant (and various of its
affiliates), Fleet National Bank, The First National Bank of
Boston and USTrust
10.2 Forbearance Agreement dated August 2, 1996, among
Fleet National Bank, The First National Bank of Boston, USTrust
and Safety 1st, Inc., et al.
10.3 Amendment to Forbearance Agreement dated August 13, 1996, among
Fleet National Bank, The First National Bank of Boston, USTrust
and Safety 1st, Inc., et al.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking Statements (Included
as Exhibit 99 to Registrant's 10-Q for the period ended March 31,
1996, and incorporated herein by reference)
</TABLE>
Reports on Form 8-K
The Company filed a Report on Form 8-K on April 1, 1996, which disclosed
that the Company, acting through its wholly-owned subsidiary, 3232301 Canada
Inc., acquired all of the issued and outstanding capital stock of Orleans
Juvenile Products Inc.
<PAGE> 15
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Safety 1st, Inc.
a Massachusetts Corporation
Date: August 13, 1996 By:/s/ Michael Lerner
----------------------------- -------------------
Michael Lerner
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1996 By:/s/ Richard Caturano
---------------------------- ----------------------
Richard Caturano
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 16
Page 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- - - ------- ----------- ----
<S> <C> <C>
10.1 Letter Amendment dated May 1, 1996, to Loan Agreement
Dated March 28, 1996, among Registrant (and various of its
affiliates), Fleet National Bank, The First National Bank of
Boston and USTrust
10.2 Forbearance Agreement dated August 2, 1996, among
Fleet National Bank, The First National Bank of Boston, USTrust
and Safety 1st, Inc., et al.
10.3 Amendment to Forbearance Agreement dated August 13, 1996, among
Fleet National Bank, The First National Bank of Boston, USTrust
and Safety 1st, Inc., et al.
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
99 Important Factors Regarding Forward-Looking Statements
(Included as Exhibit 99 to Registrant's 10-Q for the
period ended March 31, 1996, and incorporated herein
by reference)
</TABLE>
<PAGE> 1
EXHIBIT 10.1
May 1, 1996
Safety 1st, Inc.
210 Boylston Street
Chestnut Hill, MA 02167
Attn: Michael Lerner, President
Dear Mr. Lerner:
You have requested that the Banks amend the provisions of Section 5.5
and 5.7 of the Loan Agreement dated March 28, 1996, as amended April 19, 1996
(the "Loan Agreement"), among Safety 1st, Inc. and various of its affiliates and
Fleet National Bank ("Fleet"), The First National Bank of Boston ("FNBB"), and
USTrust to permit Safety 1st, Inc. to enter into a lease of certain computer
equipment with Hewlett-Packard Corp. (the "Lease") on the terms and conditions
described in Exhibit A annexed. Capitalized terms used but not defined herein
have the meanings ascribed to them in the Agreement.
Each of the Banks hereby consents to entry by Safety 1st, Inc. into the
Lease and waives the provisions of Section 5.5 of the Agreement prohibiting the
incurrence of certain Indebtedness, and Section 5.7 of the Agreement prohibiting
the granting of liens or encumbrances on the Borrowers' properties to permit
Safety 1st, Inc. to incur the Indebtedness represented by the Lease and to
permit the encumbrance by Hewlett-Packard Corp. of the equipment which is the
subject of the Lease.
The waivers and consents granted hereby are limited to the Lease (on
the terms and conditions set forth in Exhibit A only) and shall not constitute
or be construed as a consent or waiver to any other transaction and shall not be
deemed to constitute a course of dealing among the Banks and the Borrowers or
any of them. Except as provided herein, the Borrower and Banks ratify and
confirm all of the terms and conditions of the Loan Agreement. This letter
<PAGE> 1
EXHIBIT 10.2
FORBEARANCE AGREEMENT
AMONG FLEET NATIONAL BANK,
THE FIRST NATIONAL BANK OF BOSTON,
USTRUST AND SAFETY 1ST, INC., ET AL.
This Agreement is made with respect to that certain Loan Agreement
dated March 28, 1996 as heretofore amended (the "Loan Agreement"), by and among
Safety 1st, Inc. ("Safety 1st"), a Massachusetts corporation with offices at
210 Boylston Street, Chestnut Hill, Massachusetts; Safety 1st (Europe) Limited
("Safety Europe"), a limited liability company organized under the laws of the
United Kingdom, 3232301 Canada, Inc. ("3232301"), a corporation organized under
the federal laws of Canada; Safety 1st Home Products Canada, Inc. ("Safety
Canada"), a corporation organized under the federal laws of Canada; Safety 1st
International, Inc. ("Safety International"), a corporation organized under the
laws of the U.S. Virgin Islands; and Fleet National Bank ("Fleet"), a banking
corporation organized under the laws of the United States; the First National
Bank of Boston ("Bank of Boston"), a banking corporation organized under the
laws of the United States; and USTrust ("UST"), a Massachusetts trust company
(collectively "the Banks"). Safety 1st, Safety Europe, 3232301, Safety Canada
and Safety International are sometimes collectively hereinafter referred to as
"the Borrowers". Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Loan Agreement.
The Borrowers have notified the Banks that as a result of certain
losses incurred by the Borrowers, the Borrowers are in default of certain
financial and other covenants contained in the Loan Agreement. The Borrowers
have requested that the Banks forbear from enforcement of their rights and
remedies against the Borrowers for a certain period of time,
<PAGE> 2
and Michael Lerner, a stockholder, director and officer of Safety 1st has
agreed to provide certain assurances to the Banks to induce the Banks to
temporarily forbear from the exercise of such rights and remedies.
The Banks are willing to temporarily so forbear from the exercise of
such rights and remedies but only upon the terms and conditions and based upon
the representations and warranties of the Borrowers and Lerner herein.
1. The Borrowers hereby acknowledge that they are unconditionally
liable to the Banks for the full and immediate payment of each of the
obligations described in Exhibit 1 attached hereto and incorporated herein by
reference, plus all charges that may arise under the Loan Agreement including
attorneys fees and costs of collection incurred in connection with such
obligations by the Banks, and that the Borrowers have no defenses,
counterclaims or setoffs with respect to the full and immediate payment of such
obligations.
2. The Borrowers further acknowledge that the Banks have no
existing commitments, obligations or agreements to advance credit or loans or
make other financial accommodations to the Borrowers except as specifically set
forth in this Agreement.
3. Provided that there shall occur after the date hereof, no
further Event of Default (as defined in the Loan Agreement) other than defaults
existing on the date hereof, and upon the terms and conditions set forth
herein, the Banks agree that they will forbear from exercising the rights and
remedies contained in the Loan Agreement until August 9, 1996 or the earlier
default by the Borrowers of their obligations hereunder (the "Forbearance
Termination Date"). Notwithstanding the foregoing acknowledgment of existing
defaults, the Borrowers shall comply with all
2
<PAGE> 3
of their obligations to the Banks as set forth in the Loan Agreement, except as
modified herein. The Banks do not hereby agree to waive any of the existing
financial or other covenant defaults under the Loan Agreement.
4. In accordance with Section 5.1(vii) of the Loan Agreement, the
Borrowers shall on a daily basis deliver to the Agent by 9:30 a.m. Eastern time
a Borrowing Base Certificate in the form of the Borrowing Base for July 28,
1996 annexed hereto. The July 28, 1996 Borrowing Base annexed hereto or in a
format as otherwise required by the Banks describes a formula overadvance of
$12,745,853 (the "Existing Overadvance").
5. The Borrowers and Banks agree that, effective the date of this
Agreement the maximum commitment amount under the Loan Agreement is reduced
from $50,000,000 to $46,600,000. The Borrowers and Banks further agree that,
effective the date hereof through and including the Forbearance Termination
Date, Borrowers' outstanding obligations under the Loan Agreement shall not
exceed the lesser of: (i) $46,600,000, or (ii) the Borrowing Base plus
$13,950,000.
6. Lerner shall on the date hereof, execute and deliver to the
Banks a limited guaranty in the amount of $2,500,000 in the form of the
Guaranty annexed as Exhibit 6 (the "Lerner Guaranty") pursuant to which Lerner
shall guaranty to the Banks full and timely payment of all Obligations of the
Borrowers to the Banks.
7. The Lerner Guaranty shall be secured by a pledge of cash and/or
marketable securities owned by Lerner and delivered to Fleet. On the date
hereof, Lerner shall deliver a Third Party Pledge Agreement in the form of the
Third Party Pledge Agreement annexed hereto as Exhibit 9 pursuant to which
Lerner agrees to maintain a pledge in favor of the Banks of
3
<PAGE> 4
marketable collateral with a minimum market value (as determined by the Banks)
equal to $2,500,000.
8. The effective interest rate charged to the Borrowers is hereby
increased from the Prime Rate to a per annum rate equal to the Prime Rate plus
one-half of one (1/2%) percent effective the date hereof. In addition, the
LIBOR Rate Option referenced in the Loan Agreement shall not be available to
the Borrowers after July 31, 1996, and all of the provisions of the Loan
Agreement relating to the LIBOR Rate Option and LIBOR Loans are inoperative
from and after the date of this Amendment, except as provided in the following
sentence. Any outstanding LIBOR Loans as of the date of this Amendment shall
continue at the LIBOR Rate Option until the end of the respective Interest
Periods for such LIBOR Loans, and shall, if not paid in full at the end of such
Interest Period, convert to Prime Rate Loans at the effective per annum rate of
the Prime Rate plus one-half of one (1/2%) percent.
9. The Borrowers shall pay to the Banks a forbearance fee in the
amount of $40,000.00 which is due and payable and agreed to be fully earned on
the date of this Agreement and which the Borrowers agree may be charged to any
loan or deposit account maintained with the Banks. The Banks shall share the
forbearance fee in accordance with their Commitment Percentages.
10. The Borrowers acknowledge that the Banks are under no
obligation and have not agreed or made any representations that they will agree
to extend the Forbearance Termination Date beyond August 9, 1996. However, the
Borrowers acknowledge that the conditions set forth below will be minimum
conditions precedent to the Banks' agreement to consider any such extension,
and that there will be additional terms and conditions to any
4
<PAGE> 5
such extension which may be considered.
(a) Lerner will increase the Lerner Guaranty to an amount
equal to the lesser of: (i) $7,500,000, or (ii) the overadvance which may exist
from time to time under the Borrowing Base Formula less an amount to be agreed
by the Banks.
(b) The Lerner Guaranty will continue to be fully secured
by a pledge of marketable collateral with a market value of at least $500,000
in excess of the then liability under the Lerner Guaranty, but in no event
shall Lerner be required to pledge collateral with a market value in excess of
$7,500,000.
(c) A schedule for reduction of the overadvance under the
Borrowing Base acceptable to the Banks shall be established.
(d) Payment of an additional forbearance fee.
11. The Borrowers and Lerner (and their successors and assigns)
hereby release, waive and forever relinquish all claims, demands, obligations,
liabilities and causes of action of whatever kind or nature, whether known or
unknown, which any of them may have or might assert now or in the future,
against the Banks, their officers, directors, employees, agents, attorneys and
accountants, directly or indirectly, arising out of, based upon, or in any
manner connected with, (i) any transaction, event, action, failure to act or
occurrence of any sort or type, whether known or unknown, which existed,
occurred or was taken, permitted or begun prior to the execution of this
Agreement; (ii) any discussions, commitments, negotiations, conversations or
communications with respect to the Borrowers' and Lerner's respective
Obligations; or (iii) anything or matter related to any of the foregoing.
5
<PAGE> 6
12. Except as expressly modified by this Agreement, all of the
terms, conditions and provisions of the Loan Agreement remain in full force and
effect and are expressly ratified and confirmed by the Borrowers and the Banks.
As of the date hereof, the Borrowers represent and warrant that they have no
offsets, claims, or other defenses to payment of full of their obligations to
the Banks, and reaffirm that all of the representations and warranties made by
them in the Loan Agreement and the other loan documents, remain true and
correct, except for the defaults in financial and other covenants set forth in
Exhibit 13 hereto.
13. The Borrowers shall take such further actions, and execute and
deliver to the Banks such documents and agreements as the Banks may require to
evidence the agreements contained herein, and the Banks shall take such actions
and execute and deliver such documents and agreements as may be required to
evidence their agreement contained herein.
14. This Amendment and the documents delivered in connection
herewith represent the entire agreement among the parties with respect to the
subject matter hereof, and shall be construed in accordance with the laws of
the Commonwealth of Massachusetts as an agreement under seal.
WITNESS OUR HANDS AND SEALS THIS 2nd DAY OF AUGUST, 1996.
BORROWERS:
SAFETY 1ST, INC.
By: /s/ Michael Lerner
---------------------------------------
Michael Lerner, President
SAFETY 1ST (EUROPE) LIMITED
By: /s/ Michael Lerner
---------------------------------------
Michael Lerner, Director
By: /s/ Michael Bernstein
---------------------------------------
Michael Bernstein, Director
6
<PAGE> 7
SAFETY 1ST HOME PRODUCTS CANADA, INC.
By: /s/ Michael Lerner
--------------------------------------
Michael Lerner, President
3232301 CANADA, INC.
By: /s/ Michael Lerner
-------------------------------------
Michael Lerner, President
SAFETY 1ST INTERNATIONAL, INC.
By: /s/ Michael Lerner
-------------------------------------
Michael Lerner, President
BANKS:
FLEET NATIONAL BANK
By: /s/ Kevin Foley
-------------------------------------
KEVIN FOLEY, Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Peter Haley
-------------------------------------
PETER HALEY, Vice President
USTRUST
By: /s/ Errin Siagel
-------------------------------------
ERRIN SIAGEL, Vice President
GUARANTOR:
By: /s/ Michael Lerner
-------------------------------------
MICHAEL LERNER
7
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO FORBEARANCE AGREEMENT
AMONG FLEET NATIONAL BANK,
THE FIRST NATIONAL BANK OF BOSTON,
USTRUST AND SAFETY 1ST, INC., ET AL.
This Amendment to Forbearance Agreement (the "Amended Forbearance
Agreement") is made with respect to that certain Loan Agreement dated March 28,
1996 as heretofore amended (the "Loan Agreement"), by and among Safety 1st, Inc.
("Safety 1st"), a Massachusetts corporation with offices at 210 Boylston Street,
Chestnut Hill, Massachusetts; Safety 1st (Europe) Limited ("Safety Europe"), a
limited liability company organized under the laws of the United Kingdom,
3232301 Canada, Inc. ("3232301"), a corporation organized under the federal laws
of Canada; Safety 1st Home Products Canada, Inc. ("Safety Canada"), a
corporation organized under the federal laws of Canada; Safety 1st
International, Inc. ("Safety International"), a corporation organized under the
laws of the U.S. Virgin Islands; and Fleet National Bank ("Fleet" or the
"Agent"), a banking corporation organized under the laws of the United States;
the First National Bank of Boston ("Bank of Boston"), a banking corporation
organized under the laws of the United States; and USTrust ("UST"), a
Massachusetts trust company (collectively "the Banks"). Safety 1st, Safety
Europe, 3232301, Safety Canada and Safety International are sometimes
collectively hereinafter referred to as "the Borrowers". The term "Loan
Documents" as used herein shall include those documents, instruments and
agreements executed and delivered in connection with this Amended Forbearance
Agreement and the Forbearance Agreement (as defined hereinafter), as well as the
documents, instruments and agreements included within the defined term "Loan
Documents" in the Loan Agreement.
<PAGE> 2
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Loan Agreement.
This Amended Forbearance Agreement modifies and extends that certain
Forbearance Agreement among the Banks, the Borrowers and Michael Lerner dated
August 2, 1996 (the "Forbearance Agreement")which continues to be in effect
except to the extent expressly superseded by this Amended Forbearance Agreement
and except to the extent that provisions of this Amended Forbearance Agreement
contradict the Forbearance Agreement, in which case the provisions of this
Amended Forbearance Agreement shall control.
The Borrowers have requested that the Banks continue to forbear from
enforcement of their rights and remedies against the Borrowers. Michael Lerner
("Lerner") has agreed to provide to the Banks certain further assurances in
addition to the assurances provided in the Forbearance Agreement to induce the
Banks to continue to forbear from the exercise of such rights and remedies.
The Banks are willing to continue to forbear from the exercise of such
rights and remedies but only upon the terms and conditions and based upon
the representations and warranties of the Borrowers and Lerner herein.
1. The Borrowers hereby acknowledge that they are unconditionally
liable to the Banks for the full and immediate payment of each of the
obligations described in Exhibit 1 attached hereto and incorporated herein by
reference as of the date thereof, plus all charges that may arise under the
Loan Documents, including attorneys fees and costs of collection incurred
in connection with such obligations by the Banks.
2. The Borrowers further acknowledge that the Banks have no existing
commitments, obligations or agreements to advance credit or loans or make
any other financial accommodations to the Borrowers except as specifically
<PAGE> 3
set forth in the Forbearance Agreement and this Amended Forbearance Agreement.
3. Upon the terms and conditions set forth herein, the Banks agree that
they will forbear from exercising the rights and remedies contained in the Loan
Documents, at law and in equity until the earlier of: (i) occurrence of an Event
of Default arising after the date of this Amendment other than the continuing
Events of Default as the result of a breach of the covenants described in
Exhibit 3, or (ii) September 6, 1996 (the "Forbearance Termination Date").
Notwithstanding the acknowledgment of existing defaults contained in the
Forbearance Agreement, the Banks do not hereby agree to waive any of the
existing financial or other covenant Events of Defaults under the Loan
Agreement. The Borrowers shall comply with all of their other obligations to the
Banks as set forth in the Loan Documents. The Borrowers and Lerner acknowledge
that the Banks are under no obligation to continue to forbear, and have not
agreed to or made any representations that they would agree to forbear, after
the Forbearance Termination Date.
4. In accordance with Section 5.1(vii) of the Loan Agreement as amended
by the Forbearance Agreement, the Borrowers shall continue to deliver to the
Agent on a daily basis by 9:30 a.m. Eastern time a Borrowing Base Certificate in
the form of the Borrowing Base for July 28, 1996 annexed hereto.
5. The Borrowers and Banks agree that the maximum commitment amount
under the Loan Agreement, as amended by the Forbearance Agreement, continues to
be $46,600,000. The Borrowers' Outstanding Obligations shall not exceed the
lesser of: (i) $46,600,000, or (ii) the Borrowing Base plus $13,950,000. The
Borrowers' "Outstanding Obligations" shall mean at any time, the sum of (i)
Borrowers' outstanding Loans and the Stated Value
<PAGE> 4
of Letters of Credit plus (ii) all overdraft balances in Borrowers' deposit
accounts.
6. As additional consideration for the Banks' agreement to continue to
forbear, the Borrowers shall pay to the Banks a forbearance fee in the amount of
$40,000 on the day of this Amendment. The Forbearance Fee shall be shared by
the Banks in accordance with their Commitment Percentages.
7. Lerner has previously executed and delivered to the Banks a Limited
Guaranty (the "Lerner Guaranty") pursuant to which Lerner guaranteed and
continues to guaranty to the Banks the full and timely payment of all
Obligations of the Borrowers to the Banks up to the dollar limitation referenced
in the Lerner Guaranty. Lerner shall increase the dollar limitation of the
Lerner Guaranty from (i) $2,500,000.00 plus interest and costs to (ii)
$2,500,000.00 plus interest and costs plus the amount of Borrowers' "Excess
Overadvance" pursuant to a First Amendment to Limited Guaranty in the form
annexed as Exhibit 7, but in no event shall the Guarantor be liable for more
than $3,500,000.00 plus costs and expenses. The term "Excess Overadvance" means
the amount by which the Borrower's Outstanding Obligations exceed (a) the
Borrowing Base plus $13,450,000.00 from and after August 22, 1996 until August
29, 1996 and (b) the Borrowing Base plus $12,950,000.00 from and after August
29, 1996.
8. The Lerner Guaranty is secured by a pledge of cash and/or
marketable securities owned by Lerner and delivered to Fleet pursuant to a
Third Party Pledge Agreement dated August 2, 1996. Lerner shall execute and
deliver to the Banks a First Amendment to Third Party Pledge Agreement in the
form of the Amendment annexed hereto as Exhibit 8 pursuant to which Lerner
agrees to maintain a pledge of cash and marketable securities with
<PAGE> 5
a minimum market value (as determined by the Banks) equal to $3,500,000 to
secure Lerner's increased obligations under the Lerner Guaranty, as amended.
Lerner shall execute and deliver an instruction letter to the Agent to transfer
such amount of cash and marketable securities to a collateral account
maintained by the Agent for the benefit of the Banks.
9. The effective interest rate charged to the Borrowers is increased
from the Prime Rate to a per annum rate equal to the Prime Rate plus one half
(1/2%) percent effective August 2, 1996. No further LIBOR Loans are permitted
to the Borrowers. Any outstanding LIBOR Loans as of the date of this Amendment
shall continue at the LIBOR Rate Option until the end of the respective
Interest Periods for such LIBOR Loans, and shall, if not paid in full at the
end of such Interest Period, convert to Prime Rate Loans at the effective per
annum rate of the Prime Rate plus one-half (1/2%).
10. Sections 2.1.1 and 6.1(a) of the Loan Agreement are hereby amended
to eliminate the five (5) business day periods referenced therein for payment
of any interest due or overadvances or overloans in the
<PAGE> 6
Revolving Loan Account. All such amounts are and shall hereinafter be payable
immediately upon becoming due.
11. The Banks, pursuant to the provisions of Section 7.4 of the Loan
Agreement hereby require that Safety 1st remit all remittances and payments to
a lockbox maintained by the Agent. The Borrowers shall execute and deliver all
such documents and agreements as may be necessary, and shall otherwise
cooperate with the Banks, to establish such blocked lockbox account.
12. The Borrowers have engaged a business consultant to review the
Borrowers' businesses. Such business consultant and any replacement consultants
engaged by the Borrowers, shall be made available to discuss the business,
collateral, financial condition, financial documents and other aspects of
Borrowers' businesses with the Banks on reasonable notice during normal
business hours.
13. The Borrowers and Lerner (and their successors and assigns) hereby
release, waive and forever relinquish all claims, demands, obligations,
liabilities and causes of action of whatever kind or nature, whether known or
unknown, which any of them may have or might assert now or in the future,
against the Banks, their officers, directors, employees, agents, attorneys and
accountants, directly or indirectly, arising out of, based upon, or in any
manner connected with, (i) any transaction, event, action, failure to act or
occurrence of any sort or type, whether known or unknown, which existed,
occurred or was taken, permitted or begun prior to the execution of this
Amendment; (ii) any discussions, commitments, negotiations, conversations or
communications with respect to the Borrowers' and Lerner's respective
Obligations prior to the execution of this Amendment; or (iii) anything or
matter prior to the execution of this Amendment related to any of the foregoing.
14. As of the date hereof, the Borrowers and Lerner represent and
warrant that they have no offsets, claims, or other defenses to payment of full
of their Obligations to the Banks, and reaffirm that all of the representations
and warranties made by them in the Loan Agreement, Forbearance Agreement, this
Amended Forbearance Agreement, and the other
<PAGE> 7
loan documents, instruments and agreements remain true and correct, except for
the defaults in financial and other covenants set forth in Exhibit 3 hereto.
15. The Borrowers and Lerner shall take such further actions, and
execute and deliver to the Banks the documents, instruments and agreements
contemplated hereby and such further documents and agreements as the Banks may
require to evidence the agreements contained in the Loan Agreement, the
Forbearance Agreement and herein, and the Banks shall take such actions and
execute and deliver such documents and agreements as may be required to
evidence their agreements contained herein.
16. This Amendment and the documents, instruments and agreements
delivered in connection herewith, together with the Forbearance Agreement and
documents, instruments and agreements delivered in connection therewith,
represent the entire agreement among the parties with respect to the subject
matter hereof, and shall be construed in accordance with the laws of the
Commonwealth of Massachusetts as an agreement under seal.
WITNESS OUR HANDS AND SEALS THIS 13TH DAY OF AUGUST, 1996.
BORROWERS:
SAFETY 1ST, INC.
By: /s/ Michael Lerner
--------------------------------
Michael Lerner, President
SAFETY 1ST (EUROPE) LIMITED
By: /s/ Michael Lerner
--------------------------------
Michael Lerner, Director
By: /s/ Michael Bernstein
--------------------------------
Michael Bernstein, Director
<PAGE> 8
SAFETY 1ST HOME PRODUCTS CANADA, INC.
By: /s/ Michael Lerner
-----------------------------------
Michael Lerner, President
3232301 CANADA, INC.
By: /s/ Michael Lerner
------------------------------------
Michael Lerner, President
SAFETY 1ST INTERNATIONAL, INC.
By: /s/ Michael Lerner
------------------------------------
Michael Lerner, President
BANKS:
FLEET NATIONAL BANK
By: /s/ Kevin Foley
------------------------------------
KEVIN FOLEY, Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Peter Haley
-------------------------------------
PETER HALEY, Vice President
USTRUST
By: /s/ Errin Siagel
--------------------------------------
ERRIN SIAGEL, Vice President
GUARANTOR:
/s/ Michael Lerner
------------------------------------------
MICHAEL LERNER
<PAGE> 1
EXHIBIT 11
SAFETY 1ST, INC.
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1996
1995 1996
<S> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Net income (loss) available for common
shares and common stock equivalent shares
deemed to have dilutive effect $ 1,757,044 $(8,193,085)
Primary net income (loss) per share $ .24 $ (1.14)
SHARES USED IN COMPUTATION
Weighted average common shares
outstanding 7,132,447 7,155,616
Common stock equivalents - stock options 58,962 24,437
----------- -----------
Total 7,191,409 7,180,053
=========== ===========
FULLY DILUTED NET INCOME PER SHARE
Net income available for common
shares and common stock equivalent
shares deemed to have a dilutive
effect $ 1,757,044 $(8,193,085)
Fully diluted net income per share $ .24 $ (1.14)
SHARES USED IN COMPUTATION
Total common shares and common stock
equivalent shares deemed to have a
dilutive effect 7,191,409 7,155,616
Common stock equivalents - stock options 23,794 24,437
----------- -----------
Total 7,215,203 7,180,053
=========== ===========
</TABLE>
Note: The net income per share computation presented in the condensed
statement of income does not reflect common stock equivalents, as
the dilutive effect is less then 3%.
<PAGE> 2
EXHIBIT 11 Continued
SAFETY 1ST, INC.
PRIMARY NET INCOME
PER SHARE AND FULLY DILUTED
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
1995 1996
<S> <C> <C>
PRIMARY NET INCOME (LOSS) PER SHARE
Net income (loss) available for common
shares and common stock equivalent shares
deemed to have dilutive effect $ 3,862,083 $(6,489,070)
Primary net income (loss) per share $ .53 $ (.90)
SHARES USED IN COMPUTATION
Weighted average common shares outstanding 7,121,083 7,155,616
Common stock equivalents - stock options 137,017 24,437
----------- -----------
Total 7,258,150 7,180,053
=========== ===========
FULLY DILUTED NET INCOME PER SHARE
Net income available for common
shares and common stock equivalent
shares deemed to have a dilutive
effect $ 3,862,083 $(6,489,070)
Fully diluted net income per share $ .53 $ (.90)
SHARES USED IN COMPUTATION
Total common shares and common stock
equivalent shares deemed to have a
dilutive effect 7,258,150 7,155,616
Common stock equivalents - stock options -- 24,437
----------- -----------
Total 7,258,150 7,180,053
=========== ===========
</TABLE>
Note: The net income per share computation presented in the condensed
statement of income does not reflect common stock equivalents, as
the dilutive effect is less then 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SAFETY 1ST
FORM 100 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 100.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 72,296
<SECURITIES> 0
<RECEIVABLES> 32,487,101
<ALLOWANCES> 5,700,000
<INVENTORY> 28,234,743
<CURRENT-ASSETS> 63,563,805
<PP&E> 28,195,796
<DEPRECIATION> 6,641,919
<TOTAL-ASSETS> 96,653,562
<CURRENT-LIABILITIES> 53,840,520
<BONDS> 0
0
0
<COMMON> 71,556
<OTHER-SE> 39,518,486
<TOTAL-LIABILITY-AND-EQUITY> 96,653,562
<SALES> 28,609,210
<TOTAL-REVENUES> 28,609,210
<CGS> 23,323,042
<TOTAL-COSTS> 23,323,042
<OTHER-EXPENSES> 17,599,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 866,383
<INCOME-PRETAX> (13,180,092)
<INCOME-TAX> (4,987,007)
<INCOME-CONTINUING> (8,193,085)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,193,085)
<EPS-PRIMARY> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
