UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number: 0-7024
THE FIRST YEARS INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2149581
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
ONE KIDDIE DRIVE, AVON, MASSACHUSETTS 02322
(Address of principal executive offices) (Zip code)
(508) 588-1220 (Registrant's
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.10 PAR VALUE
(AND ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act).
Yes |X| No |_|
The aggregate market value, based upon the closing sale price of the shares as
reported by the Nasdaq National Market, of voting stock held by non-affiliates
as of June 30, 2003 was $76,051,935 (excludes shares held by executive officers,
directors, and beneficial owners of more than 10% of the Company's common
stock). Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to direct or
cause the direction of management or policies of the registrant or that such
person is controlled by or under common control with the registrant.
The number of shares of the Registrant's common stock outstanding on April 15,
2004 was 8,340,052.
Documents incorporated by reference: None
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K of
The First Years Inc. amends and restates in their entirety Items 10, 11, 12, 13
and 14 of Part III.
Part III
Item 10. Directors and Executive Officers
The following biographical descriptions set forth certain information with
respect to the current directors and executive officers of The First Years Inc.,
or the Company, based on information furnished to the Company by the directors
and executive officers.
Directors
Ronald J. Sidman. Mr. Sidman, age 57, has been the President of the
Company since January 1989 and the Chairman of the Board and Chief Executive
Officer of the Company since March 1995.
Beth J. Kaplan. Ms. Kaplan, age 46, is currently Executive Vice President
and General Manager of Bath and Body Works, a Limited Brands company. In
addition, she is a Managing Partner of Axcel Partners, LLC, a venture capital
firm. Ms. Kaplan was, from 2001 to 2002, a consultant for Sylvan; from 2000 to
2001, Managing Director, Operations, of Internet Capital Group; from 1996 to
1999, Senior Executive Vice President of Rite Aid Corporation; and from 1981 to
1996, associated in various capacities with Procter & Gamble Co., most recently
as President of its Noxell Division, the domestic cosmetics unit of Procter &
Gamble Co.
Fred T. Page. Mr. Page, age 57, held various positions with Southern New
England Telecommunications Corporation (SNET), a subsidiary of SBC Inc., for 30
years, from 1969 to 1999. From January 1994 to March 1999, he served as
President -- Network Services of SNET.
Benjamin Peltz. Mr. Peltz, age 65, served as the Treasurer of the Company
from May 1970 to January 1998 and as the Senior Vice President of the Company
from January 1980 until June 1997 when he retired from the Company.
Evelyn Sidman. Mrs. Sidman, age 90, a founding member of the Company, has
held the position of Clerk of the Company for over five years.
Kenneth R. Sidman. Mr. Sidman, age 58, was Vice President, Business &
Technology Development at Saint-Gobain Performance Plastics Corp., formerly
Norton Performance Plastics Corp., from 1997 until his retirement in September
2002. Mr. Sidman joined Saint-Gobain Performance Plastics Corp. in 1984, as
Director, New Business Development, and from 1992 to 1997, he was Vice
President, Marketing and New Business Development.
Walker J. Wallace. Mr. Wallace, age 60, was with Procter & Gamble Co. for
30 years, from 1967 to 1997. He was made a Vice President of Procter & Gamble
Co. in 1991 and served as Vice President-- Worldwide Strategic Planning for
various core product categories (laundry and cleaning products, paper products
and diapers) from 1993 to 1997.
Lewis M. Weston. Mr. Weston, age 78, is a Retired Partner of Goldman,
Sachs & Co., and was a Limited Partner of Goldman Sachs from 1978 to 1999. He
was with Goldman Sachs from 1951 and was made a General Partner in 1967. He was
Partner in Charge of the Syndicate Department from 1969 to 1978, a period during
which he was also active with the National Association of Securities Dealers
(NASD), serving three years as a member of the NASD's Board of Governors.
Currently, Mr. Weston is a board member of the Thai Prime Fund, Singapore, as
well as a member of the International Advisory Board of Banco Finantia, Lisbon,
Portugal.
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Executive Officers who are not Directors
Bruce Baron. Mr. Baron, age 43, has been the Company's Senior Vice
President-- Operations since August 1997. Prior to joining the Company, he was
Vice President of Operations at Crabtree & Evelyn from 1988 to July 1997.
John R. Beals. Mr. Beals, age 49, has been the Company's Senior Vice
President -- Finance since March 1998, the Company's Treasurer since January
1998, and also has been the Company's Chief Financial Officer since July 1997.
From July 1997 to March 1998, he was the Company's Vice President -- Finance and
from January 1990 to June 1997, Mr. Beals was the Company's Assistant Treasurer
and Controller.
Barrett C. Boehme. Mr. Boehme, age 48, has been the Company's Senior Vice
President -- Marketing since February 2003. Prior to joining the Company, Mr.
Boehme held various positions with Ocean Spray Cranberries, Inc. from 1978 to
February 2003 including, most recently, Director of Marketing.
Ronald T. Cardone. Mr. Cardone, age 48, has been the Company's Senior Vice
President - Information Services since September 2003, and was the Company's
Vice President - Information Services from September 2001 to September 2003.
Prior to joining the Company, from May 2000 to September 2001, he was Vice
President - Information Services for The Dorel Juvenile Group, and from November
1995 to April 2000, the Vice President - Consumer Products for Safety 1st, Inc.
James A. Connors, Jr. Mr. Connors, age 47, has been the Company's Senior
Vice President -- Product Development since May 2000. Prior to joining the
Company, from July 1998 to May 2000 Mr. Connors was the Senior Vice President,
Operations Engineering of Hasbro Global Operations, and from September 1994 to
July 1998, Mr. Connors was the Vice President, Operations Engineering of Hasbro
Manufacturing Services.
Richard F. Schaub, Jr. Mr. Schaub, age 44, has been the Company's Senior
Vice President -- Sales since October 2001 and was the Company's Executive Vice
President of Marketing and Sales from October 2000 to October 2001. Prior to
joining the Company, from September 1999 to September 2000, he was Managing
Director of Maclaren USA Inc., a manufacturer of baby strollers; from September
1997 to March 1999, he was Senior Vice President, Marketing of Evenflo Company,
Inc. and from September 1994 to September 1997, he was President of Priss
Prints, Inc.
The following family relationships exist between certain directors and/or
executive officers of the Company:
Evelyn Sidman is the mother of Ronald J. Sidman and Kenneth R. Sidman.
Benjamin Peltz is the son-in-law of Mrs. Sidman and the brother-in-law of
Messrs. Ronald J. Sidman and Kenneth R. Sidman.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who beneficially own more
than ten percent of the Company's common stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC"). Executive officers, directors and greater than ten
percent beneficial owners are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
2
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations from the Company's
executive officers and directors, all required reports were filed during the
fiscal year ended December 31, 2003.
Director Independence
Our Board of Directors has determined that each of Messrs. Page, Wallace,
Kaplan and Weston is an "independent director" in accordance with newly-adopted
corporate governance rules of Nasdaq as a result of having no relationship with
the Company other than (1) serving as a director and a Board of Directors
committee member, (2) receiving related fees as disclosed in this Amendment No.
1 to Form 10-K and (3) having beneficial ownership of the Company's common stock
as disclosed in this Amendment No. 1 to Form 10-K under the heading "Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters."
Audit Committee
The Company has a standing Audit Committee. During the 2003 fiscal year
the members of the Audit Committee were Lewis M. Weston (as Chairman), Fred T.
Page, Walker J. Wallace and Richard E. Wenz. Mr. Wenz resigned from the Audit
Committee effective March 16, 2004. The Audit Committee is comprised entirely of
non-employee, independent members of our Board of Directors. Each of the members
of the Audit Committee is independent as defined in the Nasdaq Listing
Requirements. Our Board of Directors determined that Mr. Weston qualifies as the
"audit committee financial expert" and is "independent" under the Securities
Exchange Act of 1934, as amended, and the Nasdaq Listing Requirements.
Stockholder Nominations
The Nominating Committee of the Board of Directors has established as part
of its charter specific, minimum qualifications that it believes must be met by
an individual in order to be considered for nomination by the Committee to the
Company's Board of Directors. The Nominating Committee considers a broad range
of qualitative factors in evaluating the make-up of the Company's Board of
Directors, such as specialized skills, diversity, knowledge, expertise, business
contacts and relationships, and the ability to commit appropriate time to the
duties of a director, in order to address the perceived needs of the overall
Board of Directors.
The Nominating Committee's current policy is to review and consider any
director candidates who have been recommended by stockholders in compliance with
the procedures established from time to time by the Nominating Committee and the
procedures established in the Company's Amended By-Laws. All stockholder
recommendations for director candidates must be submitted to the Company's Clerk
at One Kiddie Drive, Avon Massachusetts 02322, who will forward all
recommendations to the Nominating Committee. All stockholder recommendations for
director candidates must include the following information:
o the name and address of record of the stockholder making the
recommendation, and the name and address of any other stockholders known
by such stockholder to support the election of the proposed nominee;
o the class and number of shares of the Company which are beneficially owned
by the stockholder making the recommendation and any other stockholder
known by such stockholder to support the election of the proposed nominee;
o the name, age, business and residential address, educational background,
current principal occupation or employment, and principal occupation or
employment for the preceding five (5) full fiscal years of the proposed
director candidate;
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o the consent of the proposed director candidate (1) to be named in the
proxy statement relating to the annual meeting of stockholders and (2) to
serve as a director if elected at such annual meeting; and
o any other information regarding the proposed director candidate that is
required to be included in a proxy statement filed pursuant to the rules
of the SEC.
Code of Ethics
The Company has a Corporate Code of Conduct and Ethics, which applies to
all of the Company's directors, officers and employees. A copy of the Corporate
Code of Conduct and Ethics was attached as Exhibit 14 to the Company's Form 10-K
filed with the SEC on March 15, 2004.
The Company intends to disclose on its website any amendments to, or
waivers of, the Code that apply to the Company's Chief Executive Officer, Chief
Financial Officer, Controller and persons performing similar functions that
otherwise would be required to be disclosed in a Current Report on Form 8-K.
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Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth the annual and long-term compensation for
the fiscal years ended December 31, 2003, 2002 and 2001 paid or accrued by the
Company to each of the following: (i) the Company's Chief Executive Officer; and
(ii) the Company's four other most highly compensated executive officers in the
2003 fiscal year (collectively, the "named executive officers").
Long-Term
Annual Compensation Compensation Awards
------------------- -------------------
Restricted Securities
Other Annual Stock Underlying All Other
Name and Principal Position(s) Year Salary Bonus(1) Compensation Awards(2) Options(3) Compensation(4)
------------------------------ ---- ------ ----- ------------ --------- ---------- ---------------
Ronald J. Sidman 2003 $408,800 $244,447 -- -- 22,500 $56,244
Chairman of the Board 2002 397,516 198,137 -- -- 33,648 53,557
of Directors, Chief 2001 389,901 43,705 -- -- 44,997 51,001
Executive Officer and
President
Richard F. Schaub, Jr. 2003 220,515 65,944 -- -- 2,700 26,428
Senior Vice President - 2002 216,914 54,080 -- -- 3,431 26,461
Sales 2001 215,954 12,121 -- -- 9,359 19,132
James A. Connors, Jr. 2003 201,739 60,316 -- -- 2,700 22,941
Senior Vice President - 2002 195,847 48,800 -- -- 6,227 23,061
Product Development 2001 190,543 10,679 -- -- 8,246 19,132
Barrett C. Boehme 2003 182,637 54,568 -- $139,500 20,000 6,803
Senior Vice President - 2002 -- -- -- -- -- --
Marketing 2001 -- -- -- -- -- --
John R. Beals 2003 179,232 53,541 -- -- 3,600 22,941
Senior Vice President - 2002 169,230 42,192 -- -- 2,667 22,235
Finance, Chief 2001 169,415 9,617 -- -- -- 19,132
Financial Officer
and Treasurer
- ----------
(1) Bonus amounts were earned by these individuals in fiscal years 2003, 2002
and 2001 under the Company's Annual Incentive Plan.
(2) Amount represents the dollar value, net of the consideration paid by the
executive officer, of the restricted stock issued. The restricted stock
award consists of 15,000 shares subject to time and performance-based
vesting conditions over a three-year period. The restricted stock was
granted pursuant to the Company's Equity Incentive Plan. As of December
31, 2003, none of the shares were vested (the value of the 15,000 unvested
shares as of such date was $222,600, net of the consideration paid by the
executive officer). Dividends are paid on all such shares of restricted
stock.
5
(3) Amounts represent options to purchase shares of the Company's common stock
granted pursuant to the Company's Equity Incentive Plan. See "Option/SAR
Grants in the Last Fiscal Year" for more detailed information on such
options.
(4) The amounts shown in this column for 2003 reflect: (i) payment of life
insurance premiums of $28,296 and $1,700 made on behalf of Ronald J.
Sidman and Richard F. Schaub, Jr., respectively, by the Company during the
2003 fiscal year; (ii) contributions in the amount of $22,941 made by the
Company to the Company's defined contribution pension and 401(k) plans on
behalf of each of Messrs. Sidman, Schaub, Beals and Connors and $6,803 on
behalf of Mr. Boehme; and (iii) payment for disability insurance of $1,787
made on behalf of Richard F. Schaub, Jr. by the Company during the 2003
fiscal year. The amounts shown in this column for 2002 reflect (i) payment
of life insurance premiums of $28,296 and $3,400 made on behalf of Ronald
J. Sidman and Richard F. Schaub, Jr., respectively, by the Company during
the 2002 fiscal year; and (ii) contributions in the amount of $23,061 made
by the Company to the Company's defined contribution pension and 401(k)
plans on behalf of each of Messrs. Sidman, Schaub and Connors, and $22,235
on behalf of Mr. Beals. The amounts shown in this column for 2001 reflect
(i) payment of life insurance premiums of $31,869 made on behalf of Ronald
J. Sidman by the Company during the 2001 fiscal year; and (ii)
contributions in the amount of $19,132 made by the Company to the
Company's defined contribution pension and 401(k) plans on behalf of each
of Messrs. Sidman, Schaub, Connors and Beals, respectively.
Option/SAR Grants in the Last Fiscal Year
The following table sets forth grants of stock options pursuant to the
Company's Equity Incentive Plan during the 2003 fiscal year to the named
executive officers reflected in the Summary Compensation Table above:
Individual Grants Potential Realizable
----------------------------------------------------------- Value at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted Appreciation for
Underlying to Exercise Option Term(2)
Options Employees Price per Expiration --------------------
Name Granted in 2003 Share(1) Date 5% 10%
- ---- ---------- ---------- ----------- ---------- --------- --------
Ronald J. Sidman 22,500** 17.0% $10.26 3/20/2008 $63,780 $140,936
Richard F. Schaub, Jr. 2,700* 2.0 10.26 3/20/2008 7,654 16,912
James A. Connors, Jr. 2,700* 2.0 10.26 3/20/2008 7,654 16,912
Barrett C. Boehme 20,000* 15.1 9.30 2/03/2008 56,693 125,277
John R. Beals 3,600* 2.7 10.26 3/20/2008 10,205 22,550
** A non-qualified stock option.
* An incentive stock option.
(1) All stock options were granted in 2003 pursuant to the Company's Equity
Incentive Plan. The exercise price of the incentive stock options granted
to all the named executive officers and the exercise price of the
non-qualified option granted to Mr. Sidman was equal to the fair market
value (the closing sale price) of the Company's shares on the date of the
grant. The options are generally exercisable in three equal annual
installments beginning on the first anniversary of the date of grant.
Options are not transferable except by will or by the laws of descent and
distribution. The post-retirement exercise period for exercisable options
is generally three months. Upon a "change of control" of the Company (as
defined by the Company's Equity Incentive Plan), each outstanding stock
option becomes immediately exercisable in full and remains exercisable
until the expiration of the term of the option. The Company's Equity
Incentive Plan defines a "change of control" of the Company as the
6
occurrence of certain events, including the acquisition by a third party
of 25% or more of the Company's outstanding voting stock, a change in the
majority of the Board, a merger, consolidation, dissolution, or
liquidation of the Company, or a sale of substantially all of the
Company's assets, subject, in each case, to certain exceptions.
(2) In accordance with the rules of the SEC, the amounts shown in this table
represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based
on assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration
date. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend on
the future performance of the Company's common stock, the optionholder's
continued employment through the option period and the date on which the
options are exercised.
Option Exercises and Fiscal Year-End Option Values
The following tables set forth information with respect to options to
purchase the Company's common stock granted to each of the named executive
officers under the Company's Equity Incentive Plan, including the number of
unexercised options outstanding on December 31, 2003 and the value of such
unexercised options on that date.
Aggregated Option/SAR Exercises in Last Fiscal Year-End
and Fiscal Year-End Option/SAR Values
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options/SAR
Shares Options/SAR at Fiscal Year-End At Fiscal Year-End(2)
Acquired on Value ------------------------------ -----------------------------
Name Exercise(#) Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ------------- -------------- ------------ -------------
Ronald J. Sidman 0 $0 193,546 59,931 $764,900 $235,800
Richard F. Schaub, Jr. 0 0 103,383 8,107 608,700 38,100
James A. Connors, Jr. 0 0 47,573 9,600 273,600 36,600
Barrett C. Boehme 0 0 0 20,000 0 112,800
John R. Beals 0 0 36,232 5,385 203,700 20,200
- ----------
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the named executive officer exercising the option. The amounts
shown represent the difference between the option exercise price and the
market price on the date of exercise, which is the amount that would have
been realized if the shares had been sold immediately upon exercise.
(2) Value is determined as the difference between the option exercise price
and the fair market value at 2003 fiscal year end ($14.94 per share, which
was the closing sale price of the Company's common stock on the Nasdaq
National Market on December 31, 2003), multiplied by the number of shares
underlying the option.
Compensation of Directors
During 2003, we paid each director who is not an employee of the Company
an annual retainer of $17,500 for Board service, plus attendance fees of $500
per meeting for each Board or Committee meeting attended telephonically and
attendance fees of $1,050 per meeting for each Board or Committee meeting
attended in person. The Board also paid $450 per meeting of additional
attendance fees to the Chairs of each Board Committee.
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Upon election to the Board, each non-employee Board member receives a
one-time award pursuant to the Stock Option Plan for Directors (the "Directors
Plan") of an option for 10,000 shares that becomes exercisable in three equal
annual installments commencing on the first anniversary of the date of grant.
Each option is equal to the fair market value per share of the Company's common
stock on the date of the grant. In addition, each non-employee director who
serves on the Board receives an annual option to purchase 5,000 shares of the
Company's common stock. This option is exercisable on the date of the grant. On
May 15, 2003, Messrs. Page, Peltz, Kenneth Sidman, Wallace, Weston, and Wenz and
Ms. Kaplan were granted options to purchase 5,000 shares of common stock at an
exercise price of $11.91 per share.
Mr. Peltz retired from the Company on June 30, 1997 and continues to serve
as a director of the Company. He receives the same compensation as other
non-employee directors of the Company and, in addition, receives coverage under
the Company's group health plan and medical reimbursement plan so long as he is
a director of the Company.
Each option granted to directors in 2003 under the Directors Plan will
expire 10 years after the date of grant. Following an individual's death, each
vested option will remain exercisable for a period of one year but in no event
beyond the tenth anniversary of the date of grant. Following any other
termination, each vested option will remain exercisable for a period of up to
three years but in no event beyond the tenth anniversary of the date of grant.
In the event of any merger, consolidation, sale of substantially all of the
Company's assets or dissolution or liquidation of the Company, all options
outstanding under the Directors Plan that are not otherwise exercisable will
become immediately exercisable at least 20 days prior to the effective date of
such transaction.
Employment and Other Agreements
Employment Agreement - Ronald J. Sidman
The Company entered into an employment agreement with Ronald J. Sidman on
September 30, 1999. The agreement provides that Mr. Sidman will continue to
serve as Chairman of the Board, President and Chief Executive Officer for a
five-year term, which is automatically renewed every five years, unless one of
the parties gives timely notice to the other that he or it does not wish to
renew the agreement. Mr. Sidman's base salary under the agreement for 2003 was
$408,800, which may be increased from time to time in the discretion of the
Compensation Committee. If the Compensation Committee does not increase Mr.
Sidman's base salary in any fiscal year, his base salary will automatically be
increased for such fiscal year by an amount equal to the average of the
increases to his base salary for the three preceding fiscal years.
Mr. Sidman participates in the Company's annual incentive cash
compensation plans ("Annual Incentive Compensation") and all benefit plans
provided to the Company's executive officers and employees in general
("Benefits"). The Company also pays the premiums on certain life insurance
policies, the total face amount of which will not exceed $7,500,000, and the
premiums on a long-term disability insurance policy.
Mr. Sidman will receive a lump-sum severance payment if the Company
terminates his employment for any reason, other than cause, or if he terminates
his employment for good reason prior to a change of control of the Company. This
lump-sum payment will be equal to the greater of (i) the sum of his then current
base salary and the target Annual Incentive Compensation (which will not be less
than the highest amount of his Annual Incentive Compensation for the three most
recent fiscal years) that he would have received for the remainder of the
five-year term then in effect; or (ii) three times the sum of his then current
base salary and the highest amount of his Annual Incentive Compensation for the
three most recent fiscal years. He will also continue to receive all Benefits,
including the payment of premiums for life and disability insurance, for a
period equal to the greater of the remainder of the five-year term then in
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effect or three years from the date of his termination. Mr. Sidman will also
continue to participate in such medical benefits provided to him prior to
termination until he is eligible for and entitled to coverage under Medicare. In
addition, all his stock options will become immediately exercisable and may be
exercised for an extended period. In consideration of such severance payments
and benefits, Mr. Sidman will not compete with the Company for a three-year
period following his termination.
In the event of Mr. Sidman's disability or death, he or his estate will
receive his then current base salary for a one-year period (less any disability
insurance proceeds from policies paid for by the Company) and a pro-rata portion
of any amount of his Annual Incentive Compensation earned prior to Mr. Sidman's
disability or death. He will continue to participate in all Benefits for a
one-year period in the event of his disability. His non-qualified stock options
will continue to vest for a one-year period and all of his vested options may be
exercised until the earlier of one year or the expiration date of the options.
If the Company terminates Mr. Sidman's employment for any reason or if Mr.
Sidman voluntarily terminates his employment for any reason within three years
following a change of control, he will receive a lump sum amount equal to 2.99
times the sum of his then current base salary and the highest amount of his
Annual Incentive Compensation in the three most recent fiscal years. He will
continue to receive all Benefits, including the payment of premiums for life and
disability insurance, for a three-year period and will continue to participate
in such medical benefits provided to him prior to termination until he is
eligible for and entitled to coverage under Medicare. His stock options will
become immediately exercisable and all options will be exercisable until the
earlier of the third anniversary date of the earlier of his termination or the
expiration date of the options. In addition, if any payments made to Mr. Sidman
in connection with a change of control could subject him to the excise tax
imposed by Section 4999 of the Internal Revenue Code, he will receive a
"gross-up" amount so as to place him in the same after-tax position he would
have been in had such excise tax not applied.
The Agreement defines good reason as any material breach of the agreement,
including removal from his current positions, a diminution in compensation or
benefits, and relocation. Cause is defined as willful and continuing failure to
perform his duties or the willful engaging in conduct materially injurious to
the Company. A finding of "cause" may only be determined by the affirmative vote
of 75% of the members of the Board after Mr. Sidman has been provided notice of,
and opportunity to, be heard by the Board prior to such finding. A "change of
control" is defined as the occurrence of certain events, including the
acquisition by a third party of 25% or more of the Company's outstanding voting
stock, a change in a majority of the Board, or a merger, consolidation,
dissolution or liquidation of the Company or a sale of substantially all of the
Company's assets subject, in each case, to certain exceptions.
Change of Control Agreement -- Richard F. Schaub, Jr.
The Company also has a change of control agreement with Richard F. Schaub,
Jr., on substantially the same terms as the change of control agreement
described above relating to Mr. Sidman, except that the lump sum payment to Mr.
Schaub would be the sum of two times his then current base salary and the
highest amount of his Annual Incentive Compensation in the three most recent
fiscal years; the Company would continue to pay Mr. Schaub his Benefits for a
period of two years; and his stock options would be exercisable until the
earlier of two years from his date of termination or the expiration date of the
options.
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Change of Control Agreements - Other Named Executive Officers
Each of the other named executive officers, John R. Beals, Barrett C.
Boehme and James A. Connors, Jr., also has a change of control agreement with
the Company. The change of control agreements with these executives provide
that, if the Company terminates the executive's employment without cause or the
executive terminates his employment for good reason within 24 months following a
change of control, the executive will receive one and a half times the sum of
(1) the higher of the executive's annual base salary for the fiscal year in
which the change of control occurred or in which his employment was terminated,
plus (2) the higher of the executive's target annual bonus for the fiscal year
in which the change of control occurred or in which his employment was
terminated. After the date of termination and for a period of up to one year,
the Company will pay health and dental insurance premiums to allow the executive
and his family to receive substantially similar coverage as they received
immediately prior to the termination of the executive's employment. If any
payments made to such executive would constitute a "parachute payment" under
Section 280G of the Internal Revenue Code, then the amounts constituting a
"parachute payment" which would otherwise be payable to the executive will be
reduced to the extent necessary so that the reduced payments do not constitute a
"parachute payment." Upon a change of control, the executive will no longer be
subject to any post-termination non-competition or non-solicitation obligations.
Non-Competition Agreements -- Named Executive Officers
The Company also has agreements with Richard F. Schaub, Jr., John Beals,
Barrett C. Boehme, and James A. Connors, Jr., which generally restrict such
officers from engaging in any business competitive with the Company's business
(as defined in the agreements) for a twelve month period following termination
of employment for any reason (other than disability, voluntary termination by
the employee or termination for cause as defined in the agreements), subject to
severance payments to such officer equal to his annual base salary and benefits
to be paid or provided over a twelve month period.
Compensation Committee Interlocks and Insider Participation
During 2003, the Compensation Committee consisted solely of non-employee
directors, including Fred T. Page, Lewis M. Weston and Richard E. Wenz. Mr. Wenz
retired from the Board of Directors and the Compensation Committee effective
March 16, 2004. No executive officer of the Company serves as a member of the
Board of Directors or Compensation Committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
10
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth, to the knowledge of the Company, certain
information concerning the beneficial ownership of the common stock of the
Company as of February 29, 2004 by each stockholder known by the Company to be
(i) the beneficial owner of more than 5% of the outstanding shares of common
stock, (ii) each current director of the Company, (iii) each of the named
executive officers listed in the Summary Compensation Table on page 5 who were
serving as executive officers at the end of the 2003 fiscal year and (iv) all
directors and current executive officers of the Company as a group:
No. of Shares Percent
Name and Address Beneficially of
of Beneficial Owner Owned(1) Class
- ------------------- ------------- -------
Neuberger Berman, Inc................................................................. 698,800 (2) 8.4%
Neuberger Berman, LLC
605 Third Avenue
New York, NY 10158-3698
Santa Monica Partners, L.P............................................................ 693,458 (3) 8.3%
1865 Palmer Avenue
Larchmont, NY 10538
Liberty Wagner Asset Management, L.P. ................................................ 641,000 (4) 7.7%
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Ownership by Directors and Executive Officers*(5)
John R. Beals......................................................................... 60,354 (6) *
Barrett C. Boehme..................................................................... 6,667 (7) *
James A. Connors, Jr.................................................................. 53,297 (8) *
Beth J. Kaplan........................................................................ 23,332 (9) *
Fred T. Page.......................................................................... 97,700 (10) 1.2%
Benjamin Peltz........................................................................ 395,802 (11) 4.7%
Richard F. Schaub, Jr................................................................. 112,546 (12) 1.3%
Evelyn Sidman......................................................................... 336,800 4.0%
Kenneth R. Sidman..................................................................... 411,632 (13) 4.9%
Ronald J. Sidman...................................................................... 1,327,429 (14) 15.9%
Walker J. Wallace..................................................................... 80,201 (15) *
Lewis M. Weston....................................................................... 55,000 (16) *
All directors and current executive officers as a group (14 persons) 3,034,354 (17) 33.1%
- ----------
* Represents less than one percent.
11
(1) The number of shares of common stock issued and outstanding on February
29, 2004 was 8,338,218 shares. The calculation of percentage ownership for
each listed beneficial owner is based upon the number of shares of common
stock issued and outstanding on February 29, 2004, plus shares of common
stock subject to options held by such person on February 29, 2004 and
exercisable within 60 days thereafter. The persons and entities named in
the table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, except as noted below.
(2) As reported on Schedule 13G filed with the SEC in February 2004, Neuberger
Berman, LLC and Neuberger Berman Management Inc. are deemed to be
beneficial owners of 707,000 shares of the Company's stock since they
share voting and dispositive power over such shares with many of their
unrelated clients (although the clients are the actual owners of the
stock).
(3) As reported on Schedule 13D filed with the SEC by Lawrence J. Goldstein in
December 2003, Lawrence J. Goldstein, President of SMP Asset Management
LLC, the general partner of Santa Monica Partners, L.P., may be deemed to
beneficially own 693,458 shares of the Company's stock.
(4) As reported on Schedule 13G filed with the SEC in February 2004; these
shares have been acquired on behalf of discretionary clients of Liberty
Wanger Asset Management, L.P., including Liberty Acorn Trust.
(5) The address of all individual directors and executive officers is c/o The
First Years Inc., One Kiddie Drive, Avon, Massachusetts 02322.
(6) Includes 38,324 shares issuable to Mr. Beals pursuant to stock options
exercisable within 60 days of February 29, 2004. Also includes 10 shares
beneficially owned by each of Mr. Beals' wife and two children, as to
which shares Mr. Beals disclaims beneficial ownership.
(7) Includes 6,667 shares issuable to Mr. Boehme pursuant to stock options
exercisable within 60 days of February 29, 2004.
(8) Includes 53,297 shares issuable to Mr. Connors pursuant to stock options
exercisable within 60 days of February 29, 2004.
(9) Includes 23,332 shares issuable to Ms. Kaplan pursuant to stock options
exercisable within 60 days of February 29, 2004.
(10) Includes 78,000 shares issuable to Mr. Page pursuant to stock options
exercisable within 60 days of February 29, 2004. Also includes 500 shares
beneficially owned by each of Mr. Page's wife and two children, as to
which shares Mr. Page disclaims beneficial ownership.
(11) Includes 48,000 shares issuable to Mr. Peltz pursuant to stock options
exercisable within 60 days of February 29, 2004. Also includes 130,000
shares owned beneficially by Mr. Peltz's wife, Judith Peltz, who has sole
voting and investment power over such shares. Mr. Peltz disclaims any
beneficial interest in such shares.
(12) Includes 108,546 shares issuable to Mr. Schaub pursuant to stock options
exercisable within 60 days of February 29, 2004.
12
(13) Includes 48,000 shares issuable to Mr. Sidman pursuant to stock options
exercisable within 60 days of February 29, 2004.
(14) Includes 219,989 shares issuable to Mr. Sidman pursuant to stock options
exercisable within 60 days of February 29, 2004. Also includes 49,486
shares owned beneficially by Mr. Sidman's wife, Marjorie Sidman, who has
sole voting and investment power over such shares. Mr. Sidman disclaims
any beneficial interest in such shares.
(15) Includes 73,201 shares issuable to Mr. Wallace pursuant to stock options
exercisable within 60 days of February 29, 2004.
(16) Includes 48,000 shares issuable to Mr. Weston pursuant to stock options
exercisable within 60 days of February 29, 2004.
(17) The total for all directors and executive officers as a group includes
816,950 shares issuable to the directors and officers pursuant to stock
options exercisable within 60 days of February 29, 2004.
Equity Compensation Plan Information
The following table summarizes information about the options, warrants
and rights and other equity compensation under our equity plans as of December
31, 2003.
Number of securities
Number of securities to remaining available for
be issued upon Weighted-average future issuance under equity
exercise exercise price of compensation plans
of outstanding options, outstanding options, (excluding securities reflected
warrants and rights warrants and rights in column (a))
Plan Category (a) (b) (c)
- ----------------------------------------- ----------------------- -------------------- -------------------------------
Equity compensation plans approved by
security holders 1,355,711 $10.87 512,361
Equity compensation plans not approved by
security holders -- -- --
--------- ------ -------
Total 1,355,711 $10.87 512,361
========= ====== =======
Item 13. Certain Relationships and Related Transactions
In September 2000, Richard F. Schaub, Jr., the Company's Senior Vice
President - Sales, received a loan from the Company in the principal amount of
$80,000. In addition, in March 2001, Mr. Schaub received a loan from the Company
in the principal amount of $53,000, for payment of real estate brokerage fees
incurred in the sale of his home, and closing and related costs incurred for the
purchase of a new home. These loans bear interest at the prime rate charged by
Citizens Bank of Massachusetts, as such rate may be adjusted from time to time,
plus one percent (1%), per year. Pursuant to the terms of the loans, one-fifth
of the principal amount of the loans, together with interest on such amount,
shall be forgiven each calendar year on the anniversary date of Mr. Schaub's
employment with the Company (for the $80,000 loan) or the anniversary date of
the first payment (for the $53,000 loan), provided that Mr. Schaub is still
employed by the Company on such anniversary dates. In the event that Mr.
Schaub's employment with the Company is terminated within the five years
following the start of his employment with the Company for any reason other than
for cause, the outstanding principal and any accrued interest under the notes
shall be forgiven on that date of termination. In the event that Mr. Schaub
voluntarily terminates his employment with the Company, or the Company
13
terminates Mr. Schaub's employment for cause, then the principal balance
outstanding under the notes shall be immediately due and payable, but any
accrued interest shall be forgiven. As of March 31, 2004, the principal
outstanding balances under the September 2000 and March 2001 notes are $32,000
and $21,200, respectively.
Item 14. Principal Accountants Fees and Services
Deloitte & Touche LLP served as the Company's independent accountants for
the fiscal year ended December 31, 2003. Consistent with the Sarbanes-Oxley Act
of 2002 and the Nasdaq Listing Requirements, the Company's Audit Committee has
the sole authority to appoint, retain, terminate and determine the compensation
of our independent accountants. Pursuant to this authority, Deloitte & Touche
has been appointed by the Audit Committee to serve as the Company's independent
accountants for the fiscal year ended December 31, 2004. Aggregate fees for
professional services rendered by Deloitte & Touche for the years ended December
31, 2003 and 2002 were as follows:
2003 2002
-------- --------
Audit Fees $213,000 $177,000
Audit-Related Fees 31,000 20,000
Tax Fees 125,000 92,000
All Other Fees 0 7,000
-------- --------
Total $369,000 $296,000
======== ========
Audit Fees. Audit of the Company's annual financial statements for the
year ended December 31, 2003, review of the Company's Quarterly Reports on Form
10-Q filed during the year ended December 31, 2003 and advisory services on
accounting pronouncements
Audit-Related Fees. Audit of the Company's defined contribution and 401K
plans and advisory services related to implementation of the Sarbanes-Oxley Act.
Tax Fees. Tax services and consultation regarding tax compliance, tax
planning, and settlement of a state tax matter.
All Other Fees. Consultation regarding compliance with German accounting
rules, for the fiscal year ended December 31, 2002.
Auditor Fees Policy. Annually, the Audit Committee pre-approves audit and
non-audit planned services to be rendered by Deloitte & Touche. During the
course of the year, the Chairman of the Committee has the authority to
pre-approve requests for services $10,000 or below which were not approved in
the annual pre-approval process.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE FIRST YEARS INC.
By: /s/ Ronald J. Sidman
--------------------------
Ronald J. Sidman
Chief Executive Officer, Chairman of the
Board of Directors, and President
Date: April 29, 2004