-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M7UIzN1f/00XN2c821BkALvwsUWiL/593IWJYVxF+B7Mw+0W7LV3ZPTwBBvDjMkb I5/gPHFgRADqfI6RNzCUqA== 0000950135-97-001406.txt : 19970329 0000950135-97-001406.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950135-97-001406 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST YEARS INC CENTRAL INDEX KEY: 0000055698 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] IRS NUMBER: 042149581 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-07024 FILM NUMBER: 97566649 BUSINESS ADDRESS: STREET 1: ONE KIDDIE DR CITY: AVON STATE: MA ZIP: 02322-1171 BUSINESS PHONE: 5085881220 MAIL ADDRESS: STREET 1: ONE KIDDIE DR CITY: AVON STATE: MA ZIP: 02322-1171 FORMER COMPANY: FORMER CONFORMED NAME: KIDDIE PRODUCTS INC DATE OF NAME CHANGE: 19920703 10-K405 1 THE FIRST YEARS FORM 10-K ANNUAL REPORT 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996; OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-7024 THE FIRST YEARS INC. (Exact Name of Registrant as Specified in its Charter) MASSACHUSETTS 04-2149581 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) ONE KIDDIE DRIVE, AVON, MASSACHUSETTS 02322 (Address of Principal Executive Offices) (Zip Code)
508-588-1220 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED NONE NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.10 PAR VALUE (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No __. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X] The aggregate market value of the Common Stock held by nonaffiliates of the Company was $65,263,873. based on the price at which the stock was sold over the counter on the Nasdaq National Market, as reported at the close of business on February 28, 1997. The number of shares of Registrant's Common Stock outstanding on December 31, 1996 was 4,948,980. ================================================================================ 2 DOCUMENTS INCORPORATED BY REFERENCE The Company intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 1996. The following sections of such definitive proxy statement are hereby incorporated by reference into Items 10, 11, 12 and 13 of Part III of this Form 10-K: "Common Stock Ownership of Certain Beneficial Owners and Management;" "Election of Directors;" "Executive Compensation" (other than the Board Compensation Committee Report on Executive Compensation and the Performance Chart); and "Compliance with Section 16(a) of the Securities Exchange Act of 1934." 3 PART I ITEM 1. BUSINESS The First Years Inc. (the "Company") is a leading developer and worldwide marketer of a broad line of products for infants and toddlers. Major channels through which the Company sells its products include mass merchants, supermarkets, drug stores, department stores, wholesale clubs, convenience stores, specialty stores, mail-order catalogs and catalog showrooms. The Company was incorporated in 1952 in Massachusetts under the name Kiddie Products, Inc. The Company changed its name to The First Years Inc. in May, 1995, and is headquartered in Avon, Massachusetts. Products The Company's product line, which contains approximately 320 items that range in retail price from approximately $0.99 to $69.99, is categorized and color-coded into five distinct product categories as follows: Feeding & Soothing. The Feeding & Soothing category is comprised of bottles and accessories, nipples, pacifiers, teethers, bowls, drinking cups, dishes, flatware, and breast-feeding accessories. This category includes the TumbleMates line of training cups, bowls, plates and utensils, designed for serving, storing and transporting drinks and snacks, and which features a system of interchangeable cups and lids. This category also includes the Neats line of stain-resistant bibs specially made with a 3M Scotchgard stain-release system. Play & Discover. The Play & Discover category consists of an extensive line of entertaining, skill-developing toys for infants and toddlers including crib toys, floor toys, hand-held toys, and large play items. The Play & Discover category includes the Company's Washables line of 100% washable, dishwasher-safe toys and its Firstronics line of hand-held electronic toys for children under three years of age. In 1996, the Firstronics line was expanded to include a new line of sports-oriented toys called Sportstronics. In 1996, the Company also introduced its first large play, stationary toy into this category with its 2-in-1 Playcenter, an infant activity center that converts to a toddler play table. Care & Safety. The Care & Safety category consists of a broad line of fashion and grooming items, home safety products such as door and cabinet latches, and products appropriate for the health and hygiene needs of infants, such as digital thermometers. This category includes the Nurserytronics line of electronic products designed especially for use in the nursery; a line of machinewashable travel tote bags, child carriers and harnesses, marketed under the PackMates name, and the Step-by-Step line of furnishings comprised of a bath seat, booster seat, baby bather, step stool and toilet trainer that are adjustable as a child grows. First Gifts. The Company markets a variety of specially-designed gift bags and gift sets, which combine the Company's most popular items as attractively-packaged, ready-to-give gifts, or theme-related starter sets. Gift sets include the Washables gift pack, the TumbleMates gift pack, newborn gift bags and furnishings gift sets. Winnie the Pooh. The Winnie the Pooh category consists of over 45 basic products including teethers, rattles, bibs, bottles, bathing accessories and gift sets featuring Winnie the Pooh characters. In 1996, the Company introduced numerous additional items in this category including Pooh characters on cups, hooded towels, bath puppets, teethers, and electronic musical toys. ------------------------ THE FIRST YEARS(R) Ideas Inspired by Parents(R), TumbleMates(R), Firstronics(R), and Washables(R) are registered trademarks of The First Years Inc. Neats(TM), PackMates(TM), Nurserytronics(TM), Step-by-Step(TM), and First Gifts(TM) are trademarks of The First Years Inc. 3m(R) and SCOTCHGARD(R) are registered trademarks of Minnesota Mining and Manufacturing Company, WINNIE THE POOH(R) and POOH(R) are registered trademarks of Disney Enterprises, Inc. I-1 4 PRODUCT DESIGN, DEVELOPMENT AND MARKETING The Company devotes substantial resources to product development. The Company employs a staff of professionals engaged in the creation of new products and also uses, from time to time, a diverse group of outside designers and developers. For the past 16 years the Company's product line also has been designed in consultation with Dr. T. Berry Brazelton, the well-known pediatrician and authority on child development, and staff members of the Child Development Unit at Children's Hospital in Boston, Massachusetts (the "CDU"), of which Dr. Brazelton is founder and Director Emeritus. The Company spent approximately $2.2, $1.8 and $1.5 million on new product development in 1996, 1995 and 1994, respectively. Most of the Company's new products are shown at the Juvenile Products Manufacturers Association Trade Show, in Dallas, Texas in the fall of each year, and a variety of other national and international toy and baby fairs. SALES The Company's products are sold nationally and internationally to a broad spectrum of customers including mass merchants, national variety and drug stores, supermarkets, wholesale clubs, convenience stores, toy specialty stores, wholesale distributors, department stores, mail order catalogs and catalog stores. The Company currently has customers in over 40 countries. Major customers include Wal*Mart, Toys "R" Us, Target, Kmart, Kroger, Sears, and J.C. Penney. The Company's products are sold in the United States and Canada primarily through the Company's thirteen-person internal sales staff and a network of 48 independent sales representatives. The Company's sales staff is responsible for supervising and training the sales representatives. Such training is conducted at the Company's headquarters and throughout the United States. In Central and South America and the Pacific Rim, the Company's products are sold by its internal sales staff which manages a network of foreign distributors and independent sales representatives in such areas. In Europe and the Middle East, the Company's products are sold by the Company's internal staff at its sales office in Cirencester, England, which is headed by the Director of European Sales. This staff manages a network of foreign distributors and independent sales representatives. The Company's international sales in 1996 and 1995 were approximately $11.6 and $7.7 million, respectively, and accounted for approximately 12% and 10% of the Company's total net sales in 1996 and 1995, respectively. (See "Notes to Financial Statements, Number 8.") During 1996, Wal*Mart, Toys "R" Us, and Target accounted for approximately 26%, 19%, and 10% of the Company's net sales, respectively. A significant reduction in purchases by any of these customers could have a material adverse effect on the Company's business. Backlog is not a significant and material aspect of the Company's business. Customers place orders on an as needed basis. As the Company's sales have increased, the amount of unfilled orders at any time has not been indicative of future results. MERCHANDISING To help retailers use their shelf space efficiently in marketing the Company's products, the Company utilizes computerized planogram programs which divide the space a retailer has allocated for the Company's products to create a mix of the five product categories that is designed to maximize the retailer's profitability. In recent years, the Company expanded its promotional programs and created a cross-merchandising program for its customers, by which ready-to-use display panels and floor stand display units containing THE FIRST YEARS products are placed next to related items in a customer's store (i.e., the Company's feeding products are placed in a customer's baby food aisle) to encourage synergistic and impulse buying by consumers. These display units are pre-pegged, pre-stocked, easily re-stockable, and can be customized to the customer's needs. I-2 5 LICENSED CHARACTER PRODUCTS In 1996, the Company renewed and entered into various agreements which provide for the payment of royalties on certain of the Company's products featuring licensed cartoon characters. The agreements have terms ranging from one to three years and require minimum royalty payments of $4,682,000 during the terms of these agreements. Sales of products under these license agreements accounted for approximately 32% of the Company's total net sales in 1996. MANUFACTURING AND SOURCES OF SUPPLY The Company does not own or operate its own manufacturing facilities. In 1996, all of the Company's products were manufactured either using the Company's custom tools (molds and dies) or to the Company's specifications by approximately 25 manufacturers located in the United States, Canada, China, Taiwan, Thailand, and Mexico. Approximately 55% of all of its products sold in 1996 were manufactured in Asia, primarily in China. A large percentage of the Company's furnishings and other large products were manufactured in 1996 by suppliers in the United States and Canada because of the significantly higher shipping costs from the Far East. Generally the Company uses one manufacturer to make each product from its supplier base in Asia, Canada, and the United States. Due to the high cost of developing duplicate tooling (predominantly molds and dies), most of the Company's products are made using one set of tools; however, the Company has developed duplicate tools for several of its key and high-volume products. The Company believes it has alternative manufacturing sources available for all of its products. Because it owns its tools, it could shift its sources of manufacturing for any product to an alternative supplier. In 1996, the Company was not dependent on any one supplier, although its largest supplier, which is based in the United States, accounted for products that represented approximately 20% of its net sales in 1996. In 1996 approximately 11% of the Company's products sold were manufactured by one supplier located in China. The Company has not entered into long-term contractual arrangements with any of its suppliers. The principal raw materials used in the production and sale of the Company's products are plastic, paperboard and cloth. Raw materials are purchased by the manufacturers who deliver completed products to the Company. Because the primary source used in manufactured plastic is petroleum, the cost and availability of plastic for use in the Company's products varies to a great extent with the price of petroleum. The inability of the Company's suppliers to acquire sufficient plastic and paperboard at a reasonable price could have a material adverse effect on the Company's profitability. The Company did not experience any difficulties in obtaining materials in 1996. The Company purchases its products from its suppliers primarily in the U.S. dollar and the Hong Kong dollar which is currently pegged to the U.S. dollar. Generally, the Company's suppliers ship the products on the basis of open credit terms or upon the acceptance of products by the Company. In addition, some suppliers require shipment against letters of credit. Foreign manufacturing is subject to a number of risks including transportation delays and interruptions, the imposition of tariffs, quotas, and other import or export controls, currency fluctuations, misappropriation of intellectual property, political and economic disruptions, and changes in governmental policies. From time to time, the United States Congress has attempted to impose additional restrictions on trade with China. Enactment of legislation or the imposition of restrictive regulations conditioning or revoking China's "most favored nation" ("MFN") trading status could have a material adverse effect upon the Company's business because products originating from China could be subjected to substantially higher rates of duty. China's MFN trading status has been extended through July 3, 1997. Unless Congress takes action to override this decision, China will continue to enjoy MFN treatment during this period. The European Community (the "EC") has enacted a quota and tariff system with respect to the importation into the EC of certain toy products originating in China. The Company, therefore, continues to evaluate alternative sources of supply outside of China. I-3 6 The Company, because of its substantial reliance on suppliers in foreign countries, is required to order products further in advance of customer orders than would generally be the case if such products were produced in the United States. As a result, the Company is required to carry significant amounts of inventory to meet rapid delivery requirements of customers and to assure itself of continuous allotment of goods from suppliers. WORKING CAPITAL ITEMS See Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operation." COMPETITION The juvenile products industry is highly competitive and includes numerous domestic and foreign competitors, some of which are substantially larger and have greater financial and other resources than the Company. The Company competes with a number of different competitors, depending on the product category, and it competes against no single company across all product categories. Its competition includes large, diversified health care product companies, specialty infant products makers, toy makers and specialty health care products companies. The Company competes principally on the basis of brand name recognition and price/value relationship. In addition, the Company believes that it competes favorably with respect to product quality, customer service and breadth of product line. DISTRIBUTION The Company distributes its products in the United States from its 103,500 square foot warehouse facility in Avon, Massachusetts and from a public warehouse in Fontana, California. The Company distributes its products in Canada from a public warehouse in Toronto, Ontario. In Europe, the Company distributes its products from a public warehouse in Ghent, Belgium. Warehouse services at the various public warehouses are performed by warehouse operators unaffiliated with the Company. TRADEMARKS, PATENTS AND COPYRIGHTS The Company's principal trademark, THE FIRST YEARS and design, is registered in the United States and in a number of foreign countries. The Company also uses other trademarks for certain of its products and product categories, some of which are registered in the United States and in various foreign countries. Applications are pending in the U.S. and various foreign countries for registration of some of the Company's trademarks. The Company also owns patents, design patents and design registrations, as well as pending applications in the United States and certain foreign countries. Although the Company believes such are important to its business, it does not believe that any single patent, design patent, or design registration, including any which may be issued on a pending application, is material to its business. There can be no assurance that the Company's patents, design patents, or design registrations, including those that may be issued on pending applications, will offer any significant competitive advantage for the Company's products. The Company also owns copyrights, some of which are registered in the United States. The Company does not believe that any single copyright is material to its business. There can be no assurance that the Company's copyrights will offer any significant competitive advantage for the Company's products. EMPLOYEES As of December 31, 1996, the Company employed 120 full-time and 2 part-time employees, of whom 11 are executive officers, 52 are in sales, marketing and product development, 39 are in materials, purchasing, quality control, data processing, finance, administration and clerical, and 20 are in warehousing positions. None of the Company's employees is represented by a union, and the Company has not experienced any work stoppages. The Company believes that relations with employees are good. I-4 7 GOVERNMENT REGULATIONS The Company's products are subject to the provisions of the Federal Consumer Product Safety Act, the Federal Hazardous Substances Act, as amended, the Federal Flammable Fabrics Act, and the Child Safety Protection Act, and the regulations promulgated thereunder (the "Acts"). The Company's nursery monitors are subject to regulations of the Federal Communications Commission. The Company's medical devices and drug products are subject to the regulations of the Food and Drug Administration. The Acts enable the Consumer Product Safety Commission (the "CPSC") to protect children from hazardous toys and other articles. The CPSC has the authority to exclude from the market certain consumer products which are found to be hazardous. The CPSC's determination is subject to court review. The CPSC can require the repurchase by the manufacturer of articles which are banned. The Federal Flammable Fabrics Act enables the CPSC to regulate and enforce flammability standards for fabrics used in consumer products. Similar laws exist in some states and cities and in various international markets. The Company designs and tests its products to ensure compliance with the various federal, state and international requirements. Any recall of a product could have a material adverse effect on the Company, depending on the particular product. EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY The names of the Company's Executive Officers and Directors and certain information about them are set forth below. Officers have served in the capacity indicated in the table below for at least five years, unless otherwise indicated in the notes.
OFFICER OR DIRECTOR NAME AGE POSITION SINCE - ---- --- -------- ---------- Ronald J. Sidman................... 50 President, Chairman of the Board of Directors, and Chief Executive Officer 1975 Jerome M. Karp..................... 69 Vice Chairman of the Board of Directors 1969 Benjamin Peltz*.................... 57 Treasurer, Senior Vice President -- Finance, and Director 1975 Evelyn Sidman...................... 83 Clerk and Director 1979 Fred T. Page....................... 50 Director 1988 Merton N. Alperin.................. 74 Director 1988 Joseph M. Connolly................. 56 Vice President -- Operations 1979 John N. Colantuone................. 59 Vice President -- Materials and Engineering 1982 Adrian E. Roche.................... 41 Vice President -- Worldwide Marketing 1992 John R. Beals*..................... 42 Controller and Assistant Treasurer 1990 Wayne Shea......................... 42 Vice President -- Worldwide Sales & Merchandising 1991 Keith Ciampa....................... 32 Vice President -- Executive Accounts 1996 Mark H. Dall....................... 53 Vice President -- Information Services 1985 Clive R. Wooster................... 42 Vice President -- International Sales/Europe 1997
- --------------- * Effective as of July 1, 1997, Mr. Peltz's position will be split in two. He will continue to be the Treasurer of the Company. Mr. Beals will be promoted to Vice President -- Finance, and Chief Financial Officer, and will remain as Assistant Treasurer of the Company; and Mr. Stephen Lyons, currently the Company's Assistant Controller since January, 1995, will be promoted to Controller of the Company. - --------------- Mr. Sidman has served as President of the Company for over five years and was elected to the offices of Chairman of the Board of Directors and Chief Executive Officer on March 28, 1995. Mr. Page was appointed President -- Network Services of Southern New England Telecommunications Corporation ("SNET") in January of 1994, and has been with SNET for over five years. I-5 8 Mr. Alperin, a Certified Public Accountant, has been a financial consultant for over five years. He was the Chairman of the Board of Public Accountancy of Massachusetts for the years 1979, 1982 and 1984. Mr. Roche has been Vice President of Worldwide Marketing since January, 1995. From January, 1992 to December, 1994, Mr. Roche was Vice President of European Sales of the Company. Prior to that time, from 1989 to 1991, Mr. Roche held several managerial positions for Fisher-Price Kiddie Craft in the United Kingdom, the last of which was Managing Director. Mr. Shea has been Vice President of Worldwide Sales & Merchandising since January, 1995. From July, 1991 to December, 1994, Mr. Shea was Vice President of Service and Merchandising of the Company, and from January, 1985 to June, 1991, Mr. Shea was Director of Merchandising of the Company. Keith Ciampa, age 32, has been Vice President -- Executive Accounts since June, 1996. From July, 1993 to May, 1996, Mr. Ciampa was Director of Sales-Americas, and from January, 1992 to June 1993, he was Export Sales Manager of the Company. Mr. Clive R. Wooster, age 42, has been Vice President -- International Sales/Europe since March 13, 1997. From October, 1994 to March 12, 1997, he was Director of Sales/Europe; and from April, 1992 to September, 1994, he was the General Manager of the Company's UK Sales Office. ITEM 2. PROPERTIES The Company owns its executive and administrative offices and principal warehouse which are located in a building at One Kiddie Drive, Avon, Massachusetts. The building contains approximately 124,000 square feet of space, of which approximately 20,500 square feet are used for executive and administrative offices and the balance, approximately 103,500 square feet is utilized for warehousing. The Company also has sales offices in leased premises in Mission Viejo, California, and in Cirencester, England. The Company also uses public warehouses located in Fontana, California; Toronto, Canada; and in Ghent, Belgium. The Company believes that its properties (owned and leased) are in good condition and adequate for its current needs. ITEM 3. LEGAL PROCEEDINGS The Company is involved in legal proceedings which have arisen in the ordinary course of business. The Company believes that there are no claims or litigation pending, the outcome of which could have a material adverse effect on the Company's financial condition or operating results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders of the Company. I-6 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (A) MARKET INFORMATION The Company's Common Stock is traded on the Nasdaq National Market. Below is a summary of the actual high and low sales prices of the Company's Common Stock for each quarter of 1995 and 1996 as reported by Nasdaq and as adjusted to reflect the Company's 2-for-1 stock split effected on December 29, 1995. 1996
QUARTER LOW HIGH - ------- --- ---- First........................................................................ $ 9 3/4 $ 12 1/2 Second....................................................................... 11 3/4 18 1/2 Third........................................................................ 12 3/4 15 Fourth....................................................................... 14 17
1995
QUARTER LOW HIGH - ------- --- ---- First........................................................................ $ 8 5/8 $ 12 Second....................................................................... 8 3/8 10 1/8 Third........................................................................ 9 3/8 11 3/4 Fourth....................................................................... 10 11 5/8
(B) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER OF RECORD HOLDERS TITLE OF CLASS (AS OF DECEMBER 31, 1996) - -------------- ------------------------- Common Stock, $.10 Par Value 135
(C) DIVIDEND POLICY From 1991 to 1995, the Company paid a cash dividend on its Common Stock of $0.085 per share in June of each year. In 1996, the Company increased its annual cash dividend to $0.10 per share which was paid on June 1, 1996. The Company currently expects that comparable cash dividends will continue to be paid in the future. However, the declaration and payment of any such cash dividends in the future will depend upon the Company's earnings, financial condition, capital needs, and other factors deemed relevant by the Board of Directors. There can be no assurance that the Company will continue to pay dividends in the future. The Company's Board of Directors declared on December 6, 1995, a 2-for-1 stock split effected in the form of a stock dividend to holders of record on December 18, 1995. The new stock certificates were mailed to stockholders on or about December 29, 1995. II-1 10 ITEM 6. SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- SELECTED INCOME STATEMENT DATA: Net sales................... $93,110,361 $75,757,322 $53,233,109 $46,124,088 $45,267,323 Cost of products sold....... 55,463,255 45,108,546 29,498,457 26,653,704 23,645,594 Selling, general and administrative expenses... 28,580,039 23,961,206 18,915,908 17,857,049 18,429,803 Severance-related expenses.................. -- -- -- 373,000 -- Interest expense............ 358,637 186,338 24,575 28,912 31,961 Interest income............. 27,349 16,718 66,605 66,204 154,913 Offering expenses........... -- 310,457 -- -- -- Income before income taxes..................... 8,735,779 6,207,493 4,860,774 1,277,627 3,314,878 Provision for income taxes..................... 3,494,300 2,483,000 1,871,400 481,500 1,385,100 Net income.................. 5,241,479 3,724,493 2,989,374 796,127 1,929,778 Earnings per share*......... $1.06 $0.80 $0.66 $0.18 $0.43 Dividends paid per share*... $0.10 $0.09 $0.09 $0.09 $0.08 Weighted average number of shares outstanding*....... 4,941,196 4,663,491 4,497,244 4,496,520 4,496,520 SELECTED BALANCE SHEET DATA: Total assets................ $47,049,537 $41,712,080 $28,852,785 $24,532,714 $24,694,765 Long-term debt.............. -- 100,001 233,334 366,667 500,000 Stockholders' equity........ 35,866,440 25,763,259 22,349,947 19,719,720 19,305,797 Stockholders' equity per share*.................... $7.26 $5.52 $4.97 $4.39 $4.29
- --------------- * Adjusted to reflect the two-for-one stock split effected on December 29, 1995. II-2 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STATEMENT OF FORWARD LOOKING INFORMATION: The Company may occasionally make forward-looking statements and estimates, such as forecasts and projections of the Company's future performance or statements of management's plans and objectives as discussed below. Actual results could differ materially from those in such forward-looking statements. Therefore, no assurances can be given that the results in such forward-looking statements will be achieved. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 Net sales in 1996 were $93.1 million, an increase of $17.3 million or 22.9%, as compared to $75.8 million for the comparable period last year. The increase was due to new product introductions and expanded retail distribution in domestic and foreign markets. As of a percentage of net sales, net sales to foreign markets increased to 12.5% in 1996 from 10.3% in 1995 resulting primarily from increases in Europe and Canada. As a percentage of net sales, Winnie the Pooh products increased to 32% in 1996 from 20% in 1995. The Company does not expect the rate of increase in net sales of Winnie the Pooh products as a percentage of net sales to continue at the same pace as has occurred in the previous two years due to the level of distribution achieved during that initial period. The Company expects to initiate distribution of products featuring licensed Sesame Street characters during the second quarter of 1997. Cost of products sold in 1996 was $55.5 million, an increase of $10.4 million or 23.0%, as compared to $45.1 million for the comparable period last year. As a percentage of sales, cost of products sold in 1996 and 1995 remained constant at approximately 59.5%. Selling, general, and administrative expenses in 1996 were $28.6 million, an increase of $4.6 million or 19.3% as compared to $24.0 million over such expenses in 1995. The increase resulted primarily from costs related to increased sales volume, payroll and payroll related costs. As a percentage of net sales, selling, general, and administrative expenses for the year of 1996 decreased to 30.7% from 31.6% in 1995. The decrease reflects the economies of scale provided by higher volume of business. Income tax expense as a percentage of pretax income was 40% in 1996 and 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net sales in 1995 were $75.8 million, an increase of $22.6 million, or 42.3%, as compared to $53.2 million in 1994. The increase was due to new product introductions and expanded retail distribution in domestic and foreign markets. Net sales particularly benefited from the introduction of newly licensed Winnie the Pooh products and the introduction of new products that have higher average selling prices than products previously offered by the Company. Cost of products sold in 1995 was $45.1 million, an increase of $15.6 million or 52.9%, as compared to $29.5 million in 1994. As a percentage of net sales, cost of products sold in 1995 increased to 59.5% from 55.4% in the comparable period of 1994. The increase was due to increased sales of higher-priced, lower margin items, increased cost of products due to raw material price increases, licensing fees, and air freight shipments from overseas production facilities incurred primarily in the first three months of the year. Selling, general, and administrative expenses in 1995 were $24.0 million, an increase of $5.1 million, or 26.7%, as compared to $18.9 million over such expenses in 1994. The increase resulted primarily from costs related to increased sales volume. As a percentage of net sales, selling, general, and administrative expenses in 1995 decreased to 31.6% from 35.5% in 1994. The decrease reflects the economies of scale provided by higher volume of business. During 1995, the Company sought to issue additional shares of common stock in order to increase its working capital and improve the liquidity of its stock.. Due to uncertain market conditions affecting the retail sector and the price of the Company's stock, the Company decided to postpone indefinitely the public offering. II-3 12 As a result, the Company wrote-off offering expenses amounting to a pretax charge of approximately $310,000 ($186,000 net of tax). The offering was subsequently resumed and consummated in 1996 (see below). Income tax expense as a percentage of pretax income increased to 40.0% in 1995 from 38.5% in 1994. LIQUIDITY AND CAPITAL RESOURCES Net working capital increased by $9.4 million from $20.2 million at December 31, 1995 to $29.6 million at December 31, 1996 primarily due to a secondary public offering of the Company's Common Stock which provided net proceeds to the Company of $5.1 million and funds generated from profitable operations. Accounts receivable increased by $1.7 million primarily as a result of increased sales. Cash increased by $3.6 million primarily as a result of the above mentioned secondary offering and profitable operations. In 1996, the Company resumed and consummated a public offering of common stock which had been postponed in 1995. The closing of the sale, consisting of 400,000 newly issued shares and 1,200,000 shares of certain selling stockholders was held on July 1, 1996 at which time the Company issued the new shares and received the net proceeds of $5,121,750. The proceeds of the newly issued shares were used to pay certain indebtedness of the Company. Unsecured lines of credit of $20 million which are subject to annual renewal, are available from banks. Amounts outstanding under these lines are payable upon demand by the banks. During 1996, the Company has borrowed various amounts from time to time up to $9.9 million. As of December 31, 1996 no balances were outstanding. The Company paid a cash dividend of $0.10 and $0.085 per share of Common Stock in June of 1996 and 1995, respectively. The Company expects cash flow from operations and availability under the Company's lines of credit to be sufficient to meet cash needs for working capital expenditures for at least the next two years. INFLATION AND FOREIGN CURRENCY FLUCTUATIONS Inflation has not had a material effect on the Company's operating results over the past three years. The Company enters into forward exchange contracts to minimize the impact of fluctuations in currency exchange rates on future cash flows emanating from sales denominated in foreign currencies. The Company does not purchase such contracts for trading purposes. During 1996, the Company entered into forward exchange contracts with a bank whereby the Company is committed to deliver foreign currency at predetermined rates. The contracts expire within one year. The Company's commitment under these contracts approximated $6.0 million as of December 31, 1996. At December 31, 1996, the exchange rates for such currencies covered by the contracts approximated the predetermined rate included therein. The Company routinely assesses the financial strength of the bank which is counterparty to the forward exchange contracts. As of December 31, 1996, management believes it had no significant exposure to credit risk relative to such contracts. II-4 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements listed under Item 14.(a) 1. are included in Part IV. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There is nothing to report relating to this Item. II-5 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is included in the Registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included in the Registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders, except that the sections in said definitive proxy statement entitled "Board Compensation Committee Report on Executive Compensation" and the "Stock Performance Chart" shall not be deemed incorporated herein by reference to this 10-K Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included in the Registrant's definitive proxy statement for the 1997 Annual Meeting of Stockholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There is nothing to report relating to this Item. III-1 15 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 14.(a) 1. FINANCIAL STATEMENTS Independent Auditors' Report Balance Sheets as of December 31, 1996 and 1995 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 (a) 2. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. 14.(a) 3. EXHIBITS The following are either (i) filed herewith as exhibits to this 10-K Report or (ii) have been filed as exhibits to filings under the Securities Act of 1933 or the Securities Exchange Act of 1934 and are incorporated herein by reference as exhibits to this 10-K Report.
PAGE ------- (3)(i) Restated Articles of Organization as currently in effect (filed as Exhibit (3.1) to Amendment No. 1 to Form S-1 Registration Statement filed with the Commission on October 5, 1995 and incorporated herein by reference). (3)(ii) By-laws of the Company and any amendments thereto, as currently in effect (filed as Exhibit 3(ii) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference.) (10)(a) Security and Trust Agreement among Town of Avon, acting by and through its Industrial Development Financing Authority, Kiddie Products, Inc., and State Street Bank and Trust Company relating to issuance of industrial revenue bonds, dated as of October 1, 1982 (filed as Exhibit 10 (c) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(b) Bond Purchase Agreement among Town of Avon, acting by and through its Industrial Development Financing Authority, Kiddie Products, Inc., and State Street Bank and Trust Company, dated as of October 1, 1982 (filed as Exhibit 10 (d) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(c) Loan Agreement between Town of Avon, acting by and through its Industrial Development Financing Authority, and Kiddie Products, Inc., dated as of October 1, 1982 (filed as Exhibit 10 (e) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(d) Put Agreement between State Street Bank and Trust Company and Kiddie Products, Inc., dated as of October 1, 1982 (filed as Exhibit 10 (f) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(e) Agreement with Disney Enterprises, Inc. dated March 28, 1994 (filed as Exhibit 10.11 on Form S-1 Registration Statement filed with the Commission on September 15, 1995 and incorporated herein by reference). (10)(f) Agreement with Disney Enterprises, Inc. dated December 3, 1996 (certain portions of which are subject to a confidential treatment request). IV-17 (10)(g) Agreement with the Children's Television Workshop dated July 1, 1996 (certain portions of which are subject to a confidential treatment request). IV-17 Management Contracts and Compensatory Plans (10)(h) Kiddie Products, Inc. 1993 Equity Incentive Plan, as amended through January 19, 1995 (filed as Exhibit 10 (g) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
IV-1 16
PAGE ------- (10)(i) Kiddie Products, Inc. 1993 Stock Option Plan for Non-employee Directors, as amended through January 19, 1995 (filed as Exhibit 10 (h) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(j) Agreement between Kiddie Products, Inc. and Jerome M. Karp dated August 8, 1994 (filed as Exhibit 10(c) to the Form 10-Q Report for the quarter ended June 30, 1994, and incorporated herein by reference). (10)(k) Employment Agrement between Kiddie Products, Inc. and Benjamin Peltz, dated March 23, 1995 (filed as Exhibit 10(j) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(l) Employment Agreement between Kiddie Products, Inc. and Ronald J. Sidman, dated March 23, 1995 (filed as Exhibit 10(k) on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference). (10)(m) The First Years Inc. 1995 Restated Annual Incentive Plan, effective as of July 1, 1995 (filed as Exhibit 10.10 on Form S-1 Registration Statement filed with the Commission on September 15, 1995 and incorporated herein by reference.). ------------------------ (11) Statement re Computation of Per Share Earnings. IV-17 (23) Consent of Deloitte & Touche LLP dated March 28, 1997. IV-17 (27) Financial Data Schedule. IV-17
14.(b) REPORT ON FORM 8-K The Company did not file any reports on Form 8-K with the Securities and Exchange Commission during the quarter ended December 31, 1996. IV-2 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FIRST YEARS INC. .................................... (Registrant) By: /s/ RONALD J. SIDMAN .................................. RONALD J. SIDMAN, CHIEF EXECUTIVE OFFICER, CHAIRMAN OF THE BOARD OF DIRECTORS, AND PRESIDENT Date: March 13, 1997 By: /s/ BENJAMIN PELTZ .................................. BENJAMIN PELTZ, SENIOR VICE PRESIDENT AND TREASURER (CHIEF FINANCIAL OFFICER AND CHIEF ACCOUNTING OFFICER) Date: March 13, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 13, 1997.
SIGNATURE TITLE DATE - ------------------------------------------ ------------------------------ --------------- /s/ RONALD J. SIDMAN Chief Executive Officer March 13, 1997 ........................................ Chairman of the Board of RONALD J. SIDMAN Directors and President /s/ JEROME M. KARP Vice Chairman of the Board of March 13, 1997 ........................................ Directors JEROME M. KARP /s/ EVELYN SIDMAN Director March 13, 1997 ........................................ EVELYN SIDMAN /s/ BENJAMIN PELTZ Director March 13, 1997 ........................................ BENJAMIN PELTZ /s/ MERTON N. ALPERIN Director March 13, 1997 ........................................ MERTON N. ALPERIN /s/ FRED T. PAGE Director March 13, 1997 ........................................ FRED T. PAGE
IV-3 18 THE FIRST YEARS INC. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE -------- Independent Auditors' Report...................................................... IV-5 Financial Statements: Balance Sheets as of December 31, 1996 and 1995.............................. IV-6 Statements of Income for the Years Ended December 31, 1996, 1995, and 1994... IV-7 Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994.............................................................. IV-8 Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994........................................................................ IV-9 Notes to Financial Statements................................................ IV-10-15 Financial Statement Schedule II -- Valuation and Qualifying Accounts for the Years Ended December 31, 1996, 1995, and 1994......................................... IV-16
IV-4 19 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The First Years Inc. Avon, Massachusetts We have audited the accompanying balance sheets of The First Years Inc. as of December 31, 1996 and 1995, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of The First Years Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts March 5, 1997 IV-5 20 THE FIRST YEARS INC. BALANCE SHEETS DECEMBER 31, 1996 AND 1995
1996 1995 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents (Notes 1 and 8).................... $ 4,164,587 $ 552,568 Accounts receivable (less allowance for doubtful accounts of $185,000 in 1996 and 1995) (Note 8)......................... 15,929,465 14,191,630 Inventories (Note 1)......................................... 18,588,044 19,009,784 Prepaid expenses and other assets............................ 375,317 778,074 Deferred tax asset (Notes 1 and 3)........................... 946,400 872,300 ----------- ----------- Total current assets.................................... 40,003,813 35,404,356 ----------- ----------- Property, Plant, and Equipment (Note 1): Land......................................................... 167,266 167,266 Building..................................................... 4,016,405 3,737,861 Machinery and molds.......................................... 7,329,240 6,481,504 Furniture and equipment...................................... 3,092,356 3,183,379 ----------- ----------- Total................................................... 14,605,267 13,570,010 Less accumulated depreciation................................ 7,559,543 7,262,286 ----------- ----------- Property, plant, and equipment -- net................... 7,045,724 6,307,724 ----------- ----------- Total Assets............................................ $47,049,537 $41,712,080 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt (Note 2)................... $ 100,000 $ 133,333 Short-term borrowings (Note 2)............................... -- 6,200,000 Accounts payable............................................. 6,969,115 6,624,948 Accrued royalty expense (Note 6)............................. 848,671 533,801 Accrued payroll expenses..................................... 1,087,302 1,105,004 Accrued selling expenses..................................... 1,406,009 604,434 ----------- ----------- Total current liabilities............................... 10,411,097 15,201,520 ----------- ----------- Long-Term Debt -- Less portion due currently (Note 2)............. -- 100,001 Deferred Tax Liability (Notes 1 and 3)............................ 772,000 647,300 Commitments and Contingencies (Notes 5, 6 and 8) Stockholders' Equity (Notes 4, 7 and 9): Common stock -- authorized, 15,000,000 shares; issued, 4,948,980 and 4,515,142 as of December 31, 1996 and 1995.... 494,898 451,514 Paid-in-capital.............................................. 5,271,875 -- Retained earnings............................................ 30,099,667 25,311,745 ----------- ----------- Total stockholders' equity.............................. 35,866,440 25,763,259 ----------- ----------- Total Liabilities and Stockholders' Equity.............. $47,049,537 $41,712,080 =========== ===========
See notes to financial statements. IV-6 21 THE FIRST YEARS INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Net Sales (Notes 1, 6 and 8)........................ $93,110,361 $75,757,322 $53,233,109 Cost of Products Sold (Note 1)...................... 55,463,255 45,108,546 29,498,457 ----------- ----------- ----------- Gross Profit........................................ 37,647,106 30,648,776 23,734,652 Selling, General, and Administrative Expenses (Notes 1 and 7).......................................... 28,580,039 23,961,206 18,915,908 ----------- ----------- ----------- Operating Income.................................... 9,067,067 6,687,570 4,818,744 Other Income (Expense): Interest expense............................... (358,637) (186,338) (24,575) Interest income................................ 27,349 16,718 66,605 Offering expenses (Note 9)..................... -- (310,457) -- ----------- ----------- ----------- Income Before Income Taxes.......................... 8,735,779 6,207,493 4,860,774 Provision for Income Taxes (Notes 1 and 3).......... 3,494,300 2,483,000 1,871,400 ----------- ----------- ----------- Net Income.......................................... $ 5,241,479 $ 3,724,493 $ 2,989,374 =========== =========== =========== Earnings Per Share (Note 1)......................... $1.06 $0.80 $0.66 ===== ===== =====
See notes to financial statements. IV-7 22 THE FIRST YEARS INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
COMMON STOCK ---------------------- PAID-IN RETAINED SHARES PAR VALUE CAPITAL EARNINGS --------- --------- ---------- ----------- Balance, January 1, 1994....................... 2,248,260 $ 224,826 $ 75,354 $19,419,540 Stock issued under stock option plans (Note 7)................................ 2,170 217 22,840 -- Dividends paid............................ -- -- -- (382,204) Net income................................ -- -- -- 2,989,374 --------- -------- ---------- ----------- Balance, December 31, 1994..................... 2,250,430 225,043 98,194 22,026,710 Stock issued under stock option plans (Note 7)................................ 7,141 714 70,957 -- Dividends paid............................ -- -- -- (382,852) Stock split, two-for-one (Note 4)......... 2,257,571 225,757 (169,151) (56,606) Net income................................ -- -- -- 3,724,493 --------- -------- ---------- ----------- Balance, December 31, 1995..................... 4,515,142 451,514 -- 25,311,745 Stock issued under stock option plans (Note 7)................................ 33,838 3,384 190,125 -- Dividends paid............................ -- -- -- (453,557) Stock issued through public offering (Note 9)...................................... 400,000 40,000 5,081,750 -- Net income................................ -- -- -- 5,241,479 --------- -------- ---------- ----------- Balance, December 31, 1996..................... 4,948,980 $ 494,898 $5,271,875 $30,099,667 ========= ======== ========== ===========
See notes to financial statements. IV-8 23 THE FIRST YEARS INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994 ----------- ----------- ----------- Cash Flows from Operating Activities: Net income..................................... $ 5,241,479 $ 3,724,493 $ 2,989,374 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation.............................. 1,228,790 992,291 878,250 Provision for doubtful accounts........... 152,582 86,227 23,673 Loss on disposal of equipment............. 37,699 70,258 47,877 Increase (decrease) arising from working capital items: Accounts receivable.................. (1,890,417) (5,011,624) (2,077,176) Inventories.......................... 421,740 (8,595,949) (2,184,385) Prepaid expenses and other assets.... 402,757 (482,153) (53,315) Accounts payable..................... 344,167 2,331,128 1,173,646 Accrued royalty expense.............. 314,870 533,801 -- Accrued payroll expenses............. (17,702) 322,114 730,508 Accrued selling expenses............. 801,575 348,273 (142,477) Federal and state income taxes payable............................ -- (218,500) (9,200) Change in deferred income taxes........... 50,600 (185,300) 107,200 ----------- ----------- ----------- Net cash (used for) provided by operating activities.......... 7,088,140 (6,084,941) 1,483,975 ----------- ----------- ----------- Cash Flows from Investing Activities -- Purchase of property, plant, and equipment..... (2,004,489) (1,447,018) (1,374,721) ----------- ----------- ----------- Cash Flows from Financing Activities: Repayment of industrial revenue bonds.......... (133,334) (133,333) (133,333) Net proceeds (repayment) from short-term borrowings................................... (6,200,000) 6,200,000 -- Dividends paid................................. (453,557) (382,852) (382,204) Net proceeds from public offering.............. 5,121,750 -- -- Common stock issued under stock option plans... 193,509 71,671 23,057 ----------- ----------- ----------- Net cash provided by (used for) financing activities.......... (1,471,632) 5,755,486 (492,480) ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents.... 3,612,019 (1,776,473) (383,226) Cash and Cash Equivalents, Beginning of Year........ 552,568 2,329,041 2,712,267 ----------- ----------- ----------- Cash and Cash Equivalents, End of Year.............. $ 4,164,587 $ 552,568 $ 2,329,041 =========== =========== =========== Supplemental Disclosures of Cash Flow Information -- Cash paid during the year for: Interest.................................. $ 358,637 $ 186,338 $ 24,575 =========== =========== =========== Income taxes.............................. $ 3,087,700 $ 3,269,100 $ 1,773,400 =========== =========== ===========
See notes to financial statements. IV-9 24 THE FIRST YEARS INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business -- The First Years Inc. (the "Company") is a developer, marketer, and distributor of certain basic accessory and related products for infants and toddlers. The Company was founded and incorporated in 1952. Since its inception, the Company has engaged in this single line of business, with one class of similar products. The following is a summary of the Company's significant accounting policies. Revenue Recognition -- Revenue is recognized when products are shipped. Cash Equivalents -- Highly liquid investments with a maturity of three months or less when purchased have been classified as cash equivalents in the accompanying financial statements. Such investments are carried at cost which approximates market value. Inventories -- Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist principally of finished goods, unpackaged components, and supplies. Property, Plant, and Equipment -- Property, plant, and equipment is stated at cost. Depreciation is provided based on the estimated useful lives of the various classes of assets (building, 15 to 40 years; machinery and molds, 5 to 10 years; furniture and equipment, 5 to 10 years) using the straight-line method. Income Taxes -- Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. Employee Stock-Based Compensation -- The Company uses the intrinsic value-based method of Accounting Principles Board Opinion ("APB") No. 25 to account for employee stock-based compensation plans. Earnings Per Share -- Earnings per share are based on the weighted average number of shares outstanding during each year (retroactively adjusted to reflect the two-for-one stock split effected on December 29, 1995) and common equivalent shares, consisting of the effect of stock options outstanding, if dilutive (4,941,196, 4,663,491 and 4,497,244 shares in 1996, 1995, and 1994, respectively) (see Note 7). Earnings per share assuming full dilution have not been presented because the dilutive effect is immaterial. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Research and Development Costs -- Research and development costs are expensed as incurred. During 1996, 1995, and 1994, research and development costs approximated $2,209,000, $1,834,000, and $1,466,000, respectively. Foreign Currency Translation -- The Company's functional currency is the U.S. dollar. Accordingly, monetary assets and liabilities of the Company's foreign operations are translated from the respective local currency to the U.S. dollar using year-end exchange rates while nonmonetary items are translated at historical rates. Income and expense accounts are translated at the average rates in effect during the year. Accordingly, translation adjustments and transaction gains and losses are recognized as income in the year of occurrence and are recorded as a component of cost of sales. Foreign Exchange Contracts -- The Company enters into forward exchange contracts to minimize the impact of fluctuations in currency exchange rates on future cash flows emanating from sales denominated in foreign currencies. The Company does not purchase such contracts for trading purposes. Gains and losses related to foreign exchange contracts which qualify as accounting hedges of firm commitments are deferred and recognized in income when the hedged transaction occurs. Gains and losses related to foreign exchange IV-10 25 THE FIRST YEARS INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) contracts which do not qualify for hedge accounting are marked to market currently and recognized as a foreign currency transaction gain or loss. Fair Value of Financial Instruments -- The fair value of the Company's assets and liabilities which constitute financial instruments as defined in Statement of Financial Accounting Standards ("SFAS") No. 107 approximate their recorded value. Reclassifications -- Certain reclassifications were made to prior year amounts in order to conform with the current year presentation. 2. DEBT Long-term debt consists of unsecured industrial revenue bonds ("IRB"), with interest payable quarterly at 65% of the prime rate (5.4% at December 31, 1996 and 5.5% at December 31, 1995) and principal payable in equal quarterly installments of $33,333 through September 30, 1997. Under the terms of the IRB agreement, the Company must comply with certain covenants, none of which impose a significant limitation on the Company. The Company has available unsecured lines of credit totaling $20,000,000 with two banks. Both lines are subject to annual renewal and require no compensating balances. One line bears interest at the prime rate or the LIBOR rate plus 1.75% and the other line at the prime rate less 0.25% or the LIBOR rate plus 1.75%. During 1996 and 1995, the Company borrowed various amounts up to $9,900,000 and $6,500,000, respectively, under the lines. As of December 31, 1996 and 1995 a balance of $0 and $6,200,000 remained outstanding. The average interest rate on debt outstanding at December 31, 1995 was 7.9%. No other short-term borrowings were incurred by the Company during 1996 or 1995. 3. INCOME TAXES Components of the Company's net deferred tax asset at December 31 are as follows:
1996 1995 -------- -------- Deferred tax assets: Reserves not currently deductible.................. $119,000 $ 79,000 Capitalized packaging costs not currently deductible....................................... 486,600 442,000 Capitalized inventory costs not currently deductible....................................... 301,000 261,100 Other.............................................. 39,800 90,200 -------- -------- 946,400 872,300 -------- -------- Deferred tax liabilities: Excess tax depreciation over financial reporting depreciation..................................... 767,500 642,800 Other.............................................. 4,500 4,500 -------- -------- 772,000 647,300 -------- -------- Net deferred tax asset.................................. $174,400 $225,000 ======== ========
There was no valuation allowance for the years ended December 31, 1996 and 1995. IV-11 26 THE FIRST YEARS INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes consists of the following:
1996 1995 1994 ---------- ---------- ---------- Federal: Current............................ $2,649,600 $2,104,000 $1,432,700 Deferred........................... 50,600 (185,300) 107,200 ---------- ---------- ---------- Total federal................. 2,700,200 1,918,700 1,539,900 State................................... 794,100 564,300 331,500 ---------- ---------- ---------- Provision for income taxes.............. $3,494,300 $2,483,000 $1,871,400 ========== ========== ==========
A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of pretax income is as follows:
1996 1995 1994 ---- ---- ---- Statutory rate........................................... 34.0% 34.0% 34.0% State income taxes, net of federal income tax benefit.... 6.0 6.0 4.5 ---- ---- ---- Effective tax rate....................................... 40.0% 40.0% 38.5% ==== ==== ====
4. COMMON STOCK In December 1995, the Company's Board of Directors (the "Board") declared a two-for-one split of the Company's common stock. The stock split, effected in the form of a stock dividend, was distributed on December 29, 1995 to stockholders of record in 1995. Earnings per share amounts shown in the accompanying financial statements have been adjusted to reflect the 1995 stock split. 5. COMMITMENTS AND CONTINGENCIES Foreign Exchange Contracts -- During 1996 and 1995, the Company entered into forward exchange contracts with a bank whereby the Company is committed to deliver foreign currency at predetermined rates. The contracts expire within one year. The Company's future commitment under these contracts approximated $6,000,000 and $4,500,000 as of December 31, 1996 and 1995, respectively. At December 31, 1996 and 1995, the exchange rates for such currencies covered by the contracts approximated the predetermined rates included therein. Other Commitments -- At December 31, 1996 and 1995, letters of credit outstanding aggregated approximately $644,000 and $1,925,000, respectively. During 1994, the Company entered into an employment agreement with an executive officer which provides for an annual salary of $100,000 through August 1999. On March 23, 1995, the Company entered into employment agreements with two key senior executive officers which provide for aggregate annual base salaries through March 2000 of $391,000, subject to any increases or decreases established from time to time at the discretion of the Compensation Committee of the Board and, in the event of termination, provide for noncompetition payments for two years equal to their annual base salaries. Contingencies -- The Company is involved in legal proceedings which have arisen in the ordinary course of business. Management believes the outcome of these proceedings will not have a material adverse impact on the Company's financial condition or operating results. 6. ROYALTIES During 1996 and 1995, the Company entered into various agreements which provide for the payment of royalties on sales of certain character and patent licensed products. The agreements have terms ranging from one to fifteen years and require minimum royalty payments of $4,715,000 and $729,000 for agreements signed during 1996 and IV-12 27 THE FIRST YEARS INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 1995, respectively. Future outstanding minimum royalty commitments under these agreements amounted to $4,692,000 and $92,800 at December 31, 1996 and 1995, respectively. 7. BENEFIT PLANS Defined Contribution Plans -- The Company has a defined contribution trusteed benefit plan covering eligible employees, requiring annual contributions based upon certain percentages of salaries of employees. The Company's policy is to fund pension expense as accrued. Pension expense aggregated $472,000, $217,000, and $246,000 in 1996, 1995, and 1994, respectively. The Company sponsors a 401(k) defined contribution plan covering substantially all Company employees pursuant to which the Company is obligated to match, up to specified amounts, employee contributions. Company contributions to this plan were not material for the periods presented. Stock Option Plans -- In May 1993, the Company's stockholders approved the adoption of The First Years Inc. 1993 Equity Incentive Plan and The First Years Inc. 1993 Stock Option Plan for Non-employee Directors (the "plans") which cover employees and directors of the Company. The Board has reserved 670,000 shares for issuance under the plans and 20,000 shares for another stock option plan (all share amounts adjusted to reflect the two-for-one stock split effected on December 29, 1995). The exercise price for the options granted may not be less than the fair market value of the optioned stock at the date of grant, 110% of fair market value in the case of options granted to a 10% stockholder. Options granted must be exercised within the period prescribed by the Committee; the options vest in accordance with the vesting provisions prescribed at the time of grant. A summary of activity (all years adjusted to reflect the two-for-one stock split effected on December 29, 1995) of stock options granted under the plans is as follows:
WEIGHTED NUMBER OF AVERAGE NUMBER OF OPTIONS EXERCISE PRICE OPTIONS AVAILABLE PER SHARE OUTSTANDING FOR GRANT -------------- ----------- --------- January 1, 1994........................... $ 5.46 204,000 236,000 Authorized........................... -- 20,000 Granted.............................. 4.65 126,300 (126,300) Canceled............................. 4.97 (20,828) 20,828 Exercised............................ 5.13 (4,340) -- ------- -------- December 31, 1994......................... 5.16 305,132 150,528 Authorized........................... -- 230,000 Granted.............................. 9.14 128,920 (128,920) Canceled............................. 5.61 (8,192) 8,192 Exercised............................ 5.02 (14,282) -- ------- -------- December 31, 1995......................... 6.40 411,578 259,800 Granted.............................. 12.46 68,605 (68,605) Canceled............................. 8.19 (8,557) 8,557 Exercised............................ 5.71 (33,838) -- ------- -------- December 31, 1996......................... $ 7.37 437,788 199,752 ======= ======== Exercisable at December 31, 1994..... $ 5.46 66,384 Exercisable at December 31, 1995..... $ 5.25 166,999 Exercisable at December 31, 1996..... $ 6.01 278,935
The grant date fair value for options granted in 1996 and 1995 was $4.19 and $3.46, respectively. IV-13 28 THE FIRST YEARS INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth information regarding stock options outstanding at December 31, 1996 under the Stock Option Plans as described above:
NUMBER OF AVERAGE OPTIONS WEIGHTED WEIGHTED NUMBER EXERCISE OUTSTANDING RANGE OF AVERAGE AVERAGE CURRENTLY PRICE FOR AT EXERCISE EXERCISE REMAINING EXERCISABLE OPTIONS 12/31/96 PRICES PRICE LIFE AT 12/31/96 EXERCISABLE - ------- --------------- -------- --------- ------------ ----------- 253,673 .............. $ 4.56 - $ 6.84 $ 5.15 1.42 226,361 $5.31 117,175 .............. 6.85 - 10.26 9.14 3.08 52,574 9.34 60,940 .............. 10.27 - 15.39 12.01 4.01 -- -- 6,000 .............. 15.40 - 17.13 17.13 4.42 -- -- - ------- --------------- ------- ----- ---- ----- 437,788 .............. $ 4.56 - $17.13 $ 7.37 2.16 278,935 $6.01 ======= =============== ======= ===== ==== =====
PRO FORMA DISCLOSURES As described in Note 1, the Company applies the intrinsic value method of APB No. 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the Company's net income and earnings per share for the years ended December 31, 1996 and 1995 would have been as follows:
1996 1995 ---------- ---------- Net income...................................... $5,038,337 $3,625,525 Earnings per share.............................. $ 1.02 $ 0.78
For purposes of the pro forma disclosures, the fair value of the options granted under the Company's stock option plans during 1996 and 1995 was estimated on the date of grant using the Binomial option pricing model. Key assumptions used to apply this pricing model are as follows:
1996 1995 --------- --------- Risk free interest rate............................. 6.08% 7.01% Expected life of option grants...................... 4.5 years 4.5 years Expected volatility of underlying stock............. 32.87% 36.86% Expected dividend payment rate...................... 0.85% 0.85%
The pro forma disclosures only include the effects of options granted in 1996 and 1995. 8. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS Concentrations of Credit Risk -- Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents, trade receivables and forward exchange contracts (see Note 5). The Company's cash equivalents consist of money market funds placed with major banks and financial institutions. The Company's trade receivables principally include amounts due from retailers who are geographically dispersed. The Company's three largest customers accounted for 55% and 68% of the trade receivables outstanding at December 31, 1996 and 1995, respectively. The Company routinely assesses the financial strength of its customers and purchases credit insurance to limit its potential exposure to trade receivable credit risks. The Company routinely assesses the financial strength of the bank which is the counterparty to the forward exchange contracts. As of December 31, 1996, management believes it had no significant exposure to credit risks. Major Customers and Export Sales -- The Company derived 10% or more of its sales from its largest customer. Such amounts aggregated $25,722,000, $21,966,000, and $14,256,000 in 1996, 1995, and 1994, respectively. The Company's second largest customer accounted for sales of $18,257,000, $16,500,000, and IV-14 29 THE FIRST YEARS INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) $12,118,000 in 1996, 1995, and 1994, respectively. The Company's third largest customer accounted for sales of $9,908,000 in 1996. No other customer accounted for 10% or more of the Company's sales. Export sales, primarily to Europe, Canada, South America and the Pacific Rim, were approximately $11,564,000 and $7,745,000 in 1996 and 1995, respectively. Reliance on Foreign Manufacturers -- The Company does not own or operate its own manufacturing facilities. In 1996 and 1995, the Company derived approximately 55% and 46%, respectively, of its net sales from products manufactured by others in the Far East, mainly in the Peoples Republic of China. A change in suppliers could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely, depending on the particular product. 9. OFFERING OF COMMON STOCK During 1995, the Company initiated a public offering of shares of its common stock to increase its working capital and improve liquidity of its common stock. Due to uncertain market conditions affecting the retail sector and the price of its stock, the Company decided to postpone the public offering. As a result, the Company wrote off offering expenses amounting to $310,000 in December 1995. During 1996, the Company proceeded with the postponed offering of shares and entered into an agreement with a group of underwriters to sell 1.6 million shares of common stock ("the shares"), consisting of 400,000 newly issued shares and 1,200,000 shares of certain selling stockholders. The closing of the sale was held on July 1, 1996 at which time the Company issued 400,000 new shares and received the net proceeds of $5,121,750. * * * * * * IV-15 30 SCHEDULE II THE FIRST YEARS INC. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
ADDITIONS BALANCE, CHARGED BEGINNING TO COSTS AND BALANCE DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) END OF YEAR - --------------------------------------------- --------- ------------ ------------- ----------- Valuations Accounts Deducted from Assets to which they Apply -- Allowance for doubtful accounts: 1996............................... $185,000 $152,582 $152,582 $185,000 ======== ======== ======== ======== 1995............................... $185,000 $ 86,227 $ 86,227 $185,000 ======== ======== ======== ======== 1994............................... $185,000 $ 23,673 $ 23,673 $185,000 ======== ======== ======== ========
- --------------- (1) Net accounts written off. IV-16 31 THE FIRST YEARS INC. EXHIBIT INDEX
EXHIBIT DESCRIPTION - ------- ----------------------------------------------------------------------------------- 10(f) Agreement with Disney Enterprises, Inc. dated December 3, 1996 (certain portions of which are subject to a confidential treatment request). 10(g) Agreement with Children's Television Workshop dated July 1, 1996 (certain portions of which are subject to a confidential treatment request). 11 Statement re Computation of Per Share Earnings 23 Consent of Deloitte & Touche LLP dated March 28, 1997. 27 Financial Data Schedule
IV-17 EX-10.F 2 LICENSE AGREEMENT 1 NOTE: The omitted portions of this document marked with an asterisk are subject to a confidential treatment request and have been filed separately with the Securities and Exchange Commission. LICENSE AGREEMENT ----------------- Date: December 3, 1996 Re: WINNIE THE POOH This license agreement ("Agreement") is entered into by and between Disney Enterprises, Inc. ("Disney"), with a principal place of business at 500 South Buena Vista Street, Burbank, California 91521, and THE FIRST YEARS, INC. ("Licensee"), with its principal place of business at One Kiddie Drive, Avon, MA 02322-1171. Disney and Licensee agree as follows: 1. MEANING OF TERMS ---------------- A. "LICENSED MATERIAL" means the graphic representations of the following: WINNIE THE POOH, CHRISTOPHER ROBIN, EEYORE, KANGA, ROO, RABBIT, PIGLET, OWL, GOPHER, and TIGGER, all in the style as designed by Disney. B. "TRADEMARKS" means "WALT DISNEY", "DISNEY", and the representations of Licensed Material included in Subparagraph 1.A. above. C. "ARTICLES" means the items set forth on Schedule A, which is attached hereto and incorporated herein by this reference, on or in connection with which the Licensed Material and/or the Trademarks are reproduced or used, and includes each and every stock keeping unit ("SKU") of each Article. D. "MINIMUM PER ARTICLE ROYALTY" means for each Article identified herein which is sold the sum indicated herein: None. E. "PRINCIPAL TERM" means the period commencing January 1, 1997, and ending * . F. "TERRITORY" means the United States, United States PX's wherever located, and United States territories and possessions, excluding Puerto Rico, Guam, Commonwealth of Northern Mariana Islands and Palau. However, if sales are made to chain stores in the United States which have stores in Puerto Rico, such chain stores may supply Articles to such stores in Puerto Rico. G. "ROYALTIES" means a royalty in the amounts set forth below in Subparagraphs 1.G(1)(a), (b), and (c) and Royalties shall be further governed by the provisions contained in Subparagraphs 1.G.(2)-(6): 2 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 2 (1)(a)* percent ( * %) of Licensee's Net Invoiced Billings to authorized Retailers and Wholesalers for Articles shipped by Licensee from a location in the Territory for delivery to a customer located in the Territory ("F.O.B. In Sales"); or (b)* percent ( * %) of Licensee's Net Invoiced Billings to authorized Retailers and Wholesalers when Licensee's customer located in the Territory takes title to the Articles outside the Territory and/or bears the risk of loss of Articles manufactured and shipped to the customer from outside the Territory ("F.O.B. Out Sales"); or (c) if a Minimum Per Article Royalty has been specified in Subparagraph 1.D. above, and it would result in a higher royalty to be paid for the Articles, Licensee agrees to pay the higher royalty amount. (2) The sums paid to Disney as Royalties on any sales to Licensee's Affiliates shall be no less than the sums paid on sales to customers not affiliated with Licensee. (3) All sales of Articles shipped to a customer outside the Territory pursuant to a distribution permission shall bear a Royalty at the rate for F.O.B. Out Sales. However, sales of Articles to Disney's Affiliates outside the Territory shall bear a Royalty at the rate for F.O.B. In Sales. (4) No Royalties are payable on the mere manufacture of Articles. (5) The full Royalty percentage shall be payable on close-out or other deep discount sales of Articles, including sales to employees. (6) Royalties reported on sales of Articles which have been returned to Licensee for credit or refund and on which a refund has been made or credit memo issued may be credited against Royalties due. The credit shall be taken in the Royalty Payment Period in which the refund is given or credit memo issued. Unused credits may be carried forward, but in no event shall Licensee be entitled to a refund of Royalties. 3 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 3 H. "NET INVOICED BILLINGS" means the following: (1) actual invoiced billings (i.e., sales quantity multiplied by Licensee's selling price) for Articles sold, and all other receivables of any kind whatsoever, received in payment for the Articles, whether received by Licensee or any of Licensee's Affiliates, except as provided in Subparagraph 1.H.(2), less "Allowable Deductions" as hereinafter defined. (2) The following are not part of Net Invoiced Billings: invoiced charges for transportation of Articles within the Territory which are separately identified on the sales invoice, and sales taxes. I. "ALLOWABLE DEDUCTIONS" means the following: (1) volume discounts, and other discounts from the invoice price (or post-invoice credits) unilaterally imposed in the regular course of business by Licensee's customers, so long as Licensee documents such discounts (or credits) to Disney's satisfaction. In the event a documented unilateral discount (or credit) is taken with respect to combined sales of Articles and other products not licensed by Disney, and Licensee cannot document the portion of the discount (or credit) applicable to the Articles, Licensee may apply only a pro rata portion of the discount (or credit) to the Articles. Unilateral discounts or credits are never deductible if they represent items listed below in Subparagraph 1.1.(2). (2) The following are not Allowable Deductions, whether granted on sales invoices or unilaterally imposed as discounts or as post-invoice credits: cash discounts granted as terms of payment; early payment discounts; allowances or discounts relating to advertising; mark down allowances; new store allowances; defective goods allowances or allowances taken by customers in lieu of returning goods; costs incurred in manufacturing, importing, selling or advertising Articles; freight costs incorporated in the selling price; and uncollectible accounts. J. "ROYALTY PAYMENT PERIOD" means each calendar quarterly period during the Principal Term and during the sell-offperiod, if granted. 4 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 4 K. "ADVANCE" means the following sum(s) payable by the following date(s) as an advance on Royalties to accrue in the following period(s): None. L. "GUARANTEE" means the following sum(s) which Licensee guarantees to pay as minimum Royalties on Licensee's cumulative sales in the following period(s): * M. "SAMPLES" means twelve (12) samples of each SKU of each Article, from the first production run of each supplier of each SKU of each Article. N. "PROMOTION COMMITMENT" means the following sum(s) which Licensee agrees to spend in the following way(s): Licensee hereby acknowledges Licensee's understanding that Disney is implementing a common marketing and promotional fund (the "Common Marketing Fund"), during the Principal Term, for purposes of marketing and promoting the Licensed Material, the Trademarks, and/or the brand(s), as Disney may deem appropriate in Disney's absolute discretion. In order to implement the Common Marketing Fund, Licensee shall be required, from time to time at Disney's request, to provide a contribution(s) to the Common Marketing Fund, the cumulative total of which shall not exceed * percent ( * %) of Licensee's Net Invoiced Billings for Articles (such Net Invoiced Billings to be estimated by Disney in a reasonable manner) during the Principal Term, but in no event less than a cumulative total of * percent ( * %) of the quotient of (the Guarantee divided by the Royalty rate for F.O.B. In Sales). Within fifteen (15) days after each request by Disney, Licensee shall pay to Disney the amount of the contribution designated by Disney. Such contribution may be expended by Disney and/or Disney's designees in the amount and in the manner Disney deems most appropriate in order to market, promote, and advertise the Licensed Material, the Trademarks, and/or the brand(s). Licensee's contribution shall only be spent for the promotion of the Licensed Material, the Trademarks, and/or the brand(s) licensed hereunder. However, Disney does not ensure that Licensee will benefit directly or pro-rata from the operation of the Common Marketing 5 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 5 Fund. Licensee shall not be entitled to any audit rights with regard to the Common Marketing Fund. O. "MARKETING DATE" means the following date(s) by which the following Article(s) shall be available for purchase by the public at the retail outlets authorized pursuant to Subparagraph 2.A.: By January 1, 1997, for all Articles. P. "AFFILIATE" means, with regard to Licensee, any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Licensee; with regard to Disney, "Affiliate" means any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Disney. "Control" of an entity shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of such entity, whether through ownership of voting securities, by contract or otherwise. Q. "LAWS" means any and all applicable laws, rules, regulations, voluntary industry standards, association laws, codes or other obligations pertaining to any of Licensee's activities under this Agreement, including but not limited to those applicable to the manufacture, pricing, sale and/or distribution of the Articles. R. "RETAILER" means independent and chain retail outlets which have storefronts and business licenses, and which customers walk into, not up to; "WHOLESALER" means a seller of items to retailers, not consumers, and includes the term "distributor". The following do not qualify as authorized sales outlets for Articles under this Agreement under any circumstances: swap meets, flea markets, street peddlers, unauthorized kiosks, and the like. 2. RIGHTS GRANTED -------------- A. In consideration for Licensee's promise to pay and Licensee's payment of all Royalties, Advances and Guarantees required hereunder, Disney grants Licensee the non-exclusive right, during the Principal Term, and only within the Territory, to reproduce the Licensed Material only on or in connection with the Articles, to use such Trademarks and uses thereof as may be approved when each SKU of the Articles is approved and only on or in connection with the Articles, and to manufacture, distribute for sale and sell the Articles (other than by direct marketing methods, which includes but is not limited to, computer on-line selling, direct mail and door-to-door solicitation). Licensee will sell the Articles only to the following Retailers in 6 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 6 the Territory for resale to the public in the Territory, or to Wholesalers in the Territory for resale only to the following Retailers: (1) mass market Retailers (including such Retailers as Target, Toys R Us, WalMart and KMart), and (2) drug chains; provided, however, that the Articles identified in Schedule A as A.12, and B.1 through B.7 must be carded and sold only to the infant accessory departments or the juvenile products departments of such authorized Retailers. Licensee will not sell the Articles to other Retailers, or to other Wholesalers. In addition, License may not sell the Articles to Retailers selling merchandise on a duty-free basis, or to Wholesalers for resale to such Retailers, unless such Retailer or Wholesaler has a then-current license agreement with Disney or any of Disney's Affiliates permitting it to make such duty-free sales. Licensee may sell the Articles to authorized customers for resale through the pre-approved mail order catalogs listed on the Catalog Schedule to this Agreement. If there is a question as to whether a particular customer falls within any of the categories specified above, Disney's determination shall be binding. B. Unless Disney consents in writing, Licensee shall not sell or otherwise provide Articles for use as premiums (including those in purchase-with-purchase promotions), promotions, give-aways, fund-raisers, or entries in sweepstakes, or through unapproved direct marketing methods, including but not limited to, home shopping television programs, or to customers for inclusion in another product. If Licensee wishes to sell the Articles to customers for resale through mail order catalogs other than those listed on the Catalog Schedule hereto, Licensee must obtain Disney's prior written consent in each instance. However, Licensee may solicit orders by mail from those Wholesalers or Retailers authorized pursuant to Subparagraph 2.A. above, and Licensee may sell to such authorized Retailers which sell predominantly at retail, but which include the Articles in their mail order catalogs, or otherwise sell Articles by direct marketing methods as well as at retail. C. The prohibition of computer on-line selling referenced in Subparagraph 2.A. includes, but is not limited to, the display, promotion or offering of Articles in or on any on-line venues, including but not limited to, any catalog company's or Retailer's "Websites," "home pages," or any similar venues, except as specifically permitted in the next two sentences. With Disney's prior written permission, Articles approved by Disney may be displayed and promoted on Disney-controlled Internet services, only within the Territory. In addition, with Disney's prior written permission, Articles approved by Disney may be displayed and promoted on Licensee's own Website; however, Licensee must obtain Disney's prior written approval of all creative and editorial elements of 7 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 7 such promotional uses, in accordance with the provisions of Paragraph 7 of this Agreement. D. Unless Disney consents in writing, Licensee shall not give away or donate Articles to Licensee's accounts or other persons for the purpose of promoting sales of Articles, except for minor quantities or samples which are not for onward distribution. E. Nothing contained herein shall preclude Licensee from selling Articles to Disney or to any of Disney's Affiliates, or to Licensee's or Disney's employees, subject to the payment to Disney of Royalties on such sales. F. Disney further grants Licensee the right to reproduce the Licensed Material and to use the approved Trademarks, only within the Territory, during the Principal Term, on containers, packaging and display material for the Articles, and in advertising for the Articles. G. Nothing contained in this Agreement shall be deemed to imply any restriction on Licensee's freedom and that of Licensee's customers to sell the Articles at such prices as Licensee or they shall determine. H. Licensee recognizes and acknowledges the vital importance to Disney of the characters and other proprietary material Disney owns and creates, and the association of the Disney name with them. In order to prevent the denigration of Disney's products and the value of their association with the Disney name, and in order to ensure the dedication of Licensee's best efforts to preserve and maintain that value, Licensee agrees that, during the Principal Term and any extension hereof, Licensee will not manufacture or distribute any merchandise embodying or bearing any artwork or other representation which Disney determines, in Disney's reasonable discretion, is confusingly similar to Disney's characters or other proprietary material. 3. ADVANCE ------- A. Licensee agrees to pay the Advance, which shall be on account of Royalties to accrue during the Principal Term only, and only with respect to sales in the Territory; provided, however, that if any part of the Advance is specified hereinabove as applying to any period less than the Principal Term, such part shall be on account of Royalties to accrue during such lesser period only. If said Royalties should be less than the Advance, no part of the Advance shall be repayable. . 8 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 8 B. Royalties accruing during any sell-off period or extension of the Principal Term shall not be offset against the Advance unless otherwise agreed in writing. Royalties accruing during any extension of the Principal Term or any other term shall be offset only against an advance paid with respect to such extended term. C. In no event shall Royalties accruing by reason of any sales to Disney or any of Disney's Affiliates or by reason of sales outside the Territory pursuant to a distribution permission be offset against the Advance or any subsequent advance. 4. GUARANTEE --------- A. Licensee shall, with Licensee's statement for each Royalty Payment Period ending on a date indicated in Subparagraph 1.L. hereof defining "Guarantee," or upon termination if the Agreement is terminated prior to the end of the Principal Term, pay Disney the amount, if any, by which cumulative Royalties paid with respect to sales in the Territory during any period or periods covered by the Guarantee provision, or any Guarantee provision contained in any agreement extending the term hereof, fall short of the amount of the Guarantee for such period. B. Advances applicable to Royalties due on sales in the period to which the Guarantee relates apply towards meeting the Guarantee. C. In no event shall Royalties paid with respect to sales to Disney or to any of Disney's Affiliates, or with respect to sales outside the Territory pursuant to a distribution permission, apply towards the meeting of the Guarantee or any subsequent guarantee. 5. PRE-PRODUCTION APPROVALS ------------------------ A. As early as possible, and in any case before commercial production of any Article, Licensee shall submit to Disney for Disney's review and written approval (to utilize such materials in preparing a pre-production sample) all concepts, all preliminary and proposed final artwork, and all three- dimensional models which are to appear on or in any and all SKUs of the Article. Thereafter, Licensee shall submit to Disney for Disney's written approval a pre-production sample of each SKU of each Article. Disney shall endeavor to respond to such requests within a reasonable time, but such approvals should be sought as early as possible in case of delays. In addition to the foregoing, as early as possible, and in any case no later than sixty (60) days following written conceptual approval, Licensee shall supply to Disney 9 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 9 for Disney's use for internal purposes, a mock-up, prototype or pre-production sample of each SKU of each Article on or in connection with which the Licensed Material is used. Licensee acknowledges that Disney may not approve concepts or artwork submitted near the end of the Principal Term. Any pre-production approval Disney may give will not constitute or imply a representation or belief by Disney that such materials comply with any applicable Laws. B. Approval or disapproval shall lie solely in Disney's discretion, and any SKU of any Article not so approved in writing shall be deemed unlicensed and shall not be manufactured or sold. If any unapproved SKU of any Article is being sold, Disney may, together with other remedies available to Disney, including but not limited to, immediate termination of this Agreement, by written notice require such SKU of such Article to be immediately withdrawn from the market. Any modification of any SKU of an Article, including, but not limited to, change of materials, color, design or size of the representation of Licensed Material must be submitted in advance for Disney's written approval as if it were a new SKU of an Article. Approval of any SKU of an Article which uses particular artwork does not imply approval of such artwork for use with a different Article. The fact that artwork has been taken from a Disney publication or a previously approved Article does not mean that its use will necessarily be approved in connection with an Article licensed hereunder. C. If Licensee submits for approval artwork from an article or book manufactured or published by another licensee of Disney's or of any of Disney's Affiliates, Licensee must advise Disney in writing of the source of such artwork. If Licensee fails to do so, any approval which Disney may give for use by Licensee of such artwork may be withdrawn by giving Licensee written notice thereof, and Licensee may be required by Disney not to sell Articles using such artwork. D. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Disney will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Disney in writing is intended to make the Article safer or more durable. E. If Disney has supplied Licensee with forms for use in applying for approval of artwork, models, pre-production and production samples of Articles, Licensee shall use such forms when submitting anything for Disney's approval. 10 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 10 6. APPROVAL OF PRODUCTION SAMPLES ------------------------------ A. Before shipping an Article to any customer, Licensee agrees to furnish to Disney, from the first production run of each supplier of each of the Articles, for Disney's approval of all aspects of the Article in question, the number of Samples with packaging which is hereinabove set forth, which shall conform to the approved artwork, three-dimensional models and pre-production sample. Approval or disapproval of the artwork as it appears on any SKU of the Article, as well as of the quality of the Article, shall lie in Disney's sole discretion and may, among other things, be based on unacceptable quality of the artwork or of the Article as manufactured. Any SKU of any Article not so approved shall be deemed unlicensed, shall not be sold and, unless otherwise agreed by Disney in writing, shall be destroyed. Such destruction shall be attested to in a certificate signed by one of Licensee's officers. Production samples of Articles for which Disney has approved a pre-production sample shall be deemed approved, unless within twenty (20) days of Disney's receipt of such production sample Disney notifies Licensee to the contrary. Any approval of a production sample attributable to Disney will not constitute or imply a representation or belief by Disney that such production sample complies with any applicable Laws. B. Licensee agrees to make available at no charge such additional samples of any or all SKUs of each Article as Disney may from time to time reasonably request for the purpose of comparison with earlier samples, or for Disney's anti-piracy efforts, or to test for compliance with applicable Laws, and to permit Disney to inspect Licensee's manufacturing operations and testing records (and those of Licensee's third-party manufacturers) for the Articles. C. Licensee acknowledges that Disney may disapprove any SKU of an Article or a production run of any SKU of an Article because the quality is unacceptable to Disney, and accordingly, Disney recommends that Licensee submit production samples to Disney for approval before committing to a large original production run or to purchase a large shipment from a new supplier. D. No modification of an approved production sample shall be made without Disney's further prior written approval. All SKUs of Articles being sold must conform in all respects to the approved production sample. It is understood that if in Disney's reasonable judgment the quality of any SKU of an Article originally approved has deteriorated in later production runs, or if the SKU has otherwise been altered, Disney may, in addition to other remedies available to Disney, by written notice require such SKU of the Article to be immediately withdrawn from the market. 11 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 11 E. The rights granted hereunder do not permit the sale of "seconds" or "irregulars". All Articles not meeting the standard of approved samples shall be destroyed or all Licensed Material and Trademarks shall be removed or obliterated therefrom. F. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Disney will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Disney in writing is intended to make the Article safer or more durable. G. Disney shall have the right, by written notice to Licensee, to require modification of any SKU of any Article approved by Disney under this or any previous agreement between the parties pertaining to Licensed Material. Likewise, if the Principal Term of this Agreement is extended by mutual agreement, Disney shall have the right, by written notice to Licensee, to require modification of any SKU of any Article approved by Disney under this Agreement. It is understood that there is no obligation upon either party to extend the Agreement. H. If Disney notifies Licensee of a required modification under Subparagraph 6.G. with respect to any SKU of a particular Article, such notification shall advise Licensee of the nature of the changes required, and Licensee shall not accept any order for any such Article until the subject SKU has been resubmitted to Disney with such changes and Licensee has received Disney's written approval of the Article as modified. However, Licensee may continue to distribute Licensee's inventory of the previously approved Articles until such inventory is exhausted (unless such Articles are dangerously defective, as determined by Disney). I. Upon Disney's request, Licensee agrees to give Disney written notice of the first ship date for each Article. J. If Disney has inadvertently approved a concept, pre-production sample, or production sample of a product which is not included in the Articles under this Agreement, or if Disney has inadvertently approved an Article using artwork and/or trademarks not included in the Agreement, such approval may be revoked at any time without any obligation whatsoever on Disney's part to Licensee. Any such product as to which Disney's approval is revoked shall be deemed unauthorized and shall not be distributed or sold by or for Licensee. 12 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 12 7. APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL, AND ADVERTISING A. All containers, packaging, display material, promotional material, catalogs, and all advertising, including but not limited to, television advertising and press releases, for Articles must be submitted to Disney and receive Disney's written approval before use. To avoid unnecessary expense if changes are required, Disney's approval thereof should be procured when such is still in rough or storyboard format. Disney shall endeavor to respond to requests for approval within a reasonable time. Approval or disapproval shall lie in Disney's sole discretion, and the use of unapproved containers, packaging, display material, promotional material, catalogs or advertising is prohibited. Disney's approval of any containers, packaging, display material, promotional material, catalogs or advertising under this Agreement will not constitute or imply a representation or belief by Disney that such materials comply with any applicable Laws. Whenever Licensee prepares catalog sheets or other printed matter containing illustrations of Articles, Licensee will furnish to Disney five (5) copies thereof when they are published. B. If Disney has supplied Licensee with forms for use in applying for approval of materials referenced in this Paragraph 7, Licensee shall use such forms when submitting anything for Disney's approval. C. Disney has designed character artwork and/or a brand name logo(s) to be used by all licensees in connection with the packaging of all merchandise using the Licensed Material, and, if applicable, on hang tags and garment labels for such merchandise. Disney will supply Licensee with reproduction artwork thereof; and Licensee agrees to use such artwork and/or logo(s) on the packaging of the Articles, and, if applicable, on hang tags and garment labels, which Licensee will have printed and attached to each Article at Licensee's cost. Disney recommends that Licensee source the hang tags and garment labels from Disney's authorized manufacturer (if any) of pre- approved hang tags and garment labels, the name of which will be provided to Licensee upon request. However, Licensee may use another manufacturer for the required hang tags and garment labels if the hang tags and garment labels manufactured are of equivalent quality and are approved by Disney in accordance with Disney's usual approval process. 8. ARTWORK ------- Licensee shall pay Disney, within thirty (30) days of receiving an invoice therefor, for Style Guides and for artwork done at Licensee's request by Disney or third parties 13 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 13 under contract to Disney in the development and creation of Articles, display, packaging or promotional material (including any artwork which in Disney's opinion is necessary to modify artwork initially prepared by Licensee and submitted to Disney for approval, subject to Licensee's prior written approval) at Disney's then prevailing commercial art rates. Estimates of artwork charges are available upon request. While Licensee is not obligated to utilize the services of Disney's Art Department, Licensee is encouraged to do so in order to minimize delays which may occur if outside artists do renditions of Licensed Material which Disney cannot approve and to maximize the attractiveness of the Articles. Artwork will be returned to Licensee by overnight courier, at Licensee's cost (unless other arrangements are made). 9. PRINT, RADIO OR TV ADVERTISING ------------------------------ Licensee will obtain all approvals necessary in connection with print, radio or television advertising, if any, which Disney may authorize. Licensee represents and warrants that all advertising and promotional materials shall comply with all applicable Laws. Disney's approval of copy or storyboards for such advertising will not constitute or imply a representation or belief by Disney that such copy or storyboards comply with any applicable Laws. This Agreement does not grant Licensee any rights to use the Licensed Material in animation. Licensee may not use any animation or live action footage from the motion picture from which the Licensed Material comes without Disney's prior written approval in each instance. In the event Disney approves the use of film clips of the motion picture from which the Licensed Material comes, for use in a television commercial, Licensee shall be responsible for any re-use fees which may be applicable, including SAG payments for talent. No reproduction of the film clip footage shall be made except for inclusion, as approved by Disney, in such commercial and there shall be no modifications of the film clip footage. All film clip footage shall be returned to Disney immediately after its inclusion in such commercial. Disney shall have the right to prohibit Licensee from advertising the Articles by means of television and/or billboards. Such right shall be exercised within Disney's absolute discretion, including without limitation for reasons of overexposure of the Licensed Material. 10. LICENSEE NAME AND ADDRESS ON ARTICLES ------------------------------------- A. Licensee's name, trade name (or Licensee's trademark which Licensee has advised Disney in writing that Licensee is using) and Licensee's address (at least city and state) will appear on permanently affixed labeling on each Article or, if the Article is sold to the public in packaging or a container, printed on such packaging or a container so that the public can identify the supplier of the Article. On soft goods "permanently affixed" shall mean sewn on. RN numbers do not constitute a sufficient label under this paragraph. 14 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 14 B. Licensee shall advise Disney in writing of all trade names or trademarks Licensee wishes to use on Articles being sold under this license. Licensee may sell the Articles only under mutually agreed upon trade names or trademarks. 11. COMPLIANCE WITH APPROVED SAMPLES AND APPLICABLE LAWS AND STANDARDS ------------------------------------------------------------------ A. Licensee covenants that each Article and component thereof distributed hereunder shall be of good quality and free of defects in design, materials and workmanship, and shall comply with all applicable Laws, and such specifications, if any, as may have been specified in connection with this Agreement (e.g., Disney's Apparel Performance Specification Manual, if the Articles are items of apparel), and shall conform to the Sample thereof approved by Disney. B. Without limiting the foregoing, Licensee covenants on behalf of Licensee's own company, and on behalf of all of Licensee's third-party manufacturers and suppliers (collectively, "Manufacturers"), as follows: (1) Licensee and the Manufacturers agree not to use child labor in the manufacturing, packaging or distribution of Disney merchandise. The term "child" refers to a person younger than the age for completing compulsory education, but in no case shall any child younger than fourteen (14) years of age be employed in the manufacturing, packaging or distribution of Disney merchandise. (2) Licensee and the Manufacturers agree to provide employees with a safe and healthy workplace in compliance with all applicable Laws. Licensee and the Manufacturers agree to provide Disney with all information Disney may request about manufacturing, packaging and distribution facilities for the Articles. (3) Licensee and the Manufacturers agree only to employ persons whose presence is voluntary. Licensee and the Manufacturers agree not to use prison labor, or to use corporal punishment or other forms of mental or physical coercion as a form of discipline of employees. (4) Licensee and the Manufacturers agree to comply with all applicable wage and hour Laws, including minimum wage, overtime, and maximum hours Licensee and the Manufacturers agree to utilize fair employment practices as defined by applicable Laws. 15 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 15 (5) Licensee and the Manufacturers agree not to discriminate in hiring and employment practices on grounds of race, religion, national origin, political affiliation, sexual preference, or gender. (6) Licensee and the Manufacturers agree to comply with all applicable environmental Laws. (7) Licensee and the Manufacturers agree to comply with all applicable Laws pertaining to the manufacture, pricing, sale and distribution of the Articles. (8) Licensee and the Manufacturers agree that Disney may engage in activities such as unannounced on-site inspections of manufacturing, packaging and distribution facilities in order to monitor compliance with applicable Laws. C. Both before and after Licensee puts Articles on the market, Licensee shall follow reasonable and proper procedures for testing that Articles comply with all applicable Laws, and shall permit Disney's designees to inspect testing, manufacturing and quality control records and procedures and to test the Articles for compliance. Licensee agrees to promptly reimburse Disney for the reasonable costs of such testing. Licensee shall also give due consideration to any recommendations by Disney that Articles exceed the requirements of applicable Laws. Articles not manufactured, packaged or distributed in accordance with applicable Laws shall be deemed unapproved, even if previously approved by Disney, and shall not be shipped unless and until they have been brought into full compliance therewith. 12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL --------------------------------------------------- Licensee acknowledges that the copyrights and all other proprietary rights in and to Licensed Material are exclusively owned by and reserved to Disney or its licensor. Licensee shall neither acquire nor assert copyright ownership or any other proprietary rights in Licensed Material or in any derivation, adaptation, variation or name thereof. Without limiting the foregoing, Licensee hereby assigns to Disney all Licensee's worldwide right, title and interest in the Licensed Material and in any material objects consisting of or incorporating drawings, paintings, animation cels, or sculptures of Licensed Material, or other derivations, adaptations, compilations, collective works, variations or names of Licensed Material, heretofore or hereafter created by or for Licensee or any of Licensee's Affiliates. All such new materials shall be included in the definition of "Licensed Material" under this Agreement. If any third party makes or has made any contribution to the creation of any new materials which are included in the definition of Licensed Material under this 16 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 16 Paragraph 12, Licensee agrees to obtain from such party a full assignment of rights so that the foregoing assignment by Licensee shall vest full rights to such new materials in Disney. Licensee further covenants that any such new materials created by Licensee or by any third party Licensee has engaged are original to Licensee or such third party and do not violate the rights of any other person or entity; this covenant regarding originality shall not extend to any materials Disney supplies to Licensee, but does apply to all materials Licensee or Licensee's third party contractors may add thereto. The foregoing assignment to Disney of material objects shall not include that portion of Licensee's displays, catalogs or promotional material not containing Licensed Material, or the physical items constituting the Articles, unless such items are in the shape of the Licensed Material. 13. COPYRIGHT NOTICE ---------------- As a condition to the grant of rights hereunder, each Article and any other matter containing Licensed Material shall bear a properly located permanently affixed copyright notice in Disney's name (e.g., "(C) Disney"), or such other notice as Disney specifies to Licensee in writing. Licensee will comply with such instructions as to form, location and content of the notice as Disney may give from time to time. Without limiting the foregoing, Licensee agrees to include on the Article, or the packaging for the Article, or the hang tag for the Article (if applicable), the following language: Based on the "Winnie The Pooh" works, copyright A.A. Milne and E.H. Shepard. Licensee will not, without Disney's prior written consent, affix to any Article or any other matter containing Licensed Material a copyright notice in any other name. If through inadvertence or otherwise a copyright notice on any Article or other such matter should appear in Licensee's name or the name of a third party, Licensee hereby agrees to assign to Disney the copyright represented by any such copyright notice in Licensee's name and, upon request, cause the execution and delivery to Disney of whatever documents are necessary to convey to Disney that copyright represented by any such copyright notice. If by inadvertence a proper copyright notice is omitted from any Article or other matter containing Licensed Material, Licensee agrees at Licensee's expense to use all reasonable efforts to correct the omission on all such Articles or other matter in process of manufacture or in distribution. Licensee agrees to advise Disney promptly and in writing of the steps being taken to correct any such omission and to make the corrections on existing Articles which can be located. 14. NON-ASSOCIATION OF OTHER FANCIFUL CHARACTERS WITH LICENSED MATERIAL ------------------------------------------------------------------- To preserve Disney's identification with Disney's characters and to avoid confusion of the public, Licensee agrees not to associate other characters or licensed properties with the Licensed Material or the Trademarks either on the Articles or in their 17 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 17 packaging, or, without Disney's written permission, on advertising, promotional or display materials. If Licensee wishes to use a character which constitutes Licensee's trademark on the Articles or their packaging, or otherwise in connection with the Articles, Licensee agrees to obtain Disney's prior written permission. 15. ACTIVE MARKETING OF ARTICLES ---------------------------- Licensee agrees to manufacture (or have manufactured for Licensee) and offer for sale all the Articles and to exercise the rights granted herein. Licensee agrees that by the Marketing Date applicable to a particular Article or, if such a date is not specified in Subparagraph 1.O., by six (6) months from the commencement of the Principal Term or the date of any applicable amendment, shipments to customers of such Article will have taken place in sufficient time that such Article shall be available for purchase in commercial quantities by the public at the retail outlets authorized pursuant to Subparagraph 2.A. In any case in which such sales have not taken place or when the Article is not then and thereafter available for purchase in commercial quantities by the public, Disney may either invoke Disney's remedies under Paragraph 28, or withdraw such Article from the list of Articles licensed in this Agreement without obligation to Licensee other than to give Licensee written notice thereof. 16. PROMOTION COMMITMENT -------------------- Licensee agrees to carry out the Promotion Commitment, if any, as defined in Subparagraph 1.N. 17. TRADEMARK RIGHTS AND OBLIGATIONS -------------------------------- A. All uses of the Trademarks by Licensee hereunder shall inure to Disney's benefit. Licensee acknowledges that Disney or its licensor is the exclusive owner of all the Trademarks, and of any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses. Without limiting the foregoing, Licensee hereby assigns to Disney all the Trademarks, and any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses, together with the goodwill attaching to that part of the business in connection with which such Trademarks or trademarks are used. Licensee agrees to execute and deliver to Disney such documents as Disney requires to register Licensee as a Registered User or Permitted User of the Trademarks or such trademarks and to follow Disney's instructions for proper use thereof in order that protection and/or registrations for the Trademarks and such trademarks may be obtained or maintained. 18 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 18 B. Licensee agrees not to use any Licensed Material or Trademarks, or any trademark incorporating all or any part of a Trademark or of any Licensed Material, on any business sign, business cards, stationery or forms (except as licensed herein), or to use any Licensed Material or Trademark as the name of Licensee's business or any division thereof, unless otherwise agreed by Disney in writing. C. Nothing contained herein shall prohibit Licensee from using Licensee's own trademarks on the Articles or Licensee's copyright notice on the Articles when the Articles contain independent material which is Licensee's property. Nothing contained herein is intended to give Disney any rights to, and Disney shall not use, any trademark, copyright or patent used by Licensee in connection with the Articles which is not derived or adapted from Licensed Material, Trademarks, or other materials owned by Disney or its licensor. 18. REGISTRATIONS ------------- Except with Disney's written consent, neither Licensee nor any of Licensee's Affiliates will register or attempt in any country to register copyrights in, or to register as a trademark, service mark, design patent or industrial design, or business designation, any of the Licensed Material, Trademarks or derivations or adaptations thereof, or any word, symbol or design which is so similar thereto as to suggest association with or sponsorship by Disney or any of Disney's Affiliates. In the event of breach of the foregoing Licensee agrees, at Licensee's expense and at Disney's request, immediately to terminate the unauthorized registration activity and promptly to execute and deliver, or cause to be delivered, to Disney such assignments and other documents as Disney may require to transfer to Disney all rights to the registrations, patents or applications involved. 19. UNLICENSED USE OF LICENSED MATERIALS ------------------------------------ A. Licensee agrees that Licensee will not use the Licensed Material, or the Trademarks, or any other material the copyright to which is owned or licensed by Disney in any way other than as herein authorized (or as is authorized in any other written contract in effect between the parties). In addition to any other remedy Disney may have, Licensee agrees that all revenues from any use thereof on products other than the Articles (unless authorized by Disney in writing), and all revenues from the use of any other copyrighted material of Disney's or its licensor's without written authorization, shall be immediately payable to Disney. B. Licensee agrees to give Disney prompt written notice of any unlicensed use by third parties of Licensed Material or Trademarks, and that Licensee will 19 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 19 not, without Disney's written consent, bring or cause to be brought any criminal prosecution, lawsuit or administrative action for infringement, interference with or violation of any rights to Licensed Material or Trademarks. Because of the need for and the high costs of an effective anti-piracy enforcement program, Licensee agrees to cooperate with Disney, and, if necessary, to be named by Disney as a sole complainant or co-complaimant in any action against an infringer of the Licensed Material or Trademarks and, notwithstanding any right of Licensee to recover same, legal or otherwise, Licensee agrees to pay to Disney, and hereby waives all claims to, all damages or other monetary relief recovered in such action by reason of a judgment or settlement whether or not such damages or other monetary relief, or any part thereof, represent or are intended to represent injury sustained by Licensee as a licensee hereunder; in any such action against an infringer, Disney agrees to reimburse Licensee for reasonable expenses incurred at Disney's request, including reasonable attorney's fees if Disney has requested Licensee to retain separate counsel. 20. STATEMENTS AND PAYMENTS OF ROYALTIES ------------------------------------ A. Licensee agrees to furnish to Disney by the 30th day after each Royalty Payment Period full and accurate statements on statement forms Disney designates for Licensee's use, showing all information requested by such forms, including but not limited to, the quantities, Net Invoiced Billings and applicable Royalty rate(s) of Articles invoiced during the preceding Royalty Payment Period, and the quantities and invoice value of Articles returned for credit or refund in such period. At the same time Licensee will pay Disney all Royalties due on billings shown by such statements. To the extent that any Royalties are not paid, Licensee authorizes Disney to offset Royalties due against any sums which Disney or any of Disney's Affiliates may owe to Licensee or any of Licensee's Affiliates. No deduction or withholding from Royalties payable to Disney shall be made by reason of any tax. Any applicable tax on the manufacture, distribution and sale of the Articles shall be borne by Licensee. B. The statement forms Disney designates for Licensee's use may be changed from time to time, and Licensee agrees to use the most current form Disney provides to Licensee. Licensee agrees to fully comply with all instructions supplied by Disney for completing such forms. C. In addition to the other information requested by the statement forms, Licensee's statement shall with respect to all Articles report separately: (1) F.O.B. In Sales; 20 The First Years, Inc. Wmnie The Pooh Agreement dated December 3, 1996 Page 20 (2) F.O.B. Out Sales; (3) sales of Articles outside the Territory pursuant to a distribution permission (indicating the country involved); (4) Licensee's sales of Articles to any of Disney's licensees or Disney's Affiliates' licensees who are licensed to sell the Articles, and who are reselling such Articles and paying Disney royalties on such resales; (5) sales of Articles to Disney or any of Disney's Affiliates; (6) sales of Articles to Licensee's or Disney's employees; (7) sales of Articles under any brand or program identified in Subparagraph 1.B. hereinabove; (8) sales of Articles to or for distribution through any mail order catalogs approved under this Agreement. D. Sales of items licensed under contracts with Disney other than this Agreement shall not be reported on the same statement as sales of Articles under this Agreement. E. Licensee's statements and payments, including all Royalties and Advances, shall be delivered to Wachovia South Metro Center, DEI Account, P.O. Box 101947, Atlanta, Georgia 30392. A copy of each statement must be sent to Disney at 500 South Buena Vista Street, Burbank, California 91521-6771, to the attention of the Contract Administrator, Consumer Products Division. If Licensee wishes to send statements and payments by overnight courier, please use the following address: Wachovia South Metro Center, DEI Account, 3585 Atlanta Avenue, Hapeville, GA 30354, Attention Peggy Morris, Reference Lock Box 101947. 21. CONFIDENTIALITY --------------- Licensee agrees to keep the terms and conditions of this Agreement confidential, and Licensee shall not disclose such terms and conditions to any third party without obtaining Disney's prior written consent; provided, however, that this Agreement may be disclosed on a need-to-know basis to Licensee's attorneys and accountants who agree to be bound by this confidentiality provision. In the event Licensee is required to disclose this Agreement, or any part thereof, pursuant to any law, court 21 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 21 order or process, the rules and regulations of any governmental department, agency or authority (including, but not limited to, the Securities and Exchange Commission) or any generally accepted accounting rules mandating disclosure in Licensee's financial statements, Licensee agrees to give Disney prior written notice and to use its best efforts to obtain confidential treatment of this Agreement. Upon Disney's request, Licensee agrees to incorporate Disney's comments into Licensee's request for confidential treatment, provided such request and comments are received in writing by Licensee within five (5) business days after Disney's receipt of the notice referred to in the preceding sentence. 22. INTEREST -------- Royalties or any other payments due to Disney hereunder which are received alter the due date shall bear interest at the rate of 18% per annum from the due date (or the maximum permissible by law if less than 18%). 23. AUDITS AND MAINTAINING RECORDS ------------------------------ A. Licensee agrees to keep accurate records of all transactions relating to this Agreement and any prior agreement with Disney regarding the Licensed Material, including, without limitation, shipments to Licensee of Articles and components thereof, inventory records, records of sales and shipments by Licensee, and records of returns, and to preserve such records for the lesser of seven (7) years or two (2) years after the expiration or termination of this Agreement. B. Disney, or Disney's representatives, shall have the right from time to time, during Licensee's normal business hours, but only for the purpose of confirming Licensee's performance hereunder, to examine and make extracts from all such records, including the general ledger, invoices and any other records which Disney reasonably deems appropriate to verify the accuracy of Licensee's statements or Licensee's performance hereunder, including records of Licensee's Affiliates if they are involved in activities which are the subject of this Agreement. In particular, Licensee's invoices shall identify the Articles separately from goods which are not licensed hereunder. Licensee acknowledges that Disney may furnish Licensee with an audit questionnaire, and Licensee agrees to fully and accurately complete such questionnaire, and return it to Disney within the designated-time. Disney's use of an audit questionnaire shall not limit Disney's ability to conduct any on-site audit(s) as provided above. C. If in an audit of Licensee's records it is determined that there is a short fall of five percent (5%) or more in Royalties reported for any Royalty Payment 22 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 22 Period, Licensee shall upon request from Disney reimburse Disney for the full out-of-pocket costs of the audit, including the costs of employee auditors calculated at $60 per hour per person for travel time during normal working hours and actual working time. D. If Licensee has failed to keep adequate records for one or more Royalty Payment Periods, Disney will assume that the Royalties owed to Disney for such Royalty Payment Period(s) are equal to a reasonable amount, determined in Disney's absolute discretion, which may be up to but will not exceed the highest Royalties owed to Disney in a Royalty Payment Period for which Licensee has kept adequate records; if Licensee has failed to keep adequate records for any Royalty Payment Period, Disney will assume a reasonable amount of Royalties which Licensee will owe to Disney, based on the records Licensee has kept and other reasonable assumptions Disney deems appropriate. 24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS ---------------------------------------------------- A. If Licensee at any time desires to have Articles or components thereof containing Licensed Material manufactured by a third party, whether the third party is located within or outside the United States, Licensee must, as a condition to the continuation of this Agreement, notify Disney of the name and address of such manufacturer and the Articles or components involved and obtain Disney's prior written permission to do so. If Disney is prepared to grant permission, Disney will do so if Licensee and each of Licensee's manufacturers and any submanufacturers sign a Consent/Manufacturer's Agreement in a form which Disney will furnish to Licensee and Disney receives all such agreements properly signed. (A SAMPLE OF SAID AGREEMENT FORM IS AVAILABLE ON REQUEST) B. It is not Disney's policy to reveal the names of Licensee's suppliers to third parties or to any Disney division involved with buying products, except as may be necessary to enforce Disney's contract rights or protect Disney's trademarks and copyrights. C. If any such manufacturer utilizes Licensed Material or Trademarks for any unauthorized purpose, Licensee shall cooperate fully in bringing such utilization to an immediate halt. If, by reason of Licensee's not having supplied the above mentioned agreements to Disney or not having given Disney the name of any supplier, Disney makes any representation or takes any action and is thereby subjected to any penalty or expense, Licensee will 23 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 23 fully compensate Disney for any cost or loss Disney sustains (in addition to any other legal or equitable remedies available to Disney. 25. INDEMNITY --------- A. Licensee shall indemnify Disney during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Licensee's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of Licensee's activities under this Agreement, including but not limited to, any actual or alleged: (1) negligent acts or omissions on Licensee's part, (2) defect (whether obvious or hidden and whether or not present in any Sample approved by Disney) in an Article, (3) personal injury, (4) infringement of any rights of any other person by the manufacture, sale, possession or use of Articles, (5) breach on Licensee's part of any covenant contained in this Agreement, or (6) failure of the Articles or by Licensee to comply with applicable Laws. The parties indemnified hereunder shall include Disney Enterprises, Inc., its licensor, and its and their parent, Affiliates and successors, and its and their officers, directors, employees and agents. The indemnity shall not apply to any claim or liability relating to any infringement of the copyright of a third party caused by Licensee's utilization of the Licensed Material and the Trademarks in accordance-with the provisions hereof, unless such claim or liability arises out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 12. B. Disney shall indemnify Licensee during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Disney's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of any claim that Licensee's use of any representation of the Licensed Material or the Trademarks approved in accordance with the provisions of this Agreement infringes the copyright of any third party or infringes any right granted by Disney to such third party, except for claims arising out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 12. Licensee shall not, in any case, be entitled to recover for lost profits. C. Additionally, if by reason of any claims referred to in Subparagraph 25.B., Licensee is precluded from selling any stock of Articles or utilizing any materials in Licensee's possession or which come into Licensee's possession by reason of any required recall, Disney shall be obligated to purchase such Articles and materials from Licensee at their out-of-pocket cost to Licensee, 24 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 24 excluding overheads, but Disney shall have no other responsibility or liability with respect to such Articles or materials. D. Disney gives no warranty or indemnity with respect to any liability or expense arising from any claim that use of the Licensed Material or the Trademarks on or in connection with the Articles hereunder or any packaging, advertising or promotional material infringes on any trademark right of any third party or otherwise constitutes unfair competition by reason of any prior rights acquired by such third party, other than rights acquired from Disney. It is expressly agreed that it is Licensee's responsibility to carry out such investigations as Licensee may deem appropriate to establish that Articles, packaging, and promotional and advertising material which are manufactured or created hereunder, including any use made of the Licensed Material and the Trademarks therewith, do not infringe such right of any third party, and Disney shall not be liable to Licensee if such infringement occurs. E. Licensee and Disney agree to give each other prompt written notice of any claim or suit which may arise under the indemnity provisions set forth above. Without limiting the foregoing, Licensee agrees to give Disney written notice of any product liability claim made or suit filed with respect to any Article, any investigations or directives regarding the Articles issued by the Consumer Product Safety Commission ("CPSC") or other federal, state or local consumer safety agency, and any notices sent by Licensee to, or received by Licensee from, the CPSC or other consumer safety agency regarding the Articles within fourteen (14) days of Licensee's receipt or promulgation of the claim, suit, investigation, directive, or notice. 26. INSURANCE --------- Licensee shall maintain in full force and effect at all times while this Agreement is in effect and for three years thereafter commercial general liability insurance on a per occurrence form, including broad form coverage for contractual liability, property damage, products liability and personal injury liability (including bodily injury and death), waiving subrogation, with minimum limits of no less than two million dollars (US $2,000,000.00) per occurrence, and naming as additional insureds those indemnified in Paragraph 25 hereof. Licensee also agrees to maintain in full force and effect at all times while this Agreement is in effect such Worker's Compensation Insurance as is required by applicable law and Employer's Liability Insurance with minimum limits of one million dollars (US $1,000,000.00) per occurrence. All insurance shall be primary and not contributory. Licensee shall deliver to Disney a certificate or certificates of insurance evidencing satisfactory coverage and indicating that Disney shall receive thirty (30) days unrestricted prior written notice of cancellation, non-renewal or of any material change in coverage. Licensee's insurance 25 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 25 shall be carried by an insurer with a BEST Guide rating of B + VII or better. Compliance herewith in no way limits Licensee's indemnity obligations, except to the extent that Licensee's insurance company actually pays Disney amounts which Licensee would otherwise pay Disney. 27. WITHDRAWAL OF LICENSED MATERIAL ------------------------------- Licensee agrees that Disney may, without obligation to Licensee other than to give Licensee written notice thereof, withdraw from the scope of this Agreement any Licensed Material which by the Marketing Date or, if such a date is not specified in Subparagraph 1.O., by six (6) months from the commencement of the Principal Term or the date of any applicable amendment, is not being used on or in connection with the Articles. Disney may also withdraw any Licensed Material or Articles the use or sale of which under this Agreement would infringe or reasonably be claimed to infringe the rights of a third party, other than rights granted by Disney, in which case Disney's obligations to Licensee shall be limited to the purchase at cost of Articles and other materials utilizing such withdrawn Licensed Material which cannot be sold or used. In the ease of any withdrawal under the preceding sentence, the Advances and Guarantees shall be adjusted to correspond to the time remaining in the Principal Term, or the number of Articles remaining under the Agreement, at the date of withdrawal. 28. TERMINATION ----------- Without prejudice to any other right or remedy available to Disney: A. Disney shall have the right at any time to terminate this Agreement by giving Licensee written notice thereof, if Licensee fails to manufacture, sell and distribute the Articles, or to furnish statements and pay Royalties as herein provided, or if Licensee otherwise breaches the terms of this Agreement, and if any such failure is not corrected within thirty (30) days (or, in the case of non-payment of Royalties within fifteen (15) days) after Disney sends Licensee written notice thereof. B. Disney shall have the right at any time to terminate this Agreement immediately by giving Licensee written notice thereof: (1) if Licensee delivers to any customer without Disney's written authorization merchandise containing representations of Licensed Material or other material the copyright or other proprietary rights to which are owned or licensed by Disney other than Articles listed herein and approved in accordance with the provisions hereof, 26 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 26 (2) if Licensee delivers Articles outside the Territory or knowingly sells Articles to a third party for delivery outside the Territory, unless pursuant to a written distribution permission or separate written license agreement with Disney or any of Disney's Affiliates; (3) if a breach occurs which is of the same nature, and which violates the same provision of this Agreement, as a breach of which Disney has previously given Licensee written notice; (4) if Licensee breaches any material term of any other license agreement between the parties, and Disney terminates such agreement for cause; (5) if Licensee shall make any assignment for the benefit of creditors, or file a petition in bankruptcy, or is adjudged bankrupt, or becomes insolvent, or is placed in the hands of a receiver, or if the equivalent of any such proceedings or acts occurs, though known by some other name or term; (6) if Licensee is not permitted or is unable to operate Licensee's business in the usual manner, or is not permitted or is unable to provide Disney with assurance satisfactory to Disney that Licensee will so operate Licensee's business, as debtor in possession or its equivalent, or is not permitted, or is unable to otherwise meet Licensee's obligations under this Agreement or to provide Disney with assurance satisfactory to Disney that Licensee will meet such obligations; and/or (7) if Licensee breaches any covenant set forth in Paragraph 11 of this Agreement. 29. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION ----------------------------------------------------- A. Upon the expiration or termination of this Agreement, all rights herein granted to Licensee shall revert to Disney, any unpaid portion of the Guarantee shall be immediately due and payable, and Disney shall be entitled to retain all Royalties and other things of value paid or delivered to Disney. Licensee agrees that the Articles shall be manufactured during the Principal Term in quantities consistent with anticipated demand therefor so as not to result in an excessive inventory build-up immediately prior to the end of the Principal Term. Licensee agrees that from the expiration or termination of this Agreement Licensee shall neither manufacture nor have manufactured for Licensee any Articles, that Licensee will deliver to Disney any and all artwork 27 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 27 (including Style Guides, animation cels and drawings) which may have been used or created by Licensee in connection with this Agreement, that Licensee will at Disney's option either sell to Disney at cost or destroy or efface any molds, plates and other items used to reproduce Licensed Material or Trademarks, and that, except as hereinafter provided, Licensee will cease selling Articles. Any unauthorized distribution of Articles after the expiration or termination of this Agreement shall constitute copyright infringement. B. If Licensee has any unsold Articles in inventory on the expiration or termination date, Licensee shall provide Disney with a full statement of the kinds and numbers of such unsold Articles. If such statement has been provided to Disney and if Licensee has fully complied with the terms of this Agreement, including the payment of all Royalties due and the Guarantee, upon notice from Disney Licensee shall have the right for a limited period of three (3) calendar months from such expiration or earlier termination date to sell off and deliver such Articles as authorized under Subparagraph 2.A. Licensee shall furnish Disney statements covering such sales and pay Disney Royalties in respect of such sales. Such Royalties shall not be applied against the Advance or towards meeting the Guarantee. If the sell-off period is extended by Disney to a date which is not a quarter end month, Licensee's statement and Royalties for such sell-off period shall be due thirty (30) days after the last day of the sell-off period. C. In recognition of Disney's interest in maintaining a stable and viable market for the Articles during and after the Principal Term and any sell-off period, Licensee agrees to refrain from "dumping" the Articles in the market during any sell-off period granted to Licensee. "Dumping" shall mean the distribution of product at volume levels significantly above Licensee's prior sales practices with respect to the Articles, and at price levels so far below Licensee's prior sales practices with respect to the Articles as to disparage the Articles; provided, however, that nothing contained herein shall be deemed to restrict Licensee's ability to set product prices at Licensee's discretion. D. Except as otherwise agreed by Disney in writing, any inventory of Articles in Licensee's possession or control after the expiration or termination hereof and of any sell-off period granted hereunder shall be destroyed, or all Licensed Material and Trademarks removed or obliterated therefrom. E. If Disney supplies Licensee with forms regarding compliance with this Paragraph 29, Licensee agrees to complete, execute and return such forms to Disney expeditiously. 28 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 28 F. Notwithstanding any provision to the contrary, in the case of termination under Paragraph 28.B. (5) or (6), in order to protect the value of the Articles and to avoid any disparagement of the Articles which could occur as a result of the circumstances of termination, Disney shall have the option, in Disney's absolute discretion, to purchase any or all unsold Articles in Licensee's inventory on the termination date at 20% over Licensee's cost of goods for such Articles (not including overhead). 30. WAIVERS ------- A waiver by either party at any time of a breach of any provision of this Agreement shall not apply to any breach of any other provision of this Agreement, or imply that a breach of the same provision at any other time has been or will be waived, or that this Agreement has been in any way amended, nor shall any failure by either party to object to conduct of the other be deemed to waive such party's right to claim that a repetition of such conduct is a breach hereof. 31. PURCHASE OF ARTICLES BY DISNEY ------------------------------ If Disney wishes to purchase Articles, Licensee agrees to sell such Articles to Disney or any of Disney's Affiliates at as low a price as Licensee charges for similar quantities sold to Licensee's regular customers and to pay Disney Royalties on any such sales. 32. NON-ASSIGNABILITY ----------------- A. Licensee shall not voluntarily or by operation of law assign, sub-license, transfer, encumber or otherwise dispose of all or any part of Licensee's interest in this Agreement without Disney's prior written consent, to be granted or withheld in Disney's absolute discretion. Any attempted assignment, sub-license, transfer, encumbrance or other disposal without such consent shall be void and shall constitute a material default and breach of this Agreement. "Transfer" within the meaning of this Paragraph 32 shall include any merger or consolidation involving Licensee or any directly or indirectly controlling Affiliate(s) of Licensee ("Controlling Affiliate"); any sale or transfer of all or substantially all of Licensee's or its Controlling Affiliate(s)' assets; any transfer of Licensee's rights hereunder to a division, business segment or other entity different from the one specifically referenced on page 1 hereof (or any sale or attempted sale of Articles under a trademark or trade name of such division, business segment or other entity); any public offering, or series of public offerings, whereby a cumulative total of thirty-three and one-third percent (33 1/3%) or more of the voting stock of Licensee or its Controlling Affiliate(s) is offered for purchase; and any acquisition or series 29 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 29 of acquisitions, by any person or entity, or group of related persons or entities, of a cumulative total of thirty-three and one-third percent (33-1/3%) or more of the voting stock of Licensee or its Controlling Affiliate(s), or the right to vote such percentage (or, if Licensee is a partnership, resulting in the transfer of thirty-three and one-third percent (33-1/3%) or more of the profit and loss participation in Licensee, or the occurrence of any of the foregoing with respect to any general partner of Licensee). B. Licensee agrees to provide Disney with at least two (2) weeks prior written notice of any desired assignment of this Agreement or other transfer as defined in Subparagraph 32.A. At the time Licensee gives such notice, Licensee shall provide Disney with the information and documentation necessary to evaluate the contemplated transaction. Disney's consent (if given) to any assignment of this Agreement or other transfer as defined in Subparagraph 32A. shall be subject to such terms and conditions as Disney deems appropriate, including but not limited to, payment of a transfer fee. The amount of the transfer fee shall be determined by Disney based upon the circumstances of the particular assignment or transfer, taking into account such factors as the estimated value of the license being assigned or otherwise transferred; the risk of business interruption or loss of quality, production or control Disney may suffer as a result of the assignment or other transfer; the identity, reputation, creditworthiness, financial condition and business capabilities of the proposed assignee or transferee; and Disney's internal costs related to the assignment or other transfer; provided, however, in no event shall the transfer fee be less than $ * . The foregoing transfer fee shall not apply if this Agreement is assigned to one of Licensee's Affiliates as part of a corporate reorganization exclusively among some or all of the entities existing in Licensee's corporate structure when this Agreement is signed; provided, however, that Licensee must give Disney written notice of such assignment and a description of the reorganization. The provisions of this Subparagraph 32.B. shall supersede any conflicting provisions on this subject in any merchandise license agreement previously entered into between the parties for this Territory. C. Notwithstanding Subparagraphs 32.A. and B., Licensee may, upon written notice to Disney, unless Disney has objected within thirty (30) days of receipt of such notice, sublicense Licensee's rights hereunder to Licensee's Affiliates. Licensee hereby irrevocably and unconditiona!ly guarantees that they will observe and perform all of Licensee's obligations hereunder, including, without limitation, the provisions governing approvals, and compliance with approved samples, applicable Laws. and all other provisions hereof, and that they will otherwise adhere strictly to all of the terms hereof and act in accordance with Licensee's obligations hereunder. Any involvement of an 30 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 30 Affiliate in the activities which are the subject of this Agreement shall be deemed carried on pursuant to such a sublicense and thus covered by such guarantee; however such involvement may be treated by Disney as a breach of this Agreement, unless Licensee has notified Disney of Licensee's intent to sublicense an Affiliate in each instance, and Disney has failed to object within thirty (30) days of receipt of such notice. 33. RELATIONSHIP ------------ This Agreement does not provide for a joint venture, partnership, agency or employment relationship between the parties, or any other relationship than that of licensor and licensee. 34. CONSTRUCTION ------------ The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning and not strictly for or against any of the parties. Headings of paragraphs herein are for convenience of reference only and are without substantive significance. 35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT --------------------------------------------- Except as otherwise provided herein, this Agreement can only be extended or modified by a writing signed by both parties; provided, however, that certain modifications shall be effective if signed by the party to be charged and communicated to the other party. 36. NOTICES ------- All notices which either party is required or may desire to serve upon the other party shall be in writing, addressed to the party to be served at the address set forth on page 1 of this Agreement, and may be served personally or by depositing the same addressed as herein provided (unless and until otherwise notified), postage prepaid, in the United States mail. Such notice shall be deemed served upon personal delivery or upon the date of mailing; provided, however, that Disney shall be deemed to have been served with a notice of a request for approval of materials under this Agreement only upon Disney's actual receipt of the request and of any required accompanying materials. Any notice sent to Disney hereunder shall be sent to the attention of "Vice President, Licensing", unless Disney advises Licensee in writing otherwise. 31 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 31 37. MUSIC ----- Music is not licensed hereunder. Any charges, fees or royalties payable for music rights or any other rights not covered by this Agreement shall be additional to the Royalties and covered by separate agreement. 38. PREVIOUS AGREEMENTS ------------------- This Agreement, and any confidentiality agreement Licensee may have signed pertaining to any of the Licensed Material, contains the entire agreement between the parties concerning the subject matter hereof and supersedes any pre-existing or contemporaneous agreement and any oral or written communications between the parties. 39. CHOICE OF LAW AND FORUM ----------------------- This Agreement shall be deemed to be entered into in California and shall be governed and interpreted according to the laws of the State of California. Any legal actions pertaining to this Agreement shall be commenced within the State of California and within either Los Angeles or Orange Counties. 40. EQUITABLE RELIEF ---------------- Licensee acknowledges that Disney will have no adequate remedy at law if Licensee continues to manufacture, sell, advertise, promote or distribute the Articles upon the expiration or termination of this Agreement. Licensee acknowledges and agrees that, in addition to any and all other remedies available to Disney, Disney shall have the right to have any such activity by Licensee restrained by equitable relief, including, but not limited to, a temporary restraining order, a preliminary injunction, a permanent injunction, or such other alternative relief as may be appropriate, without the necessity of Disney posting any bond. 41. GOODWILL -------- Licensee acknowledges that the rights and powers retained by Disney hereunder are necessary to protect Disney's or its licensor's copyrights and property rights, and, specifically, to conserve Disney's and its licensor's goodwill and good name, and the name "Disney", and therefore Licensee agrees that Licensee will not allow the same to become involved in matters which will, or could, detract from or impugn the public acceptance and popularity thereof, or impair their legal status. 32 The First Years, Inc. Winnie The Pooh Agreement dated December 3, 1996 Page 32 42. POWER TO SIGN ------------- The parties warrant and represent that their respective representatives signing this Agreement have full power and proper authority to sign this Agreement and to bind the parties. 43. SURVIVAL OF OBLIGATIONS ----------------------- The respective obligations of the parties under this Agreement, which by their nature would continue beyond the termination, cancellation or expiration of this Agreement, including but not limited to indemnification, insurance, payment of Royalties, and Paragraph 29, shall survive termination, cancellation or expiration of this Agreement. Please sign below under the word "Agreed". When signed by both parties this shall constitute an agreement between Disney and Licensee. AGREED: DISNEY ENTERPRISES, INC. By: /s/ Nicole Kristmor ----------------------------------------------- Title: Vice President, Licensing -------------------------------------------- Date: 12/23/96 --------------------------------------------- THE FIRST YEARS, INC. By: /s/ Ronald J. Sidman ----------------------------------------------- Title: President -------------------------------------------- 33 THE FIRST YEARS, INC. WINNIE THE POOH AGREEMENT DATED DECEMBER 3, 1996 SCHEDULE A A. FEEDING AND SOOTHING ARTICLES: 1. Reusable and disposable bottles 2. Bibs 3. Cups 4. Pacifiers and attachers 5. Bowls 6. Dishes 7. Containers 8. Cool totes 9. Flatware 10. Placemats 11. Floormats 12. Teethers 13. Burp cloths 14. Toothbrushes B. PLAY ARTICLES: 1. Handheld rattles (plastic and plush) 2. Suction toys 3. Blocks 4. Linking toys 5. Electronic handheld toys with rattle or squeaker function 6. Bath toys 7. Pull-down musical plush toys 8. Magnets 9. Foot rattles C. CARE AND SAFETY ARTICLES: 1. Changing pads 2. Bouncy seats 3. Booster seats 4. Step stools 5. Front carriers 6. Back carriers 7. Handheld showers 8. Sponges 34 THE FIRST YEARS, INC. WINNIE THE POOH AGREEMENT DATED DECEMBER 3, 1996 SCHEDULE A - CONTINUED C. CARE AND SAFETY ARTICLES: 9. Hooded towels 10. Washcloths 11. Spout guards 12. Shampoo visors 13. Nursery organizers 14. Car organizers 15. Non-activity crib lights 16. Combs and brushes 17. Night lights 18. Car shades 19. Diaper pins 20. Nursery hampers 21. Scales 22. Light-up clip-ons 23. Tub thermometers 24. Tub Organizers All of the Articles listed in A, B and C above may be sold separately or as part as a set. Sets may include packaging appropriate for a gift set, or a card with an instant gift; provided, however, that the packaging and cards may not be sold separately. 35 CATALOG SCHEDULE (LIST OF PRE-APPROVED CATALOGS) HOME FURNISHINGS Mass ---- Domestications Fingerhut Lillian Vernon One Step Ahead The Right Start This Catalog Schedule is subject to change. Disney reserves the right to add catalogs to or delete catalogs from the Catalog Schedule without prior notice to Licensee. Licensee agrees to cease selling Articles to a deleted catalog within sixty (60) days after written notice of the deletion. Disney will consider new catalogs requested by Licensee on a case-by-case basis. 6/15/96 EX-10.G 3 AGREEMENT BETWEEN CTW AND THE COMPANY 1 Note: The omitted portions of this document marked with an asterisk are subject to a confidential treatment request and have been filed separately with the Securities and Exchange Commission. AGREEMENT made and dated as of JULY 1, 1996 by and between CHILDREN'S TELEVISION WORKSHOP ("CTW"), a not-for-profit organization incorporated under the New York State Education Law and having its principal office at One Lincoln Plaza, New York, New York 10023, and THE FIRST YEARS INC. ("FIRST YEARS"), a corporation organized and existing under the laws of Massachusetts and having its principal office at One Kiddie Drive, Avon, Massachusetts 02322, who hereby agree as follows: 1. PREAMBLE CTW, the creator and producer of Sesame Street and foreign language variations thereof, desires to license certain intangible intellectual property relating to Sesame Street and, in pursuance of its educational purposes to authorize FIRST YEARS to develop, manufacture, produce, distribute and sell educational and entertaining products that are based on or derived from such intangible intellectual property. FIRST YEARS desires to use the intangible intellectual property associated with Sesame Street and owned or controlled by CTW, in connection with the manufacture, distribution, sale, advertising and promotion of merchandise. 2. DEFINITIONS The following words and phrases when used in this agreement shall, unless otherwise specifically provided, have the following meanings: "ASSIGN" means any transfer of ownership of this Agreement or any of FIRST YEARS' rights hereunder or the transfer of (i) ownership of all or substantially all of FIRST YEARS' assets, stock or other indicia of ownership to any other entity or (ii) beneficial ownership of twenty-five (25%) percent of the outstanding, voting securities of FIRST YEARS other than by a public issuance of common stock pursuant to a registration statement filed with the S.E.C. "BOOK VALUE" means FIRST YEARS' actual cost minus all expensing, depreciation and amortization taken with respect thereto. "DERIVATIVE WORKS" means any translation, modification or other pictorial or written matter based substantially on the Licensed Elements, including, without limitation, all Materials as defined herein. "FOB PRICE" means the entire mount received by FIRST YEARS for the sale of Products manufactured outside the Territory sold F.O.B. the point of delivery outside the Territory. 2 "GROSS PROCEEDS" means the greater of FIRST YEARS' gross income from the sale of Products hereunder and the gross income received from the sale of Products by any entity which is directly or indirectly related to FIRST YEARS in any way, less only credits for (i) actual returns received during the Term and (II) lawful discounts and allowances not to exceed eight (8%) percent of FIRST YEARS' gross income hereunder. "JHP" means Jim Henson Productions, Inc. "LICENSED ELEMENTS" means copyrighted or otherwise protected intangible intellectual property owned or controlled by CTW, including, without limitation, the characters, likenesses, logos, marks, names and materials (BUT NEVER INCLUDING "KERMIT THE FROG") associated with Sesame Street set forth in Exhibit I(A) hereto annexed and made a part hereof. "JHP Elements" means those Licensed Elements owned by JHP, but controlled by CTW. "MANUFACTURING COST" with respect to any Product (or any component thereof) means FIRST YEARS' direct cost of material, labor and factory overhead (including variations from standard cost, if applicable) for such Product (or component thereof) plus FIRST YEARS' actual cost of shipping the same and shall exclude all selling, distribution, general and administrative costs and expenses. "MASS MARKET CHANNELS" means those channels of distribution, through wholesalers, distributors and retailers which result in the Products being offered for sale in value-oriented retail stores, which in the normal course of business usually sell product items in the same category as the Products and catalog operations conducted by major retailers and such major juvenile mail order catalogs such as Right Start as shall be mutually agreed upon. "MATERIALS" means all artwork, graphics, photos, prints, films, silk screens, mechanicals, designs, plans, diagrams, dummies, models, molds (exclusively dedicated to the Products hereunder), plates, proofs, sketches and all other similar technical or special materials whatsoever that were used hereunder by FIRST YEARS and that contain any of the Licensed Elements. "MID-TIER DEPARTMENT STORE CHANNELS" means those channels of distribution through wholesalers, distributors and retailers which result in the Products being offered for sale in moderately priced department stores such as J.C. Penney, Sears, Kohl, etc. "PRODUCT" or "PRODUCTS" means the specific product item or items (including packaging), set forth in Item A of Exhibit I annexed hereto, and such other product items as shall be mutually agreed upon in writing and added to such Item A, in connection with which FIRST YEARS is licensed by CTW to use the Licensed Elements. -2- 3 "ROYALTIES" means the proprietary royalty license fee payable to CTW for the rights granted herein and also includes any advances against such Royalties and the earnings of CTW guaranteed by FIRST YEARS, if any. "TERM" means the term of this Agreement as defined in subparagraph 4 of this Agreement and Item C of Exhibit I annexed hereto. "TERRITORY" means only the countries or areas specified in Item B of Exhibit I annexed hereto. 3. GRANT OF RIGHTS (a) Subject to, and in accordance with the provisions of this Agreement, CTW hereby grants a license to FIRST YEARS (but not its sublicensees) to create, develop, manufacture and produce or have manufactured and produced and to distribute and sell (but not as premiums or giveaways or in combination with or as part of any other product, usage or service) the Product or Products utilizing the Licensed Elements specified in Item A of Exhibit I annexed hereto and hereby made a part hereof, solely through Mass Market Channels and Mid-Tier Department Stores Channels in the Territory, during the Term hereof. (b) FIRST YEARS is also licensed to use the Licensed Elements in connection with the associated packaging, promotion and advertising of the Products. (c) If FIRST YEARS (i) fails to offer any of the Products for sale on or before the date set forth therefor in Item A, (ii) fails continuously to offer such Product for sale for a period in excess of six (6) months, or (iii) sells any Product, without CTW's prior written consent, at a price ten (10%) percent or more below its average selling price for such Product at such level of distribution (in which case CTW shall be entitled to its Royalty based on the average Selling Price for such Products), such Product item shall cease to be a Product hereunder and all rights therein shall automatically revert to CTW as hereinafter provided. Additional product items may be added as Products hereunder if and when mutually agreed upon in writing. (d) FIRST YEARS has not acquired and shall not acquire any right, title or interest in or to any of the Licensed Elements except for the limited right to use the Licensed Elements as expressly permitted herein until termination or expiration of the Term hereof. 4. TERM The Term of this Agreement shall, subject to the provisions hereof, be as set forth in Item C of Exhibit I hereto. -3- 4 5. ROYALTIES AND ACCOUNTINGS (a) In consideration for the rights granted herein, FIRST YEARS shall pay CTW, as non-refundable Royalties, a net sum equal to the applicable percent, as specified in Item D of Exhibit I hereto, of the Gross Proceeds from all sales of Products by FIRST YEARS hereunder in the Territory; provided, however, that the Royalty payable to CTW in respect of Products manufactured outside the Territory and sold FOB the manufacturing facility outside the Territory shall be one hundred fifty (150%) percent of the otherwise applicable percentage rate set forth in Item D of Exhibit I hereto, based on FIRST YEARS' FOB Price for such Product or Products. (b) All Royalties, with respect to all sales hereunder of Products in any calendar quarter (whether during the Term or thereafter) shall be paid to CTW by FIRST YEARS, no later than thirty (30) days after the end of such calendar quarter and FIRST YEARS shall simultaneously deliver to CTW a royalty statement (certified by an officer of FIRST YEARS as being correct and complete) for such calendar quarter. (c) (i) Each royalty statement shall include the following information, on a country by country basis, substantially in the form annexed hereto as Exhibit II: (i) the number of each Product sold by FIRST YEARS, in both unit and monetary amounts, (ii) the sale price of each such Product, (iii) total sales revenues therefrom, (iv) total allowable credits, including returns, with respect thereto, (v) FIRST YEARS' Gross Proceeds, (vi) the percent of the Gross Proceeds due to CTW pursuant to subparagraph 5(a) hereof, (vii) the net Royalties due CTW therefor, and any adjustments made in such figures for preceding accounting periods and (viii) whatever other items or information which may be necessary for CTW in calculating the Royalties due to it under this Agreement, and in calculating payments due from CTW to others, as a result of such sales. (ii) FIRST YEARS shall also furnish to CTW, on a country by country basis, within thirty (30) days after the end of each month during which it exercises any rights hereunder, a written estimate, substantially in the form annexed hereto as Exhibit III, of its sales and returns for the preceding month in both unit and monetary amounts. (d) If any Royalty payment shall be late, then FIRST YEARS shall pay interest thereon from the due date to the date of payment at a rate equal to five (5%) percent above the then current prime rate in effect at Morgan Guaranty Trust Company, New York, New York. (e) FIRST YEARS shall pay CTW, as a nonreturnable advance against all Royalties payable from the sale of Products hereunder in the Territory, the net sums set forth in Item E of -4- 5 Exhibit I hereto on the dates likewise set forth therein. Such advances shall be deemed earned as of the date so specified in Item E. (f) FIRST YEARS guarantees that, for each period specified in Item F of Exhibit I as a guaranteed period, CTW shall have earned hereunder, solely with respect to the Territory, the net sums set forth in Item F. If CTW's Royalties for the specified guarantee period shall be less than the sum guaranteed for such period, then FIRST YEARS shall, simultaneously with the final accounting for such period, pay CTW the difference which sum when so paid shall be deemed earned as of the end of the period in respect of which it is payable. (g) All Royalties and other amounts payable to CTW in accordance with the provisions of this Agreement are expressed as net sums payable promptly and in full, in United States Dollars by check made payable to Children's Television Workshop, P.O. Box 5587 GPO, New York, New York 10087-5587 or at such other office or method as CTW may from time to time designate in writing. (h) During each calendar year during which FIRST YEARS exercises any rights hereunder relating to any Product as well as in the following twelve (12) months, any certified public accountants, attorneys or other persons of CTW's choice, reasonably acceptable to FIRST YEARS, which approval shall not be unreasonably withheld, may at any time or times, on two-weeks', during regular business hours, examine and copy FIRST YEARS' books of account, records, vouchers, invoices and all other documents relating in whole or in part to the subject matter of this Agreement in order to determine the correctness and completeness of all payments made and statements delivered to CTW hereunder. If any such examination reveals an error of 5% or more relating to under-reporting of Royalties due CTW or or if any such examination is made because FIRST YEARS has not timely delivered to CTW any required statement of account hereunder, then it shall, at CTW's request, promptly pay CTW all reasonable costs of such examination. FIRST YEARS shall keep, in accordance with generally accepted accounting principles, throughout the Term and for at least eighteen (18) months thereafter, proper, accurate, complete and auditable records and books of account reflecting all dealings with Products and shall make all such entries therein as may be necessary to enable all calculations referred to in subparagraph 5(b) hereof to be readily verified. (i) To the extent that either party hereto shall divulge to the other, or in the course of its examination shall receive, confidential information, then such party hereby agrees to maintain such information in confidence unless and until such information shall become known in the industry. -5- 6 6. CREDITS AND INTELLECTUAL PROPERTY RIGHTS (a) To the extent that Products and their associated packaging, promotion and advertising materials incorporate any language, all such language shall be solely in the language specified in Item B of Exhibit I. Each Product shall, except as CTW otherwise requests or permits, bear in legible and irremovable form the following statement, credits and other matter: (i) "This Sesame Street product was produced by THE FIRST YEARS INC. in cooperation with CHILDREN'S TELEVISION WORKSHOP" with the names of FIRST YEARS and CTW in such statement to be equal in size, type and prominence of display; and (ii) subject to CTW's prior approval, all such statements, notices, claims of right and other matter (including but not limited to appropriate copyright and trademark notices) as may be required to appear thereon under any applicable law, decision, regulation or rule. (b) FIRST YEARS shall: (i) cause each Product and all promotional, publicity and advertising material therefor, to be packaged, distributed and sold in full compliance with the provisions of this Agreement and the copyright laws of the United States of America and the Berne and Universal Copyright Conventions; (ii) during the Term and for as long thereafter as it exercises any rights hereunder, not cause the copyright of any copyrightable Product or advertising or promotional material to be maintained in the name of FIRST YEARS; (iii) require all third party contributors to acknowledge in writing that (A) CTW is for all purposes the sole and exclusive author and proprietor of all Derivative Works, (B) CTW has commissioned such third party to create a work made for hire and (c) such third party contributor waives any claim with respect to the moral right which may be created as a result of the services rendered by such person and assigns to CTW all right, title and interest (including the copyright) in and to all Derivative Works created by such contributor; and (iv) promptly notify CTW of all infringements or violations of any copyright, trademark or other right in or to any of the Licensed Elements and shall consult with CTW with respect to how to respond to each such infringement or violation. FIRST YEARS shall cooperate with CTW in all litigation relating to this -6- 7 Agreement and shall execute, file and deliver whatever documentation may be necessary or convenient in connection with copyright and trademark matters. (c) FIRST YEARS acknowledges and agrees that all the Licensed Elements have acquired a secondary meaning in the mind of the purchasing public and that, to the extent the law allows, it (i) will not attack the validity of the license or rights granted hereunder to it, (ii) will not do anything, either by acting or not acting, which might impair, violate or infringe any of the Licensed Elements, (iii) will not claim adversely to CTW or anyone claiming through CTW any right, title or interest in or to any of the Licensed Elements and (iv) has not, directly or indirectly, used or registered (or applied for registration of) and will not so use or register any item which in CTW's opinion is the same as or confusingly similar to any of the Licensed Elements and will not use any of the same as part of its name or the name of any other entity. (d) Nothing contained in this Agreement shall give CTW any right, title or interest in or to any of FIRST YEARS' logos, trademarks, tradenames, patents or copyrighted material and all such right, title and interest and right to use, shall remain solely with FIRST YEARS. 7. APPROVAL RIGHTS (a) FIRST YEARS acknowledges that in order to ensure the preservation of the intangible intellectual property licensed hereunder, and to ensure that the appearance, quality, sale and distribution of each Product is consonant with CTW's name and reputation for quality and with the goodwill associated with CTW and the Licensed Elements, CTW retains the right to approve in advance, at each stage of product development set forth in Appendix 13 annexed hereto, each Product and the Materials, advertising, publicity and promotion used in connection therewith. (b) FIRST YEARS agrees not to release, market, distribute or sell any Product (or any advertising, publicity or promotion related thereto) without CTW's prior written approval. FIRST YEARS shall forward at its expense to CTW all items as to which CTW has rights of approval hereunder, for the purpose of facilitating such approval. (c) CTW will notify FIRST YEARS of its approval or disapproval of any submission within two (2) weeks after receipt of such submission. Any submission not approved within such two week period shall be deemed disapproved. In exercising its right to grant or withhold any approval, consent or permission under this Agreement, CTW may take into consideration such pedagogic, safety, aesthetic and other considerations as they in their sole discretion determine. Failure by CTW at any point to grant approval shall not result in any liability on its part to FIRST YEARS or others on account of such failure. (d) FIRST YEARS shall, at its cost and expense, obtain all third party clearances and approvals and shall bear all costs and have the sole responsibility and obligation for all -7- 8 development, if any, including but not limited to, reuse fees, film, copyright fees and the costs of production, packaging, advertising, warehousing, distributing, selling, shipping, billing, collecting and the like with respect to each Product and for compliance with all laws, decisions, rules and regulations of all bodies and agencies having jurisdiction thereof. CTW shall have no liability, responsibility or obligation in connection therewith. (e) No approval by CTW of any Product, advertisement or promotion in connection therewith shall imply or be deemed to imply that the Licensed Elements are otherwise available for use by FIRST YEARS. 8. SAMPLES (a) FIRST YEARS shall deliver to CTW at its address hereunder, at no cost to CTW, and to JHP at 117 East 69th Street, New York, New York 10021, attention Cheryl Henson, at no cost to JHP, promptly upon or before their initial shipment to a customer, thirty-five (35 units of each Product and thereafter, if and when requested by CTW, it shall deliver to CTW at no cost to CTW, up to twenty-four (24) units of each Product. CTW shall also have the right to select, without any payment therefor, for quality control purposes (it being agreed that CTW shall have reasonable access to FIRST YEARS' facilities to audit such quality control, on no less than two (2) weeks' written notice given to FIRST YEARS), up to ten (10) units at a time of each Product hereunder. (b) CTW shall also have the right to purchase from FIRST YEARS, at FIRST YEARS' Manufacturing Cost or Purchase Price therefor, such number of units of any Product as CTW may from time to time specify by notice to FIRST YEARS. Units of Products so purchased by CTW may be used by CTW as it in its sole discretion may determine, except that CTW may not resell such units to the general public, directly or indirectly without FIRST YEARS' consent. (c) No Royalties shall be payable by FIRST YEARS on Products delivered to or purchased by CTW or JHP under this paragraph 8. 9. WARRANTIES AND INDEMNIFICATIONS (a) FIRST YEARS specifically represents, warrants and agrees that: (i) it is and shall remain free to enter into and fully perform this Agreement in all respects and shall develop, manufacture, produce, advertise, promote, distribute or sell Products only as expressly permitted under this Agreement; (ii) CTW would suffer irreparable harm if product items were distributed or sold except as herein expressly permitted, and that CTW, without limitation to any -8- 9 other rights, shall be entitled to injunctive relief to prevent FIRST YEARS from distributing or selling Products except as herein expressly permitted; (iii) each unit of each Product distributed or sold hereunder shall be, in all respects, clearly safe and fit for use by the persons for whom such Product is intended to be used, free from all defects in manufacturing and workmanship and shall not violate, infringe upon or breach any rights of third parties. If requested by CTW, FIRST YEARS will provide test results satisfactory to CTW and otherwise cooperate with CTW's Quality Control Department to assure CTW that each Product meets the safety standards established by any governmental organization or bureau having jurisdiction thereof. If FIRST YEARS learns of any defect in or breach of warranty with respect to any Product (or unit or component thereof), it shall promptly notify CTW thereof and take all appropriate measures to remedy such defect as well as to eliminate the same in all future units of the Product; (iv) it shall, no less than once each year, furnish to CTW its marketing plans including, without limitation, FIRST YEARS' annual sales estimate for each Product on a quarter by quarter basis for such year and its proposed advertising, promotion and publicity in connection with the distribution and sale of Products during such year; (v) it shall not, during the final six (6) months of the Term hereof, produce or have produced more Products than it can reasonably foresee selling during the Term; (vi) it shall, not less than thirty (30) days prior to the expiration of the Term of this Agreement, provide CTW with a complete schedule of all inventory of Products then on hand; (vii) it shall not, during the Term or thereafter, without CTW's prior consent, distribute or sell any items that utilize any of the Licensed Elements or that are the same as, based upon or variations of any Product newly created hereunder stemming in whole or in part from any original idea or suggestion given to it by CTW; (viii) it shall not, without CTW's prior written consent, actively solicit sales of any Product or Products outside of the Territory nor, distribute or sell any Product or Products outside the Territory or knowingly distribute or sell any Product or Products for resale or other redistribution outside the Territory; (ix) it shall use its best efforts, at its sole cost and expense, promptly to register in all appropriate classes in the Territory in the name and for the benefit of CTW all new trade and service names and marks specifically developed and used for -9- 10 Products licensed hereunder by FIRST YEARS and shall keep CTW currently advised as to the status of each such registration (including the application therefor); and (x) it shall, unless and until delivered to CTW, preserve, maintain and safely store all Materials, including specifically, all original artwork and film, during the full term hereof, and for at least one hundred (100) days after receipt of the certificate required to be furnished to CTW pursuant to subparagraph 10(b) hereof; and (xi) it shall maintain in full force and effect reasonably adequate product liability insurance specifically covering all Products sold or distributed hereunder by it as well as any liability on its part or on the part of JHP or CTW (each of which shall be included as an additional insured in such insurance, effective as of April 15, 1997) with respect thereto. The insurance shall have appropriate limits which, with respect to each year, shall be no less than the amount set forth in Item G of Exhibit I annexed hereto; it being understood and agreed that any insurance carded by JHP or CTW shall be deemed excess insurance, not subject to contribution; and (xii) for as long as it has any rights under this Agreement, it shall comply with all applicable federal and other rules and regulations dealing with equal employment opportunity to the same extent as if it were executing an agreement with the Federal Government. FIRST YEARS also agrees that it shall take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to race, creed, color, religion, sex, age, national origin, veteran status or, unless relevant to the duties to be performed, present or past physical or mental handicaps or disabilities, and shall post in conspicuous places, available to employees and applicants for employment, notices setting forth these non-discrimination provisions and shall, in all solicitations or advertisements for employees placed by or on behalf of it, state that it is an Equal Opportunity Employer. (b) CTW represents and warrants that it is and shall remain free to enter into and fully perform this Agreement in all respects, and that CTW has all rights to grant FIRST YEARS the license herein granted without infringing the rights of any third party. (c) FIRST YEARS and CTW shall at all times indemnify and hold harmless the other from and against any and all claims, damages, liabilities and reasonable costs and expenses (including but not limited to attorney's fees) within the scope of the indemnitor's indemnity hereunder which are reduced to a final adverse judgment, or are settled with the indemnitor's prior consent, growing out of, based on or in connection with the performance of this Agreement by the -10- 11 indemnitor, or any breach or default by the indemnitor of its agreements, covenants, representations, obligations or warranties herein; provided, however, that the indemnitee shall give the indemnitor prompt notice of each and every claim and litigation to which this indemnity applies and cooperate fully in the defense of all such claims and litigation and may, at its cost and expense, participate in the defense thereof. All references to CTW in this Subparagraph 9(c) shall, to the extent that any of JHP's rights are involved, include JHP. 10. TERMINATION (a) CTW shall, in addition to its other rights, have the right, on notice to FIRST YEARS given at any time on or after the initial occurrence of any of the conditions specified in this subparagraph 10(a) to terminate the Agreement in its entirety or with respect to any one or more countries or areas in the Territory or with respect to any one or more Products hereunder if FIRST YEARS: (i) without CTW's consent, Assigns this Agreement or any of its rights hereunder in whole or in part; (ii) becomes insolvent or subject to any bankruptcy, insolvency or receivership proceeding of any nature which is not dismissed and fails to assume this Agreement within one hundred and twenty (120) days after the order granting relief; (iii) for any reason does not distribute or sell Products of a quality acceptable to CTW or in sufficient quantities to satisfy the reasonably foreseeable demand of the purchasing public therefor; or (iv) is in breach or default under any of its obligations, representations, warranties, or agreements hereunder (except its obligation to pay any advance, guarantee, Proprietary Royalty License Fees or any other sum due hereunder or to deliver any statement of account) for a period of thirty (30) days after CTW shall have given FIRST YEARS written notice of such breach or default, and with respect to FIRST YEARS' obligation to pay any advance, guarantee, Proprietary Royalty License Fees or any other sum due hereunder to deliver a statement of account, for a period often (10) days after CTW shall have given FIRST YEARS written notice of such breach or default. (b) Upon expiration or termination of the Term of the Agreement: -11- 12 (i) all monies at any time or times payable hereunder to CTW Shall thereupon become due and payable in full to CTW and all rights and licenses granted hereunder to FIRST YEARS shall immediately and automatically revert to CTW; (ii) FIRST YEARS shall furnish to CTW a certificate of its existing inventory of Products listing all Products and all units and components of Products in its possession or under its control, their state of completion, their physical condition and location and their Manufacturing Cost, or if the Products are imported, the Purchase Price thereof and also listing all Materials, their physical condition and location and their actual Book Value--it being also agreed that CTW shall have the right, at its expense, to conduct a physical inventory of all or any of said units, components, Products and Materials and to inspect any and all sites at which any of said units, components, Products and Materials are stored; (iii) Provided that it shall have fully performed all of its obligations hereunder, FIRST YEARS shall have the non-exclusive right to sell, in accordance with the provisions of this Agreement, all unsold finished Products in its inventory on the date of such termination, for the six month period immediately following expiration of the Term. No Royalties earned by CTW for the sale of Products in accordance with this division (iii) may be applied in recoupment of any advances made to CTW hereunder nor in reduction of the earnings of CTW guaranteed by FIRST YEARS. (iv) Subject to the provisions of division (iii) of this subparagraph 10(b), all right, title and interest in and to all said Products, units, components and Materials, if any, shall automatically vest in CTW for all purposes without restriction other than as specifically provided in this Agreement; and (v) CTW shall have the right to pay FIRST YEARS or otherwise credit FIRST YEARS' account for all or any of said units, components or Products, FIRST YEARS' actual Manufacturing Cost or the Purchase Price for each such Product and, for all or any Materials (other than artwork and film) FIRST YEARS' Book Value therefor. Upon such payment or credit CTW shall become entitled to possession of all Products and Materials so paid for, together with appropriate title documents therefor. If CTW does not so pay for all Products and Materials within ninety (90) days after expiration of the Term or sell-off period, FIRST YEARS shall destroy all the same not so paid for and furnish CTW with a certificate of such destruction. CTW shall have the right to have a representative selected by it witness such destruction. -12- 13 11. STRICT CONSTRUCTION All licenses and rights granted herein to FIRST YEARS shall be strictly construed and all licenses and rights not expressly granted hereunder are, insofar as FIRST YEARS and those claiming through it are concerned, specifically reserved and retained by CTW without any limitation or restriction and with full right of user. 12. NOTICES All communication required or permitted to be given under this Agreement shall be in writing and, if delivered personally or sent to the following address by prepaid telegram, cable, fax or registered or certified mail with postage prepaid, shall be deemed to have been duly given as of the date of such delivery or sending: If to CTW, at: Children's Television Workshop One Lincoln Plaza New York, New York 10023 to the attention of J. Baxter Urist, Senior Vice President, International Television and Product Licensing Group and Joseph T. Diaz, Vice President, Legal and Business Affairs, or such other address as CTW shall designate in writing. If to FIRST YEARS, at: THE FIRST YEARS INC. One Kiddie Drive Avon, Massachusetts 02025 to the attention of MR. ADRIAN ROCHE or such other person or address as FIRST YEARS shall advise CTW in writing. 13. ENTIRE AGREEMENT (a) This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof and shall be binding upon, and inure to the benefit of, CTW's successors and assigns. This Agreement cannot be modified, extended or terminated orally. (b) No waiver by FIRST YEARS or CTW of any of the provisions of this Agreement or of any breach or default hereunder shall be or be deemed to be a further or continuing waiver of the -13- 14 same or of any other provisions or breach thereof or default hereunder. All remedies, rights, obligations and agreements contained herein or available at law or otherwise are cumulative. (c) It is understood and agreed that FIRST YEARS does not, and shall not, have the right to Assign this Agreement in whole or in part or any of its rights hereunder to anyone except with CTW's prior consent. It is further understood and agreed that if CTW does consent to any such Assignment, FIRST YEARS shall nevertheless be, and remain, fully liable hereunder in all respects and that no such assignee shall acquire any greater rights with respect to this Agreement than FIRST YEARS. (d) No signatory hereto shall by virtue of this Agreement or any action with respect thereto be or be deemed to be an employee, employer, partner of, or joint venturer with, any other signatory hereto in any manner whatsoever except as specifically authorized in this Agreement or otherwise in writing. (e) This Agreement, and all modifications or extensions thereof, shall be governed in all respects by the law of the State of New York applicable to contracts to be fully executed and performed therein. Any disputes arising under this Agreement shall be subject solely to the jurisdiction of the state and/or federal courts located within the State, City and County of New York and FIRST YEARS hereby agrees to accept the jurisdiction of such courts over it in connection with any such dispute. It is further understood and agreed by the parties hereto that service of process by one party by personal delivery, certified mail, return receipt requested or overnight courier addressed to the other party at its last known address hereunder, shall be deemed good and sufficient service for purposes of jurisdiction. CHILDREN'S TELEVISION WORKSHOP THE FIRST YEARS INC. By: /s/ J. Baxter Urist By: /s/ Ronald J. Sidman ------------------------ ---------------------- President -14- 15 EXHIBIT I Attached To and Forming Part of That Certain Agreement Made and Dated as of JULY 1, 1996 by and between CHILDREN'S TELEVISION WORKSHOP and THE FIRST YEARS INC. Item A. Products hereunder for which FIRST YEARS has been granted the non-exclusive right to distribute and sell in the Territory shall consist solely of the following product items listed in Appendix A annexed hereto and hereby made a part hereof. Such Products shall be offered for sale through FIRST YEARS' Mass Market Channels no later than APRIL 15, 1997. Item B. The word "Territory" as used in this Agreement, means the following countries and areas only; and the only language or languages to be used by FIRST YEARS on and for Products (and the associated packaging, promotion and advertising for such Products) distributed or sold under this Agreement in any country or area hereunder shall be the specific language or languages respectively, set forth below in this Item B opposite each such country or area: Country or Area Language --------------- -------- UNITED STATES INCLUDING ITS TERRITORIES ENGLISH AND POSSESSIONS AND U.S. MILITARY INSTALLATIONS Item C. The initial period of the Term shall, subject to the provisions of this Agreement, commence as of JULY 1, 1996 and shall continue in full force and effect until * . Item D. The percent of Gross Proceeds that is payable by FIRST YEARS to CTW pursuant to subparagraph 5(a) hereof with respect to each Product hereunder is as follows: * % * % F.O.B. A LOCATION OUTSIDE THE TERRITORY Item E. The nonreturnable advance to be paid by FIRST YEARS to CTW upon execution of the Agreement pursuant to subparagraph 5(e) hereof is as follows: $15,000.00 - PAYABLE UPON EXECUTION OF THE AGREEMENT, WHICH SHALL BE DEEMED EARNED NO LATER THAN JUNE 30, 1997. 16 Item F. The earnings of CTW guaranteed pursuant to subparagraph 5(f) hereof by FIRST YEARS for each guaranteed period of the Term specified below are as follows: * Item G. The product liability insurance which FIRST YEARS shall be required to maintain in full force and effect pursuant to division (xi) of subparagraph 9 hereof shall have limits which, with respect to each year shall be at least three million (U.S. $3,000,000) United States dollars for each occurrence and at least ten million (U.S. $10,000,000) United States dollars in the aggregate and shall not have a deductible exceeding ONE HUNDRED THOUSAND ($100,000) United States dollars. - ii- 17 APPENDIX A ---------- Products hereunder for which FIRST YEARS has been granted the non-exclusive right to distribute and sell in the Territory shall consist solely of the following Infant Care Items: (A) FEEDING AND SOOTHING ITEMS (D) HEALTHCARE ACCESSORIES -------------------------- ---------------------- Reusable & Disposable Bottles Boo Boo Cold Pack Cups Medicine Feeders Pacifiers and attachers Thermometers Bowls (non-melamine) Dishes (non-melamine) (E) FURNISHINGS Toddler Totes ----------- Flatware Step Stools Snack Containers Toilet Trainers Placemats Scales Teethers Travel Cushion/Headrests Splat Mat Melamine Set (to Infant Buyers only) Giftset Combinations (B) PLAY & DISCOVER ITEMS --------------------- Blister Carded Rattles (C) CARE & SAFETY ITEMS ------------------- Changing Pads Handheld Shower Sponges Hooded Towels Wash Mitts Spout Guards Shampoo Visors Nursery Organizers Tub Organizers Car Organizers Non-activity Crib Light Comb & Brush Sets Nightlights Car Sunshades Diaper Pins Booties 18 APPENDIX B ---------- GUIDELINES FOR PRODUCT DEVELOPMENT AND APPROVAL ----------------------------------------------- I. CONCEPT A. Present rough sketch of concept for CTW's approval. B. Review CTW's design comments. II. ROUGH ARTWORK A. Submit pencil sketch with color indications for CTW's art direction. B. Submit script for approval. C. Modify sketch or script and re-submit, if requested. III. FINAL ARTWORK A. Present final illustration, sculpture or recording for approval. B. Modify and re-submit, if requested. IV. PRE-PRODUCTION SAMPLE A. Submit pre-production sample and test reports, if any. B. Proceed with production, if approved. V. PACKAGING Present all packaging designs and copy for approval. VI. SAMPLES Ship thirty-five (35) samples as per subparagraph 8(a) of the Agreement. 19 EXHIBIT 1(A) ------------ SESAME STREET MUPPET CHARACTERS ------------------------------- ALICE BARKLEY BERT BETTY LOU BIFF BIG BIRD COOKIE MONSTER ELMO ERNIE GROVER GRUNDGETTA GUY SMILEY HERRY MONSTER HONKERS HOOTS THE OWL LITTLE BIRD MUMFORD THE MAGICIAN NATASHA OSCAR THE GROUCH PRAIRIE DAWN ROXY MARIE SHERLOCK HEMLOCK SLIMEY THE WORM SNUFFLEUPAGUS SULLY TELLY MONSTER THE COUNT TWIDDLEBUGS ZOE SESAME STREET SIGN 20 EXHIBIT III ----------- Attention: J. Baxter Urist CHILDREN'S TELEVISION WORKSHOP Reporting Period: Senior V.P., Products Group INTERNATIONAL MONTHLY SALES ESTIMATE REPORT ------------ Fax #: (212) 875-6123 LICENSEE: -------------------------- COUNTRY: ---------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ PRODUCT RETAIL PRODUCT GROSS UNIT NET WHOLESALE GROSS SALES NET SALES STYLE# PRICE DESCRIPTION/TITLE UNITS RETURNS RETURNS PRICE (LOCAL CURRENCY) (LOCAL CURRENCY) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------- TOTALS: ----------------------------------------------------------------------------------------------------------- Signed: LESS ALLOWANCES (IF ANY) -------------------- -------------------- Title: NET SALES (CURRENCY______) -------------------- -------------------- Date: ROYALTY RATE % -------------------- -------------------- NET ROYALTY DUE CTW Page of -------------------- ----- ----- ADVANCE OUTSTANDING (IF ANY) -------------------- TOTAL DUE CTW (CURRENCY______) -------------------- EXCHANGE RATE A/O ___________ -------------------- TOTAL DUE CTW U.S.$ --------------------
21 EXHIBIT II ---------- Attention: J. Baxter Urist CHILDREN'S TELEVISION WORKSHOP Reporting Period: Senior V.P., Products Group INTERNATIONAL SALES REPORT ------------ Fax #: (212) 875-6123 LICENSEE: -------------------------- COUNTRY: ---------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ PRODUCT RETAIL PRODUCT GROSS UNIT NET WHOLESALE GROSS SALES NET SALES STYLE# PRICE DESCRIPTION/TITLE UNITS RETURNS RETURNS PRICE (LOCAL CURRENCY) (LOCAL CURRENCY) - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------- TOTALS: ----------------------------------------------------------------------------------------------------------- Signed: LESS ALLOWANCES (IF ANY) -------------------- -------------------- Title: NET SALES (CURRENCY______) -------------------- -------------------- Date: ROYALTY RATE % -------------------- -------------------- NET ROYALTY DUE CTW Page of -------------------- ----- ----- ADVANCE OUTSTANDING (IF ANY) -------------------- TOTAL DUE CTW (CURRENCY______) -------------------- EXCHANGE RATE A/O ___________ -------------------- TOTAL DUE CTW U.S.$ --------------------
EX-11 4 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 THE FIRST YEARS INC. PRIMARY NET INCOME PER SHARE AND FULLY DILUTED NET INCOME PER SHARE
YEAR ENDED DECEMBER 31, ----------------------- 1996 1995 ---------- ---------- Primary Net Income Per Share: Net income available for common shares and common stock equivalent shares............................................... $5,241,479 $3,724,493 ========== ========== Primary net income per share..................................... $ 1.06 $ 0.80 ========== ========== Shares Used in Computation: Weighted average common shares outstanding....................... 4,733,178 4,507,058 Common stock equivalents -- options.............................. 208,018 156,433 ---------- ---------- Total common stock and common stock equivalent dilutive shares........ 4,941,196 4,663,491 ========== ========== Fully Diluted Net Income Per Share: Net income available for common shares and common stock equivalent shares............................................... $5,241,479 $3,724,493 ========== ========== Fully diluted net income per share............................... $ 1.06 $ 0.80 ========== ========== Shares Used in Computation: Weighted average common shares outstanding....................... 4,733,178 4,507,058 Common stock equivalents -- options.............................. 218,540 166,595 ---------- ---------- Total common stock and common stock equivalent dilutive shares........ 4,951,718 4,673,653 ========== ==========
EX-23 5 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-67880, No. 33-87196, and No. 33-94888 of the First Years Inc. (the "Company") on Form S-8 of our report dated March 5, 1997, appearing in this Annual Report on Form 10-K of The First Years Inc. for the year ended December 31, 1996. DELOITTE & TOUCHE LLP Boston, Massachusetts March 28, 1997 EX-27 6 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLAR 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 4,164,587 0 16,114,465 185,000 18,588,044 40,003,813 14,605,267 7,559,543 47,049,537 10,411,097 0 0 0 494,898 35,371,542 47,049,537 93,110,361 93,137,710 55,463,255 84,043,294 0 0 358,637 8,735,779 3,494,300 5,241,479 0 0 0 5,241,479 1.06 1.06
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