UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2013
Summer Infant, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Commission file number 001-33346
Delaware |
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20-1994619 |
(State or Other Jurisdiction Of Incorporation or Organization) |
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(IRS Employer Identification No.) |
1275 Park East Drive |
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Woonsocket, RI 02895 |
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(401) 671-6550 |
(Address of principal executive offices) (Zip Code) |
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(Registrants telephone number, including area code) |
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 last 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of May 1, 2013, there were 17,874,796 shares outstanding of the registrants Common Stock, $.0001 par value per share.
Summer Infant, Inc.
Form 10-Q
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Page Number |
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1 | ||
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Condensed Consolidated Balance Sheets March 31, 2013 (unaudited) and December 31, 2012 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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16 | ||
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19 |
ITEM 1. Condensed Consolidated Financial Statements (unaudited)
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Note that all amounts presented in the table below are in thousands of U.S. dollars, except share amounts and par value amounts.
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Unaudited |
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March 31, |
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December 31, |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
2,634 |
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$ |
3,132 |
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Trade receivables, net of allowance for doubtful accounts |
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47,547 |
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45,299 |
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Inventory, net |
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40,231 |
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49,823 |
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Prepaids and other current assets |
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2,634 |
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2,483 |
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Deferred tax assets |
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1,185 |
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1,185 |
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TOTAL CURRENT ASSETS |
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94,231 |
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101,922 |
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Property and equipment, net |
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15,937 |
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16,834 |
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Other intangible assets, net |
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20,765 |
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21,046 |
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Other assets |
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2,382 |
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518 |
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TOTAL ASSETS |
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$ |
133,315 |
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$ |
140,320 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
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$ |
31,916 |
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$ |
37,138 |
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Current portion of long term debt (including capital leases) |
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1,467 |
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770 |
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TOTAL CURRENT LIABILITIES |
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33,383 |
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37,908 |
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Long-term debt, less current portion |
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62,203 |
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64,767 |
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Other liabilities |
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3,453 |
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3,498 |
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Deferred tax liabilities |
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4,202 |
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4,194 |
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TOTAL LIABILITIES |
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103,241 |
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110,367 |
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STOCKHOLDERS EQUITY |
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Preferred Stock, $0.0001 par value, 1,000,000 authorized, none issued or outstanding at March 31, 2013 and December 31, 2012, respectively |
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Common Stock $0.0001 par value, authorized, issued and outstanding of 49,000,000, 18,133,945 and 17,862,296 at March 31, 2013 and December 31, 2012, respectively |
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2 |
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Treasury Stock at cost (271,649 shares at March 31, 2013 and December 31, 2012, respectively) |
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(1,283 |
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(1,283 |
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Additional paid-in capital |
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72,968 |
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72,790 |
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Accumulated deficit |
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(40,908 |
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(41,352 |
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Accumulated other comprehensive loss |
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(705 |
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(204 |
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TOTAL STOCKHOLDERS EQUITY |
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30,074 |
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29,953 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
133,315 |
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$ |
140,320 |
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See notes to condensed consolidated financial statements
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Note that all amounts presented in the table below are in thousands of U.S. dollars, except share and per share amounts.
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Unaudited |
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For the three months ended |
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March 31, |
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March 31, |
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Net revenues |
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$ |
59,118 |
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$ |
62,999 |
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Cost of goods sold |
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40,539 |
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41,894 |
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Gross profit |
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18,579 |
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21,105 |
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General and administrative expenses |
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9,611 |
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10,625 |
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Selling expenses |
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5,604 |
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6,023 |
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Depreciation and amortization |
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1,790 |
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1,875 |
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Operating income |
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1,574 |
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2,582 |
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Interest expense, net |
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(1,255 |
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(720 |
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Income before income taxes |
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319 |
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1,862 |
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Provision (benefit) for income taxes |
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(125 |
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540 |
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NET INCOME |
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$ |
444 |
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$ |
1,322 |
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Net income per share: |
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BASIC |
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$ |
0.02 |
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$ |
0.07 |
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DILUTED |
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$ |
0.02 |
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$ |
0.07 |
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Weighted average shares outstanding: |
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BASIC |
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17,862,296 |
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17,750,165 |
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DILUTED |
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17,871,495 |
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17,976,634 |
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See notes to condensed consolidated financial statements.
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
Note that all amounts presented in the table below are in thousands of U.S. dollars.
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Unaudited |
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Three Months Ended |
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2013 |
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2012 |
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Net Income |
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$ |
444 |
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$ |
1,322 |
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Other comprehensive loss: |
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Changes in foreign currency translation adjustments |
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(501 |
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(103 |
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Comprehensive income/(loss) |
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$ |
(57 |
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$ |
1,219 |
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See notes to condensed consolidated financial statements.
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Note that all amounts presented in the table below are in thousands of U.S. dollars.
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Unaudited |
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For the three months ended |
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March 31, |
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March 31, |
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Cash flows from operating activities: |
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Net income |
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$ |
444 |
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$ |
1,322 |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities |
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Depreciation and amortization |
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1,790 |
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1,875 |
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Stock-based compensation expense |
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178 |
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259 |
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Change in value of interest rate swap agreements |
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(47 |
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Changes in assets and liabilities: |
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Increase in trade receivables |
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(2,447 |
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(9,828 |
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Decrease in inventory |
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9,372 |
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2,530 |
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Increase in prepaids and other assets |
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(2,026 |
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(889 |
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Decrease in accounts payable and accrued expenses |
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(5,168 |
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(271 |
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Net cash provided by (used in) operating activities |
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2,143 |
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(5,049 |
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Cash flows from investing activities: |
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Acquisitions of property and equipment |
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(614 |
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(811 |
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Net cash used in investing activities |
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(614 |
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(811 |
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Cash flows from financing activities: |
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Issuance of common stock upon exercise of stock options |
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476 |
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Net (repayment) borrowings on financing arrangements |
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(1,867 |
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6,073 |
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Net cash (used in) provided by financing activities |
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(1,867 |
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6,549 |
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Effect of exchange rate changes on cash and cash equivalents |
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(160 |
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(198 |
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Net (decrease)/increase in cash and cash equivalents |
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(498 |
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491 |
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Cash and cash equivalents, beginning of period |
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3,132 |
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1,215 |
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Cash and cash equivalents, end of period |
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$ |
2,634 |
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$ |
1,706 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
903 |
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$ |
647 |
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Cash paid for income taxes |
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$ |
214 |
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$ |
3 |
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See notes to condensed consolidated financial statements.
SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of U.S. dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is a global designer, marketer, and distributor of branded juvenile health, safety and wellness products (for ages 0-3) which are sold principally to large North American and European retailers. The Company currently markets its products in several product categories such as monitoring, health and safety, nursery, baby gear, feeding, play and furniture products. Most products are sold under our core brand names of Summer® and Born Free®. Significant product categories include nursery audio/video monitors, safety gates, bath tubs and bathers, durable bath products, bed rails, nursery products, swaddling blankets, baby bottles, warming/sterilization systems, booster and potty seats, bouncers, travel accessories, high chairs, swings, feeding products, car seats, strollers, and nursery furniture. Over the years, the Company completed several acquisitions and added product categories such as cribs, swaddling, and feeding products.
Basis of Presentation and Principles of Consolidation
The accompanying interim condensed consolidated financial statements of Summer Infant, Inc. (the Company or Summer) are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all information and notes required by generally accepted accounting principles in the United States of America (GAAP) for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year or any other period. The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes for the year ended December 31, 2012 included in its Annual Report on Form 10-K filed with the SEC on March 13, 2013.
It is the Companys policy to prepare its financial statements on the accrual basis of accounting in conformity with GAAP. The consolidated financial statements include the accounts of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation.
All dollar amounts included in the Notes to Condensed Consolidated Financial Statements are in thousands of U.S. dollars except share and per share amounts. Certain items in prior year financials were reclassified to conform to current year presentation including the reporting of selling expenses separate from general and administrative expenses.
Revenue Recognition
The Company records revenue when all of the following occur: persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Sales are recorded net of provisions for returns and allowances, customer discounts, and other sales-related discounts. The Company bases its estimates for discounts, returns and allowances on negotiated customer terms and historical experience. Customers do not have the right to return products unless the products are defective. The Company records a reduction of sales for estimated future defective product deductions based on historical experience.
Sales incentives or other consideration given by the Company to customers that are considered adjustments of the selling price of its products, such as markdowns, are reflected as reductions of revenue. Sales incentives and other consideration that represent costs incurred by the Company for assets or services received, such as the appearance of the Companys products in a customers national circular ad, are reflected as selling expenses in the accompanying condensed consolidated statements of operations.
Income Taxes
Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry-forwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not that such benefits will be realized.
Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon adoption and in subsequent periods. At March 31, 2013 and December 31, 2012, the Company did not have any uncertain tax positions. No interest and penalties related to uncertain tax positions were accrued at March 31, 2013 and December 31, 2012.
The Companys federal tax return for the year ended December 31, 2009 was audited by the Internal Revenue Service and all taxes and interest have been paid. The Company expects no material changes to unrecognized tax positions within the next twelve months.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates are based on managements best knowledge of current events and actions the Company may undertake in the future. Accordingly, actual results could differ from those estimates.
Net Income Per Share
Basic earnings per share for the Company are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share includes the dilutive impact of outstanding stock options and unvested restricted shares.
Translation of Foreign Currencies
All assets and liabilities of the Companys foreign affiliates, whose functional currency is not U.S. dollars, are translated into U.S. dollars at the exchange rate in effect at the end of the quarter and the income and expense accounts of these affiliates have been translated at average rates prevailing during each respective quarter. Resulting translation adjustments are made to a separate component of stockholders equity within accumulated other comprehensive income or loss.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued accounting pronouncements or issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.
2. DEBT
Credit Facilities
On February 28, 2013, the Company and its subsidiary, Summer Infant (USA), Inc., entered into a new loan and security agreement (the BofA Agreement) with Bank of America, N.A., as agent, the financial institutions party to the agreement from time to time as lenders, and Merrill Lynch, Peirce, Fenner & Smith Incorporated, as sole lead arranger and sole book runner. The BofA Agreement replaced the Companys prior credit facility with Bank of America. The Company also entered into a term loan with Salus Capital Partners, which is described below under Term Loan.
BofA Agreement.
The BofA Agreement provides for an $80,000, asset-based revolving credit facility, with a $10,000 letter of credit sub-line facility. The total borrowing capacity is based on a borrowing base, which is defined as 85% of eligible receivables plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory and less reserves. Total borrowing capacity under the BofA Agreement at March 31, 2013 was $61,021 and borrowing availability was $13,534. The Company was in compliance with the financial covenants under the BofA Agreement at March 31, 2013.
The scheduled maturity date of loans under the BofA Agreement is February 28, 2018 (subject to customary early termination provisions). All obligations under the BofA Agreement are secured by substantially all the assets of the Company, subject to a first priority lien on certain assets held by the term-loan lender described below. In addition, Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the BofA Agreement. Proceeds from the loans were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the BofA Agreement, pay obligations under the BofA Agreement, and will be used to make payments on the Term Loan and for other general corporate purposes, including working capital.
Loans under the BofA Agreement bear interest, at the Companys option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability under the BofA Agreement and ranging between 1.75% and 2.25% on LIBOR borrowings and 0.25% and 0.75% on base rate borrowings. Interest payments are due monthly, payable in arrears. The Company is also required to pay an annual non-use fee of 0.375% of the unused amounts under the BofA Agreement, as well as other customary fees as are set forth in the BofA Agreement. As of March 31, 2013 the base rate on loans was 3.75% and the LIBOR rate was 2.25%.
Under the BofA Agreement, the Company must comply with certain financial covenants, including that the Company (i) for the first year of the loan, maintain and earn a specified minimum, monthly consolidated EBITDA amount, with such specified amounts increasing over the first year of the loan to a minimum consolidated EBITDA of $12,000 at February 28, 2014, and (ii) beginning with the fiscal quarter ending March 31, 2014, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of four fiscal quarters most recently ended. For purposes of the financial covenants, consolidated EBITDA is defined as net income before interest, taxes, depreciation and amortization, plus certain customary expenses, fees and non-cash charges and minus certain customary non-cash items increasing net income.
The BofA Agreement contains customary affirmative and negative covenants. Among other restrictions, the Company is restricted in its ability to incur additional debt, make acquisitions or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. The BofA Agreement also contains customary events of default, including a cross default with the term loan, the occurrence of a material adverse event and the occurrence or a change of control. In the event of a default, all of the obligations of the Company and its subsidiaries under the BofA Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.
Prior Bank of America Loan Agreement.
The BofA Agreement entered into in February 2013 replaced the Companys prior secured credit facility with Bank of America, N.A., as Administrative Agent, as set forth in the Amended and Restated Loan Agreement, dated August 2, 2010, as amended through November 7, 2012 (as amended, the Prior Loan Agreement). The Prior Loan Agreement provided for an $80,000 working capital revolving credit facility. The amounts outstanding under the revolving credit facility were payable in full upon maturity on December 31, 2013.
The Companys ability to borrow under the Prior Loan Agreement was subject to its ongoing compliance with certain financial covenants, including that (a) the Company and its subsidiaries maintain and earn on a consolidated basis as of the last day of each fiscal quarter, consolidated EBITDA (as defined in the Loan Agreement) for the twelve month period ending on such date equal to or greater than (i) $12,500 beginning with the twelve month period ending September 30, 2012, (ii) $10,500 for the twelve month period ending December 31, 2012, (iii) $10,000 for the twelve month period ending March 31, 2013, (iv) $12,500 for the twelve month period ending June 30, 2013, and (v) $17,000 for the twelve month period ending September 30, 2013 and thereafter; (b) the Company and its subsidiaries maintain a ratio of consolidated total funded debt to consolidated EBITDA (the consolidated leverage ratio) of not greater than 6.25:1.00 beginning with the twelve month period ending
September 30, 2012, of not greater than 6.75:1.00 for the twelve month period ending December 31, 2012, of not greater than 7.00:1.00 for the twelve month period ending March 31, 2013, of not greater than 6.00:1.00 for the twelve month period ending June 30, 2013, and of not greater than 4.00:1.00 for the twelve month period ending September 30, 2013, and thereafter; and (c) the Company and its subsidiaries maintain a fixed charge ratio of at least 1.50 to 1.00 for the twelve month period ending September 30, 2012, 1.10:1.00 for the twelve month period ending December 31, 2012, 1.00:1.00 for the twelve month period ending March 31, 2013, 1.25:1.00 for the twelve month period ending June 30, 2013, and 1.50:1.00 for the twelve month period ending September 30, 2013 and thereafter. The Company was required to pay a fee in the amount of $200 in connection with the Fourth Amendment.
Beginning October 1, 2012, the applicable margins no longer varied depending upon the funded debt to leverage ratio and were instead fixed at 4.75% for Eurodollar or BBA LIBOR rate loans and L/C fees and 2.75% for base rate loans through March 31, 2013, increasing by 1.00% each fiscal quarter thereafter. In addition, beginning on October 1, 2012, loans began bearing additional interest of 2.00% per annum not paid in cash but payable in kind by adding such accrued interest to the outstanding principal of the loans, or PIK interest.
The Company had also entered into various interest rate swap agreements in the past which effectively fixed the interest rates on a portion of the outstanding debt, of which, the last agreement matured on June 7, 2012. In addition, the credit facility has an unused line fee based on the unused amount of the credit facility equal to 25 basis points.
The Prior Loan Agreement also contained customary events of default, including a cross default provision and a change of control provision. In the event of a default, all of the obligations of the Company and its subsidiaries under the loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.
Term Loan
On February 28, 2013 the Company and its subsidiary, Summer Infant (USA), Inc., as borrowers, entered into a term-loan agreement (the Term Loan Agreement) with Salus Capital Partners, LLC, as administrative agent and collateral agent, and each lender from time to time a party to the Term Loan Agreement providing for a $15,000 term-loan (the Term Loan).
Proceeds from the Term Loan were used to repay certain existing debt, and will also be used to finance the acquisition of working capital assets in the ordinary course of business, capital expenditures, and for other general corporate purposes. The Term Loan is secured by certain assets of the Company, including a first priority lien on intellectual property, plant, property and equipment, and a pledge of 65% of the ownership interests in certain subsidiaries of the Company. The Term Loan matures on February 28, 2018. In addition, Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Term Loan Agreement.
The principal of the Term Loan will be repaid, on a quarterly basis, in installments of $375, commencing with the quarter ending September 30, 2013, until paid in full on termination. The Term Loan bears interest at an annual rate equal to LIBOR, plus 10%, with a LIBOR floor of 1.25%. Interest payments are due monthly, in arrears. As of March 31, 2013 the interest rate on the Term Loan was 11.25%.
The Term Loan Agreement contains customary affirmative and negative covenants substantially the same as the BofA Agreement described above. In addition, the Company must comply with certain financial covenants, including that the Company (i) meet the same minimum, monthly consolidated EBITDA as set forth in the BofA Agreement and (ii) initially maintain a monthly senior leverage ratio of 1:1. For periods after February 28, 2014, the senior leverage ratio will be based on an annual business plan to be approved by the Companys Board of Directors and will be tested monthly on a trailing twelve month basis. For purposes of the financial covenants in the Term Loan Agreement, the senior leverage ratio is the ratio of (i) all amounts outstanding under the Term Loan Agreement and the BofA Agreement to (ii) consolidated EBITDA for the twelve-month period ending as of the last day of the most recently ended fiscal month. The Term Loan Agreement also contains events of default, including a cross default with the BofA agreement, the occurrence of a material adverse event, the occurrence of a change of control, and the recall of products having a value of $2,000 or more. In the event of a default, all of the obligations of the Company and its subsidiaries under the Term Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.
The amount outstanding on the Term Loan at March 31, 2013 was $15,000. We were in compliance with the financial covenants under the Term Loan at March 31, 2013.
Aggregate maturities of long term debt related to the BofA credit facility and Term Loan are as follows:
Year ending December 31: 2018 |
|
$ |
62,422 |
|
Total |
|
$ |
62,422 |
|
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
March 31, |
|
December 31, |
| ||
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
| ||
Brand names |
|
$ |
14,812 |
|
$ |
22,700 |
|
Impairment of brand name |
|
|
|
(7,888 |
) | ||
Brand names net |
|
14,812 |
|
14,812 |
| ||
Patents and licenses |
|
1,711 |
|
1,711 |
| ||
Customer relationships |
|
6,946 |
|
6,946 |
| ||
Other intangibles |
|
1,882 |
|
1,882 |
| ||
|
|
25,351 |
|
25,351 |
| ||
Less: Accumulated amortization |
|
(4,586 |
) |
(4,305 |
) | ||
Intangible assets, net |
|
$ |
20,765 |
|
$ |
21,046 |
|
The amortization period for the majority of the intangible assets ranges from 5 to 20 years for those assets that have an estimated life; certain of the assets have indefinite lives (brand names). Total of intangibles not subject to amortization amounted to $12,308 at March 31, 2013 and December 31, 2012.
4. COMMITMENTS AND CONTINGENCIES
Litigation
In 2012, the Company settled a purported class action suit relating to its analog baby video monitors and paid $1,675 (of which $506 was covered by insurance) in exchange for a release of all claims by the class members. The Company recorded a $1,501 charge in the fourth quarter of 2011 relating to the settlement.
The Company is a party to routine litigation and administrative complaints incidental to its business. The Company does not believe that the resolution of any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Companys financial condition or results of operations.
5. SHARE BASED COMPENSATION
The Company has granted stock options and restricted shares under its 2006 Performance Equity Plan (2006 Plan). Under the 2006 Plan, awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Restricted Stock, Deferred Stock, Stock Reload Options and other stock-based awards. Subject to the provisions of the plan, awards may be granted to employees, officers, directors, advisors and consultants who are deemed to have rendered or are able to render significant services to the Company or its subsidiaries and who are deemed to have contributed or to have the potential to contribute to the Companys success. The Company accounts for options under the fair value recognition standard. Stock based compensation expense is included in selling, general and administrative expenses. There were no share-based payment arrangements capitalized as part of the cost of an asset.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. The Company uses the simplified method for grants of plain vanilla stock options based on a formula prescribed by the SEC to estimate the expected term of the options. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Share-based compensation expense for the three months ended March 31, 2013 and 2012 was approximately $178 and $259, respectively. As of March 31, 2013, there were 1,236,646 stock options outstanding and 211,127 unvested restricted shares outstanding.
During the three months ended March 31, 2013, the Company granted 45,000 stock options and granted 25,000 shares of restricted stock. The following table summarizes the weighted average assumptions used for options and shares granted during the quarters ended March 31, 2013 and 2012.
Expected life (in years) |
|
6.0 |
|
Risk-free interest rate |
|
1.71 |
% |
Volatility |
|
55 |
% |
Dividend yield |
|
0 |
% |
Forfeiture rate |
|
10 |
% |
The Company is authorized to issue up to 3,000,000 stock options and restricted shares under the 2006 Plan. As of March 31, 2013, there are 521,804 shares available to grant under the 2006 Plan.
The Company is authorized to issue up to 500,000 stock options and restricted shares under its 2012 Incentive Compensation Plan. As of March 31, 2013, all 500,000 shares remain available to grant under this plan.
6. WEIGHTED AVERAGE COMMON SHARES
Basic and diluted earnings or loss per share (EPS) is based upon the weighted average number of common shares outstanding during the period. The Company does not include the anti-dilutive effect of common stock equivalents, including stock options, in computing net income (loss) per diluted common share. The computation per diluted common shares for the three month period ended March 31, 3013 excluded 1,236,646 stock options and 201,928 shares of restricted stock outstanding.
7. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing date of this Quarterly Report and determined that no subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking information and statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding expected sales and gross margin improvements in the second half of 2013, the effect of ongoing cost-reduction initiatives and the expected impact of the exiting of licensing arrangements. All forward-looking statements included in this document are based on information available to us on the date hereof. It is important to note that our actual results could differ materially from those projected in such forward-looking statements contained in this Form 10-Q. These forward-looking statements include statements regarding our ability to grow our business through developing new products, obtaining new customers, increasing our sales territory, and making strategic acquisitions, expected results in 2013, and our anticipated cash flow for the next 12 months. These statements are based on current expectations that involve numerous risks and uncertainties. These risks and uncertainties include the concentration of our business with retail customers; the financial status of our customers and their ability to pay us in a timely manner; our ability to introduce new products or improve existing products that satisfy consumer preferences; our ability to develop new or improved products in a timely and cost-efficient manner; our ability to compete with larger and more financial stable companies in our markets; our ability to comply with financial and other covenants in our debt agreements; our dependence on key personnel; our reliance on foreign suppliers and potential disruption in foreign markets in which we operate; increases in the cost of raw materials used to manufacture our products; compliance with safety and testing regulations for our products; product liability claims arising from use of our products; unanticipated tax liabilities; and an impairment of other intangible assets; and other risks as detailed in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and subsequent filings with the Securities and Exchange Commission. All these matters are difficult or impossible to predict accurately, many of which may be beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate.
The following discussion is intended to assist in the assessment of significant changes and trends related to the results of operations and financial condition of Summer Infant, Inc. and its consolidated subsidiaries. This discussion and analysis should be read together with the consolidated financial statements and related notes included elsewhere in this filing and with the consolidated financial statements for the year ended December 31, 2012 appearing in our Annual Report on Form 10-K.
Note that all dollar amounts in this section are in thousands of U.S. dollars, except share and per share data.
Overview
Founded in 1985 and publicly traded on the Nasdaq Stock Market since 2007 under the symbol SUMR, we are a global designer, marketer, and distributor of branded juvenile health, safety and wellness products (for ages 0-3 years) that are sold principally to large North American and European retailers.
We currently market our products in the monitoring, health and safety, nursery, baby gear, feeding, play and furniture product categories. Most of our products are sold under our core brand names of Summer® and Born Free®. We also market certain products under license agreements.
Our products are sold globally primarily to large, national retailers as well as independent retailers. In North America, our customers include Babies R Us, Wal-Mart, Target, Amazon.com, Burlington Coat Factory, Buy Buy Baby, Kmart, Home Depot, and Lowes. Our largest European-based customers are Mothercare, Toys R Us, Argos and Tesco. We also sell through several international representatives to select international retail customers in geographic locations where we do not have a direct sales presence.
Strategy
At the end of fiscal 2012, we began a review of our business strategy and product lines. Historically, we have focused on growing sales through a combination of increased product penetration and store penetration,
offering new products, adding new mass merchant retail customers and distribution channels, international expansion, and acquisitions.
While our business strategy review is ongoing, we have identified below five key areas of our strategy going forward:
· Continuing Innovation We will continue to leverage our in-depth knowledge of our retail customers and end-user consumers to deliver high quality, innovative products to the marketplace. We also will continue to focus on a good, better, best approach to price points to create products that appeal to different categories of end consumers. To the extent it is consistent with our strategy, we may acquire new products or expand existing product categories. We believe our product development expertise differentiates us from other companies in this market.
· Cultivating Relationships We believe we have strong relationships with our retail customers and suppliers. We have long-standing, solid partnerships with each of our retail partners. We also have developed strong relationships with a group of suppliers that provide us with the flexibility needed to engineer our products in a cost-efficient manner and to respond quickly to customer demands, We will continue to focus on building on these existing relationships to increase our presence in these stores and to expand with our customers as they enter new geographic locations. We will also continue to work with a growing number of specialty retail operators that would permit us to continue our pursuit of a good, better, best approach and access to customers seeking differentiated products and support.
· Building Brands Historically, we have marketed products under our own brands, under license agreements for other brands, and under private label agreements. Going forward, our focus will be on building our core brands of Summer® and Born Free®, particularly among first-time prenatal moms, through improved marketing, including through social media.
· Executing Operational Excellence Our entire organization is focused on delivering operational excellence, and we have already begun initiatives, such as SKU rationalization and implementation of a direct import program, that we expect to favorably impact our operations while also providing improved results. By improving our analytic and forecasting capabilities, product development process, and management of working capital and costs, we expect to improve internal processes that should, in turn, benefit our customers.
By renewing our focus on these core strengths, we expect to drive future growth, improve profitability and to further develop and strengthen our relationships with both our retail customers and end-users of our products.
We believe that, based on our core strengths and strategic priorities, we are well-positioned to capitalize on positive market trends.
Recent Developments
Cost Reduction Initiatives
The Company began implementing several cost reduction initiatives in the third quarter of 2012 designed to lower promotional costs and advertising expenses, reduce operating costs, and improve margins. These initiatives have resulted in tighter controls of retailer programs costs, a reduction in worldwide headcount, a reduction in executive salaries, voluntary reduction in board of director compensation, cuts in overhead spending relating to discontinuing various outside services, and negotiated lower professional service fees. Additional headcount reductions were initiated in the first quarter of 2013.
New Credit Facility and Term Loan
In February 2013, we entered into a new loan and security agreement (the BofA Agreement) with Bank of America, N.A., as agent, the financial institutions party to the agreement from time to time as lenders. The BofA Agreement replaces our prior credit facility with Bank of America that was set to expire in December 2013.
The BofA Agreement provides for an $80,000, asset-based revolving credit facility, with a $10,000 letter of credit sub-line facility. The total borrowing capacity is based on a borrowing base, which is defined as 85% of eligible receivables plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory and less reserves. The scheduled maturity date of loans under the BofA
Agreement is February 28, 2018 (subject to customary early termination provisions). All obligations under the BofA Agreement are secured by substantially all the assets of the Company, subject to the first priority lien on certain assets held by the term loan lender described below. Proceeds from the loans will be used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the BofA Agreement, pay obligations under the BofA Agreement, make payments on the term loan described below, and for lawful corporate purposes, including working capital. As of March 31, 2013, we had borrowings outstanding of $47,400 and availability under the BofA agreement of $13,600. As a result of our refinancing, we expect interest expense attributable to our new credit facilities to be lower on comparable debt levels than our prior loan agreement.
In February 2013, we entered into a new term loan agreement (the Term Loan Agreement) with Salus Capital Partners, LLC, as administrative agent and collateral agent, and each lender from time to time a party to the Term Loan Agreement providing for a $15,000 term loan (the Term Loan). Proceeds from the Term Loan will be used to repay certain existing debt, to finance the acquisition of working capital assets in the ordinary course of business and capital expenditures, and for general corporate purposes. The Term Loan is secured by certain assets of the Company, including a first priority lien on intellectual property, plant, property and equipment, and a pledge of 65% of the ownership interests in certain subsidiaries of the Company. The Term Loan matures on February 28, 2018.
Other Activities.
In the first quarter of 2013, we announced that we were in the process of exiting our licensing arrangements with Disney® and Carters® and will focus on building our own Summer and Born Free branded products. As a result of these exit activities and the continued reduction in non-performing product SKUs, we had a higher level of closeout sales of lower margin products in the first quarter of 2013 that affected our gross profit and gross margins as compared to the prior year quarter. Although we believe sales in the first half of 2013 will continue be affected by both the exiting of these licensing relationships and continued close out sales, we do expect to see sales to increase and gross profit as a percentage of sales to improve in the second half of 2013 as our new product introductions hit the shelves of our retail customers.
Summary of critical accounting policies and estimates
There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2013 compared with our critical accounting policies and estimates disclosed in Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012
Results of Operations
Condensed Consolidated Statements of Income
For the Three Months Ending March 31, 2013 and 2012
(Unaudited)
|
|
For the three months ended |
| ||||
|
|
March 31, 2013 |
|
March 31, 2012 |
| ||
Net revenues |
|
$ |
59,118 |
|
$ |
62,999 |
|
Cost of goods sold |
|
40,539 |
|
41,894 |
| ||
Gross profit |
|
18,579 |
|
21,105 |
| ||
General and administrative expenses |
|
9,611 |
|
10,625 |
| ||
Selling expenses |
|
5,604 |
|
6,023 |
| ||
Depreciation and amortization |
|
1,790 |
|
1,875 |
| ||
Operating income |
|
1,574 |
|
2,582 |
| ||
Interest expense, net |
|
(1,255 |
) |
(720 |
) | ||
Income before income taxes |
|
319 |
|
1,862 |
| ||
Provision (benefit) for income taxes |
|
(125 |
) |
540 |
| ||
Net income |
|
$ |
444 |
|
$ |
1,322 |
|
Three months ended March 31, 2013 compared with three months ended March 31, 2012
Net sales declined 6% from approximately $62,999 for the three months ended March 31, 2012 to approximately $59,118 for the three months ended March 31, 2013. The decline was attributable to sales of discontinued and low margin product SKUs throughout our product categories As a result, sales in most product categories were flat or declined slightly with the exception of our safety, play, and nursery categories which increased in the quarter.
Gross profit decreased 12.0% from $21,105 for the quarter ended March 31, 2012 to $18,579 for the quarter ended March 31, 2013. The decline in gross profit dollars is attributable to the decline in sales and the mix of products sold, as we had a higher amount of close-out sales in the first quarter of 2013 as a result of the product SKU reductions and activities relating to ending of certain licensing agreements.
General and administrative expenses decreased 9.5% from $10,625 for the quarter ended March 31, 2012 to $9,611 for the quarter ended March 31, 2012. The decline in general and administrative expenses is attributable to the cost reductions initiated in 2012 which continued in the first quarter of 2013.
Selling expenses decreased 7.0% from $6,023 for the quarter ended March 31, 2012 to $5,604 for the quarter ended March 31, 2013. This decrease was primarily attributable to additional cost controls implemented over retailer program costs such as promotions, consumer advertising, cooperative advertising, as well as lower royalty costs under licensing agreements as part of discontinuing certain licensing arrangements.
Depreciation and amortization decreased 4.5% from $1,875 in the quarter ended March 31, 2012 to $1,790 for the quarter ended March 31, 2013. The decrease in depreciation is attributable to a reduction in capital investment as a result of disciplined capital expenditure management partially offset by higher amortization on newly defined finite-lived intangible assets in the fourth quarter of 2012.
Interest expense increased 74% from $720 in the quarter ended March 31, 2012 to $1,255 for the quarter ended March 31, 2012. Interest expense increased as a result of higher interest rates and the write off of unamortized bank fees in the first quarter of 2013 in connection with the refinancing of our 2010 credit agreement. We expect interest expense attributable to our new credit facilities to be lower than our prior loan agreement on similar debt levels.
For the quarter ended March 31, 2012, we recorded a $540 provision for income taxes on $1,862 of pretax income, resulting in a 29% tax rate for the year. For the quarter ended March 31, 2013, we recorded a $125 tax benefit on $319 of pretax income. The tax benefit in 2013 is primarily attributable to the reinstatement in early 2013 of the federal R&D tax credit for 2012, taken as a discrete tax benefit in the quarter.
Liquidity and Capital Resources
We fund our operations and working capital needs through cash generated from operations and borrowings under our new credit facilities.
In our typical operational cash flow cycle, inventory is purchased to meet expected demand plus a safety stock. Because the majority of our suppliers are based in Asia, inventory takes from three to four weeks to arrive from Asia to the various distribution points we maintain in the United States, Canada and the United Kingdom. Payment terms for these vendors are approximately 60-90 days from the date the product ships from Asia, therefore we are generally paying for the product a short time after it is physically received in the United States. In turn, sales to customers generally have payment terms of 30 to 60 days, resulting in an accounts receivable and increasing the amount of cash required to fund working capital. To bridge the gap between paying our suppliers and receiving payment from our customers for goods sold, we rely on our credit facilities.
The majority of our capital expenditures are for tools related to new product introductions. We receive indications from retailers generally around the middle of each year as to what products the retailer will be taking into its product line for the upcoming year. Based on these indications, we will then acquire the tools required to build the products. In most cases the payments for the tools are spread out over a three to four month period.
For the quarter ending March 31, 2013, net cash provided by operating activities totaled $2,143. For the quarter ending March 31, 2012, net cash used by operating activities totaled $5,049. The change in net cash relating to operating activities in 2013 as compared to 2012 is largely attributable to improved working capital management in collections, inventory management, as well as in vendor management over the prior year.
For the quarter ending March 31, 2013, net cash used in investing activities was approximately $614. For the quarter ending March 31, 2012, net cash used in investing activities was $811. The decline in net cash used in investing activities was primarily attributable to better capital investment management in 2013.
For the quarter ending March 31, 2013, net cash used in financing activities was approximately $1,867 to pay down of our credit facilities. For the quarter ending March 31, 2012, net cash provided by financing activities was $6,549 primarily to fund operations.
Based primarily on the above factors, net cash declined for the quarter ending March 31, 2013 by $498, resulting in a cash balance of approximately $2,634 at March 31, 2013.
We believe that our cash on hand and new banking facilities are sufficient to fund our cash requirements for at least the next twelve months. However, unforeseen circumstances, such as softness in the retail industry or deterioration in the business of a significant customer could create a situation where we cannot access all of the available lines of credit due to not having sufficient assets or consolidated EBITDA as required under our loan agreements. There is no assurance that we will meet all of our financial or other covenants in the future, or that our lenders will grant waivers if there are covenant violations. In addition, should we need to raise additional funds through additional debt or equity financings, any sale of additional debt or equity securities may cause dilution to existing stockholders. If sufficient funds are not available or are not available on acceptable terms, our ability to address any unexpected changes in our operations could be limited. Furthermore, there can be no assurance that we will be able to raise such funds if and when they are required. Failure to obtain future funding when needed or on acceptable terms could materially adversely affect our results of operations.
Bank of America Credit Facility
On February 28, 2013, we entered into a new loan and security agreement (the BofA Agreement) with Bank of America, N.A., as agent, the financial institutions party to the agreement from time to time as lenders. The BofA Agreement replaced the Companys prior loan agreement with Bank of America.
The BofA Agreement provides for an $80,000, asset-based revolving credit facility, with a $10,000 letter of credit sub-line facility. The total borrowing capacity is based on a borrowing base, which is defined as 85% of eligible receivables plus the lesser of (i) 70% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of eligible inventory and less reserves.
The scheduled maturity date of loans under the BofA Agreement is February 28, 2018 (subject to customary early termination provisions). All obligations under the BofA Agreement are secured by substantially all the assets of the Company, subject to the first priority lien on certain assets held by the term loan lender described below. In addition, Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the BofA Agreement. Proceeds from the loans were used to satisfy existing debt, pay fees and transaction expenses associated with the closing of the BofA Agreement, and will be used to pay obligations under the BofA Agreement, make payments on the term loan described below, and for other corporate purposes, including working capital.
Loans under the BofA Agreement bear interest, at our option, at a base rate or at LIBOR, plus applicable margins based on average quarterly availability under the BofA Agreement and ranging between 1.75% and 2.25% on LIBOR borrowings and 0.25% and 0.75% on base rate borrowings. Interest payments are due monthly, payable in arrears. We are also required to pay an annual non-use fee of 0.375% of the unused amounts under the BofA Agreement, as well as other customary fees as are set forth in the BofA Agreement. As of March 31, 2013 the base rate on loans was 3.75% and the LIBOR rate was 2.25%.
Under the BofA Agreement, we must comply with certain financial covenants, including that the Company (i) for the first year of the loan, maintain and earn a specified minimum, monthly consolidated EBITDA amount, with such specified amounts increasing over the first year of the loan to a minimum consolidated EBITDA of $12 million at February 28, 2014, and (ii) beginning with the fiscal quarter ending March 31, 2014, maintain a fixed charge coverage ratio of at least 1.0 to 1.0 for each period of four fiscal quarters most recently ended. For purposes of the financial covenants, consolidated EBITDA is defined as net income before interest, taxes, depreciation and
amortization, plus certain customary expenses, fees and non-cash charges and minus certain customary non-cash items increasing net income. We were in compliance with the financial covenants at March 31, 2013.
The BofA Agreement contains customary affirmative and negative covenants. Among other restrictions, the Company is restricted in its ability to incur additional debt, make acquisitions or investments, dispose of assets, or make distributions unless in each case certain conditions are satisfied. The BofA Agreement also contains customary events of default, including a cross default, the occurrence of a material adverse event and the occurrence of a change of control. In the event of a default, all of the obligations of the Company and its subsidiaries under the BofA Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.
As of March 31, 2013, we had borrowings outstanding of $47,400 and availability of $13,500.
Term Loan
On February 28, 2013 we entered into a new term loan agreement (the Term Loan Agreement) with Salus Capital Partners, LLC, as administrative agent and collateral agent, and each lender from time to time a party to the Term Loan Agreement providing for a $15,000 term loan (the Term Loan).
Proceeds from the Term Loan were used to repay certain existing debt, and will be used to finance the acquisition of working capital assets in the ordinary course of business, capital expenditures, and for other general corporate purposes. The Term Loan is secured by certain assets of the Company, including a first priority lien on intellectual property, plant, property and equipment, and a pledge of 65% of the ownership interests in certain subsidiaries of the Company. The Term Loan matures on February 28, 2018. In addition, Summer Infant Canada Limited and Summer Infant Europe Limited, subsidiaries of the Company, are guarantors under the Term Loan Agreement.
The principal of the Term Loan will be repaid, on a quarterly basis, in installments of $375, commencing with the quarter ending September 30, 2013, until paid in full on termination. The Term Loan bears interest at an annual rate equal to LIBOR, plus 10%, with a LIBOR floor of 1.25%. Interest payments are due monthly, in arrears. As of March 31, 2013 the interest rate on the Term Loan was 11.25%.
The Term Loan Agreement contains customary affirmative and negative covenants substantially the same as the BofA Agreement. In addition, we must comply with certain financial covenants, including that the Company (i) meet the same minimum, monthly consolidated EBITDA as set forth in the BofA Agreement and (ii) initially maintain a monthly senior leverage ratio of 1:1. For periods after February 28, 2014, the senior leverage ratio will be based on an annual business plan to be approved by the Companys Board of Directors and will be tested monthly on a trailing twelve month basis. For purposes of the financial covenants in the Term Loan Agreement, the senior leverage ratio is the ratio of (i) all amounts outstanding under the Term Loan Agreement and the BofA Agreement to (ii) consolidated EBITDA for the twelve-month period ending as of the last day of the most recently ended fiscal month. The Term Loan Agreement also contains events of default, including a cross default, the occurrence of a material adverse event, the occurrence of a change of control, and the recall of products having a value of $2,000 or more. In the event of a default, all of the obligations of the Company and its subsidiaries under the Term Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable. We were in compliance with all financial covenants at March 31, 2013.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
ITEM 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of March 31, 2013. Our principal executive officer and principal financial officer have concluded, based on this evaluation, that our controls and procedures were effective as of March 31, 2013.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, results of operations or financial condition.
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Funds.
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
Not applicable
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this Quarterly Report on Form 10-Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Summer Infant, Inc. | |
|
|
|
|
|
|
Date: May 14, 2013 |
By: |
/s/ Jason Macari |
|
|
Jason Macari |
|
|
Chief Executive Officer |
|
|
|
Date: May 14, 2013 |
By: |
/s/ Paul Francese |
|
|
Paul Francese |
|
|
Chief Financial Officer |
Exhibit No. |
|
Description |
|
|
|
10.1 |
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Loan and Security Agreement, dated as of February 28, 2013, among Summer Infant, Inc., Summer Infant (USA), Inc., the Guarantors from time to time a party thereto, the financial institutions part thereto from time to time as lenders, Bank of America, N.A., as Agent, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibits to the Registrants Current Report on Form 8-K filed March 4, 2013) |
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10.2 |
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Term Loan Agreement, dated as of February 28, 2013, among Summer Infant (USA), Inc., as lead borrower, Summer Infant, Inc., the Guarantors named therein, Salus Capital Partners, LLC, as Administrative Agent and Collateral Agent, and the other lenders party thereto (Incorporated by reference to Exhibits to the Registrants Current Report on Form 8-K filed March 4, 2013) |
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10.3 |
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Security Agreement, dated as of February 28, 2013, among Summer Infant, (USA), Inc., as lead borrower, the Company, the Guarantors named therein, and Salus Capital Partners, LLC, as Agent (Incorporated by reference to Exhibits to the Registrants Current Report on Form 8-K filed March 4, 2013) |
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10.4 |
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Offer Letter and Change of Control Agreement by and between the Registrant and Elizabeth Jackson |
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31.1 |
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Certification of Chief Executive Officer |
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31.2 |
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Certification of Chief Financial Officer |
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32.1 |
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Section 1350 Certification of Chief Executive Officer |
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32.2 |
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Section 1350 Certification of Chief Financial Officer |
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101.INS * |
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XBRL Instance Document |
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101.SCH * |
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XBRL Taxonomy Extension Schema Document |
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101.CAL * |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF * |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB * |
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XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE * |
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XBRL Taxonomy Extension Presentation Linkbase Document |
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Exhibit 10.4
March 6, 2013
Private and Confidential
Elizabeth Jackson
82 Fischer Circle
Portsmouth, RI 02871
Dear Elizabeth:
Further to our recent discussions in respect of your employment with Summer Infant (USA), Inc. (Summer), Summer is delighted to offer you a full-time position as the Chief Marketing Officer (CMO), to commence on April 1, 2013. This offer is being extended in consideration of the mutual covenants and agreements contained in this letter, which sets forth our mutual understanding and agreement regarding your employment with Summer pursuant to the following terms and conditions. All offers of employment are conditional, subject to satisfactory results of background investigation, reference checks, pre-employment alcohol and drug tests, and production of documents sufficient to demonstrate identity and authorization to work.
Position and Responsibilities:
Your employment with Summer will commence on April 1, 2013. Your responsibilities will include, but are not limited to, the Chief Marketing Officer for Summer and its affiliated and subsidiary entities. As previously discussed, we have agreed that you will be expected to work at the corporate headquarters now located in Woonsocket, Rhode Island on average 3.5 to 4 days per week, with the remaining work being performed remotely (without specified location) and flexibly (without specified days or hours). Notwithstanding the foregoing, your employment with Summer will be as a full-time employee and you will be expected to devote your full energies to the business and affairs of Summer and the performance of your duties and responsibilities hereunder. As the Chief Marketing Officer you will report directly to the President and CEO of Summer (Jason Macari).
Summer acknowledges that you own SEDNA Marketing Partners LLC, (Sedna) and agrees that you may continue to perform services for Sedna notwithstanding your employment by Summer, provided that: (i) such services do not unreasonably interfere with the performance of your duties and responsibilities as an employee of Summer, as reasonably determined by its President, and (ii) such services do not violate the provisions set forth in Appendix A, attached hereto and incorporated herein. If, at any time the President determines that such interference exists, you will be given written notice of such determination and not less than 10 days to make reasonable changes to your services on behalf of Sedna so as to eliminate such interference.
Compensation:
You will receive a bi-weekly (every two weeks) base salary of $ 10,000.00 (annualized equivalent of $260,000), subject to applicable withholding and other lawful deductions.
You will be eligible for Summers annual (Short-Term Incentive) cash bonus program with a target equal to 30% of your base salary compensation based on company and personal performance.
You will also be eligible to participate in the companys (Long-Term Incentive) equity plan, currently targeted to deliver a minimum expected annual value of $75,000 per year, subject to approval of the Compensation Committee of the Board of Directors. In addition, in recognition of your contributions to the company to-date, we agree to provide you with a 50% pro-rated annual LTI grant in 2013, based on the LTI grants to be determined and approved by the Compensation Committee of the Board of Directors.
In addition, you will be provided with an initial hiring grant of 40,000 stock options, plus 20,000 shares of restricted stock. Based on your service and contributions-to-date, we have agreed that the first 25% of this hiring grant will be allowed to vest on the grant date, with the remaining shares to vest in equal annual increments of 25% each year thereafter. This grant and the vesting will be processed in accordance with the companys Performance Equity Plan.
Performance Review and Benefits:
In recognition of your service to the company to-date, you will be eligible for a performance review in February 2013 with a full (non-prorated) merit increase consistent with the rest of Summer Infants executive employees in 2013.
You will also be eligible for Summers standard employee benefits subject to plan eligibility requirements. Summers current benefits include Medical benefits, Dental benefits, Vision Care, (available the first of the month following your date of hire), a 401K plan and match program (after 90 days), Long-Term Disability (after 90 days), a Flexible Spending Account, a Tuition Reimbursement Program (if eligible), generous Product Discounts and 20 days of Paid Time Off per year, accrued at a rate of 6.15 hours bi-weekly (PTO includes vacation, sick and personal time).
Governing Law/At Will Employment:
Your employment with Summer shall be governed by and interpreted in accordance with the laws of the State of Rhode Island. By execution and delivery of this employment term letter, you irrevocably submit to and accept the exclusive jurisdiction of the courts in the State of Rhode Island and waive any objection (including any objection to venue or any objection based upon the grounds of forum non conveniens) which might be asserted against the bringing of any such action, suit or other legal proceeding in such courts.
Your employment with Summer is at will, in that either you or Summer have the right to terminate the employment relationship at any time, with or without cause. This status may only be altered by written agreement, which is specific as to all materials terms and is signed by an authorized officer of Summer. The terms of this employment letter do not, and are not, intended to create either an express and/or implied contract of employment with Summer for a definitive term.
Restrictive Provisions:
Appendix A sets forth provisions regarding, among other matters: (i) the non-disclosure and protection of Summers confidential information by you during and after your employment with Summer, (ii) a prohibition against you competing with Summer during your employment and for a period following the termination of your employment with Summer and (iii) your agreement to assign to Summer new developments and inventions relating to Summers business. By accepting this offer of employment and by initialing each page of Appendix A, you are agreeing to be bound by and adhere to the terms, conditions, covenants and restrictions set forth in Appendix A. You acknowledge, agree and understand that your agreement to be bound by the provisions set forth in Appendix A is a material incentive to Summer to offer you employment and a condition to Summers employment of you.
Change of Control Agreement:
You will be entitled to protection against a change of control of Summer pursuant to the terms of a Change of Control Agreement in the form attached hereto as Appendix B (the CC Agreement). You will be required to execute and return to the undersigned the CC Agreement if you accept this offer. In the event that your employment with Summer is terminated by you as a result of the occurrence of an event constituting a Change of Control (as defined therein) pursuant to the CC Agreement, then the provisions of the CC Agreement shall supersede and replace the provisions set forth in Appendix A. In all other circumstances, except as hereinafter set forth, you shall be bound by the terms, conditions, covenants and restrictions set forth in Appendix A both during your employment with Summer and for the period thereafter set forth in Appendix A.
Employment Documentation:
Your employment with Summer is contingent upon your submission of satisfactory proof of your identity and legal authorization to work in the United States as well as completion of all employment related forms required by Summer. If you fail to provide satisfactory documentation, federal law prohibits Summer from hiring you.
Expense Reimbursement:
Summer will pay and/or reimburse you for all expenses reasonably and necessarily incurred by you in the performance of your services while employed by Summer. Such payment shall be made upon presentation of such receipts or other documentation, as the Company customarily requires prior to making such payment or reimbursement.
Employment Manual:
During your employment with Summer you will be required to abide by Summers code of conduct, policies and procedures as set forth in Summers employee manual or as otherwise communicated to you in writing.
Return of Employment Term Letter:
We are excited about this opportunity to work with you to build the Summer Brand and Business. To accept this offer, please sign and date this page (as well as Appendix A and Appendix B), keep a copy for your records, and return a copy to Human Resources. We are extremely confident that your employment with us will prove mutually beneficial and we look forward to having you join our winning team!
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Very truly yours, | |
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Summer Infant USA, Inc. | |
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By: |
/s/ Mark Strozik |
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Name: |
Mark Strozik |
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Title: |
Vice President of Human Resources |
I accept your offer of employment as set forth in this employment term letter. I understand that my employment is at will and that either you or I can terminate my employment at any time, for any reason. No oral commitments have been made concerning my employment.
Elizabeth Jackson |
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/s/ Elizabeth Jackson |
Employee Name (please print) |
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Employee Signature |
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March 7, 2013 |
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Date |
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APPENDIX A
I. Consideration for Agreement.
You acknowledges that you are being hired by Summer as Chief Marketing Officer and in connection with your duties and responsibilities at Summer and in consideration of your promises in this Appendix A, Summer will provide you with access to certain Confidential Information including, without limitation, access to marketing plans and strategies, product development, new products and new product concepts, operational policies, financial information, marketing information, personnel information, trade secrets, customer information (including customer lists and analytical sales data), new products, and pricing and cost policies, expansion plans and business plans that are valuable, special and unique assets of Summer. Accordingly in consideration of your employment with Summer, you hereby agree with Summer to comply with the terms of this Appendix A.
2. Non-Competition.
(a) During Employment.
During your employment with Summer, you agree that you will not, directly or indirectly, engage in Competition or provide Consulting Services within the Restricted Area.
(i) Engaging in Competition shall mean providing services to a Competitor of Summer (whether as an employee, independent contractor, consultant, principal, agent, partner, officer, director, investor, or shareholder, except as a shareholder of less than one percent of a publicly traded company) that: (A) are the same or similar in function or purpose to the services Employee provided to Summer during his/her employment by Summer, and/or (B) will likely result in the disclosure of Confidential Information to a Competitor or the use of Confidential Information on behalf of a Competitor.
(ii) It is understood that a Competitor for purposes of this Appendix A shall mean any person, corporation or other entity that sells for resale one or more product lines that are sold by Summer, including, without limitation, infant, juvenile and/or childrens health and safety products, furniture , soft goods and infant/toddler feeding.
(iii) Consulting Services shall mean any activity that involves providing consulting or advisory services with respect to any relationship between Summer and any third party and that is likely to result in the use or disclosure of Confidential Information.
(iv) Restrictive Area refers to the United States of America, Canada and United Kingdom (UK).
/s/ EAJ |
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(b) After Employment.
(i) (In the event that your employment with Summer is terminated for any reason (initiated by Summer or you), Summer will have the right, in its sole discretion, to extend the duration of the period in which you cannot engage in Competition or provide Consulting Services for a period of up to one (1) year (Non-Compete Period) by providing written notice to you within fourteen (14) days after the effective date of your termination. Summers written notice will specify the length of time that Summer desires to extend the non-compete requirement, but in any event not longer than one (1) year nor less than six (6) months. For the Non-Compete Period specified in Summers written notice, Summer will pay you an amount equal to one half (1/2) of your base salary as of the date of your termination, to be paid in accordance with Summers customary pay practices.
(ii) You further agree that if an authorized representative of Summer, during your employment or the Non-Competition Period, requests that you identity the company or business to which you will be or are providing services, or with which you will be or are employed, and/or requests that you provide information about the services that you are or will be providing to such entity, You shall provide Summer with a written statement detailing the identity of the entity and the nature of the services that you are or will be providing to such entity with sufficient detail to allow Summer to independently assess whether you are or will be engaging in Competition during the Non-Competition Period. Such statement shall be delivered to Summers Vice President of Human Resources via personal delivery or overnight delivery within five days of your receipt of such request.
3. Non-Interference.
You agree that during the Non-Interference Period, which shall be 12 months following the termination of your employment with Summer for any reason, you will not interfere with Summers relationship with its Business Partners by soliciting or communicating (regardless of who initiates the communication) with a Business Partner to induce or encourage the Business Partner to stop doing business or reduce its business with Summer, unless a duly authorized officer of Summer gives you written authorization to do so. You also agree that during the Non-Interference Period, you will not work on a Summer account on behalf of a Business Partner or serve as the representative of a Business Partner for Summer. Business Partner means a supplier, manufacturer, vendor or licensor (person or entity) with whom Summer has a business relationship and with which you had business-related contact or dealings, or about which you received Confidential Information, during the two years prior to the termination of your
/s/ EAJ |
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employment with Summer or during your employment, whichever is the shorter period. A Business Partner does not include a supplier, manufacturer, vendor or licensor that has fully and finally decided to terminate its business relationship with Summer independent of any conduct or communications by you or breach of this Agreement, and which has, in fact, ceased doing any business with Summer. During the Non-Interference Period, you also will not interfere with Summers relationship with any employee of Summer by: (i) soliciting or communicating with such employee to induce or encourage him or her to leave Summers employ (regardless of who first initiates the communication); (ii) helping another person or entity evaluate such employee as an employment candidate; or (iii) otherwise helping any person or entity hire an employee away from Summer unless a duly authorized officer of Summer gives you written authorization to do so. Where required by law, the foregoing restriction will only apply to employees with whom you had material contact or about whom you received Confidential Information within the shorter period of your employment with Summer or during the last two years prior to the termination of your employment with Summer.
4. Non-Disclosure of Confidential Information.
(a) Subject to Section 7 below, you will not at any time, whether during or after the termination of your employment, reveal to any person or entity any of Summers Confidential Information, except as may be appropriately required in the ordinary course of performing your duties as an employee of Summer. Summers Confidential Information includes but is not limited to the following non-public information: trade secrets, marketing plans and strategies, product development, new products and new product concepts, operational policies, financial information, marketing information, personnel information, customer information (including customer lists and analytical sales data), pricing and cost policies, expansion strategies, sources of supply, employee compensation, and confidential information of third parties which is given to Summer pursuant to an obligation or agreement to keep such information confidential (collectively, Confidential Information). You agree to keep secret all such matters entrusted to you, and you agree not to use or attempt to use any Confidential Information on behalf of any person or entity other than Summer, or in any manner which may injure or cause loss or may be calculated to injure or cause loss, whether directly or indirectly, to Summer.
(b) Further, you agree that, during your employment, you shall not make, use, or permit to be used, any notes, memoranda, reports, lists, records, specifications, software programs, data, documentation or other materials of any nature relating to any matter within the scope of the business of Summer or concerning any of its dealings or affairs other than for the benefit of Summer. You further agree that you shall not, after the termination of your employment, use or permit to be used any such notes, memoranda, reports, lists, records, specifications, software programs, data, documentation or other materials. All of the foregoing shall be and remain the sole and exclusive property of Summer and, immediately upon the termination of your employment, you shall deliver all of the foregoing, and all copies thereof, to Summer at its main office.
/s/ EAJ |
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5. Ownership and Return of Summers Property.
You agree that on or before your final date of employment with Summer, you shall return to Summer all property of Summer in your possession, custody or control, including but not limited to, the originals and copies of any information provided to or acquired by you in connection with the performance of your duties for Summer, such as files, correspondence, communications, memoranda, e-mails, slides, records, technical sheets, and all other documents, no matter how produced or reproduced, all computer equipment, communication devices (including but not limited to any mobile phone or other portable digital assistant or device), computer programs and/or files, and all office keys and access cards. It is hereby acknowledged that all of said items are the sole and exclusive property of Summer.
6. Rights to Inventions, Works.
(a) Assignment of Inventions. You agree that you will promptly make full written disclosure to Summer, will hold in trust for the sole right and benefit of Summer, and hereby assign to Summer, or its designee, your right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks or trade secrets, whether or not patentable or registrable under copyright or similar laws, which you may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, while in the course of your employment for Summer during the period of time you are in the employ of Summer and relating to the business of Summer (collectively referred to as Inventions). You further acknowledge that all original works of authorship which are made by you (solely or jointly with others) within the scope of and during the period of your employment with Summer and which are protectable by copyright are works made for hire, and as such are the sole property of Summer. You understand and agree that the decision whether or not to commercialize or market any Invention developed by you solely or jointly with others is within Summers sole discretion and for Summers sole benefit and that no royalty will be due to you as a result of Summers efforts to commercialize or market any such Invention.
(b) Maintenance of Records. You agree to keep and maintain adequate and current written records of all Inventions made by you (solely or jointly with others) during the term of your employment with Summer. The records will be in the form of notes, sketches, drawings, and any other format that may be specified by Summer. The records will be available to and remain the sole property of Summer at all times.
7. Cooperation.
(a) In the event that you receive a subpoena, deposition notice, interview request, or other process or order to produce Confidential Information or any other property of Summer, you shall promptly: (a) notify Summer of the item, document, or information sought by such subpoena, deposition notice, interview request, or other process or order; (b) furnish Summer with a copy of said subpoena, deposition notice, interview request, or other
/s/ EAJ |
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process or order; and (c) provide reasonable cooperation with respect to any procedure that Summer may initiate to protect Confidential Information or other interests. If Summer objects to the subpoena, deposition notice, interview request, process, or order, you shall cooperate to ensure that there shall be no disclosure until the court or other applicable entity has ruled upon the objection, and then only in accordance with the ruling so made. If no such objection is made despite a reasonable opportunity to do so, you shall be entitled to comply with the subpoena, deposition, notice, interview request, or other process or order provided that you have fulfilled the above obligations.
(b) You agree to cooperate fully with Summer and its legal counsel in connection with any action, proceeding, or dispute arising out of matters with which you were directly or indirectly involved while serving as an employee of Summer. This cooperation shall include, but shall not be limited to, meeting with, and providing information to, Summer and its legal counsel, maintaining the confidentiality of any past or future privileged communications with Summers legal counsel and making yourself available to testify truthfully by affidavit, in depositions, or in any other forum on behalf of Summer. Summer agrees to reimburse you for any reasonable and necessary out-of-pocket costs associated with your cooperation. For your cooperation, Summer agrees to compensate you at an hourly rate of $185.00 per hour.
8. Injunctive Relief.
You agree that in the event you commit a breach or threaten to commit a breach, of any of the provisions of this Appendix A, Summer shall have the right and remedy to seek to have the provisions of this Appendix A specifically enforced by any court having jurisdiction, it being acknowledged and agreed by you that any such breach or threatened breach may cause irreparable injury to Summer and that money damages may not provide an adequate remedy to Summer. The rights and remedies enumerated in this Section shall be in addition to, and not in lieu of, any other rights and remedies available to Summer under law or equity. In connection with any legal action or proceeding arising out of or relating to this Agreement, the prevailing party in such action or proceeding shall be entitled to be reimbursed by the other party for the reasonable legal fees and costs incurred by the prevailing party.
9 No Waiver.
Any waiver by Summer of a breach of any provision of this Appendix A, or of any other similar agreement with any other current or former employee of Summer, shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision hereof.
10. Severability.
Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or
/s/ EAJ |
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future statute, law, ordinance, regulation or other pronouncement having the force of law, the latter shall prevail, but the provision of this Appendix A affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Appendix A shall remain in full force and effect.
11. Survival of Your Obligations.
Your obligations under this Appendix A shall survive the termination of your employment regardless of the manner of such termination and shall be binding upon your heirs, personal representatives, executors, administrators and legal representatives.
12. Governing Law.
This Appendix A shall be governed by and construed and interpreted in accordance with the laws of the State of Rhode Island.
13. Tolling.
In the event you violate one of the time-limited restrictions in this Appendix A, you agree that the time period for such violated restriction shall be extended by one day for each day you have violated the restriction, up to a maximum extension equal to the length of the original period of the restricted covenant.
Elizabeth Jackson |
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/s/ Elizabeth Jackson |
Employee Name (please print) |
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Employee Signature |
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March 7, 2013 |
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Date |
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APPENDIX B
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (the Agreement), dated and effective as of April 1, 2013 (the Effective Date), is entered into by and between Summer Infant (USA), Inc., a Rhode Island corporation (the Company), and the Employee of the Company named on the signature page hereto (the Employee).
Preliminary Statements
The Board of Directors (the Board) of Summer Infant, Inc., (parent company to the Company) has determined that it is in the best interest of the Company and its shareholders to assure itself of the continued availability of the services of the Employee, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company.
In order to provide the Employee with enhanced financial security and sufficient encouragement to remain with the Company notwithstanding the possibility of a Change of Control, the Board believes that it is imperative to provide the Employee with certain severance benefits upon a Change of Control.
Agreement
In consideration of the foregoing premises and the respective covenants and agreements of the parties set forth below, and intending to be legally bound hereby, the parties agree as follows:
1. Incentive for Continuous Employment. If prior to the last day of the 12th full calendar month following the date of occurrence of an event constituting a Change of Control (it being recognized that more than one event constituting a Change of Control may occur in which case the 12-month period shall run from the date of occurrence of each such event) (i) the Company terminates the Employees employment other than (A) for Cause (as herein defined), or (B) because of the Employees Disability (as defined below) or death, or (ii) the Employee terminates his employment for Good Reason (as herein defined) (any such termination in clauses (i) or (ii) being referred to as a Payment Event), then, within ten (10) business days (or such other time as specified in Section 9(r) hereof) after such termination (the Payment Date) the Employee shall be entitled to receive from the Company a cash payment (the Payment) in one lump sum equal to the sum of: (i) the Payment Percentage provided for on Schedule 1 attached to this Agreement (Schedule 1), multiplied by the Employees annual base salary as in effect at the time of such termination and (ii) the average of the Employees annual cash bonuses from the Company for the two fiscal years (whether or not paid so long as accrued and declared by the Company) preceding the fiscal year in which such termination occurs. In addition, the Employee shall be entitled to the severance benefits listed on Schedule 1 (the Severance Benefits). The Employee shall not be entitled to any Payment or any Severance Benefits if the Employee terminates the Employees employment without Good Reason.
2. Definitions. In addition to the capitalized terms used and defined elsewhere in this Agreement, the following capitalized terms used in this Agreement shall, for purposes of this Agreement, have the meanings set forth below.
Affiliate shall mean any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person, and with respect to any natural person, includes the members of such persons immediate family (spouse, children and parents, whether by blood, marriage or adoption, or anyone residing in such persons home).
Cause shall mean the occurrence of one or more of the following: (i) Employees willful and continued failure to substantially perform Employees reasonably assigned duties with the Company (other than any such failure resulting from incapacity due to disability or from the assignment to Employee of duties that would constitute Good Reason), which failure continues for a period of at least thirty (30) days after written demand for substantial performance has been delivered by the Company to the Employee which specifically identifies the manner in which the Employee has failed to substantially perform his duties; (ii) Employees willful conduct which constitutes misconduct and is materially and demonstrably injurious to the Company, as determined in good faith by a vote of at least two-thirds of the non-employee directors of the Company at a meeting of the Board at which the Employee is provided an opportunity to be heard; (iii) Employee being convicted of, or pleading nolo contendere to a felony; or (iv) Employee being convicted of, or pleading nolo contendere to a misdemeanor based in dishonesty or fraud.
Change of Control shall mean (i) individuals who, as of the Effective Date, constitute the Board (the Incumbent Board) cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the Effective Date whose election, or nomination for election by the Companys shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934) shall be considered as though such individual was a member of the Incumbent Board; or (ii) the approval by the shareholders of the Company of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions (but not including an underwritten public offering of the Companys common stock or other voting securities (or securities convertible into voting securities of the Company) for the Companys own account registered under the Securities Act of 1933), in each case, with respect to which Persons who were shareholders of the Company immediately prior to such reorganization, merger, consolidation or other corporate transaction do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entitys then outstanding voting securities, or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned or terminated prior to being consummated); or (iii) the acquisition by any Person, entity or group, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, of more than thirty percent (30%) of either the then outstanding shares of the Companys common stock or the combined
voting power of the Companys then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as a Controlling Interest) excluding any acquisitions by (x) the Company or any of its Affiliates, (y) any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its Affiliates or (z) any Person, entity or group that as of the Effective Date owns beneficially (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) a Controlling Interest.
Disability shall mean that the Employee has been unable to perform his or her Company duties as the result of his or her incapacity due to physical or mental illness, and such inability, at least eight (8) weeks after its commencement, is determined to be total and permanent by a physical selected by the Company or its insurers and acceptable to the Employee or the Employees legal representative (such Agreement as to acceptability not to be unreasonably withheld). Termination resulting from Disability may only be affected after at least thirty (30) days written notice by the Company of its intention to terminate the Employees employment. In the event that the Employee resumes the performance of substantially all of his or her duties hereunder before the termination of his or her employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked
Good Reason shall mean (i) the material diminution in Employees authority, duties or responsibilities; (ii) the relocation of Employee to a location more than thirty (30) miles from his employment location at the Effective Date; (iii) a material diminution in the Employees annual base salary as in effect immediately prior to such diminution, other than in connection with a general diminution in Company compensation levels and in amounts commensurate with the percentage diminutions of other Company employees of comparable seniority and responsibility; or (iv) any other action or inaction which constitutes a material breach by the Company or any of its Affiliates of any agreement under which the Employee provides services to the Company or any of its Affiliates.
No violation described in clauses (i) through (iv) above shall constitute Good Reason unless the Employee has given written notice to the Company specifying the applicable clause and related facts giving rise to such violation within ninety (90) days after the occurrence of such violation and the Company has not remedied such violation to the Employees reasonable satisfaction within thirty (30) days of its receipt of such notice.
Person shall mean any natural person or entity with legal status.
Restricted Period shall mean the period of time after termination of the Employees employment with the Company identified on Schedule 1.
3. Restrictive Covenants. The Employee acknowledges that in order to assure the Company that it will retain the value of its business relationships, it is reasonable that the Employee be limited in utilizing trade secrets and other confidential information of the Company, Employees special knowledge of the business of the Company and Employees relationships with customers, suppliers and others having business relationships with the Company in any manner or for any purpose other than the advancement of the interests of the Company, as hereinafter provided. The Employee acknowledges that the Company would not enter into this Agreement and provide the benefits provided for herein without the covenants and agreements of the Employee set forth in this Section 3. Notwithstanding anything else herein
contained, the term Company, as used in this Section 3, shall refer to the Company and its Affiliates and their respective successors and assigns.
(a) Confidentiality. The Employee acknowledges that in the course of the Employees employment with the Company, Employee has had and is expected to continue to have extensive contact with Persons with which the Company has, had or anticipates having business relationships (including current and anticipated customers and suppliers), and to have knowledge of and access to trade secrets and other proprietary and confidential information of the Company, including, without limitation, the identity of Persons with whom the Company has, had or anticipates having business relationships, technical information, know-how, plans, specifications, and information relating to the financial condition, results of operations, employees, products and services, sources, leads or methods of obtaining new business, pricing formulae, methods or procedures, cost of supplies or services and marketing strategies of the Company or any other information relating to the Company that could reasonably be regarded as confidential or proprietary or which is not in the public domain (other than by reason of Employees breach of the provisions of this section) (collectively, the Confidential Information), and that such information, even to the extent it may be developed or acquired by or through the efforts of the Employee, constitutes valuable, special and unique assets of the Company developed or acquired at great expense which are the exclusive property of the Company. Accordingly, the Employee shall not at any time, either during the time Employee is employed by the Company or thereafter, use or purport to authorize any Person to use, reveal, report, publish, transfer or otherwise disclose to any Person, any Confidential Information without the prior written consent of the Company, except for disclosures by the Employee required by applicable law (but only to the extent the Company is given a reasonable opportunity to object to such disclosure and protect the Confidential Information) to responsible officers of the Company and other responsible Persons who are in a contractual or fiduciary relationship with the Company and who have a need for such information for purposes in the best interests of the Company. Without limiting the generality of the foregoing, the Employee shall not, directly or indirectly, disclose or otherwise make known to any Person any information as to the Companys employees and others providing services to the Company, including with respect to their abilities, compensation, benefits and other terms of employment or engagement. Upon the termination of the Employees employment with the Company, the Employee shall promptly deliver to the Company all files, correspondence, manuals, notes, notebooks, computer diskettes, tapes, reports and copies thereof, and all other materials relating to the Companys business, including without limitation any materials incorporating Confidential Information, which are in the possession or control of the Employee.
(b) Restriction on Competition. During the Employees employment with the Company and thereafter during the Restricted Period, the Employee shall not, and shall not permit any Persons subject to Employees direction or control (including Employees Affiliates) to, directly or indirectly, whether alone or in association with others, as principal, officer, agent, consultant, employee, director or owner of any corporation, partnership, association or other entity, or through the investment of capital, lending of money or property, rendering of services or otherwise, engage in, influence, control, have an interest in or otherwise become actively involved with any business that competes with the Company. The Employee acknowledges that the business of the Company is national and international in scope, as its current and anticipated customers and suppliers are located throughout the United States and abroad, and that it is
therefore reasonable that the restrictions set forth in this Section 3(b) not be limited to any specified geographic area.
(c) Non-solicitation. During the Employees employment with the Company and thereafter during the Restricted Period, the Employee shall not, and shall not permit any Persons subject to Employees direction or control (including Employees Affiliates) to, directly or indirectly, on their own behalf or on behalf of any other Person (except the Company or its Affiliates), (i) call upon, accept business from, or solicit the business of any Person who is, or who had been at any time during the preceding twelve months, a customer or supplier of the Company, (ii) otherwise divert or attempt to divert any business from the Company, (iii) interfere with the business relationships between the Company and any of its customers, suppliers or others with whom they have business relationships or (iv) recruit or otherwise solicit or induce, or enter into or participate in any plan or arrangement to cause, any Person who is an employee of, or otherwise performing services for, the Company to terminate his or her employment or other relationship with the Company, or hire any Person who has left the employ of or ceased providing services to the Company during the preceding twelve months.
(d) Nondisparagement. The Employee shall not at any time, either during the time Employee is employed by the Company or thereafter, directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way the Company (including its directors and employees and other providing services to the Company), or any of its products or services, nor shall the Employee engage in any other conduct or make any other statement that could reasonably be expected to impair the goodwill of any of them, the reputation of any products or services of the Company or the marketing of such products or services, in each case except as may be required by law, and then only after consultation with the Company to the extent possible.
(e) Exception. The ownership or control by the Employee or Employees Affiliates, as a passive investor, of up to two percent of the outstanding voting securities or securities of any class of an entity with a class of securities registered under the Securities Exchange Act of 1934, as amended, shall not be deemed to be a violation of the provisions of this Section 3.
4. Remedies. The Employee agrees that the restrictions set forth in Section 3, including the length of the Restricted Period, the geographic area covered and the scope of activities proscribed, are reasonable for the purposes of protecting the value of the business and goodwill of the Company. The Employee acknowledges that compliance with the restrictions set forth in Section 3 will not prevent Employee from earning a livelihood, and that in the event of a breach by the Employee of any of the provisions of Section 3, monetary damages would not provide an adequate remedy to the Company. Accordingly, the Employee agrees that, in addition to any other remedies available to the Company, the Company shall be entitled to seek injunctive and other equitable relief (without having to post bond or other security and without having to prove damages or the inadequacy of available remedies at law) to secure the enforcement of these provisions, and shall be entitled to receive reimbursement from the Employee for attorneys fees and expenses incurred by it in enforcing these provisions. In addition to its other rights and remedies hereunder, the Company shall have the right to require the Employee to account for and pay over to it all compensation, profits, money, accruals and other benefits derived or received, directly or indirectly, by the Employee from any breach of the
covenants of Section 3, and may set off any such amounts due it from the Employee against any amounts otherwise due Employee from the Company. If the Employee breaches any covenant set forth in Section 3, the running of the Restricted Period as to such covenant only shall be tolled for so long as such breach continues. It is the desire and intent of the parties that the provisions of Sections 3 and 4 be enforced in full; however, if any court of competent jurisdiction shall at any time determine that, but for the provisions of this paragraph, any part of this Agreement relating to the time period, scope of activities or geographic area of restrictions is invalid or unenforceable, the maximum time period, scope of activities or geographic area, as the case may be, shall be reduced to the maximum which such court deems enforceable with respect only to the jurisdiction in which such adjudication is made. If any other part of this Agreement is determined by such a court to be invalid or unenforceable, the invalid or unenforceable provisions shall be deemed amended (with respect only to the jurisdiction in which such adjudication is made) in such manner as to render them enforceable and to effectuate as nearly as possible the original intentions and agreement of the parties.
5. Termination of this Agreement. This Agreement shall commence on the Effective Date and terminate on December 31, 2014, provided, however, that if an event constituting a Change of Control shall occur while this Agreement is in effect, this Agreement shall automatically be extended for twelve (12) months from the date the Change of Control occurs; provided that the Company may extend this Agreement in its sole discretion by written notice to the Employee. For purposes of this Section 5 only (and not for purposes of determining whether the Payment and the Severance Benefits have become payable), a Change of Control shall be deemed to have occurred if the event constituting a Change of Control has been consummated on or prior to expiration of the term of this Agreement or if such event or one or more other events constituting a Change of Control have not been consummated but the material agreements for any of such events have been executed and delivered by the parties to any such event on or prior to expiration of the term of this Agreement (each such event being referred to as a Pending Event). For any Pending Event, this Agreement shall automatically be extended until such time as the related material agreements have been unconditionally terminated without consummation of the applicable Pending Event and if any such Pending Event is consummated pursuant to the related material agreements (as amended, restated, supplemented or otherwise modified), this Agreement shall further automatically be extended for twelve (12) months from the date each such Pending Event is so consummated.
6. No Alteration of Employment Terms or Status. Except as expressly provided in this Agreement, nothing herein shall alter in any way any of the terms of employment of the Employee, including without limitation the Employees rights with respect to any stock options or other equity based awards Employee may have been granted under the Summer Infant, Inc. 2006 Performance Equity Plan. The Company and the Employee acknowledge that the Employees employment is and shall continue to be at-will, as defined under applicable law. If the Employees employment is terminated for any reason, the Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement or as may otherwise be established under the Companys existing employee benefit plans or policies at the time of termination.
7. Parachute Payments. (a) If Independent Tax Counsel (as defined below) determines that the aggregate payments and benefits provided or to be provided to the Employee
pursuant to this Agreement, and any other payments and benefits provided or to be provided to the Employee from the Company or any of its Affiliates or any successors thereto constitute parachute payments as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the Code) (or any successor provision thereto) (Parachute Payments) that would be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then, except as otherwise provided in the next sentence, such Parachute Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the Excise Tax. If Independent Tax Counsel determines that the Employee would receive in the aggregate greater payments and benefits on an after tax basis if the Parachute Payments were not reduced pursuant to this Section 7(a), then no such reduction shall be made; provided, however, that in such case the provisions of Sections 7(b)(i) and 7(b)(ii) shall not be operative. The determination of the Independent Tax Counsel under this subsection (a) shall be final and binding on all parties hereto. The determination of which payments or benefits to reduce in order to avoid the Excise Tax shall be determined in the sole discretion of the Employee; provided, however, that unless the Employee gives written notice to the Company specifying the order to effectuate the limitations described above within ten (10) days of the Independent Tax Counsels determination to make such reduction, the Company shall first reduce those payments or benefits that will cause a dollar-for-dollar reduction in total Parachute Payments, and then by reducing other Parachute Payments, to the extent possible, in reverse order beginning with payments or benefits that are to be paid the farthest in time from the date the reduction is to be made. Any notice given by the Employee pursuant to the preceding sentence, unless prohibited by law, shall take precedence over the provisions of any other plan, arrangement or agreement governing the Employees rights and entitlement to any benefits or compensation. For purposes of this Section 7(a), Independent Tax Counsel shall mean an attorney, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm with expertise in the area of Employee compensation tax law, who shall be selected by the Company and shall be acceptable to the Employee (the Employees acceptance not to be unreasonably withheld), and whose fees and disbursements shall be paid by the Company.
(b) (i) The Employee shall notify the Company in writing within thirty (30) days of any claim by the Internal Revenue Service that, if successful, would require the payment by the Employee of an Excise Tax. Upon receipt of such notice, the Company may, in its sole discretion, contest such claim or provide the Employee with an additional payment (a Gross-Up Payment) intended to reimburse the Employee for any such Excise Tax and all taxes (including any Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties with respect to such taxes (except to the extent such interest or penalty results from the Employees failure to act in accordance with the Companys or a Affiliates reasonable directions or the Employees failure to exercise due care), or do nothing. If the Company notifies the Employee in writing that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Employee shall:
(A) give the Company any information reasonably requested by the Company relating to such claim,
(B) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
(C) cooperate with the Company in good faith in order to effectively contest the claim, and
(D) permit the Company to participate in any proceedings relating to the claim; provided, however, that the Company shall pay (or cause to be paid) directly all costs and expenses (including any interest and penalties, except to the extent such interest or penalty results from the Employees failure to act in accordance with the Companys or an Affiliates reasonable directions or the Employees failure to exercise due care) incurred in connection with the contest and shall indemnify and hold the Employee harmless, on an after-tax basis, for any Excise Tax or income or other tax, including interest and penalties with respect thereto (except to the extent such interest or penalty results from the Employees failure to act in accordance with the Companys or a Affiliates reasonable directions or the Employees failure to exercise due care), imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest; provided, however, that if the Company directs the Employee to pay such claim and sue for a refund, the Company shall, unless prohibited by law, advance (or cause to be advanced) the amount of such payment to the Employee, on an interest-free basis and shall indemnify and hold the Employee harmless, on an after-tax basis, from any Excise Tax or income or other tax, including interest or penalties with respect thereto (except to the extent such interest or penalty results from the Employees failure to act in accordance with the Companys or a Affiliates reasonable directions or the Employees failure to exercise due care), imposed with respect to such advance or with respect to any imputed income with respect to such advance. If the advancement described in the preceding sentence is prohibited by law, the Company and the Employee shall cooperate in an effort to determine an alternative approach to payment of the claim in a manner permitted by applicable law and consistent with the original intent and economic benefit to the Employee of this provision.
(ii) If, after the receipt by the Employee of an amount advanced by the Company pursuant to Section 7(b)(i), the Employee becomes entitled to receive a refund with respect to a payment by the Company with respect to such claim, the Employee shall, within ten (10) days after the receipt of such refund, pay to the Company the amount of such refund, together with any interest paid or credited thereon after taxes applicable thereto.
(iii) Notwithstanding anything herein to the contrary, this Section 7(b) shall be interpreted (and, if determined by the Company to be necessary, reformed) to the extent necessary to fully comply with the Sarbanes-Oxley Act and Section 409A of the Code; provided that the Company agrees to maintain, to the maximum extent practicable, the original intent and economic benefit to the Employee of the applicable provision without violating the provisions of the Sarbanes-Oxley Act and Code Section 409A.
8. Code Section 409A. (a) If any provision of this Agreement (or of any payment of compensation, including benefits) would cause the Employee to incur any additional tax or interest under Code Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company shall, after consulting with the Employee, reform such provision to
comply with Code Section 409A; provided that the Company agrees to make only such changes as are necessary to bring such provisions into compliance with Code Section 409A and to maintain, to the maximum extent practicable, the original intent and economic benefit to the Employee of the applicable provision without violating the provisions of Code Section 409A.
(b) Notwithstanding any provision to the contrary in this Agreement, if the Employee is deemed on the date of termination of employment to be a specified employee within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is required to be delayed in compliance with Section 409A(a)(2)(B) such payment or benefit shall not be made or provided (subject to the last sentence hereof) prior to the earlier of (i) the expiration of the six (6)-month period measured from the date of the Employees separation from service (as such term is defined in Treasury Regulations issued under Code Section 409A) or (ii) the date of his death (the Deferral Period). Upon the expiration of the Deferral Period, all payments and benefits deferred pursuant to this Section 8 (whether they would have otherwise been payable in a single sum or in installments in the absence of such deferral) shall be paid or reimbursed to the Employee in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein. Notwithstanding the foregoing, to the extent that the foregoing applies to the provision of any ongoing welfare benefits to the Employee that would not be required to be delayed if the premiums therefor were paid by the Employee, the Employee shall pay the full cost of premiums for such welfare benefits during the Deferral Period and the Company shall pay (or cause to be paid) to the Employee an amount equal to the amount of such premiums paid by the Employee during the Deferral Period promptly after its conclusion.
(c) Any reimbursements by the Company to the Employee of any eligible expenses under this Agreement that are not excludable from the Employees income for Federal income tax purposes (the Taxable Reimbursements) shall be made by no later than the earlier of the date on which they would be paid under the Companys normal policies and the last day of the taxable year of the Employee following the year in which the expense was incurred. The amount of any Taxable Reimbursements, and the value of any in-kind benefits to be provided to the Employee, during any taxable year of the Employee shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year of the Employee. The right to Taxable Reimbursements, or in-kind benefits, shall not be subject to liquidation or exchange for another benefit.
(d) Payment of any Taxable Reimbursements under this Agreement must be made by no later than the end of the taxable year of the Employee following the taxable year of the Employee in which the Employee remits the related taxes.
9. Miscellaneous.
(a) Entire Agreement. This Agreement (including Schedule 1) sets forth the entire understanding of the parties with respect to the subject matter hereof and merges and supersedes any prior or contemporaneous agreements (whether written or oral) between the parties pertaining thereto, including without limitation any prior agreements, arrangements, understandings or commitments of any nature whatsoever relating to severance payments or
other compensation in connection with termination of Employees employment. The Employee acknowledges that he has read and understands the provisions of this Agreement. The Employee further acknowledges that he has been given an opportunity for his legal counsel to review this Agreement and that the provisions of this Agreement are reasonable.
(b) Amendment. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.
(c) Waiver. No waiver by any party of any of its rights under this Agreement shall be effective unless in writing and signed by the party against which the same is sought to be enforced. No such waiver by any party of its rights under any provision of this Agreement shall constitute a waiver of such partys rights under such provisions at any other time or a waiver of such partys rights under any other provision of this Agreement. No failure by any party hereto to take any action against any breach of this Agreement or default by another party shall constitute a waiver of the former partys right to enforce any provision of this Agreement or to take action against such breach or default or any subsequent breach or default by such other party.
(d) Successors and Assigns. The Employee shall not have the right to assign Employees rights or obligations hereunder. The Company shall not have the right to assign its rights or obligations under this Agreement without the prior written consent of the Employee, except in accordance with subsection (j) below. Subject to the foregoing, this Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their legal representatives, heirs, successors and permitted assigns. Except as otherwise specifically provided herein, the rights and obligations of the parties under this Agreement shall be unaffected by a Change of Control of the Company.
(e) Additional Acts. The Employee and the Company shall execute, acknowledge and deliver and file, or cause to be executed, acknowledged and delivered and filed, any and all further instruments, agreements or documents as may be necessary or expedient in order to consummate the transactions provided for in this Agreement and do any and all further acts and things as may be necessary or expedient in order to carry out the purpose and intent of this Agreement.
(f) Communications. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been given at the time personally delivered, on the business day following the day such communication is sent by national overnight delivery service, upon electronic confirmation of recipients receipt of a facsimile of such communication, or five days after being deposited in the United States mail enclosed in a registered or certified postage prepaid envelope, return receipt requested, and addressed to the recipient at the address set forth beneath the recipients signature to this Agreement, or sent to such other address as a party may specify by notice to the other party in accordance herewith, provided that notices of change of address shall only be effective upon receipt.
(g) Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect the validity and enforceability of the other provisions of this Agreement and the provision
held to be invalid or unenforceable shall be enforced as nearly as possible according to its original terms and intent to eliminate such invalidity or unenforceability.
(h) Withholding Taxes. The Company may withhold from amounts payable under this Agreement such federal, state and local taxes as are required to be withheld pursuant to any applicable law or regulation and the Company shall be authorized to take such action as may be necessary in the opinion of the Companys counsel to satisfy all obligations for the payment of such taxes.
(i) Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Rhode Island applicable to agreements made and to be performed entirely in such state, without regard to the conflict of laws principles of such state.
(j) Consolidation, Merger or Sale of Assets. If the Company consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity the term Company as used in this Agreement shall mean such other entity and this Agreement shall continue in full force and effect. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Agreement, the Company shall require such successor expressly and unconditionally to assume and agree to perform the Companys obligations under this Agreement, in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(k) Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of any provisions of this Agreement.
(l) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. In the event that any signature to this Agreement is delivered by facsimile transmission or email attachment, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or email-attached signature page were an original thereof.
(m) Litigation; Prevailing Party. If any litigation is instituted regarding this Agreement, the prevailing party shall be entitled to receive from the non-prevailing party, and the non-prevailing party shall pay, all reasonable fees and expenses of counsel for the prevailing party.
(n) Waiver of Jury Trial. Each party hereto knowingly, irrevocably and voluntarily waives its right to a trial by jury in any litigation which may arise under or involving this Agreement.
(o) Venue; Jurisdiction. If any litigation is to be instituted regarding this Agreement, it shall be instituted in the state and federal courts located in Providence County, Rhode Island, and each party irrevocably consents and submits to the personal jurisdiction of such courts in any such litigation, and waives any objection to the laying of venue in such courts. Service of process in any such litigation shall be effective as to any party if given to such party
by registered or certified mail, return receipt requested, or by any other means of mail that requires a signed receipt, postage prepaid, mailed to such party as provided in Section 9(f).
(p) Remedies Cumulative. No remedy made available by any of the provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity.
(q) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other source.
(r) Release. Notwithstanding any provision herein to the contrary, the Company shall not have any obligation to pay (or cause to be paid) any amount or provide any benefit under this Agreement unless and until the Employee executes, within sixty (60) days after a Payment Event, a release of the Company and its Affiliates and related parties, in such form as the Company may reasonably request, of all claims against the Company and its Affiliates and related parties relating to the Employees employment and termination thereof and unless and until any revocation period applicable to such release has expired.
[Remainder of Page Left Intentionally Blank]
IN WITNESS WHEREOF, the parties hereto have each duly executed this Agreement as of the date set forth above.
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COMPANY: | |||
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SUMMER INFANT (USA), INC. | |||
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By: |
/s/ Jason Macari | ||
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Name: |
Jason Macari | |
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Title: |
President and Chief Executive Officer | |
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EMPLOYEE: | |||
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/s/ Elizabeth Jackson | |||
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Name: |
Elizabeth Jackson | ||
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Address: | |||
Schedule 1
Employee: |
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Elizabeth Jackson |
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Position/Title: |
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Chief Marketing Officer |
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Payment Percentage: |
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100% |
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Severance Benefits: |
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For a period commencing with the month in which termination of employment shall have occurred and ending twelve (12) months thereafter, the Employee and, as applicable, the Employees covered dependents shall be entitled to all benefits under the Companys welfare benefit plans (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended), as if the Employee were still employed during such period, at the same level of benefits and at the same dollar cost to the Employee as is in effect at the time of termination. If and to the extent that equivalent benefits shall not be payable or provided under any such plan, the Company shall pay or provide (or cause to be paid or provided) equivalent benefits on an individual basis. The benefits provided in accordance herewith shall be secondary to any comparable benefits provided to the Employee and, as applicable, the Employees covered dependents by another employer of the Employee. |
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Restricted Period: |
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12 months |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Jason Macari, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Summer Infant, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
May 14, 2013 |
/s/ JASON MACARI |
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Jason Macari |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Paul Francese, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Summer Infant, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this report.;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report)that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
May 14, 2013 |
/s/ PAUL FRANCESE |
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Paul Francese |
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Chief Financial Officer |
Exhibit 32.1
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report on Form 10-Q of Summer Infant, Inc. (the Company) for the period ending March 31, 2013 (the Report), as filed with the Securities and Exchange Commission on the date hereof, I, Jason Macari, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
May 14, 2013 |
/s/ JASON MACARI |
|
Jason Macari |
|
Chief Executive Officer |
Exhibit 32.2
SECTION 1350 CERTIFICATION
In connection with the Quarterly Report on Form 10-Q of Summer Infant, Inc. (the Company) for the period ending March 31, 2013 (the Report), as filed with the Securities and Exchange Commission on the date hereof, I, Paul Francese, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
May 14, 2013 |
/s/ Paul Francese |
|
Paul Francese |
|
Chief Financial Officer |
INTANGIBLE ASSETS
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS | 3. INTANGIBLE ASSETS
Intangible assets consist of the following:
The amortization period for the majority of the intangible assets ranges from 5 to 20 years for those assets that have an estimated life; certain of the assets have indefinite lives (brand names). Total of intangibles not subject to amortization amounted to $12,308 at March 31, 2013 and December 31, 2012. |
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