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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-23213
YOUNG INNOVATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
MISSOURI 43-1718931
(State of Incorporation) (I.R.S. Employer Identification No.)
13705 SHORELINE COURT EAST, 63045
EARTH CITY, MISSOURI (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 314-344-0010
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on February 25, 2000 (based on the closing sale
price of $14.625 of the Registrant's Common Stock, as reported on the Nasdaq
National Market on such date) was approximately $40,537,151.
Number of shares outstanding of the Registrant's Common Stock at February 25,
2000:
6,504,296 shares of Common Stock, par value $.01 per share
Portions of the Registrant's definitive Proxy Statement to be filed for its
2000 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Report.
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PART I
This Form 10-K (including, without limitation, Item 1 -- "Business" and Item
7 -- "Management's Discussion and Analysis of Financial Condition and Results of
Operations") includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included herein
are "forward-looking statements." Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Factors that
have affected, and in the future could affect, the Company's actual results and
could cause such results during fiscal 2000 and beyond to differ materially from
those expressed in any forward-looking statements made by or on behalf of the
Company include, but are not limited to, the effect of economic and market
conditions, opportunities for acquisitions and the Company's ability to
effectively integrate acquired companies, the impact of managed care in
dentistry, the impact of the consolidation of dental dealers, pricing practices
of other professional dental products manufacturers, disruptions in the
Company's computer systems or telephone systems, possible increases in shipping
rates or interruptions in shipping services.
ITEM 1. BUSINESS.
Young Innovations, Inc. (the "Company") develops, manufactures and markets
supplies and equipment used by dentists and dental hygienists. The Company's
product offering includes disposable and metal prophy angles, cups, brushes,
handpieces and related components, panoramic x-ray machines and infection
control products used in a dental office. The Company believes it is the leading
manufacturer and distributor of prophylaxis angles and cups (used in teeth
cleaning and polishing procedures) and panoramic X-ray equipment in the United
States.
The Company was incorporated in July 1995 to serve as the parent company
for Young Dental Manufacturing I, LLC ("Young Dental", formerly Young
Dental Manufacturing Company), and The Lorvic Corporation ("Lorvic"). Young
Dental acquired Lorvic in May 1995, adding to Young Dental a new line of
infection control products as well as chemical engineering and manufacturing
expertise. In July 1996, the Company acquired Denticator International, Inc.
("Denticator") and its line of popular low-cost disposable prophylaxis angles to
complement Young's premium-priced disposable angles. In February 1998, the
Company acquired Panoramic Corporation ("Panoramic"), a leading manufacturer and
marketer of X-ray equipment sold or rented to dental professionals in the United
States. In April 1999, the Company acquired Athena Technology, LLC ("Athena",
formerly Athena Technology, Inc.), which added a line of handpieces and related
components to the Company's product line.
Young Dental was founded in the early 1900's. As one of many small
suppliers to the dental profession, Young Dental's strength was manufacturing
consistently reliable dental products. As dentistry evolved, Young worked with
practicing dentists and academics to identify clinical problems. Young Dental
then used its engineering and manufacturing expertise to create solutions to
those problems. The Company believes that decades of providing innovative
products to meet the evolving needs of the dental profession have earned Young a
strong reputation for quality, reliability and value.
The Company markets its products in several international markets,
including Europe, South America, Central America and the Pacific Rim.
International sales represented less than 10% of the Company's total net sales
in 1999.
The Company is a Missouri corporation with its principal executive office
located at 13705 Shoreline Court East, Earth City, Missouri 63045, in the St.
Louis, Missouri metropolitan area; its telephone number is (314) 344-0010.
PRODUCTS
The Company primarily markets disposable and metal prophy angles, cups and
brushes (collectively, "Prophy Products"), complementary preventive products,
including pastes, fluorides and fluoride applicators, handpieces and related
components as well as aspiration and infection control products and dental X-ray
equipment.
Prophy Products. The Company believes it manufactures and sells the broadest
line of Prophy Products in the domestic professional dental products market. The
Company is able to achieve its substantial share of the Prophy Product market by
providing Prophy Products at both premium and popular prices. The Company
generally prices its Young branded Prophy Products at premium levels and its
Denticator branded Prophy Products at popular price levels. The Company's broad
range of Prophy Products enables it to be a single-source supplier to its
distributors.
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The Company's Prophy Products include several configurations of sealed metal
autoclavable prophy angles and several disposable plastic prophy angles designed
for single-use. Prophy Products consist of two components: an angle which is
attached to and extends from a standard, low-speed dental handpiece and a rubber
cup or brush which is attached to the angle and performs the cleaning function.
During the prophylaxis process, the cup or brush is filled with abrasive paste,
which is applied to the teeth as the prophy cup rotates. The dental professional
polishes both the visible portion of the tooth and the subgingival portion
(below the gum line). The prophy angle may be a disposable or a reusable
instrument; prophy cups and brushes are sold as single-use items. Disposable
prophy angles are sold as assembled units with a cup or brush already attached.
The Company produces and markets a number of different disposable prophy angles,
including both traditional right angle and contra angle configurations.
Virtually all of the Company's metal prophy angles are sealed against
penetration of matter from patients' mouths (thus reducing the risk of
cross-contamination and damage to the prophy angle) and are designed for ease of
maintenance. Because such metal prophy angles function optimally only when used
with the Company's cups and brushes, most dentists who purchase the Company's
metal prophy angles also purchase the Company's cups and brushes.
Other Preventive Products. The Company's other preventive products include
polishing pastes and powders, which are abrasive agents used for cleaning and
polishing teeth; fluorides used in dental offices and at home to reduce cavities
and tooth sensitivity; applicators used by dental professionals to apply
fluoride to patients' teeth; and plaque disclosants, which are liquids or
tablets that identify the presence of plaque when applied to tooth surfaces. The
Company markets certain of its pastes, including fluoride products, in
single-use containers, the demand for which has grown in response to infection
control concerns.
Infection Control Products. The Company's line of infection control products
includes products such as indicator tape and tabs used to verify the
effectiveness of a sterilizer; Nyclave wrap used to wrap instruments during
sterilization so that sterility is maintained until use; barrier products used
to wrap operatory knobs, handles and other devices that cannot be sterilized;
and surgical milk and instrument care products used to inhibit corrosion, remove
rust and lubricate hinged instruments in connection with the autoclave process.
Autoclaving is the sterilization of instruments and equipment through the use of
steam.
X-Ray Products. The Company markets a line of dental X-ray equipment under
the Panoramic brand name. Panoramic's PC 1000 X-ray machine produces a high
quality image of the entire dental arch in one X-ray film. Panoramic's Laser
1000 cephalometric X-ray system allows analysis of the exact relationship of
various anatomical reference points of the patient's anterior skull profile.
General dentists and orthodontists use these calculations to locate and predict
the movement of teeth in order to fit braces and other orthodontia. The device
is used by oral surgeons to detect pathology and also to determine bone and
teeth alignment before and after surgery.
Handpieces and Accessories. The Company manufactures and markets a line
of high-speed and low-speed handpieces. The Company also offers high-speed and
low-speed handpiece repair services. High-speed handpieces, commonly referred
to as dental drills, are used in a variety of operative and restorative dental
procedures. Low-speed handpieces are used by dentists and dental hygienists in
the teeth cleaning, or prophylaxis, procedure. Prophylaxis angles, such as the
disposable or autoclavable prophylaxis angles sold by the Company, attach to a
low-speed handpiece, which provides drive power for the angle. Low-speed
handpieces are also used in certain operative and restorative dental
procedures, though to a lesser extent than high-speed handpieces. The Company's
handpieces are sold under the Athena and Champion brand names, as well as
through private label agreements with certain dental distributors.
Assisting and Other Products. The Company's assisting and other products
include disposable aspiration products used to remove blood, saliva and other
matter during dental procedures; cotton roll substitutes used to control saliva
and moisture during dental procedures; matrix bands used for tooth restorations;
rubber dam frames used to isolate teeth during dental procedures; and etching
gels and bonding prep used to condition tooth surfaces for bonding.
Private Label and OEM Products. In addition to branded products, the Company
designs, develops and produces a limited number of proprietary private label and
OEM products under contracts with dental distributors and other professional
dental product manufacturers where the Company is able to use its expertise and
excess manufacturing capacity.
MARKETING AND DISTRIBUTION
The Company markets its full line of products to dental professionals
worldwide using a network of medical and dental product distributors. The
Company actively supports its distributor relationships with Company sales
personnel in the United States, independent sales representatives in Canada and
exclusive sales representatives in 11 countries outside of North America. Until
July 1997, the Company used independent non-exclusive sales representatives and
a small number of Company employees for its marketing and sales efforts in the
United States. In an effort to more efficiently market its products, the Company
decided to switch from independent sales representatives to Company employees
who focus on selling the Company's products exclusively.
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The Company also uses non-exclusive distributors to service markets in a
number of other countries. All major distributors of dental products in North
America sell the Company's products, including Henry Schein, Inc. and Patterson
Dental Company which accounted for 17.7%, and 14.7%, respectively, of the
Company's sales in 1999. The Company has no formal agreements with its
distributors which generally purchase products from the Company by purchase
order. The Company believes these arrangements are customary in the industry. In
addition to marketing through distributors in the United States, the Company
sells products directly to dental and dental hygiene schools, Veterans
Administration healthcare facilities and United States military bases.
The Company expends considerable effort educating its distributors about the
quality, reliability and features of its products. The Company also advertises
its products through industry publications and direct mail. To supplement its
other marketing efforts, the Company provides product samples to dental
professionals and exhibits its products at industry trade shows. In addition,
the Company seeks to stimulate interest in its products by providing information
and marketing materials to influential lecturers and prominent experts and
consultants in the dental industry.
Panoramic X-ray products are marketed in the United States and Canada
directly to the end user, primarily by direct mail, trade shows and a limited
amount of advertising in trade and professional journals. Panoramic also uses
distributors to market its products in a number of other countries.
PRODUCT DEVELOPMENT
The Company's engineers and chemists are focused on developing innovative
professional dental products and are actively involved in improving the
Company's manufacturing processes. Frequently, these products are designed and
developed in response to needs articulated to the Company by dental
professionals. For example, the Company designed a contra disposable prophy
angle to improve the ease with which dental professionals can reach and clean
patients' teeth. The Company believes that the contra disposable prophy angle
improves access to the oral cavity thereby reducing the risk of carpal tunnel
syndrome by reducing the flexion of dental hygienists' wrists during prophy
procedures. Additionally, many of the new products or product improvements
developed by the Company are patented.
MANUFACTURING AND SUPPLY
The Company manufactures virtually all of its products and product
components other than X-ray equipment. In May 1999, the Company acquired a
one-third interest in International Assembly Inc. ("IAI"), a contract
manufacturer located in Mexico that assembles a majority of the disposable
prophy angles for Young Dental and Denticator.
Prophy and Other Products. The Company uses a variety of state-of-the-art
computer numerically controlled machining centers, injection molding machines
and robotic assembly machines and continues to invest in new and more efficient
equipment and production lines. The primary processes involved in manufacturing
the Company's products consist of precision metal turning and milling, rubber
molding, plastic injection molding, component parts assembling and finished
goods packaging.
Pastes, Liquids and Gels. The Company blends and mixes all of its pastes,
liquids and gels at the Earth City and Brownsville facilities. The Company owns
equipment used to form and dye-cut expanded polyethylene foam and to dye-cut
extruded plastic into finished products and equipment used to package its
products in a variety of container sizes, including prophy paste in unit-dose
containers.
X-Ray Equipment. Panoramic's X-ray equipment is manufactured and assembled
by a contract manufacturer at Panoramic's premises in Fort Wayne, Indiana. The
contract manufacturer supplies labor, purchases most components and performs
administrative and logistical functions associated with the production of the
machines. Panoramic owns all of the tooling, engineering documentation and
assembly fixtures used in the process. Panoramic manufactures its own X-ray
generators.
Handpieces and Accessories. The Company uses a variety of state-of-the-art
computer numerically controlled machines to manufacture a number of the
components required to produce its high-speed and low-speed handpieces. Certain
other handpiece component parts are sourced from a variety of OEMs. The Company
assembles and provides repair services for its handpieces, and offers repair
services for a number of other handpiece brands.
Supply. The Company purchases a wide variety of raw materials, including bar
steel, brass, rubber and plastic resins from numerous suppliers. The majority
of the Company's purchases are commodities readily available at competitive
prices. The Company also purchases certain of its products from other
manufacturers for resale.
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COMPETITION
The Company competes with manufacturers of both branded and private label
dental products in each of the markets it serves. According to Strategic Dental
Marketing, Inc., an independent market research firm, the Company had the
largest domestic market share of distributor sales in Prophy Products during
1999, 1998 and 1997.
The Company believes that dental professionals place major importance on the
proven reliability of the Company's products and are generally not
price-sensitive. Young Dental and Lorvic compete on the basis of the quality and
reliability of their products as well as their reputations. As a result, Young
Dental and Lorvic typically charge premium prices for their products. By
contrast, Denticator and Panoramic's products are targeted to more
price-sensitive dental service providers. Panoramic competes with seven
competitors, six of which are foreign manufacturers.
The markets for the Company's products are highly competitive. The Company
believes that the principal competitive factors in all of its markets are
product features, reliability, name recognition, established distribution
network, customer service and, to a lesser extent, price. The relative speed
with which the Company can develop, complete testing, obtain regulatory approval
and sell commercial quantities of new products is also an important competitive
factor. Some of the Company's competitors have greater financial, research,
manufacturing and marketing resources than the Company and include DENTSPLY
International, Inc., Oral-B Laboratories, Allegheny Teledyne Incorporated,
StarDental, a division of DentalEZ Group, KaVo America, Siemens Dental Products,
and Planmeca OY.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 215 people, none
of whom were covered by collective bargaining agreements. The Company believes
that its relations with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages and their positions with
the Company as of December 31, 1999 are set forth below. All officers serve at
the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE POSITION DURING PAST 5 YEARS
---- --- -------- -------------------
<S> <C> <C> <C>
George E. Richmond..... 66 Chairman of the Board, President of Young Dental Manufacturing Company ("Young Dental")
Chief Executive Officer (predecessor to the Company) from 1961 until 1997. Chief
and Director Executive Officer and a Director of the Company since its
organization in 1995 and Chairman of the Board since 1997.
Director of UMB Bank of St. Louis, National Association.
Alfred E. Brennan...... 47 President, Chief President since July 1998, Chief Operating Officer of the
Operating Officer Company since October 1997, and Director of the Company
and Director since August 1997. Senior Associate of Dewar Sloan from 1995
until October 1997, a dental consulting company. President
of the Dental Instrument Division of DENTSPLY International,
Inc. from 1991 to 1994. Director of Unico Systems Inc., a
dental consulting company.
Arthur L. Herbst, Jr... 36 Executive Vice President Chief Financial Officer since February 1999, Executive Vice
of Strategic Planning, President of Strategic Planning since October 1998 and a Director
Chief Financial Officer of the Company since November 1997. Vice President and Portfolio
and Director Manager with Roberts, Glore & Co, a registered investment
advisor, from September 1995 to November 1997. Director of
Corporate Finance of DENTSPLY International, Inc. from May 1993
through August 1995, a manufacturer of dental supplies and
equipment. Treasurer of GENDEX Corp., a manufacturer of dental and
medical equipment, from November 1990 to June 1993.
Richard G. Richmond.... 45 Vice President, Vice President since February 1999, Secretary and a Director
Secretary and Director of the Company since 1995, President of Young Dental since
July 1997 and a Director of Young Dental since June 1989.
Mr. Richmond is George Richmond's son.
Eric R. Stetzel........ 44 Vice President since Vice President since February 1999, President of Young
February 1999 Acquisitions Company since February 1998, President of
Panoramic Rental Corp since April 1998.
</TABLE>
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ITEM 2. PROPERTIES.
The Company's facilities are as follows:
<TABLE>
<CAPTION>
DESCRIPTION SQUARE FEET LOCATION OWNED/LEASED
----------- ----------- -------- ------------
<S> <C> <C> <C>
Corporate Headquarters
and Manufacturing 54,000 Earth City, Missouri Owned
Manufacturing.................... 12,000 Brownsville, Texas Owned
Manufacturing.................... 21,000 Sacramento, California Leased, expires December 2001;
option to purchase
Office and Manufacturing......... 28,000 Fort Wayne, Indiana Owned
Office and Manufacturing......... 4,000 Fort Wayne, Indiana Leased, expires December 2002
</TABLE>
The Company believes that its facilities are generally in good condition and
are adequate for its operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries from time to time are parties to various
legal proceedings arising out of their businesses. Management believes there are
no such proceedings pending or threatened against the Company or its
subsidiaries which, if determined adversely, would have a material adverse
effect on the Company's business, financial condition, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock trades on the Nasdaq National Market under the symbol of
"YDNT." The following table sets forth the high and low closing prices of the
Common Stock as reported by the Nasdaq National Market during the last eight
quarters.
<TABLE>
<CAPTION>
------------------------------------------------------- -------------------------
Market Price
------------
------------------------------------------------------- -------------------------
Quarter High Low
------- ------- ------
1998
<S> <C> <C>
First................................................ $18 $14
Second............................................... $16.50 $14.75
Third................................................ $16 $12
Fourth............................................... $14.25 $12
1999
First................................................ $13.375 $11.75
Second............................................... $14.75 $12
Third................................................ $15 $13.875
Fourth............................................... $14.875 $13.875
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</TABLE>
On February 25, 2000, there were approximately 31 holders of record of the
Company's Common Stock.
The Company has not paid cash dividends on its Common Stock since its
inception. The Company currently intends to retain earnings for use in its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. Payment of cash dividends, if any, will be at the discretion
of the Company's Board of Directors and will be dependent upon the earnings and
financial condition of the Company and any other factors deemed relevant by the
Board of Directors and will be subject to any applicable restrictions contained
in the Company's then existing credit arrangements.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial data of the Company. This
historical data should be read in conjunction with the Consolidated Financial
Statements and the related notes thereto in Item 8 and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7. All
amounts except per share data are expressed in thousands.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999(1) 1998(2)(3) 1997 1996(4) 1995(5)
--------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................... $ 42,712 $ 36,595 $ 24,986 $ 21,580 $ 17,496
Cost of goods sold.............................. 18,825 16,467 10,129 9,470 7,379
-------- --------- --------- --------- ---------
Gross profit.................................... 23,887 20,128 14,857 12,110 10,117
Selling, general and administrative expenses.... 12,195 10,623 7,333 5,790 4,494
-------- --------- --------- --------- ---------
Income from operations.......................... 11,692 9,505 7,524 6,320 5,623
Interest expense and other, net................. (32) (326) 876 1,097 421
-------- ---------- --------- --------- ---------
Income before provision for income taxes........ 11,724 9,831 6,648 5,223 5,202
Provision for income taxes...................... 4,572 3,782 2,538 1,955 2,044
-------- --------- --------- --------- ---------
Net income...................................... $ 7,152 $ 6,049 $ 4,110 $ 3,268 $ 3,158
======== ======== ======== ======== ========
Basic earnings per share........................ $ 1.09 $ 0.89 $ 0.86 $ 0.74 $ 0.71
======== ======== ======== ======== ========
Basic weighted average common shares
Outstanding.................................. 6,566 6,763 4,775 4,444 4,450
Diluted earnings per share...................... $ 1.09 $ 0.89 $ 0.86 $ 0.74 $ 0.71
======== ======== ======== ======== ========
Diluted weighted average common shares
Outstanding.................................. 6,586 6,805 4,782 4,444 4,450
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1999(1) 1998(2)(3) 1997 1996(4) 1995(5)
------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................... $ 9,438 $10,100 $16,375 $ (5,772) $ (3,111)
Total assets................................ 60,336 54,744 45,429 32,481 22,107
Total debt (including current maturities)... 893 -- -- 16,406 10,773
Stockholders' equity........................ 52,137 48,201 41,208 10,311 7,121
</TABLE>
(1) On April 2, 1999, the Company acquired Athena. The income statement data
for the year ended December 31, 1999 include results of operations for
Athena from April 2, 1999 through December 31, 1999. The balance sheet data
as of December 31, 1999 include Athena as of that date.
(2) On February 27, 1998, the Company acquired Panoramic. The income statement
data for the year ended December 31, 1998 include results of operations for
Panoramic from February 27, 1998 through December 31, 1998. The balance
sheet data as of December 31, 1998 include Panoramic as of that date.
(3) Weighted average common shares outstanding increased from 1997 to 1998 as a
result of the issuance of 2.3 million shares in connection with the
Company's initial public offering in November, 1997.
(4) On July 22, 1996, the Company acquired Denticator. The income statement
data for the year ended December 31, 1996 include results of operations for
Denticator from July 22, 1996 through December 31, 1996. The balance sheet
data as of December 31, 1996 include Denticator as of that date.
(5) On May 5, 1995, the Company acquired Lorvic. The income statement data for
the year ended December 31, 1995 include results of operations for Lorvic
from May 5, 1995 through December 31, 1995. The balance sheet data as of
December 31, 1995 include Lorvic as of that date.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company develops, manufactures and markets supplies and equipment used
by dentists and dental hygienists. The Company's product offering includes
disposable and metal prophy angles, cups, brushes, handpieces and related
components, panoramic x-ray machines and infection control products. The Company
believes it is the leading manufacturer and distributor of prophylaxis angles
and cups (used in teeth cleaning and polishing procedures) and panoramic X-ray
equipment in the United States.
The principal components of the Company's growth strategy are to
continuously improve its operating efficiencies, to drive superior internal
growth and to complete strategic acquisitions. In order to help fund the
Company's strategy for growth, the Company completed an initial public offering
of 2.3 million shares of its common stock in November 1997, resulting in net
proceeds of $25.2 million. The Company used the proceeds to repay debt incurred
with previous acquisitions and to fund future strategic acquisitions.
On February 27, 1998, the Company acquired the assets of Panoramic for
$13.9 million cash plus 62,500 shares of the Company's common stock and assumed
approximately $3.9 million of Panoramic's liabilities, of which $2.6 million was
repaid at closing. On April 2, 1999, the Company acquired the stock of Athena
for $4.6 million in cash (subject to a purchase price adjustment) plus $430,000
in notes payable to the previous shareholders. Any purchase price adjustments
are not expected to have a material negative impact on the financial condition
of the Company. The results of operations for these acquisitions are included in
the consolidated financial statements since the date of acquisition. The
acquisitions were accounted for as purchase transactions. On May 17, 1999, the
Company invested approximately $1.0 million in exchange for a one-third interest
in International Assembly, Inc. (IAI). The Company has an option to purchase the
remaining two-thirds interest in IAI or to sell its one-third interest back to
IAI in early 2001. The investment is being accounted for under the equity method
of accounting.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's statement of income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Net sales....................................................... 100.0% 100.0% 100.0%
Cost of goods sold.............................................. 44.1 45.0 40.5
-------- -------- --------
Gross profit.................................................... 55.9 55.0 59.5
Selling, general and administrative expenses.................... 28.5 29.0 29.4
-------- -------- --------
Income from operations.......................................... 27.4 26.0 30.1
Interest expense and other, net................................. - (.9) 3.5
-------- -------- --------
Income before income taxes...................................... 27.4 26.9 26.6
Provision for income taxes...................................... 10.7 10.4 10.2
-------- -------- --------
Net income...................................................... 16.7% 16.5% 16.4%
======== ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased $6.1 million, or 16.7%, to $42.7 million in
1999 from $36.6 million in 1998. The increase was primarily attributable to the
inclusion of sales of Athena (acquired April 2, 1999) and a full year of
Panoramic (acquired on February 27, 1998). The balance of the increase was due
to higher sales of prophy products and x-ray machines during 1999 as compared to
1998 sales levels.
Gross Profit. Gross profit increased $3.8 million, or 18.7%, to $23.9
million in 1999 from $20.1 million in 1998. Gross profit was favorably impacted
by the acquisitions of Athena and Panoramic and by the increased prophy product
sales. Gross margin increased to 55.9% of net sales in 1999 from 55.0% in 1998.
This increase was attributable to improvements obtained from the transfer and
consolidation of the majority of the manufacturing operations of the Denticator
product line from California to Missouri. This benefit was partially offset by
the inclusion of Athena sales and Panoramic for the full year, which typically
carry lower margins.
Selling, General, and Administrative Expenses ("SG&A"). SG&A expenses
increased $1.6 million, or 14.8%, to $12.2 million in 1999 from $10.6 million in
1998 primarily due to the inclusion of expenses of Athena and a full year of
Panoramic. As a percent of net sales, SG&A expenses decreased to 28.6% in 1999
from 29.0% in 1998.
Income from Operations. Income from operations increased $2.2 million or
23.0%, to $11.7 million in 1999 from $9.5 million in 1998 as a result of the
factors explained above.
8
<PAGE> 9
Interest Expense. Interest expense increased from $0 in 1998 to $105,000 in
1999. The increase was a result of interest on borrowings on the Company's
revolving line of credit during 1999 as well as debt and capital leases
associated with the acquisition of Athena.
Other Income. Other income decreased $189,000 to $137,000 in 1999 from
$326,000 in 1998 primarily due to less interest income and gains on the disposal
of assets in 1998 as compared to 1999, as well as the inclusion of the Company's
portion of the loss from its investment in IAI during 1999.
Provision for Income Taxes. Provision for income taxes increased $800,000
in 1999 to $4.6 million from $3.8 million for 1998 primarily as a result of
higher pre-tax income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales increased $11.6 million, or 46.5%, to $36.6 million in
1998 from $25.0 million in 1997. The increase was primarily attributable to the
inclusion of sales of Panoramic (acquired on February 27, 1998). The balance of
the increase was due to higher sales of prophy products during 1998 as compared
to 1997 sales levels.
Gross Profit. Gross profit increased $5.2 million, or 35.5%, to $20.1
million in 1998 from $14.9 million in 1997. Gross profit was favorably impacted
by the acquisition of Panoramic and by the increased prophy product sales. Gross
margin decreased to 55.0% of net sales in 1998 from 59.5% in 1997. This decrease
was due to the inclusion of lower margin sales of Panoramic products. The
following factors also contributed to the decrease in the gross margin
percentage: 1) the costs incurred in the transfer and consolidation of the
majority of the manufacturing operations of the Denticator product line from
California to Missouri, 2) the costs incurred in obtaining ISO certification for
the Company's manufacturing facilities in Missouri and Texas, and 3) the costs
incurred in obtaining European Conformity (CE) Mark approval for the Company's
prophy products.
Selling, General, and Administrative Expenses ("SG&A"). SG&A expenses
increased $3.3 million, or 44.9%, to $10.6 million in 1998 from $7.3 million in
1997 primarily due to the inclusion of expenses of Panoramic. As a percent of
net sales, SG&A expenses decreased to 29.0% in 1998 from 29.4% in 1997.
Income from Operations. Income from operations increased $2.0 million or
26.3%, to $9.5 million in 1998 from $7.5 million in 1997 as a result of the
factors explained above.
Interest Expense. Interest expense decreased from $1.0 million in 1997 to $0
in 1998. The decrease was due to the retirement of all of the Company's bank
debt with the net proceeds of the Company's initial public offering in November
1997.
Other Expense (Income). Other expense (income) increased $186,000 to
$(326,000) in 1998 from $(140,000) in 1997 primarily due to higher interest
income and gains on the disposal of assets in 1998 as compared to 1997.
Provision for Income Taxes. Provision for income taxes increased $1.3
million in 1998 to $3.8 million from $2.5 million for 1997 primarily as a result
of higher pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
On May 17, 1999, the Company invested approximately $1.0 million in
exchange for a one-third interest in IAI. The investment was principally
financed through cash flows from operations. The Company has an option to
purchase the remaining two-thirds interest in IAI or to sell its one-third
interest back to IAI in early 2001.
On April 2, 1999, the Company acquired Athena. The Company paid
approximately $4.6 million in cash (subject to a purchase price adjustment) and
issued approximately $430,000 in notes payable to the previous shareholders. Any
purchase price adjustments are not expected to have a material negative impact
on the financial condition of the Company. The cash portion of the purchase
price was principally financed with cash flows from operations and borrowings on
the Company's revolving line of credit.
On February 27, 1998, the Company acquired the net assets of Panoramic. The
Company paid approximately $13.9 million in cash plus $1.0 million (62,500
shares) of its common stock. The acquisition was principally financed with cash
remaining from the net proceeds of the Company's initial public offering.
9
<PAGE> 10
Historically, the Company has financed its operations primarily through
cash flow from operating activities and, to a lesser extent, through borrowings
under its credit facilities. Net cash flow from operating activities was $8.9
million, $6.4 million, and $4.5 million for 1999, 1998 and 1997, respectively.
Capital expenditures for property, plant and equipment were $1.5 million, $1.1
million, and $700,000 in 1999, 1998 and 1997, respectively. Consistent with the
Company's historical capital expenditures, future capital expenditures are
expected to include panoramic X-ray machines for rental, injection molding
equipment, computer numeric controlled equipment and upgrades to production
machinery and to the Company's information systems. During 1999, the Company
borrowed $4.5 million under a credit arrangement for the acquisition of Athena
and it's investment in IAI. The entire balance was re-paid during 1999.
Management believes the Company has adequate liquidity and capital resources to
meet its needs on a short and long-term basis.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position at fair value. The Company is required to adopt this statement no later
than the beginning of fiscal year 2000. The adoption of this statement is not
expected to have an impact on operating results, statement of financial position
or cash flows, as the Company does not currently invest in derivative
instruments.
YEAR 2000 ISSUE
During 1999, the Company completed the process of preparing for the Year
2000 date change. To date, the Company has had no material Year 2000 failures.
Although considered unlikely, unanticipated problems could still occur. The
Company will continue to monitor all business processes, including third
parties, through 2000, to address any issues and to ensure that all processes
continue to function properly. Through 1999, the cost for the Year 2000 project
was less than $100,000. We anticipate no material costs to be incurred in 2000
and beyond that are related to the Year 2000 project. The Company has a
one-third interest in IAI, which has advised the Company that it had no material
Year 2000 failures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates.
The value of financial instruments is subject to change as a result of movements
in market rates and prices. Sensitivity analysis is one technique used to
evaluate these impacts. Based upon a hypothetical 10% change in interest rates,
the potential losses in future earnings, fair value and cash flows are not
material.
10
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young Innovations, Inc.:
We have audited the accompanying consolidated balance sheets of Young
Innovations, Inc. (a Missouri corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Young Innovations, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 2, 2000
11
<PAGE> 12
YOUNG INNOVATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31
-----------------------
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 2,511 $ 4,337
Trade accounts receivable, net of allowance for doubtful accounts of $228 and $184,
respectively.......................................................................... 5,735 5,742
Inventories............................................................................. 3,772 3,030
Other current assets.................................................................... 2,420 1,677
--------- ---------
Total current assets............................................................ 14,438 14,786
--------- ---------
Property, plant and equipment.............................................................. 12,523 11,713
--------- ---------
Other assets............................................................................... 1,359 282
--------- ---------
Intangible assets.......................................................................... 32,016 27,963
--------- ---------
Total assets.................................................................... $ 60,336 $ 54,744
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................................................... $ 373 $ --
Accounts payable and accrued liabilities................................................ 4,627 4,686
---------- ----------
Total current liabilities....................................................... 5,000 4,686
---------- ----------
Long-term debt............................................................................. 520 --
---------- ----------
Deferred income taxes...................................................................... 2,679 1,857
---------- ----------
Stockholders' equity:
Common stock, voting, $.01 par value, 25,000,000 shares authorized, 6,504,296 and
6,772,796 shares issued and outstanding in 1999 and 1998, respectively................ 65 68
Additional paid-in capital.............................................................. 26,083 26,083
Retained earnings....................................................................... 29,511 22,359
Common stock in treasury, at cost, 308,414 and 39,914 shares in 1999 and 1998,
respectively............................................................................ (3,522) (309)
Total stockholders' equity...................................................... 52,137 48,201
--------- ---------
Total liabilities and stockholders' equity...................................... $ 60,336 $ 54,744
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
12
<PAGE> 13
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales............................................................ $ 42,712 $ 36,595 $ 24,986
Cost of goods sold.............................................. 18,825 16,467 10,129
------------- ------------- -------------
Gross profit......................................................... 23,887 20,128 14,857
Selling, general and administrative expenses.................... 12,195 10,623 7,333
------------- ------------- -------------
Income from operations............................................... 11,692 9,505 7,524
------------- ------------- -------------
Interest expense................................................ 105 - 1,016
Other (income) expense, net..................................... (137) (326) (140)
------------- ------------- -------------
Income before provision for income taxes............................. 11,724 9,831 6,648
Provision for income taxes..................................... 4,572 3,782 2,538
------------- ------------- -------------
Net income........................................................... $ 7,152 $ 6,049 $ 4,110
============= ============= =============
Basic earnings per share............................................. $ 1.09 $ .89 $ .86
============= ============= =============
Diluted earnings per share........................................... $ 1.09 $ .89 $ .86
============= ============= =============
Basic weighted average shares outstanding............................ 6,565,621 6,762,522 4,775,491
============= ============= =============
Diluted weighted average shares outstanding.......................... 6,586,394 6,804,626 4,782,484
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE> 14
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
Additional Gain on Common
Common Paid-In Marketable Comprehensive Retained Stock in
Stock Capital Securities Income Earnings Treasury Total
----- ------- ---------- ------ -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1996...................... $ 42 - $ 12 $ 10,581 $ (324) $ 10,311
Net income................ - - - $4,110 4,110 - 4,110
Change in unrealized
gain (loss) on
marketable securities,
net of tax ............. - - (3) (3) - - (3)
Comprehensive income...... 4,107
======
Common stock in
treasury, reissued...... - - - - 15 15
Cancellation of
puttable
common stock............ 2 - - 1,619 - 1,621
Shares issued in public
offering................ 23 $ 25,131 - - - 25,154
----- --------- ------ --------- -------- --------
BALANCE, December 31,
1997...................... 67 25,131 9 16,310 (309) 41,208
Net income............ - - - 6,049 6,049 - 6,049
Change in unrealized
gain (loss) on
marketable securities,
net of tax.............. - - (9) (9) - - (9)
------
Comprehensive income...... 6,040
------
Additional shares issued 1 999 - - - 1,000
Equity issuance costs..... - (47) - - - (47)
----- --------- ------ --------- -------- --------
BALANCE, December 31,
1998...................... 68 26,083 - 22,359 (309) 48,201
Net income................ - - - 7,152 7,152 - 7,152
Common stock in ------
treasury, purchased..... (3) - - - (3,320) (3,323)
Common stock in
treasury, redeemed...... - - - - 107 107
Comprehensive income...... 7,152
----- --------- ------ ====== --------- -------- --------
BALANCE, December 31,
1999...................... $ 65 $ 26,083 $ - $ 29,511 $ (3,522) $ 52,137
===== ========= ====== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 15
YOUNG INNOVATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 7,152 $ 6,049 $ 4,110
-------- -------- --------
Adjustments to reconcile net income to cash flows from operating activities-
Depreciation and amortization .......................................... 2,270 1,698 1,280
Deferred income taxes .................................................. 962 661 43
Gain on sale of equipment .............................................. -- (13) (5)
Changes in assets and liabilities-
Trade accounts receivable ............................................ 354 (2,103) 433
Inventories .......................................................... 61 (154) (447)
Other current assets ................................................. (236) (198) (117)
Other assets ......................................................... 23 (58) 24
Accounts payable and accrued liabilities ............................. (1,685) 560 (854)
-------- -------- --------
Total adjustments .................................................. 1,749 393 357
-------- -------- --------
Net cash flows from operating activities ........................... 8,901 6,442 4,467
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions, net of cash acquired ............................ (4,640) (13,875) --
Payments for investment in IAI ............................................. (1,050) -- --
Purchases of property, plant and equipment ................................. (1,478) (1,058) (714)
Proceeds from sale of property, plant and equipment ........................ -- 14 33
Proceeds from sale of marketable securities ................................ -- 100 104
Proceeds from notes receivable ............................................. -- -- 10
-------- -------- --------
Net cash flows from investing activities ........................... (7,168) (14,819) (567)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Initial Public Offering ...................................... -- -- 25,154
Payments of long-term debt ................................................. (343) -- (11,136)
Borrowings on revolving line of credit ..................................... 4,500 -- --
Payments on revolving line of credit ....................................... (4,500) -- (5,270)
Purchases of treasury stock ................................................ (3,323) -- --
Reissuance of common stock in treasury ..................................... 107 -- 15
Equity issuance costs ...................................................... -- (47) --
-------- ------- --------
Net cash flows from financing activities ........................... (3,559) (47) 8,763
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .......................... (1,826) (8,424) 12,663
Cash and cash equivalents, beginning of period ................................ 4,337 12,761 98
-------- -------- --------
Cash and cash equivalents, end of period ...................................... $ 2,511 $ 4,337 $ 12,761
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 16
YOUNG INNOVATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS:
Young Innovations, Inc. (the Company) develops, manufactures and markets
supplies and equipment used by dentists and dental hygienists. The Company's
product offering includes disposable and metal prophy angles, cups, brushes,
handpieces and related components, panoramic x-ray machines and infection
control products. The Company's manufacturing facilities are located in
Missouri, California, Indiana and Texas. Export sales were less than 10% of
total net sales for 1999, 1998 and 1997. Since the acquisition of Panoramic, the
Company has two operating segments: preventative and diagnostic. The
preventative segment produces disposable and metal prophy products. The
diagnostic segment sells and rents dental x-ray equipment. Management believes
it is appropriate to aggregate these operating segments into a single reportable
segment. This aggregation is due to similarities in economic characteristics,
customers, the nature of the products and the nature of the production
processes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Young Innovations,
Inc. formed in July 1995 and its direct and indirect wholly owned subsidiaries,
Young Dental Manufacturing I, LLC. (Young Dental, formerly Young Dental
Manufacturing Company), The Lorvic Corporation (Lorvic), Denticator
International, Inc. (Denticator), Young Acquisitions Company and Panoramic
Rental Corp. (collectively, Panoramic), and Athena Technology, LLC. (Athena,
formerly Athena Technology, Inc.). Panoramic is included since its acquisition
on February 27, 1998, and Athena is included since its acquisition on April 2,
1999. All significant intercompany accounts and transactions are eliminated in
consolidation.
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an initial
maturity of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (which includes material, labor and
manufacturing overhead) or market. Cost is determined by the first-in, first-out
(FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred, and additions and improvements
that significantly extend the lives of assets are capitalized. Upon disposition,
cost and accumulated depreciation are eliminated from the related accounts and
any gain or loss is reflected in the statement of income. The Company provides
depreciation using the straight-line method over the estimated useful lives of
the assets ranging from 3 to 39 years.
16
<PAGE> 17
OTHER ASSETS
On May 17, 1999, the Company acquired a one-third interest in International
Assembly, Inc., a Texas corporation (IAI). The Company paid approximately $1,050
in cash for this investment. The Company has an option to purchase the remaining
two-thirds interest in IAI or to sell its one-third interest back to IAI in
early 2001.
The Company purchases certain services from IAI at amounts less than would be
paid to unrelated parties. These services totaled $174 from May 17, 1999 through
December 31, 1999. The investment was principally financed through cash flows
from operations. The investment is being accounted for under the equity method
of accounting. Equity income (using a 3 month lag) is recorded net, after
reduction of goodwill amortized straight-line over 10 years. Goodwill of
approximately $931 is based upon the excess of the amount paid for its interest
in IAI over the fair value its portion of IAI's net assets at the date of the
investment. The Company's share of losses for IAI is included in other expenses
and totaled $80 for the period from May 17, 1999 to September 30, 1999. The
Company's portion of IAI's loss for the fourth quarter 1999 is expected to be
less than $60.
Other assets also include costs related to patents issued to the Company and
pending patent applications. Capitalized patent costs are amortized on a
straight-line basis over the estimated useful lives of the patents, generally 17
years.
INTANGIBLE ASSETS
Intangible assets, consisting of goodwill, are stated at cost less accumulated
amortization. Amortization is determined using the straight-line method over 40
years.
LONG-LIVED ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the carrying value of
the asset will not be recovered, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, the carrying value of
the asset is reduced to its estimated fair value.
ADVERTISING COSTS
Advertising costs are expensed when incurred.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed when incurred and totaled $802, $749
and $566 for 1999, 1998 and 1997, respectively.
REVENUE RECOGNITION
Revenue from the sale of products is recorded at the time of passage of title,
generally when the products are shipped.
EQUIPMENT RENTED TO OTHERS
Since the acquisition of Panoramic in 1998, the Company owns x-ray equipment
rented on a month-to-month basis to customers. Installation costs of the
equipment are capitalized and amortized over four years. A liability for the
removal costs of the equipment expected to be returned to the Company is
included in accounts payable and accrued liabilities at December 31, 1999 and
1998.
OTHER EXPENSE (INCOME)
Other expense (income) includes the Company's portion of losses from its
investment in IAI, interest income, sale of scrap, and other miscellaneous
income and expense items, all of which are not directly related to the
Company's primary business. In 1999, 1998 and 1997, interest income
totaled $139, $216 and $121, respectively.
17
<PAGE> 18
INCOME TAXES
The Company has accounted for income taxes under SFAS No. 109, an asset and
liability approach to accounting and reporting for income taxes. Deferred income
taxes are provided for temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash flows from operating activities include $4,014, $3,379 and $2,142 for the
payment of federal and state income taxes and $105, $-0-, and $1,116 for the
payment of interest during 1999, 1998 and 1997, respectively.
The Company entered into a capital lease obligation during 1999 for $344.
3. ACQUISITIONS:
On April 2, 1999, the Company acquired Athena. The Company paid $4,640 in cash
(subject to a purchase price adjustment) and issued $430 in notes payable to the
previous shareholders. Any purchase price adjustments are not expected to have a
material negative impact on the financial condition of the Company. The cash
portion of the purchase price was principally financed with cash flows from
operations and borrowings on the Company's revolving line of credit. The
acquisition was accounted for as a purchase transaction. The preliminary
purchase price was allocated based upon estimates of fair values. This
preliminary excess of purchase price over estimated fair value of net assets
(goodwill) was $4,901 and is being amortized over 40 years. The results of
operations for Athena are included in the consolidated financial statements
since April 2, 1999.
On February 27, 1998, the Company acquired the assets and assumed certain
liabilities of Panoramic. The Company paid $13,875 in cash and issued $1,000
(62,500 shares) of common stock. The cash portion of the purchase price was
principally financed with the net proceeds remaining from the Company's initial
public offering. The acquisition was accounted for as a purchase transaction.
The purchase price was allocated based upon estimates of fair value. The excess
of purchase price over the estimated fair value of net assets acquired
(goodwill) was $10,445 and is being amortized over 40 years. The results of
operations for Panoramic are included in the consolidated financial statements
since February 27, 1998.
The following unaudited pro forma information presents a summary of consolidated
results of operations of the Company and Panoramic as if the acquisition had
occurred at the beginning of 1997, with pro forma adjustments to give effect to
amortization of goodwill and certain other adjustments, together with related
income tax effects. The unaudited pro forma information does not purport to be
indicative of the results of operations had these transactions been completed as
of the assumed dates or which may be obtained in the future.
<TABLE>
<CAPTION>
Year Ended
December 31
------------------------
1998 1997
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales.............................................................. $ 38,019 $ 34,677
Net income............................................................. $ 6,151 $ 4,163
Basic earnings per share............................................... $ .91 $ .86
Diluted earnings per share............................................. $ .90 $ .85
</TABLE>
4. CONCENTRATIONS OF CUSTOMERS:
The Company generates trade accounts receivable in the normal course of
business. The Company grants credit to distributors and customers throughout
the world and generally does not require collateral to secure the accounts
receivable. The Company's credit risk is concentrated among two distributors
accounting for 29% and 41% of accounts receivable as of December 31, 1999 and
1998, respectively.
18
<PAGE> 19
5. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---- ----
<S> <C> <C>
Finished products...................................................... $ 1,373 $ 1,011
Work in process........................................................ 1,467 1,069
Raw materials and supplies............................................. 932 950
--------- ---------
Total inventories $ 3,772 $ 3,030
========= =========
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1999 1998
---- ----
<S> <C> <C>
Land................................................................. $ 508 $ 508
Buildings and improvements........................................... 3,988 3,880
Machinery and equipment.............................................. 11,664 9,952
Equipment rented to others........................................... 4,605 4,024
---------- ----------
20,765 18,364
Less- Accumulated depreciation...................................... (8,242) (6,651)
---------- ----------
Total property, plant and equipment, net.................. $ 12,523 $ 11,713
========== ==========
</TABLE>
Machinery and equipment under capital lease and related accumulated depreciation
was $794 and $121, respectively at December 31, 1999.
7. OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
December 31
-----------------
1999 1998
---- ----
<S> <C> <C>
Patents..................................................................... $ 313 $ 210
Investment in IAI........................................................... 970 -0-
Other....................................................................... 76 72
------- -------
Total other assets............................................... $ 1,359 $ 282
======= =======
</TABLE>
8. INTANGIBLE ASSETS:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31
----------------------
1999 1998
---- ----
<S> <C> <C>
Goodwill............................................................. $ 34,592 $ 29,691
Less- Accumulated amortization...................................... (2,576) (1,728)
---------- --------
Total intangible assets................................... $ 32,016 $ 27,963
========== ========
</TABLE>
Amortization of goodwill totaled $848, $698 and $475 for 1999, 1998 and 1997,
respectively.
19
<PAGE> 20
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
---- ----
<S> <C> <C>
Accounts payable....................................................... $ 767 $ 873
Accrued salaries and bonuses........................................... 1,675 1,668
Accrued expenses and other ............................................ 2,185 2,145
--------- ---------
Total accounts payable and accrued liabilities.............. $ 4,627 $ 4,686
========= =========
</TABLE>
10. LONG-TERM DEBT AND CREDIT ARRANGEMENTS:
At December 31, 1999 the Company had acquisition notes of $269 outstanding which
consist of agreements with former Athena shareholders, which bear interest at
4.5%. These notes require monthly principal and interest payments and mature
April 2, 2001. Capitalized lease obligations of $624 were also outstanding at
December 31, 1999.
In April 1999, the Company entered into a one-year revolving credit agreement,
which provides a line of credit up to $5,000 at an interest rate of LIBOR + 1%.
During 1999, the Company borrowed $4,500 from the line and repaid the entire
balance. There were no amounts outstanding on this line as of December 31, 1999.
Future maturities of long-term debt for the next five years are as follows:
<TABLE>
<S> <C>
2000................................. $373
2001................................. 231
2002................................. 146
2003................................. 75
2004................................. 68
</TABLE>
11. COMMON STOCK:
The Company completed an initial public offering of 2,300,000 shares of its
common stock in November 1997, and the net proceeds to the Company, after
deducting the underwriting discount and offering expenses, were $25,154. The
Company used $13,180 of the proceeds to repay borrowings under its existing loan
facility and invested the remaining proceeds in cash equivalents. In March 1999,
the Company authorized the repurchase of up to 300,000 shares of its common
stock. As of December 31, 1999, the Company had completed the repurchase of
277,500 shares for $3,323. The Company reissued 9,000 shares in conjunction with
a stock option exercise for $107.
12. STOCK OPTIONS:
The Company adopted the 1997 Stock Option Plan (the Plan) effective in November
1997 and amended the Plan in 1999. A total of 650,000 shares of Common Stock are
reserved for issuance under this plan which is administered by the compensation
committee of the Board of Directors (Compensation Committee). Participants in
the Plan will be those employees whom the Compensation Committee may select from
time to time and those nonemployee directors as the Company's Board of Directors
may select from time to time. As of December 31, 1999, 622,800 options had been
granted.
20
<PAGE> 21
A summary of the options outstanding and exercisable are as follows:
<TABLE>
<CAPTION>
Weighted
Range of Average
Exercise Exercise
Shares Prices Price
--------- --------------- --------
<S> <C> <C> <C>
Outstanding, January 1, 1997..................... - - -
Granted.......................................... 235,800 $12.00 - $13.50 $12.03
Exercised........................................ - - -
Forfeited........................................ 1,200 $12.00 $12.00
---------
Outstanding, December 31, 1997................... 234,600 $12.00 - $13.50 $12.03
=========
Exercisable at December 31, 1997................. 30,000 $12.00 - $13.50 $12.25
=========
Outstanding, January 1, 1998..................... 234,600 $12.00 - $13.50 $12.03
Granted.......................................... 133,000 $12.38 - $17.50 $14.83
Exercised........................................ - - -
Forfeited........................................ 19,200 $12.00 $12.00
---------
Outstanding, December 31, 1998................... 348,400 $12.00 - $17.50 $13.10
=========
Exercisable at December 31, 1998................. 58,750 $12.00 - $17.50 $13.13
=========
Outstanding, January 1, 1999..................... 348,400 $12.00 - $17.50 $13.10
Granted.......................................... 254,000 $12.69 - $13.94 $13.91
Exercised........................................ 9,000 $12.00 $12.00
Forfeited........................................ 68,100 $12.00 - $17.00 $12.59
---------
Outstanding, December 31, 1999................... 525,300 $12.00 - $17.50 $13.58
=========
Exercisable at December 31, 1999................. 91,575 $12.00 - $17.50 $13.28
=========
</TABLE>
As of January 1, 2000, 145,150 shares were exercisable with a range of exercise
prices from $12.00 - $17.50 with a weighted average price of $13.06.
The Compensation Committee of the Board of Directors establishes vesting
schedules for each option issued under the Plan. Outstanding options generally
vest over four years. The exercise price was equal to the fair value of the
common stock at the date of grant. All options expire 10 years from the grant
date.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company elected APB Opinion No. 25, "Accounting for Stock Issued to Employee,"
and related interpretations in accounting for the Plan. Accordingly, no
compensation cost has been recognized for the Plan. Had compensation costs for
the Plan been determined based upon the fair value of the options at the grant
date consistent with the methodology prescribed under SFAS No. 123, the
Company's net income and earnings per share would approximate the pro forma
amounts below:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
------------------------------ --------------------------- -- -------------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----
Unaudited Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C>
Net income.................. $7,152 $6,668 $6,049 $5,541 $4,110 $3,890
Earnings per share:
Basic..................... $ 1.09 $ 1.02 $ .89 $ .82 $ .86 $ .81
Diluted................... $ 1.09 $ 1.01 $ .89 $ .81 $ .86 $ .81
</TABLE>
21
<PAGE> 22
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: (i) dividend yield of 0%; (ii) expected volatility of 27.8%, 45.0%
and 70% for 1999, 1998 and 1997, respectively; (iii) risk free interest rate of
6.4%, 5.3%, and 6.0% for 1999, 1998 and 1997, respectively; and (iv) expected
life of 8.8 years for 1999 and 8.0 years for 1998 and 1997. The weighted
average fair value of the options at the grant date was $7.47, $9.09 and $9.03
for 1999, 1998 and 1997, respectively.
13. EARNINGS PER SHARE:
During 1997, the Company adopted Statement of Financial Accounting Standards No.
128, Earnings per Share. Basic earnings per share (Basic EPS) is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per share (Diluted EPS) include
the dilutive effect of stock options, if any, using the treasury stock method.
For 1999, 1998 and 1997, the weighted average shares outstanding during the
period of 6,565,621, 6,762,522 and 4,775,491, respectively, used for Basic EPS,
was increased by the dilutive impact of stock options of 20,773, 42,104 and
6,993, respectively, for a total of 6,586,394, 6,804,626 and 4,782,484 shares,
respectively, used for Diluted EPS.
The Company retired substantially all of its outstanding indebtedness using a
portion of the net proceeds from the sale of common stock. Assuming the
Company's revolving line of credit and long-term borrowings were retired as of
January 1, 1997, supplementary earnings per share would be $.80 for the year
ended December 31, 1997, reflecting the elimination of interest expense, net of
income taxes, of $628 for 1997. Supplementary earnings per share assumes
4,775,491 weighted average share outstanding for 1997 plus 1,150,000 shares,
representing those shares of common stock sold at the initial public offering
price, the application of the net proceeds therefrom sufficient to retire
$12,400 of average outstanding borrowings for 1997.
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
1999 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. YEAR
- ---- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................................................. $8,951 $10,674 $10,762 $12,325 $42,712
Gross profit.............................................. 5,002 5,963 5,999 6,923 23,887
Net Income................................................ 1,560 1,677 1,817 2,098 7,152
Earnings per share - basic................................ .23 .26 .28 .32 1.09
Earnings per share - diluted.............................. .23 .26 .28 .32 1.09
</TABLE>
<TABLE>
<CAPTION>
1998 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. YEAR
- ---- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales................................................. $7,167 $9,176 $9,282 $10,970 $36,595
Gross profit.............................................. 4,118 5,131 4,976 5,903 20,128
Net Income................................................ 1,344 1,466 1,503 1,736 6,049
Earnings per share - basic................................ .20 .22 .22 .26 .89
Earnings per share - diluted.............................. .20 .21 .22 .26 .89
</TABLE>
15. INCOME TAXES:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current..................................................... $ 3,610 $ 3,121 $ 2,495
Deferred.................................................... 962 661 43
------- ------- -------
Total provision for income taxes................. $ 4,572 $ 3,782 $ 2,538
======= ======= =======
</TABLE>
22
<PAGE> 23
The income tax provisions are different from the amount computed by applying the
U.S. federal income tax rates to income before provision for income taxes. The
reasons for these differences are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income before provision for income taxes.................... $ 11,724 $ 9,831 $ 6,648
U.S. federal income tax rate................................ 34% 34% 34%
-------- ------- -------
Computed income taxes............................ 3,986 3,343 2,260
Goodwill amortization....................................... 128 97 97
Other....................................................... 53 (26) 14
-------- ------- -------
Provision for federal income taxes............... 4,167 3,414 2,371
State income taxes, net of federal tax benefit.............. 405 368 167
-------- ------- -------
Provision for income taxes....................... $ 4,572 $ 3,782 $ 2,538
======== ======= =======
Effective tax rate.......................................... 39% 38% 38%
======== ======= =======
</TABLE>
Temporary differences that gave rise to deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
December 31
---------------------
1999 1998
------- -------
<S> <C> <C>
Deferred income tax assets:
Trade accounts receivable............................................ $ 85 $ 68
Inventories.......................................................... 182 56
Accrued liabilities.................................................. 833 539
------- -------
Total deferred income tax assets............................ 1,100 663
------- -------
Deferred income tax liabilities:
Property, plant and equipment........................................ (1,409) (1,010)
Intangibles.......................................................... (849) (582)
Other................................................................ (421) (265)
------- -------
Total deferred income tax liabilities....................... (2,679) (1,857)
------- -------
Net deferred income tax liability...................................... $(1,579) $(1,194)
======= =======
</TABLE>
Current deferred income tax assets of $1,100 and $663 are included in other
current assets as of December 31, 1999 and 1998, respectively.
16. MAJOR CUSTOMERS:
The percentage of net sales to major distributors to total net sales consist of
the following:
<TABLE>
<CAPTION>
Years Ended
December 31
-----------------------------
Distributor 1999 1998 1997
----------- ---- ---- ----
<S> <C> <C> <C>
Henry Schein, Inc................................................. 17.7% 17.4% 17.6%
Patterson Dental Company.......................................... 14.7 13.1 16.9
</TABLE>
17. SALES OF EQUIPMENT RENTED TO OTHERS:
Panoramic periodically sells x-ray equipment that has been rented to customers
in its normal course of business. The Company recognizes revenue for the
proceeds of such sales and records as cost of goods sold the net book value of
the equipment. Net sales of the equipment were $1,170 and $801 for 1999 and
1998, respectively and gross profit from the sales was $642 and $416 for 1999
and 1998, respectively.
23
<PAGE> 24
18. EMPLOYEE BENEFITS:
Young Dental has a nonqualified bonus plan under which 5% of base compensation
is paid annually to full-time employees in Missouri, Texas and California who
are at least 25 years of age and have at least three years of service with the
Company. Compensation expense related to this plan totaled $122, $155, and $125
in 1999, 1998 and 1997, respectively. Young Dental also has a nonqualified
profit sharing plan for its employees. Compensation expense related to this plan
was $234, $218, and $189 in 1999, 1998 and 1997, respectively, and is based on
the overall profitability of Young Dental. The Company is currently in the
process of redesigning its bonus and profit sharing plans for Young Dental for
the year 2000. In 1997, Denticator had a nonqualified profit sharing plan for
certain employees in California. Compensation expense related to this plan was
$87 in 1997. Panoramic has a defined contribution 401(k) plan covering
substantially all full-time employees meeting service and age requirements.
Contributions to the Plan can be made by an employee through deferred
compensation and through a discretionary employer contribution. Compensation
expense related to this plan was $26 for each of 1999 and 1998. Panoramic has
nonqualified bonus and profit sharing plans covering substantially all
employees. Contributions to the plan are based upon profitability and other
performance measurements of Panoramic. Compensation expense related to these
plans was $357 and $429 in 1999 and 1998, respectively.
19. RELATED-PARTY TRANSACTIONS:
The Company leases a portion of its office space to and loans funds to, a
corporation in which a principal stockholder of the Company has an equity
interest. Rental and other income from such corporation totaled $10, $13 and $13
in 1999, 1998 and 1997, respectively.
The Company sells products to, and pays for services from, a corporation in
which a principal stockholder of the Company has an equity interest. Net sales
to such corporation totaled $86, $54 and $98 in 1999, 1998 and 1997,
respectively. Amounts paid for services totaled $3, $7 and $9 in 1999, 1998 and
1997, respectively.
Since the acquisition of Panoramic in 1998, the Company provides administrative
services for a corporation in which an officer of the Company has an equity
interest. This corporation provides financing for certain purchasers of the
Company's products. Net sales of the Company's products through financing
arrangements with such corporation totaled $277 and $1,051 during 1999 and 1998.
Net sales from such corporation totaled $18 and $16 in 1999 and 1998 and the
accounts receivable from the corporation totaled $4 and $246 at December 31,
1999 and 1998.
20. CONTINGENCIES:
The Company and its subsidiaries are from time to time parties to various legal
proceedings arising out of their businesses. Management believes there are no
such proceedings pending or threatened against the Company or its subsidiaries
which, if determined adversely, would have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
21. ACCOUNTING STANDARD NOT YET IMPLEMENTED:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position at fair value. The adoption of SFAS 133 is not expected to have a
material effect on the Company's financial position or results of operations, as
the Company does not hold any derivative instruments.
24
<PAGE> 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Information concerning the Company's directors called for by this item
will be included in the Company's definitive Proxy Statement prepared
in connection with the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference. Such proxy statement will be filed
with the Commission within 120 days after the close of the Company's
fiscal year.
(b) Reference is made to "Executive Officers of the Registrant" in Part I.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning this item will be included under the captions
"Executive Compensation" and "Options Grants" in the Company's definitive
Proxy Statement prepared in connection with the 2000 Annual Meeting of
Stockholders and is incorporated herein by reference. Such proxy statement will
be filed with the Commission within 120 days after the close of the Company's
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information concerning this item will be included under the caption
"Securities Ownership of Management and Certain Beneficial Owners" in the
Company's definitive Proxy Statement prepared in connection with the 2000 Annual
Meeting of Stockholders and is incorporated herein by reference. Such proxy
statement will be filed with the Commission within 120 days after the close of
the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning this item will be included under the caption "Certain
Relationships and Related Party Transactions" in the Company's definitive Proxy
Statement prepared in connection with the 2000 Annual Meeting of Stockholders
and is incorporated herein by reference. Such proxy statement will be filed with
the Commission within 120 days after the close of the Company's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements -- Reference is made to Item 8 hereof.
Consolidated Balance Sheets - December 31, 1999 and 1998.
Consolidated Statements of Income - Years ended December 31, 1999, 1998
and 1997.
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1999, 1998, and 1997.
Consolidated Statements of Cash Flows - Years ended December 31, 1999,
1998 and 1997.
Notes to Consolidated Financial Statements - December 31, 1999.
(a)(2) Financial Statement Schedule -- The following financial statement
schedule of the Company is included for the years ended December 31, 1997, 1998
and 1999:
Schedule II Valuation and Qualifying Accounts.
All other financial statement schedules are omitted for the reason that they
are not required or are not applicable, or the required information is shown in
the financial statements or the notes thereto.
(a)(3) Exhibits -- See the Exhibit Index for the exhibits filed as a part of
or incorporated by reference into this report.
25
<PAGE> 26
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1* Articles of Incorporation of Registrant and Statement of Correction
3.2* By-Laws of Registrant
10.1* Escrow Agreement dated May 4, 1995 among Young Dental Manufacturing
Company, Chemical Venture Capital Associates, P. Jeffrey Leck, John F.
Kirtley, Richard C. Nemanick, Lorvic Holdings, Inc. and Boatmen's Trust
Company.
10.2* Contingent Payment Agreement dated as of May 4, 1995, by and between
Young Dental Manufacturing Company, The Richard C. Nemanick Trust and
Boatmen's Trust Company.
10.3* Young Dental Manufacturing Company Pension Bonus Plan dated as of April
12, 1983.
10.4* Young Dental Manufacturing Company Profit Sharing Plan dated as of
January 1, 1987.
10.5*** 1997 Stock Option Plan of the Registrant, as amended.
10.6*** Employment Agreement dated October 1, 1999, by and between Young
Innovations, Inc. and Alfred E. Brennan, Jr. (revised from agreement
dated October 8, 1997)
10.7** Asset Purchase and Sale Agreement dated February 16, 1998 between
Registrant and Panoramic Corporation.
10.8*** Employment Agreement dated July 6, 1999, by and between Young
Innovations, Inc. and Arthur L. Herbst, Jr.
10.9*** Employment Agreement dated September 27, 1999, by and between Young
Innovations, Inc. and Richard G. Richmond.
10.10*** Employment Agreement dated October 25, 1999, by and between Young
Innovations, Inc. and Eric R. Stetzel.
21*** Subsidiaries of the Registrant
23*** Consent of Arthur Andersen LLP
24 Power of Attorney (included on Signature page)
27*** Financial Data Schedule
- --------------------------------
* Filed as an Exhibit to Registrant's Registration Statement
No. 333-34971 on Form S-1 and incorporated herein by reference.
** Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
March 11, 1998 and incorporated herein by reference.
*** Filed herewith.
(b) Reports on Form 8-K, none.
(c) See exhibits filed as part of or incorporated
by reference in this report.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 20, 2000
YOUNG INNOVATIONS, INC.
By: /s/ GEORGE E. RICHMOND
-----------------------------------
George E. Richmond
Chief Executive Officer
Each person whose signature appears below constitutes and appoints George E.
Richmond and Alfred E. Brennan his true and lawful attorneys-in-fact and agents,
each acting alone, with full powers of substitution and re-substitution for him
or her and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments to this report, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE E. RICHMOND Chief Executive Officer, March 20, 2000
---------------------------- Director (Principal Executive
George E. Richmond Officer)
/s/ ALFRED E. BRENNAN President, Chief Operating March 20, 2000
---------------------------- Officer, Director
Alfred E. Brennan
/s/ ARTHUR L. HERBST, JR. Executive Vice President, Chief March 20, 2000
--------------------------- Financial Officer, Director
Arthur L. Herbst, Jr. (Principal Financial Officer and
Principal Accounting Officer)
/s/ RICHARD G. RICHMOND Director March 20, 2000
---------------------------
Richard G. Richmond
/s/ RICHARD P. CONERLY Director March 20, 2000
---------------------------
Richard P. Conerly
/s/ CONNIE H. DRISKO Director March 20, 2000
---------------------------
Connie H. Drisko
/s/ JAMES R. O'BRIEN Director March 20, 2000
---------------------------
James R. O'Brien
/s/ CRAIG E. LABARGE Director March 20, 2000
---------------------------
Craig E. LaBarge
/s/ BRIAN F. BREMER Director March 20, 2000
---------------------------
Brian F. Bremer
</TABLE>
27
<PAGE> 28
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1* Articles of Incorporation of Registrant and Statement of Correction
3.2* By-Laws of Registrant
10.1* Escrow Agreement dated May 4, 1995 among Young Dental Manufacturing
Company, Chemical Venture Capital Associates, P. Jeffrey Leck, John F.
Kirtley, Richard C. Nemanick, Lorvic Holdings, Inc. and Boatmen's Trust
Company.
10.2* Contingent Payment Agreement dated as of May 4, 1995, by and between
Young Dental Manufacturing Company, The Richard C. Nemanick Trust and
Boatmen's Trust Company.
10.3* Young Dental Manufacturing Company Pension Bonus Plan dated as of April
12, 1983.
10.4* Young Dental Manufacturing Company Profit Sharing Plan dated as of
January 1, 1987.
10.5*** 1997 Stock Option Plan of the Registrant, as amended.
10.6*** Employment Agreement dated October 1, 1999, by and between Young
Innovations, Inc. and Alfred E. Brennan, Jr. (revised from agreement
dated October 8, 1997)
10.7** Asset Purchase and Sale Agreement dated February 16, 1998 between
Registrant and Panoramic Corporation.
10.8*** Employment Agreement dated July 6, 1999, by and between Young
Innovations, Inc. and Arthur L. Herbst, Jr.
10.9*** Employment Agreement dated September 27, 1999, by and between Young
Innovations, Inc. and Richard G. Richmond.
10.10*** Employment Agreement dated October 25, 1999, by and between Young
Innovations, Inc. and Eric R. Stetzel.
21*** Subsidiaries of the Registrant
23*** Consent of Arthur Andersen LLP
24 Power of Attorney (included on Signature page)
27*** Financial Data Schedule
- --------------------------------
* Filed as an Exhibit to Registrant's Registration Statement
No. 333-34971 on Form S-1 and incorporated herein by reference.
** Filed as an Exhibit to Registrant's Current Report on Form 8-K filed on
March 11, 1998 and incorporated herein by reference.
*** Filed herewith.
28
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Young Innovations, Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of Young
Innovations, Inc. and subsidiaries included in the Young Innovations, Inc. Form
10-K Annual Report and have issued our report thereon dated February 2, 2000.
Our audits were made for the purpose of forming an opinion on those statements
taken as a whole. Schedule II included in this Form 10-K Annual Report is the
responsibility of the Company's management and is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
St. Louis, Missouri
February 2, 2000
29
<PAGE> 30
YOUNG INNOVATIONS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998, and 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------------------
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF YEAR EXPENSES ACQUISITIONS DEDUCTIONS OF YEAR
---------------- ---------------- --------------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
Receivables
1997...................... 54 26 -- -- 80
1998...................... 80 87 37 20 184
1999...................... 184 126 70 152 228
</TABLE>
30
<PAGE> 1
EXHIBIT 10.5
YOUNG INNOVATIONS, INC.
1997 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE.
The Plan has been established to promote the best interests of the
Company and its shareholders by: 1) attracting and retaining exceptional
Employees; 2) motivating Employees by aligning their interests with those of the
Company's shareholders and allowing the Employees to acquire a proprietary
interest in the Company through the grant and exercise of options; and 3)
providing Employees with a greater personal interest in the success of the
Company.
2. ADMINISTRATION.
(a) Except as set forth in paragraph 2(c), the Plan shall be
administered by the Compensation Committee. The selection of participants in the
Plan and decisions concerning the timing, pricing, vesting, other restrictions,
and amount of any grant of options under the Plan shall be made by the
Compensation Committee. Except as set forth in paragraph 2(c), the Compensation
Committee shall interpret the Plan, prescribe, amend, and rescind rules and
regulations relating to the Plan, and make all other determinations which it
deems necessary or advisable for its administration. The decision of the
Compensation Committee on any question concerning the interpretation of the Plan
or any option granted under the Plan shall be final, conclusive and binding upon
all participants.
(b) The Compensation Committee may delegate to one or more
Representatives the authority, subject to such terms and limitations as the
Compensation Committee shall determine, to grant options to, or to cancel,
modify, waive rights with respect to, alter, discontinue or terminate options
held by participants who are not officers or directors of the Company for
purposes of Section 16 of the Exchange Act.
(c) With respect to any options granted to members of the
Compensation Committee or to Non-Employee Directors, all authority of the
Compensation Committee, including without limitation the grant of options and
the administration and interpretation of the Plan, shall be exercised by the
Board.
3. PARTICIPANTS.
Participants in the Plan shall be such Employees as the Compensation
Committee may select from time to time and such Non-Employee Directors as the
Board may select from time to time. The Compensation Committee may grant options
to an individual upon the condition that the individual become an Employee,
provided that the option shall be deemed to be granted only on the date the
individual becomes an Employee.
4. STOCK.
The stock available for grants of options under the Plan shall be the
Common Stock, and may be either authorized and unissued shares or treasury
shares held by the Company. The total number of shares of Common Stock subject
to options which may be granted under the Plan shall not exceed 650,000 shares,
subject to adjustment in accordance with Section 10. No participant shall be
granted, in any fiscal year of the Company, options to purchase more than
500,000 shares of Common Stock, subject to adjustment in accordance with Section
10. Shares subject to any unexercised portion of a terminated, cancelled,
expired or forfeited option granted under the Plan may again be subjected to
grants or awards under the Plan.
A-1
<PAGE> 2
5. GRANT OF OPTIONS.
(a) General. Subject to the limitations set forth in the
Plan, the Compensation Committee from time to time may grant options to such
participants and for such number of shares of Common Stock and upon such other
terms (including, without limitation, the exercise price, the times at which the
option may be exercised, any applicable vesting requirements, and any
restrictions on or repurchase rights with respect to the Common Stock issuable
upon exercise) as it shall designate. Each option shall be evidenced by a stock
option agreement or other contract in such form and containing such provisions
as the Compensation Committee shall deem appropriate, provided that such terms
shall not be inconsistent with the Plan. The Compensation Committee may
designate any option granted as either an Incentive Stock Option or a
Nonqualified Stock Option, or the Compensation Committee may designate a portion
of an option as an Incentive Stock Option or a Nonqualified Stock Option. Any
participant may hold more than one option under the Plan and any other stock
option plan of the Company. The date on which an option is granted shall be the
date of the authorization of the option grant by the Compensation Committee or
any Representative, provided that such option is evidenced by a written
agreement duly executed on behalf of the Company and on behalf of the optionee
within a reasonable time after the date of such Compensation committee or
Representative authorization.
(b) Incentive Stock Options. Any option intended to
constitute an Incentive Stock Option shall comply with the following
requirements in addition to the other requirements of the Plan.
(i) The exercise price per share for each Incentive
Stock Option granted under the Plan shall not be less than the
Fair Market Value per share of Common Stock on the date the
option is granted; provided that no Incentive Stock Option
shall be granted to any participant who owns (within the
meaning of Section 424(d) of the Code) stock of the Company,
or any Parent or Subsidiary, possessing more than 10% of the
total combined voting power of all classes of stock of such
Company, Parent or Subsidiary unless, at the date of grant of
an option to such participant, the exercise price for the
option is at least 110% of the Fair Market Value of the shares
subject to option and the option, by its terms, is not
exercisable more than five years after the date of grant;
(ii) The aggregate Fair Market Value of the
underlying Common Stock at the time of grant as to which
Incentive Stock Options under the Plan (or a plan of a
Subsidiary) may first be exercised by a participant in any
calendar year shall not exceed $100,000 (to the extent that an
option intended to constitute an Incentive Stock Option shall
exceed the $100,000 limitation, the portion of the option that
exceeds such limitation shall be deemed to constitute a
Nonqualified Stock Option); and
(iii) An Incentive Stock Option shall not be
exercisable after the tenth anniversary of the date of grant
or such lesser period as the Compensation Committee may
specify from time to time.
(c) Nonqualified Stock Options. A Nonqualified Stock
Option shall be exercisable for a term not to exceed 10 years, or such lesser
period as the Compensation Committee shall determine, and shall be on such other
terms and conditions as the Compensation Committee shall determine.
6. PAYMENT FOR SHARES.
The purchase price for shares of Common stock to be acquired upon
exercise of an option granted hereunder shall be paid in full, at the time of
exercise, in any of the following ways:
(i) In cash; or
(ii) By certified check, bank draft or money
order; or
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(iii) If the Compensation Committee so approves at
the time of exercise, by tendering to the Company shares of
Common Stock then owned by the participant, duly endorsed for
transfer or with duly executed stock power attached, which
shares shall be valued at their Fair Market Value as of the
date of such exercise and payment; or
(iv) If the Compensation Committee so approves at the
time of exercise, by delivery to the Company of a properly
executed exercise notice, acceptable to the Company, together
with irrevocable instructions to the participant's broker to
deliver to the Company a sufficient amount of cash to pay the
exercise price and any applicable income and employment
withholding taxes, in accordance with a written agreement
between the Company and the brokerage firm ("Cashless
Exercise") if, at the time of exercise, the Company has
entered into such an agreement.
7. WITHHOLDING TAXES.
(a) The Company shall have the right to withhold from a
participant's compensation or require a participant to remit sufficient funds to
satisfy applicable withholding for income and employment taxes upon the exercise
of an option. If the Compensation Committee so approves at the time of such
exercise, 1) a participant may make an election, notice of which shall be in
writing and promptly delivered to the Compensation Committee, to tender
previously-acquired shares of Common Stock or have shares of Common Stock
withheld from the exercise of an option, provided that the shares have an
aggregate Fair Market Value on the date of such exercise sufficient to satisfy
in whole or in part the applicable withholding taxes, or 2) the Cashless
Exercise procedure described in Section 6 may be utilized to satisfy the
withholding requirement.
(b) Except as permitted under Rule 16b-3 promulgated under the
Exchange Act, a participant subject to the insider trading restrictions of
Section 16(b) of the Exchange Act may use Common Stock to satisfy the applicable
withholding requirements only if such election is made at least six months prior
to the date of the exercise.
8. NON-ASSIGNABILITY.
Unless determined otherwise by the Committee, no Incentive Stock Option
or Nonqualified Stock Option (or any rights or obligations related thereto)
shall be transferable by a participant except by a Will or by the laws of
descent and distribution. Unless determined otherwise by the Committee, during
the lifetime of a participant, an option shall be exercised only by the
participant.
9. TERMINATION OF EMPLOYMENT.
Unless otherwise determined by the Compensation Committee or provided
in the stock option agreement relating to a particular grant of an option:
(i) If, prior to the date that such option or any
portion thereof shall first become exercisable, the
participant's Employment shall be terminated for any reason,
with or without Cause, including by the voluntary act, death,
Disability, or retirement of the participant, the
participant's right to exercise the option or any portion
thereof shall terminate and all rights thereunder shall cease;
(ii) If, on or after the date that such option or any
portion thereof shall first become exercisable, a
participant's Employment shall be 'terminated by the Company
for Cause, the participant's right to exercise the option or
any portion thereof shall terminate and all rights thereunder
shall cease;
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(iii) If, on or after the date that such option shall
first become exercisable, a participant's Employment shall be
terminated due to death or Disability, the participant or the
executor or administrator of the estate of the participant or
the person or persons to whom the option shall have been
transferred by will or by the laws of descent and distribution
(as the case may be) , shall have the right, prior to the
earlier of (i) the expiration of the option or (ii) one year
from the date of the participant's death or termination due to
such Disability, to exercise the option to the extent that it
was exercisable and unexercised on the date of death or
Disability, subject to any other limitation on the exercise of
the option in effect on the date of exercise; and
(iv) If, on or after the date that such option shall
first become exercisable, a participant's Employment shall be
terminated for any reason other than for Cause or due to the
participant's death or Disability, the participant shall have
the right, prior to the earlier of (i) the expiration of the
option or (ii) three months after such termination of
Employment, to exercise the option to the extent that it was
exercisable and is unexercised on the date of such termination
of Employment, subject to any other limitation on the exercise
of the option in effect on the date of exercise; and
The provisions of the preceding clauses (iii) and (iv) shall not apply to the
extent that the shares subject to the option are subject to forfeiture or
repurchase by the Company as a result of the termination of the participant's
employment.
10. ADJUSTMENTS.
(a) In the event that the Compensation Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Common Stock, other securities, or other property) , recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event affects the Common Stock such that an adjustment is
determined by the Compensation Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Compensation Committee shall, in such
manner as it may deem equitable, adjust any or all of 3 the number and type of
shares of Common Stock which thereafter may be made the subject of options, 4
the number and type of shares of Common Stock subject to outstanding options,
and 5 the exercise price with respect to any option, or, if deemed appropriate,
make provision for a cash payment to the holder of an outstanding option;
provided, however, in each case, that with respect to Incentive Stock Options no
such adjustment shall be authorized to the extent that such authority would
cause the Plan to violate Section 422 of the Code or any successor provision
thereto; and provided further, however, that the number of shares of Common
Stock subject to any option shall always be a whole number.
(b) In the event of a Change in Control, unless otherwise
determined by the Compensation Committee, all outstanding options under the Plan
immediately shall become exercisable in full, regardless, of any installment
provision applicable to such option.
11. RIGHTS PRIOR TO ISSUANCE OF SHARES.
No participant shall have any rights as a shareholder with respect to
any shares covered by an option grant until the issuance of a stock certificate
to the participant for such shares. No adjustment shall be made for dividends or
other rights with respect to such shares for which the record date is prior to
the date such certificate is issued.
12. TERMINATION AND AMENDMENT.
(a) The Board may terminate the Plan, or the granting of
options, at any time. No options shall be granted under the Plan after the tenth
(10th) anniversary of the date of the adoption of this
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Plan by the Board. Termination of the Plan shall not affect the rights of the
holders of any options previously granted.
(b) The Board may amend or modify the Plan at any time and
from time to time. No amendment, modification, or termination of the Plan shall
in any manner affect any then outstanding option granted under the Plan without
the consent of the participant holding same.
13. EFFECT ON EMPLOYMENT.
Neither the adoption of the Plan nor the granting of any option
pursuant to it shall be deemed to create any right in any individual to be
retained as an Employee.
14. COMPLIANCE WITH SECURITIES, TAX AND OTHER LAWS.
Notwithstanding anything contained herein to the contrary, the
Company's obligation to sell and deliver Common Stock pursuant to the exercise
of an option is subject to such compliance with federal and state laws, rules
and regulations applying to the authorization, issuance or sale of securities or
such other laws or regulations as the Company deems necessary or advisable. As a
condition to the delivery of any Common Stock pursuant to the exercise of an
option, the Company may require a participant, or any person acquiring the
rights with respect to such option, to make any representation or warranty that
the Company deems to be necessary under any applicable securities, tax, or other
law or regulation.
15. CERTAIN DEFINITIONS.
"Board" means the Board of Directors of- the Company.
"Cause" with -respect to any participant has the meaning set forth in
the participant's written employment agreement with the Company, or if no such
agreement exists or if "Cause" is not defined in such agreement, then "Cause"
means 6 the participant's conviction (including a plea of nolo contenders) of a
felony or any other crime involving moral turpitude, unethical business conduct,
or dishonesty involving the Company or persons having business dealings with the
Company, or 7 any dishonest or unethical conduct by the participant which in the
judgment of a majority of the Board (with the participant not voting) may
reasonably be expected to materially adversely affect the Company's business, or
8 the participant's inability, for any reason, to fully perform the
participant's normal employment duties for a period of ninety (90) consecutive
calendar days or for a total of thirty (30) business days in any six (6) month
period, or 9 such other reason as constitutes "cause" under the common law of
Missouri as then in effect.
"Change in Control" means 1 a merger or consolidation of the Company
with or into any other entity unless after such event at: least a majority of
the voting power of the surviving or resulting entity is beneficially owned by
persons who beneficially own a majority of the voting power of the Company
immediately prior to such event, or 2 the sale of all or substantially all the
assets of the Company, or 3 the dissolution of the Company, or 4 a change in the
identity of a majority of the members of the Company's Board of Directors within
any twelve-month period, which change or changes are not recommended by the
incumbent directors determined immediately prior to any such change or changes.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock of the Company, par value $0.01
per share.
"Company" means Young Innovations, Inc., a Missouri corporation.
"Compensation Committee" means the Compensation Committee of the Board,
or with respect to any time when there is no such committee, the Board.
"Disabled" or "Disability" means permanently disabled as defined in
Section 22(e)(3) of the Code.
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"Employee" means an individual with an "employment relationship" with
the Company, or any Parent or Subsidiary, as defined in Regulation 1.421-7(h)
promulgated under the Code, and shall include, without limitation, employees who
are directors of the Company, or any Parent or Subsidiary.
"Employment" means the state of being an Employee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the average of the high and low sale prices,
or the average of the closing bid and asked prices, as the case may be, per
share of the Common Stock reported in the Wall Street Journal for the last
preceding day on which the Common Stock was traded prior to the date with
respect to which Fair Market Value is to be determined, as determined by the
Compensation Committee in its sole discretion.
"Incentive Stock Option" means an option intended to meet the
requirements of Section 422 of the Code.
"Non-Employee Director" has the meaning set forth in Rule 16b-3.
"Nonqualified Stock Option" means an option granted under the Plan
other than an incentive Stock Option.
"Parent" means any "parent corporation" of the Company as defined in
Section 424(e) of the Code.
"Plan" means this 1997 Stock Option Plan, as amended.
"Representatives" means one or more directors, officers or managers of
the Company, or a committee of such directors, officers or managers, to whom the
Compensation Committee has delegated any of its authority to act under the Plan.
"Rule 16b-3" means Securities and Exchange Commission Rule 16b-3
promulgated under the Exchange Act.
"Subsidiary" means any "subsidiary corp
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of
October 1, 1999, by and between YOUNG INNOVATIONS, INC., a Missouri corporation
("EMPLOYER"), and ALFRED E. BRENNAN, JR., of Algonquin, Illinois ("EMPLOYEE").
In consideration of Employer's employment of Employee, the terms,
conditions and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee and Employer, intending to be legally bound, hereby agree as follows:
1. Employment. Employer hereby agrees to employ Employee and Employee
agrees to accept such employment upon the terms and conditions herein set forth.
2. Employment Period. The initial term of employment hereunder shall
commence on the date hereof and shall expire on October 1, 2002 (such period,
the "TERM"). In the event that Employee continues to be employed by Employer
following the initial or any extended term hereof, such employment shall be
governed by this Agreement, except that it will be "at-will," without a fixed
term, and may be terminated by Employer or Employee at any time, with or without
notice, for any reason or no reason (and no reason need be given), and without
obligation of severance or additional compensation beyond that owed for periods
that Employee was actually employed by Employer.
3. Position and Duties. Employee hereby agrees to serve as either the
Chief Executive Officer or Chief Operating Officer of Employer (as determined
from time to time by Employer's Board of Directors). Employee shall devote his
full business time and attention to the management, development and enhancement
of the business of Employer and perform such duties as are necessary and
required of the Chief Operating Officer or Chief Executive Officer (as the case
may be) as directed from time to time. During the Term, Employee may not
undertake any other employment, engagements, consulting or other outside
activities that in the opinion of the Board of Directors interfere with the
effective carrying out of Employee's duties hereunder, provided, however, that
nothing herein shall prevent Employee from making and managing personal
investments consistent with Section 8 of this Agreement or engaging in community
and/or charitable activities, so long as such
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activities, either singly or in the aggregate, do not interfere with the proper
performance of his duties and responsibilities to Employer.
4. Compensation.
(a) Base Salary. Employer shall pay to Employee salary at the
rate of $243,800 per year for the period from the date hereof through October 1,
2002, or such higher amounts as shall be approved by the Compensation Committee
or the Board of Directors (in each case, the "Base Salary").
(b) Bonus Compensation. In addition to Base Salary, Employee
shall be entitled to receive bonus compensation as determined by the
Compensation Committee or the Board of Directors (the "BONUS COMPENSATION").
(c) Holidays and Vacation Time. Employee shall be entitled to
sick leave as is consistent with Employer's policy for executive employees with
respect to such matters as of the date hereof. Employee is entitled to as many
weeks of paid vacation time as Employee deems appropriate, provided that such
vacation time does not interfere with Employee's duties to Employer. Moreover,
if this Agreement is terminated for any reason other than Cause, death or
Permanent Disability, Employee shall be entitled to three weeks of paid
vacation.
(d) Other Benefits. Subject to Employer's rules, policies and
regulations as in effect from time to time (and subject to applicable
eligibility requirements, including a minimum employment period), Employee shall
be entitled to all other rights and benefits for which Employee may be eligible
under any: (i) group life insurance, disability or accident, death or
dismemberment insurance, (ii) medical and/or dental insurance program (90-day
minimum employment period, for which Employer will reimburse the COBRA expenses
of Employee), (iii) 401(k) benefit plan, or (iv) other employee benefits that
Employer may, in its sole discretion, make generally available to employees of
Employer of the same level and responsibility as Employee; provided, however,
that nothing herein shall obligate Employer to establish or maintain any of such
benefits or benefit plans. In addition to the foregoing, Employer agrees that it
shall pay for 100% of any premiums for a health insurance policy which covers
Employee and his Qualified Dependents (PPO or equivalent).
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<PAGE> 3
(e) Disability Insurance. Employer will provide Employee with
long term disability insurance which provides a minimum benefit of at least
seventy-five percent (75%) of Employee's Base Salary to age 65.
(f) Life and Other Insurance. Subject to Employee meeting
applicable underwriting criteria, Employer will provide $2 million of guaranteed
level premium term life insurance for a policy which covers Employee for at
least 15 years after the date hereof (naming Employee or Employee's written
designee as the beneficiary of the policy, with Employer having no right to
revoke or alter the designation) and such other types of insurance for Employee
as shall be agreed upon between Employee and Employer from time to time.
Employer shall only be responsible for the payment of insurance premiums during
the term of this Agreement. Employer shall use its best efforts to ensure that
life insurance policy is "portable" so that Employee can continue the policy
after the end of Employee's employment with Employer at Employee's own expense.
(g) Automobile Allowance. Employer shall provide Employee with
an automobile allowance not to exceed $750 per month, or such greater amount as
shall be approved from time to time by the Compensation Committee.
(h) Failure to Renew or Renegotiate Contract. In the event
that Employer and Employee do not enter into a new employment contract at the
end of the Term, Employer shall have the right, exercisable by written notice at
least thirty (30) days prior to the end of the Term, to extend the applicability
of Section 8(e) until the first anniversary of the end of the Term, by payment
to Employee, in one lump sum, of an amount equal to Employee's Base Salary for
the last year of the Term. Such payment shall be made within fifteen (15) days
after the end of the Term.
5. Supplemental Payment Upon a Change In Control. If a Change In
Control occurs from the date hereof until October 1, 2003, and Employee is
employed by Employer on the date of the Change In Control or Employee
demonstrates that Employee would have been employed by Employer but for steps
taken at the request of a third party to effect the Change In Control or
Employee's termination was without Cause and arose in connection with or
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anticipation of such Change In Control, then Employer shall have the additional
rights set forth in this Section 5. Namely, Employer shall, within thirty (30)
days immediately following the date of the Change In Control, pay to Employee a
lump sum cash amount such that the total amount of payments to Employee in
connection with the Change In Control under or in connection with all plans,
arrangements, obligations or agreements between Employer and Employee (including
any plans providing for the vesting of stock options or other property in
connection with a Change of Control) equals 2.9999 times the "base amount" (as
such term is used in Section 280G(b)(3) of the Code). However, in the event that
the total amount payable by Employer to Employee in connection with a Change In
Control under or in connection with all plans, arrangements, obligations or
agreements exclusive of amount payable under this Section 5 exceeds 2.9999 times
the "base amount," Employer will have no obligation to Employee under this
Section 5. The Employer shall engage its Accounting Firm to determine the "base
amount" and all amounts payable in connection with a Change In Control;
provided, however, that if the Accounting Firm is serving as accountant or
auditor for the person, entity or group effecting the Change In Control,
Employee shall appoint another nationally recognized accounting firm which shall
provide Employee with detailed supporting calculations for its conclusions. All
fees and expenses of the Accounting Firm shall be borne solely by Employer.
6. Termination of Employment.
(a) Permanent Disability. In the event of the Permanent
Disability (as defined below) of Employee, Employer shall cause all amounts due
under the disability policy described in Section 4(e) to be paid to Employee,
along with any Base Salary accruing during any eligibility or waiting period
under the disability insurance policy obtained by Employer. Notwithstanding the
foregoing, all payments hereunder shall end upon the earlier to occur of
Employee's attaining the age of sixty-five (65) and the cessation of such
Permanent Disability (whether as a result of recovery, rehabilitation, death or
otherwise).
(b) Death. In the event of Employee's death, Employer shall
pay to Employee's personal representative (on behalf of Employee's estate),
within sixty (60) days after Employer receives written notice of such
representative's appointment, all amounts of Base Salary and Bonus Compensation
accrued pursuant to Section 4 above as of the date of
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Employee's death, which payment shall constitute full and complete satisfaction
of Employer's obligations hereunder. Employee's dependents shall also be
entitled to receive fully paid group medical and dental benefits for a period of
ninety (90) days at Employer's expense, and thereafter, at the dependents'
expense, any continuation of health insurance coverage rights, if any, under
applicable law.
(c) Termination for Cause or Voluntary Termination Without
Good Reason. The Employer may in its sole discretion terminate this Agreement
and Employee's employment with Employer for Cause (as defined in Section 7(e)
below) at any time and with or without advance notice to Employee. If Employee's
employment is terminated for Cause, or if Employee Voluntarily Terminates (as
defined below) his employment with Employer without Good Reason (as defined
below), Employer shall promptly pay to Employee all amounts of Base Salary
accrued pursuant to Section 4 above through the date of termination (but not
Bonus Compensation), whereupon Employer shall have no further obligations to
Employee under this Agreement. Employee and his dependents shall also be
entitled to any continuation health insurance coverage rights, if any, under
applicable law. If Employee Voluntarily Terminates without Good Reason and
provide at least 6 months prior written notice, Employee is entitled to receive,
in one lump sum, an amount equal to employee's annual Base Salary at the end of
the six-month notice period (in addition to his Base Salary and Bonus
Compensation during the six-month notice period). If Employee Voluntarily
Terminates without Good Reason but gives less than 6 months written notice, then
Employee will be entitled to no further payments of Base Salary or Bonus
Compensation from and after the date of the transmission of the written notice.
(d) Termination Without Cause; Voluntary Termination With Good
Reason. Employer may terminate this Agreement and Employee's employment with
Employer without Cause at any time, with or without notice, for any reason or no
reason (and no reason need be given). Employee may terminate this Agreement and
Voluntarily Terminate his employment with Employer with Good Reason upon thirty
(30) days' prior written notice to Employer, provided that Employer does not
correct the circumstances giving Employee Good Reason during such thirty (30)
day period. In the event Employee's employment with Employer is terminated
pursuant to this Section 6(d), (i) Employer shall pay to Employee all amounts of
Base Salary and Bonus Compensation accrued pursuant to Section 4 above through
the date of
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<PAGE> 6
termination, (ii) Employee shall be relieved of his obligations under Sections 1
and 3 hereof, and (iii) Employee shall be free to seek other employment subject
to the terms of Section 8 hereof. In addition, if Employee's employment with
Employer is terminated pursuant to this Section 6(d), Employer shall pay to
Employee the value of all compensation and benefits that Employee would have
earned under this Agreement for the remaining Term together with all reasonable
attorneys' or other professional fees and costs incurred by Employee in
enforcing his rights under this Section 6(d). Employer may satisfy its
obligation hereunder by either providing such compensation and benefits in kind
at the time such compensation and benefits would otherwise be due hereunder, or
with consent of Employee, by paying the present value thereof in a lump sum.
Employee has a duty to mitigate such amount by obtaining comparable or better
employment, if possible, and the amounts payable hereunder shall be reduced by
25% of the base salary and bonus which Employee earns during such period.
However, Employee's duty to find a comparable position does not require Employee
to accept a position that is not comparable to his current position's duties, in
a different location or at a lesser rate of compensation or benefits. Employer
may also require Employee to fully and completely release any and all claims for
breach of this Agreement as a condition to receiving such payments under this
Section 6(d). Employee and his dependents shall also be entitled to any
continuation health insurance coverage rights, if any, under applicable law.
(e) Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of Employer and Employee. Employee's rights and
obligations, in such event, shall be as set forth in the termination agreement.
(f) Termination Obligations.
(i) Employee hereby acknowledges and agrees that all personal
property and equipment furnished to or prepared by Employee in the course of or
incident to his employment by Employer, belongs to Employer and shall be
promptly returned to Employer upon termination of Employee's employment. The
term "PERSONAL PROPERTY" includes, without limitation, all books, manuals,
records, reports, notes, contracts, requests for proposals, bids, lists,
blueprints, and other documents, or materials, or copies thereof (including
computer files), and all other proprietary information relating to the business
of Employer or any of its affiliates. Following
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termination, Employee will not retain any written or other tangible material
containing any proprietary information of Employer or any of its affiliates.
(ii) Upon termination of the Employment Period, Employee shall
be deemed to have resigned from all offices and directorships then held with
Employer and each of its affiliates.
(iii) The representations and warranties contained herein and
Employee's obligations under Sections 6(f), 8, and 11 shall survive termination
of the Employment Period and the expiration of this Agreement.
7. Definitions. For the purposes of this Agreement the following terms
and phrases shall have the following meanings:
(a) ACCOUNTING FIRM shall mean the "Big-Five" firm who
regularly prepares Employer's audited financial statement.
(b) AFFILIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(c) ASSOCIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(d) BENEFICIAL OWNERSHIP shall have the same meaning ascribed
to such term in Rule 13d-3 promulgated pursuant to the Exchange Act.
(e) "CAUSE" shall mean (i) violation of any agreement or law
relating to non-competition, trade secrets, inventions,
non-solicitation or confidentiality between Employee and
Employer or an affiliate, (ii) willful, intentional or bad
faith conduct that materially injures Employer or an
Affiliate, (iii) commission of a felony, an act of fraud
or the misappropriation of property; and (iv) gross
neglect or moral turpitude.
(f) "CHANGE IN CONTROL" shall mean any of the following:
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(1) such time that George E. Richmond ceases to own,
30% or more of the then outstanding shares of
common stock of Employer;
(2) the majority of the members of Employer's Board
of Directors being replaced during any 12-month
period by directors whose appointment or
election is not endorsed by a majority of the
members of the Board of Directors of Employer
immediately prior to such appointment or
election;
(3) any reorganization, merger or consolidation (a
"Reorganization") involving Employer unless at
least 50% of the then outstanding shares of
common stock of the surviving corporation is
held or is anticipated to be held by persons who
are shareholders of Employer immediately prior
to such Reorganization in substantially the same
proportions as their ownership, immediately
prior to such Reorganization;
(4) Approval by the shareholders of Employer of (i)
a "going private" transaction of Employer within
the meaning of Section 13(e) of the Exchange
Act, (ii) the consummation date of a complete
liquidation or dissolution of Employer or (iii)
the consummation date of the sale or other
disposition of all or substantially all of the
assets of Employer.
(5) For purposes of this Section 7(f), all shares of
stock of Employer owned or held by George E.
Richmond directly or indirectly (i.e., through
partnerships, corporations or limited liability
companies), or by George E. Richmond's spouse,
estate, lineal descendants, spouses of lineal
descendants or trusts for any of their benefit,
and which indirectly held shares were
transferred from George E. Richmond after the
date of this Agreement shall be deemed to be
owned by George E. Richmond. For purposes of
illustration, any disposition, sale, gift or
other transfer of shares of Employer's
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common stock by George E. Richmond after the
date of this Agreement to his children or to
trusts established for his or their benefit will
not be taken into account for purposes of
determining whether a "Change In Control" has
occurred under this Agreement. However, if the
direct ownership of George E. Richmond is
reduced to 29% but his children own 10% of
Employer's shares as a result of transfers made
prior to the date of this Agreement, a Change In
Control will have occurred.
(g) CODE shall mean the Internal Revenue Code of 1986, as
amended.
(h) EXCHANGE ACT shall mean the Securities Exchange Act of
1934, as amended.
(i) GOOD REASON shall mean, with respect to a Voluntary
Termination, if (i) a material and adverse change in Employee's duties,
responsibilities or status with Employer or an affiliate is made without Cause,
(ii) a reduction in the annual compensation or total benefit package of Employee
(other than a comparable reduction in cash compensation or benefits generally
affecting substantially all officers or executive employees of Employer), (iii)
amendment or termination of this Agreement without Employee's consent; (v) a
change in Employee's job location beyond an area outside of a 25-mile radius of
Employee's principal office or (vi) the Board of Directors of Employer otherwise
determines that a Voluntary Termination by Employee is for "Good Reason" under
the circumstances then prevailing; provided, however, that Good Reason will not
be deemed to exist unless Employee provides written notice to Employer within 60
days after the occurrence of the event specified above and Employer fails to
cure the event to Employee's reasonable satisfaction within 60 days after
Employer receives such notice.
(j) IRS shall mean the Internal Revenue Service.
(k) PERMANENT DISABILITY shall have the meaning set forth in
Section 22(e)(3) of the Code.
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(l) PERSON shall have the same meaning as ascribed to such
term in Sections 13(d) and 14(d)(2) of the Exchange Act; provided, however, that
for purposes of this Agreement, neither Employer nor any trustee or fiduciary
acting in such capacity for an employee benefit plan sponsored or maintained by
Employer or any entity controlled by Employer, shall be deemed to be a "person".
(m) QUALIFIED DEPENDENTS shall mean Employee's spouse and
unmarried children less than 19 years old; provided, that the 19 year age limit
does not apply to a child who: i) is enrolled as a full time student in school
and ii) has not attained the age of 23 years.
(n) VOLUNTARY TERMINATION (including VOLUNTARILY TERMINATES)
shall mean the termination by Employee of his employment by Employer by
voluntary resignation or any other means other than death, retirement or
Permanent Disability and other than simultaneous with or following termination
for Cause or an event which, whether or not known to Employer at the time of
such Voluntary Termination by such Executive, would constitute Cause.
8. Restrictive Covenants.
(a) Consideration and Acknowledgements. Employee acknowledges
and agrees that the covenants described in this Section 8 are essential terms of
this Agreement and that the Agreement would not be entered into by Employer in
the absence of the covenants described herein. Employee acknowledges and agrees
that the covenants set forth in this Section are necessary for the protection of
the business interests of Employer. Employee further acknowledges that these
covenants are supported by adequate consideration as set forth elsewhere in this
employment Agreement, that full compliance with these covenants will not prevent
Employee from earning a livelihood following the termination of his employment,
and that these covenants do not place undue restraint on Employee and are not in
conflict with any public interest. Employee acknowledges and agrees that the
covenants set forth in this Section 8 are reasonable and enforceable in every
respect under applicable law.
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(b) Term. The covenants set forth in this Section 8 shall
remain in force and effect throughout Employee's employment with Employer and
thereafter for the time periods governing such covenants as set forth herein,
regardless of the reason for or timing of the termination of Employee's
employment and shall survive and continue in full force and effect after the
termination of the Agreement.
(c) Definitions. As used in this Section 8, the following
terms have the following meanings:
i. "Employer" shall mean Young Innovations, Inc.,
including and any parent, subsidiary or
affiliate as of the date of this Agreement or at
any time during the term of Employee's
employment.
ii. "Confidential Information" shall include any and
all information not generally available to the
public through legitimate means regardless of
any past, current or anticipated future
business, product, system service, process, or
practice of Employer, as well as any and all
information relating to Employer's business,
research, development purchasing, accounting,
advertising, marketing, manufacturing,
merchandising and selling. Confidential
Information includes but is not limited to
information that may constitute a "trade secret"
under applicable law.
iii. "Competing Business" means any product, system,
service, process or practice produced, provided,
marketed or sold anywhere in the geographic area
where Employer is then conducting any business
by any person or entity other than Employer
which resembles or competes directly or
indirectly with any product, system, service,
process or practice produced, provided,
marketed, sold, or under development by Employer
at any time during Employee's employment.
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iv. "Competing Organization" means any person or
entity which is engaged in, or is planning to
become engaged in research, development,
production, manufacturing, marketing or selling
of a Competing Business within the area in which
Employer is then conducting any business or has
affirmative plans to conduct business while
these covenants are in effect.
(d) Non-Disclosure of Confidential Information. Except as
necessary to perform his job duties, Employee agrees not to use any Confidential
Information, or disclose any Confidential Information to any person or entity,
either during or at any time after his employment, without Employer's prior
written consent, unless required to do so by a court of competent jurisdiction,
or by an administrative or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information.
(e) Non-Competition. Employee agrees that during his
employment and for a period of one year after the termination for Cause or
Voluntary Termination without Good Reason (provided that no Change of Control
has occurred), any reason of his employment, he will not render services to,
give advice to, become employed by or otherwise affiliate with, directly or
indirectly, any Competing Organization, nor will he (on behalf of himself or any
other person or entity) engage directly or indirectly in any Competing Business,
unless otherwise agreed to in writing by Employer.
(f) Non-Inducement. Employee agrees that during the term of
his employment and for the one year period following the termination, he will
not directly or indirectly assist or encourage any person or entity in carrying
out any activity that would be prohibited by the provisions of this Section 8 if
such activity were carried out by Employee. Employee also specifically agrees
that he will not directly or indirectly induce any other employee to leave the
employ of Employer or to carry out, directly or indirectly, any such activity;
provided, however, that Employer shall not be in violation of this provision if
an employee decides to join the new employer of Employee if Employee did not
intentionally direct or solicit such employee to leave.
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(g) Inventions and Patents. Employee agrees to promptly and
fully disclose in writing and does hereby assign to Employer every invention,
innovation, copyright, or improvement made or conceived by Employee during the
period of his employment that relates directly or indirectly to his employment
with Employer. Employee further agrees that both during and after his
employment, without charge to Employer but at Employer's expense, he will
execute, acknowledge and deliver any documents, including applications for
Letters Patent, as may be necessary, or in the opinion of Employer, advisable to
(a) obtain, enjoy and/or enforce Letters Patent for those inventions,
innovations or improvements in the United States and in any other country; (b)
obtain, enjoy or enforce the right to claim the priority of the first filed
patent application anywhere in the world; or (c) vest title in Employer and its
successors, assigns or nominees. Additionally, Employee agrees that for a period
of one (1) year after termination of his employment, any invention, development,
innovation, or improvement within the scope of this Section shall be presumed to
have been made during the term of his employment. Employee shall have the burden
of clearly and convincingly establishing otherwise.
This Agreement does not apply to any invention for which no equipment,
supplies, facility or trade secret information of Employer was used and which
was developed entirely on Employee's own time, and (1) which does not relate (a)
directly to the business of Employer or (b) to Employer's actual or demonstrably
anticipated research or development, or (2) which does not result from any work
performed by employee for Employer.
(h) Enforcement of These Covenants. Employee acknowledges that
full compliance with all of the covenants set forth in this Section 8 is
necessary to enable Employer to do business with its customers for the term of
this Agreement and damage to Employer for which there will be no adequate remedy
at law. In the event of a breach of any of these covenants, Employee therefore
acknowledges and agrees that Employer shall be entitled to injunctive relief,
regardless of whether or not Employer has complied with this Agreement, and
Employer shall further be entitled to such other relief, including money
damages, as many be deemed appropriate by a court of competent jurisdiction or
an Arbitrator. In the event of a court action based upon an alleged breach of
any of these covenants, the prevailing party (as determined by court ruling on
the merits of the dispute) will be reimbursed by the other party for reasonable
attorneys' fees and costs incurred as a result of the dispute. If any court
should at any
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time find any one of these covenants to be unenforceable or unreasonable as to
scope, territory or period of time, then the scope, territory or period of time
of the covenant shall be that determined by the court to be reasonable, and the
parties hereby agree that the court has the authority to so modify any of these
covenants as necessary to make the covenant enforceable.
(i) Existence of Other Obligations. Employee represents and
warrants that he is not currently subject to any contractual or other
obligations to any former employer or other entity, including but not limited to
obligations not to use or disclose confidential information, or to refrain from
competing with any person or entity.
(j) Waiver. Employee agrees that Employer's failure to enforce
any of the covenants of this Section 8 in any particular instance shall not be
deemed to be a waiver of the covenant in that or any subsequent instance, nor
shall it be deemed a waiver by Employer of any other rights at law or under this
Agreement.
9. Jurisdiction; Service of Process. Each of the parties hereto agrees
that all any action or proceeding initiated or otherwise brought to judicial
proceedings by either Employee or Employer concerning the subject matter of this
Agreement shall be litigated in the United States District Court for the Eastern
District of Missouri or, in the event such court cannot or will not exercise
jurisdiction, in the state courts of the State of Missouri (the "COURTS"). Each
of the parties hereto expressly submits to the jurisdiction and venue of the
Courts and consents to process being served in any suit, action or proceeding of
the nature referred to above either (a) by the mailing of a copy thereof by
registered or certified mail, postage prepaid, return receipt requested, to his
or its address as set forth herein or (b) by serving a copy thereof upon such
party's authorized agent for service of process (to the extent permitted by
applicable law, regardless whether the appointment of such agent for service of
process for any reason shall prove to be ineffective or such agent for service
of process shall accept or acknowledge such service); provided that, to the
extent lawful and practicable, written notice of said service upon said agent
shall be mailed by registered or certified mail, postage prepaid, return receipt
requested, to the party at his or its address as set forth herein. Each party
hereto agrees that such service, to the fullest extent permitted by law, (i)
shall be deemed in every respect effective service of process upon him or it in
any such suit, action or proceeding and (ii) shall be taken and
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<PAGE> 15
held to be valid personal service upon and personal delivery to him or it. Each
party hereto waives any claim that the Courts are an inconvenient forum or an
improper forum based on lack of venue or jurisdiction. Each party shall bear its
own costs and attorneys' fees incurred in connection with any such actions or
proceedings.
10. Injunctive Relief. Employee acknowledges that damages would be an
inadequate remedy for Employee's breach of any of the provisions of Section 8 of
this Agreement, and that breach of any of such provisions will result in
immeasurable and irreparable harm to Employer. Therefore, in addition to any
other remedy to which Employer may be entitled by reason of Employee's breach or
threatened breach of any such provision, Employer shall be entitled to seek and
obtain a temporary restraining order, a preliminary and/or permanent injunction,
or any other form of equitable relief from any court of competent jurisdiction
restraining Employee from committing or continuing any breach of such Sections,
without the necessity of posting a bond. It is further agreed that the existence
of any claim or cause of action on the part of Employee against Employer,
whether arising from this Agreement or otherwise, shall in no way constitute a
defense to the enforcement of the provisions of Section 8 of this Agreement.
11. Miscellaneous.
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (i) when made, if delivered
personally, (ii) three (3) days after being mailed by certified or registered
mail, postage prepaid, return receipt requested, or (iii) two (2) days after
delivery to a reputable overnight courier service, to the parties, their
successors in interest or their assignees at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
To Employer:
Young Innovations, Inc.
13705 Shoreline Court East
Earth City, MO 63045
Attention: George E. Richmond
To Employee, to his home address as recorded in the payroll
records of Employer from time to time.
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(b) Governing Law. This Agreement shall be governed as to its
validity and effect by the internal laws of the State of Missouri, without
regard to its rules regarding conflicts of law.
(c) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of (i) the heirs, executors and legal
representatives of Employee, upon Employee's death, and (ii) any successor of
Employer, and any such successor shall be deemed substituted for Employee or
Employer, as the case may be, under the terms hereof for all purposes. As used
in this Agreement, "successor" shall include any person, firm, corporation or
other business entity that at any time, whether by purchase, merger,
consolidation or otherwise, directly or indirectly acquires a majority of the
assets, business or stock of Employer. Employee acknowledges and agrees that the
rights and obligations of Employer hereunder may be assigned to and assumed by
any of its wholly or majority-owned subsidiaries, without Employee's consent,
which assignment and assumption shall constitute a release of Employer, its
subsidiaries or any of their respective affiliates that is then bound by the
terms of this Agreement, of all of its obligations and liabilities hereunder.
(d) Integration. This Agreement (together with any option
agreement Employer may require Employee to execute in order to avail
himself/herself of any Stock Plan benefits specifically contemplated herein and
any agreement to release and hold harmless Employer executed concurrently
herewith) constitutes the entire agreement between the parties with respect to
all matters covered herein, including but not limited to the parties' employment
relationship and Employee's entitlement to compensation, commissions and
benefits from Employer or any of its affiliated companies and/or the termination
of Employee's employment. This Agreement supersedes all prior oral or written
understandings and agreements relating to its subject matter and all other
business relationships between Employer and/or its affiliated companies.
(e) No Representations. No person or entity has made or has
the authority to make any representations or promises on behalf of any of the
parties which are inconsistent with the representations or promises contained in
this Agreement, and this Agreement has not been executed in reliance on any
representations or promises not set forth herein. Specifically, no
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<PAGE> 17
promises, warranties or representations have been made by anyone on any topic or
subject matter related to Employee's relationship with Employer or any of its
executives or employees, including but not limited to any promises, warranties
or representations regarding future employment, compensation, commissions and
benefits, any entitlement to stock, stock rights, Stock Plan benefits, profits,
debt and equity interests in Employer or any of its affiliated companies or
regarding the termination of Employee's employment. In this regard, Employee
agrees that no promises, warranties or representations shall be deemed to be
made in the future unless they are set forth in writing and signed by an
authorized representative of Employer.
(f) Amendments. This Agreement may be modified only by a
written instrument executed by the parties that is designated as an amendment to
this Agreement.
(g) Counterparts. This Agreement is being executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Severability and Non-Waiver. Any provision of this
Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable
in any jurisdiction shall, as to that jurisdiction and subject to this Section,
be ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by Employer shall be implied by Employer's forbearance or
failure to take action.
(i) Attorneys Fees. In the event that any action or proceeding
is commenced by any party hereto for the purpose of enforcing any provision of
this Agreement, the parties to such action, proceeding or arbitration may
receive as part of any award, settlement, judgment, decision or other resolution
of such action or proceeding, whether or not reduced to a court judgment, their
costs and reasonable attorneys fees as determined by the person or body making
such award, settlement, judgment, decision or resolution.
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(j) Voluntary and Knowledgeable Act. Employee represents and
warrants that Employee has read and understands each and every provision of this
Agreement and has freely and voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYER:
YOUNG INNOVATIONS, INC.
By: /s/ George E. Richmond
-----------------------------------
Name: George E. Richmond
Title: CEO
EMPLOYEE:
/s/ Alfred E. Brennan
-----------------------------------------------------
Alfred E. Brennan
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<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of July
6, 1999, by and between YOUNG INNOVATIONS, INC., a Missouri corporation
("EMPLOYER"), and ARTHUR L. HERBST, JR., of Chicago, Illinois ("EMPLOYEE").
In consideration of Employer's employment of Employee, the terms,
conditions and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee and Employer, intending to be legally bound, hereby agree as follows:
1. Employment. Employer hereby agrees to employ Employee and Employee
agrees to accept such employment upon the terms and conditions herein set forth.
2. Employment Period. The initial term of employment hereunder shall
commence on the date hereof and shall expire on July 6, 2002 (such period, the
"TERM"). In the event that Employee continues to be employed by Employer
following the initial or any extended term hereof, such employment shall be
governed by this Agreement, except that it will be "at-will," without a fixed
term, and may be terminated by Employer or Employee at any time, with or without
notice, for any reason or no reason (and no reason need be given), and without
obligation of severance or additional compensation beyond that owed for periods
that Employee was actually employed by Employer.
3. Position and Duties. Employee hereby agrees to serve as Chief
Financial Officer and Executive Vice President of Strategic Planning. Employee
shall devote his full business time and attention to the management, development
and enhancement of the business of Employer and perform such duties as are
necessary and required of the Chief Financial Officer and Executive Vice
President of Strategic Planning. During the Term, Employee may not undertake any
other employment, engagements, consulting or other outside activities that in
the opinion of the Board of Directors interfere with the effective carrying out
of Employee's duties hereunder, provided, however, that nothing herein shall
prevent Employee from making and managing personal investments consistent with
Section 8 of this Agreement or engaging in community and/or charitable
activities, so long as such activities, either singly or in the
<PAGE> 2
aggregate, do not interfere with the proper performance of his duties and
responsibilities to Employer.
4. Compensation.
(a) Base Salary. Employer shall pay to Employee salary at the rate
of $180,250 per year for the period from the date hereof through July 6, 2002,
or such higher amounts as shall be approved by the Compensation Committee or the
Board of Directors (in each case, the "Base Salary").
(b) Bonus Compensation. In addition to Base Salary, Employee shall
be entitled to receive bonus compensation as determined by the Compensation
Committee or the Board of Directors (the "BONUS COMPENSATION").
(c) Holidays and Vacation Time. Employee shall be entitled to sick
leave as is consistent with Employer's policy for executive employees with
respect to such matters as of the date hereof. Employee is entitled to as many
weeks of paid vacation time as Employee deems appropriate, provided that such
vacation time does not interfere with Employee's duties to Employer. Moreover,
if this Agreement is terminated for any reason other than Cause, death or
Permanent Disability, Employee shall be entitled to three weeks of paid
vacation.
(d) Other Benefits. Subject to Employer's rules, policies and
regulations as in effect from time to time (and subject to applicable
eligibility requirements, including a minimum employment period), Employee shall
be entitled to all other rights and benefits for which Employee may be eligible
under any: (i) group life insurance, disability or accident, death or
dismemberment insurance, (ii) medical and/or dental insurance program (90-day
minimum employment period, for which Employer will reimburse the COBRA expenses
of Employee), (iii) 401(k) benefit plan, or (iv) other employee benefits that
Employer may, in its sole discretion, make generally available to employees of
Employer of the same level and responsibility as Employee; provided, however,
that nothing herein shall obligate Employer to establish or maintain any of such
benefits or benefit plans. In addition to the foregoing, Employer agrees that it
shall pay for 100% of any premiums for a health insurance policy which covers
Employee and his Qualified Dependents (PPO or equivalent).
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<PAGE> 3
(e) Disability Insurance. Employer will provide Employee with
long term disability insurance which provides a minimum benefit of at least
seventy-five percent (75%) of Employee's Base Salary to age 65.
(f) Life and Other Insurance. Subject to Employee meeting
applicable underwriting criteria, Employer will provide $1 million of guaranteed
level premium term life insurance for a policy which covers Employee for at
least 15 years after the date hereof (naming Employee or Employee's written
designee as the beneficiary of the policy, with Employer having no right to
revoke or alter the designation) and such other types of insurance for Employee
as shall be agreed upon between Employee and Employer from time to time.
Employer shall only be responsible for the payment of insurance premiums during
the term of this Agreement. Employer shall use its best efforts to insure that
life insurance policy is "portable" so that Employee can continue the policy
after the end of Employee's employment with Employer at Employee's own expense.
(g) Automobile Allowance. Employer shall provide Employee with an
automobile allowance not to exceed $650 per month, or such greater amount as
shall be approved from time to time by the Compensation Committee.
(h) Failure to Renew or Renegotiate Contract. In the event that
Employer and Employee do not enter into a new employment contract at the end of
the Term, Employer shall have the right, exercisable by written notice at least
thirty (30) days prior to the end of the Term, to extend the applicability of
Section 8(e) until the first anniversary of the end of the Term, by payment to
Employee, in one lump sum, of an amount equal to Employee's Base Salary for the
last year of the Term. Such payment shall be made within fifteen (15) days after
the end of the Term.
5. Supplemental Payment Upon a Change In Control. If a Change In
Control occurs from the date hereof until July 6, 2003, and Employee is employed
by Employer on the date of the Change In Control or Employee demonstrates that
Employee would have been employed by Employer but for steps taken at the request
of a third party to effect the Change In Control or Employee's termination was
without Cause and arose in connection with or
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anticipation of such Change In Control, then Employer shall have the additional
rights set forth in this Section 5. Namely, Employer shall, within thirty (30)
days immediately following the date of the Change In Control, pay to Employee a
lump sum cash amount such that the total amount of payments to Employee in
connection with the Change In Control under or in connection with all plans,
arrangements, obligations or agreements between Employer and Employee (including
any plans providing for the vesting of stock options or other property in
connection with a Change of Control) equals 2.9999 times the "base amount" (as
such term is used in Section 280G(b)(3) of the Code). However, in the event that
the total amount payable by Employer to Employee in connection with a Change In
Control under or in connection with all plans, arrangements, obligations or
agreements exclusive of amount payable under this Section 5 exceeds 2.9999 times
the "base amount," Employer will have no obligation to Employee under this
Section 5. The Employer shall engage its Accounting Firm to determine the "base
amount" and all amounts payable in connection with a Change In Control;
provided, however, that if the Accounting Firm is serving as accountant or
auditor for the person, entity or group effecting the Change In Control,
Employee shall appoint another nationally recognized accounting firm which shall
provide Employee with detailed supporting calculations for its conclusions. All
fees and expenses of the Accounting Firm shall be borne solely by Employer.
6. Termination of Employment.
(a) Permanent Disability. In the event of the Permanent
Disability (as defined below) of Employee, Employer shall cause all amounts due
under the disability policy described in Section 4(e) to be paid to Employee,
along with any Base Salary accruing during any eligibility or waiting period
under the disability insurance policy obtained by Employer. Notwithstanding the
foregoing, all payments hereunder shall end upon the earlier to occur of
Employee's attaining the age of sixty-five (65) and the cessation of such
Permanent Disability (whether as a result of recovery, rehabilitation, death or
otherwise).
(b) Death. In the event of Employee's death, Employer shall pay
to Employee's personal representative (on behalf of Employee's estate), within
sixty (60) days after Employer receives written notice of such representative's
appointment, all amounts of Base Salary and Bonus Compensation accrued pursuant
to Section 4 above as of the date of
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Employee's death, which payment shall constitute full and complete satisfaction
of Employer's obligations hereunder. Employee's dependents shall also be
entitled to receive fully paid group medical and dental benefits for a period of
ninety (90) days at Employer's expense, and thereafter, at the dependents'
expense, any continuation of health insurance coverage rights, if any, under
applicable law.
(c) Termination for Cause or Voluntary Termination Without Good
Reason. The Employer may in its sole discretion terminate this Agreement and
Employee's employment with Employer for Cause (as defined in Section 7(e) below)
at any time and with or without advance notice to Employee. If Employee's
employment is terminated for Cause, or if Employee Voluntarily Terminates (as
defined below) his employment with Employer without Good Reason (as defined
below), Employer shall promptly pay to Employee all amounts of Base Salary
accrued pursuant to Section 4 above through the date of termination (but not
Bonus Compensation), whereupon Employer shall have no further obligations to
Employee under this Agreement. Employee and his dependents shall also be
entitled to any continuation health insurance coverage rights, if any, under
applicable law. If Employee Voluntarily Terminates without Good Reason and
provide at least 6 months prior written notice, Employee is entitled to receive,
in one lump sum, an amount equal to employee's annual Base Salary at the end of
the six-month notice period (in addition to his Base Salary and Bonus
Compensation during the six-month notice period). If Employee Voluntarily
Terminates without Good Reason but gives less than 6 months written notice, then
Employee will be entitled to no further payments of Base Salary or Bonus
Compensation from and after the date of the transmission of the written notice.
(d) Termination Without Cause; Voluntary Termination With Good
Reason. Employer may terminate this Agreement and Employee's employment with
Employer without Cause at any time, with or without notice, for any reason or no
reason (and no reason need be given). Employee may terminate this Agreement and
Voluntarily Terminate his employment with Employer with Good Reason upon thirty
(30) days' prior written notice to Employer, provided that Employer does not
correct the circumstances giving Employee Good Reason during such thirty (30)
day period. In the event Employee's employment with Employer is terminated
pursuant to this Section 6(d), (i) Employer shall pay to Employee all amounts of
Base Salary and Bonus Compensation accrued pursuant to Section 4 above through
the date of
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termination, (ii) Employee shall be relieved of his obligations under Sections 1
and 3 hereof, and (iii) Employee shall be free to seek other employment subject
to the terms of Section 8 hereof. In addition, if Employee's employment with
Employer is terminated pursuant to this Section 6(d), Employer shall pay to
Employee the value of all compensation and benefits that Employee would have
earned under this Agreement for the remaining Term together with all reasonable
attorneys' or other professional fees and costs incurred by Employee in
enforcing his rights under this Section 6(d). Employer may satisfy its
obligation hereunder by either providing such compensation and benefits in kind
at the time such compensation and benefits would otherwise be due hereunder, or
with consent of Employee, by paying the present value thereof in a lump sum.
Employee has a duty to mitigate such amount by obtaining comparable or better
employment, if possible, and the amounts payable hereunder shall be reduced by
25% of the base salary and bonus which Employee earns during such period.
However, Employee's duty to find a comparable position does not require Employee
to accept a position that is not comparable to his current position's duties, in
a different location or at a lesser rate of compensation or benefits. Employer
may also require Employee to fully and completely release any and all claims for
breach of this Agreement as a condition to receiving such payments under this
Section 6(d). Employee and his dependents shall also be entitled to any
continuation health insurance coverage rights, if any, under applicable law.
(e) Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of Employer and Employee. Employee's rights and
obligations, in such event, shall be as set forth in the termination agreement.
(f) Termination Obligations.
(i) Employee hereby acknowledges and agrees that all personal
property and equipment furnished to or prepared by Employee in the course of or
incident to his employment by Employer, belongs to Employer and shall be
promptly returned to Employer upon termination of Employee's employment. The
term "PERSONAL PROPERTY" includes, without limitation, all books, manuals,
records, reports, notes, contracts, requests for proposals, bids, lists,
blueprints, and other documents, or materials, or copies thereof (including
computer files), and all other proprietary information relating to the business
of Employer or any of its affiliates. Following
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termination, Employee will not retain any written or other tangible material
containing any proprietary information of Employer or any of its affiliates.
(ii) Upon termination of the Employment Period, Employee shall
be deemed to have resigned from all offices and directorships then held with
Employer and each of its affiliates.
(iii) The representations and warranties contained herein and
Employee's obligations under Sections 6(f), 8, and 11 shall survive termination
of the Employment Period and the expiration of this Agreement.
7. Definitions. For the purposes of this Agreement the following
terms and phrases shall have the following meanings:
(a) ACCOUNTING FIRM shall mean the "Big-Five" firm who regularly
prepares Employer's audited financial statement.
(b) AFFILIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(c) ASSOCIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(d) BENEFICIAL OWNERSHIP shall have the same meaning ascribed to
such term in Rule 13d-3 promulgated pursuant to the Exchange Act.
(e) "CAUSE" shall mean (i) violation of any agreement or law
relating to non-competition, trade secrets, inventions,
non-solicitation or confidentiality between Employee and
Employer or an affiliate, (ii) willful, intentional or bad
faith conduct that materially injures Employer or an
Affiliate, (iii) commission of a felony, an act of fraud or
the misappropriation of property; and (iv) gross neglect or
moral turpitude.
(f) "Change In Control" shall mean any of the following:
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<PAGE> 8
(1) such time that George E. Richmond ceases to own, 30% or
more of the then outstanding shares of common stock of
Employer;
(2) the majority of the members of Employer's Board of
Directors being replaced during any 12-month period by
directors whose appointment or election is not endorsed
by a majority of the members of the Board of Directors
of Employer immediately prior to such appointment or
election;
(3) any reorganization, merger or consolidation (a
"Reorganization") involving Employer unless at least 50%
of the then outstanding shares of common stock of the
surviving corporation is held or is anticipated to be
held by persons who are shareholders of Employer
immediately prior to such Reorganization in
substantially the same proportions as their ownership,
immediately prior to such Reorganization;
(4) Approval by the shareholders of Employer of (i) a "going
private" transaction of Employer within the meaning of
Section 13(e) of the Exchange Act, (ii) the consummation
date of a complete liquidation or dissolution of
Employer or (iii) the consummation date of the sale or
other disposition of all or substantially all of the
assets of Employer.
(5) For purposes of this Section 7(f), all shares of stock
of Employer owned or held by George E. Richmond directly
or indirectly (i.e., through partnerships, corporations
or limited liability companies), or by George E.
Richmond's spouse, estate, lineal descendants, spouses
of lineal descendants or trusts for any of their
benefit, and which indirectly held shares were
transferred from George E. Richmond after the date of
this Agreement shall be deemed to be owned by George E.
Richmond. For purposes of illustration, any disposition,
sale, gift or other transfer of shares of Employer's
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<PAGE> 9
common stock by George E. Richmond after the date of
this Agreement to his children or to trusts established
for his or their benefit will not be taken into account
for purposes of determining whether a "Change In
Control" has occurred under this Agreement. However, if
the direct ownership of George E. Richmond is reduced to
29% but his children own 10% of Employer's shares as a
result of transfers made prior to the date of this
Agreement, a Change In Control will have occurred.
(g) CODE shall mean the Internal Revenue Code of 1986, as
amended.
(h) EXCHANGE ACT shall mean the Securities Exchange Act of 1934,
as amended.
(i) GOOD REASON shall mean, with respect to a Voluntary
Termination, if (i) a material and adverse change in Employee's duties,
responsibilities or status with Employer or an affiliate is made without Cause,
(ii) a reduction in the annual compensation or total benefit package of Employee
(other than a comparable reduction in cash compensation or benefits generally
affecting substantially all officers or executive employees of Employer), (iii)
amendment or termination of this Agreement without Employee's consent; (v) a
change in Employee's job location beyond an area outside of a 25-mile radius of
Employee's principal office or (vi) the Board of Directors of Employer otherwise
determines that a Voluntary Termination by Employee is for "Good Reason" under
the circumstances then prevailing; provided, however, that Good Reason will not
be deemed to exist unless Employee provides written notice to Employer within 60
days after the occurrence of the event specified above and Employer fails to
cure the event to Employee's reasonable satisfaction within 60 days after
Employer receives such notice.
(j) IRS shall mean the Internal Revenue Service.
(k) PERMANENT DISABILITY shall have the meaning set forth in
Section 22(e)(3) of the Code.
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<PAGE> 10
(l) PERSON shall have the same meaning as ascribed to such term
in Sections 13(d) and 14(d)(2) of the Exchange Act; provided, however, that for
purposes of this Agreement, neither Employer nor any trustee or fiduciary acting
in such capacity for an employee benefit plan sponsored or maintained by
Employer or any entity controlled by Employer, shall be deemed to be a "person".
(m) QUALIFIED DEPENDENTS shall mean Employee's spouse and
unmarried children less than 19 years old; provided, that the 19 year age limit
does not apply to a child who: i) is enrolled as a full time student in school
and ii) has not attained the age of 23 years.
(n) VOLUNTARY TERMINATION (including VOLUNTARILY TERMINATES)
shall mean the termination by Employee of his employment by Employer by
voluntary resignation or any other means other than death, retirement or
Permanent Disability and other than simultaneous with or following termination
for Cause or an event which, whether or not known to Employer at the time of
such Voluntary Termination by such Executive, would constitute Cause.
8. Restrictive Covenants.
(a) Consideration and Acknowledgements. Employee acknowledges
and agrees that the covenants described in this Section 8 are essential terms of
this Agreement and that the Agreement would not be entered into by Employer in
the absence of the covenants described herein. Employee acknowledges and agrees
that the covenants set forth in this Section are necessary for the protection of
the business interests of Employer. Employee further acknowledges that these
covenants are supported by adequate consideration as set forth elsewhere in this
employment Agreement, that full compliance with these covenants will not prevent
Employee from earning a livelihood following the termination of his employment,
and that these covenants do not place undue restraint on Employee and are not in
conflict with any public interest. Employee acknowledges and agrees that the
covenants set forth in this Section 8 are reasonable and enforceable in every
respect under applicable law.
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<PAGE> 11
(b) Term. The covenants set forth in this Section 8 shall
remain in force and effect throughout Employee's employment with Employer and
thereafter for the time periods governing such covenants as set forth herein,
regardless of the reason for or timing of the termination of Employee's
employment and shall survive and continue in full force and effect after the
termination of the Agreement.
(c) Definitions. As used in this Section 8, the following terms
have the following meanings:
i. "Employer" shall mean Young Innovations, Inc., including
and any parent, subsidiary or affiliate as of the date
of this Agreement or at any time during the term of
Employee's employment.
ii. "Confidential Information" shall include any and all
information not generally available to the public
through legitimate means regardless of any past, current
or anticipated future business, product, system service,
process, or practice of Employer, as well as any and all
information relating to Employer's business, research,
development purchasing, accounting, advertising,
marketing, manufacturing, merchandising and selling.
Confidential Information includes but is not limited to
information that may constitute a "trade secret" under
applicable law.
iii. "Competing Business" means any product, system, service,
process or practice produced, provided, marketed or sold
anywhere in the geographic area where Employer is then
conducting any business by any person or entity other
than Employer which resembles or competes directly or
indirectly with any product, system, service, process or
practice produced, provided, marketed, sold, or under
development by Employer at any time during Employee's
employment.
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<PAGE> 12
iv. "Competing Organization" means any person or entity
which is engaged in, or is planning to become engaged in
research, development, production, manufacturing,
marketing or selling of a Competing Business within the
area in which Employer is then conducting any business
or has affirmative plans to conduct business while these
covenants are in effect.
(d) Non-Disclosure of Confidential Information. Except as
necessary to perform his job duties, Employee agrees not to use any Confidential
Information, or disclose any Confidential Information to any person or entity,
either during or at any time after his employment, without Employer's prior
written consent, unless required to do so by a court of competent jurisdiction,
or by an administrative or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information.
(e) Non-Competition. Employee agrees that during his employment
and for a period of one year after the termination for Cause or Voluntary
Termination without Good Reason (provided that no Change of Control has
occurred), any reason of his employment, he will not render services to, give
advice to, become employed by or otherwise affiliate with, directly or
indirectly, any Competing Organization, nor will he (on behalf of himself or any
other person or entity) engage directly or indirectly in any Competing Business,
unless otherwise agreed to in writing by Employer.
(f) Non-Inducement. Employee agrees that during the term of his
employment and for the one year period following the termination, he will not
directly or indirectly assist or encourage any person or entity in carrying out
any activity that would be prohibited by the provisions of this Section 8 if
such activity were carried out by Employee. Employee also specifically agrees
that he will not directly or indirectly induce any other employee to leave the
employ of Employer or to carry out, directly or indirectly, any such activity;
provided, however, that Employer shall not be in violation of this provision if
an employee decides to join the new employer of Employee if Employee did not
intentionally direct or solicit such employee to leave.
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<PAGE> 13
(g) Inventions and Patents. Employee agrees to promptly and
fully disclose in writing and does hereby assign to Employer every invention,
innovation, copyright, or improvement made or conceived by Employee during the
period of his employment that relates directly or indirectly to his employment
with Employer. Employee further agrees that both during and after his
employment, without charge to Employer but at Employer's expense, he will
execute, acknowledge and deliver any documents, including applications for
Letters Patent, as may be necessary, or in the opinion of Employer, advisable to
(a) obtain, enjoy and/or enforce Letters Patent for those inventions,
innovations or improvements in the United States and in any other country; (b)
obtain, enjoy or enforce the right to claim the priority of the first filed
patent application anywhere in the world; or (c) vest title in Employer and its
successors, assigns or nominees. Additionally, Employee agrees that for a period
of one (1) year after termination of his employment, any invention, development,
innovation, or improvement within the scope of this Section shall be presumed to
have been made during the term of his employment. Employee shall have the burden
of clearly and convincingly establishing otherwise.
This Agreement does not apply to any invention for which no equipment,
supplies, facility or trade secret information of Employer was used and which
was developed entirely on Employee's own time, and (1) which does not relate (a)
directly to the business of Employer or (b) to Employer's actual or demonstrably
anticipated research or development, or (2) which does not result from any work
performed by employee for Employer.
(h) Enforcement of These Covenants. Employee acknowledges that
full compliance with all of the covenants set forth in this Section 8 is
necessary to enable Employer to do business with its customers for the term of
this Agreement and damage to Employer for which there will be no adequate remedy
at law. In the event of a breach of any of these covenants, Employee therefore
acknowledges and agrees that Employer shall be entitled to injunctive relief,
regardless of whether or not Employer has complied with this Agreement, and
Employer shall further be entitled to such other relief, including money
damages, as many be deemed appropriate by a court of competent jurisdiction or
an Arbitrator. In the event of a court action based upon an alleged breach of
any of these covenants, the prevailing party (as determined by court ruling on
the merits of the dispute) will be reimbursed by the other party for reasonable
attorneys' fees and costs incurred as a result of the dispute. If any court
should at any
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<PAGE> 14
time find any one of these covenants to be unenforceable or unreasonable as to
scope, territory or period of time, then the scope, territory or period of time
of the covenant shall be that determined by the court to be reasonable, and the
parties hereby agree that the court has the authority to so modify any of these
covenants as necessary to make the covenant enforceable.
(i) Existence of Other Obligations. Employee represents and
warrants that he is not currently subject to any contractual or other
obligations to any former employer or other entity, including but not limited to
obligations not to use or disclose confidential information, or to refrain from
competing with any person or entity.
(j) Waiver. Employee agrees that Employer's failure to enforce
any of the covenants of this Section 8 in any particular instance shall not be
deemed to be a waiver of the covenant in that or any subsequent instance, nor
shall it be deemed a waiver by Employer of any other rights at law or under this
Agreement.
9. Jurisdiction; Service of Process. Each of the parties hereto
agrees that all any action or proceeding initiated or otherwise brought to
judicial proceedings by either Employee or Employer concerning the subject
matter of this Agreement shall be litigated in the United States District Court
for the Eastern District of Missouri or, in the event such court cannot or will
not exercise jurisdiction, in the state courts of the State of Missouri (the
"COURTS"). Each of the parties hereto expressly submits to the jurisdiction and
venue of the Courts and consents to process being served in any suit, action or
proceeding of the nature referred to above either (a) by the mailing of a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to his or its address as set forth herein or (b) by serving a copy
thereof upon such party's authorized agent for service of process (to the extent
permitted by applicable law, regardless whether the appointment of such agent
for service of process for any reason shall prove to be ineffective or such
agent for service of process shall accept or acknowledge such service); provided
that, to the extent lawful and practicable, written notice of said service upon
said agent shall be mailed by registered or certified mail, postage prepaid,
return receipt requested, to the party at his or its address as set forth
herein. Each party hereto agrees that such service, to the fullest extent
permitted by law, (i) shall be deemed in every respect effective service of
process upon him or it in any such suit, action or proceeding and (ii) shall be
taken and
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<PAGE> 15
held to be valid personal service upon and personal delivery to him or it. Each
party hereto waives any claim that the Courts are an inconvenient forum or an
improper forum based on lack of venue or jurisdiction. Each party shall bear its
own costs and attorneys' fees incurred in connection with any such actions or
proceedings.
10. Injunctive Relief. Employee acknowledges that damages would be an
inadequate remedy for Employee's breach of any of the provisions of Section 8 of
this Agreement, and that breach of any of such provisions will result in
immeasurable and irreparable harm to Employer. Therefore, in addition to any
other remedy to which Employer may be entitled by reason of Employee's breach or
threatened breach of any such provision, Employer shall be entitled to seek and
obtain a temporary restraining order, a preliminary and/or permanent injunction,
or any other form of equitable relief from any court of competent jurisdiction
restraining Employee from committing or continuing any breach of such Sections,
without the necessity of posting a bond. It is further agreed that the existence
of any claim or cause of action on the part of Employee against Employer,
whether arising from this Agreement or otherwise, shall in no way constitute a
defense to the enforcement of the provisions of Section 8 of this Agreement.
11. Miscellaneous.
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (i) when made, if delivered
personally, (ii) three (3) days after being mailed by certified or registered
mail, postage prepaid, return receipt requested, or (iii) two (2) days after
delivery to a reputable overnight courier service, to the parties, their
successors in interest or their assignees at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
To Employer:
Young Innovations, Inc.
13705 Shoreline Court East
Earth City, MO 63045
Attention: George E. Richmond
To Employee, to his home address as recorded in the payroll
records of Employer from time to time.
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<PAGE> 16
(b) Governing Law. This Agreement shall be governed as to
its validity and effect by the internal laws of the State of Missouri, without
regard to its rules regarding conflicts of law.
(c) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of (i) the heirs, executors and legal
representatives of Employee, upon Employee's death, and (ii) any successor of
Employer, and any such successor shall be deemed substituted for Employee or
Employer, as the case may be, under the terms hereof for all purposes. As used
in this Agreement, "successor" shall include any person, firm, corporation or
other business entity that at any time, whether by purchase, merger,
consolidation or otherwise, directly or indirectly acquires a majority of the
assets, business or stock of Employer. Employee acknowledges and agrees that the
rights and obligations of Employer hereunder may be assigned to and assumed by
any of its wholly or majority-owned subsidiaries, without Employee's consent,
which assignment and assumption shall constitute a release of Employer, its
subsidiaries or any of their respective affiliates that is then bound by the
terms of this Agreement, of all of its obligations and liabilities hereunder.
(d) Integration. This Agreement (together with any option
agreement Employer may require Employee to execute in order to avail
himself/herself of any Stock Plan benefits specifically contemplated herein and
any agreement to release and hold harmless Employer executed concurrently
herewith) constitutes the entire agreement between the parties with respect to
all matters covered herein, including but not limited to the parties' employment
relationship and Employee's entitlement to compensation, commissions and
benefits from Employer or any of its affiliated companies and/or the termination
of Employee's employment. This Agreement supersedes all prior oral or written
understandings and agreements relating to its subject matter and all other
business relationships between Employer and/or its affiliated companies.
(e) No Representations. No person or entity has made or has
the authority to make any representations or promises on behalf of any of the
parties which are inconsistent with the representations or promises contained in
this Agreement, and this Agreement has not been executed in reliance on any
representations or promises not set forth herein. Specifically, no
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<PAGE> 17
promises, warranties or representations have been made by anyone on any topic or
subject matter related to Employee's relationship with Employer or any of its
executives or employees, including but not limited to any promises, warranties
or representations regarding future employment, compensation, commissions and
benefits, any entitlement to stock, stock rights, Stock Plan benefits, profits,
debt and equity interests in Employer or any of its affiliated companies or
regarding the termination of Employee's employment. In this regard, Employee
agrees that no promises, warranties or representations shall be deemed to be
made in the future unless they are set forth in writing and signed by an
authorized representative of Employer.
(f) Amendments. This Agreement may be modified only by a
written instrument executed by the parties that is designated as an amendment to
this Agreement.
(g) Counterparts. This Agreement is being executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Severability and Non-Waiver. Any provision of this
Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable
in any jurisdiction shall, as to that jurisdiction and subject to this Section,
be ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by Employer shall be implied by Employer's forbearance or
failure to take action.
(i) Attorneys Fees. In the event that any action or
proceeding is commenced by any party hereto for the purpose of enforcing any
provision of this Agreement, the parties to such action, proceeding or
arbitration may receive as part of any award, settlement, judgment, decision or
other resolution of such action or proceeding, whether or not reduced to a court
judgment, their costs and reasonable attorneys fees as determined by the person
or body making such award, settlement, judgment, decision or resolution.
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(j) Voluntary and Knowledgeable Act. Employee represents and
warrants that Employee has read and understands each and every provision of this
Agreement and has freely and voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYER:
YOUNG INNOVATIONS, INC.
By: /s/ Alfred E. Brennan
-------------------------
Name: Alfred E. Brennan
Title: President
EMPLOYEE:
/s/ Arthur L. Herbst, Jr.
------------------------------------------------------------
Arthur L. Herbst, Jr.
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<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of
September 27, 1999, by and between YOUNG INNOVATIONS, INC., a Missouri
corporation ("EMPLOYER"), and RICHARD G. RICHMOND of Glenco, Missouri
("EMPLOYEE").
In consideration of Employer's employment of Employee, the terms,
conditions and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee and Employer, intending to be legally bound, hereby agree as follows:
1. Employment. Employer hereby agrees to employ Employee and Employee
agrees to accept such employment upon the terms and conditions herein set forth.
2. Employment Period. The initial term of employment hereunder shall
commence on the date hereof and shall expire on September 27, 2002 (such
period, the "TERM"). In the event that Employee continues to be employed by
Employer following the initial or any extended term hereof, such employment
shall be governed by this Agreement, except that it will be "at-will," without
a fixed term, and may be terminated by Employer or Employee at any time, with
or without notice, for any reason or no reason (and no reason need be given),
and without obligation of severance or additional compensation beyond that owed
for periods that Employee was actually employed by Employer.
3. Position and Duties. Employee hereby agrees to serve as Chief
Financial Officer and Executive Vice President of Strategic Planning. Employee
shall devote his full business time and attention to the management, development
and enhancement of the business of Employer and perform such duties as are
necessary and required of the Chief Financial Officer and Executive Vice
President of Strategic Planning. During the Term, Employee may not undertake any
other employment, engagements, consulting or other outside activities that in
the opinion of the Board of Directors interfere with the effective carrying out
of Employee's duties hereunder, provided, however, that nothing herein shall
prevent Employee from making and managing personal investments consistent with
Section 8 of this Agreement or engaging in community and/or charitable
activities, so long as such activities,
<PAGE> 2
either singly or in the aggregate, do not interfere with the proper
performance of his duties and responsibilities to Employer.
4. Compensation.
(a) Base Salary. Employer shall pay to Employee salary at the
rate of $159,000 per year for the period from the date hereof through
September 27, 2002, or such higher amounts as shall be approved by the
Compensation Committee or the Board of Directors (in each case, the "Base
Salary").
(b) Bonus Compensation. In addition to Base Salary, Employee shall
be entitled to receive bonus compensation as determined by the Compensation
Committee or the Board of Directors (the "BONUS COMPENSATION").
(c) Holidays and Vacation Time. Employee shall be entitled to sick
leave as is consistent with Employer's policy for executive employees with
respect to such matters as of the date hereof. Employee is entitled to as many
weeks of paid vacation time as Employee deems appropriate, provided that such
vacation time does not interfere with Employee's duties to Employer. Moreover,
if this Agreement is terminated for any reason other than Cause, death or
Permanent Disability, Employee shall be entitled to three weeks of paid
vacation.
(d) Other Benefits. Subject to Employer's rules, policies and
regulations as in effect from time to time (and subject to applicable
eligibility requirements, including a minimum employment period), Employee shall
be entitled to all other rights and benefits for which Employee may be eligible
under any: (i) group life insurance, disability or accident, death or
dismemberment insurance, (ii) medical and/or dental insurance program (90-day
minimum employment period, for which Employer will reimburse the COBRA expenses
of Employee), (iii) 401(k) benefit plan, or (iv) other employee benefits that
Employer may, in its sole discretion, make generally available to employees of
Employer of the same level and responsibility as Employee; provided, however,
that nothing herein shall obligate Employer to establish or maintain any of such
benefits or benefit plans. In addition to the foregoing, Employer agrees that it
shall pay for 100% of any premiums for a health insurance policy which covers
Employee and his Qualified Dependents (PPO or equivalent).
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<PAGE> 3
(e) Disability Insurance. Employer will provide Employee with
long term disability insurance which provides a minimum benefit of at least
seventy-five percent (75%) of Employee's Base Salary to age 65.
(f) Life and Other Insurance. Subject to Employee meeting
applicable underwriting criteria, Employer will provide $1 million of guaranteed
level premium term life insurance for a policy which covers Employee for at
least 15 years after the date hereof (naming Employee or Employee's written
designee as the beneficiary of the policy, with Employer having no right to
revoke or alter the designation) and such other types of insurance for Employee
as shall be agreed upon between Employee and Employer from time to time.
Employer shall only be responsible for the payment of insurance premiums during
the term of this Agreement. Employer shall use its best efforts to insure that
life insurance policy is "portable" so that Employee can continue the policy
after the end of Employee's employment with Employer at Employee's own expense.
(g) Automobile Allowance. Employer shall provide Employee with an
automobile allowance not to exceed $650 per month, or such greater amount as
shall be approved from time to time by the Compensation Committee.
(h) Failure to Renew or Renegotiate Contract. In the event that
Employer and Employee do not enter into a new employment contract at the end of
the Term, Employer shall have the right, exercisable by written notice at least
thirty (30) days prior to the end of the Term, to extend the applicability of
Section 8(e) until the first anniversary of the end of the Term, by payment to
Employee, in one lump sum, of an amount equal to Employee's Base Salary for the
last year of the Term. Such payment shall be made within fifteen (15) days after
the end of the Term.
5. Supplemental Payment Upon a Change In Control. If a Change In
Control occurs from the date hereof until September 27, 2003, and Employee is
employed by Employer on the date of the Change In Control or Employee
demonstrates that Employee would have been employed by Employer but for steps
taken at the request of a third party to effect the Change In Control or
Employee's termination was without Cause and arose in connection with or
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<PAGE> 4
anticipation of such Change In Control, then Employer shall have the additional
rights set forth in this Section 5. Namely, Employer shall, within thirty (30)
days immediately following the date of the Change In Control, pay to Employee a
lump sum cash amount such that the total amount of payments to Employee in
connection with the Change In Control under or in connection with all plans,
arrangements, obligations or agreements between Employer and Employee (including
any plans providing for the vesting of stock options or other property in
connection with a Change of Control) equals 2.9999 times the "base amount" (as
such term is used in Section 280G(b)(3) of the Code). However, in the event that
the total amount payable by Employer to Employee in connection with a Change In
Control under or in connection with all plans, arrangements, obligations or
agreements exclusive of amount payable under this Section 5 exceeds 2.9999 times
the "base amount," Employer will have no obligation to Employee under this
Section 5. The Employer shall engage its Accounting Firm to determine the "base
amount" and all amounts payable in connection with a Change In Control;
provided, however, that if the Accounting Firm is serving as accountant or
auditor for the person, entity or group effecting the Change In Control,
Employee shall appoint another nationally recognized accounting firm which shall
provide Employee with detailed supporting calculations for its conclusions. All
fees and expenses of the Accounting Firm shall be borne solely by Employer.
6. Termination of Employment.
(a) Permanent Disability. In the event of the Permanent
Disability (as defined below) of Employee, Employer shall cause all amounts due
under the disability policy described in Section 4(e) to be paid to Employee,
along with any Base Salary accruing during any eligibility or waiting period
under the disability insurance policy obtained by Employer. Notwithstanding the
foregoing, all payments hereunder shall end upon the earlier to occur of
Employee's attaining the age of sixty-five (65) and the cessation of such
Permanent Disability (whether as a result of recovery, rehabilitation, death or
otherwise).
(b) Death. In the event of Employee's death, Employer shall pay
to Employee's personal representative (on behalf of Employee's estate), within
sixty (60) days after Employer receives written notice of such representative's
appointment, all amounts of Base Salary and Bonus Compensation accrued pursuant
to Section 4 above as of the date of
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Employee's death, which payment shall constitute full and complete satisfaction
of Employer's obligations hereunder. Employee's dependents shall also be
entitled to receive fully paid group medical and dental benefits for a period of
ninety (90) days at Employer's expense, and thereafter, at the dependents'
expense, any continuation of health insurance coverage rights, if any, under
applicable law.
(c) Termination for Cause or Voluntary Termination Without Good
Reason. The Employer may in its sole discretion terminate this Agreement and
Employee's employment with Employer for Cause (as defined in Section 7(e) below)
at any time and with or without advance notice to Employee. If Employee's
employment is terminated for Cause, or if Employee Voluntarily Terminates (as
defined below) his employment with Employer without Good Reason (as defined
below), Employer shall promptly pay to Employee all amounts of Base Salary
accrued pursuant to Section 4 above through the date of termination (but not
Bonus Compensation), whereupon Employer shall have no further obligations to
Employee under this Agreement. Employee and his dependents shall also be
entitled to any continuation health insurance coverage rights, if any, under
applicable law. If Employee Voluntarily Terminates without Good Reason and
provide at least 6 months prior written notice, Employee is entitled to receive,
in one lump sum, an amount equal to employee's annual Base Salary at the end of
the six-month notice period (in addition to his Base Salary and Bonus
Compensation during the six-month notice period). If Employee Voluntarily
Terminates without Good Reason but gives less than 6 months written notice, then
Employee will be entitled to no further payments of Base Salary or Bonus
Compensation from and after the date of the transmission of the written notice.
(d) Termination Without Cause; Voluntary Termination With Good
Reason. Employer may terminate this Agreement and Employee's employment with
Employer without Cause at any time, with or without notice, for any reason or no
reason (and no reason need be given). Employee may terminate this Agreement and
Voluntarily Terminate his employment with Employer with Good Reason upon thirty
(30) days' prior written notice to Employer, provided that Employer does not
correct the circumstances giving Employee Good Reason during such thirty (30)
day period. In the event Employee's employment with Employer is terminated
pursuant to this Section 6(d), (i) Employer shall pay to Employee all amounts of
Base Salary and Bonus Compensation accrued pursuant to Section 4 above through
the date of
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<PAGE> 6
termination, (ii) Employee shall be relieved of his obligations under Sections 1
and 3 hereof, and (iii) Employee shall be free to seek other employment subject
to the terms of Section 8 hereof. In addition, if Employee's employment with
Employer is terminated pursuant to this Section 6(d), Employer shall pay to
Employee the value of all compensation and benefits that Employee would have
earned under this Agreement for the remaining Term together with all reasonable
attorneys' or other professional fees and costs incurred by Employee in
enforcing his rights under this Section 6(d). Employer may satisfy its
obligation hereunder by either providing such compensation and benefits in kind
at the time such compensation and benefits would otherwise be due hereunder, or
with consent of Employee, by paying the present value thereof in a lump sum.
Employee has a duty to mitigate such amount by obtaining comparable or better
employment, if possible, and the amounts payable hereunder shall be reduced by
25% of the base salary and bonus which Employee earns during such period.
However, Employee's duty to find a comparable position does not require Employee
to accept a position that is not comparable to his current position's duties, in
a different location or at a lesser rate of compensation or benefits. Employer
may also require Employee to fully and completely release any and all claims for
breach of this Agreement as a condition to receiving such payments under this
Section 6(d). Employee and his dependents shall also be entitled to any
continuation health insurance coverage rights, if any, under applicable law.
(e) Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of Employer and Employee. Employee's rights and
obligations, in such event, shall be as set forth in the termination agreement.
(f) Termination Obligations.
(i) Employee hereby acknowledges and agrees that all personal
property and equipment furnished to or prepared by Employee in the course of or
incident to his employment by Employer, belongs to Employer and shall be
promptly returned to Employer upon termination of Employee's employment. The
term "PERSONAL PROPERTY" includes, without limitation, all books, manuals,
records, reports, notes, contracts, requests for proposals, bids, lists,
blueprints, and other documents, or materials, or copies thereof (including
computer files), and all other proprietary information relating to the business
of Employer or any of its affiliates. Following
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<PAGE> 7
termination, Employee will not retain any written or other tangible material
containing any proprietary information of Employer or any of its affiliates.
(ii) Upon termination of the Employment Period, Employee shall
be deemed to have resigned from all offices and directorships then held with
Employer and each of its affiliates.
(iii) The representations and warranties contained herein and
Employee's obligations under Sections 6(f), 8, and 11 shall survive termination
of the Employment Period and the expiration of this Agreement.
7. Definitions. For the purposes of this Agreement the following
terms and phrases shall have the following meanings:
(a) ACCOUNTING FIRM shall mean the "Big-Five" firm who regularly
prepares Employer's audited financial statement.
(b) AFFILIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(c) ASSOCIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(d) BENEFICIAL OWNERSHIP shall have the same meaning ascribed to
such term in Rule 13d-3 promulgated pursuant to the Exchange Act.
(e) "CAUSE" shall mean (i) violation of any agreement or law
relating to non-competition, trade secrets, inventions,
non-solicitation or confidentiality between Employee and
Employer or an affiliate, (ii) willful, intentional or bad
faith conduct that materially injures Employer or an
Affiliate, (iii) commission of a felony, an act of fraud or
the misappropriation of property; and (iv) gross neglect or
moral turpitude.
(f) "Change In Control" shall mean any of the following:
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<PAGE> 8
(1) such time that George E. Richmond ceases to own, 30% or
more of the then outstanding shares of common stock of
Employer;
(2) the majority of the members of Employer's Board of
Directors being replaced during any 12-month period by
directors whose appointment or election is not endorsed
by a majority of the members of the Board of Directors
of Employer immediately prior to such appointment or
election;
(3) any reorganization, merger or consolidation (a
"Reorganization") involving Employer unless at least 50%
of the then outstanding shares of common stock of the
surviving corporation is held or is anticipated to be
held by persons who are shareholders of Employer
immediately prior to such Reorganization in
substantially the same proportions as their ownership,
immediately prior to such Reorganization;
(4) Approval by the shareholders of Employer of (i) a "going
private" transaction of Employer within the meaning of
Section 13(e) of the Exchange Act, (ii) the consummation
date of a complete liquidation or dissolution of
Employer or (iii) the consummation date of the sale or
other disposition of all or substantially all of the
assets of Employer.
(5) For purposes of this Section 7(f), all shares of stock
of Employer owned or held by George E. Richmond directly
or indirectly (i.e., through partnerships, corporations
or limited liability companies), or by George E.
Richmond's spouse, estate, lineal descendants, spouses
of lineal descendants or trusts for any of their
benefit, and which indirectly held shares were
transferred from George E. Richmond after the date of
this Agreement shall be deemed to be owned by George E.
Richmond. For purposes of illustration, any disposition,
sale, gift or other transfer of shares of Employer's
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<PAGE> 9
common stock by George E. Richmond after the date of
this Agreement to his children or to trusts established
for his or their benefit will not be taken into account
for purposes of determining whether a "Change In
Control" has occurred under this Agreement. However, if
the direct ownership of George E. Richmond is reduced to
29% but his children own 10% of Employer's shares as a
result of transfers made prior to the date of this
Agreement, a Change In Control will have occurred.
(g) CODE shall mean the Internal Revenue Code of 1986, as
amended.
(h) EXCHANGE ACT shall mean the Securities Exchange Act of 1934,
as amended.
(i) GOOD REASON shall mean, with respect to a Voluntary
Termination, if (i) a material and adverse change in Employee's duties,
responsibilities or status with Employer or an affiliate is made without Cause,
(ii) a reduction in the annual compensation or total benefit package of Employee
(other than a comparable reduction in cash compensation or benefits generally
affecting substantially all officers or executive employees of Employer), (iii)
amendment or termination of this Agreement without Employee's consent; (v) a
change in Employee's job location beyond an area outside of a 25-mile radius of
Employee's principal office or (vi) the Board of Directors of Employer otherwise
determines that a Voluntary Termination by Employee is for "Good Reason" under
the circumstances then prevailing; provided, however, that Good Reason will not
be deemed to exist unless Employee provides written notice to Employer within 60
days after the occurrence of the event specified above and Employer fails to
cure the event to Employee's reasonable satisfaction within 60 days after
Employer receives such notice.
(j) IRS shall mean the Internal Revenue Service.
(k) PERMANENT DISABILITY shall have the meaning set forth in
Section 22(e)(3) of the Code.
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<PAGE> 10
(l) PERSON shall have the same meaning as ascribed to such term
in Sections 13(d) and 14(d)(2) of the Exchange Act; provided, however, that for
purposes of this Agreement, neither Employer nor any trustee or fiduciary acting
in such capacity for an employee benefit plan sponsored or maintained by
Employer or any entity controlled by Employer, shall be deemed to be a "person".
(m) QUALIFIED DEPENDENTS shall mean Employee's spouse and
unmarried children less than 19 years old; provided, that the 19 year age limit
does not apply to a child who: i) is enrolled as a full time student in school
and ii) has not attained the age of 23 years.
(n) VOLUNTARY TERMINATION (including VOLUNTARILY TERMINATES)
shall mean the termination by Employee of his employment by Employer by
voluntary resignation or any other means other than death, retirement or
Permanent Disability and other than simultaneous with or following termination
for Cause or an event which, whether or not known to Employer at the time of
such Voluntary Termination by such Executive, would constitute Cause.
8. Restrictive Covenants.
(a) Consideration and Acknowledgements. Employee acknowledges
and agrees that the covenants described in this Section 8 are essential terms of
this Agreement and that the Agreement would not be entered into by Employer in
the absence of the covenants described herein. Employee acknowledges and agrees
that the covenants set forth in this Section are necessary for the protection of
the business interests of Employer. Employee further acknowledges that these
covenants are supported by adequate consideration as set forth elsewhere in this
employment Agreement, that full compliance with these covenants will not prevent
Employee from earning a livelihood following the termination of his employment,
and that these covenants do not place undue restraint on Employee and are not in
conflict with any public interest. Employee acknowledges and agrees that the
covenants set forth in this Section 8 are reasonable and enforceable in every
respect under applicable law.
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<PAGE> 11
(b) Term. The covenants set forth in this Section 8 shall
remain in force and effect throughout Employee's employment with Employer and
thereafter for the time periods governing such covenants as set forth herein,
regardless of the reason for or timing of the termination of Employee's
employment and shall survive and continue in full force and effect after the
termination of the Agreement.
(c) Definitions. As used in this Section 8, the following terms
have the following meanings:
i. "Employer" shall mean Young Innovations, Inc., including
and any parent, subsidiary or affiliate as of the date
of this Agreement or at any time during the term of
Employee's employment.
ii. "Confidential Information" shall include any and all
information not generally available to the public
through legitimate means regardless of any past, current
or anticipated future business, product, system service,
process, or practice of Employer, as well as any and all
information relating to Employer's business, research,
development purchasing, accounting, advertising,
marketing, manufacturing, merchandising and selling.
Confidential Information includes but is not limited to
information that may constitute a "trade secret" under
applicable law.
iii. "Competing Business" means any product, system, service,
process or practice produced, provided, marketed or sold
anywhere in the geographic area where Employer is then
conducting any business by any person or entity other
than Employer which resembles or competes directly or
indirectly with any product, system, service, process or
practice produced, provided, marketed, sold, or under
development by Employer at any time during Employee's
employment.
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<PAGE> 12
iv. "Competing Organization" means any person or entity
which is engaged in, or is planning to become engaged in
research, development, production, manufacturing,
marketing or selling of a Competing Business within the
area in which Employer is then conducting any business
or has affirmative plans to conduct business while these
covenants are in effect.
(d) Non-Disclosure of Confidential Information. Except as
necessary to perform his job duties, Employee agrees not to use any Confidential
Information, or disclose any Confidential Information to any person or entity,
either during or at any time after his employment, without Employer's prior
written consent, unless required to do so by a court of competent jurisdiction,
or by an administrative or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information.
(e) Non-Competition. Employee agrees that during his employment
and for a period of one year after the termination for Cause or Voluntary
Termination without Good Reason (provided that no Change of Control has
occurred), any reason of his employment, he will not render services to, give
advice to, become employed by or otherwise affiliate with, directly or
indirectly, any Competing Organization, nor will he (on behalf of himself or any
other person or entity) engage directly or indirectly in any Competing Business,
unless otherwise agreed to in writing by Employer.
(f) Non-Inducement. Employee agrees that during the term of his
employment and for the one year period following the termination, he will not
directly or indirectly assist or encourage any person or entity in carrying out
any activity that would be prohibited by the provisions of this Section 8 if
such activity were carried out by Employee. Employee also specifically agrees
that he will not directly or indirectly induce any other employee to leave the
employ of Employer or to carry out, directly or indirectly, any such activity;
provided, however, that Employer shall not be in violation of this provision if
an employee decides to join the new employer of Employee if Employee did not
intentionally direct or solicit such employee to leave.
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<PAGE> 13
(g) Inventions and Patents. Employee agrees to promptly and
fully disclose in writing and does hereby assign to Employer every invention,
innovation, copyright, or improvement made or conceived by Employee during the
period of his employment that relates directly or indirectly to his employment
with Employer. Employee further agrees that both during and after his
employment, without charge to Employer but at Employer's expense, he will
execute, acknowledge and deliver any documents, including applications for
Letters Patent, as may be necessary, or in the opinion of Employer, advisable to
(a) obtain, enjoy and/or enforce Letters Patent for those inventions,
innovations or improvements in the United States and in any other country; (b)
obtain, enjoy or enforce the right to claim the priority of the first filed
patent application anywhere in the world; or (c) vest title in Employer and its
successors, assigns or nominees. Additionally, Employee agrees that for a period
of one (1) year after termination of his employment, any invention, development,
innovation, or improvement within the scope of this Section shall be presumed to
have been made during the term of his employment. Employee shall have the burden
of clearly and convincingly establishing otherwise.
This Agreement does not apply to any invention for which no equipment,
supplies, facility or trade secret information of Employer was used and which
was developed entirely on Employee's own time, and (1) which does not relate (a)
directly to the business of Employer or (b) to Employer's actual or demonstrably
anticipated research or development, or (2) which does not result from any work
performed by employee for Employer.
(h) Enforcement of These Covenants. Employee acknowledges that
full compliance with all of the covenants set forth in this Section 8 is
necessary to enable Employer to do business with its customers for the term of
this Agreement and damage to Employer for which there will be no adequate remedy
at law. In the event of a breach of any of these covenants, Employee therefore
acknowledges and agrees that Employer shall be entitled to injunctive relief,
regardless of whether or not Employer has complied with this Agreement, and
Employer shall further be entitled to such other relief, including money
damages, as many be deemed appropriate by a court of competent jurisdiction or
an Arbitrator. In the event of a court action based upon an alleged breach of
any of these covenants, the prevailing party (as determined by court ruling on
the merits of the dispute) will be reimbursed by the other party for reasonable
attorneys' fees and costs incurred as a result of the dispute. If any court
should at any
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<PAGE> 14
time find any one of these covenants to be unenforceable or unreasonable as to
scope, territory or period of time, then the scope, territory or period of time
of the covenant shall be that determined by the court to be reasonable, and the
parties hereby agree that the court has the authority to so modify any of these
covenants as necessary to make the covenant enforceable.
(i) Existence of Other Obligations. Employee represents and
warrants that he is not currently subject to any contractual or other
obligations to any former employer or other entity, including but not limited to
obligations not to use or disclose confidential information, or to refrain from
competing with any person or entity.
(j) Waiver. Employee agrees that Employer's failure to enforce
any of the covenants of this Section 8 in any particular instance shall not be
deemed to be a waiver of the covenant in that or any subsequent instance, nor
shall it be deemed a waiver by Employer of any other rights at law or under this
Agreement.
9. Jurisdiction; Service of Process. Each of the parties hereto
agrees that all any action or proceeding initiated or otherwise brought to
judicial proceedings by either Employee or Employer concerning the subject
matter of this Agreement shall be litigated in the United States District Court
for the Eastern District of Missouri or, in the event such court cannot or will
not exercise jurisdiction, in the state courts of the State of Missouri (the
"COURTS"). Each of the parties hereto expressly submits to the jurisdiction and
venue of the Courts and consents to process being served in any suit, action or
proceeding of the nature referred to above either (a) by the mailing of a copy
thereof by registered or certified mail, postage prepaid, return receipt
requested, to his or its address as set forth herein or (b) by serving a copy
thereof upon such party's authorized agent for service of process (to the extent
permitted by applicable law, regardless whether the appointment of such agent
for service of process for any reason shall prove to be ineffective or such
agent for service of process shall accept or acknowledge such service); provided
that, to the extent lawful and practicable, written notice of said service upon
said agent shall be mailed by registered or certified mail, postage prepaid,
return receipt requested, to the party at his or its address as set forth
herein. Each party hereto agrees that such service, to the fullest extent
permitted by law, (i) shall be deemed in every respect effective service of
process upon him or it in any such suit, action or proceeding and (ii) shall be
taken and
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<PAGE> 15
held to be valid personal service upon and personal delivery to him or it. Each
party hereto waives any claim that the Courts are an inconvenient forum or an
improper forum based on lack of venue or jurisdiction. Each party shall bear its
own costs and attorneys' fees incurred in connection with any such actions or
proceedings.
10. Injunctive Relief. Employee acknowledges that damages would be an
inadequate remedy for Employee's breach of any of the provisions of Section 8 of
this Agreement, and that breach of any of such provisions will result in
immeasurable and irreparable harm to Employer. Therefore, in addition to any
other remedy to which Employer may be entitled by reason of Employee's breach or
threatened breach of any such provision, Employer shall be entitled to seek and
obtain a temporary restraining order, a preliminary and/or permanent injunction,
or any other form of equitable relief from any court of competent jurisdiction
restraining Employee from committing or continuing any breach of such Sections,
without the necessity of posting a bond. It is further agreed that the existence
of any claim or cause of action on the part of Employee against Employer,
whether arising from this Agreement or otherwise, shall in no way constitute a
defense to the enforcement of the provisions of Section 8 of this Agreement.
11. Miscellaneous.
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (i) when made, if delivered
personally, (ii) three (3) days after being mailed by certified or registered
mail, postage prepaid, return receipt requested, or (iii) two (2) days after
delivery to a reputable overnight courier service, to the parties, their
successors in interest or their assignees at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
To Employer:
Young Innovations, Inc.
13705 Shoreline Court East
Earth City, MO 63045
Attention: George E. Richmond
To Employee, to his home address as recorded in the payroll
records of Employer from time to time.
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<PAGE> 16
(b) Governing Law. This Agreement shall be governed as to
its validity and effect by the internal laws of the State of Missouri, without
regard to its rules regarding conflicts of law.
(c) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of (i) the heirs, executors and legal
representatives of Employee, upon Employee's death, and (ii) any successor of
Employer, and any such successor shall be deemed substituted for Employee or
Employer, as the case may be, under the terms hereof for all purposes. As used
in this Agreement, "successor" shall include any person, firm, corporation or
other business entity that at any time, whether by purchase, merger,
consolidation or otherwise, directly or indirectly acquires a majority of the
assets, business or stock of Employer. Employee acknowledges and agrees that the
rights and obligations of Employer hereunder may be assigned to and assumed by
any of its wholly or majority-owned subsidiaries, without Employee's consent,
which assignment and assumption shall constitute a release of Employer, its
subsidiaries or any of their respective affiliates that is then bound by the
terms of this Agreement, of all of its obligations and liabilities hereunder.
(d) Integration. This Agreement (together with any option
agreement Employer may require Employee to execute in order to avail
himself/herself of any Stock Plan benefits specifically contemplated herein and
any agreement to release and hold harmless Employer executed concurrently
herewith) constitutes the entire agreement between the parties with respect to
all matters covered herein, including but not limited to the parties' employment
relationship and Employee's entitlement to compensation, commissions and
benefits from Employer or any of its affiliated companies and/or the termination
of Employee's employment. This Agreement supersedes all prior oral or written
understandings and agreements relating to its subject matter and all other
business relationships between Employer and/or its affiliated companies.
(e) No Representations. No person or entity has made or has
the authority to make any representations or promises on behalf of any of the
parties which are inconsistent with the representations or promises contained in
this Agreement, and this Agreement has not been executed in reliance on any
representations or promises not set forth herein. Specifically, no
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<PAGE> 17
promises, warranties or representations have been made by anyone on any topic or
subject matter related to Employee's relationship with Employer or any of its
executives or employees, including but not limited to any promises, warranties
or representations regarding future employment, compensation, commissions and
benefits, any entitlement to stock, stock rights, Stock Plan benefits, profits,
debt and equity interests in Employer or any of its affiliated companies or
regarding the termination of Employee's employment. In this regard, Employee
agrees that no promises, warranties or representations shall be deemed to be
made in the future unless they are set forth in writing and signed by an
authorized representative of Employer.
(f) Amendments. This Agreement may be modified only by a
written instrument executed by the parties that is designated as an amendment to
this Agreement.
(g) Counterparts. This Agreement is being executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Severability and Non-Waiver. Any provision of this
Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable
in any jurisdiction shall, as to that jurisdiction and subject to this Section,
be ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by Employer shall be implied by Employer's forbearance or
failure to take action.
(i) Attorneys Fees. In the event that any action or
proceeding is commenced by any party hereto for the purpose of enforcing any
provision of this Agreement, the parties to such action, proceeding or
arbitration may receive as part of any award, settlement, judgment, decision or
other resolution of such action or proceeding, whether or not reduced to a court
judgment, their costs and reasonable attorneys fees as determined by the person
or body making such award, settlement, judgment, decision or resolution.
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<PAGE> 18
(j) Voluntary and Knowledgeable Act. Employee represents and
warrants that Employee has read and understands each and every provision of this
Agreement and has freely and voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYER:
YOUNG INNOVATIONS, INC.
By: /s/ Alfred E. Brennan
-------------------------
Name: Alfred E. Brennan
Title: President
EMPLOYEE:
/s/ Richard G. Richmond
------------------------------------------------------------
Richard G. Richmond
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<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into as of
October 25, 1999, by and between YOUNG INNOVATIONS, INC., a Missouri corporation
("EMPLOYER"), and ERIC STETZEL, of Fort Wayne, Indiana ("Employee").
In consideration of Employer's employment of Employee, the terms,
conditions and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee and Employer, intending to be legally bound, hereby agree as follows:
1. Employment. Employer hereby agrees to employ Employee
and Employee agrees to accept such employment upon the terms and conditions
herein set forth.
2. Employment Period. The initial term of employment hereunder
shall commence on the date hereof and shall expire on October 25, 2002 (such
period, the "TERM"). In the event that Employee continues to be employed by
Employer following the initial or any extended term hereof, such employment
shall be governed by this Agreement, except that it will be "at-will," without a
fixed term, and may be terminated by Employer or Employee at any time, with or
without notice, for any reason or no reason (and no reason need be given), and
without obligation of severance or additional compensation beyond that owed for
periods that Employee was actually employed by Employer.
3. Position and Duties. Employee hereby agrees to serve as Vice
President of Employer. Employee shall devote his full business time and
attention to the management, development and enhancement of the business of
Employer and perform such duties as are necessary and required of the Vice
President of Employer. During the Term, Employee may not undertake any other
employment that in the opinion of the Board of Directors interferes with the
effective carrying out of Employee's duties hereunder, provided, however, that
nothing herein shall prevent Employee from entering into consulting agreement or
other advisory relationship with outside companies or making and managing
personal investments consistent with Section 8 of this Agreement or engaging in
community and/or charitable activities, so long as such
<PAGE> 2
activities, either singly or in the aggregate, do not interfere with the proper
performance of his duties and responsibilities to Employer.
4. Compensation.
(a) Base Salary. Employer shall pay to Employee salary at the
rate of $159,000 per year for the period from the date hereof through October
25, 2002, or such higher amounts as shall be approved by the Compensation
Committee or the Board of Directors (in each case, the "Base Salary").
(b) Bonus Compensation. In addition to Base Salary, Employee
shall be entitled to receive bonus compensation as determined by the
Compensation Committee or the Board of Directors (the "BONUS COMPENSATION").
(c) Holidays and Vacation Time. Employee shall be entitled to
sick leave as is consistent with Employer's policy for executive employees with
respect to such matters as of the date hereof. Employee is entitled to as many
weeks of paid vacation time as Employee deems appropriate, provided that such
vacation time does not interfere with Employee's duties to Employer. Moreover,
if this Agreement is terminated for any reason other than Cause, death or
Permanent Disability, Employee shall be entitled to three weeks of paid
vacation.
(d) Other Benefits. Subject to Employer's rules, policies and
regulations as in effect from time to time (and subject to applicable
eligibility requirements, including a minimum employment period), Employee shall
be entitled to all other rights and benefits for which Employee may be eligible
under any: (i) group life insurance, disability or accident, death or
dismemberment insurance, (ii) medical and/or dental insurance program (90-day
minimum employment period, for which Employer will reimburse the COBRA expenses
of Employee), (iii) 401(k) benefit plan, or (iv) other employee benefits that
Employer may, in its sole discretion, make generally available to employees of
Employer of the same level and responsibility as Employee; provided, however,
that nothing herein shall obligate Employer to establish or maintain any of such
benefits or benefit plans. In addition to the foregoing, Employer agrees that it
shall pay for 100% of any premiums for a health insurance policy which covers
Employee and his Qualified Dependents (PPO or equivalent).
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<PAGE> 3
(e) Disability Insurance. Employer will provide Employee with
long term disability insurance which provides a minimum benefit of at least
seventy-five percent (75%) of Employee's Base Salary to age 65.
(f) Life and Other Insurance. Subject to Employee meeting
applicable underwriting criteria, Employer will provide $1,000,000 of guaranteed
level premium term life insurance for a policy which covers Employee for at
least 15 years after the date hereof (naming Employee or Employee's written
designee as the beneficiary of the policy, with Employer having no right to
revoke or alter the designation) and such other types of insurance for Employee
as shall be agreed upon between Employee and Employer from time to time.
Employer shall only be responsible for the payment of insurance premiums during
the term of this Agreement. Employer shall use its best efforts to insure that
life insurance policy is "portable" so that Employee can continue the policy
after the end of Employee's employment with Employer at Employee's own expense.
(g) Automobile Allowance. Employer shall provide Employee with
an automobile allowance not to exceed $550 per month, or such greater amount as
shall be approved from time to time by the Compensation Committee.
(h) Failure to Renew or Renegotiate Contract. In the event
that Employer and Employee do not enter into a new employment contract at the
end of the Term, Employer shall have the right, exercisable by written notice at
least thirty (30) days prior to the end of the Term, to extend the applicability
of Section 8(e) until the first anniversary of the end of the Term, by payment
to Employee, in one lump sum, of an amount equal to Employee's Base Salary for
the last year of the Term. Such payment shall be made within fifteen (15) days
after the end of the Term.
5. Supplemental Payment Upon a Change In Control. If a Change
In Control occurs from the date hereof until October 25, 2003, and Employee is
employed by Employer on the date of the Change In Control or Employee
demonstrates that Employee would have been employed by Employer but for steps
taken at the request of a third party to effect the Change In Control or
Employee's termination was without Cause and arose in connection with or
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<PAGE> 4
anticipation of such Change In Control, then Employer shall have the additional
rights set forth in this Section 5. Namely, Employer shall, within thirty (30)
days immediately following the date of the Change In Control, pay to Employee a
lump sum cash amount such that the total amount of payments to Employee in
connection with the Change In Control under or in connection with all plans,
arrangements, obligations or agreements between Employer and Employee (including
any plans providing for the vesting of stock options or other property in
connection with a Change of Control) equals 2.9999 times the "base amount" (as
such term is used in Section 280G(b)(3) of the Code). However, in the event that
the total amount payable by Employer to Employee in connection with a Change In
Control under or in connection with all plans, arrangements, obligations or
agreements exclusive of amount payable under this Section 5 exceeds 2.9999 times
the "base amount," Employer will have no obligation to Employee under this
Section 5. The Employer shall engage its Accounting Firm to determine the "base
amount" and all amounts payable in connection with a Change In Control;
provided, however, that if the Accounting Firm is serving as accountant or
auditor for the person, entity or group effecting the Change In Control,
Employee shall appoint another nationally recognized accounting firm which shall
provide Employee with detailed supporting calculations for its conclusions. All
fees and expenses of the Accounting Firm shall be borne solely by Employer.
6. Termination of Employment.
(a) Permanent Disability. In the event of the Permanent
Disability (as defined below) of Employee, Employer shall cause all amounts due
under the disability policy described in Section 4(e) to be paid to Employee,
along with any Base Salary accruing during any eligibility or waiting period
under the disability insurance policy obtained by Employer. Notwithstanding the
foregoing, all payments hereunder shall end upon the earlier to occur of
Employee's attaining the age of sixty-five (65) and the cessation of such
Permanent Disability (whether as a result of recovery, rehabilitation, death or
otherwise).
(b) Death. In the event of Employee's death, Employer shall
pay to Employee's personal representative (on behalf of Employee's estate),
within sixty (60) days after Employer receives written notice of such
representative's appointment, all amounts of Base Salary and Bonus Compensation
accrued pursuant to Section 4 above as of the date of
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<PAGE> 5
Employee's death, which payment shall constitute full and complete satisfaction
of Employer's obligations hereunder. Employee's dependents shall also be
entitled to receive fully paid group medical and dental benefits for a period of
ninety (90) days at Employer's expense, and thereafter, at the dependents'
expense, any continuation of health insurance coverage rights, if any, under
applicable law.
(c) Termination for Cause or Voluntary Termination Without
Good Reason. The Employer may in its sole discretion terminate this Agreement
and Employee's employment with Employer for Cause (as defined in Section 7(e)
below) at any time and with or without advance notice to Employee. If Employee's
employment is terminated for Cause, or if Employee Voluntarily Terminates (as
defined below) his employment with Employer without Good Reason (as defined
below), Employer shall promptly pay to Employee all amounts of Base Salary
accrued pursuant to Section 4 above through the date of termination (but not
Bonus Compensation), whereupon Employer shall have no further obligations to
Employee under this Agreement. Employee and his dependents shall also be
entitled to any continuation health insurance coverage rights, if any, under
applicable law. If Employee Voluntarily Terminates without Good Reason and
provide at least 6 months prior written notice, Employee is entitled to receive,
in one lump sum, an amount equal to employee's annual Base Salary at the end of
the six-month notice period (in addition to his Base Salary and Bonus
Compensation during the six-month notice period). If Employee Voluntarily
Terminates without Good Reason but gives less than 6 months written notice, then
Employee will be entitled to no further payments of Base Salary or Bonus
Compensation from and after the date of the transmission of the written notice.
(d) Termination Without Cause; Voluntary Termination With Good
Reason. Employer may terminate this Agreement and Employee's employment with
Employer without Cause at any time, with or without notice, for any reason or no
reason (and no reason need be given). Employee may terminate this Agreement and
Voluntarily Terminate his employment with Employer with Good Reason upon thirty
(30) days' prior written notice to Employer, provided that Employer does not
correct the circumstances giving Employee Good Reason during such thirty (30)
day period. In the event Employee's employment with Employer is terminated
pursuant to this Section 6(d), (i) Employer shall pay to Employee all amounts of
Base Salary and Bonus Compensation accrued pursuant to Section 4 above through
the date of
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<PAGE> 6
termination, (ii) Employee shall be relieved of his obligations under Sections 1
and 3 hereof, and (iii) Employee shall be free to seek other employment subject
to the terms of Section 8 hereof. In addition, if Employee's employment with
Employer is terminated pursuant to this Section 6(d), Employer shall pay to
Employee the value of all compensation and benefits that Employee would have
earned under this Agreement for the remaining Term together with all reasonable
attorneys' or other professional fees and costs incurred by Employee in
enforcing his rights under this Section 6(d). Employer may satisfy its
obligation hereunder by either providing such compensation and benefits in kind
at the time such compensation and benefits would otherwise be due hereunder, or
with consent of Employee, by paying the present value thereof in a lump sum.
Employee has a duty to mitigate such amount by obtaining comparable or better
employment, if possible, and the amounts payable hereunder shall be reduced by
25% of the base salary and bonus which Employee earns during such period.
However, Employee's duty to find a comparable position does not require Employee
to accept a position that is not comparable to his current position's duties, in
a different location or at a lesser rate of compensation or benefits. Employer
may also require Employee to fully and completely release any and all claims for
breach of this Agreement as a condition to receiving such payments under this
Section 6(d). Employee and his dependents shall also be entitled to any
continuation health insurance coverage rights, if any, under applicable law.
(e) Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of Employer and Employee. Employee's rights and
obligations, in such event, shall be as set forth in the termination agreement.
(f) Termination Obligations.
(i) Employee hereby acknowledges and agrees that all personal
property and equipment furnished to or prepared by Employee in the course of or
incident to his employment by Employer, belongs to Employer and shall be
promptly returned to Employer upon termination of Employee's employment. The
term "PERSONAL PROPERTY" includes, without limitation, all books, manuals,
records, reports, notes, contracts, requests for proposals, bids, lists,
blueprints, and other documents, or materials, or copies thereof (including
computer files), and all other proprietary information relating to the business
of Employer or any of its affiliates. Following
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<PAGE> 7
termination, Employee will not retain any written or other tangible material
containing any proprietary information of Employer or any of its affiliates.
(ii) Upon termination of the Employment Period, Employee shall
be deemed to have resigned from all offices and directorships then held with
Employer and each of its affiliates.
(iii) The representations and warranties contained herein and
Employee's obligations under Sections 6(f), 8, and 11 shall survive termination
of the Employment Period and the expiration of this Agreement.
7. Definitions. For the purposes of this Agreement the following terms
and phrases shall have the following meanings:
(a) ACCOUNTING FIRM shall mean the "Big-Five" firm who
regularly prepares Employer's audited financial statement.
(b) AFFILIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(c) ASSOCIATE(S) shall have the same meaning ascribed to such
term in the Exchange Act.
(d) BENEFICIAL OWNERSHIP shall have the same meaning ascribed
to such term in Rule 13d-3 promulgated pursuant to the Exchange Act.
(e) "CAUSE" shall mean (i) violation of any agreement or
law relating to non-competition, trade secrets,
inventions, non-solicitation or confidentiality
between Employee and Employer or an affiliate, (ii)
willful, intentional or bad faith conduct that
materially injures Employer or an Affiliate, (iii)
commission of a felony, an act of fraud or the
misappropriation of property; and (iv) gross neglect
or moral turpitude.
(f) "CHANGE IN CONTROL" shall mean any of the following:
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<PAGE> 8
(1) such time that George E. Richmond ceases to
own, 30% or more of the then outstanding
shares of common stock of Employer;
(2) the majority of the members of Employer's
Board of Directors being replaced during any
12-month period by directors whose
appointment or election is not endorsed by a
majority of the members of the Board of
Directors of Employer immediately prior to
such appointment or election;
(3) any reorganization, merger or consolidation
(a "Reorganization") involving Employer
unless at least 50% of the then outstanding
shares of common stock of the surviving
corporation is held or is anticipated to be
held by persons who are shareholders of
Employer immediately prior to such
Reorganization in substantially the same
proportions as their ownership, immediately
prior to such Reorganization;
(4) Approval by the shareholders of Employer of
(i) a "going private" transaction of
Employer within the meaning of Section 13(e)
of the Exchange Act, (ii) the consummation
date of a complete liquidation or
dissolution of Employer or (iii) the
consummation date of the sale or other
disposition of all or substantially all of
the assets of Employer.
(5) For purposes of this Section 7(f), all
shares of stock of Employer owned or held by
George E. Richmond directly or indirectly
(i.e., through partnerships, corporations or
limited liability companies), or by George
E. Richmond's spouse, estate, lineal
descendants, spouses of lineal descendants
or trusts for any of their benefit, and
which indirectly held shares were
transferred from George E. Richmond after
the date of this Agreement shall be deemed
to be owned by George E. Richmond. For
purposes of illustration, any disposition,
sale, gift or other transfer of shares of
Employer's
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<PAGE> 9
common stock by George E. Richmond after the
date of this Agreement to his children or to
trusts established for his or their benefit
will not be taken into account for purposes
of determining whether a "Change In Control"
has occurred under this Agreement. However,
if the direct ownership of George E.
Richmond is reduced to 29% but his children
own 10% of Employer's shares as a result of
transfers made prior to the date of this
Agreement, a Change In Control will have
occurred.
(g) CODE shall mean the Internal Revenue Code of 1986, as
amended.
(h) EXCHANGE ACT shall mean the Securities Exchange Act of
1934, as amended.
(i) GOOD REASON shall mean, with respect to a Voluntary
Termination, if (i) a material and adverse change in Employee's duties,
responsibilities or status with Employer or an affiliate is made without Cause,
(ii) a reduction in the annual compensation or total benefit package of Employee
(other than a comparable reduction in cash compensation or benefits generally
affecting substantially all officers or executive employees of Employer), (iii)
amendment or termination of this Agreement without Employee's consent; (v) a
change in Employee's job location beyond an area outside of a 50-mile radius of
Employee's principal office or (vi) the Board of Directors of Employer otherwise
determines that a Voluntary Termination by Employee is for "Good Reason" under
the circumstances then prevailing; provided, however, that Good Reason will not
be deemed to exist unless Employee provides written notice to Employer within 60
days after the occurrence of the event specified above and Employer fails to
cure the event to Employee's reasonable satisfaction within 60 days after
Employer receives such notice.
(j) IRS shall mean the Internal Revenue Service.
(k) PERMANENT DISABILITY shall have the meaning set forth in
Section 22(e)(3) of the Code.
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<PAGE> 10
(l) PERSON shall have the same meaning as ascribed to such
term in Sections 13(d) and 14(d)(2) of the Exchange Act; provided, however, that
for purposes of this Agreement, neither Employer nor any trustee or fiduciary
acting in such capacity for an employee benefit plan sponsored or maintained by
Employer or any entity controlled by Employer, shall be deemed to be a "person".
(m) QUALIFIED DEPENDENTS shall mean Employee's spouse and
unmarried children less than 19 years old; provided, that the 19 year age limit
does not apply to a child who: i) is enrolled as a full time student in school
and ii) has not attained the age of 23 years.
(n) VOLUNTARY TERMINATION (including VOLUNTARILY TERMINATES)
shall mean the termination by Employee of his employment by Employer by
voluntary resignation or any other means other than death, retirement or
Permanent Disability and other than simultaneous with or following termination
for Cause or an event which, whether or not known to Employer at the time of
such Voluntary Termination by such Executive, would constitute Cause.
8. Restrictive Covenants.
(a) Consideration and Acknowledgements. Employee acknowledges
and agrees that the covenants described in this Section 8 are essential terms of
this Agreement and that the Agreement would not be entered into by Employer in
the absence of the covenants described herein. Employee acknowledges and agrees
that the covenants set forth in this Section are necessary for the protection of
the business interests of Employer. Employee further acknowledges that these
covenants are supported by adequate consideration as set forth elsewhere in this
employment Agreement, that full compliance with these covenants will not prevent
Employee from earning a livelihood following the termination of his employment,
and that these covenants do not place undue restraint on Employee and are not in
conflict with any public interest. Employee acknowledges and agrees that the
covenants set forth in this Section 8 are reasonable and enforceable in every
respect under applicable law.
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<PAGE> 11
(b) Term. The covenants set forth in this Section 8 shall
remain in force and effect throughout Employee's employment with Employer and
thereafter for the time periods governing such covenants as set forth herein,
regardless of the reason for or timing of the termination of Employee's
employment and shall survive and continue in full force and effect after the
termination of the Agreement.
(c) Definitions. As used in this Section 8, the following
terms have the following meanings:
i. "Employer" shall mean Young Innovations,
Inc., including and any parent, subsidiary
or affiliate as of the date of this
Agreement or at any time during the term of
Employee's employment.
ii. "Confidential Information" shall include
any and all information not generally
available to the public through legitimate
means regardless of any past, current or
anticipated future business, product, system
service, process, or practice of Employer,
as well as any and all information relating
to Employer's business, research,
development purchasing, accounting,
advertising, marketing, manufacturing,
merchandising and selling. Confidential
Information includes but is not limited to
information that may constitute a "trade
secret" under applicable law.
iii. "Competing Business" means any product,
system, service, process or practice
produced, provided, marketed or sold
anywhere in the geographic area where
Employer is then conducting any business by
any person or entity other than Employer
which resembles or competes directly or
indirectly with any product, system,
service, process or practice produced,
provided, marketed, sold, or under
development by Employer at any time during
Employee's employment.
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<PAGE> 12
iv. "Competing Organization" means any person or
entity which is engaged in, or is planning
to become engaged in research, development,
production, manufacturing, marketing or
selling of a Competing Business within the
area in which Employer is then conducting
any business or has affirmative plans to
conduct business while these covenants are
in effect.
(d) Non-Disclosure of Confidential Information. Except as
necessary to perform his job duties, Employee agrees not to use any Confidential
Information, or disclose any Confidential Information to any person or entity,
either during or at any time after his employment, without Employer's prior
written consent, unless required to do so by a court of competent jurisdiction,
or by an administrative or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information.
(e) Non-Competition. Employee agrees that during his
employment and for a period of one year after the termination for Cause or
Voluntary Termination without Good Reason (provided that no Change of Control
has occurred), he will not render services to, give advice to, become employed
by or otherwise affiliate with, directly or indirectly, any Competing
Organization, nor will he (on behalf of himself or any other person or entity)
engage directly or indirectly in any Competing Business, unless otherwise agreed
to in writing by Employer.
(f) Non-Inducement. Employee agrees that during the term of
his employment and for the one year period following the termination, he will
not directly or indirectly assist or encourage any person or entity in carrying
out any activity that would be prohibited by the provisions of this Section 8 if
such activity were carried out by Employee. Employee also specifically agrees
that he will not directly or indirectly induce any other employee to leave the
employ of Employer or to carry out, directly or indirectly, any such activity;
provided, however, that Employer shall not be in violation of this provision if
an employee decides to join the new employer of Employee if Employee did not
intentionally direct or solicit such employee to leave.
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<PAGE> 13
(g) Inventions and Patents. Employee agrees to promptly and
fully disclose in writing and does hereby assign to Employer every invention,
innovation, copyright, or improvement made or conceived by Employee during the
period of his employment that relates directly or indirectly to his employment
with Employer. Employee further agrees that both during and after his
employment, without charge to Employer but at Employer's expense, he will
execute, acknowledge and deliver any documents, including applications for
Letters Patent, as may be necessary, or in the opinion of Employer, advisable to
(a) obtain, enjoy and/or enforce Letters Patent for those inventions,
innovations or improvements in the United States and in any other country; (b)
obtain, enjoy or enforce the right to claim the priority of the first filed
patent application anywhere in the world; or (c) vest title in Employer and its
successors, assigns or nominees. Additionally, Employee agrees that for a period
of one (1) year after termination of his employment, any invention, development,
innovation, or improvement within the scope of this Section shall be presumed to
have been made during the term of his employment. Employee shall have the burden
of clearly and convincingly establishing otherwise.
This Agreement does not apply to any invention for which no equipment,
supplies, facility or trade secret information of Employer was used and which
was developed entirely on Employee's own time, and (1) which does not relate (a)
directly to the business of Employer or (b) to Employer's actual or demonstrably
anticipated research or development, or (2) which does not result from any work
performed by employee for Employer.
(h) Enforcement of These Covenants. Employee acknowledges that
full compliance with all of the covenants set forth in this Section 8 is
necessary to enable Employer to do business with its customers for the term of
this Agreement and damage to Employer for which there will be no adequate remedy
at law. In the event of a breach of any of these covenants, Employee therefore
acknowledges and agrees that Employer shall be entitled to injunctive relief,
regardless of whether or not Employer has complied with this Agreement, and
Employer shall further be entitled to such other relief, including money
damages, as many be deemed appropriate by a court of competent jurisdiction or
an Arbitrator. In the event of a court action based upon an alleged breach of
any of these covenants, the prevailing party (as determined by court ruling on
the merits of the dispute) will be reimbursed by the other party for reasonable
attorneys' fees and costs incurred as a result of the dispute. If any court
should at any
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<PAGE> 14
time find any one of these covenants to be unenforceable or unreasonable as to
scope, territory or period of time, then the scope, territory or period of time
of the covenant shall be that determined by the court to be reasonable, and the
parties hereby agree that the court has the authority to so modify any of these
covenants as necessary to make the covenant enforceable.
(i) Existence of Other Obligations. Employee represents and
warrants that he is not currently subject to any contractual or other
obligations to any former employer or other entity, including but not limited to
obligations not to use or disclose confidential information, or to refrain from
competing with any person or entity.
(j) Waiver. Employee agrees that Employer's failure to enforce
any of the covenants of this Section 8 in any particular instance shall not be
deemed to be a waiver of the covenant in that or any subsequent instance, nor
shall it be deemed a waiver by Employer of any other rights at law or under this
Agreement.
9. Jurisdiction; Service of Process. Each of the parties hereto agrees
that all any action or proceeding initiated or otherwise brought to judicial
proceedings by either Employee or Employer concerning the subject matter of this
Agreement shall be litigated in the United States District Court for the Eastern
District of Missouri or, in the event such court cannot or will not exercise
jurisdiction, in the state courts of the State of Missouri (the "COURTS"). Each
of the parties hereto expressly submits to the jurisdiction and venue of the
Courts and consents to process being served in any suit, action or proceeding of
the nature referred to above either (a) by the mailing of a copy thereof by
registered or certified mail, postage prepaid, return receipt requested, to his
or its address as set forth herein or (b) by serving a copy thereof upon such
party's authorized agent for service of process (to the extent permitted by
applicable law, regardless whether the appointment of such agent for service of
process for any reason shall prove to be ineffective or such agent for service
of process shall accept or acknowledge such service); provided that, to the
extent lawful and practicable, written notice of said service upon said agent
shall be mailed by registered or certified mail, postage prepaid, return receipt
requested, to the party at his or its address as set forth herein. Each party
hereto agrees that such service, to the fullest extent permitted by law, (i)
shall be deemed in every respect effective service of process upon him or it in
any such suit, action or proceeding and (ii) shall be taken and
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<PAGE> 15
held to be valid personal service upon and personal delivery to him or it. Each
party hereto waives any claim that the Courts are an inconvenient forum or an
improper forum based on lack of venue or jurisdiction. Each party shall bear its
own costs and attorneys' fees incurred in connection with any such actions or
proceedings.
10. Injunctive Relief. Employee acknowledges that damages would be
an inadequate remedy for Employee's breach of any of the provisions of Section 8
of this Agreement, and that breach of any of such provisions will result in
immeasurable and irreparable harm to Employer. Therefore, in addition to any
other remedy to which Employer may be entitled by reason of Employee's breach or
threatened breach of any such provision, Employer shall be entitled to seek and
obtain a temporary restraining order, a preliminary and/or permanent injunction,
or any other form of equitable relief from any court of competent jurisdiction
restraining Employee from committing or continuing any breach of such Sections,
without the necessity of posting a bond. It is further agreed that the existence
of any claim or cause of action on the part of Employee against Employer,
whether arising from this Agreement or otherwise, shall in no way constitute a
defense to the enforcement of the provisions of Section 8 of this Agreement.
11. Miscellaneous.
(a) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (i) when made, if delivered
personally, (ii) three (3) days after being mailed by certified or registered
mail, postage prepaid, return receipt requested, or (iii) two (2) days after
delivery to a reputable overnight courier service, to the parties, their
successors in interest or their assignees at the following addresses, or at such
other addresses as the parties may designate by written notice in the manner
aforesaid:
To Employer:
Young Innovations, Inc.
13705 Shoreline Court East
Earth City, MO 63045
Attention: George E. Richmond
To Employee, to his home address as recorded in the payroll
records of Employer from time to time.
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<PAGE> 16
(b) Governing Law. This Agreement shall be governed as to its
validity and effect by the internal laws of the State of Missouri, without
regard to its rules regarding conflicts of law.
(c) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of (i) the heirs, executors and legal
representatives of Employee, upon Employee's death, and (ii) any successor of
Employer, and any such successor shall be deemed substituted for Employee or
Employer, as the case may be, under the terms hereof for all purposes. As used
in this Agreement, "successor" shall include any person, firm, corporation or
other business entity that at any time, whether by purchase, merger,
consolidation or otherwise, directly or indirectly acquires a majority of the
assets, business or stock of Employer. Employee acknowledges and agrees that the
rights and obligations of Employer hereunder may be assigned to and assumed by
any of its wholly or majority-owned subsidiaries, without Employee's consent,
which assignment and assumption shall constitute a release of Employer, its
subsidiaries or any of their respective affiliates that is then bound by the
terms of this Agreement, of all of its obligations and liabilities hereunder.
(d) Integration. This Agreement (together with any option
agreement Employer may require Employee to execute in order to avail
himself/herself of any Stock Plan benefits specifically contemplated herein and
any agreement to release and hold harmless Employer executed concurrently
herewith) constitutes the entire agreement between the parties with respect to
all matters covered herein, including but not limited to the parties' employment
relationship and Employee's entitlement to compensation, commissions and
benefits from Employer or any of its affiliated companies and/or the termination
of Employee's employment. This Agreement supersedes all prior oral or written
understandings and agreements relating to its subject matter and all other
business relationships between Employer and/or its affiliated companies.
(e) No Representations. No person or entity has made or has
the authority to make any representations or promises on behalf of any of the
parties which are inconsistent with the representations or promises contained in
this Agreement, and this Agreement has not been executed in reliance on any
representations or promises not set forth herein. Specifically, no
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<PAGE> 17
promises, warranties or representations have been made by anyone on any topic or
subject matter related to Employee's relationship with Employer or any of its
executives or employees, including but not limited to any promises, warranties
or representations regarding future employment, compensation, commissions and
benefits, any entitlement to stock, stock rights, Stock Plan benefits, profits,
debt and equity interests in Employer or any of its affiliated companies or
regarding the termination of Employee's employment. In this regard, Employee
agrees that no promises, warranties or representations shall be deemed to be
made in the future unless they are set forth in writing and signed by an
authorized representative of Employer.
(f) Amendments. This Agreement may be modified only by a
written instrument executed by the parties that is designated as an amendment to
this Agreement.
(g) Counterparts. This Agreement is being executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Severability and Non-Waiver. Any provision of this
Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable
in any jurisdiction shall, as to that jurisdiction and subject to this Section,
be ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by Employer shall be implied by Employer's forbearance or
failure to take action.
(i) Attorneys Fees. In the event that any action or proceeding
is commenced by any party hereto for the purpose of enforcing any provision of
this Agreement, the parties to such action, proceeding or arbitration may
receive as part of any award, settlement, judgment, decision or other resolution
of such action or proceeding, whether or not reduced to a court judgment, their
costs and reasonable attorneys fees as determined by the person or body making
such award, settlement, judgment, decision or resolution.
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<PAGE> 18
(j) Voluntary and Knowledgeable Act. Employee represents and
warrants that Employee has read and understands each and every provision of this
Agreement and has freely and voluntarily entered into this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EMPLOYER:
YOUNG INNOVATIONS, INC.
By: /s/ Alfred E. Brennan
--------------------------
Name: Alfred E. Brennan
Title: President
EMPLOYEE:
/s/ Eric R. Stetzel
---------------------------------------
Eric Stetzel
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Company State of Incorporation
<S> <C>
Denticator International, Inc ................................. Missouri
Young Dental Manufacturing I, LLC.............................. Missouri
Young Dental International, Inc ...................... Barbados
Lorvic Holdings, Inc. ................................ Delaware
The Lorvic Corporation ...................... Delaware
YI Europe, Limited ................................... England
Young Acquisitions Company .................................... Missouri
Panoramic Rental Corp ................................ Missouri
YI Europe, Limited. ........................................... England
Athena Technology, LLC......................................... Missouri
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement File No. 333-65673.
ARTHUR ANDERSEN
St. Louis, Missouri,
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
AUDITED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,511
<SECURITIES> 0
<RECEIVABLES> 5,963
<ALLOWANCES> 228
<INVENTORY> 3,772
<CURRENT-ASSETS> 14,438
<PP&E> 20,765
<DEPRECIATION> 8,242
<TOTAL-ASSETS> 60,336
<CURRENT-LIABILITIES> 5,000
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 52,072
<TOTAL-LIABILITY-AND-EQUITY> 60,336
<SALES> 42,712
<TOTAL-REVENUES> 42,712
<CGS> 18,825
<TOTAL-COSTS> 18,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (26)
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 11,724
<INCOME-TAX> 4,572
<INCOME-CONTINUING> 7,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,152
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.09
</TABLE>
