10-Q

Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Quarter Ended                      September 30, 2002

Commission file number 0-7024

The First Years Inc.

(Exact name of registrant as specified in its charter)

Massachusetts
(State or other jurisdiction of
incorporation or organization) 04-2149581
(I.R.S. Employer
Identification No.)

One Kiddie Drive, Avon, Massachusetts 02322-1171
(Address of principal executive offices)
(Zip Code)

(508) 588-1220
(Registrant’s telephone number, including area code)

n/a
(Former name, former address and former fiscal year,
if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

         Yes X. No     .

         The number of shares of Registrant’s common stock outstanding on October 31, 2002 was 8,214,547.

TABLE OF CONTENTS

Ex-4.3 Consumer Products License - Disney

Ex-4.4 Employment Contract as of Sept. 30, 2002

Ex-99.1 Certification of Officers

THE FIRST YEARS INC.

INDEX

	Page
PART I — FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheets		1
Condensed Consolidated Statements of Income		2
Condensed Consolidated Statements of Cash Flows		3
Notes to Condensed Consolidated Financial Statements		4-5
Management’s Discussion and Analysis of Financial Condition and Results of Operations		6-8
Quantitative and Qualitative Disclosure about Market Risk		8-9
Controls and Procedures		9
PART II — OTHER INFORMATION
Other Information		10
SIGNATURES		11
CERTIFICATIONS		12-13
EXHIBIT INDEX		14

THE FIRST YEARS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

			September 30,		December 31,
			2002		2001
			(Unaudited)
CURRENT ASSETS:
	Cash and cash equivalents		$	14,161,567	$	13,310,004
	Accounts receivable, net			23,045,319		17,318,497
	Inventories			15,287,784		20,331,823
	Prepaid expenses and other assets			1,425,564		1,784,793
	Deferred tax assets			2,156,500		2,156,500
		Total current assets		56,076,734		54,901,617
PROPERTY, PLANT, AND EQUIPMENT:
	Land			167,266		167,266
	Building			6,783,066		5,309,915
	Machinery and molds			9,549,717		7,809,664
	Furniture and equipment			8,398,018		7,826,605
		Total		24,898,067		21,113,450
	Less accumulated depreciation			12,589,927		10,739,306
		Property, plant, and equipment — net		12,308,140		10,374,144
TOTAL ASSETS			$	68,384,874	$	65,275,761

LIABILITIES AND STOCKHOLDERS’ EQUITY

	CURRENT LIABILITIES:
		Accounts payable and accrued expenses			$	11,233,830		$	12,824,321
		Accrued royalty expenses				359,096			819,286
		Accrued selling expenses				2,359,625			3,200,951
			Total current liabilities			13,952,551			16,844,558
DEFERRED TAX LIABILITY						1,202,800			1,202,800
STOCKHOLDERS’ EQUITY:
		Common stock				1,081,137			1,074,840
		Paid-in-capital				9,831,499			9,277,390
		Retained earnings				72,415,189			66,686,505
		Less treasury stock at cost, 2,596,820 and 2,574,537 shares as of September 30, 2002 and December 31, 2001, respectively				(30,098,302	)		(29,810,332	)
				Total stockholders’ equity		53,229,523			47,228,403
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY					$	68,384,874		$	65,275,761

See accompanying notes to condensed consolidated financial statements.

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THE FIRST YEARS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2002		2001		2002		2001
NET SALES	$	33,955,088	$	34,547,896	$	102,032,167	$	98,824,809
COST OF PRODUCTS SOLD		22,196,043		23,379,600		66,273,700		66,183,882
GROSS PROFIT		11,759,045		11,168,296		35,758,467		32,640,927
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		8,042,681		7,848,256		24,733,122		23,117,869
OPERATING INCOME		3,716,364		3,320,040		11,025,345		9,523,058
INTEREST INCOME		32,590		160,442		74,122		522,318
INCOME BEFORE INCOME TAXES		3,748,954		3,480,482		11,099,467		10,045,376
PROVISION FOR INCOME TAXES		1,537,100		1,427,000		4,550,800		4,118,600
NET INCOME	$	2,211,854	$	2,053,482	$	6,548,667	$	5,926,776
BASIC EARNINGS PER SHARE	$	0.27	$	0.22	$	0.80	$	0.64
DILUTED EARNINGS PER SHARE	$	0.26	$	0.22	$	0.78	$	0.63

See accompanying notes to condensed consolidated financial statements.

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THE FIRST YEARS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)

					2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$	6,548,667		$	5,926,776
	Adjustments to reconcile net income to net cash provided by operations:
		Depreciation				1,863,776			1,660,998
		Provision for doubtful accounts				8,833			272,680
		Loss on disposal of equipment				1,435			346,673
	Increase (decrease) arising from working capital items:
		Accounts receivable				(5,735,655	)		(4,409,531	)
		Inventories				5,044,039			3,743,841
		Prepaid expenses and other assets				392,229			(549,183	)
		Accounts payable and accrued expenses				(1,590,491	)		(1,072,282	)
		Accrued royalties				(460,190	)		(596,315	)
		Accrued selling expense				(841,326	)		(567,275	)
				Net cash provided by operating activities		5,231,317			4,756,382
CASH FLOWS FROM INVESTING ACTIVITIES:
		Expenditures for property, plant, and equipment				(3,799,207	)		(2,365,152	)
CASH FLOWS FROM FINANCING ACTIVITIES:
		Cash dividend				(819,983	)		(550,766	)
		Common stock issued under stock option plans				261,343			306,468
		Purchase of treasury stock				(21,907	)		(416,875	)
				Net cash used for financing activities		(580,547	)		(661,173	)
INCREASE IN CASH AND CASH EQUIVALENTS						851,563			1,730,057
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD						13,310,004			21,180,242
CASH AND CASH EQUIVALENTS, END OF PERIOD					$	14,161,567		$	22,910,299
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
		Cash paid for:
			Income taxes		$	3,115,147		$	3,788,803
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
				Treasury stock transactions	$	266,063		$	132,507

See accompanying notes to condensed consolidated financial statements.

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THE FIRST YEARS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

         1.     Amounts in the accompanying balance sheet as of December 31, 2001 are condensed from our audited balance sheet as of that date. All other condensed financial statements are unaudited but, in our opinion, contain all normal recurring adjustments necessary to present fairly our financial position as of September 30, 2002, and our results of operations and cash flows for the periods ended September 30, 2002 and 2001. Certain reclassifications were made to prior year amounts in order to conform to the current year presentation. 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 disclosures 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.

         2.     We have 50,000,000 authorized shares of $0.10 par value common stock with 10,811,367 and 10,748,404 shares issued and 8,214,547 and 8,173,867 shares outstanding as of September 30, 2002 and December 31, 2001, respectively. We acquired 22,283 shares of our common stock during the first nine months of 2002 through delivery of mature shares of an employee for the exercise of stock options.

         On May 17, 2002, the Board of Directors authorized a $0.10 per share annual cash dividend which was paid on June 15, 2002 to holders of record at the close of business on May 30, 2002.

         3.     Computation of Earnings Per Share (“EPS”) is as follows:

	Three Months Ended
	September 30,
	2002		2001
WEIGHTED AVERAGE SHARES OUTSTANDING		8,210,320		9,188,724
EFFECT OF DILUTIVE SHARES		146,271		181,615
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		8,356,591		9,370,339
NET INCOME	$	2,211,854	$	2,053,482
BASIC EARNINGS PER SHARE	$	0.27	$	0.22
DILUTED EARNINGS PER SHARE	$	0.26	$	0.22

	Nine Months Ended
	September 30,
	2002		2001
WEIGHTED AVERAGE SHARES OUTSTANDING		8,195,437		9,190,831
EFFECT OF DILUTIVE SHARES		203,245		148,532
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		8,398,682		9,339,363
NET INCOME	$	6,548,667	$	5,926,776
BASIC EARNINGS PER SHARE	$	0.80	$	0.64
DILUTED EARNINGS PER SHARE	$	0.78	$	0.63

Options to purchase 656,355 shares of common stock for the three months ended September 30, 2002 and options to purchase 642,461 shares of common stock for the nine months ended September 30, 2002 were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the Company’s common stock. Options to purchase 438,990 shares of common stock for the three months ended September 30, 2001 and options to purchase 536,936 shares of common stock for the nine months ended September 30, 2001 were not included in the computation of diluted EPS because the exercise prices of those options were greater than the average market price of the Company’s common stock.

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         4.     The results of operations for the nine months ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year.

         5.     During the first nine months of 2002 and 2001, we did not borrow against our $10,000,000 unsecured line of credit established with a bank.

         6.     In 2001, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer”. The consensus in EITF No. 01-09 addresses the income statement classification of various types of sales incentives, including discounts, consumer coupons, rebates, and free products as well as “slotting fees”, cooperative advertising arrangements and “buydowns”. The consensus requires these sales incentives be classified as a reduction of revenue, versus a selling, general, and administrative expense.

         We adopted the consensus in EITF Issue No. 01-09 on January 1, 2002. EITF Issue No. 01-09 was issued to codify and reconcile EITF Nos. 00-14, 00-22, and 00-25 which address the accounting for consideration given by a vendor to a customer. With the adoption of this EITF in 2002, approximately $4.9 million of sales incentives for the nine months ended September 30, 2001 was reclassified as a reduction to net sales and a corresponding reduction to selling, general, and administrative expenses in the consolidated statements of income. The adoption of this consensus had no impact on operating income and net income.

         In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS 141 supersedes Accounting Principles Board (“APB”) Opinion 16 “Business Combinations” and SFAS No. 38 “Accounting for Pre-acquisition Contingencies” and eliminates the pooling-of-interests method of accounting for business combinations. SFAS No. 141 also includes enhanced criteria for identifying intangible assets separately from goodwill. The requirements of SFAS No. 141 were effective for any business combination consummated by the Company subsequent to June 30, 2001. SFAS No. 142 was effective for the Company as of January 1, 2002. SFAS No. 142 supersedes APB Opinion No. 17, “Intangible Assets,” and requires that goodwill and intangible assets with indefinite lives no longer be amortized, but reviewed for impairment at least annually. Intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The adoption of these statements did not have a material impact on our consolidated statements of income, consolidated financial position, results of operations, or cash flows.

         In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment of and Disposal of Long-Lived Assets”. This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. We implemented SFAS No. 144 on January 1, 2002. The adoption of this statement did not have a material impact on our consolidated financial position, results of operations, or cash flows.

         7.     We derive sales from products carrying The First Years brand as well as products sold under licensing agreements. During the first nine months of 2002 and 2001, net sales of The First Years brand products were approximately $70,838,000 and $65,937,000, respectively, while net sales derived from licensed and specialty products amounted to approximately $31,194,000 and $32,888,000 in the first nine months of 2002 and 2001, respectively. Net export sales, primarily to Europe, Canada, South America, and the Pacific Rim, were approximately $13,238,000 and $11,101,000 during the first nine months of 2002 and 2001, respectively. For the three months ended September 30, 2002 and 2001, net sales of The First Years brand products were approximately $22,702,000 and $22,939,000, respectively, while net sales derived from licensed and specialty products amounted to approximately $11,253,000 and $11,609,000 in the third quarter of 2002 and 2001, respectively. Net export sales, primarily to Europe, Canada, South America, and the Pacific Rim, were approximately $4,709,000 and $3,942,000 during the third quarter of 2002 and 2001, respectively.

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THE FIRST YEARS INC.

Part I, Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

         Statements in this Quarterly Report on Form 10-Q that are not strictly historical are “forward looking” statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by the words: believe, expect, anticipate, intend, are confident, estimate and similar expressions, which by their nature refer to future events. Actual future results may differ materially from those anticipated depending on a variety of factors which include, but are not limited to, trends in sales of The First Years Brand and licensed products including the effect of slowing economic activity, continued success of new Disney character refreshed graphics, continued success of market research identifying new product opportunities, successful introduction of new products, continued product innovation, the success of new enhancements to our brand image, growth in international sales, ability to attract and retain key personnel, and growth in sales and earnings. Information with respect to risk factors is contained in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We do not intend to update any of the forward looking statements after the date of this Report to conform these statements to actual results or changes in our expectations, except as required by law.

Critical Accounting Policies and Estimates

         This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related notes. Some of these estimates require difficult, subjective and/or complex judgments about matters that are inherently uncertain, and, as a result, actual results may differ from those estimates. Due to the judgment and estimation involved, the following summarized accounting policies and their application are considered to be critical to understanding the business operations, financial condition, and results of operations of The First Years Inc.

         Revenue Recognition — We recognize revenue when products are shipped to customers. Common to our industry, customers may be authorized to return selected products and we reduce sales and accounts receivable for actual returns and estimate future returns based on historical trends and information available to us, including the pattern of returns immediately following the reporting period. We also maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

         Inventories — Inventories, consisting of finished goods, unpackaged components, and supplies, are stated at the lower of cost or market with cost determined using the first-in, first-out method. We make certain obsolescence and other assumptions to adjust inventory based on historical experience and current information. We write down inventory for estimated obsolete or unmarketable inventory equal to the difference between the costs of inventory and estimated market value, based upon assumptions about future demand and market conditions. In the event of a write down of inventory, we also review molds associated with those products to determine whether there has been a significant impairment to the carrying value of the asset. If the carrying value of these assets is considered not to be recoverable, such assets are written down as appropriate. These assumptions, although consistently applied, can have a significant impact on current and future operating results and financial position.

         Sales Incentives — Sales incentives offered to customers to promote the sales of our products include costs related to cooperative advertising programs, promotions, slotting fees or buydowns, and certain rebates. In determining these costs, we reflect activity and make estimates of certain costs of promotional activity based on historical arrangements and information available to us.

A.   Results of Operations — Third Quarter of 2002 Compared with Third Quarter of 2001

         Net income for the third quarter of 2002 was $2.2 million or $0.26 per diluted share, compared with $2.1 million or $0.22 per diluted share in 2001. Net sales for the third quarter of 2002 were $34.0 million, compared with $34.5 million in the comparable period in 2001. The decrease in net sales was due to a decrease in The First Years brand sales resulting from a shift in timing of certain promotions that took place in the third quarter last year and occurred in the second quarter this year, the result of which is a quarter-over-quarter decline in net sales. Also contributing to the decrease in net sales was a decrease in licensed and specialty sales.

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         Cost of products sold for the third quarter of 2002 was $22.2 million, a decrease of $1.2 million from the comparable period in 2001, principally due to decreased sales and product cost savings. As a percentage of net sales, cost of products sold for the third quarter of 2002 decreased to 65% from 68% in the comparable period of 2001, principally due to product mix changes and product cost savings.

         Selling, general, and administrative expenses for the third quarter of 2002 were $8.0 million, an increase of $0.2 million from the comparable period in 2001. The increase is primarily attributable to increased payroll and payroll-related costs associated with infrastructure improvements, mainly in the marketing and product development areas, offset by a decrease in non-payroll related costs. As a percentage of net sales, selling, general, and administrative expenses for the third quarter of 2002 increased to 24% from 23% in the comparable period of 2001.

         Interest income for the third quarter of 2002 was $0.03 million, a decrease of $0.13 million from the comparable period in 2001. This decrease is attributable to reductions in cash balances and U.S. interest rates between the periods.

         In accordance with generally accepted accounting principles, we provide for income taxes on an interim basis using our anticipated annual effective income tax rate of 41% in 2002 and 2001, respectively.

B.   Results of Operations — First Nine Months of 2002 Compared with First Nine Months of 2001

         Net income for the first nine months of 2002 was $6.5 million or $0.78 per diluted share, compared with $5.9 million or $0.63 per diluted share in 2001. Net sales for the first nine months of 2002 were $102.0 million, compared with $98.8 million in the comparable period in 2001. The increase in net sales was due primarily to an increase in The First Years brand sales resulting from the success of new product introductions, partially offset by a decrease in licensed and specialty sales.

         Cost of products sold for the first nine months of 2002 was $66.3 million, an increase of $0.1 million from the comparable period in 2001, principally due to increased sales. As a percentage of net sales, cost of products sold for the first nine months of 2002 decreased to 65% from 67% in the comparable period of 2001, principally due to product mix and product cost savings.

         Selling, general, and administrative expenses for the first nine months of 2002 were $24.7 million, an increase of $1.6 million from the comparable period in 2001. The increase is primarily attributable to increased payroll and payroll-related costs associated with infrastructure improvements, mainly in marketing and product development areas, offset by decreases in non-payroll related costs. As a percentage of net sales, selling, general, and administrative expenses for the first nine months of 2002 increased to 24% from 23% in the comparable period of 2001.

         Interest income for the first nine months of 2002 was $0.07 million, a decrease of $0.45 million from the comparable period in 2001. This decrease is attributable to reductions in cash balances and U.S. interest rates between the periods.

         In accordance with generally accepted accounting principles, we provide for income taxes on an interim basis using our anticipated annual effective income tax rate of 41% in 2002 and 2001 respectively.

C.   Financial Condition

         With respect to the Condensed Consolidated Balance Sheet, consolidated assets of $68.4 million at September 30, 2002 were approximately $3.1 million higher than at December 31, 2001.

         Cash and cash equivalents increased to $14.2 million at September 30, 2002, from $13.3 million at December 31, 2001. The increase resulted from $5.2 million provided by operating activities, which was offset by $3.8 million, and $0.6 million used in investing, and financing activities, respectively.

         Net cash of $5.2 million provided by operating activities consisted primarily of $8.4 million from net income adjusted for non-cash items, offset by $3.2 million used in working capital and other activities. Net cash used in working capital and other activities resulted primarily from an increase in accounts receivable, together with decreases in accounts payable and accrued expenses, accrued royalty and accrued selling expenses, offset by a decrease in inventories and prepaid expenses and other assets. Days sales outstanding were 54 for the first nine months of 2002 and 51 for the year ended December 31, 2001. The increase in days sales outstanding is attributable to an increase in net sales for the three months ended September 30, 2002 when compared to the three months ended December 31, 2001. Inventory turns were 3.7 for the first nine months of 2002 and 4.0 for the comparable period in 2001.

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         Net cash of $3.8 million used in investing activities resulted from capital expenditures. Capital expenditures in 2002 consisted primarily of additions to machinery and molds for new production molds, furniture and equipment related to computer hardware and software, and building improvements to our executive and administrative offices.

         Net cash of $0.6 million used for financing activities consisted primarily of the payment of dividends and treasury stock purchases, which were partially offset by the proceeds on the issuance of common stock under our stock option plans.

         For the remainder of 2002, we expect to fund expenditures for capital requirements as well as liquidity needs from a combination of available cash balances, internally generated funds, and financing arrangements. We have an unsecured line of credit of $10 million, which is subject to annual renewal at the option of the bank. Any amounts outstanding under the line are payable upon demand by the bank. For the quarter ended September 30, 2002 we had no borrowings under the line of credit.

Recent Accounting Pronouncements

         In 2001, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer”. The consensus in EITF No. 01-09 addresses the income statement classification of various types of sales incentives, including discounts, consumer coupons, rebates, and free products as well as “slotting fees”, cooperative advertising arrangements and “buydowns”. The consensus requires these sales incentives be classified as a reduction of revenue, versus a selling, general, and administrative expense.

         We adopted the consensus in EITF Issue No. 01-09 on January 1, 2002. EITF Issue No. 01-09 was issued to codify and reconcile EITF Nos. 00-14, 00-22, and 00-25 which address the accounting for consideration given by a vendor to a customer. With the adoption of this EITF in 2002, approximately $4.9 million of sales incentives for the nine months ended September 30, 2001 was reclassified as a reduction to net sales and a corresponding reduction to selling, general, and administrative expenses in the consolidated statements of income. The adoption of this consensus had no impact on operating income and net income.

         In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS 141 supersedes Accounting Principles Board (“APB”) Opinion 16 “Business Combinations” and SFAS No. 38 “Accounting for Pre-acquisition Contingencies” and eliminates the pooling-of-interests method of accounting for business combinations. SFAS No. 141 also includes enhanced criteria for identifying intangible assets separately from goodwill. The requirements of SFAS No. 141 were effective for any business combination consummated by the Company subsequent to June 30, 2001. SFAS No. 142 was effective for the Company as of January 1, 2002. SFAS No. 142 supersedes APB Opinion No. 17, “Intangible Assets,” and requires that goodwill and intangible assets with indefinite lives no longer be amortized, but reviewed for impairment at least annually. Intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The adoption of these statements did not have a material impact on our consolidated statements of income, consolidated financial position, results of operations, or cash flows.

         In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment of and Disposal of Long-Lived Assets”. This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. We implemented SFAS No. 144 on January 1, 2002. The adoption of this statement did not have a material impact on our consolidated financial position, results of operations, or cash flows.

Part I, Item 3.

Quantitative and Qualitative Disclosure about Market Risk

         The First Years is subject to certain market risks, which include changes in United States and international interest rates as well as changes in currency exchange rates as measured against the U.S. dollar and each other. We attempt to reduce material risks by using foreign currency forward exchange contracts and managing our working capital to minimize currency and interest rate exposure.

Foreign Currency Market Risk

         Our international operations are subject to certain opportunities and risks, including currency fluctuations. In the quarter ended September 30, 2002, international sales accounted for 14% of total net sales. The value of the United States dollar affects our financial results, and changes in exchange rates may affect our revenues, gross margins, operating expenses, and retained earnings as

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expressed in U.S. dollars. At times, we use forward exchange contracts to hedge cash flows arising from sales denominated in foreign currencies to limit the impact of currency fluctuations. Principal currencies hedged include the Euro, the British pound, and the Canadian dollar. We also attempt to minimize currency exposure risk through working capital management. In the first nine months of 2002 and 2001, the impact of foreign exchange gains or losses was not material. We had no outstanding foreign currency forward exchange contracts as of September 30, 2002 and December 31, 2001.

Interest Rate Risks

         Changes in interest rates affect interest income earned on our cash equivalents and short-term investments, composed primarily of U.S. treasury obligations and short-term money market instruments. We do not attempt to reduce or eliminate our market exposure to changes in interest rates in the U.S. or in international operations.

         Also see our disclosure regarding Market Risk in Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the SEC.

Part I, Item 4.

Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures. The company’s principal executive officer and principal financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) on November 13, 2002, have concluded that, based on such evaluation, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q was being prepared.

(b)

Changes in Internal Controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controls. Accordingly, no corrective actions were required or undertaken.

-9-

THE FIRST YEARS INC.

PART II — OTHER INFORMATION

Item 1: Legal Proceedings

         We are not involved in any legal proceedings that are material to our business or financial condition.

Item 2: Changes in Securities and Use of Proceeds

         Not Applicable

Item 3: Defaults Upon Senior Securities

         Not Applicable

Item 4: Submission of Matters to a Vote of Security Holders.

         Not Applicable

Item 5: Not Applicable

Item 6: Exhibits and Reports on Form 8-K

(a) Exhibits — The following exhibits are filed as part of this Report:

3.1	Restated Articles of Organization of the Company. Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 on October 5, 1995 (File No. 33-62673) and incorporated herein by reference.
3.2	By-laws of the Company. Filed as Exhibit (3)(ii) to the Company’s annual report on Form 10-K for the period ended December 31, 1999 and incorporated herein by reference.
4.1	Specimen certificate for shares of Common Stock of the Company. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 33-62673) and incorporated herein by reference.
4.2	Rights Agreement, dated as of November 19, 2001, between the Company and EquiServe Trust Company, N.A. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A on November 20, 2001 and incorporated herein by reference.
4.3	Consumer Products License – Disney Properties, dated as of June 4, 2002, between the Company and Disney Enterprises, Inc.
4.4	Employee Contract, dated as of September 30, 2002, between the Company and John R. Beals.
99.1	Certification of officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) No reports on Form 8-K have been filed during the quarter covered by this report.

-10-

THE FIRST YEARS INC.

SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

	THE FIRST YEARS INC. Registrant
Date 11/14/02
	By: /s/ Ronald J. Sidman
	Ronald J. Sidman, Chairman, President, and Chief Executive Officer, (Duly Authorized Officer)
	By: /s/ John R. Beals
	John R. Beals, Senior Vice President and Treasurer, (Duly Authorized Officer and Principal Financial Officer)

-11-

CERTIFICATIONS

         I, Ronald J. Sidman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The First Years Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date 11/14/02

By: /s/ Ronald J. Sidman

Ronald J. Sidman,
Chairman, President, and Chief Executive Officer

-12-

CERTIFICATIONS

         I, John R. Beals, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The First Years Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c.	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date 11/14/02

By: /s/ John R. Beals

John R. Beals,
Senior Vice President – Finance and Treasurer,
(Chief Financial Officer and Chief Accounting Officer)

-13-

THE FIRST YEARS INC.

EXHIBIT INDEX

Exhibit	Description
3.1	Restated Articles of Organization of the Company. Filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 on October 5, 1995 (File No. 33-62673) and incorporated herein by reference.
3.2	By-laws of the Company. Filed as Exhibit (3)(ii) to the Company’s annual report on Form 10-K for the period ended December 31, 1999 and incorporated herein by reference.
4.1	Specimen certificate for shares of Common Stock of the Company. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 33-62673) and incorporated herein by reference.
4.2	Rights Agreement, dated as of November 19, 2001, between the Company and EquiServe Trust Company, N.A. Filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A on November 20, 2001 and incorporated herein by reference.
4.3	Consumer Products License — Disney Properties, dated as of June 4, 2002, between the Company and Disney Enterprises, Inc.
4.4	Employee Contract, dated as of September 30, 2002, between the Company and John R. Beals.
99.1	Certification of officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

-14- EX-4.3 3 b44497fyexv4w3.txt EX-4.3 CONSUMER PRODUCTS LICENSE - DISNEY Exhibit 4.3 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. LICENSE AGREEMENT Date: June 4, 2002 Re: CONSUMER PRODUCTS LICENSE -- DISNEY PROPERTIES This license agreement, including one or more schedules ("Schedule") attached hereto (such agreement and each such Schedule, individually and collectively, depending on context, referred to herein as "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 1 Kiddie Drive, Avon, MA 02322. Disney and Licensee agree as follows: 1. MEANING OF TERMS For purposes of this Agreement, the following terms shall have the meaning ascribed to them below: A. "ADVANCE" means the non-refundable sum(s), not reduced by any applicable goods and services tax or other value added tax (collectively, "VAT"), stated in each Schedule, payable by the date(s) indicated therein, as an advance on Royalties to accrue in the period(s) stated in the applicable Schedule (as defined below. B. "AFFILIATE" means, with regard to either party, any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with the party. "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. C. "ARTICLES" means the items on or in connection with which the Licensed Material, the Trademarks, or both, are permitted to be reproduced or used, and includes each and every stock keeping unit ("SKU") of each Article as is specified on each Schedule attached hereto. D. "ETAILER" means internet-based retailers that sell products to consumers and which have few or no physical store locations. E. "GUARANTEE" means the sum(s), not reduced by any VAT, if applicable, which Licensee guarantees to pay as minimum Royalties on Licensee's cumulative sales of Articles, as stated in the applicable Schedule attached hereto, in the increments stated in the subject Schedule. Any shortfall shall be payable with the Royalty statement due at the end of the applicable Guarantee period. The Guarantee may be broken down into separate Guarantees for each of the Properties or individual product lines licensed thereunder, or as otherwise stated on the applicable Schedule. F. "INTELLECTUAL PROPERTY" means: (1) "LICENSED MATERIAL", consisting of the graphic representations of the following: CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Such characters and depictions of such characters, and such still scenes and accompanying design elements, as may be designated by Disney, from those Disney properties as are licensed hereunder (the "Properties") and are the subject of a written Schedule(s) attached hereto and incorporated herein by this reference, pursuant to such specifications as are set forth in the applicable Schedule(s) for the Properties licensed hereunder. At the time of execution of this Agreement, there is one (1) Schedule attached hereto; and (2) "TRADEMARKS" (which is deemed to read "Trade marks" if applicable) consisting of "WALT DISNEY", "DISNEY", the brand name(s) (if any) and logo(s) (if any) of the Properties in which Licensed Material included in Paragraph 1.F.(1) above appears, and such other marks as are licensed hereunder, pursuant to the specifications stated in the applicable Schedule. Licensee acknowledges and agrees that the "Disney" name may only be used as expressly approved by Disney under this Agreement. G. "LAWS" means any and all applicable laws, rules, and regulations, including but not limited to, local and national laws, rules and regulations, treaties, voluntary industry standards, association laws, codes or other obligations pertaining to the grant and exercise of the license granted herein and to any of Licensee's activities under this Agreement, including but not limited to, those applicable to any tax, and to the manufacture, pricing, sale, or distribution of the Articles. H. "MANUFACTURER" means any of Licensee's third-party manufacturers, factories, suppliers and facilities (and their sub-manufacturers, factories, suppliers and facilities), which reproduce or use the Licensed Material, the Trademarks, or both, on Articles, components of Articles, labels, hang-tags, packaging, or any other item related to the Articles, or which assemble the Articles, or which assemble a final product which includes one or more Articles. I. "MARKETING DATE" means the date(s) specified on the applicable Schedule by which the specified Article(s) shall be available for purchase in commercial quantities by the public at the retail outlets authorized pursuant to Paragraph 2.A. J. "NET INVOICED BILLINGS" constitute the basis upon which Royalties (as defined below) are calculated under this Agreement. Net Invoiced Billings do not include invoiced charges for transportation of Articles within the Territory which are separately identified on the sales invoice, or sales taxes, or any applicable VAT. Net Invoiced Billings is defined as actual invoiced billings (i.e., sales quantity multiplied by Licensee's selling price) for Articles sold, less Allowable Deductions. "Allowable Deductions" means: (1) volume discounts, defined as a lower initial selling price given solely in exchange for the purchase of Articles over a specified volume level; and (2) 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 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 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 referenced below in Paragraph 1.J.(3). Returns are not covered under this Paragraph 1.J. (see Paragraph 1.N.(6)). (3) No other discounts or allowances are permitted under this Agreement. The following list illustrates the types of discounts and allowances that 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; shrinkage allowances, costs and expenses incurred, and allowances or discounts voluntarily given, in connection with manufacturing, importing, selling or advertising Articles; listing/slotting fees or allowances; retailer partnership agreements; promotion allowances; freight costs incorporated in the selling price; and uncollectible accounts. The foregoing is not an exhaustive list of disallowed deductions, and other allowances or discounts that are in the nature of, or similar to, the foregoing examples likewise shall not qualify as Allowable Deductions. The only Allowable Deductions are those set forth in Paragraphs 1.J.(1) and (2). If Licensee wishes to take a deduction not identified above, it is Licensee's obligation to obtain Disney's prior written approval of such item before taking it as a deduction under Paragraph 1.J. K. "PROMOTION COMMITMENT" means the following sum(s) which Licensee agrees to spend in the following way(s), in accordance with the provisions of Paragraph 18.A.: [ ] L. "RENEWAL OPTION" means the option to extend this Agreement for a consecutive [ ] period, in accordance with Paragraph 2.F. M. "RETAILER" means independent and chain retail outlets which have storefronts and business licenses, and which customers walk into, not up to. 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. N. "ROYALTIES" means a copyright royalty (no royalty is chargeable for use of the Trademarks) in the amounts set forth below in Paragraphs 1.N.(l)(a) and (b), and Royalties shall be further governed by the provisions contained in Paragraphs 1.N.(2)-(8): (1) (a) Licensee agrees to pay Royalties at the rate set forth on the applicable Schedule based on Net Invoiced Billings for "Landed Sales" of Articles. Landed Sales occur when Licensee bears the cost of transportation and, if applicable, importation, of the Articles to and within the country of sale; and CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. (b) Licensee agrees to pay Royalties at the rate set forth on the applicable Schedule based on Net Invoiced Billings for "F.O.B. Sales" of Articles. F.O.B. Sales occur when Licensee's customer bears the cost of transportation and, if applicable, importation, of the Articles to and within the country of sale (e.g., the customer buys the Articles "F.O.B. Hong Kong", or "F.O.B. Manufacturer"); F.O.B. Sales also occur when the customer bears most of such cost, and Licensee bears a portion of such cost. (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; however, if the Affiliate is authorized to sell and is selling the Article to consumers, or for resale to consumers, Disney's Royalties shall be calculated on the Affiliate's Net Invoiced Billings to customers. (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. Sales. However, sales of Articles to Disney's Affiliates outside the Territory shall bear a Royalty at the rate for Landed 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. (7) "ROYALTY PAYMENT PERIOD" means each calendar quarterly period during the Term and during the sell-off period, if granted. (8) Licensee shall report sales of Articles to Disney's licensees or Disney's Affiliates' licensees on Licensee's statement but Licensee will not be required to pay Disney Royalties on such sales, so long as the purchasing licensees are licensed to sell the Articles and are paying Disney royalties on the resales on such Articles. Double royalties are not owed to Disney on these sales. O. "SAMPLES" means the number of samples stated in the applicable Schedule from the first production run of each supplier of each SKU of each Article. P. "SCHEDULE" means each separate "Schedule to License Agreement" entered into between Disney and Licensee, the terms of each of which are hereby incorporated herein by reference and made a part hereof as though fully set forth. Each Schedule attached hereto shall state any and all contract terms as are specific to the Property(ies), Articles, Territory, or other matter set forth on each such Schedule. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Q. "TERM" of this Agreement means the period commencing as of January 1, 2003, and ending upon the expiration of the latest Schedule entered into hereunder. The term applicable for each specific Schedule attached hereto shall be the period commencing as of the Effective Date and ending on the Termination Date stated on the applicable Schedule. R. "TERRITORY" means the countries, regions or other geographic designations specified on each applicable Schedule. S. "WHOLESALER" means a seller of products to retailers, not consumers, and includes the term "distributor". 2. RIGHTS GRANTED A. (1) In consideration for Licensee's promise to pay and Licensee's payment of all monetary obligations required hereunder, and Licensee's performance of all obligations required of Licensee hereunder for each Schedule entered into between Disney and Licensee, Disney grants Licensee the non-exclusive rights during the term of the relevant Schedule, and only within the Territory to: (a) reproduce the subject Licensed Material only on or in connection with the Articles; (b) use the specified Trademarks in such manner as may be approved when each SKU of the Articles is approved hereunder, and only on or in connection with the Articles; (c) manufacture, distribute for sale and sell the Articles as authorized by this Paragraph 2; and (d) reproduce and use the approved Intellectual Property on containers, packaging and display material for the Articles, and in advertising for the Articles. (2) Licensee is authorized to sell the Articles only to authorized customers in the Territory as specified herein or in the relevant Schedule, as applicable. (a) Licensee also may sell the Articles to authorized customers for resale through the pre-approved mail order catalogs listed on the Catalog List(s) attached to this Agreement, and Licensee shall pay Royalties on such sales at the rate specified for Retailers in the applicable Schedule. If Licensee wishes to sell the Articles to customers for resale through mail order catalogs other than those listed on the Catalog List attached hereto, Licensee must obtain Disney's prior written consent in each instance. However, Licensee may sell to Retailers which sell predominantly at retail, but which include the Articles in their mail order catalogs. (b) Licensee also may sell the Articles to authorized Etailers for resale to consumers by computer online selling, and Licensee shall pay Royalties on such sales at the rate specified for Retailers in the applicable Schedule. From time to time, Licensee may request from Disney the then current list of pre-approved Etailers, CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. which are the only Etailers to which Licensee is automatically authorized to sell Articles. Authorized Etailers may display, promote and sell Articles on their online venues, subject to Disney's "eCommerce Guidelines", attached hereto and incorporated herein by this reference. Sales may only be made to consumers physically located in the Territory. Any Etailer which violates Disney's eCommerce Guidelines shall be deleted from the list of approved Etailers, and Licensee may not sell Articles to such Etailer after notice from Disney. (c) In addition to the online selling permitted by authorized Etailers, Articles approved by Disney may be displayed and promoted on Disney-controlled online venues, only within the Territory. Articles approved by Disney also may be displayed and promoted on Licensee's own online venue, and may be displayed, promoted and sold on authorized Retailers' online venues, subject to Disney's eCommerce Guidelines. (d) Licensee is expressly prohibited from selling, using or providing the Articles as follows: (i) Licensee shall not sell the Articles by direct marketing methods, which includes but is not limited to, direct mail and door-to-door solicitation. Licensee shall 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. (ii) Licensee shall not sell or otherwise provide Articles for use as premiums (including those in purchase-with-purchase promotions), promotions, giveaways, 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. (iii) Licensee shall not sell Articles to any customer which Licensee knows or reasonably should know engages in illegal business practices or ethically questionable distribution methods. (iv) 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, and in any case never exceed one-tenth of a percent (0.1%) of all Articles sold on an annual basis. B. All rights not expressly granted to Licensee herein are reserved to Disney. Without limitation of the generality of the foregoing reservation of rights, and by way of example for the avoidance of doubt, nothing in this Agreement shall be deemed to restrict in any way (i) Disney's or its Affiliates' right to enter into promotional license agreements with third-party promotion partners for the manufacture, sale or distribution of premium items of merchandise that promote the Properties, and (ii) the rights of Disney's or its Affiliates' owned, operated or licensed retail stores and theme CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. parks to source and sell items of merchandise which may be similar or identical to the Articles licensed under this Agreement. C. 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. D. 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. E. 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 efforts to preserve and maintain that value, Licensee agrees that, during the 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. F. Provided that Royalties earned and paid to Disney during the period commencing January 1, 2003 through [ ], meet or exceed $[ ], and further provided that Licensee has complied with all terms and conditions of the Agreement, this Agreement shall be extended for [ ] commencing [ ] and ending [ ] (the "Renewal Period"), unless Licensee notifies Disney in writing by [ ] that it declines the Renewal Period. Certain of the terms and conditions for the Renewal Period are already set forth in this Paragraph 2.F. and sections 8 and 9 of Schedule 1; any new terms and conditions mutually agreed upon will be negotiated in a commercially reasonable manner and specified by amendment to the Agreement. 3. ADVANCE A. Licensee agrees to pay the Advance, which shall be on account of Royalties to accrue during the term for the relevant Schedule only, and only with respect to sales in the Territory; provided, however, that if any part of the Advance is specified as applying to any period less than the entire term of the subject Schedule, 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. B. Royalties accruing during any sell-off period or extension of the Term or any term of any relevant Schedule shall not be offset against the Advance unless otherwise agreed in writing. Royalties accruing during any extension of the 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 for any given Schedule or any subsequent advance. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 4. GUARANTEE A. Licensee shall, with Licensee's statement for each Royalty Payment Period ending on a date indicated in Paragraph 1.E, hereof defining "Guarantee" and in each relevant Schedule, or upon termination if the Agreement or the relevant Schedule specifying a Guarantee is terminated prior to the end of the Term or the stated term of such Schedule, as applicable, 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 subject 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. On each Schedule, Advances applicable to Royalties due on sales in the period to which the Guarantee relates shall apply towards meeting the Guarantee for that Schedule. 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 any Guarantee or any subsequent guarantee. If any sell-off period is granted under this Agreement, Royalties generated from sales during such period may not be applied towards the meeting of any 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 of the Intellectual Property, 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 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 Intellectual Property is used. Licensee acknowledges that Disney may not approve concepts or artwork submitted near the end of the term of the relevant Schedule, or concepts or artwork perceived to be for selling periods beyond the applicable Termination Date. 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 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Article to be immediately withdrawn from the market. Any modification of any approved SKU of an Article, including, but not limited to, change of materials, color, design or size of the representation of the Intellectual Property 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 from 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. 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. E. If and as applicable, the likenesses and product application of the characters used on or in connection with the Articles are subject to any third party approvals Disney deems necessary to obtain, Disney will act as the liaison with such third parties during the approval process. 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 set forth on the Schedule(s) attached hereto, 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. One of Licensee's officers shall attest to such destruction in a certificate, and shall provide Disney with a copy of each such certificate. 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 by 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 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. the purpose of comparison with earlier samples, or for Disney's anti-piracy efforts, or to test for compliance with applicable Laws. 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 committing 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. 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 Intellectual Property 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 the Intellectual Property. Likewise, if the 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 Paragraph 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 or are alleged to be violative of any third party rights, 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 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Agreement, or if Disney has inadvertently approved an Article using artwork 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 further distributed or sold by or for Licensee. 7. APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL, AND ADVERTISING A. All containers, packaging, display material, promotional material, catalogs, and press releases relating to the Articles, and all advertising relating to the Articles, including but not limited to, television, radio, or internet advertising, 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, advertising or press releases is prohibited. Disney's approval of any containers, packaging, display material, promotional material, catalogs, advertising or press releases under this Agreement will not constitute or imply a representation or belief by Disney that such materials comply with any applicable Laws, which compliance shall be solely Licensee's responsibility. 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 materials for Disney's approval. C. Disney has designed character artwork or a brand name logo(s), or both, to be used by all licensees in connection with the packaging of all merchandise using the Intellectual Property, 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 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 preapproved 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. The packaging may be different for different distribution channels, and Licensee agrees to use the packaging designated by Disney for the applicable distribution channel. 8. ARTWORK CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 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 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 for the modification to be done by Disney) at Disney's then prevailing commercial art rates, not reduced by any VAT, if applicable. 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 maximize the attractiveness of the Articles and to minimize delays which may occur if outside artists do renditions of which Disney cannot approve. Artwork will be returned to Licensee by overnight courier, at Licensee's cost (unless other arrangements are made). 9. PRINT, RADIO, INTERNET OR TV ADVERTISING Licensee will obtain all approvals necessary in connection with print, radio, internet 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; ensuring their compliance with all applicable Laws shall be solely Licensee's responsibility. This Agreement does not grant Licensee any rights to use the Intellectual Property in animation. Licensee may not use any animation or live action footage from the Property from which the Intellectual Property comes without Disney's prior written approval in each instance. In the event Disney approves the use of film clips of the Property from which the Intellectual Property 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, billboards, or both. 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 or province) will appear on permanently affixed labeling on each Article and, 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 or CA numbers do not constitute a sufficient label under this paragraph. Licensee also must ensure that the Articles comply with any labeling required by any applicable Customs Agency (e.g., country of origin). CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 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. Licensee covenants that it will comply with all applicable Laws in performing this Agreement, including but not limited to, those pertaining to the manufacture, pricing, sale and distribution of the Articles. (1) 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 product safety Laws, and shall permit Disney's designees to inspect testing and quality control records and procedures, and to test the Articles for compliance with product safety and other applicable Laws; however, Disney shall not be required to conduct any such testing. Licensee agrees to promptly reimburse Disney for the actual 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. B. Without limiting the foregoing, Licensee covenants on behalf of Licensee's own manufacturing facilities to comply with the Code of Conduct for Manufacturers, attached hereto and incorporated herein by this reference, in the manufacturing, packaging and distribution of the Articles. Licensee further agrees to require all Manufacturers to covenant to comply with the Code of Conduct for Manufacturers in the manufacturing, packaging and distribution of the Articles, by signing the Manufacturer's Agreement (referenced in Paragraph 12). (1) The Code of Conduct for Manufacturers shall not be interpreted to require Licensee or its Manufacturers to violate any applicable Law. (2) As provided in the Code of Conduct for Manufacturers, Licensee and the Manufacturers agree that Disney and its designated agents (including third parties) may engage in monitoring activities to confirm compliance with this Paragraph 11. Licensee agrees to promptly reimburse Disney for the reasonable cost of inspections performed pursuant to this Paragraph 11 when any of Licensee's manufacturing facilities or any Manufacturer does not pass the inspection(s). The amount reimbursed will not be prorated in the event the Manufacturer is also used by other licensees or vendors. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. (3) Licensee agrees to be bound by the Code of Conduct for Licensees, attached hereto and incorporated herein by this reference. This includes, but is not limited to, taking appropriate steps, in consultation with Disney, and as required by Disney's Compliance Program for licensees, to develop, implement and maintain procedures to evaluate and monitor the Manufacturers it uses to manufacture the Articles or components thereof, and to ensure compliance with Paragraph 11. B., including but not limited to, unannounced on-site inspections of manufacturing, packaging and distribution facilities and employer-provided housing, reviews of books and records relating to employment matters and private interviews with employees. Licensee acknowledges that Disney may require a pre-approval compliance inspection of any Manufacturers Licensee wishes to use to produce the Articles, components, or related items. 12. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS A. Licensee agrees to supply Disney with the names and addresses of all of its own manufacturing facilities for the Articles. If Licensee at any time desires to use a third-party Manufacturer to produce the Articles, components of Articles, or related items bearing Licensed Material, Trademarks, or both, whether the third party is located within or outside the Territory, Licensee must, as a condition to the continuation of this Agreement, notify Disney of the accurate name and complete address of such Manufacturer and the Articles, components, or related items, and obtain Disney's prior written permission to do so. If Disney is prepared to grant permission, Disney will do so if each of Licensee's Manufacturers signs a Manufacturer's Agreement in a form which Disney will furnish to Licensee, and Disney receives all such agreements properly signed. Disney also may require a pre-approval compliance inspection of a Manufacturer prior to the production of any Articles, components, or other items involved. Licensee must immediately notify Disney if Licensee is no longer using a Manufacturer to manufacture the Articles, components, or related items. B. 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 Manufacturer, Disney makes any representation or takes any action and is thereby subjected to any penalty or expense, Licensee will fully compensate Disney for any cost or loss Disney sustains (in addition to any other legal or equitable remedies available to Disney). C. If any Manufacturer fails to pass a compliance inspection as referenced in Paragraph 11, and thereafter fails to remedy the cited failure(s) within the time designated by Disney, or if the Manufacturer otherwise breaches the Manufacturer's Agreement, the Manufacturer's Agreement for such Manufacturer may be terminated immediately by Disney, and Licensee shall not thereafter use such Manufacturer to manufacture Articles, components, or related items. In the case of a pre-approval compliance inspection, if a Manufacturer fails to pass the compliance inspection, and thereafter fails to remedy the cited failure(s) within the time designated by Disney, Licensee shall not use such Manufacturer to produce Articles, components or related items. If Licensee fails to notify Disney that it has ceased using a particular CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Manufacturer, and Disney or its designated agent conducts a compliance inspection of such Manufacturer, Licensee remains obligated to work with the Manufacturer to remedy any cited failure(s), or, in the alternative, the Manufacturer's Agreement shall be deemed terminated for purposes of Paragraph 28.B. (11), and Licensee shall promptly reimburse Disney for the reasonable cost of the compliance inspection. 13. 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 licensors, if applicable to any Property. Licensee shall neither acquire nor assert copyright ownership or any other proprietary rights in the Licensed Material or in any derivation, adaptation, or variation thereof. Without limiting the foregoing, Licensee hereby assigns to Disney all of Licensee's worldwide right, title and interest in the Licensed Material and in any material objects containing, consisting of, or to the extent that they incorporate Licensed Material, or other adaptations, compilations, collective works, derivative works, or variations 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. 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. 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 Paragraph 13, 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. With regard to any molds, plates and other items used to reproduce the Intellectual Property, Licensee agrees that it will never sell or transfer such molds, plates, or other items to any third party without Disney's prior written consent. 14. 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. 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 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. whatever documents are necessary to convey to Disney that copyright represented by any such improper copyright notice. If by inadvertence or otherwise, an improper copyright notice appears on, or if 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 error 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 error and to make the corrections on existing Articles which can be located. 15. 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 licensors, if applicable) is the exclusive owner of all the Trademarks, and of any trademark incorporating 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 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 follow Disney's instructions for proper use of the Trademarks and trademarks, and to execute and deliver to Disney such documents as Disney requires to protect and register the Trademarks and trademarks. B. Licensee agrees not to use any Licensed Material or Trademarks, or any trademark incorporating 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 (as mutually agreed with Disney) 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 owned by Licensee or used by Licensee under license in connection with the Articles which is not derived or adapted from Licensed Material, Trademarks, or other materials owned by Disney (or its licensors, if applicable). 16. NON-ASSOCIATION OF OTHER MATERIAL WITH LICENSED MATERIAL To preserve Disney's identification with Disney's Licensed Material 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 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. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 17. ACTIVE MARKETING OF ARTICLES Licensee agrees to manufacture (or have manufactured for Licensee) and actively offer for sale all the Articles and to actively 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 Paragraph 1.I., by six (6) months from the commencement of the term of the applicable Schedule 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 in all distribution channels authorized pursuant to Paragraph 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, or withdraw the applicable distribution channel, or withdraw such Article from the applicable Schedule, without obligation to Licensee other than to give Licensee written notice thereof. 18. PROMOTION COMMITMENT A. Licensee agrees to carry out the Promotion Commitment, as defined in Paragraph 1.K. The advertising and promotion activities required thereunder to promote the sale of the Articles shall include one or more of the following activities: - point of purchase displays (not including packaging or other individual product costs) - media advertising - measurable public relations programs - sampling - contests and games approved in advance in writing by Disney - trade shows, catalog or trade activities, fashion shows - participation in group promotions organized by Disney - other activities as agreed in advance in writing with Disney All promotional material is subject to the approval provisions of Paragraph 7 hereof. B. For purposes of determining Licensee's satisfaction of the Promotion Commitment, all consumer advertising and merchandising costs associated with the above-listed activities for the Articles, but not including packaging or other individual product costs, will be counted toward the requirement; provided, however, that any advertising discounts given in connection with cooperative advertising may not be included in the calculation. C. One time during each twelve (12) month period during the Term, Licensee also shall provide Disney with a statement describing the funds theretofore spent and consumer exposure provided as required in this Paragraph, together with a description of the manner in which such funds were spent, all of which information shall be broken down by country within the Territory, and provided in such detail as Disney may specify from time to time. Amounts spent in excess of the Promotion CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Commitment during any Royalty Payment Period may be credited against the Promotion Commitment for any other Royalty Payment Period occurring in the same twelve month period during the Term. If in any Royalty Payment Period Licensee has not satisfied the Promotion Commitment, Licensee (i) may carry forward such shortfall into the next succeeding Royalty Payment Period (other than in the case of a shortfall in the final Royalty Payment Period hereunder, in which case no carry forwards shall be permitted), or (ii) shall pay Disney the amount of such shortfall as liquidated damages; provided, however, no shortfall (or fraction thereof) may be carried forward more than twelve months. Licensee acknowledges that its expenditure of the Promotion Commitment as provided for herein increases the value of the business from which Disney benefits as licensor. Licensee and Disney agree that it is impracticable and extremely difficult to fix the actual damages which may proximately result from Licensee's failure to fulfill its obligation as provided for herein, and Licensee's liability for failure to do so shall, for each Royalty Payment Period, be limited to and fixed at the sum of an amount equal to the shortfall between the amount Licensee actually spends on the Promotion Commitment during such Royalty Payment Period as theretofore reported to Disney and the amount required to be expended hereunder. Such cumulative amount shall be considered liquidated damages and not a penalty. 19. 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 Intellectual Property 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. 20. 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 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 unauthorized use thereof, and all revenues from the use of any other copyrighted material of Disney's (or its licensors, if applicable), without written authorization from Disney, shall be immediately payable to Disney. B. Licensee agrees that it will give Disney prompt written notice of any unlicensed use by third parties of the Intellectual Property, and that Licensee will not, without Disney's written consent, bring or cause to be brought any criminal prosecution, lawsuit or administrative action for infringement, interference with or CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. violation of any rights to the Intellectual Property. 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-complainant in any action against an infringer of the Intellectual Property 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. 21. STATEMENTS AND PAYMENTS OF ROYALTIES A. Licensee agrees to furnish to Disney by the 25th 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 separately for each Property licensed hereunder, including but not limited to, the name of the subject Property, the quantities, Net Invoiced Billings (reported in U.S. Dollars and, if the Territory includes any country other than the U.S., Net Invoiced Billings also should be reported in the currency invoiced to customers) and applicable Royalty rate(s) of Articles using Intellectual Property from such Property invoiced during the preceding Royalty Payment Period, and the quantities and invoice value of Articles returned for credit or refund in such period, as well as sales forecasts (if requested), and the country of sale. At the same time Licensee will pay Disney all Royalties not reduced by any VAT (if applicable) due on billings shown by such statements. All monies owed to Disney shall be sent to the address identified in Paragraph 21.D., or, if requested by Disney, by electronic transfer to such account as Disney may designate. To the extent that any monies owed to Disney under this Agreement are not paid, Licensee authorizes Disney to offset any amount(s) which is due at any time 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. All payments are to be made in U.S. Dollars. In the event that an exchange rate is necessary, Licensee shall use the official buying rate of exchange as published in the Wall Street Journal, New York Edition, on the last business day of the applicable Royalty Payment Period, and Licensee shall identify such exchange rate on the Royalty reporting forms. 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 designated by Disney (including, for example, forms to be sent by electronic transmission). If it is necessary for Licensee to adapt its system to be able to report statements by electronic transmission, or to make payments by electronic transfer, all costs of such adaptation shall be borne entirely by Licensee. Licensee agrees to fully comply with all instructions supplied by Disney for completing any reporting forms, or adhering to any required format. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. C. 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. D. Licensee's payments, including all Royalties, shall be wire transferred to [ ]; or delivered to such address as Disney designates; currently, Disney designates the following address: Disney Enterprises, Inc., [ ] Los Angeles, California 90074-5988. If Licensee wire transfers payments, including Royalties, Licensee shall send the corresponding statement to the foregoing address. If Licensee wishes to send statements and payments by overnight courier, the current address is: Bank of America Lockbox Services, [ ], Ground Level, 1000 W. Temple Street, Los Angeles, California 90012. However, Advances should be mailed directly to Disney at 500 South Buena Vista Street, Burbank, California 91521-6835, to the attention of the Contract Administrator or Legal Department, Consumer Products Division. Acceptance of any payment from Licensee, whether by wire transfer or otherwise, is not a waiver of any rights on the part of Disney. E. From time to time, upon request by Disney, Licensee shall furnish to Disney's Credit Department, no later than seven days after such request, such financial reports, including balance sheets, statements of income and cash flows, as Disney deems necessary to evaluate Licensee's ongoing creditworthiness and ability to perform this Agreement. 22. INTEREST Royalties or any other payments due to Disney hereunder which are received after 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. CONFIDENTIALITY Licensee represents and warrants that Licensee did not disclose to any third party the prospect of a license from Disney, and that Licensee did not trade on the prospect of a license from Disney, prior to full execution of this Agreement. Licensee agrees not to issue any press release regarding this Agreement or Disney without obtaining Disney's prior written consent. 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 addition, Licensee may have access to information concerning Disney's or its Affiliates' business and operations, or information concerning works in progress, artwork, plots, characters or other matters relating to Disney's or its Affiliates' artistic creations, which information may not be accessible or known to the general public. Licensee agrees not to use or disclose such information to any third party without obtaining Disney's prior written consent. In the event Licensee is required to disclose this Agreement, or any part thereof, pursuant to any law, court 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 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 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. 24. 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 two (2) years after the expiration or termination of this Agreement or a period of seven (7) years. 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 and photocopies 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 and unaffiliated sublicensees or other subcontractors 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. Licensee acknowledges that an audit conducted by Disney or its representatives, may involve one or more license agreements at a time. 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 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 U.S. $100 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. 25. INDEMNITY CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. A. Licensee shall indemnify Disney during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities 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, representation or warranty 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 licensors, if applicable, and its and their 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 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 13. B. Disney shall indemnify Licensee during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities 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 and 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 13. Licensee shall not, in any case, be entitled to recover for lost profits. C. Additionally, if by reason of any claims referred to in Paragraph 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, 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 Intellectual Property 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 Intellectual Property therewith, do not infringe such right of any third party, and Disney shall not be liable to Licensee if such infringement occurs. E. With regard to any indemnified claims under this Paragraph 25, the party entitled to indemnification shall give written notice to the other party of the claim. The indemnifying party shall select mutually agreeable counsel, and shall consult in a CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. meaningful fashion with the indemnified party in the conduct of the defense of the claim. Promptly upon request, the indemnified party shall provide reasonable assistance in the defense of such claims at the expense of the indemnifying party. If the indemnified party desires to be represented by separate counsel, it shall be responsible for all fees and costs associated therewith. Alternatively, the indemnified party may choose to be represented by the indemnifying party's counsel, in which case the indemnifying party shall be entirely and solely responsible for all fees and costs associated therewith. The indemnifying party and the indemnified party may enter into good faith settlement(s) of the claim, with the consent of the other party, not to be unreasonably withheld. F. 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 U.S. Consumer Product Safety Commission ("CPSC") or other federal, state, provincial, 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 and any Schedule(s) entered into hereunder are 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 an additional "insured" each party indemnified in Paragraph 25 hereof. Licensee also agrees to maintain in full force and effect at all times while this Agreement and any Schedule(s) entered into hereunder are in effect such Worker's Compensation Insurance as is required by applicable provincial or state law and, if Licensee is a U.S.-based licensee, 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 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 Paragraph 1.I., by six (6) months from the commencement of the term of the CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. applicable Schedule 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 case of any withdrawal under the preceding sentence, the Advances and Guarantees shall be adjusted to correspond to the time remaining in the term of the affected Schedule(s), or the number of Articles remaining under such Schedule(s), 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 (or any Schedule(s) entered into hereunder) by giving Licensee written notice thereof, if Licensee (i) fails to manufacture, sell or distribute the Articles in accordance with this Agreement, (ii) fails to timely furnish statements and timely pay Royalties or any other amounts due to Disney hereunder, (iii) fails to notify Disney of the accurate name and complete address of Licensee's manufacturing facilities or any Manufacturer of the Articles, (iv) fails to have any such Manufacturer execute the Manufacturer's Agreement, or (v) otherwise fails to comply with or perform any other obligation or covenant hereunder or breaches any other term of this Agreement (other than those set forth in Paragraph 28.B. below); provided that Licensee shall have thirty (30) days (or, in the case of non-payment of any monetary obligations due Disney under the Agreement within fifteen (15) days) after Disney sends Licensee written notice of termination to correct any such failure or breach capable of being corrected and avoid termination. B. Disney shall have the right at any time to terminate this Agreement immediately upon giving Licensee written notice thereof if one or more of the following events occur (provided, however, that with respect to clause (6) below such termination shall occur automatically and immediately without the need for any notice): (1) if Licensee delivers to any customer without Disney's written authorization merchandise containing representations of Intellectual Property or other material the copyright or other proprietary rights to which are owned by Disney other than Articles licensed herein and approved in accordance with the provisions hereof; (2) if Licensee delivers Articles outside the Territory or knowingly sells Articles to a third party when Licensee knows or should know in the exercise of prudent business judgment that such sales ultimately will result in delivery outside the Territory, unless pursuant to a written distribution permission or separate written license agreement with Disney or any of Disney's Affiliates; CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. (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 breaches any surviving obligation under any other license agreement between the parties, even if such agreement has expired; (6) if Licensee shall generally not pay its debts as such debts become due, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Licensee seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of any order for relief or the appointment of a receiver, trustee or other similar official for all or for any substantial part of its property or assets; (7) 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; (8) if any event shall occur or condition shall exist under any agreement or instrument relating to institutional indebtedness or financial obligations owed by Licensee, including the failure to pay principal or interest thereon, and such event or condition shall continue after any applicable grace period specified in such agreement or instrument, and the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such indebtedness or obligations or otherwise cause, or to permit the holder thereof to cause, such indebtedness or obligations to mature; (9) if Licensee, due to material changes in its financial position, or for other reasons, is unable to meet Licensee's obligations under this Agreement, or is unable to provide Disney with assurance satisfactory to Disney that Licensee will be able to meet such obligations; (10) if Licensee breaches any covenant set forth in Paragraph 11 of this Agreement; or (11) if more than three Manufacturer's Agreements are terminated in any twelve-month period by Disney for the Manufacturers' failure to pass compliance inspections as referenced in Paragraphs 11 and 12; or (12) if Licensee breaches any material term of this Agreement and the breach is not reasonably capable of being cured or otherwise corrected to Disney's satisfaction. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. C. If Disney terminates this Agreement pursuant to this Paragraph 28, Licensee shall not be permitted to seek injunctive relief to contest Disney's determination that a termination event has occurred or to otherwise affect Disney's full and absolute control of the Licensed Material and the Trademarks; provided however, Licensee may bring an action for damages, but prior to and during any such action, Disney shall have full and absolute control over the Licensed Material and the Trademarks. 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 for the entire Term shall be immediately due and payable (together with the Royalty statement due at such time), and Disney shall be entitled to retain all Royalties and other things of value paid or delivered to Disney. Notwithstanding the foregoing, if this Agreement expires or terminates prior to the renewal period, no portion of the Guarantee applicable to the Renewal Period shall be payable to Disney. Licensee agrees that the Articles shall be manufactured during the term of each applicable Schedule 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 term thereof. 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 (including Style Guides, animation cells 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 the Intellectual Property, and that, except as hereinafter provided, Licensee will cease selling Articles. Any unauthorized distribution of Articles after the expiration or termination of this Agreement or any applicable Schedule shall constitute copyright infringement. B. If Licensee has any unsold Articles in inventory on the expiration or termination date of the applicable Schedule, 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 two (2) calendar months from such expiration or earlier termination date to sell off and deliver such Articles as authorized under Paragraph 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 applicable Advance or towards meeting the applicable Guarantee. If the sell-off period is extended by Disney to a date which is not the last day of the Royalty Payment Period, Licensee's statement and Royalties for such sell-off period shall be due twenty-five (25) days after the last day of the sell-off period. All rights and remedies available to Disney during the Term shall be equally available to Disney during 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 Term and any sell-off period, Licensee agrees to refrain from "dumping" the Articles in the market during the Term and any sell-off CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 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 of the term of the applicable Schedule 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. Licensee acknowledges that this will be necessary at the end of the term of each Schedule entered into under this Agreement. F. Notwithstanding any provision to the contrary, in the case of termination under Paragraph 28.B. (6) or (7), 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. This Agreement, and the rights granted hereunder to Licensee, are personal to Licensee, who was specifically chosen by Disney to be licensed hereunder because of Licensee's and certain employees' particular expertise and ability to design, produce and sell the Articles in ways which maximize the value of the Articles, and to otherwise perform the Agreement. Licensee shall not voluntarily or by operation of law assign, sub-license, transfer, encumber or otherwise dispose of all or any part of CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Licensee's interest in this Agreement (including, but not limited to, any encumbrance of the Articles) 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, obligations, or both, under this Agreement, 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 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; or, if Licensee is a legal entity other than a corporation or partnership, resulting in the transfer of thirty-three and one-third percent (33-1/3%) or more of the control of Licensee, or the occurrence of any of the foregoing with respect to any manager or administrator of the legal entity). B. Licensee agrees to provide Disney with at least thirty (30) days prior written notice of any desired assignment of this Agreement or other transfer as defined in Paragraph 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 Paragraph 32.A. 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 other entity involved in the transfer; and Disney's internal costs related to the assignment or other transfer; provided, however, in no event shall the transfer fee be in an amount less than U.S. $[ ] for each Disney license (or Schedule), brands and/or Property(ies) (as applicable) involved in an assignment or other transfer, up to a maximum total fee of U.S. $[ ] per transfer for all affected Disney licenses (or Schedules), brands and/or Properties (as applicable) within the Territory and Canada at the time of the subject transfer. 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, CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. that Licensee must give Disney written notice of such assignment and a description of the reorganization. Notwithstanding the foregoing, a transfer fee will not be triggered by any of the following transfers of voting stock or other beneficial interest in Licensee, unless occurring as part of or in conjunction with a transaction that would trigger a transfer fee: (1) distribution(s) in the ordinary course of Licensee's business on employee or director stock option plans; or (2) transfers for estate planning purposes among the current shareholders of Licensee who are members of the Sidman family (including their spouses and children) as their interests appear when this Agreement is signed; or (3) repurchases of its own stock by Licensee as part of a corporate stock repurchase program but not including any issuer tender offer which exceeds thirty-three and one-third percent (33-1/3%) of the then outstanding stock or exchange offer; provided, however, that Licensee shall maintain substantially the same management and continue to operate in substantially the same fashion as prior to any of the transfers described above, and provided further, that in any event, any of the transfers described above shall remain subject to Disney's consent as set forth in Paragraph 32.A. The provisions of this Paragraph 32 shall supersede any conflicting provisions on this subject in any merchandise license agreement previously entered into between the parties for this Territory. C. Licensee acknowledges that it has read and understands the Transfer Fee Policy attached hereto, which governs transfer fee procedures under this Agreement. The Transfer Fee Policy is incorporated herein by this reference. D. Licensee may, upon Disney's prior written consent, sublicense Licensee's rights, obligations, or both, under this Agreement, to any of Licensee's Affiliates, provided that each such Affiliate agrees to be bound by all of the terms and conditions of this Agreement, and further provided that Licensee and each such Affiliate agree to provide Disney with satisfactory documentation of such agreement(s), guarantee(s), and indemnification upon Disney's request therefor, and in a form satisfactory to Disney. Licensee hereby represents and irrevocably and unconditionally guarantees that any and all Affiliates sublicensed hereunder will observe and perform all of Licensee's obligations under this Agreement, including, but not limited to, the provisions governing approvals, and compliance with approved samples, applicable Laws, indemnification 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 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, unless Licensee has obtained Disney's consent to sublicense an Affiliate in each instance, such Affiliate shall be deemed to be included in the term "Licensee" for all purposes under this Agreement, and Disney may treat such unapproved involvement of the Affiliate as a breach of the Agreement. 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. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. 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 authorized representatives of 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 "President, Consumer Products Licensing", with a copy to "Corporate Legal, Consumer Products," unless Disney advises Licensee in writing otherwise. 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 Intellectual Property, 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 an executory agreement entered into in California and shall be governed and interpreted according to the laws of the State of California applicable to contracts made and to be fully performed in California. Any legal actions pertaining to this Agreement shall be commenced within the State of CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. California and within either Los Angeles or Orange Counties, and Licensee consents to the jurisdiction of the courts located in 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 the term of any applicable Schedule under 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 licensors', if applicable) copyrights and property rights, and, specifically, to conserve Disney's (and its licensors', if applicable) 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. 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, audits, and Paragraph 29, shall survive termination, cancellation or expiration of this Agreement. 44. SEVERABILITY OF PROVISIONS The terms of this Agreement are severable and the invalidity of any term of this Agreement shall not affect the validity of any other term. Please sign below under the word "Agreed". When signed by both parties, when any required security (e.g., a letter of credit) has been posted, and when the fully executed contract has been delivered to Licensee, this shall constitute an agreement between Disney and Licensee. AGREED: CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. DISNEY ENTERPRISES, INC. By: /s/ J.D. Edwards --------------------------- Title: Vice President Date: 9/18/02 THE FIRST YEARS, INC. By: /s/ Ronald J. Sidman --------------------------- Title: President CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Schedule #1 to License Agreement 1. Schedule #1 to License Agreement Dated June 4, 2002 between Disney Enterprises, Inc. and THE FIRST YEARS, INC. ("Agreement"). 2. Effective date of this Schedule: January 1, 2003. 3. Termination date of this Schedule: [ ] of the Agreement. 4. Properties: A. Disney Standard Characters (i.e., MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY DUCK, PLUTO and GOOFY), but only depictions of such characters, and accompanying design elements, as may be designated by Disney. B. Winnie the Pooh characters (i.e., WINNIE THE POOH, CHRISTOPHER ROBIN, PIGLET, RABBIT, EEYORE, TIGGER, OWL, GOPHER, KANGA AND ROO), all in the style as designed by Disney, but only depictions of such characters, and accompanying design elements, as may be designated by Disney. C. DISNEY CLASSICS, comprised of the following individual Properties (collectively, the "Disney Classics Properties"): (1) WALT DISNEY'S BAMBI characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (2) WALT DISNEY'S SLEEPING BEAUTY characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (3) WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (4) WALT DISNEY'S THE JUNGLE BOOK characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (5) WALT DISNEY'S CINDERELLA characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (6) WALT DISNEY'S DUMBO characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (7) WALT DISNEY'S LADY AND THE TRAMP characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. (8) WALT DISNEY'S PINOCCHIO characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (9) WALT DISNEY'S ALICE IN WONDERLAND characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (10) WALT DISNEY'S PETER PAN characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (11) WALT DISNEY'S THE ARISTOCATS characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (12) DISNEY'S ALADDIN characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (13) DISNEY'S BEAUTY AND THE BEAST characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney. 5. Articles: A. FEEDING AND SOOTHING: (1) Bottles (2) Bibs (vinyl only) (3) Cups (4) Pacifiers and attachers (5) Bowls (6) Dishes (7) Feeding utensils (8) Placemats (9) Floor mats (10) Toddler sports bottles B. CARE AND SAFETY: (1) Carriers (front and back) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. (2) Handheld showers (3) Spout guards (4) Shampoo visors (5) Non-activity crib lights (6) Combs and brushes (7) Night lights (8) Car shades (9) Tub thermometers (10) Tub organizers (11) Infant bath tubs (12) Baby bathers (fits in sink or tub to cradle newborns) (13) Step stools (14) Bed rails (15) Booster seats (16) Monitors (17) Scratch mitts (18) Hampers (19) Hot and cold packs (20) Infant support cushions (21) Plush with soothing womb sounds (22) Infant toothbrushes and toothcare organizers (23) Sleep positioners (24) Changing pads C. PLAYTHINGS: (1) Hand-held rattles (2) Teethers CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. (3) Suction toys (4) Linking toys (5) Electronic hand-held toys (with rattles or squeaker functions) (6) Bath toys (7) Crib toys (8) Foot rattles and wrist rattles (9) Squeeze toys (10) Infant rings (11) Chime balls (12) Jumpster harness No graphic design may be kept in the product line for longer than two years without prior written consent by Disney. All three dimensional SKUs of the Articles shall be refreshed or renewed based on a two-year cycle as mutually agreed upon by Disney and Licensee during their mutually designated planning meetings, to be held on a quarterly basis during the term of this Schedule. 6. Territory: The United States, United States PX's wherever located, and United States territories and possessions, excluding Puerto Rico. However, if sales are made to chain stores in the United States which have stores in Puerto Rico, such chain stores also may supply Articles to such stores in Puerto Rico. 7. Royalty rate: LANDED SALES: A. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles B.11, B.13 through B.16, B.18, B.20, B.21 and C.12; B. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles B.23; C. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles A.1 through A.10, B.l through B.4, B.9, B.10, B.l2, B.17, B.l9, B.24, C.l, and C.3 through C.l 1; D. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles B.5 through B.8, B.22, and C.2. FOB SALES: CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. A. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles B.11, B.13 through B.16, B.18, B.20, B.21 and C.12; B. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles B.23; C. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles A.l through A.l0, B.1 through B.4, B.9, B.10, B.l2, B.l7, B.l9, B. 24, C.1, and C.3 through C.l1; D. [ ] percent ([ ]%) of Licensee's Net Invoiced Billings to authorized customers for sales of Articles B.5 through B.8, B.22, and C.2. 8. Advance payment(s) and due date(s): A. [ ] B. [ ] C. [ ] 9. Guarantee increments during the term of this Schedule: A. [ ] B. [ ] C. [ ] 10. Samples: Six (6) of each SKU of each Article. 11. Marketing Date(s): By January 1, 2003 for all Articles except A.8, B.2, B.5, B.9, B.13, B.15, B.18, B.19, B.20, B.23, C.3, C4, C.5, C.9, C.10 and C.12; by March 31, 2003, for Articles Numbers B.19, B23, and C.12; by June 1, 2003 for Articles Number B.18; and by December 31, 2003 for Articles Numbers A.8, B.2., B.5, B.9., B.13, B.15, B.20, C.3, C.4, C.5, C.9 and C.10. 12. Distribution Channels: A. Licensee will sell the Articles only to the following Retailers in the Territory for resale to the public in the Territory, or to Wholesalers in the Territory for resale to such Retailers: (1) mass market Retailers (including such Retailers as Target, Toys R Us, WalMart and Kmart), (2) value-oriented department stores (including such Retailers as Sears and Mervyn's), (3) value-oriented specialty stores, (4) drug store chains, (5) supermarkets and food chains, and (6) warehouse clubs. Articles Numbers A.1 through A.4, A.10, B.l, B.3, B.10, B.22, C.1, C.2, C.5 through C.8 and C.l1 also may be sold to the following Retailers in the Territory for resale to the public in the Territory, or to Wholesalers in the Territory for resale to such Retailers: (1) upscale Retailers (including such Retailers as Robinsons-May, Nordstrom's and Bloomingdale's), (2) better specialty stores, and (3) mid-tier department stores (including such Retailers as J.C. Penney and Kohl's). Licensee will not sell the CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Articles to unauthorized Retailers or Wholesalers, or to convenience stores or gas stations. If there is a question as to whether a particular customer falls within any of the categories specified herein, Disney's determination shall be binding. Licensee may sell the Articles utilizing the Property set forth in section 4 above to customers for resale through the mass catalogs listed on the Mass Catalog List to the Agreement, subject to Paragraph 2.A.(2)(a) of the Agreement and this Schedule 1. In addition, Articles Numbers A.l through A.4, A.10, B.1, B.3, B.10, B.22, C.l, C.2, C.5 through C.8 and C.11 may be sold to customers for resale through the upscale catalogs listed on the Upscale Catalog List to the Agreement, subject to Paragraph 2.A.(2)(a) of the Agreement and this Schedule 1. 13. Special provisions: Without limiting the provisions of Paragraph 14 of the Agreement, for Articles utilizing the Winnie the Pooh Property, Licensee agrees to include on such Articles, or the packaging for such Articles, or the hang tag for such Articles (if applicable), the following language: Based on the "Winnie the Pooh" works by A.A. Milne and E.H. Shepard. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. CATALOG SCHEDULE (LIST OF PRE-APPROVED CATALOGS) HOME FURNISHINGS/HOUSEWARES UPSCALE Ballard Design Casual Living Celebration Fantastic Chambers Charles Keath Chef's Catalog Faith Mountain Garnett Hill Hand-in-Hand Horchow Kitchen & Home Kitchen Kaboodle Linda Anderson Metropolitan Museum of Art Museum of Fine Arts, Boston Norm Thompson Nursery Works One Step Ahead Potpourri Reader's Digest Home Life Ross-Simons Seasons Sensational Beginnings Signals 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. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. CATALOG SCHEDULE (LIST OF PRE-APPROVED CATALOGS) HOME FURNISHINGS/HOUSEWARES UPSCALE (CONTINUED) Smithsonian Spiegel Sugar Hill The Cotton Gin The Linen Source The Paragon The Right Start The Wish List Touch of Class Touchstone Trifles Wireless 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. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. CATALOG SCHEDULE (LIST OF PRE-APPROVED CATALOGS) HOME FURNISHINGS/HOUSEWARES MASS Apple Creek Armchair Shopper Avon (EXCL. PERSONAL CARE) Domestications Fingerhut Lillian Vernon Miles Kimball Popular Club 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. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. DISNEY LICENSING E COMMERCE GUIDELINES GENERAL POLICIES: - ---------------- - - Disney licensed product ("Articles") may not be sold on a Licensee's Website. (Articles being sold by Licensee may, however, be sold through a Retailer's or Etailer's Website.) - - Licensee Websites may be used for promotion of Articles only, and not to promote any Disney characters or any film property. - - When initially developing Website pages containing the use of any Disney Articles, marketing, or promotional material, review and written approval must be obtained from Disney Licensing prior to publication on the Website. (Please refer to your approval process guidelines.) - - Websites cannot feature or advertise any Disney Articles, brands, properties, characters or logos as the sole means to drive visitors to the Website. The Website should contain content balance so that the consumer knows it is the Licensees' Website and not a Disney Website. However, creating a Disney section within the Website is encouraged. - - A Retailer's or Etailer's Website cannot position Disney Articles for sale on a "limited availability" or "last time available" basis, of by other similar descriptions that may imply collectibility, deep discounting or closeouts. - - Disney Articles, brands or logos should not be featured on your "Home Page" without prior written consent from Disney. - - You must adhere to all Disney copyright and trademark notice requirements (i.e., (C) Disney, or as otherwise designated). Please note: when showing any Disney Articles, Disney logos, art, or other Disney design elements, you must always include (C) Disney on each Web page (or such other copyright or trademark as Disney designates). - - Disney character art, likeness, animation, or music may not be used. - - Any content or pages related to Disney should "hot-link" to www.Disney.com. Please utilize the Disney.com icon provided for this link. - - Disney Articles cannot be distributed or re-purposed for sale or resale outside of the territory set forth in the license agreement. COPY AND LAYOUT: - - All copy and layout must be approved in accordance with the approval process guidelines. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. - - When using any Disney brand or property, correct titles and logo identification must be used. - - When referring to any Disney film property, always use "Disney's" in reference to each film. For example, "Disney's The Little Mermaid." - - The character's name or the film title should not be used in the possessive form when referring to a product. For example, do not use, "Lilo's Shoes" or "Shoes from Disney's Lilo & Stitch." When referring to product, always use, "Inspired by Disney's Lilo & Stitch" or "Featuring characters from Disney's Lilo & Stitch." CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. LICENSEE APPROVAL PROCESS FOR RETAILER OR ETAILER WEBSITES To gain initial approval for Disney content on a Retailer's or Etailer's Website, submit the below information on a `Standard Disney Approval Form' to your Product Development Coordinator. Retailers and Etailers should provide Disney with: - - Directory of Website content - - Site map or flow chart where the Disney pages/section will be featured within the Website. Creating a separate Disney section within the Website is encouraged. Each Licensee will be responsible for ensuring adherence to the following simple guidelines: 1. The eCommerce Guidelines must be observed when developing Website pages with a Retailer or Etailer. 2. Each Disney Licensee will be responsible for providing the Retailer or Etailer with the following: - Disney approved product samples/photography and product descriptions/copy. - Disney brand logos and property identification. These may be obtained through your Product Development Coordinator. - Utilize the Disney Online icon to hot-link all pages related to Disney to Disney.com. 3. Retailer or Etailer should work with their designated contact in developing and approving marketing and promotional related events and information. Disney promoted marketing events/information cannot be used without prior written consent. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. LICENSEE APPROVAL PROCESS FOR LICENSEE'S WEBSITE Licensees are not permitted to sell Disney Articles on their Websites. The main focus is to promote Disney Articles on the Website of a Retailer or Etailer, or on Disney.com. To gain initial approval for any Disney content on a Licensee's Website, the Licensee must strictly adhere to the eCommerce Guidelines in developing Website pages containing Disney product, and submit the following information on a standard Disney approval form to the Product Development Coordinator: 1. A synopsis/overview of Website content and pages. 2. A site map or flow chart to show where the Disney Articles will be featured within the Website and include proposed launch date. A separate Disney section within the Website is encouraged. 3. A list of each Article that will be featured. 4. Proposed page layout. 5. Headlines. 6. Product samples or photography of product to be featured. (All Articles must be approved through the product approval process). 7. Product descriptions and copy to be featured. 8. Brand and property logos or any property related icons/artwork that will be featured. The correct brand logos and proper property identification may be obtained through your Product Development Coordinator. All pages related to Disney should hot-link to Disney.com. Utilize the Disney Online icon provided for this link. Disney promoted marketing events/information cannot be used without prior written consent. Please contact your Category Manager to discuss proposed marketing and promotional content. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. TRANSFER FEE POLICY As provided in Paragraph 32.B. of the License Agreement, it is Disney's policy to charge a transfer fee in connection with any permitted assignment of the license or other "transfer," as that term is defined in Paragraph 32.A. The amount of the transfer fee is based on the circumstances of the particular assignment or transfer, taking into account such factors as: - the estimated value of the license being assigned or involved in the transfer - the risk of business interruption - the risk of loss of quality, production or control - the identity, reputation, creditworthiness, financial condition and business capabilities of the proposed assignee or entity involved in the transfer - Disney's internal costs related to the assignment or transfer At a minimum, the transfer fee will be U.S. $[ ] for each license or Schedule (or Property, where a given Schedule includes more than one Property), and it could be as high as [ ] depending on the circumstances of the particular case. No Licensee or any company involved with a Licensee in an assignment or transfer situation should rely upon any express or implied verbal representations that are purported to be made on Disney `s behalf as to the amount of any given fee to be assessed. Disney Licensing's Finance Department will communicate the actual amount of the fee calculated in each approved transaction. In any prospective assignment or transfer situations, Licensees must inform the persons and companies with which they are dealing that no assignment or transfer may occur without Disney `s prior written consent, to be granted or withheld in Disney's absolute discretion, and that any approved transaction will also entail a transfer fee. Licensees must give Disney at least 30 days prior written notice of any desired assignment or other transfer, together with any information and documentation necessary to evaluate the contemplated transaction. Licensees should not endanger the closing of their desired transactions by failing to comply with these provisions of the License Agreement. If Disney grants consent to a proposed transaction subject to the payment of a transfer fee, and the transaction is concluded but the transfer fee is not paid within the designated time, the subject License Agreement(s) shall automatically terminate and any Guarantee shortfall(s) shall be immediately due and payable to Disney. If Disney does not grant consent to a proposed assignment or transfer and the Licensee nevertheless closes the transaction, the subject License Agreement(s) shall automatically terminate and any Guarantee shortfall(s) shall be immediately due and payable to Disney. Disney `s consent to any assignment or other transfer should in no way be understood to be a guarantee or promise by Disney of a grant of any future license(s), as those determinations will continue to be made on a contract by contract basis. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. Licensees must keep confidential all of the terms and conditions of Disney `s determinations regarding any transfer, including but not limited to, the amount of any transfer fee required. CODE OF CONDUCT FOR MANUFACTURERS At The Walt Disney Company, we are committed to: - a standard of excellence in every aspect of our business and in every corner of the world; - ethical and responsible conduct in all of our operations; - respect for the rights of all individuals; and - respect for the environment. We expect these same commitments to be shared by all manufacturers of Disney merchandise. At a minimum, we require that all manufacturers of Disney merchandise meet the following standards: CHILD LABOR Manufacturers will not use child labor. The term "child" refers to a person younger than 15 (or 14 where local law allows) or, if higher, the local legal minimum age for employment or the age for completing compulsory education. Manufacturers employing young persons who do not fall within the definition of "children" will also comply with any laws and regulations applicable to such persons. INVOLUNTARY LABOR Manufacturers will not use any forced or involuntary labor, whether prison, bonded, indentured or otherwise. COERCION AND Manufacturers will treat each employee with dignity HARASSMENT and respect, and will not use corporal punishment, threats of violence or other forms of physical, sexual, psychological or verbal harassment or abuse. NONDISCRIMINATION Manufacturers will not discriminate in hiring and employment practices, including salary, benefits, advancement, discipline, termination or retirement, on the basis of race, religion, age, nationality, social or ethnic origin, sexual orientation, gender, political opinion or disability. ASSOCIATION Manufacturers will respect the rights of employees to associate, organize and bargain collectively in a lawful and peaceful manner, without penalty or interference. HEALTH AND SAFETY Manufacturers will provide employees with a safe and healthy workplace in compliance with all applicable laws and CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. regulations, ensuring at a minimum, reasonable access to potable water and sanitary facilities, fire safety, and adequate lighting and ventilation. Manufacturers will also ensure that the same standards of health and safety are applied in any housing that they provide for employees. COMPENSATION We expect manufacturers to recognize that wages are essential to meeting employees' basic needs. Manufacturers will, at a minimum, comply with all applicable wage and hour laws and regulations, including those relating to minimum wages, overtime, maximum hours, piece rates and other elements of compensation, and provide legally mandated benefits. If local laws do not provide for overtime pay, manufacturers will pay at least regular wages for overtime work. Except in extraordinary business circumstances, manufacturers will not require employees to work more than the lesser of (a) 48 hours per week and 12 hours overtime or (b) the limits on regular and overtime hours allowed by local law or, where local law does not limit the hours of work, the regular work week in such country plus 12 hours overtime. In addition, except in extraordinary business circumstances, employees will be entitled to at least one day off in every seven-day period. Where local industry standards are higher than applicable legal requirements, we expect manufacturers to meet the higher standards. PROTECTION OF THE Manufacturers will comply with all applicable ENVIRONMENT environmental laws and regulations. OTHER LAWS Manufacturers will comply with all applicable laws and regulations, including those pertaining to the manufacture, pricing, sale and distribution of merchandise. All references to "applicable laws and regulations" in this Code of Conduct include local and national codes, rules and regulations as well as applicable treaties and voluntary industry standards. SUBCONTRACTING Manufacturers will not use subcontractors for the manufacture of Disney merchandise or components thereof without Disney's express written consent, and only after the subcontractor has entered into a written commitment with Disney to comply with this Code of Conduct. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. MONITORING AND Manufacturers will authorize Disney and its COMPLIANCE designated agents (including third parties) to engage in monitoring activities to confirm compliance with this Code of Conduct, including unannounced on-site inspections of manufacturing facilities and employer-provided housing; reviews of books and records relating to employment matters; and private interviews with employees. Manufacturers will maintain on site all documentation that may be needed to demonstrate compliance with this Code of Conduct. PUBLICATION Manufacturers will take appropriate steps to ensure that the provisions of this Code of Conduct are communicated to employees, including the prominent posting of a copy of this Code of Conduct, in the local language and in a place readily accessible to employees, at all times. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. BRACKETS DENOTE OMISSIONS. CODE OF CONDUCT FOR LICENSEES At The Walt Disney Company, we are committed to: - a standard of excellence in every aspect of our business and in every corner of the world; - ethical and responsible conduct in all of our operations; - respect for the rights of all individuals; and - respect for the environment. We expect these same commitments to be shared by all Disney licensees and the manufacturers with which they work in the production of Disney merchandise. At a minimum, we require that all Disney licensees meet the following standards: CONDUCT OF Licensees that engage directly in the manufacturing MANUFACTURING of Disney merchandise will comply with all of the standards set forth in Disney's Code of Conduct for Manufacturers, a copy of which is attached. Licensees will ensure that each manufacturer other than the licensee also enters into a written commitment with Disney to comply with the standards set forth in Disney's Code of Conduct for Manufacturers. Licensees will prohibit manufacturers from subcontracting the manufacture of Disney merchandise or components thereof without Disney's express written consent, and only after the subcontractor has entered into a written commitment with Disney to comply with Disney's Code of Conduct for Manufacturers. MONITORING AND Licensees will take appropriate steps, in COMPLIANCE consultation with Disney, to develop, implement and maintain procedures to evaluate and monitor manufacturers of Disney merchandise and ensure compliance with Disney's Code of Conduct for Manufacturers, including unannounced on-site inspections of manufacturing facilities and employer-provided housing; review of books and records relating to employment matters; and private interviews with employees. Licensees will authorize Disney and its designated agents (including third parties) to engage in similar monitoring activities to confirm Licensees' compliance with this Code of Conduct. Licensees will maintain on site all documentation that may be needed to demonstrate such compliance. EX-4.4 4 b44497fyexv4w4.txt EX-4.4 EMPLOYMENT CONTRACT AS OF SEPT. 30, 2002 Exhibit 4.4 EMPLOYEE AGREEMENT This Agreement is made as of the 30th day of September, 2002 (the "Effective Date") by and between John R. Beals ("I") and THE FIRST YEARS INC. (the "Company"). In consideration of my employment with the Company, its subsidiaries, affiliates, successors, or assigns, and the compensation hereafter paid to me by the Company, I agree as follows: 1) I recognize that during my employment with the Company I will receive, develop, or otherwise acquire information which is of a confidential or secret nature. Except as authorized in writing by the Company, I will not disclose or use, directly or indirectly, during or after my employment with the Company, any information of the Company which I obtain during the course of my employment, including information relating to inventions, products, product specifications, processes, procedures, machinery, apparatus, prices, discounts, manufacturing costs, business affairs, future business or product plans, ideas, technical data, the Company's customers, sources of supply, planned advertising, promotion or marketing, or other information which is of a secret or confidential nature, whether or not acquired or developed by me. My obligation under this paragraph shall not apply to information known by me prior to my employment with the Company, information generally known in the Company's field of business, information known to others hereafter without fault by me, or information disclosed to me by a third party without restriction and without breach of obligation to the Company. 2) I will communicate to the Company promptly and fully all discoveries, improvements, and inventions (hereinafter called "inventions") and all writings, drawings, and other works of authorship (hereinafter called "works of authorship") made or conceived or created or authored by me (either solely or jointly with others) during my employment and, as to inventions, for six months thereafter which are along the lines of the actual or anticipated business, work, or investigations of the Company or which result from or are suggested by any work I may do for the Company; and such inventions, whether patented or not, and works of authorship and any copyrights therein, arising from my employment shall be and remain the sole and exclusive property of the Company or its nominees. 3) I will, during my employment, keep and maintain adequate and current written records of all such inventions and works of authorship, in the form of notes, drafts, layouts, sketches, drawings, reports and the like relating thereto, which records shall be and remain the property of and available to the Company at all times. 4) I will, during and after my employment with the Company, without charge to the Company, but at its request and expense, assist the Company and its nominees in every proper way to obtain and vest in it or them title to, and to maintain and support the validity of, patents and copyrights on the inventions and works of authorship referred to in paragraph 2, above, in all countries by executing all necessary or desirable documents, including applications for patents and copyrights, assignments thereof, assignments of priority rights thereof and such other lawful documents as may be requested, and I agree to do such other lawful acts as may be requested for said purposes. 5) Upon the termination of my employment by the Company, I agree to deliver to the Company all property of the Company, including all documents and things evidencing or relating to the subject matter of this Agreement, and including without limitation, the documents referred to in Paragraph 3 above. 6) During the course of my employment by the Company, and for a period of 12 months after the termination of my employment by the Company for any reason whatsoever, I shall not engage or become interested, directly or indirectly, as an employee, owner, consultant, officer, director or partner, through stock ownership, investment of capital, lending of money or property, rendering of services or otherwise, either alone or in association with others, in the operation of any type of business or enterprise competitive with the Company's business of developing, marketing, and distributing products for infants, toddlers, and young children (a "competitor company,") regardless of where such competitor company sells its products or where such competitor company is located. 7) My holding (individually or otherwise) of any investment in any business or enterprise other than the Company shall not be deemed to be a violation of Paragraph 6 if such investment does not constitute over 5% of the outstanding issue of such security, and I do not otherwise accept employment with, act as a consultant to, become an officer, director, or partner of, or otherwise become actively associated with the issuer of such security. 8) I recognize, acknowledge and agree that the foregoing limitations of Paragraphs 6 and 7 are reasonable and properly required for the adequate protection of the Company's business and do not preclude me from pursuing my livelihood. However, if any such limitation is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 9) In further consideration of my services and the agreement not to compete set forth in Paragraph 6, the Company agrees that in the event the Company terminates my employment for any reason (other than in the event of my death, Disability, or for Cause as defined in Paragraph 10 below), then the Company (1) will continue to pay me my base salary (then in effect) for a twelve (12) month period (to be paid in twenty-six (26) equal bi-weekly installments), reduced by the amount, if any, that I earn from other employment during such 12-month period; and (2) continue to provide the medical and dental benefits (then in effect) via COBRA at the Company's expense for the same 12-month period, provided I continue to comply with my obligations under Paragraphs 1 through 7 during such 12-month period. Notwithstanding the foregoing, I will not participate in the Company's Annual Incentive Plan, 1993 Equity Incentive Plan (or similar cash-based or equity-based bonus plans then in effect for executive officers), or Pension/401K Plans during such 12-month post-employment period. Although I am not under any obligation to seek new employment, in the event I do obtain new employment during such 12-month period, the Company will cease providing the benefits on the day I obtain new employment. In the event I leave the employ of the Company voluntarily, no severance payments and/or benefits will be paid to me by the Company. 10) Termination for Cause for purposes of this Agreement shall be limited to termination for: (i) My gross, willful, and deliberate failure to perform a substantial portion of my duties hereunder for reasons other than disability, which failure continues for more than sixty (60) days after the Company gives written notice to me, setting forth in reasonable detail the nature of such failure; or (ii) conviction of a felony by a court of competent jurisdiction which is upheld upon appeal to a higher court, or upon the lapse of an appeal period if no appeal is taken from such conviction. a) Disability, for purposes of this Agreement, shall be limited to the following situations: (1) If I suffer any illness, disability, or incapacity which prevents me from substantially performing my duties, and such illness, disability or incapacity shall be deemed by a duly-licensed physician (who may be my personal physician) to be permanent; or (2) I am unable to substantially perform my duties for a period of twelve (12) consecutive months by reason of illness, disability, or incapacity, and the Board, by majority vote of its members, determines that I am permanently disabled. 11) During the course of my employment with the Company and for a period of twelve (12) months following termination of my employment, I will not, either individually or on behalf of or through any third party, directly or indirectly, hire, retain, entice, solicit or encourage any Company employee or consultant to leave the Company, nor will I directly or indirectly, be involved in the hiring, retaining or recruitment of any Company employee or consultant. This provision shall prohibit the aforesaid activities by me with respect to any person both while such person is an employee or consultant of the Company, and for ninety (90) days thereafter. 12) If I violate any provisions of this Agreement, then the time limitations set forth in this Agreement shall be extended for a period of time equal to the period of time during which such breach occurs and, in the event the Company is required to seek relief from such breach before any court, board, or other tribunal, then the time limitation shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. 13) I acknowledge that any breach of this Agreement by me may give rise to irreparable injury to the Company, which may not be adequately compensated by damages. Moreover, I acknowledge that to the extent that any breach of this Agreement by me may give rise to injury to the Company, which may be adequately compensated by damages, such damages are difficult or impossible to calculate. Accordingly, in the event of a breach or threatened breach of Paragraphs 1 through 7 of this Agreement by me, the Company shall have, in addition to any remedies it may have at law, the right to an injunction or other equitable relief to prevent the violation of its rights hereunder. 14) a) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. b) This Agreement supersedes all previous agreements, written or oral, between the Company and me relating to the subject matter of this Agreement. This Agreement may not be modified, changed or discharged in whole or in part, except by an agreement in writing signed by the Company and me. This Agreement shall be binding upon me and my heirs and personal representatives, and shall inure to the benefit of the Company and its successors, assigns and nominees, provided that Paragraph 1 above shall be binding upon such heirs and personal representatives only to the extent that they obtain from me confidential information of the Company. c) No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion is effective only in that instance and shall not be construed as a bar to or waiver of any right on any other occasion. d) I expressly consent to be bound by the provisions of this Agreement for the benefit of the Company or any parent, subsidiary, or affiliate thereof, without the necessity for any separate execution of this Agreement in favor of such parent, subsidiary, or affiliate. e) This Agreement is governed by the laws of the Commonwealth of Massachusetts, without giving effect to conflict of laws provisions thereof. Date 9-30-02 By: /s/ John R. Beals ----------------------------------- John R. Beals Senior Vice-President of Finance and Chief Financial Officer Agreed to and accepted by: THE FIRST YEARS INC. By: /s/ Ronald J. Sidman ---------------------------------- Ronald J. Sidman President, CEO and Chairman of the Board EX-99.1 5 b44497fyexv99w1.txt EX-99.1 CERTIFICATION OF OFFICERS EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The First Years Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald J. Sidman, Chairman, President, and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ Ronald J. Sidman ---------------------------------- Ronald J. Sidman, Chairman, President, and Chief Executive Officer In connection with the Quarterly Report of The First Years Inc. (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John R. Beals, Senior Vice President - Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ John R. Beals ---------------------------------- John R. 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EX-4.3

                                                                     Exhibit 4.3


           CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
                      SECURITIES AND EXCHANGE COMMISSION.
                           BRACKETS DENOTE OMISSIONS.

                                LICENSE AGREEMENT

Date: June 4, 2002

Re:   CONSUMER PRODUCTS LICENSE -- DISNEY PROPERTIES

This license agreement, including one or more schedules ("Schedule") attached
hereto (such agreement and each such Schedule, individually and collectively,
depending on context, referred to herein as "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 1 Kiddie Drive, Avon,
MA 02322. Disney and Licensee agree as follows:

1.       MEANING OF TERMS

For purposes of this Agreement, the following terms shall have the meaning
ascribed to them below:

         A.       "ADVANCE" means the non-refundable sum(s), not reduced by any
         applicable goods and services tax or other value added tax
         (collectively, "VAT"), stated in each Schedule, payable by the date(s)
         indicated therein, as an advance on Royalties to accrue in the
         period(s) stated in the applicable Schedule (as defined below.

         B.       "AFFILIATE" means, with regard to either party, any
         corporation or other entity which directly or indirectly controls, is
         controlled by, or is under common control with the party. "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.

         C.       "ARTICLES" means the items on or in connection with which the
         Licensed Material, the Trademarks, or both, are permitted to be
         reproduced or used, and includes each and every stock keeping unit
         ("SKU") of each Article as is specified on each Schedule attached
         hereto.

         D.       "ETAILER" means internet-based retailers that sell products to
         consumers and which have few or no physical store locations.

         E.       "GUARANTEE" means the sum(s), not reduced by any VAT, if
         applicable, which Licensee guarantees to pay as minimum Royalties on
         Licensee's cumulative sales of Articles, as stated in the applicable
         Schedule attached hereto, in the increments stated in the subject
         Schedule. Any shortfall shall be payable with the Royalty statement due
         at the end of the applicable Guarantee period. The Guarantee may be
         broken down into separate Guarantees for each of the Properties or
         individual product lines licensed thereunder, or as otherwise stated on
         the applicable Schedule.

         F.       "INTELLECTUAL PROPERTY" means:

                  (1)      "LICENSED MATERIAL", consisting of the graphic
         representations of the following:



           CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
                      SECURITIES AND EXCHANGE COMMISSION.
                           BRACKETS DENOTE OMISSIONS.


         Such characters and depictions of such characters, and such still
         scenes and accompanying design elements, as may be designated by
         Disney, from those Disney properties as are licensed hereunder (the
         "Properties") and are the subject of a written Schedule(s) attached
         hereto and incorporated herein by this reference, pursuant to such
         specifications as are set forth in the applicable Schedule(s) for the
         Properties licensed hereunder. At the time of execution of this
         Agreement, there is one (1) Schedule attached hereto; and

                  (2)      "TRADEMARKS" (which is deemed to read "Trade marks"
         if applicable) consisting of "WALT DISNEY", "DISNEY", the brand name(s)
         (if any) and logo(s) (if any) of the Properties in which Licensed
         Material included in Paragraph 1.F.(1) above appears, and such other
         marks as are licensed hereunder, pursuant to the specifications stated
         in the applicable Schedule. Licensee acknowledges and agrees that the
         "Disney" name may only be used as expressly approved by Disney under
         this Agreement.

         G.       "LAWS" means any and all applicable laws, rules, and
         regulations, including but not limited to, local and national laws,
         rules and regulations, treaties, voluntary industry standards,
         association laws, codes or other obligations pertaining to the grant
         and exercise of the license granted herein and to any of Licensee's
         activities under this Agreement, including but not limited to, those
         applicable to any tax, and to the manufacture, pricing, sale, or
         distribution of the Articles.

         H.       "MANUFACTURER" means any of Licensee's third-party
         manufacturers, factories, suppliers and facilities (and their
         sub-manufacturers, factories, suppliers and facilities), which
         reproduce or use the Licensed Material, the Trademarks, or both, on
         Articles, components of Articles, labels, hang-tags, packaging, or any
         other item related to the Articles, or which assemble the Articles, or
         which assemble a final product which includes one or more Articles.

         I.       "MARKETING DATE" means the date(s) specified on the applicable
         Schedule by which the specified Article(s) shall be available for
         purchase in commercial quantities by the public at the retail outlets
         authorized pursuant to Paragraph 2.A.

         J.       "NET INVOICED BILLINGS" constitute the basis upon which
         Royalties (as defined below) are calculated under this Agreement. Net
         Invoiced Billings do not include invoiced charges for transportation of
         Articles within the Territory which are separately identified on the
         sales invoice, or sales taxes, or any applicable VAT. Net Invoiced
         Billings is defined as actual invoiced billings (i.e., sales quantity
         multiplied by Licensee's selling price) for Articles sold, less
         Allowable Deductions. "Allowable Deductions" means:

                  (1)      volume discounts, defined as a lower initial selling
         price given solely in exchange for the purchase of Articles over a
         specified volume level; and

                  (2)      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




           CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
                      SECURITIES AND EXCHANGE COMMISSION.
                           BRACKETS DENOTE OMISSIONS.


         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 referenced below
         in Paragraph 1.J.(3). Returns are not covered under this Paragraph 1.J.
         (see Paragraph 1.N.(6)).

                  (3)      No other discounts or allowances are permitted under
         this Agreement. The following list illustrates the types of discounts
         and allowances that 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; shrinkage
         allowances, costs and expenses incurred, and allowances or discounts
         voluntarily given, in connection with manufacturing, importing, selling
         or advertising Articles; listing/slotting fees or allowances; retailer
         partnership agreements; promotion allowances; freight costs
         incorporated in the selling price; and uncollectible accounts. The
         foregoing is not an exhaustive list of disallowed deductions, and other
         allowances or discounts that are in the nature of, or similar to, the
         foregoing examples likewise shall not qualify as Allowable Deductions.
         The only Allowable Deductions are those set forth in Paragraphs 1.J.(1)
         and (2). If Licensee wishes to take a deduction not identified above,
         it is Licensee's obligation to obtain Disney's prior written approval
         of such item before taking it as a deduction under Paragraph 1.J.

         K.       "PROMOTION COMMITMENT" means the following sum(s) which
         Licensee agrees to spend in the following way(s), in accordance with
         the provisions of Paragraph 18.A.:

                  [     ]

         L.       "RENEWAL OPTION" means the option to extend this Agreement for
         a consecutive [    ] period, in accordance with Paragraph 2.F.

         M.       "RETAILER" means independent and chain retail outlets which
         have storefronts and business licenses, and which customers walk into,
         not up to. 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.

         N.       "ROYALTIES" means a copyright royalty (no royalty is
         chargeable for use of the Trademarks) in the amounts set forth below in
         Paragraphs 1.N.(l)(a) and (b), and Royalties shall be further governed
         by the provisions contained in Paragraphs 1.N.(2)-(8):

                  (1)      (a) Licensee agrees to pay Royalties at the rate set
         forth on the applicable Schedule based on Net Invoiced Billings for
         "Landed Sales" of Articles. Landed Sales occur when Licensee bears the
         cost of transportation and, if applicable, importation, of the Articles
         to and within the country of sale; and



           CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
                      SECURITIES AND EXCHANGE COMMISSION.
                           BRACKETS DENOTE OMISSIONS.


                           (b)      Licensee agrees to pay Royalties at the rate
         set forth on the applicable Schedule based on Net Invoiced Billings for
         "F.O.B. Sales" of Articles. F.O.B. Sales occur when Licensee's customer
         bears the cost of transportation and, if applicable, importation, of
         the Articles to and within the country of sale (e.g., the customer buys
         the Articles "F.O.B. Hong Kong", or "F.O.B. Manufacturer"); F.O.B.
         Sales also occur when the customer bears most of such cost, and
         Licensee bears a portion of such cost.

                  (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; however, if the Affiliate is
         authorized to sell and is selling the Article to consumers, or for
         resale to consumers, Disney's Royalties shall be calculated on the
         Affiliate's Net Invoiced Billings to customers.

                  (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. Sales. However, sales of Articles to
         Disney's Affiliates outside the Territory shall bear a Royalty at the
         rate for Landed 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.

                  (7)      "ROYALTY PAYMENT PERIOD" means each calendar
         quarterly period during the Term and during the sell-off period, if
         granted.

                  (8)      Licensee shall report sales of Articles to Disney's
         licensees or Disney's Affiliates' licensees on Licensee's statement but
         Licensee will not be required to pay Disney Royalties on such sales, so
         long as the purchasing licensees are licensed to sell the Articles and
         are paying Disney royalties on the resales on such Articles. Double
         royalties are not owed to Disney on these sales.

         O.       "SAMPLES" means the number of samples stated in the applicable
         Schedule from the first production run of each supplier of each SKU of
         each Article.

         P.       "SCHEDULE" means each separate "Schedule to License Agreement"
         entered into between Disney and Licensee, the terms of each of which
         are hereby incorporated herein by reference and made a part hereof as
         though fully set forth. Each Schedule attached hereto shall state any
         and all contract terms as are specific to the Property(ies), Articles,
         Territory, or other matter set forth on each such Schedule.



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         Q.       "TERM" of this Agreement means the period commencing as of
         January 1, 2003, and ending upon the expiration of the latest Schedule
         entered into hereunder. The term applicable for each specific Schedule
         attached hereto shall be the period commencing as of the Effective Date
         and ending on the Termination Date stated on the applicable Schedule.

         R.       "TERRITORY" means the countries, regions or other geographic
         designations specified on each applicable Schedule.

         S.       "WHOLESALER" means a seller of products to retailers, not
         consumers, and includes the term "distributor".

2.       RIGHTS GRANTED

         A.       (1)      In consideration for Licensee's promise to pay and
         Licensee's payment of all monetary obligations required hereunder, and
         Licensee's performance of all obligations required of Licensee
         hereunder for each Schedule entered into between Disney and Licensee,
         Disney grants Licensee the non-exclusive rights during the term of the
         relevant Schedule, and only within the Territory to:

                           (a)      reproduce the subject Licensed Material only
         on or in connection with the Articles;

                           (b)      use the specified Trademarks in such manner
         as may be approved when each SKU of the Articles is approved hereunder,
         and only on or in connection with the Articles;

                           (c)      manufacture, distribute for sale and sell
         the Articles as authorized by this Paragraph 2; and

                           (d)      reproduce and use the approved Intellectual
         Property on containers, packaging and display material for the
         Articles, and in advertising for the Articles.

                  (2)      Licensee is authorized to sell the Articles only to
         authorized customers in the Territory as specified herein or in the
         relevant Schedule, as applicable.

                           (a)      Licensee also may sell the Articles to
         authorized customers for resale through the pre-approved mail order
         catalogs listed on the Catalog List(s) attached to this Agreement, and
         Licensee shall pay Royalties on such sales at the rate specified for
         Retailers in the applicable Schedule. If Licensee wishes to sell the
         Articles to customers for resale through mail order catalogs other than
         those listed on the Catalog List attached hereto, Licensee must obtain
         Disney's prior written consent in each instance. However, Licensee may
         sell to Retailers which sell predominantly at retail, but which include
         the Articles in their mail order catalogs.

                           (b)      Licensee also may sell the Articles to
         authorized Etailers for resale to consumers by computer online selling,
         and Licensee shall pay Royalties on such sales at the rate specified
         for Retailers in the applicable Schedule. From time to time, Licensee
         may request from Disney the then current list of pre-approved Etailers,




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         which are the only Etailers to which Licensee is automatically
         authorized to sell Articles. Authorized Etailers may display, promote
         and sell Articles on their online venues, subject to Disney's
         "eCommerce Guidelines", attached hereto and incorporated herein by this
         reference. Sales may only be made to consumers physically located in
         the Territory. Any Etailer which violates Disney's eCommerce Guidelines
         shall be deleted from the list of approved Etailers, and Licensee may
         not sell Articles to such Etailer after notice from Disney.

                           (c)      In addition to the online selling permitted
         by authorized Etailers, Articles approved by Disney may be displayed
         and promoted on Disney-controlled online venues, only within the
         Territory. Articles approved by Disney also may be displayed and
         promoted on Licensee's own online venue, and may be displayed, promoted
         and sold on authorized Retailers' online venues, subject to Disney's
         eCommerce Guidelines.

                           (d)      Licensee is expressly prohibited from
         selling, using or providing the Articles as follows:

                                    (i)      Licensee shall not sell the
         Articles by direct marketing methods, which includes but is not limited
         to, direct mail and door-to-door solicitation. Licensee shall 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.

                                    (ii)     Licensee shall not sell or
         otherwise provide Articles for use as premiums (including those in
         purchase-with-purchase promotions), promotions, giveaways,
         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.

                                    (iii)    Licensee shall not sell Articles to
         any customer which Licensee knows or reasonably should know engages in
         illegal business practices or ethically questionable distribution
         methods.

                                    (iv)     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, and in any case never exceed
         one-tenth of a percent (0.1%) of all Articles sold on an annual basis.

         B.       All rights not expressly granted to Licensee herein are
         reserved to Disney. Without limitation of the generality of the
         foregoing reservation of rights, and by way of example for the
         avoidance of doubt, nothing in this Agreement shall be deemed to
         restrict in any way (i) Disney's or its Affiliates' right to enter into
         promotional license agreements with third-party promotion partners for
         the manufacture, sale or distribution of premium items of merchandise
         that promote the Properties, and (ii) the rights of Disney's or its
         Affiliates' owned, operated or licensed retail stores and theme



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         parks to source and sell items of merchandise which may be similar or
         identical to the Articles licensed under this Agreement.

         C.       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.

         D.       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.

         E.       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 efforts to preserve and maintain that value, Licensee
         agrees that, during the 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.

         F.       Provided that Royalties earned and paid to Disney during the
         period commencing January 1, 2003 through [ ], meet or exceed $[ ], and
         further provided that Licensee has complied with all terms and
         conditions of the Agreement, this Agreement shall be extended for [ ]
         commencing [ ] and ending [ ] (the "Renewal Period"), unless Licensee
         notifies Disney in writing by [ ] that it declines the Renewal Period.
         Certain of the terms and conditions for the Renewal Period are already
         set forth in this Paragraph 2.F. and sections 8 and 9 of Schedule 1;
         any new terms and conditions mutually agreed upon will be negotiated in
         a commercially reasonable manner and specified by amendment to the
         Agreement.

3.       ADVANCE

         A.       Licensee agrees to pay the Advance, which shall be on account
         of Royalties to accrue during the term for the relevant Schedule only,
         and only with respect to sales in the Territory; provided, however,
         that if any part of the Advance is specified as applying to any period
         less than the entire term of the subject Schedule, 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.

         B.       Royalties accruing during any sell-off period or extension of
         the Term or any term of any relevant Schedule shall not be offset
         against the Advance unless otherwise agreed in writing. Royalties
         accruing during any extension of the 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 for any given Schedule or any subsequent advance.


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4.       GUARANTEE

         A.       Licensee shall, with Licensee's statement for each Royalty
         Payment Period ending on a date indicated in Paragraph 1.E, hereof
         defining "Guarantee" and in each relevant Schedule, or upon termination
         if the Agreement or the relevant Schedule specifying a Guarantee is
         terminated prior to the end of the Term or the stated term of such
         Schedule, as applicable, 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 subject 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.       On each Schedule, Advances applicable to Royalties due on
         sales in the period to which the Guarantee relates shall apply towards
         meeting the Guarantee for that Schedule.

         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 any Guarantee or any subsequent guarantee. If
         any sell-off period is granted under this Agreement, Royalties
         generated from sales during such period may not be applied towards the
         meeting of any 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 of the Intellectual Property, 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 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 Intellectual Property
         is used. Licensee acknowledges that Disney may not approve concepts or
         artwork submitted near the end of the term of the relevant Schedule, or
         concepts or artwork perceived to be for selling periods beyond the
         applicable Termination Date. 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


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         Article to be immediately withdrawn from the market. Any modification
         of any approved SKU of an Article, including, but not limited to,
         change of materials, color, design or size of the representation of the
         Intellectual Property 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 from 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.       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.

         E.       If and as applicable, the likenesses and product application
         of the characters used on or in connection with the Articles are
         subject to any third party approvals Disney deems necessary to obtain,
         Disney will act as the liaison with such third parties during the
         approval process.

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 set
         forth on the Schedule(s) attached hereto, 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. One of Licensee's officers shall attest to such
         destruction in a certificate, and shall provide Disney with a copy of
         each such certificate. 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 by 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



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         the purpose of comparison with earlier samples, or for Disney's
         anti-piracy efforts, or to test for compliance with applicable Laws.

         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 committing 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.

         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 Intellectual Property 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 the
         Intellectual Property. Likewise, if the 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
         Paragraph 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 or are
         alleged to be violative of any third party rights, 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



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         Agreement, or if Disney has inadvertently approved an Article using
         artwork 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 further
         distributed or sold by or for Licensee.

7.       APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL, AND ADVERTISING

         A.       All containers, packaging, display material, promotional
         material, catalogs, and press releases relating to the Articles, and
         all advertising relating to the Articles, including but not limited to,
         television, radio, or internet advertising, 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, advertising or press releases is prohibited.
         Disney's approval of any containers, packaging, display material,
         promotional material, catalogs, advertising or press releases under
         this Agreement will not constitute or imply a representation or belief
         by Disney that such materials comply with any applicable Laws, which
         compliance shall be solely Licensee's responsibility. 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 materials for Disney's approval.

         C.       Disney has designed character artwork or a brand name logo(s),
         or both, to be used by all licensees in connection with the packaging
         of all merchandise using the Intellectual Property, 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 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 preapproved 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. The
         packaging may be different for different distribution channels, and
         Licensee agrees to use the packaging designated by Disney for the
         applicable distribution channel.

8.       ARTWORK


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         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 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 for
         the modification to be done by Disney) at Disney's then prevailing
         commercial art rates, not reduced by any VAT, if applicable. 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 maximize the attractiveness of the
         Articles and to minimize delays which may occur if outside artists do
         renditions of which Disney cannot approve. Artwork will be returned to
         Licensee by overnight courier, at Licensee's cost (unless other
         arrangements are made).

9.       PRINT, RADIO, INTERNET OR TV ADVERTISING

         Licensee will obtain all approvals necessary in connection with print,
         radio, internet 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; ensuring their
         compliance with all applicable Laws shall be solely Licensee's
         responsibility. This Agreement does not grant Licensee any rights to
         use the Intellectual Property in animation. Licensee may not use any
         animation or live action footage from the Property from which the
         Intellectual Property comes without Disney's prior written approval in
         each instance. In the event Disney approves the use of film clips of
         the Property from which the Intellectual Property 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, billboards, or both.
         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 or province) will appear on
         permanently affixed labeling on each Article and, 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 or CA numbers do not constitute a sufficient label under this
         paragraph. Licensee also must ensure that the Articles comply with any
         labeling required by any applicable Customs Agency (e.g., country of
         origin).



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         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. Licensee covenants
         that it will comply with all applicable Laws in performing this
         Agreement, including but not limited to, those pertaining to the
         manufacture, pricing, sale and distribution of the Articles.

                  (1)      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 product safety Laws,
         and shall permit Disney's designees to inspect testing and quality
         control records and procedures, and to test the Articles for compliance
         with product safety and other applicable Laws; however, Disney shall
         not be required to conduct any such testing. Licensee agrees to
         promptly reimburse Disney for the actual 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.

         B.       Without limiting the foregoing, Licensee covenants on behalf
         of Licensee's own manufacturing facilities to comply with the Code of
         Conduct for Manufacturers, attached hereto and incorporated herein by
         this reference, in the manufacturing, packaging and distribution of the
         Articles. Licensee further agrees to require all Manufacturers to
         covenant to comply with the Code of Conduct for Manufacturers in the
         manufacturing, packaging and distribution of the Articles, by signing
         the Manufacturer's Agreement (referenced in Paragraph 12).

                  (1)      The Code of Conduct for Manufacturers shall not be
         interpreted to require Licensee or its Manufacturers to violate any
         applicable Law.

                  (2)      As provided in the Code of Conduct for Manufacturers,
         Licensee and the Manufacturers agree that Disney and its designated
         agents (including third parties) may engage in monitoring activities to
         confirm compliance with this Paragraph 11. Licensee agrees to promptly
         reimburse Disney for the reasonable cost of inspections performed
         pursuant to this Paragraph 11 when any of Licensee's manufacturing
         facilities or any Manufacturer does not pass the inspection(s). The
         amount reimbursed will not be prorated in the event the Manufacturer is
         also used by other licensees or vendors.


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                  (3)      Licensee agrees to be bound by the Code of Conduct
         for Licensees, attached hereto and incorporated herein by this
         reference. This includes, but is not limited to, taking appropriate
         steps, in consultation with Disney, and as required by Disney's
         Compliance Program for licensees, to develop, implement and maintain
         procedures to evaluate and monitor the Manufacturers it uses to
         manufacture the Articles or components thereof, and to ensure
         compliance with Paragraph 11. B., including but not limited to,
         unannounced on-site inspections of manufacturing, packaging and
         distribution facilities and employer-provided housing, reviews of books
         and records relating to employment matters and private interviews with
         employees. Licensee acknowledges that Disney may require a pre-approval
         compliance inspection of any Manufacturers Licensee wishes to use to
         produce the Articles, components, or related items.

12.      MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS

         A.       Licensee agrees to supply Disney with the names and addresses
         of all of its own manufacturing facilities for the Articles. If
         Licensee at any time desires to use a third-party Manufacturer to
         produce the Articles, components of Articles, or related items bearing
         Licensed Material, Trademarks, or both, whether the third party is
         located within or outside the Territory, Licensee must, as a condition
         to the continuation of this Agreement, notify Disney of the accurate
         name and complete address of such Manufacturer and the Articles,
         components, or related items, and obtain Disney's prior written
         permission to do so. If Disney is prepared to grant permission, Disney
         will do so if each of Licensee's Manufacturers signs a Manufacturer's
         Agreement in a form which Disney will furnish to Licensee, and Disney
         receives all such agreements properly signed. Disney also may require a
         pre-approval compliance inspection of a Manufacturer prior to the
         production of any Articles, components, or other items involved.
         Licensee must immediately notify Disney if Licensee is no longer using
         a Manufacturer to manufacture the Articles, components, or related
         items.

         B.       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 Manufacturer, Disney makes
         any representation or takes any action and is thereby subjected to any
         penalty or expense, Licensee will fully compensate Disney for any cost
         or loss Disney sustains (in addition to any other legal or equitable
         remedies available to Disney).

         C.       If any Manufacturer fails to pass a compliance inspection as
         referenced in Paragraph 11, and thereafter fails to remedy the cited
         failure(s) within the time designated by Disney, or if the Manufacturer
         otherwise breaches the Manufacturer's Agreement, the Manufacturer's
         Agreement for such Manufacturer may be terminated immediately by
         Disney, and Licensee shall not thereafter use such Manufacturer to
         manufacture Articles, components, or related items. In the case of a
         pre-approval compliance inspection, if a Manufacturer fails to pass the
         compliance inspection, and thereafter fails to remedy the cited
         failure(s) within the time designated by Disney, Licensee shall not use
         such Manufacturer to produce Articles, components or related items. If
         Licensee fails to notify Disney that it has ceased using a particular



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         Manufacturer, and Disney or its designated agent conducts a compliance
         inspection of such Manufacturer, Licensee remains obligated to work
         with the Manufacturer to remedy any cited failure(s), or, in the
         alternative, the Manufacturer's Agreement shall be deemed terminated
         for purposes of Paragraph 28.B. (11), and Licensee shall promptly
         reimburse Disney for the reasonable cost of the compliance inspection.

13.      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 licensors, if applicable to any Property.
         Licensee shall neither acquire nor assert copyright ownership or any
         other proprietary rights in the Licensed Material or in any derivation,
         adaptation, or variation thereof. Without limiting the foregoing,
         Licensee hereby assigns to Disney all of Licensee's worldwide right,
         title and interest in the Licensed Material and in any material objects
         containing, consisting of, or to the extent that they incorporate
         Licensed Material, or other adaptations, compilations, collective
         works, derivative works, or variations 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. 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. 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 Paragraph 13, 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. With
         regard to any molds, plates and other items used to reproduce the
         Intellectual Property, Licensee agrees that it will never sell or
         transfer such molds, plates, or other items to any third party without
         Disney's prior written consent.

14.      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. 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


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         whatever documents are necessary to convey to Disney that copyright
         represented by any such improper copyright notice. If by inadvertence
         or otherwise, an improper copyright notice appears on, or if 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 error 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 error and to make the corrections on existing
         Articles which can be located.

15.      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
         licensors, if applicable) is the exclusive owner of all the Trademarks,
         and of any trademark incorporating 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 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 follow
         Disney's instructions for proper use of the Trademarks and trademarks,
         and to execute and deliver to Disney such documents as Disney requires
         to protect and register the Trademarks and trademarks.

         B.       Licensee agrees not to use any Licensed Material or
         Trademarks, or any trademark incorporating 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 (as mutually agreed with Disney) 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 owned by
         Licensee or used by Licensee under license in connection with the
         Articles which is not derived or adapted from Licensed Material,
         Trademarks, or other materials owned by Disney (or its licensors, if
         applicable).

16.      NON-ASSOCIATION OF OTHER MATERIAL WITH LICENSED MATERIAL

         To preserve Disney's identification with Disney's Licensed Material 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 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.


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17.      ACTIVE MARKETING OF ARTICLES

         Licensee agrees to manufacture (or have manufactured for Licensee) and
         actively offer for sale all the Articles and to actively 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 Paragraph 1.I., by six (6) months from the commencement of the term
         of the applicable Schedule 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 in all
         distribution channels authorized pursuant to Paragraph 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, or withdraw the applicable distribution channel, or withdraw
         such Article from the applicable Schedule, without obligation to
         Licensee other than to give Licensee written notice thereof.

18.      PROMOTION COMMITMENT

         A.       Licensee agrees to carry out the Promotion Commitment, as
         defined in Paragraph 1.K. The advertising and promotion activities
         required thereunder to promote the sale of the Articles shall include
         one or more of the following activities:

                  -        point of purchase displays (not including packaging
                           or other individual product costs)

                  -        media advertising

                  -        measurable public relations programs

                  -        sampling

                  -        contests and games approved in advance in writing by
                           Disney

                  -        trade shows, catalog or trade activities, fashion
                           shows

                  -        participation in group promotions organized by Disney

                  -        other activities as agreed in advance in writing with
                           Disney

                  All promotional material is subject to the approval provisions
         of Paragraph 7 hereof.

         B.       For purposes of determining Licensee's satisfaction of the
         Promotion Commitment, all consumer advertising and merchandising costs
         associated with the above-listed activities for the Articles, but not
         including packaging or other individual product costs, will be counted
         toward the requirement; provided, however, that any advertising
         discounts given in connection with cooperative advertising may not be
         included in the calculation.

         C.       One time during each twelve (12) month period during the Term,
         Licensee also shall provide Disney with a statement describing the
         funds theretofore spent and consumer exposure provided as required in
         this Paragraph, together with a description of the manner in which such
         funds were spent, all of which information shall be broken down by
         country within the Territory, and provided in such detail as Disney may
         specify from time to time. Amounts spent in excess of the Promotion



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         Commitment during any Royalty Payment Period may be credited against
         the Promotion Commitment for any other Royalty Payment Period occurring
         in the same twelve month period during the Term. If in any Royalty
         Payment Period Licensee has not satisfied the Promotion Commitment,
         Licensee (i) may carry forward such shortfall into the next succeeding
         Royalty Payment Period (other than in the case of a shortfall in the
         final Royalty Payment Period hereunder, in which case no carry forwards
         shall be permitted), or (ii) shall pay Disney the amount of such
         shortfall as liquidated damages; provided, however, no shortfall (or
         fraction thereof) may be carried forward more than twelve months.
         Licensee acknowledges that its expenditure of the Promotion Commitment
         as provided for herein increases the value of the business from which
         Disney benefits as licensor. Licensee and Disney agree that it is
         impracticable and extremely difficult to fix the actual damages which
         may proximately result from Licensee's failure to fulfill its
         obligation as provided for herein, and Licensee's liability for failure
         to do so shall, for each Royalty Payment Period, be limited to and
         fixed at the sum of an amount equal to the shortfall between the amount
         Licensee actually spends on the Promotion Commitment during such
         Royalty Payment Period as theretofore reported to Disney and the amount
         required to be expended hereunder. Such cumulative amount shall be
         considered liquidated damages and not a penalty.

19.      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
         Intellectual Property 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.

20.      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 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 unauthorized use thereof, and all
         revenues from the use of any other copyrighted material of Disney's (or
         its licensors, if applicable), without written authorization from
         Disney, shall be immediately payable to Disney.

         B.       Licensee agrees that it will give Disney prompt written notice
         of any unlicensed use by third parties of the Intellectual Property,
         and that Licensee will not, without Disney's written consent, bring or
         cause to be brought any criminal prosecution, lawsuit or administrative
         action for infringement, interference with or


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         violation of any rights to the Intellectual Property. 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-complainant in any
         action against an infringer of the Intellectual Property 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.

21.      STATEMENTS AND PAYMENTS OF ROYALTIES

         A.       Licensee agrees to furnish to Disney by the 25th 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 separately for each Property licensed
         hereunder, including but not limited to, the name of the subject
         Property, the quantities, Net Invoiced Billings (reported in U.S.
         Dollars and, if the Territory includes any country other than the U.S.,
         Net Invoiced Billings also should be reported in the currency invoiced
         to customers) and applicable Royalty rate(s) of Articles using
         Intellectual Property from such Property invoiced during the preceding
         Royalty Payment Period, and the quantities and invoice value of
         Articles returned for credit or refund in such period, as well as sales
         forecasts (if requested), and the country of sale. At the same time
         Licensee will pay Disney all Royalties not reduced by any VAT (if
         applicable) due on billings shown by such statements. All monies owed
         to Disney shall be sent to the address identified in Paragraph 21.D.,
         or, if requested by Disney, by electronic transfer to such account as
         Disney may designate. To the extent that any monies owed to Disney
         under this Agreement are not paid, Licensee authorizes Disney to offset
         any amount(s) which is due at any time 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. All payments are to be made in U.S. Dollars. In the event
         that an exchange rate is necessary, Licensee shall use the official
         buying rate of exchange as published in the Wall Street Journal, New
         York Edition, on the last business day of the applicable Royalty
         Payment Period, and Licensee shall identify such exchange rate on the
         Royalty reporting forms.

         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 designated by Disney (including, for example, forms to be
         sent by electronic transmission). If it is necessary for Licensee to
         adapt its system to be able to report statements by electronic
         transmission, or to make payments by electronic transfer, all costs of
         such adaptation shall be borne entirely by Licensee. Licensee agrees to
         fully comply with all instructions supplied by Disney for completing
         any reporting forms, or adhering to any required format.



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         C.       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.

         D.       Licensee's payments, including all Royalties, shall be wire
         transferred to [ ]; or delivered to such address as Disney designates;
         currently, Disney designates the following address: Disney Enterprises,
         Inc., [ ] Los Angeles, California 90074-5988. If Licensee wire
         transfers payments, including Royalties, Licensee shall send the
         corresponding statement to the foregoing address. If Licensee wishes to
         send statements and payments by overnight courier, the current address
         is: Bank of America Lockbox Services, [ ], Ground Level, 1000 W. Temple
         Street, Los Angeles, California 90012. However, Advances should be
         mailed directly to Disney at 500 South Buena Vista Street, Burbank,
         California 91521-6835, to the attention of the Contract Administrator
         or Legal Department, Consumer Products Division. Acceptance of any
         payment from Licensee, whether by wire transfer or otherwise, is not a
         waiver of any rights on the part of Disney.

         E.       From time to time, upon request by Disney, Licensee shall
         furnish to Disney's Credit Department, no later than seven days after
         such request, such financial reports, including balance sheets,
         statements of income and cash flows, as Disney deems necessary to
         evaluate Licensee's ongoing creditworthiness and ability to perform
         this Agreement.

22.      INTEREST

         Royalties or any other payments due to Disney hereunder which are
         received after 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.      CONFIDENTIALITY

         Licensee represents and warrants that Licensee did not disclose to any
         third party the prospect of a license from Disney, and that Licensee
         did not trade on the prospect of a license from Disney, prior to full
         execution of this Agreement. Licensee agrees not to issue any press
         release regarding this Agreement or Disney without obtaining Disney's
         prior written consent. 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
         addition, Licensee may have access to information concerning Disney's
         or its Affiliates' business and operations, or information concerning
         works in progress, artwork, plots, characters or other matters relating
         to Disney's or its Affiliates' artistic creations, which information
         may not be accessible or known to the general public. Licensee agrees
         not to use or disclose such information to any third party without
         obtaining Disney's prior written consent. In the event Licensee is
         required to disclose this Agreement, or any part thereof, pursuant to
         any law, court 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



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         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.

24.      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 two (2) years
         after the expiration or termination of this Agreement or a period of
         seven (7) years.

         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 and photocopies 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 and unaffiliated sublicensees or other subcontractors 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. Licensee
         acknowledges that an audit conducted by Disney or its representatives,
         may involve one or more license agreements at a time.

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 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 U.S. $100 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.

25.      INDEMNITY


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         A.       Licensee shall indemnify Disney during and after the term
         hereof against all claims, demands, suits, judgments, losses,
         liabilities 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, representation or
         warranty 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 licensors, if
         applicable, and its and their 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 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 13.

         B.       Disney shall indemnify Licensee during and after the term
         hereof against all claims, demands, suits, judgments, losses,
         liabilities 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 and 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
         13. Licensee shall not, in any case, be entitled to recover for lost
         profits.

         C.       Additionally, if by reason of any claims referred to in
         Paragraph 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, 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
         Intellectual Property 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 Intellectual Property
         therewith, do not infringe such right of any third party, and Disney
         shall not be liable to Licensee if such infringement occurs.

         E.       With regard to any indemnified claims under this Paragraph 25,
         the party entitled to indemnification shall give written notice to the
         other party of the claim. The indemnifying party shall select mutually
         agreeable counsel, and shall consult in a


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         meaningful fashion with the indemnified party in the conduct of the
         defense of the claim. Promptly upon request, the indemnified party
         shall provide reasonable assistance in the defense of such claims at
         the expense of the indemnifying party. If the indemnified party desires
         to be represented by separate counsel, it shall be responsible for all
         fees and costs associated therewith. Alternatively, the indemnified
         party may choose to be represented by the indemnifying party's counsel,
         in which case the indemnifying party shall be entirely and solely
         responsible for all fees and costs associated therewith. The
         indemnifying party and the indemnified party may enter into good faith
         settlement(s) of the claim, with the consent of the other party, not to
         be unreasonably withheld.

         F.       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 U.S. Consumer Product Safety Commission ("CPSC")
         or other federal, state, provincial, 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 and any Schedule(s) entered into hereunder are 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 an additional "insured"
         each party indemnified in Paragraph 25 hereof. Licensee also agrees to
         maintain in full force and effect at all times while this Agreement and
         any Schedule(s) entered into hereunder are in effect such Worker's
         Compensation Insurance as is required by applicable provincial or state
         law and, if Licensee is a U.S.-based licensee, 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 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 Paragraph 1.I., by six (6) months
         from the commencement of the term of the



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         applicable Schedule 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 case
         of any withdrawal under the preceding sentence, the Advances and
         Guarantees shall be adjusted to correspond to the time remaining in the
         term of the affected Schedule(s), or the number of Articles remaining
         under such Schedule(s), 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 (or any Schedule(s) entered into hereunder) by giving
         Licensee written notice thereof, if Licensee (i) fails to manufacture,
         sell or distribute the Articles in accordance with this Agreement, (ii)
         fails to timely furnish statements and timely pay Royalties or any
         other amounts due to Disney hereunder, (iii) fails to notify Disney of
         the accurate name and complete address of Licensee's manufacturing
         facilities or any Manufacturer of the Articles, (iv) fails to have any
         such Manufacturer execute the Manufacturer's Agreement, or (v)
         otherwise fails to comply with or perform any other obligation or
         covenant hereunder or breaches any other term of this Agreement (other
         than those set forth in Paragraph 28.B. below); provided that Licensee
         shall have thirty (30) days (or, in the case of non-payment of any
         monetary obligations due Disney under the Agreement within fifteen (15)
         days) after Disney sends Licensee written notice of termination to
         correct any such failure or breach capable of being corrected and avoid
         termination.

         B.       Disney shall have the right at any time to terminate this
         Agreement immediately upon giving Licensee written notice thereof if
         one or more of the following events occur (provided, however, that with
         respect to clause (6) below such termination shall occur automatically
         and immediately without the need for any notice):

                  (1)      if Licensee delivers to any customer without Disney's
         written authorization merchandise containing representations of
         Intellectual Property or other material the copyright or other
         proprietary rights to which are owned by Disney other than Articles
         licensed herein and approved in accordance with the provisions hereof;

                  (2)      if Licensee delivers Articles outside the Territory
         or knowingly sells Articles to a third party when Licensee knows or
         should know in the exercise of prudent business judgment that such
         sales ultimately will result in delivery outside the Territory, unless
         pursuant to a written distribution permission or separate written
         license agreement with Disney or any of Disney's Affiliates;



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                  (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 breaches any surviving obligation under
         any other license agreement between the parties, even if such agreement
         has expired;

                  (6)      if Licensee shall generally not pay its debts as such
         debts become due, or shall make a general assignment for the benefit of
         creditors; or any proceeding shall be instituted by or against Licensee
         seeking to adjudicate it as bankrupt or insolvent, or seeking
         liquidation, winding up, reorganization, arrangement, adjustment,
         protection, relief or composition of it or its debts under any law
         relating to bankruptcy, insolvency or reorganization or relief of
         debtors, or seeking the entry of any order for relief or the
         appointment of a receiver, trustee or other similar official for all or
         for any substantial part of its property or assets;

                  (7)      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;

                  (8)      if any event shall occur or condition shall exist
         under any agreement or instrument relating to institutional
         indebtedness or financial obligations owed by Licensee, including the
         failure to pay principal or interest thereon, and such event or
         condition shall continue after any applicable grace period specified in
         such agreement or instrument, and the effect of such event or condition
         is to accelerate, or to permit the acceleration of, the maturity of
         such indebtedness or obligations or otherwise cause, or to permit the
         holder thereof to cause, such indebtedness or obligations to mature;

                  (9)      if Licensee, due to material changes in its financial
         position, or for other reasons, is unable to meet Licensee's
         obligations under this Agreement, or is unable to provide Disney with
         assurance satisfactory to Disney that Licensee will be able to meet
         such obligations;

                  (10)     if Licensee breaches any covenant set forth in
         Paragraph 11 of this Agreement; or

                  (11)     if more than three Manufacturer's Agreements are
         terminated in any twelve-month period by Disney for the Manufacturers'
         failure to pass compliance inspections as referenced in Paragraphs 11
         and 12; or

                  (12)     if Licensee breaches any material term of this
         Agreement and the breach is not reasonably capable of being cured or
         otherwise corrected to Disney's satisfaction.



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         C.       If Disney terminates this Agreement pursuant to this Paragraph
         28, Licensee shall not be permitted to seek injunctive relief to
         contest Disney's determination that a termination event has occurred or
         to otherwise affect Disney's full and absolute control of the Licensed
         Material and the Trademarks; provided however, Licensee may bring an
         action for damages, but prior to and during any such action, Disney
         shall have full and absolute control over the Licensed Material and the
         Trademarks.

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 for the entire Term shall be immediately due
         and payable (together with the Royalty statement due at such time), and
         Disney shall be entitled to retain all Royalties and other things of
         value paid or delivered to Disney. Notwithstanding the foregoing, if
         this Agreement expires or terminates prior to the renewal period, no
         portion of the Guarantee applicable to the Renewal Period shall be
         payable to Disney. Licensee agrees that the Articles shall be
         manufactured during the term of each applicable Schedule 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 term
         thereof. 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 (including Style Guides, animation cells 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 the Intellectual Property, and that, except as hereinafter
         provided, Licensee will cease selling Articles. Any unauthorized
         distribution of Articles after the expiration or termination of this
         Agreement or any applicable Schedule shall constitute copyright
         infringement.

         B.       If Licensee has any unsold Articles in inventory on the
         expiration or termination date of the applicable Schedule, 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 two (2) calendar months from such expiration or earlier termination
         date to sell off and deliver such Articles as authorized under
         Paragraph 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 applicable Advance or towards meeting
         the applicable Guarantee. If the sell-off period is extended by Disney
         to a date which is not the last day of the Royalty Payment Period,
         Licensee's statement and Royalties for such sell-off period shall be
         due twenty-five (25) days after the last day of the sell-off period.
         All rights and remedies available to Disney during the Term shall be
         equally available to Disney during 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 Term and any
         sell-off period, Licensee agrees to refrain from "dumping" the Articles
         in the market during the Term and any sell-off


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         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 of the term of the applicable Schedule 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. Licensee acknowledges that this
         will be necessary at the end of the term of each Schedule entered into
         under this Agreement.

         F.       Notwithstanding any provision to the contrary, in the case of
         termination under Paragraph 28.B. (6) or (7), 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.       This Agreement, and the rights granted hereunder to Licensee,
         are personal to Licensee, who was specifically chosen by Disney to be
         licensed hereunder because of Licensee's and certain employees'
         particular expertise and ability to design, produce and sell the
         Articles in ways which maximize the value of the Articles, and to
         otherwise perform the Agreement. Licensee shall not voluntarily or by
         operation of law assign, sub-license, transfer, encumber or otherwise
         dispose of all or any part of



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         Licensee's interest in this Agreement (including, but not limited to,
         any encumbrance of the Articles) 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, obligations,
         or both, under this Agreement, 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 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; or,
         if Licensee is a legal entity other than a corporation or partnership,
         resulting in the transfer of thirty-three and one-third percent
         (33-1/3%) or more of the control of Licensee, or the occurrence of any
         of the foregoing with respect to any manager or administrator of the
         legal entity).

         B.       Licensee agrees to provide Disney with at least thirty (30)
         days prior written notice of any desired assignment of this Agreement
         or other transfer as defined in Paragraph 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 Paragraph 32.A. 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 other entity involved in the transfer; and Disney's internal costs
         related to the assignment or other transfer; provided, however, in no
         event shall the transfer fee be in an amount less than U.S. $[ ] for
         each Disney license (or Schedule), brands and/or Property(ies) (as
         applicable) involved in an assignment or other transfer, up to a
         maximum total fee of U.S. $[ ] per transfer for all affected Disney
         licenses (or Schedules), brands and/or Properties (as applicable)
         within the Territory and Canada at the time of the subject transfer.
         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,


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         that Licensee must give Disney written notice of such assignment and a
         description of the reorganization. Notwithstanding the foregoing, a
         transfer fee will not be triggered by any of the following transfers of
         voting stock or other beneficial interest in Licensee, unless occurring
         as part of or in conjunction with a transaction that would trigger a
         transfer fee: (1) distribution(s) in the ordinary course of Licensee's
         business on employee or director stock option plans; or (2) transfers
         for estate planning purposes among the current shareholders of Licensee
         who are members of the Sidman family (including their spouses and
         children) as their interests appear when this Agreement is signed; or
         (3) repurchases of its own stock by Licensee as part of a corporate
         stock repurchase program but not including any issuer tender offer
         which exceeds thirty-three and one-third percent (33-1/3%) of the then
         outstanding stock or exchange offer; provided, however, that Licensee
         shall maintain substantially the same management and continue to
         operate in substantially the same fashion as prior to any of the
         transfers described above, and provided further, that in any event, any
         of the transfers described above shall remain subject to Disney's
         consent as set forth in Paragraph 32.A. The provisions of this
         Paragraph 32 shall supersede any conflicting provisions on this subject
         in any merchandise license agreement previously entered into between
         the parties for this Territory.

         C.       Licensee acknowledges that it has read and understands the
         Transfer Fee Policy attached hereto, which governs transfer fee
         procedures under this Agreement. The Transfer Fee Policy is
         incorporated herein by this reference.

         D.       Licensee may, upon Disney's prior written consent, sublicense
         Licensee's rights, obligations, or both, under this Agreement, to any
         of Licensee's Affiliates, provided that each such Affiliate agrees to
         be bound by all of the terms and conditions of this Agreement, and
         further provided that Licensee and each such Affiliate agree to provide
         Disney with satisfactory documentation of such agreement(s),
         guarantee(s), and indemnification upon Disney's request therefor, and
         in a form satisfactory to Disney. Licensee hereby represents and
         irrevocably and unconditionally guarantees that any and all Affiliates
         sublicensed hereunder will observe and perform all of Licensee's
         obligations under this Agreement, including, but not limited to, the
         provisions governing approvals, and compliance with approved samples,
         applicable Laws, indemnification 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

         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, unless Licensee has obtained
         Disney's consent to sublicense an Affiliate in each instance, such
         Affiliate shall be deemed to be included in the term "Licensee" for all
         purposes under this Agreement, and Disney may treat such unapproved
         involvement of the Affiliate as a breach of the Agreement.

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.


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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 authorized representatives
         of 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
         "President, Consumer Products Licensing", with a copy to "Corporate
         Legal, Consumer Products," unless Disney advises Licensee in writing
         otherwise.

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 Intellectual Property, 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 an executory agreement entered
         into in California and shall be governed and interpreted according to
         the laws of the State of California applicable to contracts made and to
         be fully performed in California. Any legal actions pertaining to this
         Agreement shall be commenced within the State of



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         California and within either Los Angeles or Orange Counties, and
         Licensee consents to the jurisdiction of the courts located in 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 the term
         of any applicable Schedule under 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 licensors', if
         applicable) copyrights and property rights, and, specifically, to
         conserve Disney's (and its licensors', if applicable) 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.

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, audits, and Paragraph
         29, shall survive termination, cancellation or expiration of this
         Agreement.

44.      SEVERABILITY OF PROVISIONS

         The terms of this Agreement are severable and the invalidity of any
         term of this Agreement shall not affect the validity of any other term.

Please sign below under the word "Agreed". When signed by both parties, when any
required security (e.g., a letter of credit) has been posted, and when the fully
executed contract has been delivered to Licensee, this shall constitute an
agreement between Disney and Licensee.


AGREED:


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DISNEY ENTERPRISES, INC.

By: /s/ J.D. Edwards
    ---------------------------
    Title: Vice President
    Date: 9/18/02



THE FIRST YEARS, INC.

By: /s/ Ronald J. Sidman
    ---------------------------
    Title: President





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Schedule #1 to License Agreement

1.       Schedule #1 to License Agreement Dated June 4, 2002 between Disney
Enterprises, Inc. and THE FIRST YEARS, INC. ("Agreement").

2.       Effective date of this Schedule: January 1, 2003.

3.       Termination date of this Schedule: [     ] of the Agreement.

4.       Properties:

         A.       Disney Standard Characters (i.e., MICKEY MOUSE, MINNIE MOUSE,
DONALD DUCK, DAISY DUCK, PLUTO and GOOFY), but only depictions of such
characters, and accompanying design elements, as may be designated by Disney.

         B.       Winnie the Pooh characters (i.e., WINNIE THE POOH, CHRISTOPHER
         ROBIN, PIGLET, RABBIT, EEYORE, TIGGER, OWL, GOPHER, KANGA AND ROO), all
         in the style as designed by Disney, but only depictions of such
         characters, and accompanying design elements, as may be designated by
         Disney.

         C.       DISNEY CLASSICS, comprised of the following individual
         Properties (collectively, the "Disney Classics Properties"):

                  (1)      WALT DISNEY'S BAMBI characters, but only such
         characters and depictions of such characters, and accompanying design
         elements, as may be designated by Disney;

                  (2)      WALT DISNEY'S SLEEPING BEAUTY characters, but only
         such characters and depictions of such characters, and accompanying
         design elements, as may be designated by Disney;

                  (3)      WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS
         characters, but only such characters and depictions of such characters,
         and accompanying design elements, as may be designated by Disney;

                  (4)      WALT DISNEY'S THE JUNGLE BOOK characters, but only
         such characters and depictions of such characters, and accompanying
         design elements, as may be designated by Disney;

                  (5)      WALT DISNEY'S CINDERELLA characters, but only such
         characters and depictions of such characters, and accompanying design
         elements, as may be designated by Disney;

                  (6)      WALT DISNEY'S DUMBO characters, but only such
         characters and depictions of such characters, and accompanying design
         elements, as may be designated by Disney;

                  (7)      WALT DISNEY'S LADY AND THE TRAMP characters, but only
         such characters and depictions of such characters, and accompanying
         design elements, as may be designated by Disney;



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                  (8)      WALT DISNEY'S PINOCCHIO characters, but only such
         characters and depictions of such characters, and accompanying design
         elements, as may be designated by Disney;

                  (9)      WALT DISNEY'S ALICE IN WONDERLAND characters, but
         only such characters and depictions of such characters, and
         accompanying design elements, as may be designated by Disney;

                  (10)     WALT DISNEY'S PETER PAN characters, but only such
         characters and depictions of such characters, and accompanying design
         elements, as may be designated by Disney;

                  (11)     WALT DISNEY'S THE ARISTOCATS characters, but only
         such characters and depictions of such characters, and accompanying
         design elements, as may be designated by Disney;

                  (12)     DISNEY'S ALADDIN characters, but only such characters
         and depictions of such characters, and accompanying design elements, as
         may be designated by Disney;

                  (13)     DISNEY'S BEAUTY AND THE BEAST characters, but only
         such characters and depictions of such characters, and accompanying
         design elements, as may be designated by Disney.

5.       Articles:

         A.       FEEDING AND SOOTHING:

                  (1)      Bottles

                  (2)      Bibs (vinyl only)

                  (3)      Cups

                  (4)      Pacifiers and attachers

                  (5)      Bowls

                  (6)      Dishes

                  (7)      Feeding utensils

                  (8)      Placemats

                  (9)      Floor mats

                  (10)     Toddler sports bottles

         B.       CARE AND SAFETY:

                  (1)      Carriers (front and back)


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                  (2)      Handheld showers

                  (3)      Spout guards

                  (4)      Shampoo visors

                  (5)      Non-activity crib lights

                  (6)      Combs and brushes

                  (7)      Night lights

                  (8)      Car shades

                  (9)      Tub thermometers

                  (10)     Tub organizers

                  (11)     Infant bath tubs

                  (12)     Baby bathers (fits in sink or tub to cradle newborns)

                  (13)     Step stools

                  (14)     Bed rails

                  (15)     Booster seats

                  (16)     Monitors

                  (17)     Scratch mitts

                  (18)     Hampers

                  (19)     Hot and cold packs

                  (20)     Infant support cushions

                  (21)     Plush with soothing womb sounds

                  (22)     Infant toothbrushes and toothcare organizers

                  (23)     Sleep positioners

                  (24)     Changing pads

         C.       PLAYTHINGS:

                  (1)      Hand-held rattles

                  (2)      Teethers



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                  (3)      Suction toys

                  (4)      Linking toys

                  (5)      Electronic hand-held toys (with rattles or squeaker
                           functions)

                  (6)      Bath toys

                  (7)      Crib toys

                  (8)      Foot rattles and wrist rattles

                  (9)      Squeeze toys

                  (10)     Infant rings

                  (11)     Chime balls

                  (12)     Jumpster harness

         No graphic design may be kept in the product line for longer than two
         years without prior written consent by Disney.

         All three dimensional SKUs of the Articles shall be refreshed or
         renewed based on a two-year cycle as mutually agreed upon by Disney and
         Licensee during their mutually designated planning meetings, to be held
         on a quarterly basis during the term of this Schedule.

6.       Territory: The United States, United States PX's wherever located, and
United States territories and possessions, excluding Puerto Rico. However, if
sales are made to chain stores in the United States which have stores in Puerto
Rico, such chain stores also may supply Articles to such stores in Puerto Rico.

7.       Royalty rate:

         LANDED SALES:

         A.       [    ] percent ([    ]%) of Licensee's Net Invoiced Billings
         to authorized customers for sales of Articles B.11, B.13 through B.16,
         B.18, B.20, B.21 and C.12;

         B.       [    ] percent ([   ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles B.23;

         C.       [   ] percent ([    ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles A.1 through A.10, B.l
         through B.4, B.9, B.10, B.l2, B.17, B.l9, B.24, C.l, and C.3 through
         C.l 1;

         D.       [   ] percent ([   ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles B.5 through B.8, B.22, and
         C.2.

         FOB SALES:


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         A.       [   ] percent ([   ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles B.11, B.13 through B.16,
         B.18, B.20, B.21 and C.12;

         B.       [   ] percent ([   ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles B.23;

         C.       [   ] percent ([  ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles A.l through A.l0, B.1
         through B.4, B.9, B.10, B.l2, B.l7, B.l9, B. 24, C.1, and C.3 through
         C.l1;

         D.       [   ] percent ([   ]%) of Licensee's Net Invoiced Billings to
         authorized customers for sales of Articles B.5 through B.8, B.22, and
         C.2.

8.       Advance payment(s) and due date(s):

         A.       [   ]

         B.       [   ]

         C.       [   ]

9.       Guarantee increments during the term of this Schedule:

         A.       [   ]

         B.       [   ]

         C.       [   ]

10.      Samples: Six (6) of each SKU of each Article.

11.      Marketing Date(s): By January 1, 2003 for all Articles except A.8, B.2,
B.5, B.9, B.13, B.15, B.18, B.19, B.20, B.23, C.3, C4, C.5, C.9, C.10 and C.12;
by March 31, 2003, for Articles Numbers B.19, B23, and C.12; by June 1, 2003 for
Articles Number B.18; and by December 31, 2003 for Articles Numbers A.8, B.2.,
B.5, B.9., B.13, B.15, B.20, C.3, C.4, C.5, C.9 and C.10.

12.      Distribution Channels:

         A.       Licensee will sell the Articles only to the following
         Retailers in the Territory for resale to the public in the Territory,
         or to Wholesalers in the Territory for resale to such Retailers: (1)
         mass market Retailers (including such Retailers as Target, Toys R Us,
         WalMart and Kmart), (2) value-oriented department stores (including
         such Retailers as Sears and Mervyn's), (3) value-oriented specialty
         stores, (4) drug store chains, (5) supermarkets and food chains, and
         (6) warehouse clubs. Articles Numbers A.1 through A.4, A.10, B.l, B.3,
         B.10, B.22, C.1, C.2, C.5 through C.8 and C.l1 also may be sold to the
         following Retailers in the Territory for resale to the public in the
         Territory, or to Wholesalers in the Territory for resale to such
         Retailers: (1) upscale Retailers (including such Retailers as
         Robinsons-May, Nordstrom's and Bloomingdale's), (2) better specialty
         stores, and (3) mid-tier department stores (including such Retailers as
         J.C. Penney and Kohl's). Licensee will not sell the


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         Articles to unauthorized Retailers or Wholesalers, or to convenience
         stores or gas stations. If there is a question as to whether a
         particular customer falls within any of the categories specified
         herein, Disney's determination shall be binding. Licensee may sell the
         Articles utilizing the Property set forth in section 4 above to
         customers for resale through the mass catalogs listed on the Mass
         Catalog List to the Agreement, subject to Paragraph 2.A.(2)(a) of the
         Agreement and this Schedule 1. In addition, Articles Numbers A.l
         through A.4, A.10, B.1, B.3, B.10, B.22, C.l, C.2, C.5 through C.8 and
         C.11 may be sold to customers for resale through the upscale catalogs
         listed on the Upscale Catalog List to the Agreement, subject to
         Paragraph 2.A.(2)(a) of the Agreement and this Schedule 1.

13.      Special provisions:

         Without limiting the provisions of Paragraph 14 of the Agreement, for
         Articles utilizing the Winnie the Pooh Property, Licensee agrees to
         include on such Articles, or the packaging for such Articles, or the
         hang tag for such Articles (if applicable), the following language:
         Based on the "Winnie the Pooh" works by A.A. Milne and E.H. Shepard.





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                                CATALOG SCHEDULE

                         (LIST OF PRE-APPROVED CATALOGS)

                           HOME FURNISHINGS/HOUSEWARES

                                     UPSCALE

Ballard Design
Casual Living
Celebration Fantastic
Chambers
Charles Keath
Chef's Catalog
Faith Mountain
Garnett Hill
Hand-in-Hand
Horchow
Kitchen & Home
Kitchen Kaboodle
Linda Anderson
Metropolitan Museum of Art
Museum of Fine Arts, Boston
Norm Thompson
Nursery Works
One Step Ahead
Potpourri
Reader's Digest Home Life
Ross-Simons
Seasons
Sensational Beginnings
Signals




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.


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                                CATALOG SCHEDULE

                         (LIST OF PRE-APPROVED CATALOGS)

                           HOME FURNISHINGS/HOUSEWARES

                                     UPSCALE
                                   (CONTINUED)

Smithsonian
Spiegel
Sugar Hill
The Cotton Gin
The Linen Source
The Paragon
The Right Start
The Wish List
Touch of Class
Touchstone
Trifles
Wireless























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.



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                                CATALOG SCHEDULE

                         (LIST OF PRE-APPROVED CATALOGS)

                           HOME FURNISHINGS/HOUSEWARES

                                      MASS

Apple Creek
Armchair Shopper
Avon (EXCL. PERSONAL CARE)
Domestications
Fingerhut
Lillian Vernon
Miles Kimball
Popular Club



























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.






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                                DISNEY LICENSING
                              E COMMERCE GUIDELINES

GENERAL POLICIES:
- ----------------

- -        Disney licensed product ("Articles") may not be sold on a Licensee's
         Website. (Articles being sold by Licensee may, however, be sold through
         a Retailer's or Etailer's Website.)

- -        Licensee Websites may be used for promotion of Articles only, and not
         to promote any Disney characters or any film property.

- -        When initially developing Website pages containing the use of any
         Disney Articles, marketing, or promotional material, review and
         written approval must be obtained from Disney Licensing prior to
         publication on the Website. (Please refer to your approval process
         guidelines.)

- -        Websites cannot feature or advertise any Disney Articles, brands,
         properties, characters or logos as the sole means to drive visitors to
         the Website. The Website should contain content balance so that the
         consumer knows it is the Licensees' Website and not a Disney Website.
         However, creating a Disney section within the Website is encouraged.

- -        A Retailer's or Etailer's Website cannot position Disney Articles for
         sale on a "limited availability" or "last time available" basis, of by
         other similar descriptions that may imply collectibility, deep
         discounting or closeouts.

- -        Disney Articles, brands or logos should not be featured on your "Home
         Page" without prior written consent from Disney.

- -        You must adhere to all Disney copyright and trademark notice
         requirements (i.e., (C) Disney, or as otherwise designated). Please
         note: when showing any Disney Articles, Disney logos, art, or other
         Disney design elements, you must always include (C) Disney on each Web
         page (or such other copyright or trademark as Disney designates).

- -        Disney character art, likeness, animation, or music may not be used.

- -        Any content or pages related to Disney should "hot-link" to
         www.Disney.com. Please utilize the Disney.com icon provided for this
         link.

- -        Disney Articles cannot be distributed or re-purposed for sale or resale
         outside of the territory set forth in the license agreement.


COPY AND LAYOUT:

- -        All copy and layout must be approved in accordance with the approval
         process guidelines.



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- -        When using any Disney brand or property, correct titles and logo
         identification must be used.

- -        When referring to any Disney film property, always use "Disney's" in
         reference to each film. For example, "Disney's The Little Mermaid."

- -        The character's name or the film title should not be used in the
         possessive form when referring to a product. For example, do not use,
         "Lilo's Shoes" or "Shoes from Disney's Lilo & Stitch." When referring
         to product, always use, "Inspired by Disney's Lilo & Stitch" or
         "Featuring characters from Disney's Lilo & Stitch."





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                            LICENSEE APPROVAL PROCESS
                        FOR RETAILER OR ETAILER WEBSITES

To gain initial approval for Disney content on a Retailer's or Etailer's
Website, submit the below information on a `Standard Disney Approval Form' to
your Product Development Coordinator.

Retailers and Etailers should provide Disney with:

- -        Directory of Website content

- -        Site map or flow chart where the Disney pages/section will be featured
         within the Website. Creating a separate Disney section within the
         Website is encouraged.

Each Licensee will be responsible for ensuring adherence to the following simple
guidelines:

         1.       The eCommerce Guidelines must be observed when developing
                  Website pages with a Retailer or Etailer.

         2.       Each Disney Licensee will be responsible for providing the
                  Retailer or Etailer with the following:

                  -        Disney approved product samples/photography and
                           product descriptions/copy.

                  -        Disney brand logos and property identification. These
                           may be obtained through your Product Development
                           Coordinator.

                  -        Utilize the Disney Online icon to hot-link all pages
                           related to Disney to Disney.com.

         3.       Retailer or Etailer should work with their designated contact
                  in developing and approving marketing and promotional related
                  events and information. Disney promoted marketing
                  events/information cannot be used without prior written
                  consent.





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                            LICENSEE APPROVAL PROCESS
                             FOR LICENSEE'S WEBSITE


Licensees are not permitted to sell Disney Articles on their Websites. The main
focus is to promote Disney Articles on the Website of a Retailer or Etailer, or
on Disney.com.

To gain initial approval for any Disney content on a Licensee's Website, the
Licensee must strictly adhere to the eCommerce Guidelines in developing Website
pages containing Disney product, and submit the following information on a
standard Disney approval form to the Product Development Coordinator:

         1.       A synopsis/overview of Website content and pages.

         2.       A site map or flow chart to show where the Disney Articles
                  will be featured within the Website and include proposed
                  launch date. A separate Disney section within the Website is
                  encouraged.

         3.       A list of each Article that will be featured.

         4.       Proposed page layout.

         5.       Headlines.

         6.       Product samples or photography of product to be featured. (All
                  Articles must be approved through the product approval
                  process).

         7.       Product descriptions and copy to be featured.

         8.       Brand and property logos or any property related icons/artwork
                  that will be featured.

         The correct brand logos and proper property identification may be
         obtained through your Product Development Coordinator.

         All pages related to Disney should hot-link to Disney.com. Utilize the
         Disney Online icon provided for this link.

         Disney promoted marketing events/information cannot be used without
         prior written consent. Please contact your Category Manager to discuss
         proposed marketing and promotional content.



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                               TRANSFER FEE POLICY

As provided in Paragraph 32.B. of the License Agreement, it is Disney's policy
to charge a transfer fee in connection with any permitted assignment of the
license or other "transfer," as that term is defined in Paragraph 32.A. The
amount of the transfer fee is based on the circumstances of the particular
assignment or transfer, taking into account such factors as:

         -        the estimated value of the license being assigned or involved
                  in the transfer

         -        the risk of business interruption

         -        the risk of loss of quality, production or control

         -        the identity, reputation, creditworthiness, financial
                  condition and business capabilities of the proposed assignee
                  or entity involved in the transfer

         -        Disney's internal costs related to the assignment or transfer

At a minimum, the transfer fee will be U.S. $[   ] for each license or Schedule
(or Property, where a given Schedule includes more than one Property), and it
could be as high as [               ] depending on the circumstances of the
particular case. No Licensee or any company involved with a Licensee in an
assignment or transfer situation should rely upon any express or implied verbal
representations that are purported to be made on Disney `s behalf as to the
amount of any given fee to be assessed. Disney Licensing's Finance Department
will communicate the actual amount of the fee calculated in each approved
transaction.

In any prospective assignment or transfer situations, Licensees must inform the
persons and companies with which they are dealing that no assignment or transfer
may occur without Disney `s prior written consent, to be granted or withheld in
Disney's absolute discretion, and that any approved transaction will also entail
a transfer fee. Licensees must give Disney at least 30 days prior written notice
of any desired assignment or other transfer, together with any information and
documentation necessary to evaluate the contemplated transaction. Licensees
should not endanger the closing of their desired transactions by failing to
comply with these provisions of the License Agreement.

If Disney grants consent to a proposed transaction subject to the payment of a
transfer fee, and the transaction is concluded but the transfer fee is not paid
within the designated time, the subject License Agreement(s) shall automatically
terminate and any Guarantee shortfall(s) shall be immediately due and payable to
Disney. If Disney does not grant consent to a proposed assignment or transfer
and the Licensee nevertheless closes the transaction, the subject License
Agreement(s) shall automatically terminate and any Guarantee shortfall(s) shall
be immediately due and payable to Disney.

Disney `s consent to any assignment or other transfer should in no way be
understood to be a guarantee or promise by Disney of a grant of any future
license(s), as those determinations will continue to be made on a contract by
contract basis.


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Licensees must keep confidential all of the terms and conditions of Disney `s
determinations regarding any transfer, including but not limited to, the amount
of any transfer fee required.

                        CODE OF CONDUCT FOR MANUFACTURERS

At The Walt Disney Company, we are committed to:

         -        a standard of excellence in every aspect of our business and
                  in every corner of the world;

         -        ethical and responsible conduct in all of our operations;

         -        respect for the rights of all individuals; and

         -        respect for the environment.

We expect these same commitments to be shared by all manufacturers of Disney
merchandise. At a minimum, we require that all manufacturers of Disney
merchandise meet the following standards:

CHILD LABOR                Manufacturers will not use child labor.

                           The term "child" refers to a person younger than 15
                           (or 14 where local law allows) or, if higher, the
                           local legal minimum age for employment or the age for
                           completing compulsory education.

                           Manufacturers employing young persons who do not fall
                           within the definition of "children" will also comply
                           with any laws and regulations applicable to such
                           persons.

INVOLUNTARY LABOR          Manufacturers will not use any forced or involuntary
                           labor, whether prison, bonded, indentured or
                           otherwise.

COERCION AND               Manufacturers will treat each employee with dignity
HARASSMENT                 and respect, and will not use corporal punishment,
                           threats of violence or other forms of physical,
                           sexual, psychological or verbal harassment or abuse.

NONDISCRIMINATION          Manufacturers will not discriminate in hiring and
                           employment practices, including salary, benefits,
                           advancement, discipline, termination or retirement,
                           on the basis of race, religion, age, nationality,
                           social or ethnic origin, sexual orientation, gender,
                           political opinion or disability.

ASSOCIATION                Manufacturers will respect the rights of employees to
                           associate, organize and bargain collectively in a
                           lawful and peaceful manner, without penalty or
                           interference.

HEALTH AND SAFETY          Manufacturers will provide employees with a safe and
                           healthy workplace in compliance with all applicable
                           laws and


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                           regulations, ensuring at a minimum, reasonable access
                           to potable water and sanitary facilities, fire
                           safety, and adequate lighting and ventilation.

                           Manufacturers will also ensure that the same
                           standards of health and safety are applied in any
                           housing that they provide for employees.

COMPENSATION               We expect manufacturers to recognize that wages are
                           essential to meeting employees' basic needs.
                           Manufacturers will, at a minimum, comply with all
                           applicable wage and hour laws and regulations,
                           including those relating to minimum wages, overtime,
                           maximum hours, piece rates and other elements of
                           compensation, and provide legally mandated benefits.
                           If local laws do not provide for overtime pay,
                           manufacturers will pay at least regular wages for
                           overtime work. Except in extraordinary business
                           circumstances, manufacturers will not require
                           employees to work more than the lesser of (a) 48
                           hours per week and 12 hours overtime or (b) the
                           limits on regular and overtime hours allowed by local
                           law or, where local law does not limit the hours of
                           work, the regular work week in such country plus 12
                           hours overtime. In addition, except in extraordinary
                           business circumstances, employees will be entitled to
                           at least one day off in every seven-day period.

                           Where local industry standards are higher than
                           applicable legal requirements, we expect
                           manufacturers to meet the higher standards.

PROTECTION OF THE          Manufacturers will comply with all applicable
ENVIRONMENT                environmental laws and regulations.

OTHER LAWS                 Manufacturers will comply with all applicable laws
                           and regulations, including those pertaining to the
                           manufacture, pricing, sale and distribution of
                           merchandise.

                           All references to "applicable laws and regulations"
                           in this Code of Conduct include local and national
                           codes, rules and regulations as well as applicable
                           treaties and voluntary industry standards.

SUBCONTRACTING             Manufacturers will not use subcontractors for the
                           manufacture of Disney merchandise or components
                           thereof without Disney's express written consent, and
                           only after the subcontractor has entered into a
                           written commitment with Disney to comply with this
                           Code of Conduct.


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MONITORING AND             Manufacturers will authorize Disney and its
COMPLIANCE                 designated agents (including third parties) to engage
                           in monitoring activities to confirm compliance with
                           this Code of Conduct, including unannounced on-site
                           inspections of manufacturing facilities and
                           employer-provided housing; reviews of books and
                           records relating to employment matters; and private
                           interviews with employees. Manufacturers will
                           maintain on site all documentation that may be needed
                           to demonstrate compliance with this Code of Conduct.

PUBLICATION                Manufacturers will take appropriate steps to ensure
                           that the provisions of this Code of Conduct are
                           communicated to employees, including the prominent
                           posting of a copy of this Code of Conduct, in the
                           local language and in a place readily accessible to
                           employees, at all times.




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                          CODE OF CONDUCT FOR LICENSEES

At The Walt Disney Company, we are committed to:

         -        a standard of excellence in every aspect of our business and
                  in every corner of the world;

         -        ethical and responsible conduct in all of our operations;

         -        respect for the rights of all individuals; and

         -        respect for the environment.


We expect these same commitments to be shared by all Disney licensees and the
manufacturers with which they work in the production of Disney merchandise. At a
minimum, we require that all Disney licensees meet the following standards:

CONDUCT OF                 Licensees that engage directly in the manufacturing
MANUFACTURING              of Disney merchandise will comply with all of the
                           standards set forth in Disney's Code of Conduct for
                           Manufacturers, a copy of which is attached.

                           Licensees will ensure that each manufacturer other
                           than the licensee also enters into a written
                           commitment with Disney to comply with the standards
                           set forth in Disney's Code of Conduct for
                           Manufacturers.

                           Licensees will prohibit manufacturers from
                           subcontracting the manufacture of Disney merchandise
                           or components thereof without Disney's express
                           written consent, and only after the subcontractor has
                           entered into a written commitment with Disney to
                           comply with Disney's Code of Conduct for
                           Manufacturers.

MONITORING AND             Licensees will take appropriate steps, in
COMPLIANCE                 consultation with Disney, to develop, implement and
                           maintain procedures to evaluate and monitor
                           manufacturers of Disney merchandise and ensure
                           compliance with Disney's Code of Conduct for
                           Manufacturers, including unannounced on-site
                           inspections of manufacturing facilities and
                           employer-provided housing; review of books and
                           records relating to employment matters; and private
                           interviews with employees.

                           Licensees will authorize Disney and its designated
                           agents (including third parties) to engage in similar
                           monitoring activities to confirm Licensees'
                           compliance with this Code of Conduct. Licensees will
                           maintain on site all documentation that may be needed
                           to demonstrate such compliance.

EX-4.4

                                                                     Exhibit 4.4


                               EMPLOYEE AGREEMENT


This Agreement is made as of the 30th day of September, 2002 (the "Effective
Date") by and between John R. Beals ("I") and THE FIRST YEARS INC. (the
"Company").

In consideration of my employment with the Company, its subsidiaries,
affiliates, successors, or assigns, and the compensation hereafter paid to me by
the Company, I agree as follows:

1)   I recognize that during my employment with the Company I will receive,
     develop, or otherwise acquire information which is of a confidential or
     secret nature. Except as authorized in writing by the Company, I will not
     disclose or use, directly or indirectly, during or after my employment with
     the Company, any information of the Company which I obtain during the
     course of my employment, including information relating to inventions,
     products, product specifications, processes, procedures, machinery,
     apparatus, prices, discounts, manufacturing costs, business affairs, future
     business or product plans, ideas, technical data, the Company's customers,
     sources of supply, planned advertising, promotion or marketing, or other
     information which is of a secret or confidential nature, whether or not
     acquired or developed by me. My obligation under this paragraph shall not
     apply to information known by me prior to my employment with the Company,
     information generally known in the Company's field of business, information
     known to others hereafter without fault by me, or information disclosed to
     me by a third party without restriction and without breach of obligation to
     the Company.

2)   I will communicate to the Company promptly and fully all discoveries,
     improvements, and inventions (hereinafter called "inventions") and all
     writings, drawings, and other works of authorship (hereinafter called
     "works of authorship") made or conceived or created or authored by me
     (either solely or jointly with others) during my employment and, as to
     inventions, for six months thereafter which are along the lines of the
     actual or anticipated business, work, or investigations of the Company or
     which result from or are suggested by any work I may do for the Company;
     and such inventions, whether patented or not, and works of authorship and
     any copyrights therein, arising from my employment shall be and remain the
     sole and exclusive property of the Company or its nominees.

3)   I will, during my employment, keep and maintain adequate and current
     written records of all such inventions and works of authorship, in the form
     of notes, drafts, layouts, sketches, drawings, reports and the like
     relating thereto, which records shall be and remain the property of and
     available to the Company at all times.

4)   I will, during and after my employment with the Company, without charge to
     the Company, but at its request and expense, assist the Company and its
     nominees in every proper way to obtain and vest in it or them title to, and
     to maintain and support the validity of, patents and copyrights on the
     inventions and works of authorship referred to in paragraph 2, above, in
     all countries by executing all necessary or desirable documents, including
     applications for patents and copyrights, assignments thereof, assignments
     of priority rights thereof and such other lawful documents as may be
     requested, and I agree to do such other lawful acts as may be requested for
     said purposes.

5)   Upon the termination of my employment by the Company, I agree to deliver to
     the Company all property of the Company, including all documents and things
     evidencing or relating to the subject matter of this Agreement, and
     including without limitation, the documents referred to in Paragraph 3
     above.

6)   During the course of my employment by the Company, and for a period of 12
     months after the termination of my employment by the Company for any reason
     whatsoever, I shall not engage or become interested, directly or
     indirectly, as an employee, owner, consultant, officer, director or
     partner, through stock ownership, investment of capital, lending of money
     or property, rendering of services or otherwise, either alone or in
     association with others, in the operation of any type of business or
     enterprise competitive with the Company's business of developing,
     marketing, and distributing products for infants, toddlers, and young
     children (a "competitor company,") regardless of where such competitor
     company sells its products or where such competitor company is located.



7)   My holding (individually or otherwise) of any investment in any business or
     enterprise other than the Company shall not be deemed to be a violation of
     Paragraph 6 if such investment does not constitute over 5% of the
     outstanding issue of such security, and I do not otherwise accept
     employment with, act as a consultant to, become an officer, director, or
     partner of, or otherwise become actively associated with the issuer of such
     security.

8)   I recognize, acknowledge and agree that the foregoing limitations of
     Paragraphs 6 and 7 are reasonable and properly required for the adequate
     protection of the Company's business and do not preclude me from pursuing
     my livelihood. However, if any such limitation is found by any court of
     competent jurisdiction to be unenforceable because it extends for too long
     a period of time or over too great a range of activities or in too broad a
     geographic area, it shall be interpreted to extend only over the maximum
     period of time, range of activities or geographic area as to which it may
     be enforceable.

9)   In further consideration of my services and the agreement not to compete
     set forth in Paragraph 6, the Company agrees that in the event the Company
     terminates my employment for any reason (other than in the event of my
     death, Disability, or for Cause as defined in Paragraph 10 below), then the
     Company (1) will continue to pay me my base salary (then in effect) for a
     twelve (12) month period (to be paid in twenty-six (26) equal bi-weekly
     installments), reduced by the amount, if any, that I earn from other
     employment during such 12-month period; and (2) continue to provide the
     medical and dental benefits (then in effect) via COBRA at the Company's
     expense for the same 12-month period, provided I continue to comply with my
     obligations under Paragraphs 1 through 7 during such 12-month period.
     Notwithstanding the foregoing, I will not participate in the Company's
     Annual Incentive Plan, 1993 Equity Incentive Plan (or similar cash-based or
     equity-based bonus plans then in effect for executive officers), or
     Pension/401K Plans during such 12-month post-employment period. Although I
     am not under any obligation to seek new employment, in the event I do
     obtain new employment during such 12-month period, the Company will cease
     providing the benefits on the day I obtain new employment. In the event I
     leave the employ of the Company voluntarily, no severance payments and/or
     benefits will be paid to me by the Company.

10)  Termination for Cause for purposes of this Agreement shall be limited to
     termination for: (i) My gross, willful, and deliberate failure to perform a
     substantial portion of my duties hereunder for reasons other than
     disability, which failure continues for more than sixty (60) days after the
     Company gives written notice to me, setting forth in reasonable detail the
     nature of such failure; or (ii) conviction of a felony by a court of
     competent jurisdiction which is upheld upon appeal to a higher court, or
     upon the lapse of an appeal period if no appeal is taken from such
     conviction.

     a)   Disability, for purposes of this Agreement, shall be limited to the
          following situations: (1) If I suffer any illness, disability, or
          incapacity which prevents me from substantially performing my duties,
          and such illness, disability or incapacity shall be deemed by a
          duly-licensed physician (who may be my personal physician) to be
          permanent; or (2) I am unable to substantially perform my duties for a
          period of twelve (12) consecutive months by reason of illness,
          disability, or incapacity, and the Board, by majority vote of its
          members, determines that I am permanently disabled.


11)  During the course of my employment with the Company and for a period of
     twelve (12) months following termination of my employment, I will not,
     either individually or on behalf of or through any third party, directly or
     indirectly, hire, retain, entice, solicit or encourage any Company employee
     or consultant to leave the Company, nor will I directly or indirectly, be
     involved in the hiring, retaining or recruitment of any Company employee or
     consultant. This provision shall prohibit the aforesaid activities by me
     with respect to any person both while such person is an employee or
     consultant of the Company, and for ninety (90) days thereafter.

12)  If I violate any provisions of this Agreement, then the time limitations
     set forth in this Agreement shall be extended for a period of time equal to
     the period of time during which such breach occurs and, in the event the
     Company is required to seek relief from such breach before any court,
     board, or other tribunal, then the time limitation shall be extended for a
     period of time equal to the pendency of such proceedings, including all
     appeals.




13)  I acknowledge that any breach of this Agreement by me may give rise to
     irreparable injury to the Company, which may not be adequately compensated
     by damages. Moreover, I acknowledge that to the extent that any breach of
     this Agreement by me may give rise to injury to the Company, which may be
     adequately compensated by damages, such damages are difficult or impossible
     to calculate. Accordingly, in the event of a breach or threatened breach of
     Paragraphs 1 through 7 of this Agreement by me, the Company shall have, in
     addition to any remedies it may have at law, the right to an injunction or
     other equitable relief to prevent the violation of its rights hereunder.

14)

     a)   The invalidity or unenforceability of any provision of this Agreement
          shall not affect the validity or enforceability of any other provision
          of this Agreement.

     b)   This Agreement supersedes all previous agreements, written or oral,
          between the Company and me relating to the subject matter of this
          Agreement. This Agreement may not be modified, changed or discharged
          in whole or in part, except by an agreement in writing signed by the
          Company and me. This Agreement shall be binding upon me and my heirs
          and personal representatives, and shall inure to the benefit of the
          Company and its successors, assigns and nominees, provided that
          Paragraph 1 above shall be binding upon such heirs and personal
          representatives only to the extent that they obtain from me
          confidential information of the Company.

     c)   No delay or omission by the Company in exercising any right under this
          Agreement shall operate as a waiver of that or any other right. A
          waiver or consent given by the Company on any one occasion is
          effective only in that instance and shall not be construed as a bar to
          or waiver of any right on any other occasion.

     d)   I expressly consent to be bound by the provisions of this Agreement
          for the benefit of the Company or any parent, subsidiary, or affiliate
          thereof, without the necessity for any separate execution of this
          Agreement in favor of such parent, subsidiary, or affiliate.

     e)   This Agreement is governed by the laws of the Commonwealth of
          Massachusetts, without giving effect to conflict of laws provisions
          thereof.



Date 9-30-02

By:   /s/ John R. Beals
      -----------------------------------
      John R. Beals
      Senior Vice-President of Finance and
      Chief Financial Officer

Agreed to and accepted by:

THE FIRST YEARS INC.

By:   /s/ Ronald J. Sidman
      ----------------------------------
      Ronald J. Sidman
      President, CEO and
      Chairman of the Board

EX-99.1

                                                                    EXHIBIT 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The First Years Inc. (the "Company")
on Form 10-Q for the period ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald
J. Sidman, Chairman, President, and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

      1.    The Report fully complies with the requirements of section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      2.    The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.


                                              By: /s/ Ronald J. Sidman
                                              ----------------------------------
                                              Ronald J. Sidman,
                                              Chairman, President, and Chief
                                              Executive Officer


In connection with the Quarterly Report of The First Years Inc. (the "Company")
on Form 10-Q for the period ended September 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, John R.
Beals, Senior Vice President - Finance and Treasurer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that, to my knowledge:

      1.    The Report fully complies with the requirements of section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      2.    The information contained in the Report fairly presents, in all
            material respects, the financial condition and results of operations
            of the Company.


                                              By: /s/ John R. Beals
                                              ----------------------------------
                                              John R. Beals,
                                              Senior Vice President - Finance
                                              and Treasurer,
                                              (Chief Financial Officer and Chief
                                              Accounting Officer)