SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
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 0-1282-3
Swiss Army Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
One Research Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 929-6391
NOT APPLICABLE
(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 Issuer's Common Stock, $.10 par value, outstanding on
August 7, 1997, was 8,209,610 shares.
<PAGE>
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION Page No.
<S> <C> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996. 3 - 4
Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1997 and 1996. 5
Consolidated Statements of Stockholders' Equity
for the Six Months Ended June 30, 1997 and 1996. 6
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996. 7
Notes to Consolidated Financial Statements 8 - 9
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10 - 13
Part II: OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
Signatures 16
The Exhibit Index appears on page 15.
</TABLE>
2
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 3,673 $ 2,067
Accounts receivable, less
allowance for doubtful accounts
of $1,032, respectively ...................... 22,718 32,992
Inventories ................................... 33,966 29,657
Deferred income taxes ......................... 3,295 3,295
Prepaid and other ............................. 5,392 2,922
--------- --------
Total current assets ........................... 69,044 70,933
--------- --------
Deferred income taxes ............................. 1,597 1,597
Property, plant and equipment, net ................ 3,767 3,969
Investments in preferred units, at cost ............ 9,003 9,003
Investments in unconsolidated affiliate ........... 150 150
Foreign distribution rights, net of
accumulated amortization of $2,853 and $2,518,
respectively ...................................... 3,891 4,226
Other assets, net of accumulated
amortization of $862 and $496, respectively......... 9,411 8,765
--------- --------
Total Assets $96,863 $98,643
========= ========
</TABLE>
3
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable .................................. $ 11,685 $ 10,952
Accrued liabilities ............................... 7,363 7,835
--------- ---------
Total current liabilities ......................... 19,048 18,787
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $.10 per share: shares
authorized -2,000,000; no shares issued - -
Common stock, par value $.10 per
share: shares authorized -
18,000,000; shares issued - 8,823,718 and
8,822,968, respectively 882 882
Additional paid-in capital 46,186 46,182
Foreign currency translation adjustment (143) (113)
Retained earnings 36,003 38,018
---------- ---------
82,928 84,969
Less-cost of common stock in
treasury; 614,108 shares (5,113) (5,113)
---------- ---------
Total stockholders' equity 77,815 79,856
---------- ---------
Total Liabilities and Stockholders' Equity $96,863 $98,643
========== =========
</TABLE>
4
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share per data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales .......................... $28,862 $28,677 $53,076 $54,756
Cost of sales ...................... 18,554 23,288 33,748 40,775
-------- ------- ------- -------
Gross profit ....................... 10,308 5,389 19,328 13,981
Selling, general and administrative
expenses ........................... 12,099 9,537 22,935 18,709
Special charges .................... - 2,073 - 2,073
-------- ------- -------- ------
Operating loss ..................... (1,791) (6,221) (3,607) (6,801)
Interest income (expense), net ..... 54 11 111 59
Gain (loss) on sale (write-down) of
investments ....................... 110 (789) 110 (789)
Other income (expense), net ........ 3 1 (1) 118
-------- ------- -------- ------
Total interest and other income, net 167 (777) 220 (612)
-------- ------- -------- ------
Loss before income taxes .......... (1,624) (6,998) (3,387) (7,413)
Income tax benefit ................ (658) (2,941) (1,372) (3,111)
-------- ------- -------- -------
Net loss .......................... ($966) ($4,057) ($2,015) ($4,302)
======== ======= ======== =======
Net loss per share ................ ($0.12) ($0.49) ($0.25) ($0.52)
======== ======= ======== =======
Weighted average number of
shares outstanding ................ 8,210 8,196 8,210 8,204
======== ======= ======== =======
</TABLE>
5
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(in thousands, except for share data)
<TABLE>
<CAPTION>
Foreign Unrealized
Common Stock Additional Currency Gain on
Par Value $.10 Paid-In Translation Marketable Retained Treasury
Shares Amount Capital Adjustment Securities Earnings Stock
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1995 8,800,718 $880 $45,898 ($9) $ - $43,284 ($5,113)
Net loss for
six months ended
June 30, 1996
(unaudited) - - - - - (4,302) -
Stock options
exercised 19,750 2 239 - - - -
Unrealized gain on
marketable securities - - - - 701 - -
Foreign currency
translation adjustment - - - (2) - - -
--------- ------ -------- ------- --------- --------- --------
BALANCE, June 30,
1996 (unaudited) 8,820,468 $882 $46,137 (11) $701 $38,982 ($5,113)
========= ====== ======== ======= ========= ========= ========
BALANCE
December 31, 1996 8,822,968 $882 46,182 ($113) $ - $38,018 ($5,113)
Net loss for
six months ended
June 30, 1997
(unaudited) - - - - - (2,015) -
Stock options exercised 750 - 4 - - - -
Foreign currency
translation adjustment - - - (30) - - -
----------- ------ -------- -------- -------- --------- ---------
BALANCE, June 30,
1997 (unaudited) 8,823,718 $882 $46,186 ($143) $ - $36,003 ($5,113)
=========== ====== ======== ======== ======== ========= =========
</TABLE>
6
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 2,015) ($ 4,302)
Adjustments to reconcile net loss to net cash
provided from operating activities:
Depreciation and amortization 1,481 2,537
(Gain) loss on (sale) write-down of investments (110) 789
--------- --------
(644) (976)
Changes in other current assets and liabilities:
Accounts receivable 10,169 10,562
Inventories (4,207) (4,859)
Prepaid and other (2,472) (2,720)
Accounts payable 763 2,403
Accrued liabilities (492) (3,553)
--------- ---------
Net cash provided from operating activities 3,117 857
Cash flows from investing activities:
Capital expenditures (538) (741)
Additions to other assets (1,062) (903)
Investment in preferred units - (2,000)
Proceeds from sale of investments in stock 110 59
--------- ---------
Net cash (used for) investing activities (1,490) (3,585)
--------- ---------
Cash flows from financing activities:
Proceeds from short-term debt - 2,747
Proceeds from exercise of stock options - 241
--------- ---------
Net cash provided from financing activities - 2,988
--------- ---------
Effect of exchange rate changes on cash (21) (9)
--------- ---------
Net increase (decrease) in cash 1,606 251
Cash and cash equivalents, beginning of period 2,067 609
--------- ---------
Cash and cash equivalents, end of period $ 3,673 $ 860
========= =========
Cash paid during the period:
Interest $ 7 $ 42
========= =========
Income taxes $ 453 $ 1,683
========= =========
</TABLE>
7
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 and 1996
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. (Swiss Army, the Company) without audit.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's report on Form 10-K for the year ended
December 31, 1996. In the opinion of management of the Company, the interim
financial statements included herein reflect all adjustments, consisting only of
normal recurring adjustments ( except for the special charges discussed below) ,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Due to the seasonal nature of
the Company's business, the results of operations for the interim periods
presented are not necessarily indicative of the operating results for the full
year.
INVENTORIES
- -----------
Domestic inventories are stated at the lower of cost (determined by the
last-in, first-out (LIFO) method) or market. Foreign inventories are valued at
the lower of cost or market determined by the FIFO method. Inventories
principally consist of finished goods.
SIGNIFICANT CUSTOMER
- --------------------
Sales related to special promotional programs to a single customer
accounted for approximately 16% and 11% of net sales for the three and six
months ended June 30, 1997, respectively. There were no sales related to this
customer in the comparable periods in 1996. The Company has continued to receive
orders from this customer in the third quarter of 1997.
SPECIAL CHARGES
- ---------------
In the second quarter of 1996, the Company recorded special charges of
approximately $7,394,000 related to an extensive analysis of the Company's
operations and non-strategic assets. The special charges consisted of :
Write-off of inventory ....................... $4,521,000 (a)
Selling, general and administrative charges .. $2,073,000 (b)
Write-down of investments .................... $ 800,000 (c)
------------
$7,394,000
============
(a)Represents the write-off of discontinued inventory, including certain
cutlery products sold by Cuisine de France Limited ("CDF"). Substantially all of
the assets of CDF were sold by the Company in January 1997.
8
<PAGE>
(b) Consists of an $870,000 write-off of goodwill related to CDF, a
$850,000 write-off for obsolete displays and a $353,000 write-off of other
assets.
(c)Consists of a $800,000 write-off of the Company's investment in a
privately held affiliated start-up entity. In the second quarter of 1997, the
Company recovered $110,000 related to this investment which is included in the
gain (loss) on sale (write-down) of investments.
INCOME TAXES
- ------------
Income taxes are provided at the projected annual effective tax rate. The
income tax provisions (benefits) for the interim 1997 and 1996 periods exceed
the federal statutory rate of 34% due primarily to state income taxes (net of
federal benefit).
EARNINGS PER SHARE
- ------------------
For the periods ended June 30, 1997 and 1996, the weighted average number
of shares of common stock outstanding do not include the dilutive effect of
stock options as they would have an anti-dilutive effect.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128" or the "Statement"),
Earnings Per Share ("AEPS"). SFAS No.128 establishes standards for computing and
presenting EPS and is effective for both interim and annual periods ending after
December 15, 1997. The Statement does not permit early application of its
provisions. The Statement replaces the presentation of primary EPS with a
presentation of basic EPS, as defined. It also requires dual presentation of
basic and diluted EPS on the face of the Statement of Operations for entities
with a complex capital structure. The Company does not anticipate the effect on
EPS to be material.
9
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
FORWARD LOOKING STATEMENTS
--------------------------
The following discussion contains, in addition, to historical information,
forward looking statements. The forward looking statements were prepared on the
basis of certain assumptions which relate, among other things, to the demand for
and cost of purchasing and marketing the Company's products; the prices at which
such products may be sold; new product development; seasonal selling trends; the
Swiss franc- U.S. dollar exchange rates; the extent to which the Company is able
to successfully hedge against foreign currency fluctuations; and the Company's
anticipated credit needs and ability to obtain such credit. Even if the
assumptions upon which the objections are based prove accurate and appropriate,
the actual results of the Company's operations in the future may vary widely
from financial projections due to increased competition, changes in consumer
tastes and other factors not yet known or anticipated. Accordingly, the actual
results of the Company's operations in the future may vary widely from the
forward looking statements included herein.
RESULTS OF OPERATIONS
---------------------
Comparison for the Three Months Ended June 30, 1997 and 1996
- ------------------------------------------------------------
Sales for the three months ended June 30, 1997 were $28.9 million compared
with $28.7 million for the same period in 1996, representing a decrease of $0.2
million or 0.6%. Sales for the three months ended June 30, 1997 were
significantly impacted by sales related to special promotional programs with one
customer which accounted for approximately 15.7% of sales in the three months
ended June 30, 1997. There were no sales to this customer in the three months
ended June 30, 1996. The Company has continued to receive orders from this
customer in the third quarter of 1997. Excluding sales to this customer, sales
decreased by $4.3 million in the three months ended June 30, 1997 , as compared
to the comparable period in 1996. Approximately $740,000 of the $4.3 million
sales decrease was due to the sale of substantially all of the assets of Cuisine
de France Limited ("CDF") in January 1997, with the remaining sales decrease due
primarily to a decrease in sales of watches,Victorinox Original Swiss Army
Knives, and cutlery, offset in part by sales of Swiss Army Brand Sunglasses.
Gross profit of $10.3 million for the three months ended June 30, 1997
increased $4.9 million or 91.3% from 1996. This increase is primarily due to the
$4.5 million inventory write-off in 1996. The gross profit margin percentage for
the second quarter of 1997 of 35.7% was higher than the gross profit margin
percentage of 34.6%, excluding the $4.5 million inventory write-off, reported
for the same period in 1996. This increase is primarily due to the increase in
the value of the U.S. dollar versus the Swiss franc offset by unfavorable
product mix. The Company's gross profit margin is a function of both product mix
and Swiss franc exchange rates. Since the Company imports virtually all of its
products from Switzerland, its costs are affected by both the spot rate of
exchange and by its foreign currency hedging program. The Company enters into
foreign currency contracts and options to hedge the exposure associated with
foreign currency fluctuations. Based upon current Swiss franc requirements the
Company believes it is hedged through the remainder of 1997. However, such
hedging activity cannot eliminate the long-term adverse impact on the Company's
competitive position and results of operations that would result from a
sustained decrease in the value of the dollar versus the Swiss franc. These
hedging transactions, which are meant to reduce foreign currency risk, also
reduce the beneficial effects to the Company if the dollar increases relative to
the Swiss franc. The Company plans to continue to engage in hedging
transactions; however, it is uncertain as to what extent to which such hedging
transactions will reduce the effect of adverse currency fluctuations.
10
<PAGE>
Selling, general and administrative expenses for the three months ended
June 30, 1997 of $12.1 million were $2.6 million or 26.9% higher than the amount
for the comparable period in 1996. Approximately $2.1 million of the $2.6
million increase is due to expenses related to the introduction of a new brand
and a brand extension; Swiss Watches marketed under the name Allenby and
Swiss Army Brand Sunglasses, with the remaining increase due primarily to
increased expenditures for advertising and marketing related activities, $0.3
million in costs related to continuing restructuring, offset in part by expenses
related to CDF.
The Company recorded special selling, general and administrative charges of
$2.1 in 1996 related to the write-off of obsolete displays, goodwill and other
assets. The goodwill write-off related to CDF, and was written-off due to the
lack of recoverability of the asset. Substantially of the assets of CDF were
sold by the Company in 1997 with no significant gain or loss. There were no
special charges recorded in 1997.
As a percentage of net sales, total selling general and administrative
expenses increased from 40.5% in 1996 to 41.9% in 1997.
Interest income (expense), net of $54,000 for the three months ended June
30, 1997 was $43,000 higher than interest income (expense), net for the
comparable period in 1996 primarily due to increased invested cash balances
during 1997 as compared to 1996.
Gain (loss) on sale ( write-down) of investments was a gain of $110,000 in
1997, verse a loss of $789,000 in 1996. In 1996, the Company wrote-off its
$800,000 investment in privately held start-up entity. In 1997, the Company
recovered $110,000 related to this investment.
As a result of these changes, loss before income taxes for the three months
ended June 30, 1997 was $1,624,000 versus $6,998,000 for the same period in
1996, a decrease of $5,374,000.
Income tax expense (benefit) was provided at an effective rate of 40.5% and
42.0% in 1997 and 1996, respectively.
As a result, net loss for the three months ended June 30, 1997 was $966,000
($0.12 per share) versus $4,057,000 ($0.49 per share) for the same period in
1996, a decrease of $3,091,000.
Comparison for the Six Months Ended June 30, 1997 and 1996
- -----------------------------------------------------------
Sales for the six months ended June 30, 1997 were $53.1 million compared
with $54.8 million for the same period in 1996, representing a decrease of $1.7
million or 3.0%. Sales for the six months ended June 30, 1997, were
significantly impacted by sales related to special promotional programs with one
customer which accounted for approximately 11.1% of sales in the six months
ended June 30, 1997. There were no sales to this customer in the six months
ended June 30, 1996. The Company has continued to receive orders from this
customer in the third quarter of 1997. Excluding sales to this customer, sales
decreased by $7.6 million in the six months ended June 30, 1997 as compared to
the comparable period in 1996. Approximately $1.5 million of the $7.6 million
sales decrease was due to the sale of substantially all of the assets of CDF in
January 1997, with the remaining sales decrease due primarily to a decrease in
sales of watches ,Victorinox Original Swiss Army Knives, and cutlery, offset in
part by sales of Swiss Army Brand Sunglasses.
11
<PAGE>
Gross profit of $19.3 million for the six months ended June 30, 1997
increased $5.3 million or 38.2% from 1996. This increase is primarily due to the
$4.5 million inventory write-off in 1996. The gross profit margin percentage for
the second quarter of 1997 of 36.4% was higher than the gross profit margin
percentage of 33.8% , excluding the $4.5 million inventory write-off, reported
for the same period in 1996. This increase is primarily due to the increase in
the value of the U.S. dollar versus the Swiss franc offset in part by
unfavorable product mix. The Company's gross profit margin is a function of both
product mix and Swiss franc exchange rates. Since the Company imports virtually
all of its products from Switzerland, its costs are affected by both the spot
rate of exchange and by its foreign currency hedging program. The Company enters
into foreign currency contracts and options to hedge the exposure associated
with foreign currency fluctuations. Based upon current Swiss franc requirements
the Company believes it is hedged through the remainder of 1997. However, such
hedging activity cannot eliminate the long-term adverse impact on the Company's
competitive position and results of operations that would result from a
sustained decrease in the value of the dollar versus the Swiss franc. These
hedging transactions, which are meant to reduce foreign currency risk, also
reduce the beneficial effects to the Company if the dollar increases relative to
the Swiss franc. The Company plans to continue to engage in hedging
transactions; however, it is uncertain as to what extent to which such hedging
transactions will reduce the effect of adverse currency fluctuations.
Selling, general and administrative expenses for the six months ended June
30, 1997 of $22.9 million were $4.2 million or 22.6% higher than the amount for
the comparable period in 1996. Approximately $3.1 million of the $4.2 million
increase is due to expenses related to the introduction of a new brand and a
brand extension; Swiss Watches marketed under the name Allenby and Swiss
Army Brand Sunglasses, with the remaining increase due primarily to increased
expenditures for advertising and marketing related activities, $0.3 million in
costs related to continuing restructuring, offset in part by expenses related to
CDF.
The Company recorded special selling, general and administrative charges of
$2.1 in 1996 related to the write-off of obsolete displays, goodwill and other
assets. The goodwill write-off related to CDF, and was written-off due to the
lack of recoverability of the asset. Substantially of the assets of CDF were
sold by the Company in 1997 with no significant gain or loss. There were no
special charges recorded in 1997.
As a percentage of net sales, total selling general and administrative
expenses increased from 38.0% in 1996 to 43.2% in 1997.
Interest income (expense), net of $111,000 for the six months ended June
30, 1997 was $52,000 higher than interest income (expense), net for the
comparable period in 1996 primarily due to increased invested cash balances
during 1997 as compared to 1996.
Gain (loss) on sale ( write-down) of investments was a gain of $110,000 in
1997, verse a loss of $789,000 in 1996. In 1996, the Company wrote-off its
$800,000 investment in privately held start-up entity. In 1997, the Company
recovered $110,000 related to this investment.
Other income (expense), net of ($1,000) for the six months ended June 30,
1997 versus $118,000 in the same period for the prior year, is due to the
favorable settlement of a legal matter in 1996.
As a result of these changes, loss before income taxes for the six months
ended June 30, 1997 was $3,387,000 versus $7,413,000 for the same period in
1996, a decrease of $4,026,000.
12
<PAGE>
Income tax expense (benefit) was provided at an effective rate of 40.5% and
42.0% in 1997 and 1996, respectively.
As a result, net loss for the six months ended June 30, 1997 was $2,015,000
($0.25 per share) versus $4,302,000 ($0.52 per share) for the same period in
1996, a decrease of $2,287,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1997, the Company had working capital of $50.0 million
compared with $52.1 million as of December 31, 1996, a decrease of $2.1 million.
Significant uses of working capital included a $1.1 million increase in other
assets and capital expenditures of $0.5 million. The Company currently has no
material commitments for capital expenditures.
Cash provided from operating activities was approximately $ 3.1 million in
the six months ended June 30, 1997 compared with $ 0.9 million in the comparable
period in 1996. The improvement resulted in a smaller decrease in accrued
liabilities in 1997 as compared to 1996, a smaller net loss in 1997 than in
1996, offset in part by a smaller increase in accounts payable in 1997 than in
1996.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its revolving credit
agreement. As of June 30, 1997, the Company has a $5.0 million line of credit
which it can use for any borrowings. The Company had a $15.0 million revolving
credit agreement which expired in January 1997. The Company is currently
reviewing its options to establish a new revolving credit agreement. The
Company's short-term liquidity is affected by seasonal changes in inventory
levels, payment terms and seasonality of sales. The Company believes its current
liquidity levels and financial resources will be sufficient to meet its
operating needs in the near-term.
13
<PAGE>
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The annual meeting of the stockholders of the Company was held on May 15,
1997, pursuant to notice, at the folloing persons were elected directors of the
Company to serve until the next annual meeting of stockholders or until their
successors are elected and qualified:
<TABLE>
<CAPTION>
NUMBER OF VOTES NUMBER OF VOTES
FOR WITHHELD
---------------- ----------------
NAME
- ----
<S> <C> <C>
A. Clinton Allen 6,548,802 22,155
Clarke H. Bailey 6,547,048 23,909
Thomas A. Barron 6,548,906 22,051
Vincent D. Farrell, Jr. 6,548,902 22,055
Herbert M. Friedman 6,548,854 22,103
Peter W. Gilson 6,548,906 22,051
M. Leo Hart 6,549,092 21,955
James W. Kennedy 6,548,882 22,075
Keith R. Lively 6,546,948 24,009
Lindsay Marx 6,541,888 29,069
Louis Marx, Jr. 6,549,002 21,955
Stanley G. Mortimer III 6,549,002 21,955
Stanley R. Rawn, Jr. 6,549,002 21,955
Eric M. Reynolds 6,548,906 22,051
John Spencer 6,548,906 22,051
J. Merrick Taggart 6,548,902 22,055
John V. Tunney 6,546,852 24,105
</TABLE>
In addition, the shareholders approved by a majority vote of 6,523,203
shares a proposal to increase the number of authorized shares of common stock
from twelve million to eighteen million. 37,941 shares were voted against the
proposal and 9,813 abstained.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A) Exhibits
2) Not Applicable
3) Not Applicable
4) Not Applicable
10.1) Certificate of amendment of Certification of Incorporation of Swiss
Army Brands, Inc.
10.2) Agreement dated July 1, 1997 by and between Swiss Army Brands,Inc.
and Stanley G. Mortimer III.
10.3) License Agreement dated May 15, 1997 by and between Swiss Army
Brands, Inc. and St. John Knits, Inc.
11) Statement regarding computation of per share earnings is not
required because the relevant computation can be clearly determined from
the material contained in the Financial Statements included herein.
15) Not Applicable
18) Not Applicable
19) Not Applicable
22) Not Applicable
23) Not Applicable
24) Not Applicable
27)Financial Data Schedule
99)Not Applicable
B.)There were no reports or exhibits on Form 8-K filed for the three months
ended June 30, 1997.
15
<PAGE>
Pursuant to the requirements to 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.
SWISS ARMY BRANDS, INC.
Registrant)
Date: August 13, 1997
By /s/ Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President &
Chief Financial Officer, Secretary
and Treasurer
16
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SWISS ARMY BRANDS, INC.
Swiss Army Brands, Inc. (the "Corporation"), a corporation organized
and existing by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The Certificate of Incorporation of the Corporation, as heretofore
amended, authorized the issuance of fourteen million (14,000,000) shares of
capital stock all of par value $.10 per share, of which twelve million
(12,000,000) shares were designated Common Stock and two million
(2,000,000) were designated Preferred Stock.
2. In order to increase the number of authorized shares of Common
Stock of the Corporation, Article FOURTH of the Certificate of
Incorporation of the Corporation is hereby amended to read in its entirety
as follows:
"FOURTH: Capital Stock. The total number of shares of capital stock
("Capital Stock") which the Corporation shall have authority to issue is
twenty million (20,000,000), all of the par value $.10 per share, of which
eighteen million (18,000,000) shares shall be designated Common Stock and
two million (2,000,000) shares shall be designated Preferred Stock.
Except for shares of Preferred Stock, the powers, preferences and
relative, participating, optional or other special rights, including,
without limitation, the right to receive dividends, and the qualifications,
limitations or restrictions with respect thereto, of each share of capital
stock shall be identical, share for share.
(a) Voting. Shares of Common Stock shall entitle the holders thereof
to one vote for each share upon all matters upon which stockholders have
the right to vote. Shares of Preferred Stock shall entitle the holders
thereof to such vote, if any, as shall be fixed by the Board of Directors
(or duly authorized committee thereof) pursuant to Article FOURTH (b).
(b) Preferred Stock. Authority is hereby expressly granted to the
Board of Directors or a duly authorized committee thereof at any time and
from time to time to issue shares of Preferred Stock in one or more series
and for such consideration as may be fixed from time to time by the Board
of Directors, and to fix, before the issuance of any shares of a particular
series of Preferred Stock, the designation of such series; the number of
shares to comprise such series; the dividend rate per annum, liquidation
rights and redemption price or prices, if any, of such series; the terms
and conditions of any such redemption; the sinking fund provisions, if any,
in respect of such series; the terms and conditions on which the shares of
such series are convertible, if they are convertible; and any other rights,
preferences and limitations pertaining to such series. All shares of any
one series of Preferred Stock shall be identical. To the extent so fixed by
the Board of Directors and consistent with applicable law, each such series
of Preferred Stock shall have rights and preferences senior to the rights
herein granted to the Common Stock.
(c) Dividends. Subject to the rights of the holders of shares of
Preferred Stock (if any shares of Preferred Stock shall be issued),
dividends payable in cash or property are payable if, when, and as declared
by the Board of Directors out of funds legally available therefor.
(d) Reservation of Shares. Such number of shares of Common Stock as
may from time to time be required for the purpose shall be reserved for
issuance (i) upon conversion of any Preferred Stock which shall be
convertible or any obligation of the Corporation convertible into shares of
Common Stock and (ii) upon exercise of any options or warrants to purchase
shares of Common Stock."
3. This amendment to the Certificate of Incorporation has been duly
adopted by the vote of the holders of a majority of the outstanding
securities of the Corporation entitled to vote thereon in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Certificate as
of this 15th day of May, 1997.
/s/ J. Merrick Taggart
J. Merrick Taggart
President
Attest:
/s/ Thomas M. Lupinski
Thomas M. Lupinski
Secretary
SEVERANCE AGREEMENT
THIS AGREEMENT made and entered into as of the 1st day of July, 1997
(the "Effective Date") by and between SWISS ARMY BRANDS, INC., a Delaware
corporation, (hereinafter referred to as "SABI" or the "Company"), and
STANLEY G. MORTIMER III (hereinafter referred to as "Mr. Mortimer").
WHEREAS, Mr. Mortimer has served as an officer, director and/or
employee of SABI since 1984;
WHEREAS, Mr. Mortimer has resigned from the office of Executive Vice
President of the Company and as a director of the Company effective May 23,
1997;
WHEREAS, the Company desires to provide Mr. Mortimer with certain
severance benefits; and
WHEREAS, Mr. Mortimer desires to accept such benefits under the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as
follows:
1. SEVERANCE BENEFITS. The Company agrees to provide Mr. Mortimer with
the following severance benefits:
(a) Mr. Mortimer shall be paid the sum of two hundred fifty thousand
dollars ($250,000.00), in a lump sum payment within seven (7) days of the
termination of the waiting periods set forth in Section 13 hereof. All
other compensation shall cease as of the Effective Date, and Mr. Mortimer
shall thereafter not be entitled to the payment of any bonus (in respect of
his employment in 1997 or otherwise), car allowance or any other amounts.
(b) On the Effective Date, SABI shall cease to pay premiums to the
Company's insurance carrier for medical and dental insurance for the
benefit of Mr. Mortimer and his dependents. Mr. Mortimer shall have the
option of continuing medical and dental coverage under COBRA at his sole
expense.
(c) The Company agrees to reimburse Mr. Mortimer for the purchase of a
computer and related equipment in the amount of up to $3,000, payable upon
receipt of appropriate invoices evidencing such expenditure by Mr.
Mortimer.
(d) The Company shall pay for outplacement services to be provided by
Lee Hecht Harrison for Mr. Mortimer for a period of up to one year. The
Company shall have no obligation to pay and Mr. Mortimer shall have no
right to receive cash or other payment in lieu of such services.
(e) SABI shall maintain phone, voicemail and secretarial services at
SABI for Mr. Mortimer for a three (3) month period commencing on the
Effective Date.
(f) Pursuant to the Stock Option Agreements dated July 15, 1994 (the
"July Option Agreement"), January 26, 1995 (the "January Option Agreement")
and November 14, 1996 (the "November Option Agreement"), the Company
granted to Mr. Mortimer options to purchase an aggregate of up to 60,000
shares of the Company's common stock. In order that Mr. Mortimer shall have
until the close of business on February 1, 1998 to exercise such options
that have vested by the termination of his employment hereunder, Section
7(c) of the July Option Agreement and Section 3(d) of the January Option
Agreement and the November Option Agreement are hereby amended to read as
follows:
"If the employment of the Grantee shall be terminated and Grantee
shall not have fully exercised the Option, the Option may be exercised
to the extent that the Grantee's right to exercise the Option had
accrued at the time of the termination of his employment and had not
been previously exercised, at any time on or before the close of
business on February 1, 1998 but may not be exercised in whole or in
part after the close of business in February 1, 1998."
2. CONFIDENTIALITY. Mr. Mortimer will keep secret and will not,
without the express written consent of the Company:
(a) knowingly divulge or communicate to any third person, or use for
the benefit of Mr. Mortimer or any third person, any trade secrets or
privileged, proprietary or confidential information used or owned by the
Company or any affiliate or disclosed to or learned by him in the course of
his employment by the Company including, without limitation, non-public
information concerning products, profitability, the identity of, and
information relating to dealings with customers and suppliers; or
(b) retain for the benefit of himself or any third person any document
or paper used or owned by the Company or any affiliate or coming into his
possession in the course of his employment by the Company or make or cause
to be made any copy, abstract, or summary thereof.
3. REMEDIES. Because the Company does not have an adequate remedy at
law to protect its interest in its trade secrets, confidential information
and similar commercial assets, Mr. Mortimer agrees that any breach or
threatened breach of any provision of this Agreement relating to
confidentiality shall entitle the Company, in addition to any other legal
or equitable remedies available to it, to apply to any court of competent
jurisdiction to enjoin such breach or threatened breach without the posting
of any bond or any security.
4. RELEASE. Mr. Mortimer, for him and for his successors and assigns,
does hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE
SABI, and its affiliates, subsidiaries or other related entities as well as
its shareholders, officers, directors, employees or agents, from any and
all claims, debts, demands, actions, causes of action, suits, sums of
money, contracts, agreements, judgements and liabilities, including
attorney's fees, whatsoever, both in law and in equity ("claims") of any
kind and any character that he ever had, might now or hereafter have, or
could have had, whether in contract, tort or otherwise, including
specifically any claims of discrimination that he may claim in connection
with his employment or the termination thereof. This includes but is not
limited to, claims arising under the federal, state or local laws
prohibiting discrimination on the basis of one's sex, race, age,
disability, national origin, color or religion, or other reason forbidden
by federal, state or local laws or claims growing out of any legal
restrictions on SABI's right to terminate its employees. This also
specifically includes the waiver of any rights or claims arising under the
Age Discrimination in Employment Act of 1967 (29 U.S.C. 621 et seq.). It is
also understood that the execution of this Agreement shall be construed as
a release and covenant not to sue, that Mr. Mortimer will not sue SABI or
any subsidiary, affiliate, officer, director, employee or committee
thereof, or file any claims of any sort with any administrative agency for
anything arising out of his employment, and the terms of this Agreement
supersede any and all other agreements relating to his employment whether
written or oral.
5. CONFIRMATION OF RESIGNATION. Mr. Mortimer acknowledges, confirms
and agrees that (i) effective May 23, 1997, he resigned from any and all
positions held as an officer and director of SABI and all of SABI's
subsidiaries and (ii) he resigns as an employee of SABI and its
subsidiaries as of the date hereof.
6. SPLIT DOLLAR LIFE INSURANCE. On the Effective Date, SABI shall
cease payments to any split dollar life insurance policies paid for by SABI
for the benefit of Mr. Mortimer. Mr. Mortimer shall have the right to repay
SABI within ninety days of the Effective Date an amount equal to the cash
surrender value of such policies and to continue such policies at his sole
expense. If Mr. Mortimer elects not to repay such amount, he shall promptly
execute any and all instruments that may be required to relinquish his
interest in and terminate such policies.
7. ADVICE OF COUNSEL. SABI encourages Mr. Mortimer to carefully review
the terms of this Agreement and, if he wishes, to seek advise and counsel
from an attorney before signing this Agreement.
8. DIVISIBILITY OF AGREEMENT. In the event that any term, condition or
provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
9. NOTICES. Any notices or other communications required or permitted
to be sent hereunder shall be in writing and shall be duly given if
personally delivered or sent postage pre-paid by certified or registered
mail, return receipt requested, or sent by electronic transmission and
confirmed by mail within two business days of such transmission, as
follows:
(a) If to Mr. Mortimer:
Mr. Stanley G. Mortimer III
117 East 72nd Street
New York, New York 10021
(b) If to SABI:
Swiss Army Brands, Inc
One Research Drive
Shelton, Connecticut 06484
Either party may change his or its address for the sending of notice
to such party by written notice to the other party sent in accordance with
the provisions hereof.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement and understanding between the parties hereto in respect of the
subject matter hereof and supersedes, cancels and annuls any prior or
contemporaneous written or oral agreement, understandings, commitments and
practices between them respecting the subject matter hereof. This Agreement
may not be altered or amended except by a writing, duly executed by the
party against whom such alteration or amendment is sought to be enforced.
11. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of Connecticut with respect to
agreements made and to be performed wholly therein.
12. ASSIGNMENT. This Agreement is personal and non-assignable by Mr.
Mortimer. It shall inure to the benefit of, and be the valid and binding
obligation of, any corporation or other entity with which the Company shall
merge or consolidate or to which the Company shall lease or sell all or
substantially all of its assets and may be assigned by the Company to any
affiliate of the Company or to any corporation or entity with which such
affiliate shall merge or consolidate or which shall lease or acquire all or
substantially all of the assets of such affiliate.
13. PERIOD TO REVIEW AND REVOKE. After Mr. Mortimer has had the chance
to review this Agreement and to consult with his attorney, if he wishes, he
should sign the Agreement and the Acknowledgement, attached hereto as
Exhibit A, and return them to SABI within 22 days.
After Mr. Mortimer has executed and delivered this Agreement, he shall
have seven (7) days following the date of execution during which time he
may revoke this Agreement, provided, however, that, if he elects to return
an executed copy of the document to SABI before the expiration of 22 days
from the date hereof, he may revoke this Agreement at any time before the
later to occur of seven (7) days following the date of execution or 22 days
after the date hereof. If SABI does not receive a written revocation from
Mr. Mortimer, or his attorney, prior to the expiration of the period in
which he may revoke this Agreement, this Agreement will become effective on
the date after the expiration of the applicable revocation period.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the day and year first above written.
/s/ Stanley G. Mortimer III
Stanley G. Mortimer III
SWISS ARMY BRANDS, INC.
By:/s/ J. Merrick Taggart
Title: President
This LICENSE AGREEMENT ("Agreement") made as of the 15th day of May
1997 ("Effective Date"), by and between ST. JOHN KNITS, INC., a California
corporation with offices at 17422 Derian Avenue, Irvine, California 94618
("St. John"), and SWISS ARMY BRANDS, INC., a Delaware corporation
("Licensee") with offices at One Research Drive, Shelton, Connecticut 06484
("Licensee Location").
WITNESSETH:
In consideration of the mutual covenants hereinafter set forth, St.
John and Licensee do hereby respectively grant, covenant and agree as
follows:
1. Grant of License
----------------
1.1 Subject to the terms and conditions set forth in this Agreement,
St. John hereby grants to Licensee, and Licensee hereby accepts, a
non-transferable (except as set forth herein) exclusive license, for the
Term (as defined below), to use the trademark(s) set forth in Schedule A
hereto ("Licensed Trademarks") in connection with the manufacture,
distribution and sale solely of the products described in Schedule A hereto
("Licensed Products") within the territory described in Schedule A hereto
("Territory") and not elsewhere. During the Term, St. John agrees that it
shall not itself (except as specifically provided herein) nor shall it
license any party other than Licensee to sell Licensed Products bearing the
Licensed Trademarks in the Territory. Nothing herein contained shall
prevent or restrict St.John or Licensee or parties licensed by either of
them from manufacturing, marketing or selling products bearing or under any
marks other than Licensed Trademarks (or marks confusingly similar
thereto), it being understood that the license herein granted extends only
to the Licensed Trademarks and no other marks and further it being
understood and agreed that Licensee does not have any right to grant any
sublicense relating to the Licensed Trademarks or Licensed Products.
Licensee acknowledges and agrees St. John may enter into license agreements
with others covering the Licensed Trademarks as applied to goods other than
the Licensed Products. St. John shall, at St. John's expense, register the
Licensed Trademarks for use in connection with the Licensed Products in
those jurisdictions included within the Territory. During the Term, St.
John agrees that it shall not license any party other than Licensee to sell
Licensed Products bearing the Licensed Trademarks in any territory
throughout the world.
1.2 Licensee shall use all reasonable efforts to sell the Licensed
Products and to exploit the rights herein granted throughout the Territory
consistent with the high standards and prestige represented by the Licensed
Trademarks.
1.3 Licensee shall not export Licensed Products from the Territory or
sell Licensed Products to any entity which it knows or has reason to
believe intends to export Licensed Products from the Territory. Licensee
acknowledges and agrees that the sale or marketing of the Licensed Products
by it or by persons authorized by it to manufacture the Licensed Products
for Licensee outside of the Territory will materially damage St. John and
its relationships with other licensees, and that, accordingly, such sales
shall be deemed a material breach of this Agreement.
1.4 Any dispute between Licensee and any other licensee of St. John
with respect to the scope of the license rights covered by their respective
license agreements shall be resolved by St. John and St. John's resolution
of such dispute shall be final and binding; provided that nothing in this
Agreement shall detract from Licensee's exclusive rights granted hereunder.
1.5 Licensee shall not sell any Licensed Products to any person or
company it knows or has reason to know will sell, market or advertise the
Licensed Products as part of or in combination with any items other than
other Licensed Products.
2. Term and Term Renewal
---------------------
"Term" means the Initial Term (as defined in Schedule A hereto),
subject to extensions as set forth herein. This Agreement shall continually
renew for additional terms of such duration as is set forth in Schedule A
hereto under the Duration of Additional Terms ("Additional Terms") provided
that (a) Licensee is in compliance with all material terms of this
Agreement on the last day of the then current Annual Period (subject to
Licensee's right to notice of default and right to cure in accordance with
Section 14 hereof and unless such failure is waived by St. John), and (b)
Net Sales (as hereinafter defined) for the then current Annual Period are
not less than as set forth in the Table of Minimum Net Sales for Licensed
Products as set forth in Schedule A hereto ("Minimum Net Sales Table")
unless such failure is waived by St. John. The First Annual Period shall
commence on the Effective Date and end on the date set forth on Schedule A
hereto. The First Annual Period and each twelve (12) month period
commencing on the first day after the end of the First Annual Period shall
constitute and shall be referred to herein as an "Annual Period." It is
understood and agreed that if in any Annual Period Licensee's total Net
Sales for the Licensed Product exceed the Minimum Net Sales for such Annual
Period ("Minimum Net Sales Surplus") then for purposes of this Section 2
and Section 14.3 hereof any Minimum Net Sales Surplus shall be offset
against the Minimum Net Sales for the next two (2) Annual Periods
immediately following the Annual Period in which the Minimum Net Sales
Surplus occurred. In the event this Agreement is renewed beyond the number
of years set forth in the Minimum Net Sales Table, then the Minimum Net
Sales for each such succeeding year shall be equal to the Minimum Net Sales
for the immediately prior Annual Period. In the event that for two
consecutive years "Net Sales" (as defined in Section 4.2) shall be less
than Minimum Net Sales for the respective years and Licensee shall not
otherwise be in material default hereunder, Licensee may, at its option,
terminate this Agreement on 90 days written notice effective on the later
to occur of: (a) the beginning of business on the last business day of the
second of such years; or (b) 90 days after the sending of such notice. In
the event of such termination, Licensee shall remain responsible for all
Sales Royalties and also for Guaranteed Minimum Royalties for all periods
through the Quarterly Period in which such termination is effective. In
such event, the rights of the parties shall be as set forth in Section 14
hereof relating to the expiration of this Agreement.
3. Guaranteed Minimum Royalty
--------------------------
3.1 (a) In consideration of the license granted by St. John hereunder,
and as a condition to the use of the Licensed Trademarks, Licensee shall
pay to St. John a guaranteed minimum royalty ("Guaranteed Minimum Royalty")
for each Annual Period as set forth in Schedule A hereto in the Guaranteed
Minimum Royalty Table.
(b) In the event this Agreement is renewed beyond the number of years
set forth in the Guaranteed Minimum Royalty Table, Licensee shall pay to
St. John a Guaranteed Minimum Royalty equal to the Guaranteed Minimum
Royalty for the immediately prior Annual Period.
3.2 Unless otherwise provided in Schedule A hereto, the Guaranteed
Minimum Royalty payable for each Annual Period shall be paid to St. John in
four (4) equal quarter-annual installments within thirty (30) days after
the close of each three (3) month period during each such Annual Period
("Quarterly Period").
3.3 All payments of the Guaranteed Minimum Royalty are nonrefundable.
Guaranteed Minimum Royalty payments actually paid to St. John shall be
credited against the Sales Royalty (as hereinafter defined) payable on
sales made during the Annual Period for which such Guaranteed Minimum
Royalty payments were due (and no other Annual Period) except as set forth
in Section 4.1.
3.4 Subject to Section 4.1 below, in the event the Sales Royalty (as
defined below) paid by Licensee for any Annual Period is less than the
Guaranteed Minimum Royalty for such Annual Period, Licensee shall pay such
deficit to St. John within thirty (30) days after the close of each
Quarterly Period.
4. Sales Royalty
-------------
4.1 In consideration of the license granted by St. John hereunder, and
as a condition to the use of the Licensed Trademarks, Licensee shall pay to
St. John an amount equal to ten percent (10%) of any and all Net Sales
("Sales Royalty"); provided that to the extent that Net Sales of Close-outs
(as defined below) do not exceed fifteen percent (15%) of Licensee Net
Sales of Licensed Products, Sales Royalty with respect to such Close-outs
shall be five percent (5%) of the Close-out Net Sales; provided further
that for purposes of this section Close-outs shall mean Licensed Products
sold at a discount greater than twenty-five percent (25%) off manufacturers
initial list wholesale price for such Licensed Product. It is understood
and agreed that for purposes of calculating the Sales Royalty, except as
set forth herein each Annual Period shall be treated separately and sales
made in one Annual Period shall not be added to or included in Net Sales
for any other Annual Period or credited against the Guaranteed Minimum
Royalty due for any other Annual Period. It is also understood and agreed
that if in any Quarterly Period the total Sales Royalty paid by Licensee to
St. John exceeds the Guaranteed Minimum Royalty for such Quarterly Period
("Minimum Royalty Surplus") then the Minimum Royalty Surplus shall be
offset against the Guaranteed Minimum Royalty for subsequent Quarterly
Periods within the same Annual Period and within the next two (2) Annual
Periods immediately following the Annual Period in which the Minimum
Royalty Surplus occurred.
4.2 For purposes hereof, the term "Net Sales" shall mean the invoiced
amount of Licensed Products sold by Licensee or any of its affiliates, less
returns and allowances evidenced by credit memoranda, and, if separately
stated on sales invoices to Licensee's customers, customary trade discounts
actually earned and taken by customers, shipping charges, insurance and
sales taxes (or any use, value-added or similar taxes, but in no event to
include any income or franchise taxes). In determining Net Sales, no
deduction may be made for early payments, bad debts, advertising allowances
or special promotions of any kind or for costs incurred in manufacture,
sale, advertising or promotion. For purposes of calculating Net Sales, the
price of Licensed Products sold by Licensee to persons or companies related
to Licensee by ownership, control, or affiliation shall be deemed to be
Licensee's then current list price for such Licensed Products or the price
then charged to unrelated parties in arms length transactions for such
products in similar quantities and under similar terms of sale, whichever
is lower. Net Sales shall not include sales to St. John, St. John boutiques
or St. John outlets pursuant to Section 10.7 and no Sales Royalty shall be
paid in respect of such sales. A sale of Licensed Products shall be deemed
made when the Licensed Products are invoiced, shipped or paid for,
whichever is first to occur.
4.3 Except as provided in Schedule A hereto, the Sales Royalty
hereunder shall be due and paid quarterly within thirty (30) days after the
last day of each Quarterly Period during the term of this Agreement (or
portion thereof in the event of prior termination for any reason) in which
the sales on which they are based are made. The Sales Royalty payable for
each Quarterly Period during each shall be computed on the basis of Net
Sales during such Quarterly Period, with a credit for any Guaranteed
Minimum Royalty and any Sales Royalty payments theretofore made to St. John
for said Quarterly Period.
4.4 Except as specifically set forth in Section 4.1, no payment of
Sales Royalty or Guaranteed Minimum Royalty for any Annual Period shall be
credited against the Sales Royalty or Guaranteed Minimum Royalty due to St.
John for any other Annual Period.
4.5 If Licensee shall fail to make any of the payments due St. John
hereunder as and when due, in addition to any other rights or remedies St.
John may have under this Agreement or otherwise at law or in equity, St.
John shall have the right to give Licensee written notice specifying the
default, and if Licensee shall fail to make the overdue payments to St.
John within ten (10) days after the giving of such notice, unless Licensee
shall contest such payments in good faith in which event such disputed
amount shall be placed in an interest bearing escrow account pending
resolution of such disputes and such ten day period shall commence at the
conclusion of such contest, then (a) all payments of the Guaranteed Minimum
Royalty for the entire then current Quarterly Period, to the extent not
theretofore paid, shall immediately become due and payable to St. John and
(b) the Licensee's right to use the Licensed Trademarks shall be
immediately terminated.
4.6 In addition to any other rights or remedies St. John may have
under this Agreement or otherwise at law or in equity, if Licensee fails to
make any payment due hereunder, Licensee shall pay interest on the unpaid
balance thereof from and including the date such payment becomes due until
the date the entire amount is paid in full at a rate equal to the lesser
of: (i) the per annum rate equal to the prime rate being charged in Los
Angeles, California by Union Bank as of the close of business on the date
the payment first becomes due plus three percent (3%), or (ii) the maximum
rate permitted by applicable law.
5. Sales Statement
---------------
5.1 Licensee shall deliver to St. John at the time each Sales Royalty
payment is due, a statement certified by a duly authorized officer of
Licensee as accurate, indicating, by month and by outlet or customer, the
number and invoice price of all Licensed Products shipped or sold
(whichever occurs first) during the period covered by such Sales Royalty
payment, the amount of discounts and credits from gross sales which may be
deducted therefrom, a computation of the amount of Sales Royalty payable
hereunder for said period, and such other information as St. John may
reasonably request from time to time. Such statement shall be furnished to
St. John whether or not any Licensed Products have been sold during the
period for which such statement is due. Together with each such statement,
Licensee shall deliver to St. John a copy of Licensee's then current
customer list for Licensed Products.
5.2 Licensee shall deliver to St. John, not later than forty-five (45)
days after the close of each Annual Period (or portion thereof in the event
of prior termination for any reason), a statement certified by its chief
executive or financial officer relating to said entire Annual Period,
setting forth the same information required to be submitted by Licensee in
accordance with Section 5.1 above and also setting forth, with respect to
the advertising and promotion of Licensed Products, the total amount
expended by Licensee therefor during such Annual Period, including and
stating separately those amounts paid for cooperative, trade and national
consumer media advertisements. Receipt, negotiation or acceptance by St.
John of any of the statements furnished, or of any sums paid to St. John,
pursuant to this Agreement will not preclude St. John from questioning
their correctness.
6. Books and Records; Audits; Financial Statements
-----------------------------------------------
6.1 Licensee shall prepare and maintain, in accordance with generally
accepted accounting practices consistently applied, separate complete true
and accurate books of account and records (specifically including, without
limitation, the originals or copies of documents supporting entries in the
books of account) covering all transactions relating to this Agreement,
which books and records shall be kept and maintained so as to enable and
facilitate verification of the payments due St. John under this Agreement
and shall reflect all sales and shipments of Licensed Products, all
deducted amounts that are authorized hereunder, all advertising related to
the Licensed Products, and the amount of the Sales Royalty payable to St.
John hereunder ("Licensee Records").
6.2 St. John and its duly authorized representatives shall have the
right, during regular business hours, for the duration of this Agreement
and for three (3) years thereafter, to audit the Licensee Records and
examine all other documents and material in the possession or under the
control of Licensee with respect to the subject matter and the terms of
this Agreement, including, without limitation, invoices, credits and
shipping documents. All such books of account, records and documents shall
be kept available by Licensee for at least three (3) years after the end of
the Annual Period to which they relate. If, as a result of any audit of
Licensee's books and records, it is shown that Licensee's payments to St.
John were less than the amount which should have been paid pursuant to the
terms of this Agreement ("Discrepancy"), then Licensee shall pay St. John,
within five (5) days of St. John's notice to Licensee of such Discrepancy,
any and all payments required to be made to eliminate any Discrepancy
revealed by said audit. If the Discrepancy is in an amount equal to or
greater than seven and one-half percent (7.5%) of the amount actually paid
with respect to sales occurring during the quarterly period in question,
Licensee shall promptly reimburse St. John for the reasonable cost of such
audit. Except as reasonably required to enforce its rights and remedies
under this Agreement, St. John will not disclose to a third party the
Licensee Records obtained by St. John pursuant hereto; provided, however,
that St. John will have no such obligation with respect to information
which: (i) is in the public domain or otherwise publicly disclosed by
Licensee, (ii) St. John obtained from a third party that St. John
reasonably believed was not under an obligation of confidentiality with
respect to such information, (iii) is disclosed by Licensee to a third
party without confidentiality obligations, or (iv) is otherwise
independently derived by St. John.
6.3 Provided that an audited financial statements are prepared for any
fiscal year of Licensee during the Term hereof, Licensee shall deliver to
St. John such audited financial statements of Licensee within 12 weeks of
the end of each fiscal year of Licensee, otherwise Licensee shall deliver
to St. John un-audited financial statements of Licensee within 12 weeks of
the end of each fiscal year of Licensee.
7. Design Services
---------------
7.1 From time to time during each Annual Period, St. John may prepare
and deliver to Licensee ideas, sketches and other materials for Licensed
Products ("St. John Product Ideas"). St. John Product Ideas may, in
Licensee's sole discretion, be used by Licensee on a non-exclusive basis,
solely in connection with the manufacture, distribution and sale of
Licensed Products in the Territory and pursuant to this Agreement. If
Licensee does not notify St. John of Licensee's intent to use such St. John
Product Ideas within forty-five (45) days of Licensee's receipt thereof,
thereafter immediately commence and continue to take commercially
reasonable steps toward the manufacture of Licensed Products based on such
St. John Product Ideas and actually commence use of such St. John Product
Ideas (by manufacturing Licensed Products based thereon) within eighteen
(18) months of Licensee's receipt thereof, then Licensee shall return the
St. John Product Ideas to St. John, at Licensee's expense, and may not use
them or permit their use thereafter. Whether or not Licensee chooses to use
any St. John Product Ideas, subject to the rights of Licensee as set forth
in this Agreement, St. John may use and permit others to use them in any
manner it desires. St. John shall at all times retain ownership of any and
all intellectual property rights related to St. John Product Ideas and
Licensee shall keep all information related to the St. John Product Ideas
confidential and shall not disclose such information to any party without
the prior written consent of St. John in each instance; provided, however,
that Licensee shall have no such obligation with respect to information
which (i) is in the public domain or otherwise publicly disclosed by St.
John, (ii) Licensee obtained from a third party that was not under an
obligation of confidentiality with respect to such information, (iii) is
disclosed by St. John to a third party without confidentiality obligations,
or (iv) is otherwise independently derived by Licensee and provided further
that Licensee may disclose to the manufacturer of Licensed Products based
upon the St. John Product Ideas ("SJI Licensed Product Manufacturer") that
portion of the information related to the St. John Product Ideas that the
SJI Licensed Product Manufacturer has a need to know in connection with
such manufacture, provided that such manufacturer is obligated in writing
to keep such information confidential.
7.2 During each Annual Period, Licensee shall submit to St. John
materials, designs, sketches, colors, tags, labels and packaging from which
St. John may select those, if any, which St. John approves for use in
connection with Licensed Products. St. John may, in its sole discretion,
approve or disapprove the materials, designs, sketches, colors, tags,
labels and packaging submitted as aforesaid and shall discuss with Licensee
any modifications or alterations thereof. Licensee shall not use any such
materials, designs, sketches, colors, tags, labels or packaging in
connection with Licensed Products without first obtaining the prior express
written consent of St. John. Licensee shall, at all times, retain ownership
of any intellectual property to its ideas and designs (excluding the
Licensed Trademarks) provided that such ideas and designs have not been
embodied in a Licensed Product sold in commercial quantities.
7.3 Licensee shall be responsible for making all samples, as well as
for the production of Licensed Products, and Licensee shall bear all costs
in connection therewith.
8. Manufacture of Licensed Products; Quality Control
-------------------------------------------------
In order to protect the goodwill and reputation associated with the
Licensed Trademarks, Licensee covenants and agrees as follows:
8.1 Subject to the other provisions of this Agreement including
Section 14.1, the contents and workmanship of Licensed Products shall be at
all times of quality subject to St. John's approval as set forth herein and
the Licensed Products shall be distributed and sold with packaging and
sales promotion materials appropriate for Licensed Products and subject to
St. John's approval and shall meet all reasonable specifications and
standards therefor which St. John may provide Licensee from time to time.
The Licensed Products shall conform to samples submitted by Licensee and
approved by St. John's. The Licensee shall use all reasonable efforts
expeditiously to submit such samples and St. John shall use all reasonable
efforts expeditiously to approve or disapprove such samples. Until the
submission and approval of such samples, the contents and workmanship of
Licensed Products shall be commensurate with the quality of other products
being sold under the Licensed Trademark. In the event Licensee and St. John
do not agree on Design Samples for the initial collection within a
reasonable period following the Effective Date, either party shall have the
option of terminating this Agreement.
8.2 The styles, designs, packaging, contents, workmanship and quality
of all Licensed Products must be approved by St. John in writing prior to
the distribution or sale thereof.
8.3 Prior to any commercial production, sale or distribution, Licensee
shall submit to St. John Design Samples of the proposed Licensed Products
and obtain St. John's written approval therefor in accordance herewith.
"Design Samples" shall mean either a sample of a proposed Licensed Product
or a drawing thereof together with manufacturing specifications. "Approved
Design Samples" shall mean Design Samples for which written approval has
been given by a duly authorized officer or employee of St. John, setting
forth those Design Samples approved by St. John for inclusion in the
collection as Licensed Products. In the event that St. John rejects any
particular Design Sample, Licensee shall either modify the rejected Design
Sample and obtain St. John's written approval therefor in accordance
herewith, or abandon commercial production, sale or distribution, of such
Design Sample as Licensed Product hereunder ("Abandoned Design Samples").
St. John will not disclose to a third party any information identified in
writing by Licensee as confidential trade secret information related to the
Abandoned Design Samples obtained by St. John pursuant hereto; provided,
however, that St. John will have no such obligation with respect to any
such information which: (i) is in the public domain or otherwise publicly
disclosed by Licensee, (ii) St. John obtained from a third party that was
not under an obligation of confidentiality with respect to such
information, (iii) is disclosed by Licensee to a third party without
confidentiality obligations, or (iv) is otherwise independently derived by
St. John.
8.4 Before selling or distributing any Licensed Product, Licensee
shall promptly submit to St. John, without cost to St. John, for St. John's
inspection, samples of each of the Licensed Products from the first
production run which shall conform in all material respects with the
Approved Design Samples previously approved (including all color samples,
tags, labeling and packaging therefor) ("Production Sample(s)"). If St.
John notifies Licensee that such Production Sample(s) do not conform in all
material respects to the Approved Design Sample(s), Licensee will cease to
sell, offer to sell, use or show the Licensed Products represented by such
sample(s) to the trade or public.
8.5 In addition, upon St. John's request, Licensee shall furnish to
St. John, without cost to St. John, samples of Licensed Products (including
all tags, labeling and packaging therefor) from Licensee's then current
regular production runs of Licensed Products so that St. John may assure
itself of the maintenance of the quality standards set forth herein.
8.6 The Licensed Products manufactured and sold pursuant to this
Agreement shall adhere strictly to the Approved Design Samples in all
material respects, including without limitation, materials, color,
workmanship, designs, dimensions, styling, detail and quality. In no event
shall any change thereto be made without the prior written consent of St.
John, subject to the constraints of normal manufacturing processes.
8.7 Subject to the provisions of this Agreement including Section
14.1, the quality, construction, workmanship, styling and materials of the
Licensed Products shown, offered for sale or sold to the trade or public
shall conform in all material respects to the quality, construction,
workmanship, styling and materials of Production Sample(s) thereof approved
by St. John, and in no event may such quality, construction, workmanship,
styling or materials be materially inferior to the originally submitted
samples of the Licensed Products.
8.8 Without limiting any other provision of this Agreement, all
Licensed Products shall comply with and be manufactured, sold, labeled,
packaged, distributed and advertised in accordance with, all applicable
laws and regulations and shall be at least equal in quality to the samples
approved by St. John.
8.9 St. John and its duly authorized representatives shall have the
right, at St. John's expense, upon reasonable advance notice and during
normal business hours, to examine Licensed Products in the process of being
manufactured and to inspect all facilities utilized by Licensee in
connection therewith.
8.10 In order to maintain the reputation, image and prestige of the
Licensed Trademarks, Licensee's distribution patterns shall consist of
those retail outlets whose location, merchandising and overall operations
are consistent with the high quality of Licensed Products and the
reputation, image and prestige of the Licensed Trademarks.
8.11 Licensee may not use a personality or celebrity to endorse or
promote any Licensed Products unless and until St. John has given Licensee
its specific written approval for such personality or celebrity to endorse
or promote Licensed Products.
8.12 Licensee's policy of sale, distribution and exploitation of the
Licensed Products shall be of high standard and shall in no manner reflect
adversely upon the good name of St. John or its other licensees or upon the
goodwill and reputation associated with the Licensed Trademarks.
9. Approvals
---------
It is specifically understood and agreed that St. John=s approval
pursuant to Sections 7 and 8 of this Agreement shall not be unreasonably
withheld. Any sample Licensed Product or other material submitted to St.
John for its approval which is not disapproved within twenty (20) business
days after St. John's receipt thereof shall be deemed approved for use
hereunder, but only for the use for which approval was sought.
10. Marketing; Promotion; Advertising; Trade shows
----------------------------------------------
10.1 Licensee shall exercise all reasonable efforts to promote,
develop, manufacture, advertise, sell and ship the Licensed Products in
appropriate media throughout the Territory as may be approved by St. John
and shall continuously and diligently seek to fill all accepted purchase
orders for Licensed Products and procure and maintain facilities and
trained personnel sufficient and adequate to accomplish the foregoing. A
cessation of the foregoing efforts for a continuous period of ninety (90)
days shall be grounds for immediate termination of this Agreement at St.
John's option effective upon written notice to Licensee.
10.2 During each Annual Period throughout the Term of this Agreement,
Licensee shall, at such trade shows related to products similar to the
Licensed Products (as reasonably determined by Licensee), maintain a
separate section in Licensee's trade show booth exclusively for the display
of finished Licensed Products. Said trade show booth shall be staffed and
maintained in a manner commensurate with the reputation and prestige of the
Licensed Trademarks as a designation for highest quality Licensed Products.
In fulfilling its obligations hereunder, Licensee shall engage such sales
representatives and other personnel as will, in a commercially reasonable
manner, maximize sales of Licensed Products and where appropriate shall
display the Licensed Products at merchandise marts and trade shows.
10.3 During each Annual Period during the Term, Licensee shall expend
(including expenditures in connection with cooperative advertising
programs), for advertising of the Licensed Products featuring the Licensed
Trademarks, a sum equal to or greater than ten percent (10%) of the Net
Sales of all Licensed Products during that Annual Period ("Annual
Advertising Minimum"); provided, however, that if Licensee expends less
than the Annual Advertising Minimum in any given Annual Period, Licensee
may must make up such shortfall in the immediately following Annual Period.
The advertising may be in the form of consumer, cooperative or trade
advertising. St. John has the right to pre-approve all of the advertising
materials in order to verify proper use and attribution regarding the
Licensed Trademarks. Licensee will submit to St. John a quarterly statement
of advertising expenditures together with the quarterly sales statement
required by Section 5.1 hereof. St. John has the right to audit all
advertising expenditure records.
10.4 Licensee agrees to provide St. John with written descriptions of
its marketing and distribution programs in such detail as may be reasonably
requested from time to time by St. John prior to their implementation and
as they may be modified from time to time. Licensee shall not proceed with
such marketing and distribution programs without the prior written approval
of St. John, which approval shall not be unreasonably withheld.
10.5 Nothing in this Agreement shall be deemed to obligate Licensee to
control the price at which its customers may sell the Licensed Products.
10.6 Subject to the following terms and conditions, Licensee shall
have the right, in its sole discretion, to utilize the modeling services of
Ms.Kelly Gray in advertising of the Licensed Products up to a maximum of
two (2) days per Annual Period at such times and places as are mutually
agreeable to Licensee and Ms.Gray. Licensee shall pay to St. John a fee of
$12,500 for each day it utilizes Ms. Gray's services pursuant hereto.
Licensee shall have the right to utilize the modeling services of Ms. Gray,
her name and likeness and the materials related thereto, including without
limitation the photographs and related advertising copy ("Ms. Gray
Campaign") only if: (a) Licensee uses the advertising agency selected by
St. John, in its sole discretion, including, without limitation, St. John's
own in-house advertising agency ("Designated Agency"), (b) Licensee uses
the Designated Agency for any and all services related to the Ms. Gray
Campaign including, without limitation, selection and control of, the
photographer, staff, photographs used (and the manner of such use) and the
associated advertising copy, and (c) Ms. Gray is given complete control and
discretion with regard to all aspects of the use of her name and likeness
including, without limitation, with regard to selection and control of, the
photographer, staff, photographs used (and the manner of such use), and the
associated advertising copy. Any use of the name or likeness of Ms. Gray
other than as specifically set forth in this Section 10.6 shall constitute
a material breach of this Agreement and, in addition to any other remedies
available to St. John or Ms. Gray at law or in equity, this Agreement shall
be subject to immediate termination by St. John in its sole discretion,
effective upon written notice to Licensee of such termination.
10.7 Licensee agrees to sell to St. John such reasonable quantity of
Licensed Products as St. John shall request at such prices and upon such
terms as are mutually agreed between the parties.
11. The Licensed Trademarks
-----------------------
11.1 Licensee acknowledges and agrees that Licensee shall acquire no
ownership rights to any of the Licensed Trademarks by virtue of this
Agreement or otherwise and that all uses by Licensee of the Licensed
Trademarks and any and all goodwill related thereto shall inure to the
benefit of St. John. Licensee shall not, at any time, do or suffer to be
done any act or thing which may in any way adversely affect the validity of
any Licensed Trademark, any rights of St. John in and to any Licensed
Trademark or any registrations thereof or which, directly or indirectly,
may reduce the value of the Licensed Trademark or detract from its
reputation.
11.2 Licensee shall not use the Licensed Trademarks, in whole or in
part, as a corporate name or trade name. Licensee shall not join any name
or names with the Licensed Trademarks so as to form a new mark or for any
other purpose or use. Licensee shall not use any name or names in
connection with the Licensed Trademarks in advertising, publicity,
labeling, packaging or printed matter of any kind utilized by Licensee in
connection with Licensed Products, unless and until St. John consents
thereto in writing.
11.3 At St. John's request, Licensee shall execute any and all
documents reasonably required by St. John to confirm St. John's ownership
of all rights in and to the Licensed Trademarks and the respective rights
of St. John and Licensee pursuant to this Agreement. Licensee shall
cooperate with St. John in connection with the filing and prosecution by
St. John of applications in St. John's name to register the Licensed
Trademarks for Licensed Products and the maintenance and renewal of such
registrations as may issue.
11.4 Licensee shall use the Licensed Trademarks in the Territory
strictly in compliance with the legal requirements obtaining therein and
shall use such markings in connection therewith as may be required by
applicable legal provisions. Licensee shall use and display the Licensed
Trademarks only in such form and manner as are specifically approved in
writing by St. John. Licensee shall cause to appear such legends, markings
and notices as St. John may request, including, without limitation, the
appropriate trademark or service mark notice, either "TM", "SM", or (R) as
may be reasonably necessary in order to give appropriate notice of any
trademark, service mark or other rights therein or pertaining thereto, on
all Licensed Products produced hereunder, and on their tags, packaging and
the like, and on all advertising, promotional and publicity material used
by Licensee in connection therewith including, without limitation,
point-of-sale displays and similar materials, and on any printed matter of
any kind on which Licensee elects to have the Licensed Trademarks appear,
including, but not limited to, business cards, invoices, order forms and
stationery. Before using or releasing any such material, Licensee shall
submit to St. John, and obtain St. John's prior written approval for, any
and all proposed advertising, promotional and publicity copy, finished
artwork for tags, labels, packaging and the like and all materials or
formats of any kind on which the Licensed Trademarks appear. After any
sample, copy, artwork or other material has been approved, Licensee shall
not depart therefrom in any substantial respect without the prior written
approval of St. John. If St. John should disapprove any sample Licensed
Product or any sample tag, label, packaging or the like, or any
advertising, promotional or publicity material, Licensee shall neither use
nor permit the same to be used in any manner in connection with Licensed
Products.
11.5 Licensee shall not, during the Term or at any time thereafter,
directly or indirectly, contest or aid others in contesting the ownership
of the Licensed Trademarks or the validity of said trademarks.
11.6 In the event that Licensee learns of any infringement, act of
unfair competition by third parties or imitation of the Licensed Trademarks
or of any use by any person of a trademark similar to any Licensed
Trademark, it shall promptly notify St. John thereof. St. John thereupon
may take such action as it deems advisable for the protection of its rights
in and to the Licensed Trademarks and, if requested to do so by St. John,
Licensee shall cooperate with St. John in all respects at St. John's sole
expense, including without limitation by being a plaintiff or co-plaintiff
and by causing its officers to execute pleadings and other necessary
documents and to causing its officers and employees to devote appropriate
time to litigation and/or disposition of all matters within the purview of
this Section 11.6; it is understood that Licensee's officers and employees
will not be compensated for their time and effort. St. John shall take such
action but only such action as is commercially reasonable to protect its
and Licensee's rights in and to the Licensed Trademarks. Licensee shall
have no right to take any action with respect to the Licensed Trademarks
without St. John's prior written approval. St. John shall have full control
over any action taken, including without limitation, the right to select
counsel, to settle on any terms it deems advisable in its discretion, to
appeal any adverse decision rendered in any court, to discontinue any
action taken by it, and otherwise to make any decision in respect thereto
as it in its discretion deems advisable. If Licensee desires to retain its
own counsel, it shall do so at its own expense. Any recovery as a result of
such action shall belong solely to St. John.
11.7 Licensee agrees that it shall not, during the Term or thereafter,
register or apply to register any of the Licensed Trademarks or any
trademarks or logos similar thereto anywhere in the world. Without limiting
the foregoing, upon and after the expiration or termination of this
Agreement, Licensee, upon St. John's request, shall execute such documents
as may be necessary to further confirm St. John's rights in the Licensed
Trademarks.
11.8 Licensee shall use in connection with the Licensed Trademarks and
their packaging and advertising such trademark and copyright notices as
shall be required by St. John. Insofar as any packaging and advertising
material is not created by Licensee, Licensee shall execute such
assignments of copyright as St. John shall reasonably require.
Notwithstanding the foregoing sentence, Licensee's existing copyrights,
trademarks and other proprietary rights incorporated into such artwork
shall remain the property of Licensee and shall not be assigned to St. John
and shall not be subject to St. John's use, without Licensee's prior
written consent.
11.9 Other than the Licensed Products, Licensee shall not, during the
Term or at any time thereafter, directly or indirectly, market or sell any
product which is of such a design as to be associated by consumers with St.
John.
12. Copyright
---------
Any copyright which may be created in any materials provided by St.
John hereunder including, without limitation, any sketch, design,
packaging, label, tag or the like designed or approved by St. John shall be
the property of St. John. Licensee shall not, at any time, do or suffer to
be done any act or thing which may adversely affect any rights of St. John
in such sketches, designs, packaging, labels, tags and the like, including,
without limitation, disclosing such information or filing any application
in Licensee's name to record any claims to copyrights in Licensed Products,
and Licensee shall do all things reasonably required by St. John to
preserve and protect said rights, including, without limitation, placing
the copyright notice on all Licensed Products and the packaging, labels and
tags therefor.
13. Indemnity; Insurance
--------------------
13.1 Licensee hereby indemnifies, saves and holds St. John harmless
from and against any and all liabilities, losses, damages and expenses
(including reasonable attorneys' fees and expenses) arising out of or
resulting from: (i) any act or omission that may be committed or suffered
by Licensee or any of its servants, agents or employees in connection with
Licensee's performance of this Agreement, (ii) any actual or alleged
defects in any of the Licensed Products or other claim related to any of
the Licensed Products, (iii) any actual or alleged infringement or
violation of any patents, copyrights, trademarks (other than those arising
from the use of the Licensed Trademarks as permitted hereunder) or other
rights, including trade secrets and rights of privacy and publicity, in
connection with the manufacture, distribution, sale, use, advertisement or
promotion of any of the Licensed Products, (iv) Licensee's false or
misleading advertising in connection with any of the Licensed Products, (v)
any violation of any applicable law or regulation in connection with the
manufacture, marketing, distribution, sale, advertisement or promotion of
any of the Licensed Products, (vi) any use of any of the Licensed
Trademarks in a manner not authorized by this Agreement, or (vii) any
breach of this Agreement by Licensee. Subject to the provisions of this
Agreement, St. John will promptly notify Licensee of any claim covered by
indemnification contained in this Section 13.1. Upon receipt of such
notification, Licensee shall notify St. John whether Licensee deems such
claim to be within the ambit of this Section 13.1. If Licensee replies in
the affirmative, Licensee shall defend such claim at its expense by counsel
reasonably selected by Licensee. If Licensee shall fail to respond to such
notice within 10 days or if Licensee shall respond to such notice by
denying that such claim is within the ambit of this Section 13.1, St. John
may defend such claim by counsel reasonably selected by St. John without
waiving St. John's rights to indemnification, if any, pursuant to this
Section 13.1. Notwithstanding anything to the contrary herein contained,
the indemnification provided by this Section 13.1 shall not apply to claims
related to the use of Licensed Trademarks as permitted hereunder nor to
claims by St. John against Licensee for violation of this Agreement.
Notwithstanding any provision hereof, Licensee shall not be liable for
damages to St. John hereunder to the extent that such damages result from
St. John's failure to promptly notify Licensee of claims or actions.
Notwithstanding any provision hereof, regarding any claim under Section
13.1(iii) involving actual or alleged infringement or violation of the
Licensed Trademarks (other than claims between the parties hereto), the
parties shall jointly control the defense of such claim, both parties shall
cooperate in good faith in connection with such defense and each pay one
half of the legal fees incurred in connection with the defense of such
claims; provided, however, that at any time St. John may take control of
the defense of such claim provided that St. John waives Licensees
obligation to indemnify it under Section 13.1(iii). In the event that a
recall of any Licensed Products is required, ordered or recommended by any
court or government agency or any applicable law or regulation, for any
reason, Licensee shall comply with such requirement, order or
recommendation and shall bear all the expenses thereof. Licensee shall
promptly notify St. John of any claim which may be made against Licensee
arising out of Licensee's use of the Licensed Trademarks. The provisions of
this Section and Licensee's obligations hereunder shall survive the
expiration or termination of this Agreement.
13.2 Before selling or shipping any Licensed Products, Licensee shall
procure and maintain at its own expense in full force and effect at all
times during which Licensed Products are being sold, with a reputable
insurance carrier reasonably acceptable to St. John, a public liability
insurance policy to protect and insure St. John and Licensee against any
claims or liabilities with which it or they may be charged because of
personal or property damage or injuries suffered by any person or entity,
resulting from the Licensed Products or the manufacture, use or sale
thereof, whether during the Term or thereafter including, without
limitation, product liability coverage with respect to Licensed Products,
as well as contractual liability coverage with respect to this Agreement,
with a limit of liability of not less than $2,000,000 (U.S.) (combined
single limit) ("Insurance Minimum"); provided, however, that such Insurance
Minimum shall be increased at the end of each Annual Period throughout the
Term to an amount equal to the Insurance Minimum for the immediately
preceding Annual Period ("Previous Year Insurance Minimum") plus an amount
equal to the CPI Index Factor (as defined below) times the Previous Year
Insurance Minimum. For purposes of this Agreement the "CPI Index Factor"
shall be equal to the percentage difference between and the Consumer Price
Index for All Urban Consumers -- All Items for the immediately preceding
Annual Period and the Consumer Price Index for All Urban Consumers -- All
Items for the next most recent Annual Period. Such insurance policy shall
be written for the benefit of both Licensee and St. John (St. John shall be
named in the policy as a named insured) and shall provide for at least
thirty (30) days prior written notice to said parties of the cancellation
or substantial modification thereof. Such insurance may be obtained by
Licensee in conjunction with a policy of product liability insurance which
covers products other than Licensed Products. Licensee shall maintain such
insurance in full force and effect throughout the Term and for at least two
(2) years after the latter of, the termination of this Agreement, or
Licensee's last sale of product bearing the Licensed Trademark. Within ten
(10) days after the date this Agreement is executed and on the first day of
each Annual Period thereafter, Licensee shall deliver to St. John a
certificate of insurance evidencing that such insurance is in full force
and effect and that it cannot be canceled or substantially modified without
the insurer giving St. John written notice thereof at least thirty (30)
days prior to the effective date of the cancellation or modification. The
insurance described in this Section 13.2 is understood to be primary and is
not subject to contribution by any other insurance which may be available
to St. John. Nothing contained in this Section 13.2 shall be deemed to
limit in any way the indemnification provisions of Section 13.1 above.
13.3 Subject to any other provision of this Agreement including
Sections 20.10 and 20.11, St. John hereby indemnifies, saves and holds
Licensee harmless from and against any and all liabilities, losses, damages
and expenses (including reasonable attorneys' fees and expenses) arising
out of or resulting from any actual or alleged infringement or violation of
any trademarks or any patents or copyrights provided by St. John under this
Agreement arising out of Licensee's use of the Licensed Trademarks as
permitted hereunder. Licensee will promptly notify St. John of any claim
covered by indemnification contained in this Section 13.3. Upon receipt of
such notification, St. John shall notify Licensee whether St. John deems
such claim to be within the ambit of this Section 13.3. If St. John replies
in the affirmative, St. John shall defend such claim at its expense by
counsel reasonably selected by St. John. If St. John shall fail to respond
to such notice within 10 days or if St. John shall respond to such notice
by denying that such claim is within the ambit of this Section 13.3,
Licensee may defend such claim by counsel reasonably selected by Licensee
without waiving Licensee's rights to indemnification, if any, pursuant to
this Section 13.3. Notwithstanding any provision hereof, St. John shall not
be liable for damages to Licensee hereunder to the extent that such damages
result from Licensee's failure to promptly notify St. John of claims or
actions. Should the Licensed Trademarks become the subject of a trademark
infringement claim or action ("Trademark Infringement Claim") then St. John
may, at St. John's option, terminate Licensee's right to use the Licensed
Trademarks in the manner alleged in the Trademark Infringement Claim;
provided, however, that only if (i) Licensee no longer has the exclusive
right to use the Licensed Trademarks or the Licensed Products within the
United States, (ii) Licensee is enjoined from using the Licensed Trademarks
or the Licensed Products in the United States, or (iii) St. John terminates
Licensee's right to use the Licensed Trademarks in the United States
pursuant to this section, Licensee shall have the option to terminate this
Agreement by written notice to St. John, effective upon receipt and St.
John will purchase inventory of Licensed Products allocated to such market
at Licensee's cost ("Market Inventory Purchase") and such Market Inventory
Purchase constitutes the parties best estimate of the total damages to
Licensee and shall constitute liquidated damages and Licensee waives any
other claim at law or in equity related thereto. In the event of the
purchase of inventory by St. John from Licensee pursuant to this or any
other section of this Agreement, Licensee hereby consents to the
advertising, distribution and sale of such inventory by St. John.
14. Default and Termination
-----------------------
14.1 If Licensee shall at any time breach or be in default of any of
the assignment provisions, insurance provisions, indemnification
provisions, royalty payment provisions or the royalty reporting provisions
of this Agreement and such breach or default is not remedied within fifteen
(15) days after St. John has given Licensee written notice of such breach
or default, St. John may, at its sole election and in addition to and
without prejudice to any other rights or remedies it may have at law or in
equity, terminate this Agreement by giving written notice of termination to
Licensee, and such termination shall be effective upon giving of such
notice of termination. If Licensee shall at any time materially breach or
be in material default of any other provision of this Agreement (including
the quality control provisions), and such breach or default is not remedied
by Licensee to St. John's satisfaction within thirty (30) days after St.
John has given Licensee written notice of such breach or default or,
Licensee has not taken commercially reasonable steps to remedy such breach
or default within twenty (20) days after St. John has given Licensee
written notice of such breach or default and such efforts to remedy such
breach or default to St. John's satisfaction are not completed within forty
(40) days of the commencement of such commercially reasonable steps then,
St. John may, at its sole election and in addition to and without prejudice
to any rights or remedies it may have at law or in equity, terminate this
Agreement by giving written notice of termination to Licensee, and such
termination shall be effective upon giving such notice of termination;
provided, however, that Licensee shall not be deemed in breach of this
Agreement if the majority of a particular Licensed Product model ("Epidemic
Product") experiences an identical defect ("Epidemic Defect") provided that
Licensee: (i) immediately notifies St. John of such Epidemic Defect in
writing ("Epidemic Defect Notice"), (ii) immediately stops shipping such
Epidemic Product, (iii) within three (3) months of the Epidemic Defect
Notice, institutes a recall program covering all Epidemic Product wherein
Licensee offers to Defective Product purchasers at least one of the
following (at Licensee's option) to repair the Defective Product, to
replace the Defective Product or to provide a refund of the purchase price
of the Defective Product, and provided further that no more than one
Epidemic Defect occurs within any five (5) year period during the Term.
14.2 (a) In the event that Licensee files a petition in bankruptcy, is
adjudicated a bankrupt or files a petition or otherwise seeks relief under
or pursuant to any bankruptcy, insolvency or reorganization statute or
proceeding, or if a petition in bankruptcy is filed against it or it
becomes insolvent or makes an assignment for the benefit of its creditors
or a custodian, receiver or trustee is appointed for it or a substantial
portion of its business or assets and such petition is not dismissed within
forty-five (45) days of the filing of such petition, this Agreement shall
terminate automatically and forthwith.
(b) No assignee for the benefit of creditors, custodian, receiver,
trustee in bankruptcy, sheriff or any other officer of the court or
official charged with taking over custody of Licensee's assets or business
shall have any right to continue this Agreement or to exploit or in any way
use the Licensed Trademarks.
(c) As provided in Section 18 hereof, the Licensee's performance under
this contract is personal in nature and St. John is excused from accepting
the performance of a party other than the Licensee. The parties agree that
this Agreement is a nonassignable contract under section 365(c) of the
Bankruptcy Code, or any amendment or successor thereto (the "Bankruptcy
Code"). Further, in the event the Licensee is a debtor under the Bankruptcy
Code and this Agreement has not been terminated, the parties agree that
adequate protection of St. John's interest in this Agreement and any use of
the Licensed Trademarks by Licensee requires that Licensee comply with all
of the terms of this Agreement, including, without limitation, timely
making the royalty payments under Section 4 and maintaining the quality of
the Licensed Products as required under Section 8.
14.3 If Net Sales for any Annual Period do not equal or exceed the
Minimum Net Sales specified for such Annual Period in the Minimum Net Sales
Table (or as otherwise determined pursuant to Section 2 hereof), St. John
may, at its option, terminate this Agreement by giving Licensee written
notice and such termination shall be effective upon the giving of such
notice of termination.
14.4 No failure or delay on the part of either party to exercise its
right of termination hereunder for any one or more causes shall be
considered to prejudice its rights of termination for such or for any other
or subsequent cause. Termination or expiration of this Agreement for any
reason whatsoever shall not relieve the parties from their respective
obligations arising hereunder prior to such termination or expiration. The
termination rights set forth in this Section 14 are in addition to and
without prejudice to any other rights or remedies St. John may have at law
or in equity.
14.5 In the event the representation and warranty of St. John set
forth in Section 17.1 hereof shall be in any material respect untrue in the
Territory, Licensee shall have the right and option upon written notice to
St. John to terminate this Agreement.
15. Rights on Expiration or Termination
-----------------------------------
15.1 In the event of termination in accordance with Section 14 above,
in addition to any other rights or remedies St. John may have under this
Agreement or otherwise at law or in equity, Licensee shall pay to St. John:
(i) any Sales Royalty then owed to it pursuant to Section 4 above or
otherwise, (ii) any Guaranteed Minimum Royalty then owed to it pursuant to
Section 3 above, and (iii) an amount equal to any other actual damages St.
John may have suffered on account of such termination or the acts or
omissions from which it resulted.
15.2 Notwithstanding any termination in accordance with Section 14
above, St. John shall have and hereby reserves all rights and remedies
which it has, or which are granted to it by operation of law or in equity,
to enjoin the unlawful or unauthorized use of the Licensed Trademarks (any
of which injunctive relief may be sought in the courts, and also may be
sought, prior to or in lieu of termination), to collect royalties payable
by Licensee pursuant to this Agreement and to be compensated for damages
for breach of this Agreement. In addition, nothing herein shall be deemed
to prevent a party from bringing an action for damages either prior to or
in lieu of termination if a default in performance by the other party
occurs and is not cured timely in accordance with the provisions of Section
14 above. The parties acknowledge that Licensee's unauthorized use of the
Licensed Trademarks will give rise to irreparable injury to St. John,
inadequately compensable in damages. Accordingly, in addition to any other
remedies which may be available to St. John at law or in equity, St. John
shall be entitled to preliminary and permanent injunctive relief against
such breach or threatened breach without the necessity of proving actual
damages or that monetary damages would be inadequate.
15.3 Upon the expiration or termination of this Agreement, Licensee
shall immediately deliver to St. John a complete and accurate schedule of
Licensee's inventory of Licensed Products and of related work in process
then on hand ("Inventory"). Such schedule shall be prepared as of the close
of business on the date of such expiration or termination and shall reflect
Licensee's cost of each such item. St. John thereupon shall have the
option, exercisable by notice in writing delivered to Licensee within
thirty (30) days after its receipt of the complete Inventory schedule, to
purchase any or all of the Inventory for an amount equal to the cost to
Licensee of the Inventory (less any discounts, rebates or other incentives)
being purchased. In the event such notice is sent by St. John, Licensee
shall deliver to St. John or its designee all of the Inventory referred to
therein within ten (10) days after St. John's said notice against payment
of the purchase price therefore. St. John shall pay Licensee for such
Inventory as is in marketable condition within sixty (60) days after its
receipt thereof. Notwithstanding anything to the contrary herein, in the
event that St. John notifies Licensee of its desire to purchase any of the
Inventory pursuant to this Section, such notice shall apply only to that
portion of the Inventory remaining on the date said notice is received by
Licensee.
15.4 If this Agreement expires or is terminated other than pursuant to
Section 14.2(a) then, subject to Section 13.3 hereof, (except in case of
termination resulting from Licensed Products or related promotional
materials in violation of Section 8 or Section 11.4) to the extent St. John
has not exercised its option to purchase Inventory pursuant to Section
15.3, License shall be entitled, for an additional period of twelve (12)
months only, on a non-exclusive basis, to sell and dispose of its
Inventory. Such sales shall be made subject to all of the provisions of
this Agreement (which shall survive the termination of the Agreement)
including, without limitation, the provisions related to the payment of
Sales Royalty and to an accounting for the payment of Sales Royalty
thereon. Such final accounting shall be due within thirty (30) days after
the close of the said twelve (12) month period.
15.5 Except as specifically provided in Section 15.4 above, on the
expiration or termination of this Agreement, all of the rights of Licensee
under this Agreement shall terminate forthwith and shall revert immediately
to St. John, all Sales Royalties on sales theretofore made shall become
immediately due and payable and Licensee shall discontinue forthwith all
use of the Licensed Trademarks, no longer shall have the right to use the
Licensed Trademarks or any variation or simulation thereof and promptly
shall transfer to St. John, free of charge, all registrations, filings and
rights with regard to the Licensed Trademarks which it may have possessed
at any time. In addition, Licensee thereupon shall deliver to St. John,
free of charge, all samples of Licensed Products and all sketches and other
material in its possession which were designed or approved by St. John and
all labels, tags and other material in its possession with any Licensed
Trademark thereon. After the expiration or termination of this Agreement,
Licensee shall not use, or permit others to use, any of said sketches and
other material used in connection with the Licensed Products without first
obtaining the express written consent of St. John in each instance.
16. Brokerage Indemnity
-------------------
Each party hereby indemnifies the other against and holds it harmless
from any and all liabilities (including, without limitation, reasonable
attorneys' fees and disbursements paid or incurred in connection with any
such liabilities) for any brokerage commissions or finders' fees in
connection with this Agreement or the transactions contemplated hereby with
respect to any broker retained or allegedly retained by such party.
17. Representations and Warranties
------------------------------
17.1 St. John represents and warrants that it has full right, power
and authority to enter into this Agreement and to the best of its knowledge
it has full right, power and authority to perform all of its obligations
hereunder. St. John further represents and warrants that it has granted no
other existing license to use any Licensed Trademark on Licensed Products
in the Territory and to the best of its knowledge no other party is using
the Licensed Trademark on products substantially similar to the Licensed
Products. St. John represents and warrants that to the best of its
knowledge, no third party has the right to use the Licensed Trademarks on
the Licensed Products in the Territory. St. John represents and warrants
that to the best of its knowledge no proceedings have been instituted are
pending or threatened which challenge St. John's right to grant Licensee's
the right to use the Licensed Trademarks or the Licensed Products in the
Territory. The foregoing warranties are the entire warranties of St. John
and St. John makes no other warranty of any kind, either express or
implied.
17.2 Licensee represents and warrants that it has full right, power
and authority to enter into this Agreement and to perform all of its
obligations hereunder.
18. Assignability; Binding Effect
-----------------------------
18.1 (a) The parties hereto recognize that (i) this Agreement and the
performance of the Licensee hereunder is personal in nature and (ii) St.
John is relying on the Licensee's reputation and standards for quality and
workmanship and Licensee's creative and design skills in entering into this
Agreement. Therefore, neither this Agreement nor the license or other
rights granted hereunder may be assigned, sublicensed or transferred by
Licensee or by operation of law without the express written consent of St.
John (which consent may be withheld in the sole and absolute discretion of
St. John), and any such attempted assignment, sublicense or transfer,
whether by Licensee or by operation of law, directly or indirectly, shall
be void and of no force or effect and shall constitute a material breach of
this Agreement. A "Change in Control" (as defined below) of Licensee is a
prohibited assignment and material breach of this Agreement and all rights
granted hereunder except as otherwise expressly stated in this Section
18.1.
In the event of a "Change in Control" as defined below in
Section 18(b), Licensee shall give St. John written notice of such "Change
in Control" in accordance with the notice provisions of this Agreement and
addressed to the Chief Executive Officer of St. John (the "Change in
Control Request"). Within 20 business days of the receipt of such notice,
St. John shall do one of the following:
(i) Notify Licensee that St. John consents to the Change in Control
Request;
(ii) Notify Licensee that St. John does not consent to the Change in
Control Request, provided, however, that St. John shall not
unreasonably withhold its consent under this Section 18(a)(ii). Any
Change in Control of Licensee without consent under this Section
18(a)(ii) shall be deemed a violative assignment in material breach of
this Agreement; or
(iii)Notify Licensee that St. John consents to the Change in Control
Request provided, however, that for a period of one year following the
effective date of the Control in Control, St. John may, at its sole
and absolute discretion, terminate this Agreement by giving notice in
accordance with the notice provisions of this Agreement (the
"Termination Notice"). The effective date of any such termination
shall be one year from the date of the Termination Notice.
(b) A "Change in Control" means any of the following:
(i) The acquisition, after the date hereof, by any person, entity, or
group, within the meaning of Section 13(d) or Section 14(d) of the
Securities Exchange Act of 1934 and the rules promulgated thereunder,
of beneficial ownership of 25% or more of the outstanding shares of
the Licensee's common stock or other voting stock; or
(ii) A merger, reorganization, consolidation or other business
combination or similar transaction whereby the stockholders of the
Licensee immediately prior to such approval do not, immediately after
consummation of such merger, reorganization, consolidation or other
business combination or similar transactions own more than 50% percent
of the voting stock of the surviving entity; or
(iii) A liquidation or dissolution of the Licensee or the sale of all
or substantially all of the assets of the Licensee related to its
timepiece business.
(c) Notwithstanding any other provision of this Section 18,
St. John may, at its sole and absolute discretion, terminate this
Agreement in the event that a Change in Control results in a new
licensee under this Agreement which is a competitor of St. John.
18.2 Except as otherwise provided herein, this Agreement shall inure
to the benefit of and shall be binding upon the parties, their respective
successors, St. John's transferees and assigns and Licensee's permitted
transferees and assigns.
19. Jurisdiction; Attorney's Fees
-----------------------------
19.1 (a) The sole jurisdiction and venue for any Court Action arising
out of this Agreement shall be an appropriate federal or state court in
Orange County, California. Each of St. John and Licensee hereby irrevocably
submits to the jurisdiction of any of said courts in any Court Action and
hereby waives any claim or defense of inconvenient forum.
(b) Each of St. John and Licensee represents and warrants that it is
not entitled to immunity from judicial proceedings and agrees that, should
the other bring any Court Action, it will not claim any immunity from such
proceedings for itself or with respect to its property.
19.2 In the event of any action for the breach of this Agreement by
any party, the prevailing party shall be entitled to reasonable attorney's
fees, costs and expenses incurred in such action.
20. Miscellaneous
-------------
20.1 Licensee shall not give away Licensed Products or sell Licensed
Products in connection with any tie-in or promotional campaign primarily
relating to products other than Licensed Products without the prior written
consent of St. John.
20.2 Notwithstanding anything to the contrary contained in this
Agreement, St. John shall have the right, exercisable at any time, to
negotiate and enter into agreements with third parties pursuant to which it
may grant a license to use the Licensed Trademarks in connection with the
manufacture, distribution and sale of Licensed Products in the Territory or
provide consultation and design services with respect to Licensed Products
in the Territory, but only if, pursuant to such third party agreements, the
Licensed Products are not shipped prior to the termination of this
Agreement. St. John shall take reasonable steps to keep confidential any
discussions with third parties pursuant to this section and to obtain
similar agreements from such third parties.
20.3 This Agreement shall be construed and interpreted in accordance
with the laws of the State of California, excluding its choice of law
provisions.
20.4 This Agreement along with all Schedules attached hereto, which
are incorporated herein by this reference, contain the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written understandings and
agreements relating thereto and no provision hereof may be waived,
modified, discharged or terminated, except in a writing executed by a duly
authorized officer of both parties.
20.5 Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or either as agent of the
other, and neither party shall have the power to obligate or bind the other
party in any manner whatsoever.
20.6 A failure of either party to exercise any right provided for
herein shall not be deemed to be a waiver of any right hereunder. No waiver
by either party, whether express or implied, of any provision of this
Agreement, or of any breach or default thereof, shall constitute a
continuing waiver of such provision or of any other provision of this
Agreement. Acceptance of payments by St. John shall not be deemed a waiver
by St. John of any violation of or default under any of the provisions of
this Agreement by Licensee.
20.7 If any provision or any portion of any provision of this
Agreement shall be held to be void or unenforceable, the remaining
provisions of this Agreement and the remaining portion of any provision
held void or unenforceable in part shall continue in full force and effect.
20.8 All reports, approvals, requests, demands and notices required or
permitted by this Agreement to be given to a party shall be in writing and
shall be deemed to be duly given if personally delivered, if mailed (by
certified or registered mail, return receipt requested) or if sent by
overnight mail or courier service, such as Express Mail or Federal Express,
which requires the addressee to acknowledge receipt thereof, to the party
concerned at its address set forth on page 1 above (or at such other
address as a party may specify by notice to the other) and shall be deemed
given (i) if by hand or overnight delivery, upon receipt thereof; or (ii)
if mailed, three (3) days after deposit in the U.S. mail, postage prepaid,
certified mail, return receipt requested.
20.9 This Agreement shall be construed without regard to any
presumption or other rule requiring construction against the party causing
this Agreement to be drafted. If any words or phrases in this Agreement
shall have been stricken out or otherwise eliminated, whether or not any
other words or phrases have been added, this Agreement shall be construed
as if those words or phrases were never included in this Agreement, and no
implication or inference shall be drawn from the fact that the words or
phrases were so stricken out or otherwise eliminated.
20.10 EXCEPT FOR THOSE CLAIMS SET FORTH IN SECTION 13.3 HEREOF, UNDER
NO CIRCUMSTANCES SHALL ST. JOHN, ITS EMPLOYEES, AFFILIATES OR AGENTS BE
LIABLE FOR ANY DAMAGES, INCLUDING ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES THAT RESULT FROM LICENSEE'S USE OF OR INABILITY TO
USE THE LICENSED TRADEMARKS, AND LICENSEE HEREBY WAIVES ANY CLAIMS WITH
RESPECT THERETO, WHETHER BASED ON CONTRACT, TORT OR OTHER GROUNDS, EVEN IF
ST. JOHN HAS BEEN ADVISED OF THE POSSIBILITY OF DAMAGES.
20.11 NOTWITHSTANDING THE FOREGOING, EXCEPT FOR ST. JOHN'S
REIMBURSEMENT OBLIGATION AS SET FORTH IN SECTION 13.3 HEREOF, IN NO EVENT
SHALL THE TOTAL AGGREGATE LIABILITY OF ST. JOHN, ITS EMPLOYEES, AFFILIATES
AND AGENTS FOR ALL DAMAGES, LOSSES AND CAUSES OF ACTION WHETHER IN
CONTRACT, TORT, INCLUDING NEGLIGENCE, OR OTHERWISE, EITHER JOINTLY OR
SEVERALLY, EXCEED THE AGGREGATE DOLLAR AMOUNT PAID BY LICENSEE TO ST. JOHN
FOR THE LICENSED PRODUCTS AT ISSUE IN THE TWELVE (12) MONTHS PRIOR TO THE
CLAIMED INJURY OR DAMAGE. LICENSEE HEREBY RELEASES ST. JOHN FROM ANY AND
ALL OBLIGATIONS, LIABILITIES AND CLAIMS IN EXCESS OF THIS LIMITATION.
20.12 This Agreement may be executed in any number of counterparts,
each of which shall be an original and all of which shall constitute one
and the same instrument. This Agreement may be executed and delivered via
facsimile and such execution and delivery by facsimile shall have the same
force and effect as a hand delivered executed original.
IN WITNESS WHEREOF, the parties hereto each acting under due and
proper authority, have duly executed this Agreement as of the day and year
first above written.
ST. JOHN KNITS, INC. SWISS ARMY BRANDS, INC.
By: BOB GRAY By: J. Merrick Taggart
Its:C.E.O. Its:President
Schedule A
1. Licensed Trademark: "St. John", a trademark of St. John Knits, Inc. Current
Applications:
2. Licensed Products: Wrist watches, travel alarm clocks and
watches that bear the Licensed Trademark.
3. Territory: Throughout the following jurisdictions provided that additional
jurisdictions may be added from time to time by mutual written consent of
the parties:
United States Australia
Canada United Kingdom
Japan Germany
Hong Kong BENELUX
Korea Switzerland
Indonesia Any Caribbean nations requested
by Licensee
Any other country requested by Licensee in which St. John
sells in commercial quantities, goods bearing the Licensed
Trademark provided that the representations and warranties
contained in this Agreement shall apply only to the
jurisdictions where St. John registers the Licensed
Trademark
4. Initial Term: The period commencing on the earlier of (a) the date on which
Licensee first delivers Licensed Products in commercial quantities or (b)
September 1, 1998, and expiring December 31, 1999.
5. Duration of Additional Terms: 2 years
6. Guaranteed Minimum Royalty Table:
Annual Period Guaranteed Minimum Royalty
First Annual Period (Initial Term) $ 154,000 (U.S.)
Second Annual Period $ 284,000 (U.S.)
(IF THE TERM IS EXTENDED)
Third Annual Period $ 419,000 (U.S.)
Fourth Annual Period $ 575,000 (U.S.)
(IF THE TERM IS EXTENDED)
Fifth Annual Period $ 603,000 (U.S.)
Sixth Annual Period $ 634,000 (U.S.)
(IF THE TERM IS EXTENDED)
Seventh Annual Period $ 665,000 (U.S.)
Eighth Annual Period $ 699,000 (U.S.)
(IF THE TERM IS EXTENDED)
Ninth Annual Period $ 734,000 (U.S.)
Tenth Annual Period $ 770,000 (U.S.)
(IF THE TERM IS EXTENDED)
Eleventh Annual Period $ 809,000 (U.S.)
Twelfth Annual Period $ 849,000 (U.S.)
(IF THE TERM IS EXTENDED)
Thirteenth Annual Period $ 892,000 (U.S.)
Fourteenth Annual Period $ 936,000 (U.S.)
The Term shall be extended indefinitely subject to the requirements of
Section 2, Section 18 and the termination provisions of the Agreement.
7. Guaranteed Minimum Royalty Payment Schedule:
--------------------------------------------
The Guaranteed Minimum Royalty shall be paid in accordance with
Section 3.2 of the Agreement.
8. Sales Royalty Payment Schedule:
-------------------------------
The Sales Royalty shall be paid in accordance with Section 4.3 of the
Agreement.
10. Minimum Net Sales for Licensed Products:
----------------------------------------
Annual Period Minimum Net Sales
First Annual Period $ 617,000 (U.S.)
Second Annual Period $1,535,000 (U.S.)
(IF THE TERM IS EXTENDED)
Third Annual Period $2,264,000 (U.S.)
Fourth Annual Period $3,107,000 (U.S.)
(IF THE TERM IS EXTENDED)
Fifth Annual Period $3,262,000 (U.S.)
Sixth Annual Period $3,425,000 (U.S.)
(IF THE TERM IS EXTENDED)
Seventh Annual Period $3,596,000 (U.S.)
Eighth Annual Period $3,776,000 (U.S.)
(IF THE TERM IS EXTENDED)
Ninth Annual Period $3,965,000 (U.S.)
Tenth Annual Period $4,163,000 (U.S.)
(IF THE TERM IS EXTENDED)
Eleventh Annual Period $4,372,000 (U.S.)
Twelfth Annual Period $4,590,000 (U.S.)
(IF THE TERM IS EXTENDED)
Thirteenth Annual Period $4,820,000 (U.S.)
Fourteenth Annual Period $5,061,000 (U.S.)
<PAGE>
LICENSE AGREEMENT
between
St. John Knits, Inc.
and
Swiss Army Brands, Inc.
(Licensee)
LICENSE AGREEMENT
TABLE OF CONTENTS
Section Page No
1. Grant of License.................................................. 1
2. Term and Term Renewal............................................. 2
3. Guaranteed Minimum Royalty........................................ 2
4. Sales Royalty..................................................... 3
5. Sales Statement................................................... 5
6. Books and Records; Audits; Financial Statements................... 5
7. Design Services................................................... 6
8. Manufacture of Licensed Products; Quality Control................. 7
9. Approvals......................................................... 9
10. Marketing; Promotion; Advertising; Trade shows.................... 9
11. The Licensed Trademark............................................ 11
12. Copyright......................................................... 13
13. Indemnity; Insurance.............................................. 13
14. Default and Termination........................................... 15
15. Rights on Expiration or Termination............................... 17
16. Brokerage Indemnity............................................... 18
17. Representations and Warranties.................................... 19
18. Assignability; Binding Effect..................................... 19
19. Jurisdiction; Attorney's Fees..................................... 20
20. Miscellaneous..................................................... 21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731947
<NAME> Swiss Army Brands, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 3,673
<SECURITIES> 0
<RECEIVABLES> 23,750
<ALLOWANCES> 1,032
<INVENTORY> 33,966
<CURRENT-ASSETS> 69,044
<PP&E> 10,449
<DEPRECIATION> 6,682
<TOTAL-ASSETS> 96,863
<CURRENT-LIABILITIES> 19,048
<BONDS> 0
0
0
<COMMON> 882
<OTHER-SE> 76,933
<TOTAL-LIABILITY-AND-EQUITY> 96,863
<SALES> 53,076
<TOTAL-REVENUES> 53,076
<CGS> 33,748
<TOTAL-COSTS> 22,935
<OTHER-EXPENSES> (109)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111
<INCOME-PRETAX> (3,387)
<INCOME-TAX> (1,372)
<INCOME-CONTINUING> (2,015)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,015)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
