-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N1mtUGE0Zmwxw4zHECnPbZ2xXRNWPQca+UoYYB/fcuR/YHY8qDahmSMBPnIoNavF qDCEYweg8b4X5o0A6TAnSg== 0000950135-99-004046.txt : 19990816 0000950135-99-004046.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950135-99-004046 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST YEARS INC CENTRAL INDEX KEY: 0000055698 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PLASTIC PRODUCTS [3080] IRS NUMBER: 042149581 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-07024 FILM NUMBER: 99689430 BUSINESS ADDRESS: STREET 1: ONE KIDDIE DR CITY: AVON STATE: MA ZIP: 02322-1171 BUSINESS PHONE: 5085881220 MAIL ADDRESS: STREET 1: ONE KIDDIE DR CITY: AVON STATE: MA ZIP: 02322-1171 FORMER COMPANY: FORMER CONFORMED NAME: KIDDIE PRODUCTS INC DATE OF NAME CHANGE: 19920703 10-Q 1 THE FIRST YEARS, INC. 1 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 June 30, 1999 ---------------------------------------------------------- Commission file number 0-7024 ---------------------------------------------------------- THE FIRST YEARS INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2149581 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) One Kiddie Drive, Avon, Massachusetts 02322-1171 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (508) 588-1220 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (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 July 31, 1999 was 10,319,157. 2 THE FIRST YEARS INC. INDEX PART I - FINANCIAL INFORMATION: Page 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 6-9 PART II - OTHER INFORMATION Other information 10-12 SIGNATURES 12 EXHIBIT INDEX 13 3 THE FIRST YEARS INC. Condensed Consolidated Balance Sheets ASSETS
June 30, December 31, 1999 1998 ----------- ----------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $10,314,167 $19,776,897 Accounts receivable, net 24,383,831 19,013,127 Inventories 23,579,200 18,520,023 Prepaid expenses and other assets 628,152 2,638,634 Deferred tax assets 1,424,500 1,424,500 ----------- ----------- Total current assets 60,329,850 61,373,181 ----------- ----------- PROPERTY, PLANT, AND EQUIPMENT: Land 167,266 167,266 Building 5,014,636 4,199,790 Machinery and molds 8,997,269 7,878,103 Furniture and equipment 5,467,084 4,571,636 ----------- ----------- Total 19,646,255 16,816,795 Less accumulated depreciation 9,622,089 8,914,081 ----------- ----------- Property, plant, and equipment - net 10,024,166 7,902,714 ----------- ----------- TOTAL ASSETS $70,354,016 $69,275,895 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 9,963,695 $ 9,400,966 Accrued royalty expense 2,192,557 2,130,027 Accrued payroll expenses 302,315 1,200,966 Accrued selling expenses 2,029,545 3,098,232 ----------- ----------- Total current liabilities 14,488,112 15,830,191 ----------- ----------- DEFERRED TAX LIABILITY 798,300 798,300 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 1,054,365 1,046,141 Paid-In capital 7,934,239 7,472,398 Retained earnings 49,425,529 44,438,589 Less treasury stock at cost, 224,494 and 21,394 shares as of June 30, 1999 and December 31, 1998, respectively (3,346,529) (309,724) ----------- ----------- Total stockholders' equity 55,067,604 52,647,404 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,354,016 $69,275,895 =========== ===========
See accompanying notes to condensed consolidated financial statements. Page 1 4 THE FIRST YEARS INC. Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- ------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- NET SALES $36,553,805 $34,797,802 $71,799,995 $70,484,407 COST OF PRODUCTS SOLD 21,741,732 20,649,650 42,262,329 42,087,280 ----------- ----------- ----------- ----------- GROSS PROFIT 14,812,073 14,148,152 29,537,666 28,397,127 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 10,485,837 9,821,800 20,389,395 20,209,906 ----------- ----------- ----------- ----------- OPERATING INCOME 4,326,236 4,326,352 9,148,271 8,187,221 OTHER INCOME: Interest income 125,965 125,020 292,661 202,479 ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 4,452,201 4,451,372 9,440,932 8,389,700 PROVISION FOR INCOME TAXES 1,803,200 1,802,800 3,823,600 3,397,800 ----------- ----------- ----------- ----------- NET INCOME $ 2,649,001 $ 2,648,572 $ 5,617,332 $ 4,991,900 =========== =========== =========== =========== BASIC EARNINGS PER SHARE $ 0.25 $ 0.26 $ 0.54 $ 0.49 =========== =========== =========== =========== DILUTED EARNINGS PER SHARE $ 0.25 $ 0.25 $ 0.53 $ 0.47 =========== =========== =========== =========== CASH DIVIDENDS PAID PER SHARE $ 0.06 $ 0.06 $ 0.06 $ 0.06 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. Page 2 5 THE FIRST YEARS INC. Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 (Unaudited)
1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,617,332 $ 4,991,900 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation 920,717 888,746 Provision for doubtful accounts 63,708 243,308 Loss on disposal of equipment 86,932 181,458 Increase (decrease) arising from working capital items: Accounts receivable (5,434,412) 844,550 Inventories (5,059,177) 2,490,181 Prepaid expenses and other assets 2,010,482 (139,859) Accounts payable and accrued expenses 685,229 (288,820) Accrued royalties 62,530 284,407 Accrued payroll expense (898,651) 323,862 Accrued selling expenses (1,068,687) 223,812 ----------- ----------- Net cash provided by (used for) operating activities (3,013,997) 10,043,545 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant, and equipment (3,129,101) (664,686) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Cash Dividend (630,392) (621,935) Common stock issued under stock option plans 317,315 558,252 Purchase of treasury stock (3,006,555) -- ----------- ----------- Net cash provided by (used for) financing activities (3,319,632) (63,683) ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (9,462,730) 9,315,176 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,776,897 7,697,040 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $10,314,167 $17,012,216 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Income taxes $ 2,536,000 $ 3,164,400 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Tax benefit of stock option exercises $ 122,500 $ 490,300 =========== =========== Issuance of treasury stock $ 30,250 $ 139,957 =========== ===========
See accompanying notes to condensed consolidated financial statements. Page 3 6 THE FIRST YEARS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Amounts in the accompanying balance sheet as of December 31, 1998 are condensed from the Company's audited balance sheet as of that date. All other condensed financial statements are unaudited but, in the opinion of the Company, contain all normal and recurring adjustments necessary to present fairly the financial position as of June 30, 1999, and the results of operations and cash flows for the periods ended June 30, 1999 and 1998. Certain reclassifications were made to the prior year amounts in order to conform with the current year presentation. 2. The Company has 50,000,000 authorized shares of $.10 par value common stock with 10,319,157 and 10,440,014 shares issued and outstanding as of June 30, 1999 and December 31, 1998, respectively. On May 6, 1999 the Board of Directors authorized a $0.06 per share annual cash dividend payable on June 15, 1999 to holders of record at the close of business on May 28, 1999. During the period ended June 30, 1999 the Company purchased 200,900 shares of the Company's common stock on the open market. The cost of the shares amounted to $3,006,555 and are currently being held as treasury stock. 3. Computation of the Earnings Per Share ("EPS") in accordance with SFAS No. 128 are as follows:
Three Months Ended June 30, --------------------------- 1999 1998 ----------- ----------- AVERAGE SHARES OUTSTANDING 10,414,785 10,329,748 EFFECT OF DILUTIVE SHARES 226,701 381,895 ----------- ----------- AVERAGE DILUTED SHARES OUTSTANDING 10,641,486 10,711,643 =========== =========== NET INCOME $ 2,649,001 $ 2,648,572 =========== =========== BASIC EARNINGS PER SHARE $ 0.25 $ 0.26 =========== =========== DILUTED EARNINGS PER SHARE $ 0.25 $ 0.25 =========== ===========
Page 4 7 THE FIRST YEARS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. Computation of the Earnings Per Share ("EPS") in accordance with SFAS No. 128 are as follows (cont):
Six Months Ended June 30, ---------------------------- 1999 1998 ----------- ------------ AVERAGE SHARES OUTSTANDING 10,427,312 10,263,916 EFFECT OF DILUTIVE SHARES 238,586 388,915 ----------- ----------- AVERAGE DILUTED SHARES OUTSTANDING 10,665,898 10,652,831 =========== =========== NET INCOME $ 5,617,332 $ 4,991,900 =========== =========== BASIC EARNINGS PER SHARE $ 0.54 $ 0.49 =========== =========== DILUTED EARNINGS PER SHARE $ 0.53 $ 0.47 =========== ===========
As of June 30, 1999, options to purchase 1,964, 20,000, 12,000, 39,000 and 20,000 shares of common stock at $15 15/16, $17 3/4, $17, $15 6/16, and $16 1/8 per share, respectively were not included in the computation of diluted EPS because the option's exercise price was greater than the average price of the common shares. The options, which expire in 2008 and 2009 are still outstanding at June 30, 1999. As of June 30, 1998, no options were anti-dilutive. 4. The results of operations for the six month period ended June 30, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. 5. During the first six months of 1999 and 1998, the Company did not borrow against its unsecured line of credit totaling $10,000,000 available from a bank. 6. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 issued in June 1999, which will require recognition of all derivatives as either assets or liabilities on the balance sheet at fair value. The Company is currently evaluating the effect of implementing SFAS No. 133, which will be effective for the year beginning January 1, 2001. Page 5 8 Management's Discussion and Analysis of Financial Condition and Results of Operations Statements in this 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, expects, anticipates, intends, estimates and similar expressions which by their nature refer to future events. Forward-looking statements involve risks, uncertainties or other factors which may cause material differences in actual results or performance. These factors include, but are not limited to, the ability to introduce new products, dependence on licensed products, and the renewal of licenses, reliance upon major customers and foreign suppliers, competitive market pressures, changes in consumer preferences and in the retail industry, risks related to year 2000 compliance and other factors, described more fully in Exhibit 99 of the Annual Report on Form 10K for the year ended December 31, 1998, filed with the Securities and Exchange Commission. Forward looking statements speak only as of the date they are made and the Company undertakes no obligation to update such statements in light of new information or future events. Net sales for the first six months of 1999 were $71.8 million, an increase of $1.3 million or 1.9%, as compared to $70.5 million for the comparable period last year. The increase was primarily due to expanded retail distribution in domestic markets as well as increased demand for non-licensed products. The increases were partially offset by decreased sales of licensed products due to maturing demand for licensed items. Cost of products sold for the first six months of 1999 was $42.3 million, a decrease of $0.2 million, as compared to $42.1 million for the comparable period last year. As a percentage of sales, cost of products sold in the first six months of 1999 decreased slightly to 58.9% from 59.7% in the same period of 1998 due to normal business fluctuations. Selling, general, and administrative expenses for the first six months of 1999 were $20.4 million, an increase of $0.2 million or 0.9%, as compared to $20.2 million over such expenses for the first six months of 1998. The increase resulted primarily from costs related to increased sales volume and decreased payroll related costs. As a percentage of net sales, selling, general, and administrative expenses for the first six months of 1999 decreased to 28.4% from 28.7% in the comparable period of 1998. The decrease reflects the continued effective management of selling, general, and administrative costs and the reduction of payroll and payroll related expenses. Page 6 9 Management's Discussion and Analysis of Financial Condition and Results of Operations (Con't) Income tax expense as a percentage of pretax income remained consistent at 40.5% for the first six months of 1999 and 1998. Net working capital increased by $0.3 million in the first six months of 1999 mainly due to profitable operations. Accounts receivable increased by $5.4 million as a result of increased sales as compared to the similar period of 1998. Inventories increased by $5.0 million primarily as a result of normal business fluctuations to support sales growth combined with the effect of decreased sales of licensed products. Cash decreased by $9.5 million primarily due to the payment of an annual dividend of $0.6 million, repurchase of treasury stock shares amounting to $3.0 million and purchases of $3.2 million for property, plant, and equipment primarily for product molds, new information technology systems and a new inventory racking system for the Company's Avon Massachusetts warehouse facility. An unsecured bank line of credit of $10.0 million is subject to annual renewal. Amounts outstanding under this line are payable upon demand by the bank. During the first six months of 1999 and 1998, the Company incurred no borrowings under the line and had no balances outstanding as of June 30, 1999 and 1998, respectively. YEAR 2000 Issue The "Year 2000 Issue" (Y2K) relates to problems that may result from the incorrect processing of information using dates or date sensitive data by computers and other machines utilizing embedded microprocessors. The problem is attributable to the computer or software recognizing the year as a two digit number "00" as opposed to the Year "2000". As Year 2000 approaches, uncertainty relating to these Y2K issues must be addressed in order to correct the problem or properly plan contingencies to handle anticipated issues, if any. Page 7 10 Management's Discussion and Analysis of Financial Condition and Results of Operations (Con't) YEAR 2000 Issue (con't) The Company started addressing the Y2K issue in 1996 and has been following a plan, in phases, to identify, inventory, prioritize and correct all known Y2K issues. The project plan incorporates the various phases and will evaluate both information technology (IT) related hardware and software as well as non-IT issues such as facilities operations and product related technology. The project will also attempt to obtain assurance from mission critical vendors (banks, transfer agents, manufacturing suppliers, utilities and other suppliers of critical services to the Company) about their Y2K readiness and develop contingency plans for issues that may arise from the failure of those vendors as well as customers to achieve Y2K compliance. The Company has substantially completed its review of all IT related systems and currently believes it will be Y2K compliant by the end of the third quarter of 1999. The Company substantially completed the identification and inventory phase of the review of non-IT systems and mission critical third party relationships. Based on the review of responses from third-party vendors, which has been substantially completed, the Company expects to prioritize the corrective actions required, if any, and commence the correction phase of the project during the third quarter of 1999. The Company has initiated the contingency planning phase of the Y2K project. A committee, including members of senior management, has been formed to evaluate the responses from mission critical third parties regarding assurance of their Y2K readiness. Additionally, the committee is evaluating general operational issues that may be affected by Y2K problems not limited to direct third party relationships and is in the process of incorporating all issues into a formal contingency plan. The contingency plan development is progressing according to the overall Y2K plan and is currently expected to be complete by the end of the third quarter of 1999. Page 8 11 Management's Discussion and Analysis of Financial Condition and Results of Operations (Con't) YEAR 2000 Issue (con't) The costs to address the Y2K Issue have not been and are not expected to be material to the Company's financial position or have a material impact on operating results. Since 1996 the Company has incurred expenses of approximately $100,000 to address the Y2K issue and anticipates incurring an additional $100,000 related to the Y2K issue. Anticipated additional costs do not consider costs, if any, related to the failure of third party relationships to become "Year 2000" compliant. All expenses incurred to date have been recognized as expense in the Company's consolidated financial statements in the period incurred. Costs, if any, related to the correction of Y2K issues caused by a third party's failure to be Y2K compliant would be expensed as incurred. Based on the Y2K assessment information obtained and corrections implemented to date, the Company believes that the "Year 2000" Issue will not have a material adverse effect on its financial position or results of operations. The Company believes that its most reasonably likely, worst case scenario may involve non-compliant third parties, including the failure of suppliers, distributors, shipping carriers, utility companies and other similar third parties to provide their services to the Company. The Company is currently reviewing results of a vendor compliance survey which will facilitate the risk assessment and contingency planning phase of non-IT related issues which will include planning for worst case scenarios. However, there can be no assurance that the failure to ensure "Year 2000" capability by a supplier, customer, or another third party would not have a material adverse effect on the Company. New Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 issued on June 1999, which will require recognition of all derivatives as either assets or liabilities on the balance sheet at fair value. The Company is currently evaluating the effect of implementing SFAS No. 133, which will be effective for the year beginning January 1, 2001. Page 9 12 THE FIRST YEARS INC. PART II - OTHER INFORMATION Items 1: Legal Proceedings. On February 11, 1999, Mark A. Freeman and Timothy K. Stringer brought a civil action against the Company in the United States District Court for the District of Kansas, Civil Action No. 99 2058 KHV. The Complaint in the civil action alleges that the Company's Tumble Mates(R) valved drinking cups infringe U.S. Patent 5,186,347 and seeks injunctive relief, treble damages in an amount unspecified, and attorney fees. It is the Company's position that it does not infringe any valid claims of U.S. Patent 5,186,347 and the Company is vigorously defending the civil action. Items 2 through 3 - Not Applicable Item 4: Submission of Matters to a Vote of Security holders. (a) An Annual Meeting of the Stockholders of The First Years Inc. was held on May 20, 1999. (c) The following matters were voted upon at such Annual Meeting and the following votes were cast as to each such matter: i. Election of Class I Directors:
Number of Shares ----------------------- Withheld For Authority --------- --------- Jerome M. Karp 8,010,127 1,109,239 Fred T. Page 8,012,377 1,106,989 Kenneth R. Sidman 7,989,327 1,130,039 ii. Proposal to approve an amendment to the Company's Articles of Organization to increase the number of authorized shares of the Company's common stock from 15,000,000 to 50,000,000 $.10 par value. Number of Shares ---------------- For 6,336,470 Against 2,314,561 Abstain 467,935 Del N-Vote 400
Page 10 13 THE FIRST YEARS INC. PART II - OTHER INFORMATION (con't) Item 4: Submission of Matters to a Vote of Security holders. (con't) iii. Proposal to ratify the selection of Deloitte & Touche LLP as auditors for the Company for the fiscal year 1999.
Number of Shares ---------------- For 9,091,382 Against 8,096 Abstain 19,888
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: Exhibit Description 10(r) Agreement with Disney Enterprises Inc. dated November 16, 1998 relating to the licensing of Winnie the Pooh cartoon characters (certain portions of which are subject to confidential treatment request). 10(s) Agreement with Disney Enterprises Inc. dated November 16, 1998 relating to the licensing of Disney Standard, Disney Babies and Disney Classics cartoon characters (certain portions of which are subject to confidential treatment request). 27 Financial Data Schedule (b) No reports on Form 8-K have been filed during the past quarter covered by this report. Page 11 14 THE FIRST YEARS INC. PART II -- OTHER INFORMATION (con't) Item 7A: Quantitative and Qualitative Disclosure about Market Risk At June 30, 1999, the Company held foreign currency forward contracts with a bank whereby the Company is committed to deliver foreign currency at predetermined rates. The contracts expire within one year. The Company's future commitment under these contracts totaled approximately $2,636,000 and the fair market value of the contracts approximated their predetermined rates included therein. Also see the discussion of the Company's disclosure regarding Market Risk in Item 7A of Form 10-K filed with the Securities and Exchange Commission. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE FIRST YEARS INC. ------------------------------- Registrant Date 8/13/99 /s/ John R. Beals ------------------------------- John R. Beals, Senior Vice President and Treasurer, Duly Authorized Officer and Principal Financial Officer Page 12 15 THE FIRST YEARS INC. EXHIBIT INDEX Exhibit Description Page - ------- ----------- ---- 10(r) Agreement with Disney Enterprises Inc. dated November 16, 1998 relating to the licensing of Winnie the Pooh cartoon characters (certain portions of which are subject to confidential treatment request). 10(s) Agreement with Disney Enterprises Inc. dated November 16, 1998 relating to the licensing of Disney Standard, Disney Babies and Disney Classics cartoon characters (certain portions of which are subject to confidential treatment request). 27 Financial Data Schedule Page 13 EX-10.(R) 2 LICENSE AGREEMENT WITH DISNEY ENTERPRISES INC. 1 Exhibit 10(r) NOTE: THE OMITTED PORTIONS OF THIS DOCUMENT MARKED WITH AN ASTERISK ARE SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. LICENSE AGREEMENT ----------------- Date: November 16, 1998 Re: POOH - JUVENILE BRAND This license agreement ("Agreement") is entered into by and between Disney Enterprises, Inc. ("Disney"), with a principal place of business at 500 South Buena Vista Street, Burbank, California 91521, and THE FIRST YEARS, Inc. ("Licensee"), with its principal place of business at One Kiddie Drive, Avon, MA 02322-1171. Disney and Licensee agree as follows: 1. MEANING OF TERMS ---------------- A. "LICENSED MATERIAL" means the graphic representations of the following characters, but only depictions of such characters and accompanying design elements as may be designated by Disney: WINNIE THE POOH, CHRISTOPHER ROBIN, PIGLET, RABBIT, EEYORE, TIGGER, OWL, GOPHER, KANGA AND ROO, ALL IN THE STYLE AS DESIGNED BY DISNEY. B. "Trademarks" means "WALT DISNEY", "DISNEY", the representations of Licensed Material included in Paragraph 1.A. above, and the following brand name(s) (including the logo(s) Disney will provide to Licensee): POOH (JUVENILE) C. "ARTICLES" means the items set forth on Schedule A, which is attached to this Agreement and incorporated herein by this reference, on or in connection with which the Licensed Material and/or the Trademarks are reproduced or used, and includes each and every stock keeping unit ("SKU") of each Article. D. "MINIMUM PER ARTICLE ROYALTY" means for each Article identified herein which is sold the sum indicated herein: None. E. "TERM" means the period commencing January 1, 1999, and ending * . 2 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 2 F. "TERRITORY" means the United States, United States PX's wherever located, and United States territories and possessions, excluding Puerto Rico, Guam, Commonwealth of Northern Mariana Islands and Palau. However, if sales are made to chain stores in the United States which have stores in Puerto Rico, such chain stores may supply Articles to such stores in Puerto Rico. G. "ROYALTIES" means a royalty in the amounts set forth below in Paragraphs 1.G.(1)(a), (b), and (c) and Royalties shall be further governed by the provisions contained in Paragraphs 1.G.(2)-(6): (1)(a) * percent ( * %) of Licensee's Net Invoiced Billings to authorized Retailers for Articles shipped by or on behalf of Licensee from a location within or outside the Territory for delivery to a customer located in the Territory ("F.O.B. In Sales"); or (b) * percent ( * %) of Licensee's Net Invoiced Billings to authorized Retailers when Licensee's customer located in the Territory takes title to the Articles outside the Territory and/or bears the risk of loss of Articles manufactured and shipped to the customer from outside the Territory ("F.O.B. Out Sales"); or (c) if a Minimum Per Article Royalty has been specified in Paragraph 1.D. above, and it would result in a higher royalty to be paid for the Articles, Licensee agrees to pay the higher royalty amount. (2) The sums paid to Disney as Royalties on any sales to Licensee's Affiliates shall be no less than the sums paid on sales to customers not affiliated with Licensee. (3) All sales of Articles shipped to a customer outside the Territory pursuant to a distribution permission shall bear a Royalty at the rate for F.O.B. Out Sales. However, sales of Articles to Disney's Affiliates outside the Territory shall bear a Royalty at the rate for F.O.B. In Sales. (4) No Royalties are payable on the mere manufacture of Articles. (5) The full Royalty percentage shall be payable on close-out or other deep discount sales of Articles, including sales to employees. 3 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 3 (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. H. "NET INVOICED BILLINGS" means the following: (1) actual invoiced billings (i.e., sales quantity multiplied by Licensee's selling price) for Articles sold, and all other receivables of any kind whatsoever, received in payment for the Articles, whether received by Licensee or any of Licensee's Affiliates, except as provided in Paragraph 1.H.(2), less "Allowable Deductions" as hereinafter defined. (2) The following are not part of Net Invoiced Billings: invoiced charges for transportation of Articles within the Territory which are separately identified on the sales invoice, and sales taxes. I. "ALLOWABLE DEDUCTIONS" means the following: (1) volume discounts, and other discounts from the invoice price (or post-invoice credits) unilaterally imposed in the regular course of business by Licensee's customers, so long as Licensee documents such discounts (or credits) to Disney's satisfaction. In the event a documented unilateral discount (or credit) is taken with respect to combined sales of Articles and other products not licensed by Disney, and Licensee cannot document the portion of the discount (or credit) applicable to the Articles, Licensee may apply only a pro rata portion of the discount (or credit) to the Articles. Unilateral discounts or credits are never deductible if they represent items listed below in Paragraph 1.I.(2). (2) The following are not Allowable Deductions, whether granted on sales invoices or unilaterally imposed as discounts or as post-invoice credits: cash discounts granted as terms of payment; early payment discounts; allowances or discounts relating to advertising; mark down allowances; new store allowances; defective goods allowances or allowances taken by customers in lieu of returning goods; costs incurred in manufacturing, importing, selling or advertising Articles; 4 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 4 freight costs incorporated in the selling price; and uncollectible accounts. J. "ROYALTY PAYMENT PERIOD" means each calendar quarterly period during the Term and during the sell-off period, if granted. K. "ADVANCE" means the following sum(s) payable by the following date(s) as an advance on Royalties to accrue in the following period(s): * L. "GUARANTEE" means the following sum(s) which Licensee guarantees to pay as minimum Royalties on Licensee's cumulative sales in the following period(s): * M. "SAMPLES" means six (6) samples of each SKU of each Article, from the first production run of each supplier of each SKU of each Article. N. "PROMOTION COMMITMENT" means the following sum(s) which Licensee agrees to spend in the following way(s): (1) Licensee agrees to participate in Disney's common marketing and promotional fund (the "Common Marketing Fund" or "CMF") as provided in this Paragraph 1.N. The amount of the CMF contribution shall be calculated as * percent ( * %) of Licensee's Net Invoiced Billings and shall be payable concurrently with Royalties (but by separate payment to such account as Disney specifies) due each Royalty Payment Period, as set forth in greater detail in Paragraph 20.A. hereof. Any subsequent reduction of Net Invoiced Billings for any reason shall not result in any adjustment of any CMF payment. In addition, Licensee shall pay a "CMF Guarantee", meaning the sum(s) which Licensee guarantees to pay Disney as a minimum amount of the CMF payment on Licensee's cumulative sales in the relevant period. The "CMF Guarantee" shall be the amount equal to * percent ( * %) of the quotient of the Guarantee divided by the Royalty rate for F.O.B. In Sales. Licensee also may be required to pay one or more payments of "CMF Advances" which shall be non-refundable installments of the CMF Guarantee, each to be due and payable on a date to be specified by Disney, in its absolute discretion. 5 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 5 (2) Licensee's CMF payments shall be expended by Disney and Disney's designees (but not paid to Disney's own employees for services they render) in the amounts and in the manner Disney deems most appropriate in order to provide national or local advertising, marketing and promotion, and related market research, regarding the Licensed Material, the Trademarks and/or the brand(s) licensed hereunder or other Disney properties in the same property classification. However, Disney does not ensure that Licensee or any other particular licensee will benefit directly or pro-rata from the operation of the Common Marketing Fund. Disney will apprise Licensee of the operations and proposed expenditures of the Common Marketing Fund from time to time and seek Licensee's advice on how the CMF monies relating to the Licensed Material, the Trademarks and/or the brand(s) should be spent. Licensee shall not be entitled to any audit rights with regard to the CMF system. O. "MARKETING DATE" means the following date(s) by which the following Article(s) shall be available for purchase by the public at the retail outlets authorized pursuant to Paragraph 2.A.: By January 1, 1999, for all Articles. P. "AFFILIATE" means, with regard to Licensee, any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Licensee; with regard to Disney, "Affiliate" means any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Disney. "Control" of an entity shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of such entity, whether through ownership of voting securities, by contract or otherwise. Q. "LAWS" means any and all applicable laws, rules, 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 and/or distribution of the Articles. R. "RETAILER" means independent and chain retail outlets which have storefronts and business licenses, and which customers walk into, not up to; "WHOLESALER" means a seller of items to retailers, not consumers, and includes the term "distributor". The following do not qualify as authorized 6 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 6 sales outlets for Articles under this Agreement under any circumstances: swap meets, flea markets, street peddlers, unauthorized kiosks, and the like. S. "MANUFACTURER" means any of Licensee's third-party manufacturers, suppliers and facilities (and their sub-manufacturers, suppliers and facilities) which reproduce or use the Licensed Material and/or Trademarks on Articles, or components thereof, and/or which assemble such Articles. 2. RIGHTS GRANTED -------------- A. (1) In consideration for Licensee's promise to pay and Licensee's payment of all monetary obligations required hereunder, Disney grants Licensee the non-exclusive right, during the Term, and only within the Territory, to reproduce the Licensed Material only on or in connection with the Articles, to use such Trademarks and uses thereof as may be approved when each SKU of the Articles is approved and only on or in connection with the Articles, and to manufacture, distribute for sale and sell the Articles as authorized by this Paragraph 2.A. (2) Licensee will sell the Articles only to the following Retailers in the Territory for resale to the public in the Territory: (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 chains, and (5) supermarkets and food chains; provided, however, that the Article identified as Article Number C.13 may be sold only to the infant buyers of such Retailers. In addition, Licensee may sell the Articles identified as Numbers A.1. through A.4., A.9., A.13., B.2., B.5., B.14., B.21., B.25., C.1., C.2., C.5. through C.8., and C.11., to the following Retailers in the Territory for resale to the public in the Territory: (1) upscale Retailers (including such Retailers as Robinsons-May, Nordstrom and Bloomingdale's), (2) better specialty stores (including such Retailers as Bergstrom's), and (3) mid-tier department stores (including such Retailers as J.C. Penney and Kohl's). Licensee also may sell the Articles to Wholesalers which sell to drug chains, supermarkets and food chains, and value-oriented specialty stores. If there is a question as to whether a particular customer falls within any of the categories specified above, Disney's determination shall be binding. (3) Licensee may not sell the Articles by direct marketing methods, which includes but is not limited to, computer on-line selling, direct mail and door-to-door solicitation. Licensee may not sell the 7 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 7 Articles to Retailers selling merchandise on a duty-free basis, unless such Retailer has a then-current license agreement with Disney or any of Disney's Affiliates permitting it to make such duty-free sales. (4) Licensee may sell the Articles to authorized customers for resale through the pre-approved mail order catalogs listed on the Mass Catalog Schedule to this Agreement. In addition, Articles Numbers A.1 through A.4, A.9., A.13., B.2, B.5, B.14., B.21, B.25., C.1, C.2, C.5 through C.8 and C.11 may be sold through Upscale Catalogs. Licensee shall pay Royalties on such sales at the rate specified for Retailers in Paragraph 1.G.(1)(a) or (b), as applicable. (5) All rights not expressly granted to Licensee herein are reserved to Disney. B. Unless Disney consents in writing, Licensee shall not sell or otherwise provide Articles for use as premiums (including those in purchase-with-purchase promotions), promotions, give-aways, fund-raisers, or entries in sweepstakes, or through unapproved direct marketing methods, including but not limited to, home shopping television programs, or to customers for inclusion in another product. Licensee shall not sell Articles to any customer who Licensee knows or reasonably should know engages in illegal business practices or ethically questionable distribution methods. If Licensee wishes to sell the Articles to customers for resale through mail order catalogs other than those listed on the Catalog Schedules hereto, Licensee must obtain Disney's prior written consent in each instance. However, Licensee may solicit orders by mail from those Retailers authorized pursuant to Paragraph 2.A.(2) above, and Licensee may sell to such authorized Retailers which sell predominantly at retail, but which include the Articles in their mail order catalogs, or otherwise sell Articles by direct marketing methods as well as at retail. C. The prohibition of computer on-line selling referenced in Paragraph 2.A. includes, but is not limited to, the display, promotion or offering of Articles in or on any on-line venues (e.g. Websites), except as specifically permitted in the next two sentences. Articles approved by Disney may be displayed and promoted on Disney-controlled on-line venues, only within the Territory. In addition, Articles approved by Disney may be displayed and promoted on Licensee's own on-line venue, and may be displayed, promoted and sold on authorized Retailers' on-line venues, subject to Disney's applicable policies and guidelines; however, Licensee must obtain Disney's prior written approval of all creative and editorial elements of such uses, in accordance with the provisions of Paragraph 7 of this Agreement. 8 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 8 D. Unless Disney consents in writing, Licensee shall not give away or donate Articles to Licensee's accounts or other persons for the purpose of promoting sales of Articles, except for minor quantities or samples which are not for onward distribution. E. Nothing contained herein shall preclude Licensee from selling Articles to Disney or to any of Disney's Affiliates, or to Licensee's or Disney's employees, subject to the payment to Disney of Royalties on such sales. F. Disney further grants Licensee the right to reproduce the Licensed Material and to use the approved Trademarks, only within the Territory, during the Term, on containers, packaging and display material for the Articles, and in advertising for the Articles. G. Nothing contained in this Agreement shall be deemed to imply any restriction on Licensee's freedom and that of Licensee's customers to sell the Articles at such prices as Licensee or they shall determine. H. Licensee recognizes and acknowledges the vital importance to Disney of the characters and other proprietary material Disney owns and creates, and the association of the Disney name with them. In order to prevent the denigration of Disney's products and the value of their association with the Disney name, and in order to ensure the dedication of Licensee's best efforts to preserve and maintain that value, Licensee agrees that, during the Term and any extension hereof, Licensee will not manufacture or distribute any merchandise embodying or bearing any artwork or other representation which Disney determines, in Disney's reasonable discretion, is confusingly similar to Disney's characters or other proprietary material. 3. ADVANCE ------- A. Licensee agrees to pay the Advance, which shall be on account of Royalties to accrue during the Term only, and only with respect to sales in the Territory; provided, however, that if any part of the Advance is specified hereinabove as applying to any period less than the Term, such part shall be on account of Royalties to accrue during such lesser period only. If said Royalties should be less than the Advance, no part of the Advance shall be repayable. B. Royalties accruing during any sell-off period or extension of the Term 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. 9 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 9 C. In no event shall Royalties accruing by reason of any sales to Disney or any of Disney's Affiliates or by reason of sales outside the Territory pursuant to a distribution permission be offset against the Advance or any subsequent advance. 4. GUARANTEE --------- A. Licensee shall, with Licensee's statement for each Royalty Payment Period ending on a date indicated in Paragraph 1.L. hereof defining "Guarantee," or upon termination if the Agreement is terminated prior to the end of the Term, pay Disney the amount, if any, by which cumulative Royalties paid with respect to sales in the Territory during any period or periods covered by the Guarantee provision, or any Guarantee provision contained in any agreement extending the term hereof, fall short of the amount of the Guarantee for such period. B. Advances applicable to Royalties due on sales in the period to which the Guarantee relates apply towards meeting the Guarantee. C. In no event shall Royalties paid with respect to sales to Disney or to any of Disney's Affiliates, or with respect to sales outside the Territory pursuant to a distribution permission, apply towards the meeting of the Guarantee or any subsequent guarantee. 5. PRE-PRODUCTION APPROVALS ------------------------ A. As early as possible, and in any case before commercial production of any Article, Licensee shall submit to Disney for Disney's review and written approval (to utilize such materials in preparing a pre-production sample) all concepts, all preliminary and proposed final artwork, and all three-dimensional models which are to appear on or in any and all SKUs of the Article. Thereafter, Licensee shall submit to Disney for Disney's written approval a pre-production sample of each SKU of each Article. Disney shall endeavor to respond to such requests within a reasonable time, but such approvals should be sought as early as possible in case of delays. In addition to the foregoing, as early as possible, and in any case no later than sixty (60) days following written conceptual approval, Licensee shall supply to Disney for Disney's use for internal purposes, a mock-up, prototype or pre-production sample of each SKU of each Article on or in connection with which the Licensed Material is used. Licensee acknowledges that Disney may not approve concepts or artwork submitted near the end of the Term, or concepts or artwork perceived to be for selling periods beyond the Term. Any pre-production approval Disney may give will not constitute or imply a 10 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 10 representation or belief by Disney that such materials comply with any applicable Laws. B. Approval or disapproval shall lie solely in Disney's discretion, and any SKU of any Article not so approved in writing shall be deemed unlicensed and shall not be manufactured or sold. If any unapproved SKU of any Article is being sold, Disney may, together with other remedies available to Disney, including but not limited to, immediate termination of this Agreement, by written notice require such SKU of such Article to be immediately withdrawn from the market. Any modification of any SKU of an Article, including, but not limited to, change of materials, color, design or size of the representation of Licensed Material must be submitted in advance for Disney's written approval as if it were a new SKU of an Article. Approval of any SKU of an Article which uses particular artwork does not imply approval of such artwork for use with a different Article. The fact that artwork has been taken from a Disney publication or a previously approved Article does not mean that its use will necessarily be approved in connection with an Article licensed hereunder. C. If Licensee submits for approval artwork from an article or book manufactured or published by another licensee of Disney's or of any of Disney's Affiliates, Licensee must advise Disney in writing of the source of such artwork. If Licensee fails to do so, any approval which Disney may give for use by Licensee of such artwork may be withdrawn by giving Licensee written notice thereof, and Licensee may be required by Disney not to sell Articles using such artwork. D. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Disney will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Disney in writing is intended to make the Article safer or more durable. E. If Disney has supplied Licensee with forms for use in applying for approval of artwork, models, pre-production and production samples of Articles, Licensee shall use such forms when submitting anything for Disney's approval. 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 11 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 11 Samples with packaging which is hereinabove set forth, which shall conform to the approved artwork, three-dimensional models and pre-production sample. Approval or disapproval of the artwork as it appears on any SKU of the Article, as well as of the quality of the Article, shall lie in Disney's sole discretion and may, among other things, be based on unacceptable quality of the artwork or of the Article as manufactured. Any SKU of any Article not so approved shall be deemed unlicensed, shall not be sold and, unless otherwise agreed by Disney in writing, shall be destroyed. Such destruction shall be attested to in a certificate signed by one of Licensee's officers. Production samples of Articles for which Disney has approved a pre-production sample shall be deemed approved, unless within twenty (20) days of Disney's receipt of such production sample Disney notifies Licensee to the contrary. Any approval of a production sample attributable to Disney will not constitute or imply a representation or belief by Disney that such production sample complies with any applicable Laws. B. Licensee agrees to make available at no charge such additional samples of any or all SKUs of each Article as Disney may from time to time reasonably request for the purpose of comparison with earlier samples, or for Disney's anti-piracy efforts, or to test for compliance with applicable Laws, and to permit Disney to inspect Licensee's manufacturing operations and testing records (and those of Licensee's Manufacturers) for the Articles in accordance with Paragraphs 11 and 24. C. Licensee acknowledges that Disney may disapprove any SKU of an Article or a production run of any SKU of an Article because the quality is unacceptable to Disney, and accordingly, Disney recommends that Licensee submit production samples to Disney for approval before committing to a large original production run or to purchase a large shipment from a new supplier. D. No modification of an approved production sample shall be made without Disney's further prior written approval. All SKUs of Articles being sold must conform in all respects to the approved production sample. It is understood that if in Disney's reasonable judgment the quality of any SKU of an Article originally approved has deteriorated in later production runs, or if the SKU has otherwise been altered, Disney may, in addition to other remedies available to Disney, by written notice require such SKU of the Article to be immediately withdrawn from the market. E. The rights granted hereunder do not permit the sale of "seconds" or "irregulars". All Articles not meeting the standard of approved samples shall be destroyed or all Licensed Material and Trademarks shall be removed or obliterated therefrom. 12 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 12 F. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Disney will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Disney in writing is intended to make the Article safer or more durable. G. Disney shall have the right, by written notice to Licensee, to require modification of any SKU of any Article approved by Disney under this or any previous agreement between the parties pertaining to Licensed Material. Likewise, if the 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 Agreement, or if Disney has inadvertently approved an Article using artwork and/or trademarks not included in the Agreement, such approval may be revoked at any time without any obligation whatsoever on Disney's part to Licensee. Any such product as to which Disney's approval is revoked shall be deemed unauthorized and shall not be distributed or sold by or for Licensee. 7. APPROVAL OF PACKAGING, PROMOTIONAL ---------------------------------- MATERIAL, AND ADVERTISING ------------------------- 13 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 13 A. All containers, packaging, display material, promotional material, catalogs, and all advertising, including but not limited to, television advertising and press releases, for Articles must be submitted to Disney and receive Disney's written approval before use. To avoid unnecessary expense if changes are required, Disney's approval thereof should be procured when such is still in rough or storyboard format. Disney shall endeavor to respond to requests for approval within a reasonable time. Approval or disapproval shall lie in Disney's sole discretion, and the use of unapproved containers, packaging, display material, promotional material, catalogs or advertising is prohibited. Disney's approval of any containers, packaging, display material, promotional material, catalogs or advertising under this Agreement will not constitute or imply a representation or belief by Disney that such materials comply with any applicable Laws. Whenever Licensee prepares catalog sheets or other printed matter containing illustrations of Articles, Licensee will furnish to Disney five (5) copies thereof when they are published. B. If Disney has supplied Licensee with forms for use in applying for approval of materials referenced in this Paragraph 7, Licensee shall use such forms when submitting anything for Disney's approval. C. Disney has designed character artwork and/or a brand name logo(s) to be used by all licensees in connection with the packaging of all merchandise using the Licensed Material, and, if applicable, on hang tags and garment labels for such merchandise. Disney will supply Licensee with reproduction artwork thereof, and Licensee agrees to use such artwork and/or logo(s) on the packaging of the Articles, and, if applicable, on hang tags and garment labels, which Licensee will have printed and attached to each Article at Licensee's cost. Disney recommends that Licensee source the hang tags and garment labels from Disney's authorized manufacturer (if any) of pre-approved hang tags and garment labels, the name of which will be provided to Licensee upon request. However, Licensee may use another manufacturer for the required hang tags and garment labels if the hang tags and garment labels manufactured are of equivalent quality and are approved by Disney in accordance with Disney's usual approval process. 14 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 14 8. ARTWORK ------- Licensee shall pay Disney, within thirty (30) days of receiving an invoice therefor, for Style Guides and for artwork done at Licensee's request by Disney or third parties under contract to Disney in the development and creation of Articles, display, packaging or promotional material (including any artwork which in Disney's opinion is necessary to modify artwork initially prepared by Licensee and submitted to Disney for approval, subject to Licensee's prior written approval) at Disney's then prevailing commercial art rates. Estimates of artwork charges are available upon request. While Licensee is not obligated to utilize the services of Disney's Art Department, Licensee is encouraged to do so in order to minimize delays which may occur if outside artists do renditions of Licensed Material which Disney cannot approve and to maximize the attractiveness of the Articles. Artwork will be returned to Licensee by overnight courier, at Licensee's cost (unless other arrangements are made). 9. PRINT, RADIO OR TV ADVERTISING ------------------------------ Licensee will obtain all approvals necessary in connection with print, radio or television advertising, if any, which Disney may authorize. Licensee represents and warrants that all advertising and promotional materials shall comply with all applicable Laws. Disney's approval of copy or storyboards for such advertising will not constitute or imply a representation or belief by Disney that such copy or storyboards comply with any applicable Laws. This Agreement does not grant Licensee any rights to use the Licensed Material in animation. Licensee may not use any animation or live action footage from the motion picture from which the Licensed Material comes without Disney's prior written approval in each instance. In the event Disney approves the use of film clips of the motion picture from which the Licensed Material comes, for use in a television commercial, Licensee shall be responsible for any re-use fees which may be applicable, including SAG payments for talent. No reproduction of the film clip footage shall be made except for inclusion, as approved by Disney, in such commercial and there shall be no modifications of the film clip footage. All film clip footage shall be returned to Disney immediately after its inclusion in such commercial. Disney shall have the right to prohibit Licensee from advertising the Articles by means of television and/or billboards. Such right shall be exercised within Disney's absolute discretion, including without limitation for reasons of overexposure of the Licensed Material. 10. LICENSEE NAME AND ADDRESS ON ARTICLES ------------------------------------- A. Licensee's name, trade name (or Licensee's trademark which Licensee has advised Disney in writing that Licensee is using) and Licensee's address (at least city and state) will appear on permanently affixed labeling on each 15 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 15 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 numbers do not constitute a sufficient label under this paragraph. 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. B. Without limiting the foregoing, Licensee covenants on behalf of Licensee's own manufacturing facilities, and agrees to require all Manufacturers to covenant by signing the Consent/Manufacturer's Agreement (referenced in Paragraph 24), as follows: (1) Licensee and the Manufacturers agree not to use child labor in the manufacturing, packaging or distribution of Disney merchandise. The term "child" refers to a person younger than the local legal minimum age for employment or the age for completing compulsory education, but in no case shall any child younger than fifteen (15) years of age (or fourteen (14) years of age where local law allows) be employed in the manufacturing, packaging or distribution of Disney merchandise. Licensee and the Manufacturers employing young persons who do not fall within the definition of "children" agree also to comply with any Laws applicable to such persons. (2) Licensee and the Manufacturers agree only to employ persons whose presence is voluntary. Licensee and the Manufacturers agree not to 16 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 16 use any forced or involuntary labor, whether prison, bonded, indentured or otherwise. (3) Licensee and the Manufacturers agree to treat each employee with dignity and respect, and not to use corporal punishment, threats of violence, or other forms of physical, sexual, psychological or verbal harassment or abuse. (4) Unless required by applicable Laws to treat a specific group of employees differently, Licensee and the Manufacturers agree not to 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. (5) Licensee and the Manufacturers recognize that wages are essential to meeting employees' basic needs. Licensee and Manufacturers agree to comply, at a minimum, with all applicable wage and hour Laws, including minimum wage, overtime, maximum hours, piece rates and other elements of compensation, and to provide legally mandated benefits. If local Laws do not provide for overtime pay, Licensee and Manufacturers agree to pay at least regular wages for overtime work. Except in extraordinary business circumstances, Licensee and the 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. Licensee and the Manufacturers agree that, where local industry standards are higher than applicable legal requirements, they will meet the higher standards. (6) Licensee and the Manufacturers agree to provide employees with a safe and healthy workplace in compliance with all applicable Laws, ensuring, at a minimum, reasonable access to potable water and sanitary facilities, fire safety, and adequate lighting and ventilation. Licensee and the Manufacturers also agree to ensure that the same standards of health and safety are applied in any housing they provide for employees. Licensee and the Manufacturers agree to provide Disney with all information Disney may request about manufacturing, packaging and distribution facilities for the Articles. 17 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 17 (7) Licensee and the Manufacturers agree to respect the rights of employees to associate, organize and bargain collectively in a lawful and peaceful manner, without penalty or interference, in accordance with applicable Laws. (8) Licensee and the Manufacturers agree to comply with all applicable environmental Laws. (9) Licensee and the Manufacturers agree to comply with all applicable Laws, including those pertaining to the manufacture, pricing, sale and distribution of the Articles. (10) 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, including unannounced on-site inspections of manufacturing, packaging and distribution facilities, and employer-provided housing, such inspections to include reviews of books and records relating to employment matters and private interviews with employees. Licensee and the Manufacturers agree to maintain on site all documentation necessary to demonstrate compliance with this Paragraph 11. Licensee agrees to promptly reimburse Disney for the actual costs of inspections performed pursuant to this Paragraph 11 when any of Licensee's manufacturing facilities or any Manufacturer does not pass the inspection(s). (11) Licensee and the Manufacturers agree to 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 the Code of Conduct for Manufacturers (copy attached) in the local language and in a place readily accessible to employees at all times. C. Licensee agrees to be bound by the Code of Conduct for Licensees (copy attached), including but not limited to, taking appropriate steps, in consultation with Disney, 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. 18 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 18 D. 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, manufacturing and quality control records and procedures and to test the Articles for compliance with product safety and other applicable Laws. 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. 12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL --------------------------------------------------- Licensee acknowledges that the copyrights and all other proprietary rights in and to Licensed Material are exclusively owned by and reserved to Disney or its licensor. Licensee shall neither acquire nor assert copyright ownership or any other proprietary rights in the Licensed Material or in any derivation, adaptation, variation or name thereof. Without limiting the foregoing, Licensee hereby assigns to Disney all Licensee's worldwide right, title and interest in the Licensed Material and in any material objects consisting of or to the extent that they incorporate drawings, paintings, animation cels, or sculptures of Licensed Material, or other adaptations, compilations, collective works, derivative works, variations or names of Licensed Material, heretofore or hereafter created by or for Licensee or any of Licensee's Affiliates. All such new materials shall be included in the definition of "Licensed Material" under this Agreement. If any third party makes or has made any contribution to the creation of any new materials which are included in the definition of Licensed Material under this Paragraph 12, Licensee agrees to obtain from such party a full assignment of rights so that the foregoing assignment by Licensee shall vest full rights to such new materials in Disney. Licensee further covenants that any such new materials created by Licensee or by any third party Licensee has engaged are original to Licensee or such third party and do not violate the rights of any other person or entity; this covenant regarding originality shall not extend to any materials Disney supplies to Licensee, but does apply to all materials Licensee or Licensee's third party contractors may add thereto. The foregoing assignment to Disney of material objects shall not include that portion of Licensee's displays, catalogs, or promotional material not containing Licensed Material, or the physical items constituting the Articles, unless such items are in the shape of the Licensed Material. 13. COPYRIGHT NOTICE ---------------- 19 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 19 As a condition to the grant of rights hereunder, each Article and any other matter containing Licensed Material shall bear a properly located permanently affixed copyright notice in Disney's name (e.g., "(C) Disney"), or such other notice as Disney specifies to Licensee in writing. Licensee will comply with such instructions as to form, location and content of the notice as Disney may give from time to time. Without limiting the foregoing, Licensee agrees to include on the Article, or the packaging for the Article, or the hang tag for the Article (if applicable), the following language: Based on the "Winnie The Pooh" works, copyright A.A. Milne and E.H. Shepard. Licensee will not, without Disney's prior written consent, affix to any Article or any other matter containing Licensed Material a copyright notice in any other name. If through inadvertence or otherwise a copyright notice on any Article or other such matter should appear in Licensee's name or the name of a third party, Licensee hereby agrees to assign to Disney the copyright represented by any such copyright notice in Licensee's name and, upon request, cause the execution and delivery to Disney of whatever documents are necessary to convey to Disney that copyright represented by any such copyright notice. If by inadvertence a proper copyright notice is omitted from any Article or other matter containing Licensed Material, Licensee agrees at Licensee's expense to use all reasonable efforts to correct the omission on all such Articles or other matter in process of manufacture or in distribution. Licensee agrees to advise Disney promptly and in writing of the steps being taken to correct any such omission and to make the corrections on existing Articles which can be located. 14. NON-ASSOCIATION OF OTHER FANCIFUL --------------------------------- CHARACTERS WITH LICENSED MATERIAL --------------------------------- To preserve Disney's identification with Disney's characters and to avoid confusion of the public, Licensee agrees not to associate other characters or licensed properties with the Licensed Material or the Trademarks either on the Articles or in their packaging, or, without Disney's written permission, on advertising, promotional or display materials. If Licensee wishes to use a character which constitutes Licensee's trademark on the Articles or their packaging, or otherwise in connection with the Articles, Licensee agrees to obtain Disney's prior written permission. 15. ACTIVE MARKETING OF ARTICLES ---------------------------- Licensee agrees to manufacture (or have manufactured for Licensee) and 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.O., by six (6) months from the commencement of the Term or the date of any applicable amendment, shipments to customers of such Article will have taken place in sufficient time that such Article shall be available for purchase in commercial quantities by the public at the retail 20 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 20 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, without obligation to Licensee other than to give Licensee written notice thereof. 16. PROMOTION COMMITMENT -------------------- Licensee agrees to carry out the Promotion Commitment, if any, as defined in Paragraph 1.N. 17. TRADEMARK RIGHTS AND OBLIGATIONS -------------------------------- A. All uses of the Trademarks by Licensee hereunder shall inure to Disney's benefit. Licensee acknowledges that Disney or its licensor is the exclusive owner of all the Trademarks, and of any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses. Without limiting the foregoing, Licensee hereby assigns to Disney all the Trademarks, and any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses, together with the goodwill attaching to that part of the business in connection with which such Trademarks or trademarks are used. Licensee agrees to execute and deliver to Disney such documents as Disney requires to register Licensee as a Registered User or Permitted User of the Trademarks or such trademarks and to follow Disney's instructions for proper use thereof in order that protection and/or registrations for the Trademarks and such trademarks may be obtained or maintained. B. Licensee agrees not to use any Licensed Material or Trademarks, or any trademark incorporating all or any part of a Trademark or of any Licensed Material, on any business sign, business cards, stationery or forms (except as licensed herein), or to use any Licensed Material or Trademark as the name of Licensee's business or any division thereof, unless otherwise agreed by Disney in writing. C. Nothing contained herein shall prohibit Licensee from using Licensee's own trademarks on the Articles or Licensee's copyright notice on the Articles when the Articles contain independent material which is Licensee's property. Nothing contained herein is intended to give Disney any rights to, and Disney shall not use, any trademark, copyright or patent used by Licensee in connection with the Articles which is not derived or adapted from Licensed Material, Trademarks, or other materials owned by Disney or its licensor. 21 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 21 18. REGISTRATIONS ------------- Except with Disney's written consent, neither Licensee nor any of Licensee's Affiliates will register or attempt in any country to register copyrights in, or to register as a trademark, service mark, design patent or industrial design, or business designation, any of the Licensed Material, Trademarks or derivations or adaptations thereof, or any word, symbol or design which is so similar thereto as to suggest association with or sponsorship by Disney or any of Disney's Affiliates. In the event of breach of the foregoing, Licensee agrees, at Licensee's expense and at Disney's request, immediately to terminate the unauthorized registration activity and promptly to execute and deliver, or cause to be delivered, to Disney such assignments and other documents as Disney may require to transfer to Disney all rights to the registrations, patents or applications involved. 19. UNLICENSED USE OF LICENSED MATERIALS ------------------------------------ A. Licensee agrees that Licensee will not use the Licensed Material, or the Trademarks, or any other material the copyright to which is owned or licensed by Disney in any way other than as herein authorized (or as is authorized in any other written contract in effect between the parties). In addition to any other remedy Disney may have, Licensee agrees that all revenues from any use thereof on products other than the Articles (unless authorized by Disney in writing), and all revenues from the use of any other copyrighted material of Disney's or its licensor's without written authorization, shall be immediately payable to Disney. B. Licensee agrees to give Disney prompt written notice of any unlicensed use by third parties of Licensed Material or Trademarks, and that Licensee will not, without Disney's written consent, bring or cause to be brought any criminal prosecution, lawsuit or administrative action for infringement, interference with or violation of any rights to Licensed Material or Trademarks. Because of the need for and the high costs of an effective anti-piracy enforcement program, Licensee agrees to cooperate with Disney, and, if necessary, to be named by Disney as a sole complainant or co-complainant in any action against an infringer of the Licensed Material or Trademarks and, notwithstanding any right of Licensee to recover same, legal or otherwise, Licensee agrees to pay to Disney, and hereby waives all claims to, all damages or other monetary relief recovered in such action by reason of a judgment or settlement whether or not such damages or other monetary relief, or any part thereof, represent or are intended to represent injury sustained by Licensee as a licensee hereunder; in any such action against an infringer, Disney agrees to reimburse Licensee for reasonable expenses 22 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 22 incurred at Disney's request, including reasonable attorney's fees if Disney has requested Licensee to retain separate counsel. 20. STATEMENTS AND PAYMENTS OF ROYALTIES ------------------------------------ A. Licensee agrees to furnish to Disney by the 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, including but not limited to, the quantities, Net Invoiced Billings and applicable Royalty rate(s) of Articles invoiced during the preceding Royalty Payment Period, and the quantities and invoice value of Articles returned for credit or refund in such period. At the same time Licensee will pay Disney all Royalties and CMF payments (if applicable) due on billings shown by such statements. To the extent that any Royalties or CMF payments are not paid, Licensee authorizes Disney to offset Royalties and/or CMF payments due against any sums which Disney or any of Disney's Affiliates may owe to Licensee or any of Licensee's Affiliates. No deduction or withholding from Royalties payable to Disney shall be made by reason of any tax. Any applicable tax on the manufacture, distribution and sale of the Articles shall be borne by Licensee. B. The statement forms Disney designates for Licensee's use may be changed from time to time, and Licensee agrees to use the most current form 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, 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. Upon at least six (6) months' notice from Disney, the Royalty Payment Period may be changed from quarterly to monthly, unless this Agreement already provides for a monthly Royalty Payment Period. C. In addition to the other information requested by the statement forms, Licensee's statement shall with respect to all Articles report separately: (1) F.O.B. In Sales; (2) F.O.B. Out Sales; (3) sales of Articles outside the Territory pursuant to a distribution permission (indicating the country involved); 23 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 23 (4) Licensee's sales of Articles to any of Disney's licensees or Disney's Affiliates' licensees who are licensed to sell the Articles, and who are reselling such Articles and paying Disney royalties on such resales; in such cases, Licensee need only report the sales on the statements, because double royalties are not owed to Disney on these sales; (5) sales of Articles to Disney or any of Disney's Affiliates; (6) sales of Articles to Licensee's or Disney's employees; (7) sales of Articles under any brand or property identified in Paragraph 1.B. hereinabove; (8) sales of Articles to or for distribution through any mail order catalogs approved under this Agreement. D. Sales of items licensed under contracts with Disney other than this Agreement shall not be reported on the same statement as sales of Articles under this Agreement. E. Licensee's statements and payments, including all Royalties, shall be delivered to Wachovia South Metro Center, DEI Account, P.O. Box 101947, Atlanta, Georgia 30392. A copy of each statement must be sent to Disney at 500 South Buena Vista Street, Burbank, California 91521-6687, to the attention of the Contract Administrator, Consumer Products Division. If Licensee wishes to send statements and payments by overnight courier, please use the following address: Wachovia South Metro Center, DEI Account, 3585 Atlanta Avenue, Hapeville, GA 30354, Attention Peggy Morris, Reference Lock box 101947. However, Advances should be mailed directly to Disney at 500 South Buena Vista Street, Burbank, California 91521-6687, to the attention of the Contract Administrator or Legal Department, Consumer Products Division. F. Insofar as is necessary to provide for full performance of this Agreement, including but not limited to, proper payment of Royalties, Licensee represents and warrants that it will take all required steps to ensure that its information systems, including, without limitation, all its proprietary and all third party hardware and software, process dates correctly prior to, during and after the calendar year 2000 ("Year 2000 Compliance"). Year 2000 Compliance shall include, 24 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 24 without limitation, correct century recognition, calculations that properly accommodate same century and multi-century formulas and date values, and interface values that reflect the appropriate century. Necessary steps to ensure Year 2000 Compliance shall include, without limitation, analysis of all components of Licensee's information systems and, as necessary, development, installation and testing of software fixes, patches and updates. Licensee represents and warrants that its information systems will be Year 2000 Compliant by September 30, 1999. Such representation and warranty is a material term of this Agreement. Upon a breach by Licensee of its obligation under this paragraph, Disney shall be entitled to terminate this Agreement in accordance with the provisions for termination set forth herein. 21. CONFIDENTIALITY --------------- Licensee agrees not to issue any press release regarding this Agreement 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 and/or its Affiliates' business and operations, and/or information concerning works in progress, artwork, plots, characters or other matters relating to Disney's and/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 statements, Licensee agrees to give Disney prior written notice and to use its best efforts to obtain confidential treatment of this Agreement. Upon Disney's request, Licensee agrees to incorporate Disney's comments into Licensee's request for confidential treatment, provided such request and comments are received in writing by Licensee within five (5) business days after Disney's receipt of the notice referred to in the preceding sentence. 22. INTEREST -------- Royalties or any other payments due to Disney hereunder which are received 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. AUDITS AND MAINTAINING RECORDS ------------------------------ 25 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 25 A. Licensee agrees to keep accurate records of all transactions relating to this Agreement and any prior agreement with Disney regarding the Licensed Material, including, without limitation, shipments to Licensee of Articles and components thereof, inventory records, records of sales and shipments by Licensee, and records of returns, and to preserve such records for the lesser of seven (7) years or two (2) years after the expiration or termination of this Agreement. B. Disney, or Disney's representatives, shall have the right from time to time, during Licensee's normal business hours, but only for the purpose of confirming Licensee's performance hereunder, to examine and make extracts from all such records, including the general ledger, invoices and any other records which Disney reasonably deems appropriate to verify the accuracy of Licensee's statements or Licensee's performance hereunder, including records of Licensee's Affiliates and/or unaffiliated sublicensees 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 $60 per hour per person for travel time during normal working hours and actual working time. D. If Licensee has failed to keep adequate records for one or more Royalty Payment Periods, Disney will assume that the Royalties owed to Disney for such Royalty Payment Period(s) are equal to a reasonable amount, determined in Disney's absolute discretion, which may be up to but will not exceed the highest Royalties owed to Disney in a Royalty Payment Period for which Licensee has kept adequate records; if Licensee has failed to keep adequate records for any Royalty Payment Period, Disney will assume a reasonable amount of Royalties which Licensee will owe to Disney, based on the records Licensee has kept and other reasonable assumptions Disney deems appropriate. 26 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 26 24. 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 have Articles or components thereof containing Licensed Material and/or Trademarks manufactured by a third party, whether the third party is located within or outside the United States, Licensee must, as a condition to the continuation of this Agreement, notify Disney of the accurate name and complete address of such Manufacturer and the Articles or components involved and obtain Disney's prior written permission to do so. If Disney is prepared to grant permission, Disney will do so if Licensee and each of Licensee's Manufacturers sign a Consent/Manufacturer's Agreement in a form which Disney will furnish to Licensee and Disney receives all such agreements properly signed. Licensee must immediately notify Disney if Licensee is no longer using the Manufacturer to manufacture Articles or components thereof. (A SAMPLE OF SAID AGREEMENT FORM IS AVAILABLE ON REQUEST) B. It is not Disney's policy to reveal the names of Licensee's Manufacturers to third parties or to any Disney division involved with buying products, except as may be necessary to enforce Disney's contract rights or protect Disney's trademarks and copyrights. C. If any such Manufacturer utilizes Licensed Material or Trademarks for any unauthorized purpose, Licensee shall cooperate fully in bringing such utilization to an immediate halt. If, by reason of Licensee's not having supplied the above mentioned agreements to Disney or not having given Disney the name of any 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). D. 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 Consent/Manufacturer's Agreement, the Consent/Manufacturer's Agreement for such Manufacturer may be terminated immediately by Disney, and Licensee shall not thereafter use such Manufacturer to manufacture Articles or components thereof. If Licensee fails to notify Disney that it has ceased using a particular 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 27 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 27 alternative, the Consent/Manufacturer's Agreement shall be deemed terminated for purposes of Paragraph 28.B.(8), and Licensee shall promptly reimburse Disney for the actual costs of the compliance inspection. 25. INDEMNITY --------- A. Licensee shall indemnify Disney during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Licensee's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of Licensee's activities under this Agreement, including but not limited to, any actual or alleged: (1) negligent acts or omissions on Licensee's part, (2) defect (whether obvious or hidden and whether or not present in any Sample approved by Disney) in an Article, (3) personal injury, (4) infringement of any rights of any other person by the manufacture, sale, possession or use of Articles, (5) breach on Licensee's part of any covenant, 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 licensor, and its and their parent, Affiliates and successors, and its and their officers, directors, employees and agents. The indemnity shall not apply to any claim or liability relating to any infringement of the copyright of a third party caused by Licensee's utilization of the Licensed Material and the Trademarks in accordance with the provisions hereof, unless such claim or liability arises out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 12. B. Disney shall indemnify Licensee during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Disney's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of any claim that Licensee's use of any representation of the Licensed Material or the Trademarks approved in accordance with the provisions of this Agreement infringes the copyright of any third party or infringes any right granted by Disney to such third party, except for claims arising out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 12. Licensee shall not, in any case, be entitled to recover for lost profits. C. Additionally, if by reason of any claims referred to in 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, 28 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 28 excluding overheads, but Disney shall have no other responsibility or liability with respect to such Articles or materials. D. Disney gives no warranty or indemnity with respect to any liability or expense arising from any claim that use of the Licensed Material or the Trademarks on or in connection with the Articles hereunder or any packaging, advertising or promotional material infringes on any trademark right of any third party or otherwise constitutes unfair competition by reason of any prior rights acquired by such third party, other than rights acquired from Disney. It is expressly agreed that it is Licensee's responsibility to carry out such investigations as Licensee may deem appropriate to establish that Articles, packaging, and promotional and advertising material which are manufactured or created hereunder, including any use made of the Licensed Material and the Trademarks therewith, do not infringe such right of any third party, and Disney shall not be liable to Licensee if such infringement occurs. E. Licensee and Disney agree to give each other prompt written notice of any claim or suit which may arise under the indemnity provisions set forth above. Without limiting the foregoing, Licensee agrees to give Disney written notice of any product liability claim made or suit filed with respect to any Article, any investigations or directives regarding the Articles issued by the Consumer Product Safety Commission ("CPSC") or other federal, state or local consumer safety agency, and any notices sent by Licensee to, or received by Licensee from, the CPSC or other consumer safety agency regarding the Articles within fourteen (14) days of Licensee's receipt or promulgation of the claim, suit, investigation, directive, or notice. 26. INSURANCE --------- Licensee shall maintain in full force and effect at all times while this Agreement is in effect and for three years thereafter commercial general liability insurance on a per occurrence form, including broad form coverage for contractual liability, property damage, products liability and personal injury liability (including bodily injury and death), waiving subrogation, with minimum limits of no less than two million dollars (US $2,000,000.00) per occurrence, and naming as additional insureds those indemnified in Paragraph 25 hereof. Licensee also agrees to maintain in full force and effect at all times while this Agreement is in effect such Worker's Compensation Insurance as is required by applicable law and Employer's Liability Insurance with minimum limits of one million dollars (US $1,000,000.00) per occurrence. All insurance shall be primary and not contributory. Licensee shall deliver to Disney a certificate or certificates of insurance evidencing satisfactory coverage and indicating that Disney shall receive thirty (30) days unrestricted prior written notice of cancellation, non-renewal or of any material change in coverage. 29 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 29 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.O., by six (6) months from the commencement of the Term or the date of any applicable amendment, is not being used on or in connection with the Articles. Disney may also withdraw any Licensed Material or Articles the use or sale of which under this Agreement would infringe or reasonably be claimed to infringe the rights of a third party, other than rights granted by Disney, in which case Disney's obligations to Licensee shall be limited to the purchase at cost of Articles and other materials utilizing such withdrawn Licensed Material which cannot be sold or used. In the case of any withdrawal under the preceding sentence, the Advances and Guarantees shall be adjusted to correspond to the time remaining in the Term, or the number of Articles remaining under the Agreement, at the date of withdrawal. 28. TERMINATION ----------- Without prejudice to any other right or remedy available to Disney: A. Disney shall have the right at any time to terminate this Agreement by giving Licensee written notice thereof, if Licensee fails to manufacture, sell and distribute the Articles in accordance with this Agreement, or fails to timely furnish statements and timely pay Royalties or any other payments due to Disney hereunder, or fails to notify Disney of the accurate name and complete address of its own manufacturing facilities or any Manufacturer of the Articles, or fails to have any such Manufacturer execute the Consent/Manufacturer's Agreement, or if Licensee otherwise breaches the terms of this Agreement, and if any such failure or other breach is not corrected within 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 thereof. B. Disney shall have the right at any time to terminate this Agreement immediately by giving Licensee written notice thereof: (1) if Licensee delivers to any customer without Disney's written authorization merchandise containing representations of Licensed 30 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 30 Material or other material the copyright or other proprietary rights to which are owned or licensed by Disney other than Articles listed herein and approved in accordance with the provisions hereof; (2) if Licensee delivers Articles outside the Territory or knowingly sells Articles to a third party for delivery outside the Territory, unless pursuant to a written distribution permission or separate written license agreement with Disney or any of Disney's Affiliates; (3) if a breach occurs which is of the same nature, and which violates the same provision of this Agreement, as a breach of which Disney has previously given Licensee written notice; (4) if Licensee breaches any material term of any other license agreement between the parties, and Disney terminates such agreement for cause; (5) if Licensee shall make any assignment for the benefit of creditors, or file a petition in bankruptcy, or is adjudged bankrupt, or becomes insolvent, or is placed in the hands of a receiver, or if the equivalent of any such proceedings or acts occurs, though known by some other name or term; (6) if Licensee is not permitted or is unable to operate Licensee's business in the usual manner, or is not permitted or is unable to provide Disney with assurance satisfactory to Disney that Licensee will so operate Licensee's business, as debtor in possession or its equivalent, or is not permitted, or is unable to otherwise meet Licensee's obligations under this Agreement or to provide Disney with assurance satisfactory to Disney that Licensee will meet such obligations; (7) if Licensee breaches any covenant set forth in Paragraph 11 of this Agreement; and/or (8) if more than three Consent/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 24. C. If Disney terminates this Agreement pursuant to this Paragraph 28, Licensee shall not be permitted to seek injunctive relief to contest Disney's 31 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 31 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 shall be immediately due and payable, and Disney shall be entitled to retain all Royalties and other things of value paid or delivered to Disney. Licensee agrees that the Articles shall be manufactured during the Term in quantities consistent with anticipated demand therefor so as not to result in an excessive inventory build-up immediately prior to the end of the Term. Licensee agrees that from the expiration or termination of this Agreement Licensee shall neither manufacture nor have manufactured for Licensee any Articles, that Licensee will deliver to Disney any and all artwork (including Style Guides, animation cels and drawings) which may have been used or created by Licensee in connection with this Agreement, that Licensee will at Disney's option either sell to Disney at cost or destroy or efface any molds, plates and other items used to reproduce Licensed Material or Trademarks, and that, except as hereinafter provided, Licensee will cease selling Articles. Any unauthorized distribution of Articles after the expiration or termination of this Agreement shall constitute copyright infringement. B. If Licensee has any unsold Articles in inventory on the expiration or termination date, Licensee shall provide Disney with a full statement of the kinds and numbers of such unsold Articles. If such statement has been provided to Disney and if Licensee has fully complied with the terms of this Agreement, including the payment of all Royalties due and the Guarantee, upon notice from Disney, Licensee shall have the right for a limited period of three (3) calendar months from such expiration or earlier termination date to sell off and deliver such Articles as authorized under 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 Advance or towards meeting the 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. 32 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 32 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 period granted to Licensee. "Dumping" shall mean the distribution of product at volume levels significantly above Licensee's prior sales practices with respect to the Articles, and at price levels so far below Licensee's prior sales practices with respect to the Articles as to disparage the Articles; provided, however, that nothing contained herein shall be deemed to restrict Licensee's ability to set product prices at Licensee's discretion. D. Except as otherwise agreed by Disney in writing, any inventory of Articles in Licensee's possession or control after the expiration or termination hereof and of any sell-off period granted hereunder shall be destroyed, or all Licensed Material and Trademarks removed or obliterated therefrom. E. If Disney supplies Licensee with forms regarding compliance with this Paragraph 29, Licensee agrees to complete, execute and return such forms to Disney expeditiously. F. Notwithstanding any provision to the contrary, in the case of termination under Paragraph 28.B. (5) or (6), in order to protect the value of the Articles and to avoid any disparagement of the Articles which could occur as a result of the circumstances of termination, Disney shall have the option, in Disney's absolute discretion, to purchase any or all unsold Articles in Licensee's inventory on the termination date at 20% over Licensee's cost of goods for such Articles (not including overhead). 30. WAIVERS ------- A waiver by either party at any time of a breach of any provision of this Agreement shall not apply to any breach of any other provision of this Agreement, or imply that a breach of the same provision at any other time has been or will be waived, or that this Agreement has been in any way amended, nor shall any failure by either party to object to conduct of the other be deemed to waive such party's right to claim that a repetition of such conduct is a breach hereof. 31. PURCHASE OF ARTICLES BY DISNEY ------------------------------ If Disney wishes to purchase Articles, Licensee agrees to sell such Articles to Disney or any of Disney's Affiliates at as low a price as Licensee charges for similar quantities sold to Licensee's regular customers and to pay Disney Royalties on any such sales. 33 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 33 32. NON-ASSIGNABILITY ----------------- A. This Agreement is personal to Licensee, who was specifically chosen by Disney to be licensed hereunder because of Licensee's particular expertise and ability to 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 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 and/or obligations hereunder to a division, business segment or other entity different from the one specifically referenced on page 1 hereof (or any sale or attempted sale of Articles under a trademark or trade name of such division, business segment or other entity); any public offering, or series of public offerings, whereby a cumulative total of thirty-three and one-third percent (33 1/3%) or more of the voting stock of Licensee or its Controlling Affiliate(s) is offered for purchase; and any acquisition, or series of acquisitions, by any person or entity, or group of related persons or entities, of a cumulative total of thirty-three and one-third percent (33-1/3%) or more of the voting stock of Licensee or its Controlling Affiliate(s), or the right to vote such percentage (or, if Licensee is a partnership, resulting in the transfer of thirty-three and one-third percent (33-1/3%) or more of the profit and loss participation in Licensee, or the occurrence of any of the foregoing with respect to any general partner of Licensee). B. Licensee agrees to provide Disney with at least 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, 34 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 34 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 $ * for each Disney license, brand and/or property (if applicable) involved in an assignment or other 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, 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, unless occurring as part of a transaction that would trigger a transfer fee: (1) distribution(s) on employee stock option plans, or (2) transfers among the current shareholders who are members of the Sidman family (including their spouses and children), for estate planning purposes, so long as Licensee maintains substantially the same management and continues to operate in substantially the same fashion as prior to such transfer; provided, however, 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. Notwithstanding Paragraphs 32.A. and B., Licensee may, upon Disney's prior written consent, sublicense Licensee's rights and/or obligations hereunder 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 provided that each such Affiliate agrees to guarantee Licensee's full performance of this Agreement (including, but not limited to, Paragraph 25) and to indemnify Disney for any failure of such performance, 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. 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, and all other provisions hereof, and that they will otherwise adhere strictly to all of 35 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 35 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. In the event of any sublicense to an Affiliate hereunder, the reference in Paragraph 32.A. to "Controlling Affiliate" shall include such Affiliate sublicensee. 33. RELATIONSHIP ------------ This Agreement does not provide for a joint venture, partnership, agency or employment relationship between the parties, or any other relationship than that of licensor and licensee. 34. CONSTRUCTION ------------ The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning and not strictly for or against any of the parties. Headings of paragraphs herein are for convenience of reference only and are without substantive significance. 35. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT --------------------------------------------- Except as otherwise provided herein, this Agreement can only be extended or modified by a writing signed by 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 "Vice President, Licensing", unless Disney advises Licensee in writing otherwise. 36 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 36 37. MUSIC ----- Music is not licensed hereunder. Any charges, fees or royalties payable for music rights or any other rights not covered by this Agreement shall be additional to the Royalties and covered by separate agreement. 38. PREVIOUS AGREEMENTS ------------------- This Agreement, and any confidentiality agreement Licensee may have signed pertaining to any of the Licensed Material, contains the entire agreement between the parties concerning the subject matter hereof and supersedes any pre-existing or contemporaneous agreement and any oral or written communications between the parties. 39. CHOICE OF LAW AND FORUM ----------------------- This Agreement shall be deemed to be 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 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 this Agreement. Licensee acknowledges and agrees that, in addition to any and all other remedies available to Disney, Disney shall have the right to have any such activity by Licensee restrained by equitable relief, including, but not limited to, a temporary restraining order, a preliminary injunction, a permanent injunction, or such other alternative relief as may be appropriate, without the necessity of Disney posting any bond. 41. GOODWILL -------- Licensee acknowledges that the rights and powers retained by Disney hereunder are necessary to protect Disney's or its licensor's copyrights and property rights, and, specifically, to conserve Disney's and its licensor's goodwill and good name, and the name "Disney", and therefore Licensee agrees that Licensee will not allow the same to become involved in matters which will, or could, detract from or impugn the public acceptance and popularity thereof, or impair their legal status. 37 The First Years Pooh - Juvenile brand Agreement dated November 16, 1998 Page 37 42. POWER TO SIGN ------------- The parties warrant and represent that their respective representatives signing this Agreement have full power and proper authority to sign this Agreement and to bind the parties. 43. SURVIVAL OF OBLIGATIONS ----------------------- The respective obligations of the parties under this Agreement, which by their nature would continue beyond the termination, cancellation or expiration of this Agreement, including but not limited to indemnification, insurance, payment of Royalties, and Paragraph 29, shall survive termination, cancellation or expiration of this Agreement. 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 this shall constitute an agreement between Disney and Licensee. AGREED: DISNEY ENTERPRISES, INC. /s/ Steve Cipolla By: ___________________________ Title: Vice President, Licensing May 17, 1999 Date: __________________________ THE FIRST YEARS, INC. /s/ Ronald J. Sidman By: ___________________________ President Title: __________________________ 38 THE FIRST YEARS, INC. POOH - JUVENILE BRAND AGREEMENT DATED NOVEMBER 16, 1998 SCHEDULE A A. FEEDING AND SOOTHING -------------------- 1. Bottles (reusable and disposable) 2. Bibs 3. Cups 4. Pacifiers and attachers 5. Bowls 6. Dishes 7. Feeding utensils 8. Snack containers 9. Cool totes 10. Placemats 11. Floormats 12. Burp cloths 13. Toddler sports bottles B. CARE AND SAFETY --------------- 1. Changing pads 2. Carriers (front and back) 3. Handheld showers 4. Sponges 5. Spout guards 6. Shampoo visors 7. Car organizers 8. Non-activity crib lights 9. Combs and brushes 10. Night lights 11. Car shades 12. Diaper pins 13. Tub thermometers 14. Tub organizers 15. Infant bath tubs 16. Baby bathers 39 THE FIRST YEARS, INC. POOH - JUVENILE BRAND AGREEMENT DATED NOVEMBER 16, 1998 SCHEDULE A (continued) B. CARE AND SAFETY --------------- 17. Hooded towels 18 Wash cloths/wash mitts 19. Booster seats 20. Step stools 21. Infant toothbrushes and toothcare organizers 22. Bed rails 23. Monitors 24. Scratch mitts 25. Bath mats C. PLAYTHINGS ---------- 1. Hand-held rattles 2. Teethers 3. Suction toys 4. Linking toys 5. Electronic hand-held toys (with rattle or squeaker function) 6. Bath toys 7. Crib toys 8. Foot rattles and wrist rattles 9. Squeeze toys 10. Infant rings 11. Chime balls 12. Bouncy seats 13. Accessory toys (i.e., stroller toys, carrier toys, high chair toys) 40 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 $ * , 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. 41 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 HARASSMENT Manufacturers will treat each employee with dignity 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 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. 42 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 ENVIRONMENT Manufacturers will comply with all applicable 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. MONITORING AND COMPLIANCE Manufacturers will authorize Disney and its 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. 43 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 MANUFACTURING Licensees that engage directly in the 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 COMPLIANCE Licensees will take appropriate steps, in 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-10.(S) 3 LICENSE AGREEMENT WITH DISNEY ENTERPRISES INC. 1 Exhibit 10(s) NOTE: THE OMITTED PORTIONS OF THIS DOCUMENT MARKED WITH AN ASTERISK ARE SUBJECT TO A CONFIDENTIAL TREATMENT REQUEST AND HAVE BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. LICENSE AGREEMENT ----------------- Date: November 16, 1998 Re: DISNEY CLASSICS This license agreement ("Agreement") is entered into by and between Disney Enterprises, Inc. ("Disney"), with a principal place of business at 500 South Buena Vista Street, Burbank, California 91521, and THE FIRST YEARS, INC. ("Licensee"), with its principal place of business at One Kiddie Drive, Avon, MA 02322-1171. Disney and Licensee agree as follows: 1. MEANING OF TERMS A. "LICENSED MATERIAL" means the graphic representations of the following properties: (1) DISNEY BABIES (i.e., BABY MICKEY MOUSE, BABY MINNIE MOUSE, BABY DONALD DUCK, BABY DAISY DUCK, BABY PLUTO, AND BABY GOOFY), but only depictions of such characters and accompanying design elements, as may be designated by Disney; (2) DISNEY'S STANDARD CHARACTERS (i.e., MICKEY MOUSE, MINNIE MOUSE, DONALD DUCK, DAISY DUCK, PLUTO AND GOOFY (BUT NOT SPORT GOOFY)), but only depictions of such characters, and accompanying design elements, as may be designated by Disney; and the following properties, collectively known as "DISNEY CLASSICS" (hereinafter "DISNEY CLASSICS PROPERTIES"): (3) WALT DISNEY'S BAMBI characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (4) 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; (5) 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; 2 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 2 (6) 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; (7) WALT DISNEY'S CINDERELLA characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (8) WALT DISNEY'S DUMBO characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (9) 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; (10) WALT DISNEY'S PINOCCHIO characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (11) 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; (12) 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; (13) DISNEY'S THE ARISTOCATS characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (14) DISNEY'S ALADDIN characters, but only such characters and depictions of such characters, and accompanying design elements, as may be designated by Disney; (15) 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; and designated still scenes from the motion pictures identified in Paragraph 1.B. hereafter. 3 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 3 The Licensed Material as it appears under any of the properties licensed hereunder shall not be used together with the Licensed Material as it appears under any other property licensed hereunder on the same Articles. Furthermore, Licensee's right to use the adult representations of the characters from Disney's Standard Characters property is limited to the Article identified on Schedule A as Article Number B.11, which Article shall be branded under the Disney Babies brand. B. "TRADEMARKS" means "WALT DISNEY", "DISNEY", the representations of Licensed Material included in Paragraph 1.A. above, and the logos of the Disney Babies brand and the following motion pictures in which Licensed Material included in Paragraph 1.A. above appears: WALT DISNEY'S BAMBI WALT DISNEY'S SLEEPING BEAUTY WALT DISNEY'S SNOW WHITE AND THE SEVEN DWARFS WALT DISNEY'S THE JUNGLE BOOK WALT DISNEY'S CINDERELLA WALT DISNEY'S DUMBO WALT DISNEY'S LADY AND THE TRAMP WALT DISNEY'S PINOCCHIO WALT DISNEY'S ALICE IN WONDERLAND WALT DISNEY'S PETER PAN DISNEY'S THE ARISTOCATS DISNEY'S ALADDIN DISNEY'S BEAUTY AND THE BEAST DISNEY BABIES C. "ARTICLES" means the items set forth on Schedule A, which is attached to this Agreement and incorporated herein by this reference, on or in connection with which the Licensed Material and/or the Trademarks are reproduced or used, and includes each and every stock keeping unit ("SKU") of each Article. Notwithstanding the foregoing, the Licensed Material from the DISNEY BABIES and DISNEY'S STANDARD CHARACTERS properties, and the DISNEY BABIES Trademark, may be used only on or in connection with the Article identified on Schedule A as Article Number B.11. 4 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 4 D. "MINIMUM PER ARTICLE ROYALTY" means for each Article identified herein which is sold the sum indicated herein: None. E. "TERM" means the period commencing October 26, 1998, and ending * . F. "TERRITORY" means the United States, United States PX's wherever located, and United States territories and possessions, excluding Puerto Rico, Guam, Commonwealth of Northern Mariana Islands and Palau. However, if sales are made to chain stores in the United States which have stores in Puerto Rico, such chain stores may supply Articles to such stores in Puerto Rico. G. "ROYALTIES" means a royalty in the amounts set forth below in Paragraphs 1.G.(1)(a), (b), and (c) and Royalties shall be further governed by the provisions contained in Paragraphs 1.G.(2)-(6): (1) (a) * percent ( * %) of Licensee's Net Invoiced Billings to authorized Retailers and Wholesalers for Articles shipped by or on behalf of Licensee from a location within or outside the Territory for delivery to a customer located in the Territory ("F.O.B. In Sales"); or (b) * percent (* %) of Licensee's Net Invoiced Billings to authorized Retailers and Wholesalers when Licensee's customer located in the Territory takes title to the Articles outside the Territory and/or bears the risk of loss of Articles manufactured and shipped to the customer from outside the Territory ("F.O.B. Out Sales"); or (c) if a Minimum Per Article Royalty has been specified in Paragraph 1.D. above, and it would result in a higher royalty to be paid for the Articles, Licensee agrees to pay the higher royalty amount. (2) The sums paid to Disney as Royalties on any sales to Licensee's Affiliates shall be no less than the sums paid on sales to customers not affiliated with Licensee. (3) All sales of Articles shipped to a customer outside the Territory pursuant to a distribution permission shall bear a Royalty at the rate for F.O.B. Out Sales. However, sales of Articles to Disney's 5 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 5 Affiliates outside the Territory shall bear a Royalty at the rate for F.O.B. In Sales. (4) No Royalties are payable on the mere manufacture of Articles. (5) The full Royalty percentage shall be payable on close-out or other deep discount sales of Articles, including sales to employees. (6) Royalties reported on sales of Articles which have been returned to Licensee for credit or refund and on which a refund has been made or credit memo issued may be credited against Royalties due. The credit shall be taken in the Royalty Payment Period in which the refund is given or credit memo issued. Unused credits may be carried forward, but in no event shall Licensee be entitled to a refund of Royalties. H. "NET INVOICED BILLINGS" means the following: (1) actual invoiced billings (i.e., sales quantity multiplied by Licensee's selling price) for Articles sold, and all other receivables of any kind whatsoever, received in payment for the Articles, whether received by Licensee or any of Licensee's Affiliates, except as provided in Paragraph 1.H.(2), less "Allowable Deductions" as hereinafter defined. (2) The following are not part of Net Invoiced Billings: invoiced charges for transportation of Articles within the Territory which are separately identified on the sales invoice, and sales taxes. I. "ALLOWABLE DEDUCTIONS" means the following: (1) volume discounts, and other discounts from the invoice price (or post-invoice credits) unilaterally imposed in the regular course of business by Licensee's customers, so long as Licensee documents such discounts (or credits) to Disney's satisfaction. In the event a documented unilateral discount (or credit) is taken with respect to combined sales of Articles and other products not licensed by Disney, and Licensee cannot document the portion of the discount (or credit) applicable to the Articles, Licensee may apply only a pro rata portion of the discount (or credit) to the Articles. Unilateral discounts or credits are never deductible if they represent items listed below in Paragraph 1.I.(2). 6 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 6 (2) The following are not Allowable Deductions, whether granted on sales invoices or unilaterally imposed as discounts or as post-invoice credits: cash discounts granted as terms of payment; early payment discounts; allowances or discounts relating to advertising; mark down allowances; new store allowances; defective goods allowances or allowances taken by customers in lieu of returning goods; costs incurred in manufacturing, importing, selling or advertising Articles; freight costs incorporated in the selling price; and uncollectible accounts. J. "ROYALTY PAYMENT PERIOD" means each calendar quarterly period during the Term and during the sell-off period, if granted. K. "ADVANCE" means the following sum(s) payable by the following date(s) as an advance on Royalties to accrue in the following period(s): $ * payable upon Licensee's signing of this Agreement for the Term. L. "GUARANTEE" means the following sum(s) which Licensee guarantees to pay as minimum Royalties on Licensee's cumulative sales in the following period(s): $ * for the Term. M. "SAMPLES" means six (6) samples of each SKU of each Article, from the first production run of each supplier of each SKU of each Article. N. "PROMOTION COMMITMENT" means the following sum(s) which Licensee agrees to spend in the following way(s): (1) Licensee agrees to participate in Disney's common marketing and promotional fund (the "Common Marketing Fund" or "CMF") as provided in this Paragraph 1.N. Licensee agrees to make its CMF payments within fifteen (15) days after Disney's request(s), or on a calendar quarterly or other periodic basis if so requested by Disney. Licensee's CMF obligation shall not exceed * percent ( * %) of Disney's reasonable advance estimate of Licensee's Net Invoiced Billings for Articles (with no subsequent adjustment if actual Net Invoiced Billings are less than the reasonable advance estimate); and Licensee's total CMF obligation shall never be less than * percent ( * %) of the quotient of the Guarantee divided by the Royalty rate for F.O.B. In Sales. Licensee's CMF payments shall be expended by 7 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 7 Disney and Disney's designees (but not paid to Disney's own employees for services they render) in the amounts and in the manner Disney deems most appropriate in order to provide national or local advertising, marketing and promotion, and related market research, regarding the Licensed Material and the Trademarks licensed hereunder or other Disney properties in the same property classification. However, Disney does not ensure that Licensee or any other particular licensee will benefit directly or pro-rata from the operation of the Common Marketing Fund. Disney will apprise Licensee of the operations and proposed expenditures of the Common Marketing Fund from time to time and seek Licensee's advice on how the CMF monies relating to the Licensed Material and the Trademarks should be spent. Licensee shall not be entitled to any audit rights with regard to the Common Marketing Fund. (2) Effective on or before January 1, 1999, upon prior written notice from Disney, the foregoing CMF system shall be converted to a different system to provide greater efficiency in its administration. (i) The amount of the CMF contribution shall be calculated as * percent ( * %) of Licensee's Net Invoiced Billings and shall be payable concurrently with Royalties (but by separate payment to such account as Disney specifies) due each Royalty Payment Period, as set forth in greater detail in Paragraph 20.A. hereof. Any subsequent reduction of Net Invoiced Billings for any reason shall not result in any adjustment of any CMF payment. In addition, such modified CMF system shall require Licensee's payment of a "CMF Guarantee", meaning the sum(s) which Licensee guarantees to pay Disney as a minimum amount of the CMF payment on Licensee's cumulative sales in the relevant period. The amount of the CMF Guarantee shall be in an amount as agreed between the parties, but in no event less than * percent ( * %) of the quotient of the Guarantee divided by the Royalty rate for F.O.B. In Sales. The revised CMF system shall also call for a payment of one or more payments of "CMF Advances" which shall be non-refundable installments of the CMF Guarantee, each to be due and payable on a date to be specified by Disney, in its absolute discretion, and which may be as much as six to nine months prior to the release date for the filmed entertainment property that is the subject of this Agreement, based on Disney's assessment of the appropriate marketing requirements for the property. (ii) As with the prior system, Licensee's CMF payments shall be expended by Disney and Disney's designees (but not paid to Disney's 8 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 8 own employees for services they render) in the amounts and in the manner Disney deems most appropriate in order to provide national or local advertising, marketing and promotion, and related market research, regarding the Licensed Material and the Trademarks licensed hereunder or other Disney properties in the same property classification. However, Disney does not ensure that Licensee or any other particular licensee will benefit directly or pro-rata from the operation of the Common Marketing Fund. Disney will apprise Licensee of the operations and proposed expenditures of the Common Marketing Fund from time to time and seek Licensee's advice on how the CMF monies relating to the Licensed Material and the Trademarks should be spent. Licensee shall not be entitled to any audit rights with regard to the modified CMF system. O. "MARKETING DATE" means the following date(s) by which the following Article(s) shall be available for purchase by the public at the retail outlets authorized pursuant to Paragraph 2.A.: (1) Any time during the Term of this Agreement for all Articles (except Article Number B.11) using all Disney Classics Properties constituting the Licensed Material; and (2) By July 1, 1999 for Article Number B.11. P. "AFFILIATE" means, with regard to Licensee, any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Licensee; with regard to Disney, "Affiliate" means any corporation or other entity which directly or indirectly controls, is controlled by, or is under common control with Disney. "Control" of an entity shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies of such entity, whether through ownership of voting securities, by contract or otherwise. Q. "LAWS" means any and all applicable laws, rules, 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 and/or distribution of the Articles. R. "RETAILER" means independent and chain retail outlets which have storefronts and business licenses, and which customers walk into, not up to; 9 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 9 "WHOLESALER" means a seller of items to retailers, not consumers, and includes the term "distributor". The following do not qualify as authorized sales outlets for Articles under this Agreement under any circumstances: swap meets, flea markets, street peddlers, unauthorized kiosks, and the like. S. "MANUFACTURER" means any of Licensee's third-party manufacturers, suppliers and facilities (and their sub-manufacturers, suppliers and facilities) which reproduce or use the Licensed Material and/or Trademarks on Articles, or components thereof, and/or which assemble such Articles. 2. RIGHTS GRANTED A. (1) In consideration for Licensee's promise to pay and Licensee's payment of all monetary obligations required hereunder, Disney grants Licensee the non-exclusive right, during the Term, and only within the Territory, to reproduce the Licensed Material only on or in connection with the Articles, to use such Trademarks and uses thereof as may be approved when each SKU of the Articles is approved and only on or in connection with the Articles, and to manufacture, distribute for sale and sell the Articles as authorized by this Paragraph 2.A. (2) Licensee will sell the Articles only to Retailers in the Territory for resale to the public in the Territory; provided, however, that the Article identified on Schedule A as Article Number A.2 (bibs) may be sold only to mass market Retailers (including such Retailers as Target, Toys R Us, WalMart and Kmart). For purposes of this Agreement, "Retailers" shall include drug chains, supermarkets and food chains. Licensee may also sell the Articles to Wholesalers which sell to drug chains, supermarkets and food chains and value-oriented specialty stores. Licensee will not sell the Articles to other Retailers, or to other Wholesalers. If there is a question as to whether a particular customer falls within any of the categories specified above, Disney's determination shall be binding. (3) Licensee may not sell the Articles by direct marketing methods, which includes but is not limited to, computer on-line selling, direct mail and door-to-door solicitation. Licensee may not sell the Articles to Retailers selling merchandise on a duty-free basis, unless such Retailer has a then-current license agreement with Disney or any of Disney's Affiliates permitting it to make such duty-free sales. 10 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 10 (4) Licensee may sell the Articles to authorized customers for resale through the pre-approved mail order catalogs listed on the Catalog Schedules to this Agreement, and Licensee shall pay Royalties on such sales at the rate specified for Retailers in Paragraph 1.G.(1)(a) or (b), as applicable. (5) All rights not expressly granted to Licensee herein are reserved to Disney. B. Unless Disney consents in writing, Licensee shall not sell or otherwise provide Articles for use as premiums (including those in purchase-with-purchase promotions), promotions, give-aways, fund-raisers, or entries in sweepstakes, or through unapproved direct marketing methods, including but not limited to, home shopping television programs, or to customers for inclusion in another product. Licensee shall not sell Articles to any customer who Licensee knows or reasonably should know engages in illegal business practices or ethically questionable distribution methods. If Licensee wishes to sell the Articles to customers for resale through mail order catalogs other than those listed on the Catalog Schedules hereto, Licensee must obtain Disney's prior written consent in each instance. However, Licensee may solicit orders by mail from Retailers, and Licensee may sell to Retailers which sell predominantly at retail, but which include the Articles in their mail order catalogs, or otherwise sell Articles by direct marketing methods as well as at retail. C. The prohibition of computer on-line selling referenced in Paragraph 2.A. includes, but is not limited to, the display, promotion or offering of Articles in or on any on-line venues (e.g. Websites), except as specifically permitted in the next two sentences. Articles approved by Disney may be displayed and promoted on Disney-controlled on-line venues, only within the Territory. In addition, Articles approved by Disney may be displayed and promoted on Licensee's own on-line venue, and may be displayed, promoted and sold on authorized Retailers' on-line venues, subject to Disney's applicable policies and guidelines; however, Licensee must obtain Disney's prior written approval of all creative and editorial elements of such uses, in accordance with the provisions of Paragraph 7 of this Agreement. D. Unless Disney consents in writing, Licensee shall not give away or donate Articles to Licensee's accounts or other persons for the purpose of promoting sales of Articles, except for minor quantities or samples which are not for onward distribution. 11 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 11 E. Nothing contained herein shall preclude Licensee from selling Articles to Disney or to any of Disney's Affiliates, or to Licensee's or Disney's employees, subject to the payment to Disney of Royalties on such sales. F. Disney further grants Licensee the right to reproduce the Licensed Material and to use the approved Trademarks, only within the Territory, during the Term, on containers, packaging and display material for the Articles, and in advertising for the Articles. G. Nothing contained in this Agreement shall be deemed to imply any restriction on Licensee's freedom and that of Licensee's customers to sell the Articles at such prices as Licensee or they shall determine. H. Licensee recognizes and acknowledges the vital importance to Disney of the characters and other proprietary material Disney owns and creates, and the association of the Disney name with them. In order to prevent the denigration of Disney's products and the value of their association with the Disney name, and in order to ensure the dedication of Licensee's best efforts to preserve and maintain that value, Licensee agrees that, during the 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. I. Licensee acknowledges that the individual Disney Classics Properties constituting the Licensed Material are Disney's original animated features, some or all of which may be released on video during the Term, and include any theatrical re-releases of said Disney Classics Properties. Licensee further acknowledges that Licensee's license hereunder does not extend to any live action versions of these Disney Classics Properties (whether or not animation is included in such versions), any remakes, prequels or sequels of these Disney Classics Properties, any direct to video remakes, prequels or sequels of these or any other derivation or adaptation of these Disney Classics Properties in any media whatsoever. All of the foregoing variations shall be referred to as "Alternative Releases." In the event there is an Alternative Release of any of the Disney Classics Properties during the Term of this Agreement, upon written notice from Disney, Licensee shall have the right to negotiate with Disney as to the terms and conditions applicable to a license for any such Alternative Release. If after good faith negotiations for up to thirty (30) days, the parties are not able to reach agreement as to the terms and conditions for any such license, Disney may, upon written notice to Licensee, withdraw the affected Disney Classics Property(ies) from the Licensed Material. In such case, Licensee will immediately cease 12 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 12 manufacturing Articles using such Disney Classics Property(ies) except as necessary to fulfill orders in hand, and Licensee may continue to sell its then current inventory of Articles using such Disney Classics Property(ies) until the end of the Term or ninety (90) days after Disney's written notice, whichever is earlier. Disney shall also consider, in good faith, whether there should be a reduction of the Guarantee because of the deletion of any Disney Classics Property. 3. ADVANCE A. Licensee agrees to pay the Advance, which shall be on account of Royalties to accrue during the Term only, and only with respect to sales in the Territory; provided, however, that if any part of the Advance is specified hereinabove as applying to any period less than the Term, such part shall be on account of Royalties to accrue during such lesser period only. If said Royalties should be less than the Advance, no part of the Advance shall be repayable. B. Royalties accruing during any sell-off period or extension of the Term 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 or any subsequent advance. 4. GUARANTEE A. Licensee shall, with Licensee's statement for each Royalty Payment Period ending on a date indicated in Paragraph 1.L. hereof defining "Guarantee," or upon termination if the Agreement is terminated prior to the end of the Term, pay Disney the amount, if any, by which cumulative Royalties paid with respect to sales in the Territory during any period or periods covered by the Guarantee provision, or any Guarantee provision contained in any agreement extending the term hereof, fall short of the amount of the Guarantee for such period. B. Advances applicable to Royalties due on sales in the period to which the Guarantee relates apply towards meeting the Guarantee. 13 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 13 C. In no event shall Royalties paid with respect to sales to Disney or to any of Disney's Affiliates, or with respect to sales outside the Territory pursuant to a distribution permission, apply towards the meeting of the Guarantee or any subsequent guarantee. 5. PRE-PRODUCTION APPROVALS A. As early as possible, and in any case before commercial production of any Article, Licensee shall submit to Disney for Disney's review and written approval (to utilize such materials in preparing a pre-production sample) all concepts, all preliminary and proposed final artwork, and all three-dimensional models which are to appear on or in any and all SKUs of the Article. Thereafter, Licensee shall submit to Disney for Disney's written approval a pre-production sample of each SKU of each Article. Disney shall endeavor to respond to such requests within a reasonable time, but such approvals should be sought as early as possible in case of delays. In addition to the foregoing, as early as possible, and in any case no later than sixty (60) days following written conceptual approval, Licensee shall supply to Disney for Disney's use for internal purposes, a mock-up, prototype or pre-production sample of each SKU of each Article on or in connection with which the Licensed Material is used. Licensee acknowledges that Disney may not approve concepts or artwork submitted near the end of the Term, or concepts or artwork perceived to be for selling periods beyond the Term. Any pre-production approval Disney may give will not constitute or imply a representation or belief by Disney that such materials comply with any applicable Laws. B. Approval or disapproval shall lie solely in Disney's discretion, and any SKU of any Article not so approved in writing shall be deemed unlicensed and shall not be manufactured or sold. If any unapproved SKU of any Article is being sold, Disney may, together with other remedies available to Disney, including but not limited to, immediate termination of this Agreement, by written notice require such SKU of such Article to be immediately withdrawn from the market. Any modification of any SKU of an Article, including, but not limited to, change of materials, color, design or size of the representation of Licensed Material must be submitted in advance for Disney's written approval as if it were a new SKU of an Article. Approval of any SKU of an Article which uses particular artwork does not imply approval of such artwork for use with a different Article. The fact that artwork has been taken from a Disney publication or a previously approved Article does not mean that its use will necessarily be approved in connection with an Article licensed hereunder. 14 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 14 C. If Licensee submits for approval artwork from an article or book manufactured or published by another licensee of Disney's or of any of Disney's Affiliates, Licensee must advise Disney in writing of the source of such artwork. If Licensee fails to do so, any approval which Disney may give for use by Licensee of such artwork may be withdrawn by giving Licensee written notice thereof, and Licensee may be required by Disney not to sell Articles using such artwork. D. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Disney will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Disney in writing is intended to make the Article safer or more durable. E. If Disney has supplied Licensee with forms for use in applying for approval of artwork, models, pre-production and production samples of Articles, Licensee shall use such forms when submitting anything for Disney's approval. 6. APPROVAL OF PRODUCTION SAMPLES A. Before shipping an Article to any customer, Licensee agrees to furnish to Disney, from the first production run of each supplier of each of the Articles, for Disney's approval of all aspects of the Article in question, the number of Samples with packaging which is hereinabove set forth, which shall conform to the approved artwork, three-dimensional models and pre-production sample. Approval or disapproval of the artwork as it appears on any SKU of the Article, as well as of the quality of the Article, shall lie in Disney's sole discretion and may, among other things, be based on unacceptable quality of the artwork or of the Article as manufactured. Any SKU of any Article not so approved shall be deemed unlicensed, shall not be sold and, unless otherwise agreed by Disney in writing, shall be destroyed. Such destruction shall be attested to in a certificate signed by one of Licensee's officers. Production samples of Articles for which Disney has approved a pre-production sample shall be deemed approved, unless within twenty (20) days of Disney's receipt of such production sample Disney notifies Licensee to the contrary. Any approval of a production sample attributable to Disney will not constitute or imply a representation or belief by Disney that such production sample complies with any applicable Laws. B. Licensee agrees to make available at no charge such additional samples of any or all SKUs of each Article as Disney may from time to time reasonably 15 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 15 request for the purpose of comparison with earlier samples, or for Disney's anti-piracy efforts, or to test for compliance with applicable Laws, and to permit Disney to inspect Licensee's manufacturing operations and testing records (and those of Licensee's Manufacturers) for the Articles in accordance with Paragraphs 11 and 24. C. Licensee acknowledges that Disney may disapprove any SKU of an Article or a production run of any SKU of an Article because the quality is unacceptable to Disney, and accordingly, Disney recommends that Licensee submit production samples to Disney for approval before committing to a large original production run or to purchase a large shipment from a new supplier. D. No modification of an approved production sample shall be made without Disney's further prior written approval. All SKUs of Articles being sold must conform in all respects to the approved production sample. It is understood that if in Disney's reasonable judgment the quality of any SKU of an Article originally approved has deteriorated in later production runs, or if the SKU has otherwise been altered, Disney may, in addition to other remedies available to Disney, by written notice require such SKU of the Article to be immediately withdrawn from the market. E. The rights granted hereunder do not permit the sale of "seconds" or "irregulars". All Articles not meeting the standard of approved samples shall be destroyed or all Licensed Material and Trademarks shall be removed or obliterated therefrom. F. Licensee is responsible for the consistent quality and safety of the Articles and their compliance with applicable Laws. Disney will not unreasonably object to any change in the design of an Article or in the materials used in the manufacture of the Article or in the process of manufacturing the Articles which Licensee advises Disney in writing is intended to make the Article safer or more durable. G. Disney shall have the right, by written notice to Licensee, to require modification of any SKU of any Article approved by Disney under this or any previous agreement between the parties pertaining to Licensed Material. Likewise, if the 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. 16 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 16 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 Agreement, or if Disney has inadvertently approved an Article using artwork and/or trademarks not included in the Agreement, such approval may be revoked at any time without any obligation whatsoever on Disney's part to Licensee. Any such product as to which Disney's approval is revoked shall be deemed unauthorized and shall not be distributed or sold by or for Licensee. 7. APPROVAL OF PACKAGING, PROMOTIONAL MATERIAL, AND ADVERTISING A. All containers, packaging, display material, promotional material, catalogs, and all advertising, including but not limited to, television advertising and press releases, for Articles must be submitted to Disney and receive Disney's written approval before use. To avoid unnecessary expense if changes are required, Disney's approval thereof should be procured when such is still in rough or storyboard format. Disney shall endeavor to respond to requests for approval within a reasonable time. Approval or disapproval shall lie in Disney's sole discretion, and the use of unapproved containers, packaging, display material, promotional material, catalogs or advertising is prohibited. Disney's approval of any containers, packaging, display material, promotional material, catalogs or advertising under this Agreement will not constitute or imply a representation or belief by Disney that such materials comply with any applicable Laws. Whenever Licensee prepares catalog sheets or other printed matter containing illustrations of Articles, Licensee will furnish to Disney five (5) copies thereof when they are published. 17 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 17 B. If Disney has supplied Licensee with forms for use in applying for approval of materials referenced in this Paragraph 7, Licensee shall use such forms when submitting anything for Disney's approval. C. Disney has designed character artwork and/or a brand name logo(s) to be used by all licensees in connection with the packaging of all merchandise using the Licensed Material, and, if applicable, on hang tags and garment labels for such merchandise. Disney will supply Licensee with reproduction artwork thereof, and Licensee agrees to use such artwork and/or logo(s) on the packaging of the Articles, and, if applicable, on hang tags and garment labels, which Licensee will have printed and attached to each Article at Licensee's cost. Disney recommends that Licensee source the hang tags and garment labels from Disney's authorized manufacturer (if any) of pre-approved hang tags and garment labels, the name of which will be provided to Licensee upon request. However, Licensee may use another manufacturer for the required hang tags and garment labels if the hang tags and garment labels manufactured are of equivalent quality and are approved by Disney in accordance with Disney's usual approval process. 8. ARTWORK Licensee shall pay Disney, within thirty (30) days of receiving an invoice therefor, for Style Guides and for artwork done at Licensee's request by Disney or third parties under contract to Disney in the development and creation of Articles, display, packaging or promotional material (including any artwork which in Disney's opinion is necessary to modify artwork initially prepared by Licensee and submitted to Disney for approval, subject to Licensee's prior written approval) at Disney's then prevailing commercial art rates. Estimates of artwork charges are available upon request. While Licensee is not obligated to utilize services of Disney's Art Department, Licensee is encouraged to do so in order to minimize delays which may occur if outside artists do renditions of Licensed Material which Disney cannot approve and to maximize the attractiveness of the Articles. Artwork will be returned to Licensee by overnight courier, at Licensee's cost (unless other arrangements are made). 18 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 18 9. PRINT, RADIO OR TV ADVERTISING Licensee will obtain all approvals necessary in connection with print, radio or television advertising, if any, which Disney may authorize. Licensee represents and warrants that all advertising and promotional materials shall comply with all applicable Laws. Disney's approval of copy or storyboards for such advertising will not constitute or imply a representation or belief by Disney that such copy or storyboards comply with any applicable Laws. This Agreement does not grant Licensee any rights to use the Licensed Material in animation. Licensee may not use any animation or live action footage from the motion picture from which the Licensed Material comes without Disney's prior written approval in each instance. In the event Disney approves the use of film clips of the motion picture from which the Licensed Material comes, for use in a television commercial, Licensee shall be responsible for any re-use fees which may be applicable, including SAG payments for talent. No reproduction of the film clip footage shall be made except for inclusion, as approved by Disney, in such commercial and there shall be no modifications of the film clip footage. All film clip footage shall be returned to Disney immediately after its inclusion in such commercial. Disney shall have the right to prohibit Licensee from advertising the Articles by means of television and/or billboards. Such right shall be exercised within Disney's absolute discretion, including without limitation for reasons of overexposure of the Licensed Material. 10. LICENSEE NAME AND ADDRESS ON ARTICLES A. Licensee's name, trade name (or Licensee's trademark which Licensee has advised Disney in writing that Licensee is using) and Licensee's address (at least city and state) will appear on permanently affixed labeling on each Article 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 numbers do not constitute a sufficient label under this paragraph. 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. 19 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 19 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. B. Without limiting the foregoing, Licensee covenants on behalf of Licensee's own manufacturing facilities, and agrees to require all Manufacturers to covenant by signing the Consent/Manufacturer's Agreement (referenced in Paragraph 24), as follows: (1) Licensee and the Manufacturers agree not to use child labor in the manufacturing, packaging or distribution of Disney merchandise. The term "child" refers to a person younger than the local legal minimum age for employment or the age for completing compulsory education, but in no case shall any child younger than fifteen (15) years of age (or fourteen (14) years of age where local law allows) be employed in the manufacturing, packaging or distribution of Disney merchandise. Licensee and the Manufacturers employing young persons who do not fall within the definition of "children" agree also to comply with any Laws applicable to such persons. (2) Licensee and the Manufacturers agree only to employ persons whose presence is voluntary. Licensee and the Manufacturers agree not to use any forced or involuntary labor, whether prison, bonded, indentured or otherwise. (3) Licensee and the Manufacturers agree to treat each employee with dignity and respect, and not to use corporal punishment, threats of violence, or other forms of physical, sexual, psychological or verbal harassment or abuse. (4) Unless required by applicable Laws to treat a specific group of employees differently, Licensee and the Manufacturers agree not to 20 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 20 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. (5) Licensee and the Manufacturers recognize that wages are essential to meeting employees' basic needs. Licensee and Manufacturers agree to comply, at a minimum, with all applicable wage and hour Laws, including minimum wage, overtime, maximum hours, piece rates and other elements of compensation, and to provide legally mandated benefits. If local Laws do not provide for overtime pay, Licensee and Manufacturers agree to pay at least regular wages for overtime work. Except in extraordinary business circumstances, Licensee and the 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. Licensee and the Manufacturers agree that, where local industry standards are higher than applicable legal requirements, they will meet the higher standards. (6) Licensee and the Manufacturers agree to provide employees with a safe and healthy workplace in compliance with all applicable Laws, ensuring, at a minimum, reasonable access to potable water and sanitary facilities, fire safety, and adequate lighting and ventilation. Licensee and the Manufacturers also agree to ensure that the same standards of health and safety are applied in any housing they provide for employees. Licensee and the Manufacturers agree to provide Disney with all information Disney may request about manufacturing, packaging and distribution facilities for the Articles. (7) Licensee and the Manufacturers agree to respect the rights of employees to associate, organize and bargain collectively in a lawful and peaceful manner, without penalty or interference, in accordance with applicable Laws. (8) Licensee and the Manufacturers agree to comply with all applicable environmental Laws. 21 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 21 (9) Licensee and the Manufacturers agree to comply with all applicable Laws, including those pertaining to the manufacture, pricing, sale and distribution of the Articles. (10) 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, including unannounced on-site inspections of manufacturing, packaging and distribution facilities, and employer-provided housing, such inspections to include reviews of books and records relating to employment matters and private interviews with employees. Licensee and the Manufacturers agree to maintain on site all documentation necessary to demonstrate compliance with this Paragraph 11. Licensee agrees to promptly reimburse Disney for the actual costs of inspections performed pursuant to this Paragraph 11 when any of Licensee's manufacturing facilities or any Manufacturer does not pass the inspection(s). (11) Licensee and the Manufacturers agree to 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 the Code of Conduct for Manufacturers (copy attached) in the local language and in a place readily accessible to employees at all times. C. Licensee agrees to be bound by the Code of Conduct for Licensees (copy attached), including but not limited to, taking appropriate steps, in consultation with Disney, 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. D. 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, manufacturing and quality control records and procedures and to test the Articles for compliance with product safety and other applicable Laws. 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 22 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 22 applicable Laws. Articles not manufactured, packaged or distributed in accordance with applicable Laws shall be deemed unapproved, even if previously approved by Disney, and shall not be shipped unless and until they have been brought into full compliance therewith. 12. DISNEY OWNERSHIP OF ALL RIGHTS IN LICENSED MATERIAL Licensee acknowledges that the copyrights and all other proprietary rights in and to Licensed Material are exclusively owned by and reserved to Disney. Licensee shall neither acquire nor assert copyright ownership or any other proprietary rights in the Licensed Material or in any derivation, adaptation, variation or name thereof. Without limiting the foregoing, Licensee hereby assigns to Disney all Licensee's worldwide right, title and interest in the Licensed Material and in any material objects consisting of or to the extent that they incorporate drawings, paintings, animation cels, or sculptures of Licensed Material, or other adaptations, compilations, collective works, derivative works, variations or names of Licensed Material, heretofore or hereafter created by or for Licensee or any of Licensee's Affiliates. All such new materials shall be included in the definition of "Licensed Material" under this Agreement. If any third party makes or has made any contribution to the creation of any new materials which are included in the definition of Licensed Material under this Paragraph 12, Licensee agrees to obtain from such party a full assignment of rights so that the foregoing assignment by Licensee shall vest full rights to such new materials in Disney. Licensee further covenants that any such new materials created by Licensee or by any third party Licensee has engaged are original to Licensee or such third party and do not violate the rights of any other person or entity; this covenant regarding originality shall not extend to any materials Disney supplies to Licensee, but does apply to all materials Licensee or Licensee's third party contractors may add thereto. The foregoing assignment to Disney of material objects shall not include that portion of Licensee's displays, catalogs, or promotional material not containing Licensed Material, or the physical items constituting the Articles, unless such items are in the shape of the Licensed Material. 13. COPYRIGHT NOTICE As a condition to the grant of rights hereunder, each Article and any other matter containing Licensed Material shall bear a properly located permanently affixed copyright notice in Disney's name (e.g., "SYMBOL 211 \f "Symbol" 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 whatever documents are necessary to convey to Disney that copyright represented by any such copyright notice. If by inadvertence a proper copyright 23 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 23 notice is omitted from any Article or other matter containing Licensed Material, Licensee agrees at Licensee's expense to use all reasonable efforts to correct the omission on all such Articles or other matter in process of manufacture or in distribution. Licensee agrees to advise Disney promptly and in writing of the steps being taken to correct any such omission and to make the corrections on existing Articles which can be located. 14. NON-ASSOCIATION OF OTHER FANCIFUL CHARACTERS WITH LICENSED MATERIAL To preserve Disney's identification with Disney's characters and to avoid confusion of the public, Licensee agrees not to associate other characters or licensed properties with the Licensed Material or the Trademarks either on the Articles or in their packaging, or, without Disney's written permission, on advertising, promotional or display materials. If Licensee wishes to use a character which constitutes Licensee's trademark on the Articles or their packaging, or otherwise in connection with the Articles, Licensee agrees to obtain Disney's prior written permission. 15. ACTIVE MARKETING OF ARTICLES Licensee agrees to manufacture (or have manufactured for Licensee) and 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 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 invoke any and all remedies available to it, including but not limited to those arising under Paragraph 28. 24 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 24 16. PROMOTION COMMITMENT Licensee agrees to carry out the Promotion Commitment, if any, as defined in Paragraph 1.N. 17. TRADEMARK RIGHTS AND OBLIGATIONS A. All uses of the Trademarks by Licensee hereunder shall inure to Disney's benefit. Licensee acknowledges that Disney is the exclusive owner of all the Trademarks, and of any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses. Without limiting the foregoing, Licensee hereby assigns to Disney all the Trademarks, and any trademark incorporating all or any part of a Trademark or any Licensed Material, and the trademark rights created by such uses, together with the goodwill attaching to that part of the business in connection with which such Trademarks or trademarks are used. Licensee agrees to execute and deliver to Disney such documents as Disney requires to register Licensee as a Registered User or Permitted User of the Trademarks or such trademarks and to follow Disney's instructions for proper use thereof in order that protection and/or registrations for the Trademarks and such trademarks may be obtained or maintained. B. Licensee agrees not to use any Licensed Material or Trademarks, or any trademark incorporating all or any part of a Trademark or of any Licensed Material, on any business sign, business cards, stationery or forms (except as licensed herein), or to use any Licensed Material or Trademark as the name of Licensee's business or any division thereof, unless otherwise agreed by Disney in writing. C. Nothing contained herein shall prohibit Licensee from using Licensee's own trademarks on the Articles or Licensee's copyright notice on the Articles when the Articles contain independent material which is Licensee's property. Nothing contained herein is intended to give Disney any rights to, and Disney shall not use, any trademark, copyright or patent used by Licensee in connection with the Articles which is not derived or adapted from Licensed Material, Trademarks, or other materials owned by Disney. 18. REGISTRATIONS Except with Disney's written consent, neither Licensee nor any of Licensee's Affiliates will register or attempt in any country to register copyrights in, or to register as a trademark, service mark, design patent or industrial design, or business 25 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 25 designation, any of the Licensed Material, Trademarks or derivations or adaptations thereof, or any word, symbol or design which is so similar thereto as to suggest association with or sponsorship by Disney or any of Disney's Affiliates. In the event of breach of the foregoing, Licensee agrees, at Licensee's expense and at Disney's request, immediately to terminate the unauthorized registration activity and promptly to execute and deliver, or cause to be delivered, to Disney such assignments and other documents as Disney may require to transfer to Disney all rights to the registrations, patents or applications involved. 19. UNLICENSED USE OF LICENSED MATERIALS A. Licensee agrees that Licensee will not use the Licensed Material, or the Trademarks, or any other material the copyright to which is owned by Disney in any way other than as herein authorized (or as is authorized in any other remedy Disney may have, Licensee agrees that all revenues from any use thereof products other than the Articles (unless authorized by Disney in writing), and all revenues from the use of any other copyrighted material of Disney's without written authorization, shall be immediately payable to Disney. B. Licensee agrees to give Disney prompt written notice of any unlicensed use by third parties of Licensed Material or Trademarks, and that Licensee will not, without Disney's written consent, bring or cause to be brought any criminal prosecution, lawsuit or administrative action for infringement, interference with or violation of any rights to Licensed Material or Trademarks. Because of the need for and the high costs of an effective anti-piracy enforcement program, Licensee agrees to cooperate with Disney, and, if necessary, to be named by Disney as a sole complainant or co-complainant in any action against an infringer of the Licensed Material or Trademarks and, notwithstanding any right of Licensee to recover same, legal or otherwise, Licensee agrees to pay to Disney, and hereby waives all claims to, all damages or other monetary relief recovered in such action by reason of a judgment or settlement whether or not such damages or other monetary relief, or any part thereof, represent or are intended to represent injury sustained by Licensee as a licensee hereunder; in any such action against an infringer, Disney agrees to reimburse Licensee for reasonable expenses incurred at Disney's request, including reasonable attorney's fees if Disney has requested Licensee to retain separate counsel. 26 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 26 20. 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, including but not limited to, the quantities, Net Invoiced Billings and applicable Royalty rate(s) of Articles invoiced during the preceding Royalty Payment Period, and the quantities and invoice value of Articles returned for credit or refund in such period. At the same time Licensee will pay Disney all Royalties and CMF payments (if applicable) due on billings shown by such statements. To the extent that any Royalties or CMF payments are not paid, Licensee authorizes Disney to offset Royalties and/or CMF payments due against any sums which Disney or any of Disney's Affiliates may owe to Licensee or any of Licensee's Affiliates. No deduction or withholding from Royalties payable to Disney shall be made by reason of any tax. Any applicable tax on the manufacture, distribution and sale of the Articles shall be borne by Licensee. B. The statement forms Disney designates for Licensee's use may be changed from time to time, and Licensee agrees to use the most current form 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, 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. Upon at least six (6) months' notice from Disney, the Royalty Payment Period may be changed from quarterly to monthly, unless this Agreement already provides for a monthly Royalty Payment Period. C. In addition to the other information requested by the statement forms, Licensee's statement shall with respect to all Articles report separately: (1) F.O.B. In Sales; (2) F.O.B. Out Sales; (3) Licensee shall report all information required under the Agreement separately by individual Disney Classics Property; (4) sales of Articles outside the Territory pursuant to a distribution permission (indicating the country involved); 27 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 27 (5) Licensee's sales of Articles to any of Disney's licensees or Disney's Affiliates' licensees who are licensed to sell the Articles, and who are reselling such Articles and paying Disney royalties on such resales; in such cases, Licensee need only report the sales on the statements, because double royalties are not owed to Disney on these sales; (6) sales of Articles to Disney or any of Disney's Affiliates; (7) sales of Articles to Licensee's or Disney's employees; (8) sales of Articles under any brand or property identified in Paragraph 1.B. hereinabove; (9) sales of Articles to or for distribution through any mail order catalogs approved under this Agreement. D. Sales of items licensed under contracts with Disney other than this Agreement shall not be reported on the same statement as sales of Articles under this Agreement. E. Licensee's statements and payments, including all Royalties, shall be delivered to Wachovia South Metro Center, DEI Account, P.O. Box 101947, Atlanta, Georgia 30392. A copy of each statement must be sent to Disney at 500 South Buena Vista Street, Burbank, California 91521-6687, to the attention of the Contract Administrator, Consumer Products Division. If Licensee wishes to send statements and payments by overnight courier, please use the following address: Wachovia South Metro Center, DEI Account, 3585 Atlanta Avenue, Hapeville, GA 30354, Attention Peggy Morris, Reference Lock box 101947. However, Advances should be mailed directly to Disney at 500 South Buena Vista Street, Burbank, California 91521-6687, to the attention of the Contract Administrator or Legal Department, Consumer Products Division. F. Insofar as is necessary to provide for full performance of this Agreement, including but not limited to, proper payment of Royalties, Licensee represents and warrants that it will take all required steps to ensure that its information systems, including, without limitation, all its proprietary and all third party hardware and software, process dates correctly prior to, during and after the calendar year 2000 ("Year 2000 Compliance"). Year 2000 Compliance shall include, without limitation, correct century recognition, calculations that properly accommodate same century and multi-century 28 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 28 formulas and date values, and interface values that reflect the appropriate century. Necessary steps to ensure Year 2000 Compliance shall include, without limitation, analysis of all components of Licensee's information systems and, as necessary, development, installation and testing of software fixes, patches, and updates. Licensee represents and warrants that its information systems will be Year 2000 Compliant by September 30, 1999. Such representation and warranty is a material term of this Agreement. Upon a breach by Licensee of its obligation under this paragraph, Disney shall be entitled to terminate this Agreement in accordance with the provisions for termination set forth herein. 21. CONFIDENTIALITY Licensee agrees not to issue any press release regarding this Agreement 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 and/or its Affiliates' business and operations, and/or information concerning works in progress, artwork, plots, characters or other matters relating to Disney's and/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 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. 29 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 29 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. AUDITS AND MAINTAINING RECORDS A. Licensee agrees to keep accurate records of all transactions relating to this Agreement and any prior agreement with Disney regarding the Licensed Material, including, without limitation, shipments to Licensee of Articles and components thereof, inventory records, records of sales and shipments by Licensee, and records of returns, and to preserve such records for the lesser of seven (7) years or two (2) years after the expiration or termination of this Agreement. B. Disney, or Disney's representatives, shall have the right from time to time, during Licensee's normal business hours, but only for the purpose of confirming Licensee's performance hereunder, to examine and make extracts from all such records, including the general ledger, invoices and any other records which Disney reasonably deems appropriate to verify the accuracy of Licensee's statements or Licensee's performance hereunder, including records of Licensee's Affiliates and/or unaffiliated sublicensees 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 $60 per hour per person for travel time during normal working hours and actual working time. D. If Licensee has failed to keep adequate records for one or more Royalty Payment Periods, Disney will assume that the Royalties owed to Disney for 30 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 30 such Royalty Payment Period(s) are equal to a reasonable amount, determined in Disney's absolute discretion, which may be up to but will not exceed the highest Royalties owed to Disney in a Royalty Payment Period for which Licensee has kept adequate records; if Licensee has failed to keep adequate records for any Royalty Payment Period, Disney will assume a reasonable amount of Royalties which Licensee will owe to Disney, based on the records Licensee has kept and other reasonable assumptions Disney deems appropriate. 24. MANUFACTURE OF ARTICLES BY THIRD PARTY MANUFACTURERS A. 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 have Articles or components thereof containing Licensed Material and/or Trademarks manufactured by a third party, whether the third party is located within or outside the United States, Licensee must, as a condition to the continuation of this Agreement, notify Disney of the accurate name and complete address of such Manufacturer and the Articles or components involved and obtain Disney's prior written permission to do so. If Disney is prepared to grant permission, Disney will do so if Licensee and each of Licensee's Manufacturers sign a Consent/Manufacturer's Agreement in a form which Disney will furnish to Licensee and Disney receives all such agreements properly signed. Licensee must immediately notify Disney if Licensee is no longer using the Manufacturer to manufacture Articles or components thereof. (A SAMPLE OF SAID AGREEMENT FORM IS AVAILABLE ON REQUEST) B. It is not Disney's policy to reveal the names of Licensee's Manufacturers to third parties or to any Disney division involved with buying products, except as may be necessary to enforce Disney's contract rights or protect Disney's trademarks and copyrights. C. If any such Manufacturer utilizes Licensed Material or Trademarks for any unauthorized purpose, Licensee shall cooperate fully in bringing such utilization to an immediate halt. If, by reason of Licensee's not having supplied the above mentioned agreements to Disney or not having given Disney the name of any 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). 31 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 31 D. 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 Consent/Manufacturer's Agreement, the Consent/Manufacturer's Agreement for such Manufacturer may be terminated immediately by Disney, and Licensee shall not thereafter use such Manufacturer to manufacture Articles or components thereof. If Licensee fails to notify Disney that it has ceased using a particular 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 Consent/Manufacturer's Agreement shall be deemed terminated for purposes of Paragraph 28.B. (8), and Licensee shall promptly reimburse Disney for the actual costs of the compliance inspection. 25. INDEMNITY A. Licensee shall indemnify Disney during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Licensee's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of Licensee's activities under this Agreement, including but not limited to, any actual or alleged: (1) negligent acts or omissions on Licensee's part, (2) defect (whether obvious or hidden and whether or not present in any Sample approved by Disney) in an Article, (3) personal injury, (4) infringement of any rights of any other person by the manufacture, sale, possession or use of Articles, (5) breach on Licensee's part of any covenant, 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. and its Affiliates and successors, and its and their officers, directors, employees and agents. The indemnity shall not apply to any claim or liability relating to any infringement of the copyright of a third party caused by Licensee's utilization of the Licensed Material and the Trademarks in accordance with the provisions hereof, unless such claim or liability arises out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 12. B. Disney shall indemnify Licensee during and after the term hereof against all claims, demands, suits, judgments, losses, liabilities (including settlements entered into in good faith with Disney's consent, not to be unreasonably withheld) and expenses of any nature (including reasonable attorneys' fees) arising out of any claim that Licensee's use of any representation of the Licensed Material or the Trademarks approved in accordance with the provisions of this Agreement infringes the copyright of any third party or 32 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 32 infringes any right granted by Disney to such third party, except for claims arising out of Licensee's failure to obtain the full assignment of rights referenced in Paragraph 12. Licensee shall not, in any case, be entitled to recover for lost profits. C. Additionally, if by reason of any claims referred to in 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 Licensed Material or the Trademarks on or in connection with the Articles hereunder or any packaging, advertising or promotional material infringes on any trademark right of any third party or otherwise constitutes unfair competition by reason of any prior rights acquired by such third party, other than rights acquired from Disney. It is expressly agreed that it is Licensee's responsibility to carry out such investigations as Licensee may deem appropriate to establish that Articles, packaging, and promotional and advertising material which are manufactured or created hereunder, including any use made of the Licensed Material and the Trademarks therewith, do not infringe such right of any third party, and Disney shall not be liable to Licensee if such infringement occurs. E. Licensee and Disney agree to give each other prompt written notice of any claim or suit which may arise under the indemnity provisions set forth above. Without limiting the foregoing, Licensee agrees to give Disney written notice of any product liability claim made or suit filed with respect to any Article, any investigations or directives regarding the Articles issued by the Consumer Product Safety Commission ("CPSC") or other federal, state or local consumer safety agency, and any notices sent by Licensee to, or received by Licensee from, the CPSC or other consumer safety agency regarding the Articles within fourteen (14) days of Licensee's receipt or promulgation of the claim, suit, investigation, directive, or notice. 26. INSURANCE Licensee shall maintain in full force and effect at all times while this Agreement is in effect and for three years thereafter commercial general liability insurance on a per occurrence form, including broad form coverage for contractual liability, 33 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 33 property damage, products liability and personal injury liability (including bodily injury and death), waiving subrogation, with minimum limits of no less than two million dollars (US $2,000,000.00) per occurrence, and naming as additional insureds those indemnified in Paragraph 25 hereof. Licensee also agrees to maintain in full force and effect at all times while this Agreement is in effect such Worker's Compensation Insurance as is required by applicable law and Employer's Liability Insurance with minimum limits of one million dollars (US $1,000,000.00) per occurrence. All insurance shall be primary and not contributory. Licensee shall deliver to Disney a certificate or certificates of insurance evidencing satisfactory coverage and indicating that Disney shall receive thirty (30) days unrestricted prior written notice of cancellation, non-renewal or of any material change in coverage. Licensee's insurance 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 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, or the number of Articles remaining under the Agreement, at the date of withdrawal. 28. TERMINATION Without prejudice to any other right or remedy available to Disney: A. Disney shall have the right at any time to terminate this Agreement by giving Licensee written notice thereof, if Licensee fails to manufacture, sell and distribute the Articles in accordance with this Agreement, or fails to timely furnish statements and timely pay Royalties or any other payments due to Disney hereunder, or fails to notify Disney of the accurate name and complete address of its own manufacturing facilities or any Manufacturer of the Articles, or fails to have any such Manufacturer execute the Consent/Manufacturer's Agreement, or if Licensee otherwise breaches the terms of this Agreement, and if any such failure or other breach is not corrected within thirty (30) days (or, in the case of non-payment of any 34 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 34 monetary obligations due Disney under the Agreement within fifteen (15) days) after Disney sends Licensee written notice thereof. B. Disney shall have the right at any time to terminate this Agreement immediately by giving Licensee written notice thereof: (1) if Licensee delivers to any customer without Disney's written authorization merchandise containing representations of Licensed Material or other material the copyright or other proprietary rights to which are owned by Disney other than Articles listed 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 for delivery outside the Territory, unless pursuant to a written distribution permission or separate written license agreement with Disney or any of Disney's Affiliates; (3) if a breach occurs which is of the same nature, and which violates the same provision of this Agreement, as a breach of which Disney has previously given Licensee written notice; (4) if Licensee breaches any material term of any other license agreement between the parties, and Disney terminates such agreement for cause; (5) if Licensee shall make any assignment for the benefit of creditors, or file a petition in bankruptcy, or is adjudged bankrupt, or becomes insolvent, or is placed in the hands of a receiver, or if the equivalent of any such proceedings or acts occurs, though known by some other name or term; (6) if Licensee is not permitted or is unable to operate Licensee's business in the usual manner, or is not permitted or is unable to provide Disney with assurance satisfactory to Disney that Licensee will so operate Licensee's business, as debtor in possession or its equivalent, or is not permitted, or is unable to otherwise meet Licensee's obligations under this Agreement or to provide Disney with assurance satisfactory to Disney that Licensee will meet such obligations; (7) if Licensee breaches any covenant set forth in Paragraph 11 of this Agreement; and/or 35 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 35 (8) if more than three Consent/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 24. 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 shall be immediately due and payable, and Disney shall be entitled to retain all Royalties and other things of value paid or delivered to Disney. Licensee agrees that the Articles shall be manufactured during the Term in quantities consistent with anticipated demand therefor so as not to result in an excessive inventory build-up immediately prior to the end of the Term. Licensee agrees that from the expiration or termination of this Agreement Licensee shall neither manufacture nor have manufactured for Licensee any Articles, that Licensee will deliver to Disney any and all artwork (including Style Guides, animation cels and drawings) which may have been used or created by Licensee in connection with this Agreement, that Licensee will at Disney's option either sell to Disney at cost or destroy or efface any molds, plates and other items used to reproduce Licensed Material or Trademarks, and that, except as hereinafter provided, Licensee will cease selling Articles. Any unauthorized distribution of Articles after the expiration or termination of this Agreement shall constitute copyright infringement. B. If Licensee has any unsold Articles in inventory on the expiration or termination date, Licensee shall provide Disney with a full statement of the kinds and numbers of such unsold Articles. If such statement has been provided to Disney and if Licensee has fully complied with the terms of this Agreement, including the payment of all Royalties due and the Guarantee, upon notice from Disney, Licensee shall have the right for a limited period of two (2) calendar months from such expiration or earlier termination date to sell off and deliver such Articles as authorized under Paragraph 2.A. 36 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 36 Licensee shall furnish Disney statements covering such sales and pay Disney Royalties in respect of such sales. Such Royalties shall not be applied against the Advance or towards meeting the Guarantee. If the sell-off period is extended by Disney to a date which is not 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 period granted to Licensee. "Dumping" shall mean the distribution of product at volume levels significantly above Licensee's prior sales practices with respect to the Articles, and at price levels so far below Licensee's prior sales practices with respect to the Articles as to disparage the Articles; provided, however, that nothing contained herein shall be deemed to restrict Licensee's ability to set product prices at Licensee's discretion. D. Except as otherwise agreed by Disney in writing, any inventory of Articles in Licensee's possession or control after the expiration or termination hereof and of any sell-off period granted hereunder shall be destroyed, or all Licensed Material and Trademarks removed or obliterated therefrom. E. If Disney supplies Licensee with forms regarding compliance with this Paragraph 29, Licensee agrees to complete, execute and return such forms to Disney expeditiously. F. Notwithstanding any provision to the contrary, in the case of termination under Paragraph 28.B. (5) or (6), in order to protect the value of the Articles and to avoid any disparagement of the Articles which could occur as a result of the circumstances of termination, Disney shall have the option, in Disney's absolute discretion, to purchase any or all unsold Articles in Licensee's inventory on the termination date at 20% over Licensee's cost of goods for such Articles (not including overhead). 30. WAIVERS A waiver by either party at any time of a breach of any provision of this Agreement shall not apply to any breach of any other provision of this Agreement, or imply that a breach of the same provision at any other time has been or will be waived, or that this Agreement has been in any way amended, nor shall any failure by either party 37 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 37 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 is personal to Licensee, who was specifically chosen by Disney to be licensed hereunder because of Licensee's particular expertise and ability to 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 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 and/or obligations hereunder to a division, business segment or other entity different from the one specifically referenced on page 1 hereof (or any sale or attempted sale of Articles under a trademark or trade name of such division, business segment or other entity); any public offering, or series of public offerings, whereby a cumulative total of thirty-three and one-third percent (33 1/3%) or more of the voting stock of Licensee or its Controlling Affiliate(s) is offered for purchase; and any acquisition, or series of acquisitions, by any person or entity, or group of related persons or entities, of a cumulative total of thirty-three and one-third percent (33-1/3%) or more of the voting stock of Licensee or its Controlling Affiliate(s), or the right to vote such percentage (or, if Licensee is a partnership, resulting in the transfer of thirty-three and one-third percent (33-1/3%) or more of the profit and loss participation in Licensee, or the occurrence of any of the foregoing with respect to any general partner of Licensee). B. Licensee agrees to provide Disney with at least thirty (30) days prior written notice of any desired assignment of this Agreement or other transfer as 38 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 38 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 $ * for each Disney license, brand and/or property (if applicable) involved in an assignment or other 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, 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, unless occurring as part of a transaction that would trigger a transfer fee: (1) distribution(s) on employee stock options, or (2) transfers among the current shareholders who are members of the Sidman family (including their spouses and children), for estate planning purposes, so long as Licensee maintains substantially the same management and continues to operate in substantially the same fashion as prior to such transfer; provided, however, 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. Notwithstanding Paragraphs 32.A. and B., Licensee may, upon Disney's prior written consent, sublicense Licensee's rights and/or obligations hereunder to any of Licensee's Affiliates, provided that each such Affiliate 39 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 39 agrees to be bound by all of the terms and conditions of this Agreement, and provided that each such Affiliate agrees to guarantee Licensee's full performance of this Agreement (including, but not limited to, Paragraph 25) and to indemnify Disney for any failure of such performance, 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. 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, 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. In the event of any sublicense to an Affiliate hereunder, the reference in Paragraph 32.A. to "Controlling Affiliate" shall include such Affiliate sublicensee. 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. 40 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 40 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 "Vice President, Licensing", 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 Licensed Material, contains the entire agreement between the parties concerning the subject matter hereof and supersedes any pre-existing or contemporaneous agreement and any oral or written communications between the parties. 41 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 41 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 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 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 copyrights and property rights, and, specifically, to conserve the goodwill and good name of Disney's products and company, 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, and Paragraph 29, shall survive termination, cancellation or expiration of this Agreement. 42 The First Years, Inc. Disney Classics Agreement dated November 16, 1998 Page 42 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 this shall constitute an agreement between Disney and Licensee. AGREED: DISNEY ENTERPRISES, INC. By: /s/ Steve Cipolla ----------------------------- Title: Vice President, Licensing ------------------------- Date: June 15, 1999 THE FIRST YEARS, INC. By: /s/ Ronald J. Sidman ------------------------------ Title: President --------------------------- 43 THE FIRST YEARS, INC. DISNEY CLASSICS AGREEMENT DATED NOVEMBER 16, 1998 SCHEDULE A A. FEEDING AND SOOTHING 1. Bottles 2. Bibs 3. Cups (sculpted and decorated) 4. Fork and spoon 5. Pacifiers 6. Toddler sports bottles B. PLAYTHINGS 1. Hand-held rattles (must contain teething or visible rattle component) 2. Electronic hand-held toys 3. Suction toys 4. Bath toys 5. Linking toys 6. Musical plush with teething and/or rattle 7. Crib activity toys 8. Crib activity lights 9. Teethers 10. Squeeze toys 11. Chime balls (DISNEY BABIES brand only) C. CARE AND SAFETY 1. Night lights 2. Car shades 3. Combs and brushes 44 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: o the estimated value of the license being assigned or involved in the transfer o the risk of business interruption o the risk of loss of quality, production or control o the identity, reputation, creditworthiness, financial condition and business capabilities of the proposed assignee or entity involved in the transfer o Disney's internal costs related to the assignment or transfer At a minimum, the transfer fee will be $ * , 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. 45 CODE OF CONDUCT FOR MANUFACTURERS At The Walt Disney Company, we are committed to: o a standard of excellence in every aspect of our business and in every corner of the world; o ethical and responsible conduct in all of our operations; o respect for the rights of all individuals; and o 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 HARASSMENT Manufacturers will treat each employee with dignity 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 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. 46 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 ENVIRONMENT Manufacturers will comply with all applicable 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. MONITORING AND COMPLIANCE Manufacturers will authorize Disney and its 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. 47 CODE OF CONDUCT FOR LICENSEES At The Walt Disney Company, we are committed to: o a standard of excellence in every aspect of our business and in every corner of the world; o ethical and responsible conduct in all of our operations; o respect for the rights of all individuals; and o 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 MANUFACTURING Licensees that engage directly in the 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 COMPLIANCE Licensees will take appropriate steps, in 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-27 4 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 10,314,167 0 24,653,831 270,000 23,579,200 60,329,850 19,646,255 9,622,089 70,354,016 14,488,112 0 1,054,365 0 0 54,013,239 70,354,016 71,799,995 72,092,656 42,262,329 62,651,724 0 0 0 9,440,932 3,823,600 5,617,332 0 0 0 5,617,332 0.54 0.53
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