-----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, DhZZsRTd4ldEJeu/6kMaMFdbAZJKLDiW9orygjKfM6+U7vQo8Kx/Dkqodg3YJQaE Dtjuy4HmSvR8dvjtdKUBTQ== 0000950135-99-005183.txt : 19991115 0000950135-99-005183.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950135-99-005183 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99748487 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 9/30/99 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 September 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 October 31, 1999 was 9,994,657. 2 THE FIRST YEARS INC. INDEX
PART I - FINANCIAL INFORMATION: Condensed Consolidated Balance Sheets Page 1 Condensed Consolidated Statements of Income 2 Condensed Consolidated Statements of Cash Flows 3 Notes to Condensed Consolidated Financial Statements 4 - 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 10 PART II - OTHER INFORMATION Other Information 11 Signatures 12 Exhibit Index 13
3 THE FIRST YEARS INC. Condensed Consolidated Balance Sheets ASSETS
September 30, December 31, 1999 1998 ------------- ------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents $13,887,320 $19,776,897 Accounts receivable, net 22,404,289 19,013,127 Inventories 19,052,378 18,520,023 Prepaid expenses and other assets 476,555 2,638,634 Deferred tax assets 1,424,500 1,424,500 ----------- ----------- Total current assets 57,245,042 61,373,181 ----------- ----------- PROPERTY, PLANT, AND EQUIPMENT: Land 167,266 167,266 Building 5,114,510 4,199,790 Machinery and molds 8,685,541 7,878,103 Furniture and equipment 4,498,513 4,571,636 ----------- ----------- Total 18,465,830 16,816,795 Less accumulated depreciation 8,616,158 8,914,081 ----------- ----------- Property, plant, and equipment - net 9,849,672 7,902,714 ----------- ----------- TOTAL ASSETS $67,094,714 $69,275,895 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,870,590 $ 9,400,966 Accrued royalty expense 2,002,653 2,130,027 Accrued payroll expenses 283,402 1,200,966 Accrued selling expenses 2,234,783 3,098,232 ----------- ----------- Total current liabilities 12,391,428 15,830,191 ----------- ----------- DEFERRED TAX LIABILITY 798,300 798,300 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock 1,057,025 1,046,141 Paid-in capital 8,056,666 7,472,398 Retained earnings 51,864,321 44,438,589 Less treasury stock at cost, 575,594 and 21,394 shares as of September 30, 1999 and December 31, 1998, respectively (7,073,026) (309,724) ----------- ----------- Total stockholders' equity 53,904,986 52,647,404 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $67,094,714 $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 Nine Months Ended September 30, September 30, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- NET SALES $31,794,094 $32,735,238 $103,594,089 $103,219,645 COST OF PRODUCTS SOLD 17,682,789 18,951,345 59,945,118 61,038,625 ----------- ----------- ------------ ------------ GROSS PROFIT 14,111,305 13,783,893 43,648,971 42,181,020 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 10,137,311 9,241,221 30,526,706 29,451,127 ----------- ----------- ------------ ------------ OPERATING INCOME 3,973,994 4,542,672 13,122,265 12,729,893 OTHER INCOME: Interest income 124,798 188,259 417,459 390,738 ----------- ----------- ------------ ------------ INCOME BEFORE INCOME TAXES 4,098,792 4,730,931 13,539,724 13,120,631 PROVISION FOR INCOME TAXES 1,660,000 1,916,000 5,483,600 5,313,800 ----------- ----------- ------------ ------------ NET INCOME $ 2,438,792 $ 2,814,931 $ 8,056,124 $ 7,806,831 =========== =========== ============ ============ BASIC EARNINGS PER SHARE $ 0.24 $ 0.27 $ 0.78 $ 0.76 =========== =========== ============ ============ DILUTED EARNINGS PER SHARE $ 0.24 $ 0.26 $ 0.76 $ 0.73 =========== =========== ============ ============ CASH DIVIDENDS PAID PER SHARE $ 0.00 $ 0.00 $ 0.06 $ 0.06 =========== =========== ============ ============
See accompanying notes to condensed consolidated financial statements. Page 2 5 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
1999 1998 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,056,124 $ 7,806,831 Adjustments to reconcile net income to net cash provided by (used for) operations: Depreciation 1,403,128 1,260,768 Provision for doubtful accounts 76,712 115,000 Loss on disposal of equipment 452,271 476,067 Increase (decrease) arising from working capital items: Accounts receivable (3,467,874) (1,979,406) Inventories (532,355) 5,051,281 Prepaid expenses and other assets 2,162,079 (18,957) Accounts payable and accrued expenses (1,407,876) (75,513) Accrued royalties (127,374) 10,825 Accrued payroll expense (917,564) 133,971 Accrued selling expenses (863,449) 626,395 ------------ ------------ Net cash provided by (used for) operating activities 4,833,822 13,407,262 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant, and equipment (3,802,357) (1,424,169) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividend (630,392) (621,935) Common stock issued under stock option plans 378,077 625,820 Purchase of treasury stock (6,668,727) -- ------------ ------------ Net cash provided by (used for) financing activities (6,921,042) 3,885 ------------ ------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,889,577) 11,986,978 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,776,897 7,697,040 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,887,320 $ 19,684,018 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $ 762 $ 850 ============ ============ Income taxes $ 4,189,226 $ 4,656,800 ============ ============ SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Tax benefit of stock option exercises $ 122,500 $ 506,400 ============ ============ Issuance of treasury stock $ 94,575 $ 227,911 ============ ============
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 September 30, 1999, and the results of operations and cash flows for the periods ended September 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 9,994,657 and 10,440,014 shares issued and outstanding as of September 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 September 30, 1999 the company purchased 545,800 shares of the company's common stock on the open market. The cost of the shares amounted to $6,668,727 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 Nine Months Ended September 30, September 30, ------------------ ----------------- 1999 1998 1999 1998 ---- ---- ---- ---- AVERAGE SHARES OUTSTANDING 10,204,475 10,391,816 10,353,059 10,306,828 EFFECT OF DILUTIVE SHARES 142,179 305,155 206,450 352,809 ----------- ----------- ----------- ----------- AVERAGE DILUTED SHARES OUTSTANDING 10,346,654 10,696,971 10,559,509 10,659,637 =========== =========== =========== =========== NET INCOME $ 2,438,792 $ 2,814,931 $ 8,056,124 $ 7,806,831 =========== =========== =========== =========== BASIC EARNINGS PER SHARE $ 0.24 $ 0.27 $ 0.78 $ 0.76 =========== =========== =========== =========== DILUTED EARNINGS PER SHARE $ 0.24 $ 0.26 $ 0.76 $ 0.73 =========== =========== =========== ===========
Page 4 7 THE FIRST YEARS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. (cont): As of September 30, 1999, options to purchase 510,295 shares of common stock 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, expiring from 2007 to 2009, had exercise prices ranging from 12 3/16 to 17 3/4 per share. As of September 30, 1998, options to purchase 33,964 shares of common stock 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, expiring from 2008 to 2009, had exercise prices ranging from 15 15/16 to 17 3/4 per share. 4. The results of operations for the nine-month period ended September 30, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. 5. During the first nine 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 in May, 1999 by SFAS No. 137 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, as amended, which will be effective for the year beginning January 1, 2001. 7. During 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. Page 5 8 THE FIRST YEARS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 8. During the fourth quarter of 1998, the Company incurred a charge relating to sales returns and the write-off of inventory of certain products containing diisononyl phthalate ("DINP"), a plastic softener. Although the results of a study on DINP conducted by the U.S. Consumer Product Safety Commission resulted in the Commission not recommending a ban on products containing DINP, some retailers decided to return certain products containing this material. Net sales for the three months and nine months ended September 30, 1999 increased by $384,000 and cost of sales decreased by $629,000 for the same period due to lower than expected sales returns and inventory write offs of certain products containing diisononyl phthalate, for which a charge was previously recorded in the fourth quarter of 1998. Net income for the three months and the nine months ended September 30, 1999 reflect the total after-tax increase of $603,000 related to the phthalate issue. Page 6 9 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, is confident, 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 successful introduction of new products, growth in international sales, the outcome of a patent lawsuit, efficiencies resulting from new order entry and warehouse systems, dependence on licensed products, 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 nine months of 1999 were $103.6 million, an increase of $.4 million or 0.4%, as compared to $103.2 million for the comparable period last year. The increase was primarily due to a reversal of a portion of a 1998 accrual for sales returns of certain products containing diisononyl phthalate ("DINP"), a plastic softener, for which a charge was previously recorded in the fourth quarter of 1998. The reversal is due to lower than expected sales returns of such products. Excluding the effect on sales due to DINP, net sales remained consistent at $103.2 million and were effected by a decline in sales of licensed products. The decline in licensed products is part of an industry-wide trend that reflects the cyclical nature of licenses in the juvenile industry. The decreases were offset by increases in demand for non-licensed products. Cost of products sold for the first nine months of 1999 was $59.9 million, a decrease of $1.1 million, as compared to $61.0 million for the comparable period last year. As a percentage of sales, cost of products sold in the first nine months of 1999 decreased to 57.9% from 59.1% in the same period of 1998 resulting from lower than expected inventory write-offs of certain products containing DINP for which a charge was previously recorded in the fourth quarter of 1998. Without the adjustment related to DINP, cost of products sold, as a percent of sales, would have decreased slightly to 58.8% from 59.1% due to normal business fluctuations. Page 7 10 Management's Discussion and Analysis of Financial Condition and Results of Operations (Con't) Selling, general, and administrative expenses for the first nine months of 1999 were $30.5 million, an increase of $1.0 million or 3.7%, as compared to $29.5 million over such expenses for the first nine months of 1998. The increase resulted primarily from costs related to legal expenses incurred in the defense of a patent infringement lawsuit as well as expenses resulting from upgraded logistics systems implemented in the Company's Avon Massachusetts warehouse. As a percentage of net sales, selling, general, and administrative expenses for the first nine months of 1999 increased to 29.5% from 28.5% in the comparable period of 1998. Income tax expense as a percentage of pretax income remained consistent at 40.5% for the first nine months of 1999 and 1998. Net working capital decreased by $0.6 million in the first nine months of 1999 primarily due to a decrease in cash related to the investing and financing activities of the Company. Cash decreased by $5.9 million primarily due to the repurchase of treasury stock shares amounting to $6.7 million and the purchase of $3.8 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. The cash outlays for the investing and financing activities were offset by cash generated from profitable operations which included an increase in accounts receivable of $3.5 million, a decrease in accounts payable and accrued expenses of $1.5 million and a decrease in prepaid expenses of $2.2 million. The changes in operational activity accounts are due to normal business fluctuations. On October 28, 1999 the Company announced that its Board of Directors has approved an increase in the total dollar amount that can be used by the Company to repurchase shares of common stock of the Company under the Company's discretionary stock repurchase program. The total amount authorized by the Board has been increased by 50% to $15 million from the original amount of $10 million. As of September 30, 1999, the Company has purchased 545,800 shares of the Company's common stock at a cost of $6.7 million. 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 nine months of 1999 and 1998, the Company incurred no borrowings under the line and had no balances outstanding as of September 30, 1999 and 1998, respectively. Page 8 11 Management's Discussion and Analysis of Financial Condition and Results of Operations (Con't) 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. 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 those systems are substantially Y2K compliant. 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 has concluded that it's mission critical third party vendors are representing to the Company that they have addressed their Y2K issues and will be Y2K compliant by year end. 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 has evaluated general operational issues that may be affected by Y2K problems not limited to direct third party relationships and has incorporated potential issues into a formal contingency plan. The contingency plan development is substantially complete and various aspects of the plan have been incorporated into the work processes and plans of the Company so they are in place as Year 2000 approaches. Page 9 12 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 $200,000 to address the Y2K issue. Additional expenses related to implementation of the contingency plans, specifically, storage related to safety inventory, may approximate $50,000 to $100,000 and is not anticipated to be material. 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 currently 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 has substantially completed the review of results of a vendor compliance survey which facilitated the risk assessment and contingency planning phase of non-IT related issues which included 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. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," as amended in May, 1999 by SFAS No. 137 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, as amended, which will be effective for the year beginning January 1, 2001. Page 10 13 THE FIRST YEARS INC. PART II - OTHER INFORMATION Item 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 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(t) The First Years Inc. 1993 Equity Incentive Plan, as amended through May 20, 1999. 10(u) Employment Agreement between The First Years Inc. and Ronald J. Sidman dated September 30, 1999. 10(v) Letter Agreement between The First Years Inc. and Jerome M. Karp dated August 8, 1999. 27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the past quarter covered by this report. Item 7A: Quantitative and Qualitative Disclosure about Market Risk At September 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 $1,341,000 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 10K filed with the Securities and Exchange Commission. Page 11 14 THE FIRST YEARS INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE FIRST YEARS INC. -------------------- Registrant Date 11/12/99 /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(t) The First Years Inc. 1993 Equity Incentive Plan, as amended through May 20, 1999. 10(u) Employment Agreement between The First Years Inc. and Ronald J. Sidman dated September 30, 1999. 10(v) Letter Agreement between The First Years Inc. and Jerome M. Karp dated August 8, 1999. 27 Financial Data Schedule
Page 13 EX-10.(T) 2 1993 EQUITY INCENTIVE PLAN 1 Exhibit 10(t) THE FIRST YEARS INC. 1993 EQUITY INCENTIVE PLAN (AS AMENDED THROUGH MAY 20, 1999) 1. PURPOSE The purpose of this 1993 Equity Incentive Plan (the "Plan") is to advance the interests of The First Years Inc. (the "Company") by enhancing its ability to attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries through ownership of shares of the Company's common stock ("Stock"). The Plan is intended to accomplish these goals by enabling the Company to grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans or Supplement Grants, or combinations thereof, all as more fully described below. 2. ADMINISTRATION Unless otherwise determined by the Board of Directors of the Company (the "Board"), the Plan will be administered by a Committee of the Board designated for such purpose (the "Committee"). The Committee shall consist of at least two directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by a majority of the Committee members. So long as the Stock is registered under the Securities Exchange Act of 1934 (the "1934 Act"), all members of the Committee shall be non-employee directors within the meaning of Rule 16b-3 under the 1934 Act. The Committee will have authority, not inconsistent with the express provisions of the Plan and in addition to other authority granted under the Plan, to (a) grant Awards at such time or times as it may choose; (b) determine the size of each Award, including the number of shares of Stock subject to the Award; (c) determine the type or types of each Award; (d) determine the terms and 2 conditions of each Award; (e) waive compliance by a Participant (as defined below) with any obligations to be performed by the Participant under an Award and waive any term or condition of an Award; (f) amend or cancel an existing Award in whole or in part (and if an award is canceled, grant another Award in its place on such terms as the Board shall specify), except that the Board may not, without the consent of the holder of an Award, take any action under this clause with respect to such Award if such action would adversely affect the rights of such holder; (g) prescribe the form or forms of instruments that are required or deemed appropriate under the Plan, including any written notices and elections required of Participants, and change such forms from time to time; (h) adopt, amend and rescind rules and regulations for the administration of the Plan; and (I) interpret the Plan and decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations and actions of the Committee, and all other determinations and actions of the Committee made or taken under authority granted by any provision of the Plan, will be conclusive and will bind all parties. Nothing in this paragraph shall be construed as limiting the power of the Committee to make adjustments under Section 7.3 or Section 8.6. 3. EFFECTIVE DATE AND TERM OF PLAN The Plan will become effective on the date on which it is approved by the stockholders of the Company. No Award may be granted under the Plan after ten years following the date of stockholder approval, but Awards previously granted may extend beyond that date. 4. SHARES SUBJECT TO THE PLAN Subject to the adjustment as provided in Section 8.6 below, the aggregate number of shares of Stock that may be delivered under the Plan will be 2,420,000. If any Award requiring exercise by the Participant for delivery of Stock terminates without having been exercised in full, or if any Award payable in Stock or cash is satisfied in cash rather than Stock, the number of shares of Stock as to which such Award was not exercised or for which cash was substituted will be available for future grants. If any Stock purchased on exercise of an Option is paid for through the delivery of shares of Stock or if shares of Stock are held back by the Company, or delivered to the Company, to satisfy a tax 2 3 withholding requirement on an Award, the number of shares of Stock delivered to or held back by the Company shall be available for future grants. The maximum number of shares for which Options and Stock Appreciation Rights may be granted to any individual over the life of the Plan shall be 1,200,000, which limitation shall be construed and applied consistently with the rules under Section 162(m) of the Internal Revenue Code of 1986 as amended (the "Code"). Stock delivered under the Plan may be either authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock will be delivered under the Plan. 5. ELIGIBILITY AND PARTICIPATION Those eligible to receive Awards under the Plan ("Participants") will be persons in the employ of the Company or any of its subsidiaries ("Employees") and other persons or entities (including without limitation non-Employee directors of the Company or a subsidiary of the Company or Employee directors of a subsidiary of the Company) who, in the opinion of the Committee, are in a position to make a significant contribution to the success of the Company or its subsidiaries. A "subsidiary" for purposes of the Plan will be a corporation in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock. 6. TYPES OF AWARDS 6.1 OPTIONS (a) NATURE OF OPTIONS. An Option is an Award entitling the recipient on exercise thereof to purchase stock at a specified exercise price. Both "incentive stock options," as defined in Section 422 of the Code (any Option intended to qualify as an incentive stock option being hereinafter referred to as an "ISO"), and Options that are not incentive stock options may be granted under the Plan. ISOs shall be awarded only to Employees. 3 4 (b) EXERCISE PRICE. The exercise price of an Option will be determined by the Board subject to the following: (1) The exercise price of an ISO shall not be less than 100% (110% in the case of an ISO granted to a ten-percent stockholder) of the fair market value of the Stock subject to the Option, determined as of the time the Option is granted. A "ten-percent stockholder" is any person who at the time of grant owns, directly or indirectly, or is deemed to own by reason of the attribution rules of section 424(d) of the Code, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its subsidiaries. (2) In no case may the exercise price paid for Stock which is part of an original issue of authorized Stock be less than the par value per share of the Stock. (3) The Committee may reduce the exercise price of an Option at any time after the time of grant, but in the case of an Option originally awarded as an ISO, only with the consent of the Participant. (c) DURATION OF OPTIONS. The latest date on which an Option may be exercised will be the tenth anniversary (fifth anniversary, in the case of an ISO granted to a ten-percent stockholder) of the day immediately preceding the date the Option was granted, or such earlier date as may have been specified by the Committee at the time the Option was granted. (d) EXERCISE OF OPTIONS. Options granted under any single Award will become exercisable at such time or times, and on such conditions, as the Committee may specify. The Committee may at any time and from time to time accelerate the time at which all or any part of the Option may be exercised. 4 5 Any exercise of an Option must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (1) any documents required by the Committee and (2) payment in full in accordance with paragraph (e) below for the number of shares for which the Option is exercised. (e) PAYMENT FOR STOCK. Stock purchased on exercise of an Option must be paid for as follows: (1) in cash or by check (acceptable to the Company in accordance with guidelines established for this purpose), bank draft or money order payable to the order of the Company, or (2), if so permitted by the instrument evidencing the Option (or in the case of an Option which is not an ISO, by the Committee at or after grant of the Option), (i) through the delivery of shares of Stock which have been outstanding for at least six months (unless the Committee expressly approves a shorter period) and which have a fair market value on the last business day preceding the date of exercise equal to the exercise price, or (ii) by delivery of a promissory note of the Option holder to the Company, payable on such terms as are specified by the Committee, or (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, or (iv) by any combination of the permissible forms of payment; provided, that if the Stock delivered upon exercise of the Option is an original issue of authorized Stock, at least so much of the exercise price as represents the par value of such Stock must be paid other than by the Option holder's promissory note or personal check. (f) DISCRETIONARY PAYMENTS. If the market price of shares of Stock subject to an Option (other than an Option which is in tandem with a Stock Appreciation Right as described in Section 6.2 below) exceeds the exercise price of the Option at the time of its exercise, the Committee may cancel the Option and cause the Company to pay in cash or in shares of Common Stock (at a price per share equal to the fair market value per share) to the person exercising the Option an amount equal to 5 6 the difference between the fair market value of the Stock which would have been purchased pursuant to the exercise (determined on the date the Option is canceled) and the aggregate exercise price which would have been paid. The Committee may exercise its discretion to take such action only if it has received a written request from the person exercising the Option, but such a request will not be binding on the Committee. 6.2 STOCK APPRECIATION RIGHTS. (a) NATURE OF STOCK APPRECIATION RIGHTS. A Stock Appreciation right is an Award entitling the recipient on exercise of the right to receive an amount, in cash or Stock or a combination thereof (such form to be determined by the Committee), determined in whole or in part by reference to appreciation in Stock value. In general, a Stock Appreciation Right entitles the Participant to receive, with respect to each share of Stock as to which the Right is exercised, the excess of the share's fair market value on the date of exercise over its fair market value on the date the Right was granted. However, the Committee may provide at the time of grant that the amount the recipient is entitled to receive will be adjusted upward or downward under rules established by the Committee to take into account the performance of the Stock in comparison with the performance of other stocks or an index or indices of other stocks. The Committee may also grant Stock Appreciation Rights providing that following a Change of Control of the Company as defined in Paragraph 7.3 ("Change of Control"), as determined by the Committee, the holder of such Right will be entitled to receive, with respect to each share of Stock subject to the Right, an amount equal to the excess of a specified value, (which may include an average of values) for a share of Stock during a period preceding such Change of Control over the fair market value of a share of Stock on the date the Right was granted. (b) GRANT OF STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be granted in tandem with, 6 7 or independently of, Options granted under the Plan. A Stock Appreciation Right granted in tandem with an Option which is not an ISO may be granted either at or after the time the Option is granted. A Stock Appreciation Right granted in tandem with an ISO may be granted only at the time the Option is granted. (c) RULES APPLICABLE TO TANDEM AWARDS. When Stock Appreciation Rights are granted in tandem with Options, the following will apply: (1) The Stock Appreciation Right will be exercisable only at such time or times, and to the extent, that the related Option is exercisable and will be exercisable in accordance with the procedure required for exercise of the related Option. (2) The Stock Appreciation Right will terminate and no longer be exercisable upon the termination or exercise of the related Option, except that a Stock Appreciation Right granted with respect to less than the full number of shares covered by an Option will not be reduced until the number of shares as to which the related Option has been exercised or has terminated exceeds the number of shares not covered by the Stock Appreciation right. (3) The Option will terminate and no longer be exercisable upon the exercise of the related Stock Appreciation Right. (4) The Stock Appreciation Right will be transferable only with the related Option. (5) A Stock Appreciation right granted in tandem with an ISO may be exercised only when the market price of the Stock subject to the Option exceeds the exercise price of such option. (d) EXERCISE OF INDEPENDENT STOCK APPRECIATION RIGHTS. A Stock Appreciation right not granted in tandem with an Option will become exercisable at such 7 8 time or times, and on such conditions, as the Committee may specify. The Committee may at any time accelerate the time at which all or any part of the Right may be exercised. Any exercise of an independent Stock Appreciation Right must be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by any other documents required by the Committee. 6.3. RESTRICTED AND UNRESTRICTED STOCK. (a) NATURE OF RESTRICTED STOCK AWARD. A Restricted Stock Award entitles the recipient to acquire, for a purchase price equal to par value, shares of Stock subject to the restrictions described in paragraph (d) below ("Restricted Stock"). (b) ACCEPTANCE OF AWARD. A Participant who is granted a Restricted Stock Award will have no rights with respect to such Award unless the Participant accepts the Award by written instrument delivered or mailed to the Company accompanied by payment in full of the specified purchase price, if any, of the shares covered by the Award. Payment may be by certified or bank check or other instrument acceptable to the Committee. (c) RIGHTS AS A STOCKHOLDER. A Participant who receives Restricted Stock will have all the rights of a stockholder with respect to the Stock, including voting and dividend rights, subject to the restrictions described in paragraph (d) below and any other conditions imposed by the Committee at the time of grant. Unless the Committee otherwise determines, certificates evidencing shares of Restricted Stock will remain in the possession of the Company until such shares are free of all restrictions under the Plan. (d) RESTRICTIONS. Except as otherwise specifically provided by the Plan, Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of, and if the Participant ceases to be an Employee or otherwise suffers a Status Change (as defined in Section 7.2(a) below) 8 9 for any reason, must be offered to the Company for purchase for the amount of cash paid for the Stock, or forfeited to the Company if no cash was paid. These restrictions will lapse at such time or times, and on such conditions, as the Committee may specify. The Committee may at any time accelerate the time at which the restrictions on all or any part of the shares will lapse. (e) NOTICE OF ELECTION. Any Participant making an election under Section 83(b) of the Code with respect to Restricted Stock must provide a copy thereof to the Company within 10 days of the filing of such election with the Internal Revenue Service. (f) OTHER AWARDS SETTLED WITH RESTRICTED STOCK. The Committee may, at the time any Award described in this Section 6 is granted, provide that any or all the Stock delivered pursuant to the Award will be Restricted Stock. (g) UNRESTRICTED STOCK. The Committee may, in its sole discretion, approve the sale to any Participant of shares of Stock free of restrictions under the Plan for a price which is not less than the par value of the Stock. 6.4 DEFERRED STOCK. A Deferred Stock Award entitles the recipient to receive shares of Stock to be delivered in the future. Delivery of the Stock will take place at such time or times, and on such conditions, as the Committee may specify. The Committee may at any time accelerate the time at which delivery of all or any part of the Stock will take place. At the time any Award described in this Section 6 is granted, the Committee may provide that, at the time Stock would otherwise be delivered pursuant to the Award, the Participant will instead receive an instrument evidencing the Participant's right to future delivery of Deferred Stock. 6.5 PERFORMANCE AWARDS; PERFORMANCE GOALS. 9 10 (a) NATURE OF PERFORMANCE AWARDS. A Performance Award entitles the recipient to receive, without payment, an amount in cash or Stock or a combination thereof (such form to be determined by the Committee) following the attainment of Performance Goals. Performance Goals may be related to personal performance, corporate performance, departmental performance or any other category of performance deemed by the Committee to be important to the success of the Company. The Committee will determine the Performance Goals, the period or periods during which performance is to be measured, and all other terms and conditions applicable to the Award. (b) OTHER AWARDS SUBJECT TO PERFORMANCE CONDITION. The Committee may, at the time any Award described in this Section 6 is granted, impose the condition (in addition to any conditions specified or authorized in this Section 6 or any other provision of the Plan) that Performance Goals be met prior to the Participant's realization of any payment or benefit under the Award. 6.6. LOANS AND SUPPLEMENTAL GRANTS. (a) LOANS. The Company may make a loan to a Participant ("Loan"), either on the date of or after the grant of any Award to the Participant. A Loan may be made either in connection with the purchase of Stock under the Award or with the payment of any Federal, state and local income tax with respect to income recognized as a result of the Award. The Committee will have full authority to decide whether to make a Loan and to determine the amount, terms and conditions of the Loan, including the interest rate (which may be zero), whether the Loan is to be secured or unsecured or with or without recourse against the borrower, the terms on which the Loan is to be repaid, and the conditions, if any, under which it may be forgiven. However, no Loan may have a term (including extensions) exceeding ten years in duration. (b) SUPPLEMENTAL GRANTS. In connection with any Award, the Committee may at the time such Award is 10 11 made or at a later date, provide for and grant a cash award to the Participant ("Supplemental Grant") not to exceed an amount equal to (1) the amount of any federal, state and local income tax on ordinary income for which the Participant may be liable with respect to the Award, determined by assuming taxation at the highest marginal rate, plus (2) and additional amount on a grossed-up basis intended to make the Participant whole on an after-tax basis after discharging all the Participant's income tax liabilities arising from all payments under this Section 6. Any payments under this subsection (b) will be made at the time the Participant incurs Federal income tax liability with respect to the Award. 7. EVENTS AFFECTING OUTSTANDING AWARDS 7.1 DEATH. If a Participant dies, the following will apply: (a) All Options and Stock Appreciation Rights held by the Participant immediately prior to death, to the extent then exercisable, may be exercised by the Participant's executor or administrator or the person or persons to whom the Option or Right is transferred by will or the applicable laws of descent and distribution, at any time within the one year period ending with the first anniversary of the Participant's death (or such shorter or longer period as the Committee may determine), and shall thereupon terminate. In no event, however, shall an Option or Stock Appreciation Right remain exercisable beyond the latest date on which it could have been exercised without regard to this Section 7. Except as otherwise determined by the Committee, all Options and Stock Appreciation Rights held by a Participant immediately prior to death that are not then exercisable shall terminate at death. (b) Except as otherwise determined by the Committee, all Restricted Stock held by the Participant must be transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted 11 12 Stock will be so transferred without any further action by the Participant) in accordance with Section 6.3 above. (c) Any payment or benefit under a Deferred Stock Award, Performance Award, or Supplemental Grant to which the Participant was not irrevocably entitled prior to death will be forfeited and the Award canceled as of the time of death, unless otherwise determined by the Committee. 7.2 TERMINATION OF SERVICE (OTHER THAN BY DEATH). If a Participant who is an Employee ceases to be an Employee for any reason other than death, or if there is a termination (other than by reason of death) of the consulting, service or similar relationship in respect of which a non-Employee Participant was granted an Award hereunder (such termination of the employment or other relationship being hereinafter referred to as a "Status Change"), the following will apply: (a) Except as otherwise determined by the Committee, all Options and Stock Appreciation Rights held by the Participant that were not exercisable immediately prior to the Status Change shall terminate at the time of the Status Change. Any Options or Rights that were exercisable immediately prior to the Status Change will continue to be exercisable for a period of three months (or such longer period as the Committee may determine), and shall thereupon terminate, unless the Award provides by its terms for immediate termination in the event of a Status Change or unless the Status Change results from a discharge for cause which in the opinion of the Committee casts such discredit on the Participant as to justify immediate termination of the Award. In no event, however, shall an Option or Stock Appreciation Right remain exercisable beyond the latest date on which it could have been exercised without regard to this Section 7. For purposes of this paragraph, in the case of a Participant who is an Employee, a Status Change shall not be deemed to have resulted by reason of (i) a sick leave or other bona fide leave of absence approved for purposes of the Plan by the Committee, so long 12 13 as the Employee's right to reemployment is guaranteed either by statute or by contract, or (ii) a transfer of employment between the Company and a subsidiary or between subsidiaries, or to the employment of a corporation (or a parent or subsidiary corporation of such corporation) issuing or assuming an option in a transaction to which section 424(a) of the Code applies. (b) Except as otherwise determined by the Committee, all Restricted Stock held by the Participant at the time of the Status Change must be transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted Stock will be so transferred without any further action by the Participant) in accordance with Section 6.3 above. (c) Any payment or benefit under a Deferred Stock Award, Performance Award, or Supplemental Grant to which the Participant was not irrevocably entitled prior to the Status Change will be forfeited and the Award canceled as of the date of such Status Change unless otherwise determined by the Committee. 7.3 CERTAIN CORPORATE TRANSACTIONS. Upon the occurrence of a Change of Control as defined in this Section 7.3: (a) Each outstanding Option shall automatically become fully exercisable, notwithstanding any provision to the contrary herein and shall remain exercisable until the expiration of the term of the Option. (b) The Committee, in its sole discretion, may determine to make each Stock Appreciation Right exercisable in full; remove the restrictions from each outstanding share of Restricted Stock; cause the Company to make payment under each outstanding Deferred Stock Award, Performance Award and Supplemental Grant; forgive all or any portion of the principal or interest on a loan; and remove or waive any condition or restriction on any Award to the extent it may determine appropriate. 13 14 (c) A "Change of Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes a Beneficial Owner in connection with a transaction described in Clause (i) of Paragraph (3) below; or, (2) the following individuals cease for any reason to constitute a majority of the number of directors then serving; individuals who, on May 20, 1999, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest), whose appointment or election by the Board was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (3) there is consummated a merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or 14 15 consolidation; or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition of the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. For purposes of this Section 7.3(c), "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act; "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its subsidiaries; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its "affiliates" within the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act; (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 15 16 8. GENERAL PROVISIONS 8.1 DOCUMENTATION OF AWARDS. Awards will be evidenced by such written instruments, if any, as may be prescribed by the Committee from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Company, or certificates, letters or similar instruments, which need not be executed by the Participant but acceptance of which will evidence agreement to the terms thereof. 8.2 RIGHTS AS A STOCKHOLDER, DIVIDEND EQUIVALENTS Except as specifically provided by the Plan, the receipt of an Award will not give a Participant rights as a stockholder; the participant will obtain such rights, subject to any limitations imposed by the Plan or the instrument evidencing the Award, upon actual receipt of Stock. However, the Committee may, on such conditions as it deems appropriate, provide that a Participant will receive a benefit in lieu of cash dividends that would have been payable on any or all Stock subject to the Participant's Award had such Stock been outstanding. Without limitation, the Committee may provide for payment to the Participant of amounts representing such dividends, either currently or in the future, or for the investment of such amounts on behalf of the Participant. 8.3 CONDITIONS ON DELIVERY OF STOCK The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove restriction from shares previously delivered under the Plan (a) until all conditions of the Award have been satisfied or removed, (b) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulation have been complied with, (c) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official notice of notice of issuance, and (d) until all other legal matters in connection with the issuance 16 17 and delivery of such shares have been approved by the Company's counsel. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. If an Award is exercised by the Participant's legal representative, the Company will be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of such representative. 8.4 TAX WITHHOLDING. The Company will withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). In the case of an Award pursuant to which Stock may be delivered, the Committee will have the right to require that the Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Stock. If and to the extent that such withholding is required, the Committee may permit the Participant or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the company, Stock having a value calculated to satisfy the withholding requirement. The Committee may make such share withholding mandatory with respect to any Award at the time such Award is made to a Participant. If at the time an ISO is exercised the Committee determines that the Company could be liable for withholding requirements with respect to a disposition of the Stock received upon exercise, the Committee may require as a condition of exercise that the person exercising the ISO agree (a) to inform the Company promptly of any disposition (within the meaning of 17 18 section 424(c) of the Code) of Stock received upon exercise, and (b) to give such security as the Committee deems adequate to meet the potential liability of the Company for the withholding requirements and to augment such security from time to time in any amount reasonably deemed necessary by the Committee to preserve the adequacy of such security. 8.5 NON-TRANSFERABILITY OF AWARDS Except as otherwise specified by the Committee, no Award (other than an Award in the form of an outright transfer of cash or Unrestricted Stock) may be transferred other than by will or by the laws of descent and distribution, and during an employee's lifetime an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant's incapacity, the person or persons legally appointed to act on the Participant's behalf). 8.6 ADJUSTMENTS IN THE EVENT OF CERTAIN TRANSACTIONS (a) In the event of a stock dividend, stock split or combination of shares, re-capitalization or other changes in the Company's capitalization, or other distribution to common stockholders other than normal cash dividends, after the effective date of the Plan, the Committee will make any appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 above. (b) In the event referred to in paragraph (a), the Committee will also make any appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. The Committee may also make such adjustments to take into account material changes in law or in accounting practices or principles, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if it is determined by the Committee that adjustments are appropriate to avoid distortion in the operation of the Plan. 18 19 8.7 EMPLOYMENT RIGHTS, ETC. Neither the adoption of the Plan nor the grant of Awards will confer upon any person any right to continued retention by the Company or any subsidiary as an Employee or otherwise, or affect in any way the right of the Company or subsidiary to terminate an employment, service or similar relationship at any time. Except as specifically provided by the Committee in any particular case, the loss of existing or potential profit in Awards granted under the Plan will not constitute an element of damages in the event of termination of an employment, service, or similar relationship even if the termination is in violation of an obligation of the Company to the Participant. 8.8 DEFERRAL OF PAYMENTS. The Committee may agree at any time, upon request of the Participant, to defer the date on which any payment under an Award will be made. 8.9 PAST SERVICES AS CONSIDERATION. Where a Participant purchases Stock under an Award for a price equal to the par value of the Stock the Committee may determine that such price has been satisfied by past services rendered by the Participant. 8.10 FORFEITURE PROVISIONS. The Committee may establish provisions that require the Participant to forfeit an Award, or the economic value of an Award, upon the occurrence of certain events that it may specify, including breach by a Participant of agreements with the Company. 9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION Neither adoption of the Plan nor the grant of Awards to a Participant will affect the Company's right to grant to such Participant awards that are 19 20 not subject to the Plan, to issue to such Participant Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued to Employees. The Committee may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards, provided that (except to the extent expressly required or permitted by the Plan) no such amendment will, without the approval of the stockholders of the Company effectuate a change for which stockholder approval is required in order for the Plan to continue to qualify for the award of ISOs under section 422 of the Code. 20 EX-10.(U) 3 EMPLOYMENT AGREEMENT 1 Exhibit 10(u) EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (this "Agreement") made and entered into as of the 30th day of September, 1999 (the "Effective Date") by and between THE FIRST YEARS INC., a Massachusetts corporation (the "Company") and RONALD J. SIDMAN, of Marstons Mills, Massachusetts (the "Executive"). The Executive is currently serving as Chairman, President and Chief Executive Officer of the Company, and the Board of Directors of the Company (the "Board of Directors") desires to secure the continued employment of the Executive in accordance herewith; The Company is party to an employment agreement (the "Employment Agreement") with the Executive dated March 23, 1995 and amended on January 16, 1997; The Executive is willing to commit himself to be employed by the Company on the terms and conditions herein set forth and in lieu of the terms and conditions of the Employment Agreement; and The parties desire to enter into this Agreement as of the Effective Date, setting forth the terms and conditions for the employment relationship of the Executive with the Company; NOW, THEREFORE, in consideration of the mutual premises and the respective covenants and agreements of the parties herein contained, the parties hereto agree as follows: 1. OPERATION OF AGREEMENT, EMPLOYMENT AND TERM. (a) OPERATION. This Agreement shall commence on the Effective Date, immediately upon its execution by the parties. (b) EMPLOYMENT. The Company agrees to employ the Executive, and the Executive agrees to be employed by the Company, in accordance with the terms and provisions of this Agreement. 2 (c) TERM. (i) INITIAL TERM. The term of this Agreement shall commence on the Effective Date and shall continue until the fifth (5th) anniversary of the Effective Date (the "Initial Term"), subject to earlier termination of the Agreement in accordance with Section 4 of this Agreement. (ii) RENEWAL TERMS. Unless either party gives to the other party at least ninety (90) days prior written notice that the Agreement shall terminate on the expiration of the Initial Term or any subsequent Renewal Term of this Agreement, this Agreement shall continue in full force and effect for further successive terms of five (5) years on the same terms and conditions as are set forth herein, subject to earlier termination of this Agreement in accordance with Section 4 of this Agreement and any written amendments agreed to by the parties. For purposes of this Agreement, a "Renewal Term" shall be defined as any successive term of five (5) years following the Initial Term and the "Term" shall be defined as the Initial Term and any subsequent Renewal Terms. 2. DUTIES AND POWERS OF EXECUTIVE. (a) POSITION. (i) During the Term, the Executive shall serve in his current positions as Chairman, President, and Chief Executive Officer of the Company. The Executive shall report directly and solely to the Board of Directors. During the Term, the Board shall not remove the Executive from the positions of Chairman, President, and Chief Executive Officer of the Company. (ii) During the Term, and excluding any periods of vacation, sick leave, and disability to 2 3 which the Executive is entitled, the Executive shall devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and shall use his reasonable best efforts to carry out his responsibilities faithfully and efficiently. It shall not be considered a violation of the foregoing for the Executive to serve on corporate, industry, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of his responsibilities with the Company in accordance with this Agreement. (b) BOARD MEMBERSHIP. The Company agrees to nominate the Executive for election to the Board as a member of the management slate at each Annual Meeting of Stockholders during the Term at which the Executive's director class comes up for election. The Executive agrees to serve on the Board if elected. (c) LOCATION. The Company's current headquarters and executive offices are in Avon, Massachusetts. The Executive's services shall be performed at such location except for such reasonable travel obligations as are substantially consistent with the Executive's travel obligations as of the Effective Date. Throughout the Term, the Executive shall be provided with appropriate office space and secretarial services commensurate with his title, position, and on a basis no less favorable than that of the Executive on the Effective Date. 3. COMPENSATION. The Executive shall receive the following compensation for his services hereunder to the Company: (a) SALARY. During the Term, the Executive's annual base salary ("Base Salary") shall be THREE HUNDRED SIXTY-FOUR THOUSAND DOLLARS ($364,000), payable in accordance with the Company's general payroll practices as are in effect from time to time. 3 4 Executive's Base Salary shall be reviewed at least annually by the Compensation Committee of the Board of Directors (the "Committee") or by the Board of Directors, and may be increased from time to time by the Committee or the Board of Directors during the Term. The Executive's Base Salary shall not be reduced after any increase in Base Salary is made by the Committee or the Board of Directors, and the term "Base Salary" as used in this Agreement shall refer to the Base Salary as so increased. Notwithstanding the discretion of the Committee and the Board of Directors to increase the Executive's Base Salary, if the Committee does not increase the Base Salary for any fiscal year during the Term, the Base Salary nonetheless will automatically be increased for such fiscal year by an amount equal to the average of the increases in Base Salary in respect of the (3) fiscal years ended prior to such fiscal year. (b) ANNUAL INCENTIVE COMPENSATION. During the Term, the Executive shall be eligible to participate in all annual incentive compensation plans, including all cash-based and equity-based compensation plans, on a basis no less favorable than that of the Executive on the Effective Date and in accordance with the Company's practices in effect on the Effective Date and in effect from time to time throughout the Term. (c) LIFE AND DISABILITY INSURANCE POLICIES. The Company shall, during the Term, pay the annual premium or premiums on (i) a life insurance policy or policies, the total face amount of which shall not exceed seven and a half million dollars ($7,500,000); and (ii) a long-term disability insurance policy with the Paul Revere Life Insurance Company or a similar long-term disability insurance policy with any other insurance carrier providing substantially similar benefits. (d) BENEFITS. During the Term, the Executive shall be eligible to participate in all savings, retirement, pension, profit-sharing, 401-K, and welfare (including without limitation, group medical, dental, hospitalization, disability, life insurance) plans, the medical reimbursement plan 4 5 for certain officers of the Company, and fringe benefit plans, practices, policies and programs on a basis no less favorable than that of the Executive on the Effective Date (the "Benefits"). (e) AUTOMOBILE. During the Term, the Company shall make available to the Executive, at the Company's cost and expense, an automobile of a type and quality similar to the automobile being provided to the Executive on the Effective Date. The Company will also pay all expenses related to the repair, maintenance, and operation of such automobile. (f) FINANCIAL, TAX PLANNING AND ESTATE PLANNING. During the Term, the Company shall provide the Executive with financial planning services, including tax-related advice and estate planning services, without cost or expense to him. (g) VACATION AND OTHER ABSENCES. The Executive shall be entitled to paid vacation and other paid absences, whether for holidays, illness, personal time, or any similar purposes during the Term in accordance with the Company's policies applicable to the Executive as of the Effective Date, provided however that the Executive shall always be entitle to at least five (5) weeks of paid vacation in each calendar year. (h) EXPENSES. The Company shall reimburse the Executive for all reasonable expenses, including those for travel and entertainment, incurred by him in the performance of his duties hereunder, in accordance with policies established from time to time by the Board of Directors or the Compensation Committee of the Board of Directors. 4. TERMINATION OF EMPLOYMENT. (a) BY THE COMPANY FOR ANY REASON OTHER THAN FOR CAUSE PRIOR TO A CHANGE OF CONTROL. The Company may terminate the Executive's employment for any reason prior to the occurrence of a Change of Control. If the Company terminates the Executive's employment for any reason other than for Cause prior to the occurrence of a Change of Control, the Executive 5 6 shall be entitled to the payments and benefits set forth in Section 5(a) of this Agreement. (b) BY THE EXECUTIVE FOR GOOD REASON PRIOR TO A CHANGE OF CONTROL. The Executive may terminate his employment for Good Reason prior to the occurrence of a Change of Control. If the Executive terminates his employment for Good Reason prior to the occurrence of a Change of Control, the Executive shall be entitled to the payments and benefits set forth in Section 5(a) of this Agreement. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the written consent of the Executive, of an event constituting a material breach of this Agreement (including without limitation, a breach of any clause of Sections 2 or 3 of this Agreement) by the Company that has not been fully cured within ten (10) days after written notice thereof has been given by the Executive to the Company. (c) DEATH OR DISABILITY. The Executive's employment shall terminate automatically upon the Executive's death or Disability, in which case the Executive shall be entitled to the applicable payments and benefits set forth in Section 5(b) of this Agreement. For purposes of this Agreement, "Disability" shall be deemed to occur if, as a result of the Executive's incapacity due to physical or mental illness, (i) the Executive shall have been absent from the full-time performance of his duties with the Company for a period of twelve (12) consecutive months; (ii) the Company shall have given the Executive a Notice of Termination for Disability (as defined in Paragraph (i) of this Section 4) and, (iii) within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of his duties. (d) BY THE EXECUTIVE FOR ANY REASON FOLLOWING A CHANGE OF CONTROL. The Executive may terminate his employment for any reason, in his discretion, within three (3) years following the occurrence of a Change of Control, in which case the Executive shall be entitled to the payments and benefits set forth in Section 5(c) of this Agreement. For 6 7 purposes of this Agreement, the Executive's termination of his employment within three (3) months prior to the occurrence of a Change of Control shall be treated as a termination of employment within three (3) years following a Change of Control. (e) BY THE COMPANY FOR ANY REASON FOLLOWING A CHANGE OF CONTROL. The Company may terminate the Executive's employment for any reason within three (3) years following the occurrence of a Change of Control, and in such case the Executive shall be entitled to the payments and benefits set forth in Section 5(c) of this Agreement. For purposes of this Agreement, the Company's termination of the Executive's employment other than for Disability or death within three (3) months prior to the occurrence of a Change of Control shall be treated as a termination within three (3) years following a Change of Control. (f) BY THE COMPANY FOR CAUSE PRIOR TO A CHANGE OF CONTROL. The Company may terminate the Executive's employment for Cause, but only prior to the occurrence of a Change of Control, and in such case, the Executive shall be entitled to the payments and benefits set forth in Section 5(d) of this Agreement. For purposes of this Agreement, "Cause" shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Executive by the Board of Directors, which demand specifically identifies the manner in which such Board believes that the Executive has not substantially performed the Executive's duties; or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, 7 8 was in the best interest of the Company, and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Board of Directors by clear and convincing evidence that Cause exists in accordance with Section 4(i). (g) BY THE EXECUTIVE OTHER THAN FOR GOOD REASON PRIOR TO THE OCCURRENCE OF A CHANGE OF CONTROL. The Executive may terminate his employment other than for Good Reason prior to the occurrence of a Change of Control, and in such case the Executive shall be entitled to the payments and benefits set forth in Section 5(d) of this Agreement. (h) DEFINITION OF CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (i) any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in Clause (i) of paragraph (iii) below; or (ii) the following individuals cease for any reason to constitute a majority of the number of directors then serving; individuals who, on the date hereof, constitute the Board of Directors and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest), whose appointment or election by the Board was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the 8 9 date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or (iii) there is consummated a merger or consolidation of the Company with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or (B) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding securities; or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition of the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 9 10 For purposes of this Section 4(h) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act; "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time; and "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (A) the Company or any of its subsidiaries; (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its "affiliates" within the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act; (C) an underwriter temporarily holding securities pursuant to an offering of such securities; or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (i) NOTICE OF TERMINATION. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement, relied upon; (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated; and (iii) if the Date of Termination (as defined in Section 4(j)) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty (30) days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing the Executive's rights hereunder. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less 10 11 than three-quarters (3/4) of the membership of the Board of Directors (excluding the Executive if the Executive is then a member of such Board) at a meeting of such Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before such Board) finding that, in the good faith opinion of such Board, the Executive was guilty of conduct set forth in clauses (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. (j) DATE OF TERMINATION. "Date of Termination" means (i) if the Executive's employment is terminated by the Executive for Good Reason, or for any reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executives' employment is terminated by the Company, the date on which the Company notifies the Executive of such termination (except in the event of a termination for Cause); (iii) if the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period); and (iv) if the Executive's employment is terminated by reason of death, the date of death. 5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) TERMINATION BY THE EXECUTIVE FOR GOOD REASON OR BY THE COMPANY OTHER THAN FOR CAUSE PRIOR TO A CHANGE OF CONTROL. If the Executive shall terminate his employment for Good Reason prior to a Change of Control, or if the Company shall terminate the Executive's employment for any reason other than for Cause prior to the occurrence of a Change of Control, the Executive shall be entitled to the following benefits: (i) ACCRUED OBLIGATION. The Company shall pay to the Executive a lump sum amount in cash equal to the sum of (A) the Executive's 11 12 Base Salary through the Date of Termination to the extent not theretofore paid; and (B), any accrued vacation pay and any other amounts due the Executive as of the Date of Termination, in each case to the extent not theretofore paid. (The amounts specified in Clauses (A) and (B) shall be hereinafter referred to as the "Accrued Obligation".) The amounts specified in this Section 5(a)(i) shall be paid within ten (10) days after the Date of Termination; (ii) PAYMENTS. The Company shall pay to the Executive within ten (10) days following the Date of Termination a lump sum amount in cash equal to the greater of: (A) the sum of (x) Executive's Base Salary which would have been paid to the Executive for the remaining years and months of the Initial or the Renewal Term then in effect on the Date of Termination at the annual Base Salary rate then in effect on the Date of Termination, and (y) the targeted amount of Annual Incentive Compensation which would have been paid to the Executive for the remaining years and months of the Initial or Renewal Term but at an annual rate no less than the highest amount of Annual Incentive Compensation in respect of the three most recent fiscal years of the Company ended prior to the Date of Termination; or, (B) three (3) times the sum of the Executive's Base Salary then in effect on the Date of Termination, and the highest amount of Annual Incentive Compensation paid to the Executive in respect of the three most recent fiscal years of the Company ended prior to the Date of Termination; (iii) BENEFITS. The Executive will continue to participate in the Benefits set forth in Sections 3(d), (e), (f), (g), and (h) of this Agreement, in effect on the Date of 12 13 Termination, for a period equal to the greater of (A) the remainder of the Initial or Renewal Term then in effect on the Date of Termination, or (B) three (3) years from the Date of Termination (the "Benefit Period"). For purposes of the application of all Benefit plans, the Executive shall be treated as if he had remained in the employ of the Company for the Benefit Period. In the event the Executive is not permitted to participate in any Benefit plan, including without limitation any pension or 401-K plans, the Company will make equivalent payments to the Executive on an after-tax basis equal to the payments which would have been made to such plans; (iv) MEDICAL BENEFITS. Notwithstanding the foregoing Paragraph (iii), with respect to medical, dental, hospitalization and medical reimbursement benefits provided to the Executive on the Date of Termination ("Medical Benefits"), the Executive will continue to participate in such Medical Benefits until the Executive is eligible for and entitled to coverage under Medicare; provided, however, that to the extent such Medical Benefits cannot be provided to Executive under the terms of any Plan, the Company shall pay to the Executive, on an after-tax basis, an amount necessary for Executive to acquire substantially equivalent Medical Benefits until the Executive is eligible for and entitled to coverage under Medicare, and provided further that such Medical Benefits shall terminate if the Executive becomes employed by or is otherwise affiliated with another party that provides benefits substantially equivalent to the Medical Benefits; (v) LIFE AND DISABILITY INSURANCE. For a period equal to the greater of (A) the remainder of the Initial or Renewal Term then in effect on the Date of Termination or (B) three (3) years from the Date of 13 14 \ Termination, the Company will continue to pay the annual premium or premiums on the life insurance policy or policies and the long-term disability insurance policy as described in Section 3(c) of this Agreement; and (vi) STOCK OPTIONS. With respect to each option to purchase common stock of the Company held by the Executive on the Date of Termination, all such options shall become immediately exercisable in full and each option may be exercised by the Executive until the earlier of (A) the three (3) year anniversary date of the Date of Termination or the expiration of the Initial or Renewal Term then in effect on the Date of Termination, whichever is longer; or (B), the expiration date of such option. Notwithstanding the foregoing, any incentive stock options ("ISO's") held by the Executive on the Date of Termination may not be exercised more than three (3) months after the Date of Termination. (b) TERMINATION BY REASON OF DISABILITY OR DEATH. If the Executive's employment terminates by reason of Disability or death, the Executive shall be entitled to the following benefits: (i) ACCRUED OBLIGATION. The Company shall pay to the Executive (or, in the event of his death, to his legal representative) the Accrued Obligation within ten (10) days after the Date of Termination; (ii) BASE SALARY. The Company shall continue to pay the Executive (or, in the event of his death, his legal representative) (A) for a period of one (1) year following the Date of Termination the Executive's Base Salary in effect immediately prior to the Date of Termination, in accordance with the Company's general payroll practices; provided, however, that in the event of termination of Executive's employment by reason of Disability, such Base Salary payments shall 14 15 be reduced by the amount of any disability insurance proceeds paid to the Executive under any individual or group policies, the premiums of which had been paid by the Company or by the Executive and reimbursed by the Company; and (B), a pro-rata portion of any Annual Incentive Compensation earned by the Executive in respect of the fiscal year in which occurs the Date of Termination, payable in accordance with the Company's practices with respect to the payment of bonuses; (iii) STOCK OPTIONS. With respect to any vested options to purchase the common stock of the Company, including ISO's, held by the Executive on the Date of Termination, the Executive (or, in the event of his death, his legal representative) may exercise such options until the earlier of one (1) year from the Date of Termination or the expiration date of such option. With respect to any unvested non-qualified stock options held by the Executive on the Date of Termination, such non-qualified options shall continue to vest for a period of one (1) year from the Date of Termination; and (iv) BENEFITS. In the event of termination by reason of Disability, the Executive shall, for a period of one (1) year from the Date of Termination, continue to participate in all the Benefits set forth in Section 3(d) of this Agreement, in effect on the Date of Termination; provided, however, that if such Benefits cannot be provided because of a prohibition in the terms of any Benefit plan, the Company shall provide a substantially equivalent Benefit on an after-tax basis. (c) TERMINATION FOLLOWING A CHANGE OF CONTROL. If the Company shall terminate the Executive's employment within three (3) years following the occurrence of a Change of Control, or if the Executive shall terminate his employment for any reason, at his discretion, within three (3) years 15 16 following a Change of Control, the Executive shall be entitled to the following benefits: (i) ACCRUED OBLIGATION. The Company shall pay to the Executive the Accrued Obligation within ten (10) days after the Date of Termination. (ii) PAYMENTS. The Company shall pay to the Executive a lump sum amount in cash, within ten (10) days following the Date of Termination, equal to two and ninety-nine one-hundredths (2.99) times the sum of (A) the Executive's Base Salary then in effect on the Date of Termination, and (B) the highest amount of Annual Incentive Compensation paid to the Executive in respect of the three most recent fiscal years of the Company ended prior to the Date of Termination; (iii) BENEFITS. The Executive will continue to participate in the benefits set forth in Sections 3(d), (e), (f), (g), and (h) of this Agreement, in effect on the Date of Termination, for a period of three (3) years from the Date of Termination. For purposes of the application of all Benefit plans, the Executive shall be treated as if he had remained in the employ of the Company for such three-year period. In the event the Executive is not permitted to participate in any Benefit plan, including without limitation any pension or 401-K plans, the Company will make equivalent payments to the Executive on an after-tax basis equal to the payments which would have been made to such plans; (iv) MEDICAL BENEFITS. Notwithstanding the foregoing Paragraph (iii), with respect to medical, dental, hospitalization and medical reimbursement benefits provided to the Executive on the Date of Termination ("Medical Benefits), the Executive will continue to participate in such Medical Benefits until the Executive is eligible for and entitled to coverage under Medicare; provided, however, that to the extent such 16 17 Medical Benefits cannot be provided to Executive under the terms of any Plan, the Company shall pay to the Executive, on an after-tax basis, an amount necessary for Executive to acquire substantially equivalent Medical Benefits until the Executive is eligible for and entitled to coverage under Medicare; and provided further that such Medical Benefits shall terminate if the Executive becomes employed by or is otherwise affiliated with another party that provides benefits substantially equivalent to the Medical Benefits; (v) LIFE AND DISABILITY INSURANCE. For a period of three (3) years from the Date of Termination, the Company will continue to pay the annual premium or premiums on the life insurance policy or policies and the long-term disability insurance policy as described in Section 3(c) of this Agreement; and (vi) STOCK OPTIONS. With respect to each option to purchase common stock of the Company held by the Executive on the Date of Termination, all such options shall become immediately exercisable in full, and each option may be exercised by the Executive until the earlier of (A) the three (3) year anniversary date of the Date of Termination or (B) the expiration date of such option. Notwithstanding the foregoing, any incentive stock options ("ISO's") held by the Executive on the Date of Termination may not be exercised more than three (3) months after the Date of Termination. (d) TERMINATION FOR OTHER REASON. If the Executive's employment shall be terminated by the Company for Cause prior to the occurrence of a Change of Control, or by the Executive other than for Good Reason prior to the occurrence of a Change of Control, the Company shall not have any further obligations to the Executive under this Agreement other than the obligation to pay to the Executive the Accrued Obligation within ten (10) days of the Date of Termination and any post-employment 17 18 benefits to which the Executive is entitled under the terms of the Company's employee benefit plans. (e) LEGAL FEES. The Company shall also pay to the Executive all reasonable legal fees and expenses incurred by the Executive in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code (the "Code") to any payment or benefit provided hereunder. Such payments shall be made within ten (10) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as is reasonable. (f) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (i) Anything in this Agreement to the contrary notwithstanding, in the event that any "payments in the nature of compensation" within the meaning of Section 280G of the Code by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 5(f) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (the excise tax imposed by Section 4999 of the Code, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-up Payment") in an amount such that after payment by the Executive of all taxes imposed upon the Gross-up Payment, including without limitation, any income taxes, FICA taxes (and 18 19 any interest and penalties imposed with respect to income taxes or any other taxes) and Excise Tax, the Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. (ii) Subject to the provisions of Section 5(f)(iii) below, all determinations required to be made under this Section 5(f), including whether and when a Gross-up Payment is required and the amount of such Gross-up Payment, and the assumptions to be utilized in arriving at such determination, shall be made by the accounting firm representing the Company at such time (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be paid by the Executive and then reimbursed to him by the Company. Any Gross-up Payment, as determined pursuant to this Section 5(f), shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. If the Accounting Firm determines that no Excise Tax is payable, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of 19 20 Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 5(f)(iii) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred within 15 business days of receipt of notice from the Executive that there has been an Under-payment, and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (iii) The Executive shall notify the Company in writing of any assertion by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-up Payment (An "Assertion"). Such notification shall be given as soon as practicable after the Executive is informed in writing of such Assertion, and shall apprise the Company of the nature of such Assertion and the date on which such Assertion is requested to be paid. The Executive shall not pay such Assertion prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such Assertion is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such Assertion, the Executive shall: (A) give the Company any information reasonably requested by the Company relating to such Assertion; (B) take such action in connection with contesting such Assertion as the 20 21 Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such Assertion by an attorney selected by the Company and reasonably acceptable to the Executive; (C) cooperate with the Company in good faith in order effectively to contest such Assertion; and (D) permit the Company to participate in any proceedings relating to such Assertion; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 5(f)(iii), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such Assertion and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the Assertion in any permissible manner; and the Executive agrees to prosecute such contest to a determination before any administrative tribunal in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such Assertion and sue for a 21 22 refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (iv) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 5(f)(iii), the Executive becomes entitled to receive any refund with respect to such Assertion, the Executive shall (subject to the Company's complying with the requirements of Section 5(f)(iii)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 5(f)(iii), a determination is made that the Executive shall not be entitled to any refund with respect to such Assertion, and the Company does not notify the executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be 22 23 forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-up Payment required to be paid. 6. RESTRICTIONS AND OBLIGATIONS OF THE EXECUTIVE. The parties agree and acknowledge that the principal consideration for the agreement to make and provide the payments and benefits provided in Section 5(a) of this Agreement from the Company to the Executive is the Executive's compliance with the undertakings set forth in this Section. (a) Except as provided below, Executive agrees if his employment is terminated for any of the reasons set forth in Sections 4(a) or 4(b), then for a period of three (3) years following the Date of Termination he shall not (i) directly or indirectly, whether as owner, partner, shareholder, agent, consultant, co-venturer, employee or otherwise, or through any person as hereafter defined, engage in the business of developing or selling products which are competitive with the products that at the termination of his employment are being sold or under development by the Company in any of the countries in which the Company is doing business on the Date of Termination ("Restricted Business"); or (ii) employ, recruit, or otherwise solicit or induce any employee, agent, distributor, supplier, customer, or consultant of the Company to terminate their employment or otherwise cease their relationship with the Company. (b) This Section 6(a) shall not bind the Executive following the termination of the Executive's employment if a Change of Control occurs after the Date of Termination of his employment during the three (3) year period referenced in Section 6(a). (c) For purposes of this section, the term "Person" shall mean an individual, a corporation, an association, a partnership, an estate, a trust, and any other entity or organization. 23 24 (d) Notwithstanding the foregoing, the Executive may purchase, for passive investment purposes not intended to circumvent this Agreement, on a national securities exchange or in the "over-the-counter" market any securities listed on such exchange or in such market, but such purchases shall not exceed 5% of any class of such securities of any Restricted Business. (e) In the event that any provision of this section is determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time, or over too great a range of activities, it shall be interpreted to extend only over the maximum period of time, or range of activities, as to which it may be enforceable. 7. FULL SETTLEMENT; MITIGATION. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform their obligations hereunder shall not be subject to any set-off, counterclaim, recoupment, defense or other Assertion, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts (including amounts for damages for breach) payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. 8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret, confidential information, knowledge or data relating to the Company or any of its affiliates and their respective businesses which shall have been obtained by the Executive during his employment by the Company or any of their affiliates and that shall not have been or now or hereafter have become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). The Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, 24 25 communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. 9. SUCCESSORS. (a) ASSIGNMENT BY EXECUTIVE. This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the Company and their respective successors and assigns. (c) ASSUMPTIONS. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets thereof to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform this Agreement if no succession had taken place. 10. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without reference to its principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended, modified, repealed, waived, extended or discharged except by an agreement in writing signed by the party against whom enforcement of such amendment, modification, repeal, waiver, extension or discharge is sought. No person, other than pursuant to a resolution of the Board of Directors, shall have authority on behalf of the Company to agree to amend, modify, repeal, waive, extend or discharge any provision of 25 26 this Agreement or take any other action in respect thereto. (b) NOTICES. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed to the Company's headquarters and, in the case of the executive, to the address on the signature page of this Agreement or, in either case, to such other address as any party shall have subsequently furnished to the other parties in writing. Notice and communications shall be effective when actually received by the addressee. (c) SEVERABILITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) TAXES. The Company may withhold from any amounts due and payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) NO WAIVER. Any party's failure to insist upon strict compliance with any provision hereof or the failure to assert any right such party may have hereunder, including, without limitation, the right of the Executive to terminate his employment pursuant to Sections 4(b), 4(d) and 4(g) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) ENTIRE AGREEMENT; SURVIVAL. This Agreement entered into as of the date hereof between the Company and the Executive contains the entire agreement of the Executive and the Company with respect to the subject matter of the Agreement, and all promises, representations, understandings, arrangements and prior agreements, including without limitation the Employment Agreement, are merged into, and superseded by, this Agreement. Any provision hereof which by its terms applies in whole or part 26 27 after a termination of the Executive's employment hereunder shall survive such termination. IN WITNESS WHEREOF, the Executive has executed this Agreement and, pursuant to due authorization from its Board of Directors, the company has caused this Agreement to be executed as of the day and year first above written. THE FIRST YEARS INC. /s/ Ronald J. Sidman By: /s/ John R. Beals - --------------------------- --------------------------- Ronald J. Sidman Name: John R. Beals ------------------------- Title: Senior Vice President, ---------------------- Treasurer and Chief ---------------------- Financial Officer ---------------------- 27 EX-10.(V) 4 LETTER AGREEMENT 1 Exhibit 10(v) August 8, 1999 Mr. Jerome M. Karp 131 Windward Drive Palm Beach Garden, FL 33418 Dear Mr. Karp: This letter sets forth the payments and benefits you have received or will receive as compensation while you are serving as (i) a director of The First Years Inc., the Massachusetts corporation (the "Parent Company") and (ii) as a director and non-employee, non-executive President and Chairman of The First Years Inc., the Delaware corporation and subsidiary of the Parent Company (the "Delaware Subsidiary"). You will receive the following payments and benefits commencing on August 8, 1999, the date of (i) the termination of the Transition Agreement dated August 8, 1994 between you and the Parent Company (the "Transition Agreement"), and (ii) your retirement from the Parent Company as Vice-Chairman of the Board; provided however, that for calendar year 1999 you will receive such payments and benefits in full without any pro-ration. You agree that notwithstanding the termination of the Transition Agreement, your obligations under Paragraphs 7, 8, 9, and 10 of the Transition Agreement shall continue in full force and effect. I. DIRECTOR OF PARENT COMPANY. So long as and provided you are serving as a director of the Parent Company, you will receive the following: 1. ONE-TIME STOCK OPTION FOR 20,000 SHARES. In order to bring you in line with the other non-employee directors of the Parent Company (who received a one-time option for 20,000 shares upon their initial election to the Board of Directors of the 2 Parent Company), and to align your interests with the interests of outside stockholders of the Parent Company, you were granted in 1999 a one-time non-qualified stock option for 20,000 shares of the Parent Company's common stock under the Parent Company's 1993 Stock Option Plan for Directors. 2. ANNUAL RETAINER FEE. The annual retainer fee paid to non-employee directors of the Parent Company, as established from time to time by the Board of Directors of the Parent Company (the "Board"). The Board has established $17,500 as the annual retainer fee for calendar year 1999. 3. MEETINGS ATTENDED FEES. The fee paid to non-employee directors of the Parent Company for each meeting of the Board attended, as established from time to time by the Board. The Board has established $1,050 as the fee for meetings attended for calendar year 1999. 4. ANNUAL STOCK OPTION. You will receive the annual equity-based award or such other award granted each year to non-employee directors under the Parent Company's 1993 Stock Option Plan for Directors (the "Directors Plan"), the 1993 Equity Incentive Plan, or any other similar plan of the Parent Company in effect from time to time. Currently, under the Directors Plan, the date of grant is the date of each Annual Meeting of Stockholders of the Parent Company; the amount of the option, exercise price, the vesting and duration of the option are all subject each year to the terms of the Directors Plan and the discretion of the Board or the Committee administering the Directors Plan. The amount of the option under the Directors Plan granted to you in calendar year 1999 was equal to 6,000 shares of the Parent Company's common stock. 5. MEDICAL BENEFITS. You and your spouse will continue to be provided coverage under the Parent Company's group health plan, so long as and provided that you are serving as a director of the Parent Company and provided further that the Parent Company's current health insurance carrier of such plan (and any subsequent carrier) is willing to provide coverage to non-employee directors of the Company. You will 2 3 also continue to be provided coverage under the medical reimbursement plan being provided to you as of this date, so long as and provided that you are serving as a director of the Parent Company; and provided further that the Parent Company's current carrier for such policy (and any subsequent carrier) is willing to provide coverage to non-employee directors; that the Company continues to provide such plan to certain senior officers and non-employee directors; and that such coverage will only be provided within the limits for such reimbursement established by the Company. 6. GROUP LIFE INSURANCE. You will continue to be provided coverage of up to, but not to exceed, a face amount of fifty thousand dollars ($50,000.) under the Parent Company's group life insurance plan, for a one-year period commencing August 8, 1999 and terminating on August 8, 2000, so long as and provided that the Parent Company's current group life insurance carrier of such plan (and any subsequent carrier) is willing to provide coverage for non-employee directors of the Company. 7. AUTOMOBILE. The Company will, at its expense, continue to provide you only the leased car currently provided to you until the lease for such car that is in effect on this date expires. The Company will pay the cost of insuring such car and all other expenses including maintenance and repairs. 8. NO OTHER BENEFITS. Upon your retirement from the Parent Company on August 8, 1999, contributions on your behalf from the Parent Company to the pension plan and 401(K) plan of the Parent Company will terminate as of such date. II. DIRECTOR, PRESIDENT, AND CHAIRMAN OF DELAWARE SUBSIDIARY. So long as and provided that you are serving as a director and non-employee, non-executive President and Chairman of the Delaware Subsidiary, you will receive the following: 1. ANNUAL RETAINER FEE. An annual retainer fee equal to one-half (1/2) of the annual retainer fee paid to non-employee directors of the Parent Company as 3 4 established from time to time by the Board of the Parent Company. For calendar year 1999, one half (1/2) of the annual retainer fee paid to non-employee Directors of the Board of the Parent Company is equal to $8,750. 2. MEETINGS ATTENDED FEE AND EXPENSES. A fee for each meeting attended of the Board of Directors of the Delaware Subsidiary in an amount equal to the meetings attended fee paid to non-employee directors of the Parent Company, as established form time to time by the Board of the Parent Company. For calendar year 1999, the meetings attended fee paid to non-employee directors of the Parent Company is equal to $1,050. You will also be reimbursed for all expenses which you incur related to your service to the Delaware Subsidiary. 3. ANNUAL STOCK OPTION. You will receive the annual award equal to one half (1/2) of the annual equity-based award or such other award granted to non-employee directors of the Parent Company under the Parent Company's 1993 Stock Option Plan for Directors, the 1993 Equity Incentive Plan, or any other similar plan of the Parent Company in effect from time to time. Currently, under the Directors Plan, the date of grant is the date of each Annual Meeting of Stockholders of the Parent Company; the amount of such option, exercise price, the duration and vesting, are all subject each year to the terms of the Directors Plan and the discretion of the Board or the Committee administering the Directors Plan. The option granted to you for calendar year 1999 under the Directors Plan was equal to 3,000 shares of the Parent Company's common stock. III. NO EMPLOYMENT RELATIONSHIP. You agree that this letter does not constitute an employment agreement with the Parent Company or the Delaware Subsidiary, that you are not an employee of the Parent Company (as of August 8, 1999) or the Delaware Subsidiary and that you shall render your services to the Delaware Subsidiary as an independent contractor. You agree that your directorships on the Boards of the Parent Company and the Delaware Subsidiary are subject to the nomination by the respective Boards of each Company and election by the stockholders of the each Company. 4 5 IV. TERMINATION. Either you or the Parent Company may terminate the Agreement without cause upon thirty (30) days prior written notice to the other. V. GOVERNING LAW AND OTHER MISCELLANEOUS TERMS. This letter Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without reference to its principles of conflicts of law. This Agreement shall not be amended except by an agreement in writing signed by both parties. This Agreement contains the entire agreement between the parties with respect to the subject matter of this Agreement and all other understandings, arrangements, and prior agreements are merged into and superceded by this Agreement, except that your obligations under Paragraphs 7, 8, 9, and 10 of the Transition Agreement will continue in full force and effect. Please acknowledge your assent to the terms of this letter Agreement by signing below. Sincerely yours, THE FIRST YEARS INC. By: /s/ Ronald J. Sidman ------------------------ Title: President and CEO --------------------- Agreed and Accepted by: /s/ Jerome M. Karp Date: 11/11/99 - ----------------------- ----------------------- Jerome M. Karp 5 EX-27 5 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLAR 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 13,887,320 0 22,644,014 239,725 19,052,378 57,245,042 18,465,830 8,616,158 67,094,714 12,391,428 0 1,057,025 0 0 52,847,961 67,094,714 103,594,089 104,011,548 59,945,118 90,471,824 0 0 0 13,539,724 5,483,600 8,056,124 0 0 0 8,056,124 0.78 0.76
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