<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Safety 1st, Inc.
(Name of Registrant as Specified In Its Charter)
Board of Directors of Safety 1st, Inc.
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
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[SAFETY 1ST LOGO]
April 27, 1998
To Safety 1st Stockholders:
The Board of Directors of Safety 1st, Inc. joins me in extending a cordial
invitation to attend our 1998 Annual Meeting of Stockholders. The meeting will
be held at the Hotel Meridien, 250 Franklin Street, Boston, Massachusetts 02110,
at 9:00 a.m., local time, on Wednesday, May 27, 1998.
In addition to voting on the matters described in the accompanying Proxy
Statement, we will review Safety 1st's business and discuss our direction for
the coming years. There will also be an opportunity to discuss matters of
interest to you as a Stockholder.
It is important that your shares be represented at the meeting whether or
not you plan to attend in person. Therefore, please sign and return the enclosed
Proxy Card in the envelope provided. If you do attend the meeting and desire to
vote in person, you may do so even though you have previously sent in a proxy.
We hope that you will be able to attend the meeting, and we look forward to
seeing you.
Sincerely,
/s/ michalel Levner)
Michael Lerner
Chairman & Chief Executive Officer
<PAGE> 3
SAFETY 1ST, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1998
------------------------
Notice is hereby given that the Annual Meeting of Stockholders of Safety
1st, Inc. (the "Company") will be held on May 27, 1998, at 9:00 a.m., Eastern
Time, at the Hotel Meridien, 250 Franklin Street, Boston, Massachusetts 02110,
to consider and act upon each of the following matters:
1. To elect eight members of the Board of Directors to serve until the
next annual meeting of the Company's stockholders and thereafter until
their successors are chosen and qualified;
2. To approve an amendment to the Company's 1996 Employee and Director
Stock Option Plan which will increase the number of shares reserved for
issuance thereunder by 500,000;
3. To ratify the appointment of Grant Thornton LLP as independent
accountants for the Company for the fiscal year ending January 2, 1999;
and
4. To consider and act upon any other matters that may properly come
before the meeting or any adjournment(s) thereof.
All holders of Common Stock whose names appear of record on the Company's
books at the close of business on April 10, 1998 will be entitled to receive
notice of and to vote at the meeting and any adjournments thereof.
WHETHER OR NOT YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. IF YOU LATER DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT
ANY TIME BEFORE IT IS EXERCISED.
By Order of the Board of Directors,
/s/ Curt R. Feure
Curt R. Feuer
Clerk
Boston, Massachusetts
April 27, 1998
<PAGE> 4
SAFETY 1ST, INC.
210 BOYLSTON STREET
CHESTNUT HILL, MASSACHUSETTS 02167
---------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 27, 1998
---------------
INTRODUCTION
The Board of Directors of Safety 1st, Inc., a Massachusetts corporation
(the "Company"), is furnishing this Proxy Statement to holders of shares of
common stock, $.01 par value, of the Company (the "Common Stock"), in connection
with the solicitation of the enclosed Proxy Card for use at the Annual Meeting
of Stockholders of the Company to be held on May 27, 1998 at 9:00 A.M. at the
Hotel Meridien, 250 Franklin Street, Boston, Massachusetts 02110 and any
adjournments thereof (the "Annual Meeting"), for the purposes set forth in the
Notice of Annual Meeting of Stockholders.
Shares of Common Stock represented by proxies in the form solicited will be
voted in the manner directed by a stockholder. If no direction is given, the
proxy will be voted FOR the election of the nominees for director named in this
Proxy Statement and the proposals set forth in Items 2 and 3. Proxies may be
revoked at any time prior to their being voted by giving written notice of
revocation or by giving a duly executed Proxy Card bearing a later date to the
Clerk of the Company. In addition, a stockholder of record may revoke a
previously submitted Proxy Card by voting in person at the Annual Meeting and
requesting that the previously submitted Proxy Card not be used.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail, but, in addition,
officers and regular employees of the Company who will receive no extra
compensation for their services may solicit proxies by telephone, telecopy,
telegraph, or personal calls.
The Board of Directors is not aware of any matters other than those
described in this Proxy Statement that will be acted upon at the Annual Meeting.
In the event that any other matters properly come before the meeting for a vote
of stockholders, the persons named as proxies in the enclosed Proxy Card will
vote in accordance with their best judgment on such other matters.
It is anticipated that this Proxy Statement and accompanying Proxy Card
will be first mailed to stockholders on or about April 27, 1998. Certain
additional information regarding the Company contained in the Company's Annual
Report to Stockholders is being furnished to each stockholder with the mailing
of this Proxy Statement but is not part of the Proxy Statement.
VOTING RIGHTS, QUORUM AND METHOD OF TABULATION
Only stockholders of record at the close of business on April 10, 1998 will
be entitled to vote at the Annual Meeting. At the close of business on such
date, a total of 7,187,288 shares of Common Stock were outstanding. Each share
of Common Stock is entitled to one vote. Cumulative voting is not permitted.
Pursuant to the Company's By-laws, a majority of the shares of the Common
Stock outstanding and entitled to vote constitutes a quorum for the transaction
of business. Votes cast by proxy or in person at the Annual Meeting will be
counted by persons appointed by the Company to act as election inspectors for
the meeting.
The Company's By-laws require the affirmative vote of a plurality of the
votes cast at the Annual Meeting for the election of directors, and the
affirmative vote of a majority of the votes cast at the Annual Meeting for the
approval of the other proposals.
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Abstentions and broker non-votes are not treated as votes cast, and will
therefore have no effect on the outcome of the election of directors and the
approval of the other proposals, although abstentions and broker non-votes will
be counted in the determination of a quorum.
MATTERS TO BE VOTED UPON
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
NOMINEES
It is intended that the number of directors to be elected to the Board of
Directors be set at eight. Each director elected at the Annual Meeting of
Stockholders shall be elected for a term of one year and thereafter until his
successor is chosen and qualified. The Board of Directors recommends that the
stockholders elect the eight nominees named below as directors of the Company
for the ensuing year, and the persons named as proxies in the enclosed Proxy
Card will vote the proxies received by them for the election as directors of the
nominees named below unless otherwise indicated.
<TABLE>
<S> <C>
Michael Lerner Laurence S. Levy
Michael S. Mark Owens
Bernstein James M. Dworkin
Curt R. Feuer John D. Howard
Robert J. Drummond
</TABLE>
Each nominee has indicated a willingness to serve, but in case any nominee
is not a candidate at the Annual Meeting for reasons not now known to the
Company, the proxies named in the enclosed Proxy Card may vote for a substitute
nominee at their discretion. Certain information regarding the nominees is set
forth below in the MANAGEMENT Section under the heading "Business Experience of
Directors and Executive Officers."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote "FOR" each of
the eight nominees named above.
VOTE REQUIRED
The nominees for election as director at the Annual Meeting who receive the
eight largest pluralities of votes properly cast for the election of directors
shall be elected the directors of the Company. Proxies cannot be voted for a
greater number of persons than the number of nominees named. Cumulative voting
is not permitted.
PROPOSAL NO. 2 -- APPROVAL OF AMENDMENT TO THE COMPANY'S 1996 EMPLOYEE
AND DIRECTOR STOCK OPTION PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1996 Employee and Director Stock Option Plan (the "Employee and
Director Plan") which will increase the maximum number of shares available for
grant under the Employee and Director Plan from 1,000,000 to 1,500,000 shares.
The purpose of the amendment is to ensure that the Company will have a
sufficient number of shares of the Company's Common Stock reserved under the
Employee and Director Plan to accomplish the Plan's objectives of attracting and
retaining the best available personnel by providing incentives to employees,
directors, advisors and consultants of the Company and thereby promote the
success of the Company's business.
The Employee and Director Plan was approved by the stockholders at the
Company's Annual Meeting in May, 1997. In April 1998, the Board of Directors
adopted, subject to stockholder approval, the amendment to
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increase, by 500,000, the number of shares available under the Employee and
Director Plan, which is the subject of this proposal.
The following is a summary of the principal features of the Employee and
Director Plan. This summary, however, does not purport to be a complete
description of all of the provisions of the Employee and Director Plan. Any
stockholder who wishes to obtain a copy of the actual Employee and Director Plan
document may do so by written request to the Company's headquarters in Chestnut
Hill, Massachusetts, Attn: Corporate Clerk. Terms not otherwise defined in this
summary will have the meanings given to them in the text of the Employee and
Director Plan.
SHARES AVAILABLE
Under the Employee and Director Plan, a total of 1,000,000 shares of Common
Stock (to be increased to 1,500,000 shares if this Proposal is approved) are
available to be issued upon exercise of options granted under the plan, subject
to adjustment in the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization or
other increase or reduction of the number of shares of Common Stock outstanding
without the receipt of compensation in money, services or property.
As of April 10, 1998, (i) options for the purchase of a total of 1,000,000
shares of Common Stock had been granted under the Employee and Director Plan, to
approximately 260 past and present participants, and (not including the
additional 500,000 share increase which is the subject of this Proposal) no more
options were available for grant; (ii) Michael Lerner, the Company's Chief
Executive Officer, had been granted options to purchase 20,000 shares; (iii)
Stephen R. Orleans, the President of Safety 1st Home Products Canada Inc., had
been granted options to purchase 35,000 shares; (iv) Richard E. Wenz, the
Company's President and Chief Operating Officer, had been granted options to
purchase 250,000 shares; (v) all current executive officers as a group had been
granted options to purchase 317,000 shares; (vi) all current directors, who are
not executive officers, as a group had been granted options to purchase 32,000
shares; and (vii) all employees, including all current officers who are not
executive officers, as a group had been granted options to purchase 651,000
shares. The granting of options under the Employee and Director Plan is
discretionary, and the Company cannot now determine the number or types of
options to be granted in the future to any particular person or group. The
closing price on April 9, 1998 of one share of Common Stock on the Nasdaq Stock
Market was $8.875.
PLAN DESCRIPTION
Administration
The Employee and Director Plan is administered by the Company's Board of
Directors, which has delegated concurrent power with respect to the plan to the
Stock Option Committee of the Board of Directors (the "Stock Option Committee").
For the purposes of this Plan Description, the term "Administrator" shall refer
to the Board of Directors and the Stock Option Committee. Subject to the terms
of the Employee and Director Plan, the Administrator has full power to select,
from among those eligible, the participants who will be granted options and the
terms and conditions of each option; to waive compliance by participants with
the terms of option grants; to modify or amend option grants with the applicable
participant's consent; to grant replacement options for options that have been
canceled; to interpret the Employee and Director Plan and decide any questions
and settle all controversies and disputes that may arise in connection
therewith; and to amend and rescind rules and regulations for the administration
of the Employee and Director Plan. All options granted to executive officers,
directors and beneficial owners of more than ten percent (10%) of the Common
Stock ("Section 16 Insider") will be awarded by the full Board of Directors or a
committee composed of two or more Non-Employee Directors (as defined by the
Rules and Regulations promulgated under Section 16 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")). Options granted to participants
that are not Section 16 Insiders will be awarded by the Stock Option Committee
or the Board of Directors. All determinations and actions of the Administrator
with respect to the Employee and Director Plan will be conclusive and will bind
all parties.
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Eligibility
Employees, directors, advisors and consultants of the Company and its
subsidiaries are eligible to receive options under the Employee and Director
Plan, provided that Incentive Stock Options (as defined below) may be granted
only to employees and to directors who are also employees. From among those who
are eligible, the Administrator selects, in its sole discretion, those who will
receive options under the plan. As of April 10, 1998, there were approximately
250 persons eligible to receive options under the plan, 230 of whom are
employees of the Company.
Options: Grants and Exercise
The Employee and Director Plan permits the granting of options that qualify
as incentive stock options ("Incentive Stock Options") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and options that do not
qualify as Incentive Stock Options ("Nonqualified Stock Options"). The exercise
price of each option shall be determined by the Administrator, provided that the
exercise price of an Incentive Stock Option may not be less than 100% of the
fair market value of the shares on the date of grant (110% in the case of a
person who owns stock possessing more than 10% of the voting power of all
classes of stock of the Company or of any of its parents or subsidiaries (a "10%
stockholder")). The "fair market value" on any given date means the last sale
price at which the Common Stock is traded on such date as reported by the Nasdaq
Stock Market.
The term of each option shall be determined by the Administrator at the
time of grant, provided that the latest date on which an option may be exercised
will be the tenth anniversary (fifth anniversary, in the case of an Incentive
Stock Option granted to a 10% stockholder) of the day immediately preceding the
option grant. The Administrator determines at what time or times and under what
conditions (including performance criteria) each option may be exercised.
Options may be made exercisable in installments, and the exercisability of
options may be accelerated by the Administrator. The Administrator also
determines, at the time of each option grant, the terms and conditions under
which each option may be exercised in the event of a participant's death or in
the event of a termination of a participant's relationship with the Company for
a reason other than death, as more particularly described in the Employee and
Director Plan (a "Status Change").
The Administrator's general practice to date with respect to vesting of
options granted to employees has been to provide for options to become
exercisable in three equal installments six, eighteen and thirty months after
the grant date. The options granted to date generally provide that in the event
of a participant's death, vested options may be exercised only within one year
following the date of death, and in the event of a Status Change, vested options
may be exercised only within three months following the Status Change, except
that an option will terminate immediately upon a Status Change that results from
a discharge for cause which in the opinion of the Administrator casts such
discredit on the participant as to justify immediate termination of the option.
In order to exercise an option, a participant must provide written notice
and full payment to the Company together with payment of any taxes. The option
exercise price may be paid for by cash or check, and if permitted by the
agreement evidencing the option, by promissory note, by shares of Common Stock
outstanding for at least six months having a fair market value on the date of
surrender equal to the aggregate exercise price of the shares, by an undertaking
by a broker to deliver funds to the Company, by the withholding of shares of
Common Stock deliverable upon exercise having a fair market value on the date of
exercise at least equal to the exercise price, or by any combination of the
permitted forms of payment. The Administrator may require that upon exercise of
an option, certificates representing shares thereby acquired bear an appropriate
restrictive legend if the sale of the shares has not been registered under the
Securities Act of 1933, as amended.
Options may not be transferred by a participant other than by will or by
the laws of descent and distribution, and are exercisable, during a
participant's lifetime, only by such participant.
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Certain Corporate Transactions
In the event of a consolidation or merger in which the Company is not the
surviving corporation or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person or entity or by a
group of persons and/or entities acting in concert or a consolidation or a
merger where the Company is the surviving corporation but the stockholders of
the Company immediately prior to such consolidation or merger do not own after
such consolidation or merger shares representing fifty percent (50%) of the
voting power of the Company, or in the event of the sale or transfer of
substantially all the Company's assets or a dissolution or liquidation of the
Company (a "covered transaction"), all outstanding options will terminate as of
the effective date of the covered transaction, provided that the Administrator
may make outstanding options exercisable in full prior to a covered transaction.
With respect to an outstanding option held by a participant who, following the
covered transaction, will be employed by or otherwise providing services to a
corporation which is a surviving or acquiring corporation in such transaction or
an affiliate of such a corporation, the Administrator may, in lieu of the action
described above (but subject to prior contractual obligations), arrange to have
such surviving or acquiring corporation or affiliate grant to the participant a
replacement option.
Amendment and Termination
The Administrator may at any time or times amend the Employee and Director
Plan or any outstanding option (except that the Administrator may not, without
the consent of an option holder, take any action that would adversely affect the
rights of such holder) for any purpose which may at the time be permitted by
law, or may at any time terminate the Employee and Director Plan as to any
further grants of options, provided that (except to the extent expressly
required or permitted by the Employee and Director Plan) no such action will,
without the approval of the Company's stockholders, effectuate a change for
which stockholder approval is required in order for the plan to continue to
qualify to grant Incentive Stock Options under Section 422 of the Code.
Term of Plan
Unless earlier terminated as a result of the failure of the Company's
stockholders to approve the Employee and Director Plan, the Employee and
Director Plan shall terminate (i) when the total amount of Common Stock with
respect to which options may be granted shall have been issued upon the exercise
of options, (ii) by action of the Administrator, or (iii) ten (10) years after
the date of approval by the Company's Board of Directors (which was given on
September 18, 1996), whichever shall occur first.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (not state
or local) income tax consequences of options granted under the Employee and
Director Plan. It is general in nature and is not intended to cover all tax
consequences that may apply to an Employee and Director Plan participant or to
the Company. The provisions of the Code and the regulations thereunder relating
to these matters ("Treasury Regulations") are complex, and their impact in any
one case may depend upon the particular circumstances. Each holder of an option
under the Employee and Director Plan (referred to in this summary as a
participant or an option holder) should consult the holder's own accountant,
legal counsel or other financial advisor regarding the tax consequences of
participation in the Employee and Director Plan. This discussion is based on the
Code as currently in effect.
If an option (whether an Incentive Stock Option or Nonqualified Stock
Option) is granted to a participant in accordance with the terms of the Employee
and Director Plan, no income will be recognized by such participant at the time
the option is granted.
Generally, on exercise of a Nonqualified Stock Option, the amount by which
the fair market value of the shares of the Common Stock on the date of exercise
exceeds the purchase price of such shares will be taxable to the participant as
ordinary income, and, in the case of an employee, the Company will be required
to withhold tax on the amount of income recognized by the employee upon exercise
of a Nonqualified Stock Option. Such amount will be deductible for tax purposes
by the Company in the year in which the participant
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recognizes the ordinary income. The disposition of shares acquired upon exercise
of a Nonqualified Stock Option will result in capital gain or loss (long-term or
short-term depending on the applicable holding period) in an amount equal to the
difference between the amount realized on such disposition and the sum of the
purchase price and the amount of ordinary income recognized in connection with
the exercise of the Nonqualified Stock Option.
Generally, on exercise of an Incentive Stock Option, an employee will not
recognize any income and the employer will not be entitled to a deduction for
tax purposes. However, generally the difference between the purchase price and
the fair market value of the shares of Common Stock received ("Incentive Stock
Option Shares") on the date of exercise will be treated as a positive adjustment
in determining alternative minimum taxable income, which may subject the
employee to the alternative minimum tax ("AMT"). AMT is an alternative method of
calculating income tax liability. An individual's federal income tax liability
is equal to the greater of the AMT or the income tax liability computed under
the ordinary method. In order to determine AMT, taxable income before personal
exemptions is modified by certain additions and subtractions to arrive at
alternative minimum taxable income ("AMTI"). One of these additions is the
positive adjustment previously discussed resulting from the exercise of an
Incentive Stock Option. The size of this positive adjustment and of the other
required additions and subtractions relative to a participant's taxable income
will determine whether there is an AMT liability. The AMT tax rate of 26% (28%
for the portion of AMTI in excess of a certain base amount), with reduced AMT
tax rates applicable to certain capital gains, is applied to AMTI less certain
exemptions and adjustments, where applicable. If a participant is required to
pay the AMT by reason of exercising an Incentive Stock Option, a portion of AMT
may be available to offset regular tax liability in subsequent years.
If shares acquired upon the exercise of an Incentive Stock Option are not
disposed of within the later of (i) the two-year period following the date the
option is granted or (ii) the one-year period following the date the shares are
transferred to the participant pursuant to exercise of the option, the
difference between the amount realized on any disposition thereafter and the
option price will be treated as long-term capital gain or loss to the
participant. Any long-term capital gain will be taxed at the maximum rate of 20%
to the extent that the participant held such shares for more than 18 months and
at the maximum rate of 28% to the extent that the participant held such shares
for more than 12 months but not more than 18 months. If a disposition occurs
before the expiration of the requisite holding period (a "disqualifying
disposition"), then the lower of (i) any excess of the fair market value of the
shares at the time of exercise of the option over the option price or (ii) the
actual gain realized on disposition, will be deemed to be compensation to the
participant and will be taxed at ordinary income rates. In such event the
Company will be entitled to a corresponding deduction from its income, provided
the Company satisfies certain tax reporting requirements. Any such increase in
the income of the participant or deduction from the income of the Company
attributable to such disqualifying disposition is treated as an increase in
income or a deduction from income in the taxable year in which the disqualifying
disposition occurs. Any excess of the amount realized by the participant on
disposition over the fair market value of the shares at the time of exercise
will be treated as capital gain.
If an option is exercised through the use of Common Stock previously owned
by the employee, such exercise generally will not be considered a taxable
disposition of the previously owned shares, however, proposed treasury
regulations would provide that if any previously owned Incentive Stock Option
Shares are used to exercise an Incentive Stock Option and the holding period
requirement for those shares is not satisfied at the time they are used to
exercise an Incentive Stock Option, such use would constitute a disqualifying
disposition of such previously owned Incentive Stock Option Shares, resulting in
the recognition of ordinary income (but not any additional capital gain) in the
amount described above. Otherwise, when previously owned Common Stock is used to
exercise an Incentive Stock Option, in general (i) no gain or loss will be
recognized with respect to such shares, (ii) the number of shares received that
is equal in number to the shares surrendered will have a basis equal to the
shares surrendered and, except for purposes of determining whether a disposition
will be a disqualifying disposition, will have a holding period that includes
the holding period of the shares exchanged, and (iii) any additional shares
received will have a zero basis and will have a holding period that begins on
the date of the exercise. If any of the shares received are disposed of before
the applicable holding period for such shares has been met, the shares with the
lowest basis will be deemed to be
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disposed of first and such disposition will be a disqualifying disposition
giving rise to ordinary income as described above. If any otherwise qualifying
Incentive Stock Option first becomes exercisable in any one year for shares
having a fair market value, determined as of the date of the grant, in excess of
$100,000, the portion of the option in respect of such excess shares will be
treated as a Nonqualified Stock Option.
In those situations discussed above where the Company would otherwise be
entitled to a deduction equal to the amount of ordinary income required to be
recognized by the participant, due to limitations which are imposed under
Section 162(m) of the Code, the Company will not be entitled to deduct the
amount by which the total remuneration (including the amount of income
recognized by a participant upon the exercise of a Nonqualified Stock Option or
upon a disqualifying disposition), received in any one year by each of the
Company's chief executive officer and its four most highly compensated
employees, exceeds $1,000,000.
ACCOUNTING TREATMENT
Option grants to employees at 100% of fair market value will be accounted
for under the intrinsic value method as prescribed in Accounting Principles
Board Opinion No. 25 "Accounting for Stock Issued to Employees" and related
Interpretations. This method of accounting generally does not result in any
charge to the Company's earnings, however, the Company must disclose in
pro-forma statements to the Company's financial statements the impact those
options would have upon the Company's reported earnings were the value of those
options at the time of grant treated as compensation expense. Option grants to
non-employees will be accounted for in accordance with Statement of Financial
Accounting Standard No. 123, "Accounting for Stock Based Compensation" which
establishes a fair value based method of accounting for stock-based
compensation. Whether or not granted at a discount, the number of outstanding
options is a factor in determining the Company's earnings per share.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote "FOR" approval
of the proposed amendment to the 1996 Employee and Director Stock Option Plan.
VOTE REQUIRED
The affirmative vote of at least a majority of the votes cast on the matter
is required to approve the proposed amendment to the 1996 Employee and Director
Stock Option Plan.
PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed Grant Thornton LLP as independent
accountants for the Company to examine the Company's financial statements for
the current fiscal year ending January 2, 1999, and recommends that the
stockholders of the Company ratify that appointment. Grant Thornton LLP has
served as the Company's independent accountants for all fiscal years since the
fiscal year ended December 31, 1990 and has no relationship with the Company
other than that arising from its employment as independent accountants.
Representatives of Grant Thornton LLP are expected to be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions from stockholders.
It is intended that the proxies will be voted for the ratification of the
appointment of such firm unless otherwise indicated. If the appointment is not
ratified by the stockholders, the Board of Directors is not obligated to appoint
other auditors, but the Board of Directors will give consideration to such
unfavorable vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that the stockholders vote "FOR"
ratification of the appointment of Grant Thornton LLP as independent accountants
for the Company.
VOTE REQUIRED
The affirmative vote of at least a majority of the votes cast on the matter
is required to ratify the appointment of Grant Thornton LLP as independent
accountants for the Company.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 10, 1998, certain information
with respect to the shares of Common Stock "beneficially owned", as that term is
defined by Rule 13d-3 under the Exchange Act, by (a) each person who is known by
the Company to be the beneficial owner of 5% or more of the outstanding Common
Stock, (b) each director of the Company, (c) each of the "Named Executive
Officers" of the Company who are listed in the Summary Compensation Table below
and (d) all directors and executive officers of the Company as a group. Except
as otherwise indicated in the footnotes to the table, to the knowledge of the
Company, the beneficial owners listed have sole voting and investment power as
to all of the shares beneficially owned by them.
<TABLE>
<CAPTION>
SHARES OF
COMMON
NAME AND ADDRESS STOCK PERCENT OF
BENEFICIAL OWNER OWNED(1) OUTSTANDING
---------------- --------- -----------
<S> <C> <C>
Michael Lerner(2)........................................... 2,777,333 38.6%
c/o Safety 1st, Inc.
210 Boylston Street
Chestnut Hill, MA 02167
Michael S. Bernstein(3)..................................... 735,151 10.2%
c/o Safety 1st, Inc.
210 Boylston Street
Chestnut Hill, MA 02167
BT Capital Partners, Inc.(4)................................ 634,173 8.1%
130 Liberty Street
New York, NY 10006
Bear, Stearns & Co., Inc.(5)................................ 634,173 8.1%
245 Park Avenue
New York, NY 10167
The Capital Group Companies, Inc.(6)........................ 400,000 5.6%
333 South Hope Street
Los Angeles, CA 90071
Dimensional Fund Advisors, Inc.(7).......................... 375,100 5.2%
1299 Ocean Avenue
Santa Monica, CA 90401
Richard E. Wenz............................................. 150,000 2.0%
Richard J. Caturano(8)...................................... 133,000 1.8%
Stephen R. Orleans.......................................... 39,172 *
Curt R. Feuer (9)........................................... 240,000 3.3%
Robert J. Drummond.......................................... 28,500 *
Laurence S. Levy............................................ 22,500 *
Mark Owens.................................................. 414,000 5.8%
James M. Dworkin(10)........................................ 634,173 8.1%
John D. Howard(11).......................................... 634,173 8.1%
All directors and officers as a group (11 persons)(12)...... 5,681,002 64.5%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%.
(1) Includes or represents, as the case may be, shares of Common Stock which
the following named individuals have the right to acquire from the Company
currently or within 60 days after April 10, 1998 pursuant to outstanding
stock options, as follows: Mr. Lerner--13,333; Mr. Wenz--150,000; Mr.
Caturano--133,000; Mr. Orleans--39,082; Mr. Feuer--90,000; Mr. Drummond--
27,500; Mr. Levy--22,500; Mr. Owens--4,000.
8
<PAGE> 12
(2) Mr. Lerner has shared investment powers with respect to 27,043 of such
shares, which are pledged to certain parties to secure obligations of Mr.
Lerner, as described under "Certain Relationships and Related
Transactions".
(3) Mr. Bernstein has shared investment powers with respect to 6,761 of such
shares, which are pledged to certain parties to secure obligations of Mr.
Bernstein, as described under "Certain Relationships and Related
Transactions".
(4) Represents shares of Common Stock which such holder has the right to
acquire from the Company (subject to certain conditions as to 10% thereof)
pursuant to outstanding warrants; as parent of BT Capital Partners, Inc.,
Bankers Trust New York Corporation may be deemed to be the indirect
beneficial owner of such shares of Common Stock.
(5) Represents shares of Common Stock which such holder has the right to
acquire from the Company (subject to certain conditions as to 10% thereof)
pursuant to outstanding warrants.
(6) Information is based on a Schedule 13G filing dated February 11, 1998,
filed by The Capital Group Companies, Inc. and a group of investment
management companies whose parent holding company is Capital Group
Companies, Inc.
(7) Information is based on a Schedule 13G filing dated February 10, 1998,
filed by Dimensional Fund Advisors, Inc. Persons who are officers of
Dimensional Fund Advisors, Inc. also serve as officers of certain open-end
management investment companies affiliated with Dimensional Fund Advisors,
Inc., and in such capacities have sole voting power as to 126,000 of such
shares.
(8) Includes 63,000 shares underlying options owned by Vitale, Caturano & Co.,
P.C., and Vitale, Caturano and Company (two business entities affiliated
with Mr. Caturano), as to which shares Mr. Caturano has shared voting and
investment powers.
(9) Includes 150,000 shares held by a trust of which Mr. Feuer is the trustee
and has sole voting and investment powers. Mr. Feuer disclaims beneficial
ownership of such shares.
(10) Mr. Dworkin is a Managing Director of BT Capital Partners, Inc. and, as a
result, may be deemed to be beneficial owner the shares of Common Stock
beneficially owned by BT Capital Partners, Inc. Mr. Dworkin disclaims
beneficial ownership of such shares.
(11) Mr. Howard is a Senior Managing Director of Bear, Stearns & Co., Inc. and,
as a result, may be deemed to be beneficial owner the shares of Common
Stock beneficially owned by Bear, Stearns & Co., Inc. Mr. Howard disclaims
beneficial ownership of such shares.
(12) Includes shares of Common Stock which all executive officers and directors,
as a group, have a right to acquire from the Company within 60 days after
April 10, 1998 pursuant to outstanding stock options, namely: (i) those
shares referred to in footnote (1) with the exception of those attributable
to Mr. Caturano (who is no longer an executive officer); and (ii) 6,000
shares deemed beneficially owned by Mr. Joseph Driscoll, who became an
executive officer of the Company in 1997 but who is not a "Named Executive
Officer". Also includes shares of Common Stock which may be deemed
beneficially owned by Messrs. Dworkin and Howard referred to in footnotes
(4), (5), (10) and (11).
9
<PAGE> 13
MANAGEMENT
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Michael Lerner............................... Chairman of the Board of Directors 44
and Chief Executive Officer
Richard E. Wenz.............................. President and Chief Operating Officer, 48
Acting Treasurer
Michael S. Bernstein......................... Executive Vice President and Director 55
Stephen R. Orleans........................... President of Safety 1st Home Products 40
Canada, Inc.
Joseph S. Driscoll........................... Controller, Chief Accounting Officer 33
Curt R. Feuer................................ Clerk and Director 51
Robert J. Drummond........................... Director 54
Laurence S. Levy............................. Director 41
Mark Owens................................... Director 48
James M. Dworkin............................. Director 35
John D. Howard............................... Director 45
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
Michael Lerner, a co-founder of the Company, has served as Chief Executive
Officer and Chairman of the Board of Directors of the Company since its
organization in 1984 and as its President until 1997. From 1976 to 1984, Mr.
Lerner served as Executive Vice President of Career Management Services, Inc.,
an executive placement service.
Richard E. Wenz became the Company's President and Chief Operating Officer
in February 1997. During 1995 and 1996, Mr. Wenz was a Partner with the Lucas
Group, a strategy consulting firm in Boston, Mass. From 1992 to 1994, Mr. Wenz
served as President and Chief Executive Officer of Professional Golf
Corporation.
Michael S. Bernstein has served as Executive Vice President of the Company
since November 1992 and as a Director since March 1996. Mr. Bernstein joined the
Company in 1986 as Vice President of Marketing. From 1984 to 1986, Mr. Bernstein
served as Executive Vice President of Monterey Labs, an infant feeding
manufacturer. From 1975 to 1984, he served in various capacities, including Vice
President, with Sanitoy, Inc., a baby products manufacturer.
Stephen R. Orleans, President of Safety 1st Home Products Canada Inc. (the
Company's wholly owned subsidiary located in Montreal, Canada), founded Orleans
Juvenile Products Inc. in 1989 and as its President developed it into one of the
leading distributors of juvenile products in Canada. Orleans Juvenile Products
Inc. was acquired by the Company effective February 1996.
Joseph S. Driscoll joined the Company in April 1997 as Controller, and was
named the Company's Chief Accounting Officer in November 1997. From 1993 to
1997, Mr. Driscoll served in various capacities, including Assistant Corporate
Controller, for Staples, Inc., a retailer of office supplies and equipment.
Curt R. Feuer, Clerk and a Director of the Company since March 1993, is a
member of the law firm of Kassler & Feuer, P.C. in Boston, Massachusetts, the
Company's corporate counsel. Mr. Feuer has been practicing law for over twenty
years specializing in the areas of taxation and business law.
Robert J. Drummond, a Director of the Company since March 1993, was the
President and Chief Executive Officer of Epsilon Data Management, Inc., a
subsidiary of American Express Travel Related Services Company, from March 1992
to November 1997. From February 1987 to March 1992, Mr. Drummond served as
Senior Vice President of Epsilon Data Management, Inc.
Laurence S. Levy, a Director of the Company since November 1993, has been
Chairman of the Board of Directors of High Voltage Engineering Corporation, a
diversified industrial manufacturing company, since November 1988. He has been
Chief Executive Officer of High Voltage Engineering Corporation since May
10
<PAGE> 14
1991. Since November 1987, Mr. Levy has been Chairman of Hyde Park Holdings,
Inc., an investment firm with holdings in industrial manufacturing and
warehousing enterprises.
Mark Owens, a Director of the Company since May 1997, is President of Haja
Capital Corporation, a private investment firm which he founded in 1997. From
1972 to 1997 Mr. Owens was President of Medo Industries, Inc., a manufacturer of
consumer goods. Mr. Owens had also been serving as Vice President of Quaker
State Oil Corporation from October 1996, when it acquired Medo Industries, Inc.,
until October 1997.
James M. Dworkin, a Director of the Company since July 1997, is a Managing
Director with BT Capital Partners, Inc. and has been an investment banker with
Bankers Trust New York Corp. and BT Alex. Brown Incorporated, since 1993.
John D. Howard, a Director of the Company since July 1997, has been a
Senior Managing Director in the Merchant Banking Division of Bear, Stearns &
Co., Inc., an investment banking firm, since March 1997. Prior to joining Bear,
Stearns & Co., Inc., Mr. Howard served as the Chief Executive Officer of Gryphon
Capital Partners, a private investment firm, from June 1996 to March 1997 and as
Co-Chief Executive Officer of Vestar Capital Partners, Inc., a private
investment firm, from 1990 to 1996. Mr. Howard is a director Dyersburg Corp. and
Celestial Seasonings, Inc.
On July 30, 1997 in connection with purchase by BT Capital Partners, Inc.
("BT Capital") and Bear, Stearns & Co., Inc. ("Bear Stearns") of shares of the
Company's preferred stock and of warrants to purchase the Company's Common
Stock, Bear Stearns and BT Capital entered into a Voting Agreement with the
Company, Michael Lerner and Michael Bernstein pursuant to which each party to
the Agreement (with the exception of the Company) agreed to vote all of their
respective holdings of Common Stock to elect one person designated by Bear
Stearns (subject to the satisfaction of a minimum percentage holding of Common
Stock equivalents by Bear Stearns) and one person designated by BT Capital
(subject to the satisfaction of a minimum percentage holding of Common Stock
equivalents by BT Capital) to the Company's Board of Directors. In addition,
under the terms of the Voting Agreement, the Company agreed to use its best
efforts to cause the persons designated by BT Capital and Bear Stearns to be
nominated to the Company's Board of Directors. Messrs. James Dworkin and John
Howard are the persons designated by BT Capital and Bear Stearns, respectively.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held a total of 21 meetings during 1997 (including
12 which were conducted by written consent). All incumbent directors attended at
least 75 percent of those meetings, and of the committees of which they were
members, that were held while they were serving on the board or such committee.
The Audit Committee of the Board of Directors, which consists of Messrs.
Drummond and Levy, Owens and Howard had one meeting during 1997. The Audit
Committee recommends engagement of the Company's independent accountants and is
primarily responsible for reviewing their performance and their fees and for
reviewing and evaluating with the independent auditors and management the
Company's accounting policies and its system of internal accounting controls.
The Compensation Committee of the Board of Directors, which consists of
Messrs. Feuer (who serves as Chair) Drummond, Levy and Dworkin, met once during
1997. The Compensation Committee recommends to the Board of Directors the
compensation of executive officers of the Company.
The Stock Option Committee met 13 times during 1997 (in each case by
written consent). The current members of the Stock Option Committee are Messrs.
Lerner and Bernstein. The Stock Option Committee has in the past administered
and made awards under the Company's 1993 Incentive and Non-Qualified Stock
Option Plan and the 1993-A Employee and Director Stock Option Plan. It is
expected that the Stock Option Committee will continue to administer and make
awards to persons (except those who are executive officers, directors or 10%
shareholders) under the Company's 1996 Employee and Director Stock Option Plan
and the Company's 1996 Nonqualified Stock Option Plan.
11
<PAGE> 15
The Company has no nominating committee.
TERMS OF OFFICE OF DIRECTORS AND OFFICERS
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers of the Company hold
office until the first meeting of directors following the next annual meeting of
stockholders, and in the case of the President, Treasurer and Clerk, until their
successors are chosen and qualified.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, the Company's directors, its
executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their ownership of the Company's
Common Stock and any changes in that ownership to the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Specific due dates
for these reports have been established, and the Company is required to report
in this Proxy Statement any failure to file by these dates during or with
respect to 1997.
Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that all of these filing requirements were satisfied by its directors,
executive officers and ten percent holders with respect to transactions during
its 1997 fiscal year. However, the Company has been advised that the Form 3
(Initial Statement of Beneficial Ownership) filed by Stephen R. Orleans in 1996
upon becoming an executive officer of the Company inadvertently failed to state
ownership of 100 shares of the Company's Common Stock.
12
<PAGE> 16
EXECUTIVE COMPENSATION;
BOARD OF DIRECTORS COMPENSATION; CERTAIN ARRANGEMENTS
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for services
rendered to the Company and its subsidiaries for each of the last three fiscal
years by: the Company's Chief Executive Officer; the three executive officers
whose salary and bonus earned during the 1997 fiscal year were in excess of
$100,000 and who were serving as executive officers at the end of the 1997
fiscal year; and one executive officer whose salary and bonus earned during the
1997 fiscal year was in excess of $100,000 who was no longer serving in his
capacity as such at the end of the 1997 fiscal year. The individuals included in
the table are collectively referred to as the "Named Executive Officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
--------------------- OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SAR(S)(#) SATION($)
--------------------------- ---- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Michael Lerner........................... 1997 230,769 0 0 --
Chief Executive Officer 1996 300,000 0 20,000 --
1995 300,000 0 0 --
Richard E. Wenz(1)....................... 1997 252,692 60,000 250,000 --
President 1996 N/A N/A N/A N/A
1995 N/A N/A N/A N/A
Michael S. Bernstein..................... 1997 134,616 0 0 --
Executive Vice President 1996 175,000 0 0 --
1995 161,538 0 0 --
Richard J. Caturano(2)................... 1997 143,676 0 20,000 --
Former Chief Financial Officer 1996 134,038 0 60,000 --
1995 N/A N/A N/A N/A
Stephen R. Orleans(3).................... 1997 109,711 7,500 25,000 --
President Safety 1st 1996 95,456 0 (4) 20,000 --
Home Products Canada, Inc. 1995 N/A N/A N/A N/A
</TABLE>
- ---------------
(1) Mr. Wenz became an executive officer of the Company in 1997.
(2) Mr. Caturano became an executive officer of the Company in 1996 and ceased
being so during the 1997 fiscal year. Amounts exclude payments made and
options granted to entities affiliated with Mr. Caturano. See "Certain
Relationships and Related Transactions".
(3) Mr. Orleans became an executive officer of the Company in 1996. Amounts
exclude consideration received in connection with the Company's acquisition
of Orleans Juvenile Products Inc. See "Certain Relationships and Related
Transactions".
(4) In lieu of a guaranteed minimum bonus of approximately $25,000 due Mr.
Orleans under his employment agreement in respect of 1996, Mr. Orleans
agreed to accept options to acquire 25,000 shares of Common Stock, which
were awarded to him on April 1, 1997 at an exercise price of $6.00 per share
(the fair market value of the Common Stock on the date of grant).
13
<PAGE> 17
The following table sets forth information with respect to the stock option
grants made during the last completed fiscal year to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZED
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ------------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Lerner........... 0 -- -- -- -- --
Richard E. Wenz.......... 250,000 32.7% 7.63 02/19/2007 $1,199,616 $3,040,064
Michael S. Bernstein..... 0 -- -- -- -- --
Richard J. Caturano...... 20,000 2.6% 6.00 06/30/2007 $ 75,467 $ 191,249
Stephen R. Orleans....... 25,000 3.3% 6.00 04/01/2007 $ 94,334 $ 239,061
</TABLE>
- ---------------
(1) When granted, each option had a term of ten years and vests as follows: The
option to purchase 250,000 shares granted to Mr. Wenz vested immediately
upon grant on February 19, 1997 with respect to 100,000 shares, and on
February 19, 1998 with respect to 50,000 shares, and will further vest as to
50,000 shares on February 19, 1999 and as to the final 50,000 shares on
February 19, 2000. The option to purchase 20,000 shares granted to Mr.
Caturano vested as to 10,000 shares six months after the June 30, 1997 grant
date and will further vest as to 5,000 shares on June 30, 1998 and as to the
final 5,000 shares on June 30, 1999. The option to purchase 25,000 shares
granted to Mr. Orleans vested immediately on grant on April 1, 1997. The
exercise price for each option is the fair market value of the Common Stock
on the date of grant. The option exercise period may be reduced in the event
of death, disability or other termination of service to the Company, and
such period may also be reduced, and the time at which options become
exercisable may be accelerated, upon changes in control or other fundamental
corporate changes.
(2) There is no assurance provided to any executive officer or any other holder
of the Common Stock that the actual stock price appreciation over any term
will be the assumed 5% or 10% rates of compounded stock price appreciation
or at any other defined level. Unless the market price of the Common Stock
appreciates over the exercise price during the option term, no value will be
realized from the option grants made to the executive officers.
The following table sets forth each exercise of stock options during the
last completed fiscal year by each of the Named Executive Officers, the number
of unexercised options at year-end and the fiscal year-end value of unexercised
options:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END($)(2)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael Lerner............ 0 0 6,666 13,334 $ 0 $ 0
Richard E. Wenz........... 0 0 100,000 150,000 $ 0 $ 0
Michael S. Bernstein...... 0 0 0 0 -- --
Richard J. Caturano(1).... 0 0 70,000 10,000 $2,500 $2,500
Stephen R. Orleans........ 0 0 35,750 10,000 $6,250 N/A
</TABLE>
- ---------------
(1) Does not include options owned by entities affiliated with Mr. Caturano. See
"Certain Relationships and Related Transactions".
(2) Based upon the market price of $6.25 per share, which was the closing
selling price per share of the Common Stock on the Nasdaq Stock Market on
the last day of the 1997 fiscal year, less the option exercise price payable
per share.
14
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Curt R. Feuer and Robert J. Drummond served as members of the
Company's Compensation Committee during 1997; in December 1997, Messrs. Lawrence
S. Levy and James M. Dworkin became additional members of the Compensation
Committee. Mr. Feuer, Clerk and a director of the Company, is a member of the
law firm of Kassler & Feuer, P.C. in Boston, Massachusetts, corporate counsel to
the Company. Kassler & Feuer, P.C. was paid approximately $798,900 during 1997
in fees for services rendered to the Company. Mr. Dworkin is a Managing Director
with BT Capital, with which the Company has entered into certain transactions
described under the heading "Certain Relationships and Related Transactions" for
which BT Capital received a closing fee of $150,000 and an additional fee in the
amount of $225,000 payable (under certain conditions) over four years. In
addition, BT Commercial Corporation, an affiliate of BT Capital, has and will be
receiving fees, as the Company's lender, and as agent for a group of lenders
providing the Company's credit facility, as discussed under the heading "Certain
Relationships and Related Transactions".
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS WITH NAMED EXECUTIVE OFFICERS
In April 1993, the Company entered into five-year employment agreements
with each of Michael Lerner and Michael S. Bernstein, pursuant to which Messrs.
Lerner and Bernstein are employed as Chief Executive Officer and Executive Vice
President, respectively, and have agreed to devote their full time and efforts
to the Company. Under the agreements, the Company has agreed to pay Messrs.
Lerner and Bernstein base salaries of $275,000 and $135,000, respectively,
subject to increase in future years at the discretion of the Board of Directors.
The employment agreements further provide for bonuses to Messrs. Lerner and
Bernstein in each year of such amounts as may be determined at the discretion of
the Board of Directors, but not to exceed the amount of the respective
employee's base salary for such year. Each agreement also prohibits the employee
from competing with the Company for a period of three years after termination of
employment.
On February 19, 1997, the Company entered into a three year employment
agreement with Mr. Richard E. Wenz, pursuant to which Mr. Wenz became employed
as the Company's President and Chief Operating Officer and has agreed to devote
his full time and efforts to the Company. Under the agreement, Mr. Wenz is
entitled to receive an annual base salary of $300,000, subject to annual
increases at the discretion of the Company's Board of Directors or Compensation
Committee. Mr. Wenz is also entitled to receive incentive compensation, based on
performance of Mr. Wenz and the Company, not to exceed 35% of base salary and,
in the case of the first year of employment, not to be less than 20% of base
salary. The employment agreement also provides for the grant of the 250,000
options described under the heading "Option Grants In Last Fiscal Year". The
agreement further provides that the Company may terminate the agreement without
cause upon either one year's prior written notice or a payment of base salary
for one year from the date of termination. The agreement prohibits Mr. Wenz from
competing with the Company for a period of two years after termination of
employment for any reason.
On February 1, 1996, the Company's subsidiary, Safety 1st Home Products
Canada Inc. ("Safety 1st Canada"), entered into a five-year employment agreement
with Mr. Stephen R. Orleans, pursuant to which Mr. Orleans is employed as the
Chief Executive Officer of Safety 1st Canada, and has agreed to devote his full
time and efforts to Safety 1st Canada. Under the agreement, Safety 1st Canada
has agreed to pay Mr. Orleans a base salary of Canadian $135,000, subject to
increase in future years at the discretion of Safety 1st Canada's Board of
Directors. The employment agreement further provides for bonuses to Mr. Orleans
in each year in such amounts as may be determined at the discretion of Safety
1st Canada's Board of Directors (with a guaranteed minimum bonus of Canadian
$35,000 in 1996), but not to exceed the amount of his base salary for such year.
The agreement further provides for Mr. Orleans to receive a severance payment
upon termination of his employment without cause, as follows: (i) if terminated
during the first year of the agreement, continued payment of 100% of his base
salary for the remainder of the first year, and 50% of his base salary for the
remaining term of the agreement; or (ii) if terminated on or after February 1,
1997, continued payment of 50% of his base salary for the remaining term of the
agreement.
On March 16, 1996, the Company entered into a two-year employment agreement
with Mr. Richard J. Caturano, pursuant to which Mr. Caturano became employed as
the Company's Chief Financial Officer and
15
<PAGE> 19
Treasurer. The agreement provided for Mr. Caturano's base salary to be $170,000,
subject to increase in future years at the discretion of the Board of Directors,
and for bonuses in each year in such amounts as may be determined at the
discretion of the Board of Directors, but not to exceed the amount of his base
salary for such year. The agreement prohibits Mr. Caturano from competing with
the Company for a period of two years after the termination of his employment.
In August 1997, Mr. Caturano resigned as the Company's Chief Financial Officer
and Treasurer, and he and the Company agreed to terminate his employment
agreement and enter into a part time consulting arrangement at a rate of
compensation of approximately $50,000 per year.
BOARD OF DIRECTORS COMPENSATION
Directors who are not full-time employees of the Company receive a fee of
$500 for each Board meeting attended and $250 for each Committee meeting not
held on the same day as a Board meeting. Directors are entitled to receive
reimbursement for traveling costs and other out-of-pocket expenses incurred in
attending Board and Committee meetings.
Additionally, non-employee directors are eligible to participate in the
stock option plans of the Company. On August 5, 1997, Mr. Mark Owens was granted
options to purchase 12,000 shares of Common Stock exercisable at $6.625 per
share (the closing price of the Company's Common Stock on that date) with
vesting of 33 1/3% of such options to occur at six, eighteen and thirty months
after grant. Options granted to non-employee directors typically are granted at
the market price on the date of grant and typically vest in two equal
installments, six months and twelve months after the grant date, if the director
continues to serve on the Board of Directors on each of such dates. No other
options were granted to non-employee directors during the 1997 fiscal year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
James M. Dworkin, a director of the Company, is a Managing Director with BT
Capital, and John D. Howard, a director of the Company, is a Senior Managing
Director of Bear Stearns. BT Capital and Bear Stearns are each beneficial owners
of more than 5% of the Company's Common Stock and have engaged in the following
transactions with the Company. On July 30, 1997, the Company entered into a $55
million refinancing of its then existing credit facility. The refinancing
consisted of a $15 million equity investment by BT Capital and Bear Stearns and
a $40 million credit facility (which has since been increased to a $47.5 million
credit facility) provided in part by an affiliate of BT Capital.
The equity investment consisted of a $15 million private placement of
15,000 shares of the Company's redeemable preferred stock, $1.00 par value per
share (the "Preferred Shares") and warrants to purchase 1,268,346 shares of the
Company's Common Stock (the "Warrants"). The investment was made 50% by BT
Capital and 50% by Bear Stearns. At the closing, the Company paid BT Capital and
Bear Stearns each a closing fee of $150,000 and agreed to pay additional fees in
the amount of $225,000 to each (under certain conditions) over four years.
Dividends on the Preferred Shares are payable, at the option of the Company,
either in cash at the annual rate of 10%, compounded quarterly, or in the form
of an increase in the liquidation value of the Preferred Shares at an annual
rate of 13.25%, compounded quarterly. The Preferred Shares have a liquidation
preference of $1,000 per share, plus all accrued but unpaid dividends. The
holders of the Preferred Shares have no voting rights except as required by law.
The Warrants are exercisable through July 30, 2007 at an exercise price of $.01
per share of Common Stock to be acquired, and contain provisions which adjust
the number of shares of Common Stock underlying the Warrants to protect BT
Capital and Bear Stearns from dilution arising from certain events as defined in
the Warrants. Of the Warrants for 634,173 shares issued to each, BT Capital and
Bear Stearns, Warrants for 10% of such amount will revert to the Company if the
Company's 1998 earnings before interest and taxes exceeds $16 million (provided
there has not been a change in control of the Company prior to such time). BT
Capital and Bear Stearns have each been granted one demand registration right
for the Common Stock underlying the Warrants (subject to customary timing
limitations) as well as piggyback registration rights. Pursuant to the equity
investment, BT Capital and Bear Stearns is each entitled to designate one person
to be nominated to the Company's Board of Directors so long as each such
investor owns Common Stock (or Warrants to purchase Common Stock) which, in the
aggregate, represents 5% or more of the Common Stock Equivalents (as defined)
outstanding at July 30,
16
<PAGE> 20
1997; and as long as either BT Capital or Bear Stearns has a right to designate
one person to the Board of Directors, the Board of Directors shall not exceed 10
members. Pursuant to a Voting Agreement, Mr. Michael Lerner, Chief Executive
Officer and a director of the Company, and Mr. Michael Bernstein, Executive Vice
President and a director of the Company, have agreed to vote in favor of the
persons designated by BT Capital or Bear Stearns to the extent such investor is
entitled to designate a person to the Board of Directors. Effective with the
closing of the equity investment, the Company's Board of Directors increased its
size from 6 to 8 members, and Messrs. James Dworkin and John Howard, designees
of BT Capital and Bear Stearns, respectively, were elected as directors of the
Company.
An affiliate of BT Capital, BT Commercial Corporation ("BTCC"), acted as
lender and as agent for a group of lenders which provided the credit facility.
BTCC's participation in the credit facility is approximately 20%. The annual
rate of interest for the revolving credit portion of the facility ($35 million
maximum) is, at the Company's option, either prime plus 1.75% or LIBOR plus
2.75%. The annual rate of interest for the term loan portion of the facility
($12.5 million maximum) is, at the Company's option, either prime plus 2.00% or
LIBOR plus 3.00%. The credit facility is secured primarily by all corporate
assets of the Company and contains certain financial covenants. The credit
agreement requires the Company to pay certain fees to BTCC, as agent, including
a monthly unused line fee equal to 0.50% per annum of the average unused
commitment during the preceding month and letter of credit fees in an amount
equal to 2.50% per annum of the daily average amount of standby letter of credit
obligations outstanding during the previous month and 1.375% per annum of the
daily average amount of documentary letter of credit obligations outstanding
during the previous month. The Company and BTCC have also entered into a
separate letter agreement pursuant to which the Company paid to BTCC a fee of
$1,000,000 and is required to pay BTCC an annual agent's fee of $75,000 and
letter of credit facing fees equal to 0.25% per annum on the undrawn amount of
each letter of credit. Bankers Trust Company, an affiliate of BT Capital and
BTCC, provides services under the credit facility as issuer of letters of credit
for the Company, and receives customary fees for such services.
The transactions with BT Capital (and its affiliates) and Bear Stearns
described above were entered into in arms-length negotiations at a time when
neither party had a representative on the Company's Board of Directors.
Mr. Lerner and Mr. Bernstein have agreed to pay in the aggregate $300,000
to former lenders of the Company as part of the consideration for such former
lenders' agreement to sell at discount their loans with the Company to a
successor lender. The obligations of Messrs. Lerner and Bernstein to the
Company's former lenders are payable over five years and are secured by a pledge
of 27,043 shares and 6,761 shares, respectively, of their stock in the Company.
Richard J. Caturano, former Chief Financial Officer of the Company, is a
principal owner of Vitale, Caturano & Co., P.C. ("VCC"), a certified public
accounting firm. During 1997, VCC, through its employees and certain independent
contractors, provided services to the Company in connection with the Company's
accounting, business, tax and other matters. VCC was paid, in the aggregate,
approximately $378,000 in 1997 in fees for services rendered and expenses.
Management believes that such transactions were negotiated on an arms-length
basis and on terms no less favorable to the Company than terms available from
unrelated parties for comparable services.
Stephen R. Orleans, President of the Company's wholly owned subsidiary
Safety 1st Home Products Canada, Inc., was sole stockholder of Orleans Juvenile
Products Inc. when it was acquired by the Company effective February 1, 1996.
Mr. Orleans received an aggregate consideration of $2,750,000 for the sale of
his business, of which amount, $1,100,000 was paid in cash at the closing, and
the balance of $1,650,000 was paid by promissory notes as follows: $825,000 was
paid on March 15, 1997; and the balance was paid in March and April 1998. Prior
to the acquisition, Orleans Juvenile Products Inc. was the Company's exclusive
distributor in Canada.
Curt R. Feuer, Clerk and a director of the Company, is a member of the law
firm of Kassler & Feuer, P.C., corporate counsel to the Company. See
"Compensation Committee Interlocks and Insider Participation."
17
<PAGE> 21
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has the responsibility for recommending to the
Board of Directors the compensation of the executive officers of the Company.
The Compensation Committee believes that the compensation provided to executive
officers of the Company must be competitive for the Company to attract and
retain highly qualified and experienced employees. Compensation of the Company's
executive officers has historically consisted of three components: based salary,
annual bonuses and stock option grants. Generally, the Committee believes that
the Company's salaries and annual bonuses for executive officers should be
positioned within the range of compensation levels for comparable positions and
responsibilities in the market, taking into account the Company's performance,
including the level of Company revenues and earnings, rate of shareholder return
and return on equity, and that the individual salaries and bonuses may be higher
or lower based on the qualifications and experience of the individual. Base
salary levels have been developed in order to attract and retain executives
based on their level of responsibility within the Company. Annual bonuses link
executive pay with performance in areas that are directly related to the
Company's short-term operating success.
Stock option grants are intended to create incentives for retaining
qualified and competent employees and maximizing long-term stockholder values.
The Company's stock option plans are long-term incentive plans for executive
officers, pursuant to which options are awarded to the executive officers by the
entire Board of Directors. Stock option grants are intended to provide long-term
incentives for the achievement of the Company's strategic business plan and to
align the executive officers' interests with those of the Company's
stockholders. Under the stock option plans, the stock options may be awarded to
executives for terms not to exceed ten years at an exercise price which is no
less than the fair market value of Company Common Stock on the date of grant.
The size of any stock option grant is related principally to the Company's
performance and to the individual's performance and level of responsibility
within the organization.
The compensation of the Company's Chairman of the Board of Directors and
Chief Executive Officer, Mr. Lerner, was established pursuant to a five year
employment agreement which expired in April 1998. See "Employment Agreements and
Arrangements with Named Executive Officers." Mr. Lerner's employment agreement
provides that his base salary, specified at $275,000, is subject to increase
each year at the discretion of the Board of Directors and that annual bonuses
maybe paid at the discretion of the Board of Directors, but limited to the
amounts of Mr. Lerner's base salary for such year. Based upon the Committee's
review of the criteria described above, the Committee recommended no salary
increase for, or bonus in respect of, 1997. The Committee notes that in 1997 Mr.
Lerner voluntarily reduced his base salary from the 1996 level.
The Compensation Committee will continue to examine and evaluate the
performance of the Company's executive officers, through discussions with senior
management and otherwise, and will make recommendations to the Board of
Directors with respect to base salary, annual bonuses and any other elements of
compensation in light of an overriding Company philosophy linking pay and
performance.
COMPENSATION COMMITTEE
Curt R. Feuer, Chair
Robert J. Drummond
Lawrence S. Levy
James M. Dworkin
18
<PAGE> 22
PERFORMANCE GRAPH
Set forth below is a graph comparing cumulative total stockholder returns
of the Company; the CRSP Total Return Index for The Nasdaq Stock Market (US),
comprising all domestic common shares traded on the Nasdaq National Market and
the Nasdaq Small Cap Market; and a self-determined peer group of 9 companies.
The graph assumes $100 invested in the Company on April 14, 1993 (the effective
date of the registration of the initial public offering of shares of the
Company's Common Stock under the Securities Act of 1933) and in each of the
indices and assumes that any dividends were reinvested.
<TABLE>
<CAPTION>
Nasdaq Stock Self-
Measurement Period Safety 1st, Market (US Determined
(Fiscal Year Covered) Inc. Companies) Peer Group
<S> <C> <C> <C>
4/14/93 100.00 100.00 100.00
12/31/93 262.6 115.6 108.3
12/30/94 236.4 113.0 103.8
12/29/95 119.2 159.7 121.4
12/31/96 82.8 196.5 138.2
01/02/98 50.5 242.9 181.4
</TABLE>
COMPANIES IN THE SELF-DETERMINED PEER GROUP
<TABLE>
<S> <C>
FIRST YEARS INC. GYMBOREE CORP.
HASBRO INC. HUFFY CORP.
MATTEL INC. NEWELL COMPANY
RUBBERMAID INC. RUSS BERRIE & CO.
SWING N SLIDE CORP.
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 04/14/93.
19
<PAGE> 23
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
January 3, 1998 and certain other related financial and business information of
the Company are contained in the Annual Report to Stockholders mailed with this
Proxy Statement.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by the Company at its principal
executive offices (210 Boylston Street, Chestnut Hill, Massachusetts 02167,
Attn: Corporate Clerk) not later than December 28, 1998 in order to be
considered for inclusion in the Company's proxy statement and form of proxy.
Your cooperation in giving this matter your immediate attention and in
returning your Proxy Card promptly will be appreciated.
/s/ Curt R. Feure
Curt R. Feuer
Clerk
April 27, 1998
20
<PAGE> 24
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
SAFETY 1st, INC.
- --------------------------------------------------------------------------------
Mark box at right if you will attend the Annual Meeting. / /
Mark box at right if an address change or comment has been noted on / /
the reverse side of this card.
RECORD DATE SHARES:
---------------------------
Please be sure to sign and date this Proxy Date
- --------------------------------------------------------------------------------
- ---------Stockholder sign here------------------------Co-owner sign here--------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH PROPOSAL.
1. Election of Directors.
For All With- For All
Michael Lerner Laurence S. Levy Nominees hold Except
Michael S. Bernstein Mark Owens / / / / / /
Curt R. Feuer James M. Dworkin
Robert J. Drummond John D. Howard
If you do not wish your shares voted "For" a particular nominee, mark the "For
All Except" box and strike a line through the name(s) of the nominee(s). Your
shares will be voted for the remaining nominee(s).
For Against Abstain
2. To approve an amendment to the Company's / / / / / /
1996 Employee and Director Stock Option
Plan to increase the number of shares
reserved for issuance thereunder by
500,000.
3. To approve the appointment of Grant / / / / / /
Thornton LLP as independent accountants
for the current fiscal year.
In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
Receipt is hereby acknowledged of the Notice of Annual Meeting of Stockholders
and the Proxy Statement and Annual Report furnished herewith.
<PAGE> 25
DETACH CARD DETACH CARD
SAFETY 1st, INC.
DEAR STOCKHOLDER,
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are discussed
in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, May 27,
1998.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Safety 1st, Inc.
<PAGE> 26
SAFETY 1st, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Safety 1st, Inc., a Massachusetts corporation
(the "Company") hereby constitutes and appoints Michael Lerner and Curt R.
Feuer, and each of them, his/her Attorneys and Proxies (with full power of
substitution in each), and hereby authorizes them to represent the undersigned
and to vote, as designated on the reverse, all the shares of Common Stock of the
Company held of record by the undersigned on April 10, 1998 at the Annual
Meeting of Stockholders of the Company to be held on Wednesday, May 27, 1998,
and at any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED HOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF THE DIRECTORS AS SET FORTH IN THE PROXY STATEMENT AND FOR
PROPOSALS 2 AND 3.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign exactly as your name(s) appear(s) on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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