SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant on March 17, 1997, was approximately $56,206,950. On such date, the
closing price of registrant's common stock was $12.50 per share. Solely for
purposes of this calculation, shares beneficially owned by directors, executive
officers and stockholders of the registrant that beneficially own more than 10%
of the registrant's common stock have been excluded, except shares with respect
to which such directors and officers disclaim beneficial ownership. Such
exclusion should not be deemed a determination or admission by the registrant
that such individuals are, in fact, affiliates of the registrant.
The number of shares of Registrant's Common Stock, $.10 par value,
outstanding on March 17, 1997, was 8,209,610 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I: INFORMATION Page No.
<S> <C> <C>
Item 1. Business 3 - 8
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security
Holders 9
PART II:
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Disagreements on Accounting and Financial
Disclosure 16
PART III:
Item 10: Directors and Executive Officers of the
Registrant 17 - 22
Item 11: Executive Compensation 23 - 28
Item 12. Security Ownership of Certain Beneficial
Owners and Management 28 - 31
Item 13. Certain Relationships and Related Transactions 31 - 33
PART IV: FINANCIAL INFORMATION
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 1996 and 1995. F-2 to F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995
and 1994. F-4
Consolidated Statements of Stockholders Equity
for the Years Ended December 31, 1996,
1995 and 1994. F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995
and 1994. F-6
Notes to Consolidated Financial Statements F-7 to F-25
Schedule II F-26
Exhibits and Reports 43
</TABLE>
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PART I
Item 1. Business
Swiss Army Brands, Inc. ("SABI" or the "Company") is the exclusive
distributor in the United States, Canada (with one minor exception for cutlery)
and the Caribbean of the Victorinox Original Swiss Army Knife, Victorinox
cutlery and Victorinox watches. SABI also markets its own line of Swiss Army
Brand Watches and other high quality Swiss-made products under its Swiss Army
Brand worldwide. The Company has been marketing Victorinox Original Swiss Army
Knives and Victorinox cutlery for over fifty years and has been the exclusive
United States distributor of such products since 1972, an arrangement that was
formalized in 1983. SABI added Canada and the Caribbean (including Bermuda) to
its exclusive territory for Victorinox Original Swiss Army Knives in 1992 and
1993, respectively. Victorinox Original Swiss Army Knives as well as watches and
other Swiss Army Brand products are marketed primarily to retailers and also to
corporate gift buyers as advertising specialty products. SABI's cutlery line,
which also includes imported products from Germany, England and France, is sold
primarily to the food processing and service industries.
Sales of Victorinox Original Swiss Army Knives accounted for approximately
34% of SABI's 1996 sales while watches and other Swiss Army Brand products
accounted for approximately 48%. Sales of professional and consumer cutlery
accounted for approximately 18% of SABI's 1996 sales. Total SABI sales for the
calendar years 1996, 1995 and 1994 were $130,030,000, $126,695,000 and
$144,437,000, respectively. Approximately 1%, 6% and 25% of the Company's net
sales for each of the three years ended December 31, 1996, 1995 and 1994,
respectively, were to Cyrk, Inc. ("Cyrk"), a Massachusetts- based company in the
business of developing, manufacturing and distributing products for promotional
programs. No other customer accounted for more than 10% of net sales during any
year in the three year period ended December 31, 1996. Foreign operations
accounted for 13% of the Company's net sales in 1996. See Note 14 to the
Company's Financial Statements included herein for further information regarding
the Company's foreign operations. At December 31, 1996 SABI had backlog orders
of approximately $5,193,000, compared to backlog orders of $4,631,000 at
December 31, 1995.
In the second quarter of 1996, as part of an extensive analysis of the
Company's operations, the Company recorded a special charge of approximately
$7.4 million. The special charge consisted of a $4.5 million write-off of
discontinued inventory and a $2.9 million write-off of obsolete displays,
goodwill,non- strategic investments and other assets. In the fourth quarter of
1996, the Company completed its analysis and recorded an additional special
charge of approximately $2.5 million. The special charge consisted of a $1.6
million write-down related to a non-strategic investment, a $0.4 million
write-off of discontinued inventory and a $0.5 million write-off of obsolete
displays and other assets. See further discussion in Management's Discussions
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements and related notes included herein.
The Company was incorporated on December 12, 1974 as a successor to a New
York corporation. SABI's principal executive offices are located at One Research
Drive, Shelton, Connecticut 06484 and its telephone number is (203) 929-6391. As
of December 31, 1996, SABI and its subsidiaries had 223 full- time employees,
including 10 in Canada and 4 in Switzerland.
Swiss Army Knives and Swiss Army Brand Products
SABI is the exclusive United States, Canadian and Caribbean distributor of
Victorinox Original Swiss Army Knives and Victorinox Watches under agreements
with SABI's principal supplier of pocket knives and cutlery, Victorinox Cutlery
Company ("Victorinox"), a Swiss corporation and Europe's largest cutlery
producer. SABI also sells watches and other high quality products under the
Swiss Army Brand worldwide.
3
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Victorinox Original Swiss Army Knives are multiblade pocket knives
containing implements capable of more functions than standard pocket knives. For
example, SABI's most popular Swiss Army Knife model, the Classic, with a
suggested retail price of $20, features a knife, scissors, nail file with
screwdriver tip, toothpick and tweezers. SABI markets more than 40 different
models of Victorinox Original Swiss Army Knives containing up to 30 different
implements (with up to 40 separate features), ranging from a basic knife with a
suggested retail price of $10 to the highest priced model at approximately $145
as well as a SwissChamp Deluxe SOS kit with a suggested retail price of $175.
SABI also sells multi-function lock-back knives designed for the hunting and
sporting goods market. In 1997, the Company added to its product line the
SwissCard, a credit card shaped, ten function instrument, and will introduce the
SwissTool, a multi-tool. The Company's line of Victorinox watches, which were
recently redesigned, currently includes 15 models with suggested retail prices
ranging from $75 to $150. The Company distributes its Victorinox Original Swiss
Army Knives throughout the United States, Canada and the Caribbean through its
direct sales force and independent sales representatives to over 3,800
wholesalers and retailers, including cutlery shops, department, specialty,
jewelry and sporting goods stores, catalog showrooms, mass merchandisers and
mail order houses. In Canada and the Caribbean, the Company distributes its
Victorinox Original Swiss Army Knives principally through independent sales
representatives. In addition, SABI sells Victorinox Original Swiss Army Knives
through distributors to corporations and other organizations for promotional
purposes, premium, employee gift award programs and corporate identity catalogs.
SABI imprints these knives primarily at its own facilities with the customer's
corporate name or logo.
SABI's line of Swiss Army Brand products includes ten models of Swiss Army
Brand Watches ranging from the Renegade, with a suggested retail price of $85 to
the Chronograph with a stainless steel bracelet, with a suggested retail price
of $495. Swiss Army Brand Watches are sold both through the direct sales force
which markets Victorinox Original Swiss Army Knives and through a separate
direct sales force selling to approximately 550 department, specialty and
jewelry stores. In addition to its Swiss Army Brand Watches, SABI sells Swiss
Army Brand Pens and Compasses. SABI currently obtains a majority of its Swiss
Army Brand Watches from a single Swiss supplier, who is responsible for the
final assembly of watch components manufactured by several manufacturers. The
Company believes that alternate suppliers would be available if necessary and
that the loss of its current supplier of Swiss Army Brand Watches would not have
a material adverse effect on the Company's business.
In the first quarter of 1997, the Company added to its product line newly
designed Swiss Army Brand Sunglasses. The Company's sunglass line will include
forty-eight styles with suggested retail prices ranging $100 to $185.
In 1997, SABI will add to its line of Swiss Army Brand Watches a small
group of watches made of titanium, as well as several extensions of existing
models. Also, in 1997, the Company added to its watch line a new line of watches
marketed under the Allenby trademark.
Sales of Swiss Army Knives and Swiss Army Brand products are seasonal with
sales typically stronger during July through December.
Although the Company is the largest United States seller of Swiss Army
Knives, it faces competition from Precise Imports Corp. ("Precise"), the United
States and Canadian distributor of Swiss Army Knives manufactured by Wenger S.A.
("Wenger"), the only company other than Victorinox supplying pocket knives to
the Swiss armed forces. Precise imports a substantially smaller number of knives
into the United States than does SABI. The Company also faces competition from
the manufacturers and importers of other multiblade knives and multi-tools
including importers which sell non Swiss-made pocket knives under the "Swiss
Army Knife" name. SABI is unable to determine its competitive position with
respect to the estimated seven major competitors in the general United States
pocket knife market. SABI's direct competitors in the specialty advertising
market are manufacturers of name brand products of similar price and quality.
SABI has many competitors in the sale of watches and sunglasses at all price
points. Many of these competitors have market shares and resources substantially
greater than those of SABI.
4
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In 1992, in connection with the settlement of litigation with Precise, SABI
granted Precise a perpetual worldwide royalty free license to use the trademark
Swiss Army in connection with Swiss made non-knife goods, other than time
pieces, sunglasses and compasses. Under this agreement, Precise acknowledges
SABI's exclusive rights to the Swiss Army trademark for non-knife products
including time pieces, compasses and sunglasses.
The Company is the owner of United States and certain foreign trademark
registrations for "Swiss Army", as applied to watches and sunglasses and has
successfully defended this trademark in lawsuits in Federal courts. Although the
Company's registrations have been challenged, on the basis of the advice of its
trademark counsel, SABI expects to prevail in those proceedings. The Company is
dedicated to a vigorous enforcement of these exclusive trademark rights.
No U.S. trademark registrations have ever been issued for "Swiss Army" as
applied to multi-bladed knives. In 1994, in a case originally brought by SABI
against Arrow Trading Co., Inc. ("Arrow") in September 1992 in the District
Court for the Southern District of New York, the U.S. Court of Appeals for the
Second Circuit reversed a judgment originally issued in the Company's favor and
held that the use of "Swiss Army" on Chinese made knives could not be enjoined
on grounds of geographic misdescriptiveness. On remand, the District Court ruled
that Arrow had violated Section 43(a) of the Lanham Act and New York common law
in connection with its sale of Chinese-made multi-bladed pocketknives which
Arrow called "Swiss Army Knives." The court found that SABI had proved its
contention that Arrow engaged in unfair competition and held that Arrow,
although free to use the phrase "Swiss Army Knife" to designate its product,
must amply distinguish it from the SABI product and prohibited Arrow from
selling any multi-function pocketknives as "Swiss Army Knives" unless the phrase
"Swiss Army Knife" is immediately preceded or followed by Arrow's name in such a
way as to clearly designate its origin and that the size of the type designating
origin be no smaller or less prominent than the type used in the phrase "Swiss
Army Knife.". The Company intends to utilize all reasonable means to safeguard
the public from being misled by inferior imitation products.
On January 17, 1995, Victorinox and Wenger confirmed and memorialized in
writing the grant of separate trademark licenses of Swiss Army as applied to
multifunction pocket knives to each of SABI and Precise. The license to the
Company is royalty free and continues so long as SABI is a distributor of
Victorinox. Victorinox and Wenger have filed with the U.S. Patent and Trademark
Office a dual application for "Swiss Army" as applied to multibladed knives,
which application has been opposed by various third parties.
If the Company's efforts to protect its trademarks prove to be
unsuccessful, the Company may incur increased competition from non-Swiss made
knives and other products sold under the "Swiss Army" name. No assurances can be
given that such competition from non-Swiss made products would not have a
material adverse effect on the business and prospects of the Company.
The Swiss Confederation Trademark Agreement
On December 18, 1996, the Swiss Military Department representing the Swiss
Confederation ("Swiss Confederation") and SABI entered into a trademark
agreement (the "Trademark Agreement") pursuant to which SABI was granted certain
worldwide use and sublicensing rights in connection with trademarks containing
the words "Swiss Army" registered by the Swiss Confederation in Switzerland (the
"Swiss Confederation Trademarks"). The Swiss Confederation acknowledged SABI's
exclusive right to use SABI's trademarks in the countries of their registration
or application and agreed to assist SABI in enforcing SABI's rights with respect
to its trademarks. In addition, the Swiss Confederation stated its intention to
assist Victorinox, Wenger, SABI and Precise in safeguarding their rights with
respect to "Swiss Army" as applied to knives and in preventing the use of "Swiss
Army" with respect to multi-blade pocketknives, multi-tools and other products
which are not Swiss products.
The Trademark Agreement grants SABI the right to an exclusive royalty free
license of the Swiss Confederation Trademarks as applied to watches and
sunglasses in the United States, Canada and the Caribbean. SABI is also granted
such rights with respect to certain designated products that either it or its
licensees sell in commercial quantities in the United States, Canada and the
Caribbean within designated time periods. In the event SABI or its licensees do
not sell commercial quantities of product categories within the time periods set
by the agreement, the Swiss Confederation shall have the right, subject to
certain conditions, to license the Swiss Confederation Trademarks to a third
party and, in such event, SABI shall be obligated to offer such third party a
license of SABI's appropriate trademark.
5
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Outside of the United States, Canada and the Caribbean, the Trademark
Agreement provides for the grant to SABI of the right to an exclusive license,
subject to the existing legal rights of others, for watches and sunglasses at a
royalty equal to 3% of net sales. In addition, SABI has the right to a license
for certain designated products outside of the United States,Canada and the
Caribbean, also at a royalty equal to 3% of net sales, to use the Swiss
Confederation Trademarks provided that SABI commences the sale of commercial
quantities of such products within time periods prescribed by the Trademark
Agreement.
The Trademark Agreement also provides that all products sold under the
license must be of a quality at least equal in workmanship and materials to the
products currently sold by SABI, Victorinox or Wenger and that in the event SABI
discontinues sales of goods in commercial quantities in any category of goods
for three consecutive years, the Swiss Confederation shall have the right to
terminate the license as to that category after giving SABI notice and an
opportunity to resume sales. Except for the foregoing limitation, the rights of
SABI with respect to the use of the Swiss Confederation Trademarks under the
Trademark Agreement are perpetual. It is anticipated that the right to utilize
the Swiss Confederation Trademarks on certain products other than timepieces and
sunglasses will be made available to Precise by SABI on terms yet to be
discussed.
Professional and Consumer Cutlery
The majority of SABI's professional cutlery products, made of stainless
steel, are manufactured by Victorinox and by other manufacturers located in
Germany, England and France. Although the majority of SABI's professional
cutlery products are marketed under the trademarks "Forschner" and R.H.
Forschner," the Company also has a private label business. SABI's customers for
professional cutlery include distributors of hotel, restaurant, butcher,
institutional, commercial fishing and slaughterhouse supplies and retail cutlery
stores located throughout the United States and Canada. In addition, SABI
markets the Victorinox line of floral knives to wholesale florists. Except for
retail sales made by the Company's sales force, the majority of SABI's cutlery
is sold through manufacturers' representatives and can be obtained from
approximately 2,500 dealers.
Professional cutlery imported from Switzerland and Germany is generally
more expensive than domestic United States products. SABI believes that it has
the largest market share of imported professional cutlery products sold in the
United States and that its share of all professional cutlery, foreign and
domestic, sold in this country is second to the dominant seller of such
products. SABI believes that it has achieved and maintained its market share due
to the quality of its products and its merchandising efforts. Sales of
professional cutlery products are not seasonal.
Until January 31, 1997, SABI's wholly owned subsidiary, Cuisine de France
Limited, imported and distributed cutlery products for consumer use under the
"Cuisine de France Sabatier" brand. Cuisine de France Limited held the U.S.
trademark for "Cuisine de France" and had been granted the right by the holder
of the U.S. trademark registration for "Sabatier" to use the name as applied to
knives in the United States. Cuisine de France Limited distributed its consumer
cutlery through sales representatives to retail cutlery stores and department
stores. On January 31, 1997 Cuisine de France Limited entered into an agreement
providing for the sale of substantially all of the assets of Cuisine de France
Limited.
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Victorinox Agreements
All of SABI's products are manufactured by independent suppliers. SABI's
principal supplier of pocket knives and cutlery is Victorinox, which has
manufactured the Original Swiss Army Knife for the Swiss Army for more than 100
years. The loss of this supplier would have a material adverse effect on SABI's
business. SABI, now Victorinox's largest single customer, has been distributing
Victorinox's products since 1937. Distribution was on a non-exclusive basis for
more than 45 years when, as a result of understandings reached on SABI's behalf
by Mr. Louis Marx, Jr. and Mr. Stanley R. Rawn, Jr., both now SABI Directors,
and Mr. Charles Elsener, Sr., Chief Executive Officer of Victorinox, SABI became
Victorinox's exclusive United States distributor of Victorinox Original Swiss
Army Knives under an agreement dated December 12, 1983 (as subsequently amended,
the "U.S. Distribution Agreement"). In 1992 and 1993, Messrs. Marx and Rawn,
together with Mr. James W. Kennedy, then Co-Chairman of the Company, held
extensive conversations, principally in Switzerland, with Victorinox looking to
expand the scope of SABI's exclusive territory. This resulted in SABI obtaining
exclusive distributorship rights first in Canada, and then in Bermuda and the
Caribbean areas, as well as SABI's receipt of exclusive U.S., Canadian and
Caribbean distribution rights to the Victorinox watch, which is supplied to the
Company by another Swiss manufacturer.
The U.S. Distribution Agreement, together with the Company's agreements
with respect to the rights obtained in 1992 and 1993 (together, the "Victorinox
Agreements"), provides:
- SABI is the exclusive distributor in the United States, its
territories and possessions, Canada (with one minor exception),
Bermuda and the Caribbean (excluding Cuba so long as SABI is
prohibited by United States law from operating therein) (together, the
"Territories"), of Victorinox Original Swiss Army Knives and most
other Victorinox cutlery products and Victorinox Swiss-made watches
(collectively, "Products").
- The U.S. Distribution Agreement was renewed through December 12, 1998
and is subject to renewal at five year intervals at SABI's option
unless, in any two consecutive years, purchases of Products by SABI
fall below the average purchases for 1981 and 1982, which was
19,766,035 Swiss francs. SABI's distribution rights in Canada and the
Caribbean are for initial terms of seven years (expiring in 1999 and
2000, respectively), subject to renewal for successive five year
periods. In the event that Victorinox elects not to renew SABI's
Canada distribution rights, Victorinox will be required to pay SABI
the amount of $3,500,000.
- During each calendar year SABI must purchase from Victorinox at least
85% of the maximum quantities of each of Swiss Army Knives and cutlery
(expressed in Swiss francs) purchased in any prior year. The only
remedy of Victorinox for SABI's failure to achieve these goals would
be the termination of SABI's U.S. distribution rights. By agreement
dated December 18, 1995, Victorinox and the Company agreed that for
1996 the minimum purchase requirement for Swiss Army Knives would be
reduced to 75% of the maximum quantity purchased in any prior year.
The Company met this requirement in 1996. In 1996, Victorinox agreed
to reduce the 1997 minimum purchase requirements for Swiss Army Knives
to 65% of the maximum quantity purchased in any preceding year.
- In each calendar year Victorinox must, if requested, furnish SABI with
up to 105% of each type of product purchased during the immediately
preceding year. Victorinox has historically been able to accommodate
SABI's supply requirements even when they have exceeded such amount.
However, Victorinox's plant has a finite capacity and no assurances
can be given that Victorinox will continue to meet any increased
supply requirements of SABI.
- Pricing provisions assure that the prices paid by SABI for products
shipped to the United States will be as low or lower than those
charged to any other Victorinox customer. In addition, SABI is granted
a 4% discount on purchases of pocket knives and a 3% discount on
purchases of cutlery. For products shipped directly to Canada and the
Caribbean (including Bermuda), the prices paid by SABI are
Victorinox's regular export prices. SABI also pays a royalty to
Victorinox of 1% of net sales of Victorinox Watches. In addition,
Victorinox has informally undertaken to share in SABI's promotional
costs with respect to the Victorinox brand in an amount of up to
750,000 Swiss francs per year.
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- SABI will not sell any new cutlery items without the agreement of
Victorinox.
- SABI will have complete discretion as to advertising, packaging,
pricing and other marketing matters.
In consideration of the grant of the Canada distributorship rights in 1992,
SABI issued to Victorinox 277,066 shares of common stock, par value $.10 per
share, of SABI ("Common Stock"). In consideration for the grant of the Caribbean
distribution rights in 1993, the Victorinox watch distribution rights and the
acquisition by SABI of Victorinox's 20% interest in a subsidiary of SABI, SABI
issued to Victorinox a five-year warrant to purchase 1,000,000 shares of Common
Stock at a discount from the market price on the date of exercise. Victorinox
exercised the warrant in full in April 1994 at a price per share of $9.75, a
discount of $4.25 per share from the then current market price of SABI Common
Stock. All of the shares issued upon exercise of the warrant were subsequently
sold to Brae Group, Inc. ("Brae"), a corporate shareholder of SABI that is
controlled by Louis Marx, Jr., a Director of SABI, in exchange for shares of the
common stock of that corporation.
Hudson River Capital LLC
In 1994, in furtherance of its acquisition strategy, SABI invested a total
of $7,002,990, paid in cash and in shares of stock of a publicly traded
corporation, to acquire 700,299 shares of Series A Preferred Stock of Forschner
Enterprises, Inc., a privately held corporation which was merged into Victory
Capital LLC. In 1996, Victory Capital LLC changed its name to Hudson River
Capital LLC ("Hudson River"). In 1996, SABI invested $2,000,009, paid in cash,
to acquire 190,477 Series B Preferred Units of Hudson River. SABI's interest in
Hudson River currently represents, in the aggregate, approximately 9.1% of the
equity of Hudson River. Hudson River is a private equity firm specializing in
middle market acquisitions, recapitalizations and expansion capital investments.
Hudson River currently has equity and other interests in several private and
publicly traded companies. The preferred units of Hudson River held by SABI
carry a preference on liquidation equal to their cost and, in certain instances,
are entitled to an annual preferred return.
In 1996, Hudson River distributed pro-rata to its members all of its
interest in Victory Ventures LLC, a private equity firm specializing in small
market venture capital investments ("Victory Ventures"). SABI received in the
distribution, and continues to hold, 890,776 Series A Preferred Units of Victory
Ventures valued at $1.23 per unit, currently representing approximately 4.2% of
the equity of Victory Ventures. The preferred units of Victory Ventures held by
SABI carry a preference on liquidation equal to the value of the Series A
Preferred Units on the date of the distribution and, in certain instances, are
entitled to an annual preferred return.
490,000 of Hudson River's common units and 2,338,170 of Hudson River's
Series B Preferred Units (currently representing, in the aggregate,
approximately 29.2% of Hudson River's outstanding equity) are held by Brae
Capital Corporation ("Brae Capital"), a wholly-owned subsidiary of Brae. 490,000
of Victory Ventures' common units and 4,697,985 of Victory Ventures' Series A
Preferred Units (currently representing in the aggregate, approximately 25.1% of
Victory Ventures' outstanding equity) are held by Brae Capital. Pursuant to an
agreement between Hudson River and Brae, if certain conditions are met, Brae is
required to purchase from Hudson River at Hudson River's cost 10%, and may
purchase up to 20%, of the "equity portion" (defined as the common and warrant
portion, or the preferred and warrant portion if no common is purchased provided
that the preferred portion is participating) of each investment made by Hudson
River. Brae may allocate all or a portion of the securities to be acquired
pursuant to such agreement among the officers, directors, employees, consultants
and common equityholders of Hudson River and such other persons who may be in a
position to benefit Hudson River in such proportions as Brae shall determine.
Brae is party to a similar agreement with Victory Ventures.
Mr. Marx, a Director of SABI, is a Co-Chairman of the Board and a Director
and an equityholder of Hudson River and, a director and, indirectly, an equity
holder of Victory Ventures. Mr. Clarke H. Bailey, a Director of SABI, is a
Co-Chairman of the Board and a Director and an equityholder of Hudson River and
a Director and equityholder of Victory Ventures. Mr. Stanley R. Rawn, Jr.,
Senior Managing Director and a Director of SABI, and Mr. Herbert M. Friedman, a
Director of SABI, also serve as directors and are equityholders of each of
Hudson River and Victory Ventures. Messrs. A. Clinton Allen and M. Leo Hart,
Directors of SABI, also serve as directors of Victory Ventures.
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Item 2. Properties.
The executive and administrative offices of SABI occupy approximately
37,500 square feet of leased space in an office building located in Shelton,
Connecticut. SABI moved into these premises in September, 1993. The initial term
of the lease on this space expires on September 1, 2001, subject to a renewal
option for an additional five-year term.
In addition, SABI leases approximately 7.4 acres in Shelton, Connecticut
upon which the landlord has constructed a 85,000 square foot building, increased
in January 1995 from 60,000 square feet, which SABI uses as a facility for
warehousing, distribution, imprinting and assembly. The lease commenced in June,
1991 and has a term of ten years. SABI also leases approximately 13,000 square
feet in a building in Toronto, Canada which it uses for office space and
warehousing of products. The lease commenced in December, 1992 and has a term of
five years.
In 1996, SABI entered into a four-year lease for 7,000 square feet of space
in a 30,000 square foot building in Nidau, Switzerland for use as a distribution
center.
SABI believes its properties are sufficient for the current and anticipated
needs of its business.
Item 3. Legal Proceedings.
Except as set forth or referenced below, the Company is not involved in any
material pending legal proceedings.
Arrow filed on November 15, 1994 petitions to cancel the Company's U.S.
Trademark Reg. No. 1,734,665 for watches and Reg. No. 1,715,093 for sunglasses
for "Swiss Army". Arrow failed to file evidence in support of its cancellation
petitions and the Company moved to dismiss the petitions on ground of lack of
prosecution. Arrow has opposed the motions to dismiss, arguing inadvertent
failure to prosecute. The Company believes it has meritorious defenses to these
petitions although their outcome cannot be predicted at this time.
The Company is also a plaintiff in several proceedings to enforce its
intellectual property rights.
In addition, see "Business - Swiss Army Knives and Swiss Army Brand
Products".
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
9
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
A. Market Information.
Shares of SABI's Common Stock are traded on the Nasdaq National Market tier
of The Nasdaq Stock Market under the symbol SABI. The range of high and low
transactions for shares of Common Stock, which is the only class of capital
stock of SABI outstanding, as reported by Nasdaq since the first quarter of 1995
were as follows:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1996 Fiscal 1997*
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter $12.88 $10.50 $12.50 $11.25 $14.13 $12.25
Second Quarter 10.88 10.00 15.00 12.00
Third Quarter 12.50 10.25 14.00 11.50
Fourth Quarter 12.38 11.13 14.25 12.75
*Through March 17, 1997.
</TABLE>
The public market for Common Stock is limited and the foregoing quotations
should not be taken as necessarily reflective of prices which might be obtained
in actual market transactions or in transactions involving substantial numbers
of shares.
B. Holders.
On March 17, 1997 shares of Common Stock were held by 352 persons, based on
the number of record holders, including several holders who are nominees for an
undetermined number of beneficial owners.
C. Dividends.
The Company has not paid a cash dividend since its inception, and its
present policy is to retain earnings for use in its business. Payment of
dividends is dependent upon the earnings and financial condition of SABI and
other factors which its Board of Directors may deem appropriate. Under SABI's
bank loan agreement, as amended, which expired on January 30, 1997, SABI agreed
not to declare or pay any dividends unless immediately following such payment
SABI's ratio of indebtedness to tangible net worth, calculated as set forth in
the agreement, does not exceed 0.75 to one, and SABI's ratio of current assets
to current liabilities is in excess of 2.5 to one. The Company is currently
negotiating a new bank loan agreement which could contain similar restrictions.
10
<PAGE>
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31,
1996, was derived from the consolidated financial statements of SABI. This data
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements, related notes and other financial information included herein.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Year Ended December 31,
1996(1) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales...................... $130,030 $126,695 $144,437 $102,543 $74,148
Gross profit................... 40,836 44,264 55,804 42,027 29,779
Selling, general and
administrative expenses...... 46,241 40,265 40,293 30,753 21,016
Operating income............... (5,405) 3,999 15,511 11,274 8,763
Gain (loss) on sale (write-down)
of investments............... (2,382) 1,771 37 - -
Other income (expense), net.... 179 (134) 445 251 143
Income (loss) before income taxes
and cumulative effect of
accounting change............ (7,608) 5,636 15,993 11,525 8,906
Income tax provision (benefit). (2,343) 2,523 6,633 4,221 3,974
Income (loss) before cumulative
effect of accounting change.. (5,265) 3,113 9,360 7,304 4,932
Cumulative effect of accounting
change for income taxes...... - - - 220 -
--------- --------- --------- -------- --------
Net income (loss).............. ($5,265) $3,113 $ 9,360 $ 7,524 $ 4,932
Earnings per share:
Income (loss) before cumulative
effect of accounting change. ($0.64) $ 0.38 $ 1.16 $ 1.04 $ 0.80
Cumulative effect of accounting
change for income taxes.... - - - 0.03 -
--------- --------- --------- -------- --------
Net income (loss)............ ($0.64) $ 0.38 $ 1.16 $ 1.07 $ 0.80
Other Financial Data:
Current assets................. $70,933 $74,355 $78,641 $57,551 $43,664
Total assets................... 98,643 101,230 105,708 78,004 54,283
Current liabilities............ 18,787 16,291 23,932 17,651 10,756
Long-term debt ................ - - - - -
Stockholders' equity........... 79,856 84,939 81,775 60,353 43,038
Cash dividends per common share $ - $ - $ - $ - $ -
Weighted average number of shares
outstanding.................. 8,202 8,236 8,062 7,053 6,186
</TABLE>
(1) The financial results for 1996 include special charges of approximately
$9.9 million. See Note 3 to the Company's Consolidated Financial Statements. The
special charges consisted of a $4.9 million write-off of discontinued inventory
(included in cost of sales), a $2.6 million write-off of obsolete displays,
goodwill and other assets (included in selling, general and administrative
expenses) and a $2.4 million write-down of non-strategic investments.
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
In 1996, net sales totaled $130.0 million, a 2.6% increase from 1995.
However, excluding sales to a single customer for special promotional programs,
the Company experienced sales growth of 8% primarily due to growth in its Swiss
Army Brand Watch and cutlery businesses offset in part by a decrease in sales of
Victorinox Original Swiss Army Knives. Sales relating to this single customer
for these special promotional programs represented 1%, 6% and 25% of net sales
in 1996, 1995 and 1994, respectively. The Company has received orders from this
customer in 1997.
The financial results for 1996 have been negatively impacted by special
charges of approximately $9.9 million which resulted from an extensive analysis
of the Company's operations. The special charges consisted of a $4.9 million
write-off of discontinued inventory (included in total cost of sales), a $2.6
million write-off of obsolete displays, goodwill and other assets (included in
total selling, general and administrative expenses), and a $2.4 million
write-down of non-strategic investments.
The following table shows, as a percentage of net sales, the Company's
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales.............................. 100.0% 100.0% 100.0%
Cost of Sales.......................... 68.6 65.1 61.4
------ ------ ------
Gross Profit........................... 31.4 34.9 38.6
Selling, general and administrative
expenses before special charges and
special charitable contributions..... 33.6 31.8 26.9
Special charges........................ 2.0 - -
Special charitable contribution........ - - 1.0
------ ------ ------
Total selling, general and
administrative expenses.............. 35.6 31.8 27.9
Operating income (loss)................ (4.2) 3.1 10.7
Interest expense....................... (.1) (.2) -
Interest income........................ .1 .4 .3
Gain (loss) on sale (write-down) of
investments.......................... (1.8) 1.4 -
Equity interest in
unconsolidated affiliates............ - (.4) -
Other income (expense), net............ .2 .1 .1
------ ------ ------
Income (loss) before income taxes...... (5.8) 4.4 11.1
Income tax provision (benefit)......... (1.8) 2.0 4.6
------ ------ ------
Net income (loss)................. (4.0)% 2.4% 6.5%
====== ====== ======
</TABLE>
12
<PAGE>
Comparison of the Years Ended December 31, 1996 and December 31, 1995
Net sales for the year ended December 31, 1996 were $130.0 million, $3.3
million or 2.6% higher than in 1995. The comparison of sales between 1996 and
1995 is effected by the Company's decreased participation in special promotional
programs with one customer that accounted for 1% and 6% of the Company's 1996
and 1995 net sales, respectively. Excluding the special promotional programs,
the Company's net sales increased by 8% for the year due to an 18% increase in
watch sales and a 15% increase in cutlery sales offset in part by a 7% decrease
in Victorinox Original Swiss Army Knife sales.
Gross profit for the year ended December 31, 1996 was $40.8 million, 7.7%
lower than in 1995. This is due primarily to an inventory write-off of $4.9
million in 1996. The inventory write-off was the result of the Company
discontinuing certain products, including certain cutlery products sold by the
Company's wholly-owned subsidiary, Cuisine de France Limited ("CDF").
Substantially all of the assets of CDF were sold by the Company in 1997.
Excluding the $4.9 million inventory write-off, the gross profit margin
percentage increased from 34.9% in 1995 to 35.2% in 1996. 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. Increases in the value of the Swiss franc versus the dollar may
effectively increase the cost of these products to the Company. The increase in
the cost of products to the Company may result in either higher prices charged
to customers or reductions in gross profit, both of which may have an adverse
effect on the Company's results of operations. The Company enters into foreign
currency contracts and options to hedge the exposure associated with foreign
currency fluctuations. Based upon current estimated Swiss franc requirements,
the Company believes it is hedged through the third quarter 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 of any increase in the dollar
relative to the Swiss franc. The Company currently 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 (excluding the special charges
described below) for the year ended December 31, 1996 were $43.7 million, $3.4
million or 8.5% higher than in 1995. The expense increase resulted primarily
from increased selling expenses and increased expenditures in the areas of
merchandising and promotion. As a percentage of net sales, selling, general and
administrative expenses (excluding the special charges described below)
increased from 31.8% in 1995 to 33.6% in 1996.
Special selling, general and administrative expenses of $2.6 million in
1996 consisted of the write- off of obsolete displays, goodwill and other
assets. The goodwill write-off related to the Company's wholly-owned subsidiary
CDF, and was written-off due to the lack of recoverability of the asset.
Substantially all of the assets of CDF were sold by the Company in 1997 with no
significant gain or loss.
As a result of the above, the Company recorded an operating loss of $5.4
million for the year ended December 31, 1996 as compared to operating income of
$4.0 million in 1995. Excluding the effects of the inventory write-off and the
special selling, general and administrative charges, the Company recorded
operating income of $2.1 million in 1996, as compared to operating income of
$4.0 million in 1995. This decrease is due to higher selling, general and
administrative expenses, offset in part by higher gross profit.
13
<PAGE>
Interest expense of $147,000 for the year ended December 31, 1996 was
$70,000 lower than interest expense in 1995, due to lower borrowings in 1996 as
compared to 1995.
Interest income of $120,000 for the year ended December 31, 1996 was
$437,000 lower than interest income in 1995, due to decreased invested cash
balances during 1996 as compared to 1995.
The loss on the write-down of investments for the year ended December 31,
1996 was $2.4 million, as compared to a gain on the sale of investments of $1.8
million in 1995. The loss in 1996 was primarily due to the $1.6 million
write-down of the Company's investment in the common stock of SweetWater, Inc.,
a publicly-traded entity, and an $800,000 write-off of the Company's investment
in a privately held start-up entity. Both of these investments became impaired
in 1996. Gain on sale of investments of $1.8 million in 1995 was due primarily
to the sale of the Company's investment in the common stock of Simmons Outdoor
Corporation.
Equity interest in unconsolidated affiliates was a loss of $548,000 in 1995
due to the Company using the equity method of accounting for its investments in
Simmons Outdoor Corporation and SweetWater, Inc. The equity method of accounting
was not applicable in 1996.
As a result of the above, the loss before income taxes for the year ended
December 31, 1996 was $7.6 million compared to income before taxes of $5.6
million in 1995.
Income tax expense (benefit) was provided at an effective rate of 30.8% for
the year ended December 31, 1996 as compared to 44.8% for the year ended
December 31, 1995. The change in the effective tax rate was due to foreign and
state income taxes.
As a result of the above, the net loss for the year ended December 31, 1996
was $5.3 million ($0.64 per share) as compared to net income of $3.1 million
($0.38 per share) in 1995.
Comparison of the Years Ended December 31, 1995 and December 31, 1994
Net sales for the year ended December 31, 1995 was $126.7 million, $17.7
million or 12.2% lower than in 1994. Sales of Swiss Army Brands products
decreased significantly in 1995, due in part, to the Company's decreased
participation in a special promotional program with one customer that accounted
for 6% and 25% of the Company's 1995 and 1994 net sales, respectively. Excluding
the special promotional program, the Company's net sales increased by 10% for
the year due to a 19% increase in watch sales, a 7% increase in cutlery sales
and a 3% increase in Victorinox Original Swiss Army Knife sales.
Gross profit for the year ended December 31, 1995, was $44.3 million, 20.7%
lower than in 1994. This is due primarily to lower sales volume as a result of
the special promotional program with one customer in 1994 and unfavorable
exchange rates. 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 attempts to
mitigate the impact on gross margin of exchange rate changes through selective
hedging of anticipated Swiss franc purchases.
Selling, general and administrative expenses for the year ended December
31, 1995 were $40.3 million, $1.5 million or 3.8% higher than the amount for the
comparable period in 1994, excluding special charitable contribution of $1.5
million in 1994. The expense increase resulted primarily from increased selling
expenses and increased expenditures in the areas of merchandising and promotion.
As a percentage of net sales, selling, general and administrative expenses
(excluding the special charitable contribution) increased from 26.9% in 1994 to
31.8% in 1995.
14
<PAGE>
Interest expense of $217,000 for the year ended December 31, 1995 was
$189,000 higher than interest expense for the comparable period in 1994, due to
increased borrowings in 1995 as compared to 1994.
Interest income of $557,000 for the year ended December 31, 1995 was
$166,000 higher than interest income for the comparable period in 1994, due to
higher invested cash balances during 1995 as compared to 1994.
Gain on sale of investments of $1.8 million was due primarily to the sale
of the common stock of Simmons Outdoor Corporation in 1995. Gain on sale of
investments was not significant in 1994.
Equity interest in unconsolidated affiliates with a loss of $548,000 in
1995 was due to the Company using the equity method of accounting for its
investments in Simmons Outdoor Corporation and SweetWater, Inc. in 1995. The
equity method of accounting was not applicable in 1994.
As a result of these changes, income before income taxes and cumulative
effect of accounting change for the year ended December 31, 1995 was $5.6
million versus $16.0 million for 1994, a decrease of $10.4 million or 64.8%.
Income tax expense was provided at an effective rate of 44.8% for the year
ended December 31, 1995 versus 41.5% in 1994 due to increased state taxes.
As a result of the above, net income was $3.1 million ($0.38 per share) for
the year ended December 31, 1995 versus $9.4 million ($1.16 per share) in 1994,
representing a decrease of $6.3 million or 66.7%.
Liquidity and Capital Resources
As of December 31, 1996, the Company had working capital of $52.1 million
compared with $58.1 million as of December 31, 1995, a decrease of $6.0 million.
Significant uses of working capital included investments in preferred units of
Hudson River of $2.0 million, additions to other assets of $3.0 million and
capital expenditures of $1.5 million. The Company currently has no material
commitments for capital expenditures.
Cash provided from operating activities was approximately $7.6 million in
the year ended December 31, 1996 compared with cash used for operating
activities of $16.4 million in the year ended December 31, 1995. The change
primarily resulted from a decrease in inventory in 1996 as compared to an
increase in 1995, an increase in accounts payable in 1996 as compared to a
decrease in 1995, offset in part by the net loss incurred in 1996 as compared to
net income in 1995.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its revolving credit
agreements. As of December 31, 1996, the Company had no outstanding borrowings
under its revolving line of credit agreements. The Company currently 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.
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial information required by Item 8 is included elsewhere in this
report. See Part IV, Item 14.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
16
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Directors and Executive Officers of SABI are as follows:
<TABLE>
<CAPTION>
Director
and/or
Name Age Position(s) Officer Since
<S> <C> <C> <C>
J. Merrick Taggart 46 President(1) Dec., 1995
Peter W. Gilson 57 Chairman of the Executive
Committee and Director(2) 1994
Stanley R. Rawn, Jr. 69 Senior Managing Director
and Director(3) 1990
Harry R. Thompson 67 Managing Director 1994
Stanley G. Mortimer III 54 Executive Vice President
and Director 1994
Thomas M. Lupinski 44 Senior Vice President, Chief
Financial Officer, Secretary
and Treasurer 1986
Michael J. Belleveau 40 Vice President - Sales and
General Manager - Swiss Army
Brands Division 1994
Leslie H. Green 49 Vice President of Marketing Dec., 1995
David J. Parcells 38 Vice President - Operations 1992
Jerald J. Rinder 50 Vice President and
General Manager -
Victorinox Division Feb., 1996
Robert L. Topazio 48 Vice President and
General Manager -
R.H. Forschner Division Feb., 1996
Douglas M. Rumbough 40 Vice President and
General Manager - Corporate
Markets Division 1992
A. Clinton Allen 53 Director(4) 1993
Clarke H. Bailey 42 Director(5) Jan., 1997
Thomas A. Barron 45 Director 1983
Vincent D. Farrell, Jr. 50 Director(6) 1992
Herbert M. Friedman 65 Director(7) 1981
M. Leo Hart 48 Director(8) 1991
James W. Kennedy 46 Director(9) 1981
Keith R. Lively 45 Director 1994
Lindsay Marx 31 Director 1994
Louis Marx, Jr. 65 Director(10) 1990
Eric M. Reynolds 44 Director 1994
John Spencer 67 Director(11) 1990
John V. Tunney 62 Director(12) 1992
</TABLE>
17
<PAGE>
(1) Mr. Taggart is a member of the Company's Executive Committee,
Management Committee and Foreign Exchange Committee.
(2) Mr. Gilson is Chairman of the Company's Executive Committee and a
member of the Nominating Committee.
(3) Mr. Rawn is a member of the Company's Executive Committee, Management
Committee and Nominating Committee.
(4) Mr. Allen is Chairman of the Company's Stock Option and Compensation
Committee and a member of the Executive Committee.
(5) Mr. Bailey is a member of the Company's Executive Committee.
(6) Mr. Farrell is Chairman of the Company's Audit Committee and a member
of the Executive Committee and Foreign Exchange Committee.
(7) Mr. Friedman is a member of the Company's Executive Committee, Audit
Committee and Nominating Committee.
(8) Mr. Hart is a member of the Company's Nominating Committee.
(9) Mr. Kennedy is a member of the Company's Foreign Exchange Committee.
(10) Mr. Marx is Chairman of the Company's Management Committee and
Nominating Committee and a member of the Company's Executive Committee
and Foreign Exchange Committee. Mr. Marx was Chairman of the Company's
Executive Committee until June, 1995.
(11) Mr. Spencer is a member of the Company's Audit Committee and Stock
Option and Compensation Committee.
(12) Mr. Tunney is a member of the Company's Stock Option and Compensation
Committee.
Biographical Information
J. Merrick Taggart, President and a Director of the Company, was elected
President on December 13, 1995. From 1993 to November 1995 Mr. Taggart was
President of Duofold, Inc, a sports apparel company, and Pringle of Scotland
U.S.A., an apparel company. From 1990 to November 1992 Mr. Taggart was President
of O'Brien International, a manufacturer and marketer of water sports equipment.
Prior to that Mr. Taggart was Senior Vice President of Product Development for
the Timberland Company, a footwear and apparel company.
Peter W. Gilson, Chairman of the Executive Committee and a Director of the
Company, has served as President and Chief Executive Officer of Physician
Support Systems, Inc., a company specializing in the management of physicians'
health care practices, since 1991. From 1989 to the present, Mr. Gilson has also
served as President and Chief Executive Officer of the Warrington Group, Inc., a
manufacturer of safety products which was previously a division of The
Timberland Company. From 1987 to 1988, Mr.Gilson served as Chief Operating
Officer of The Timberland Company, a manufacturer of footwear and outdoor
clothing. From 1978 to 1986, he served as President of the Gortex Fabrics
Division of W.L. Gore Associates. Mr. Gilson is also a director of SweetWater,
Inc. ("SweetWater"), a manufacturer and marketer of portable water filtration
systems and Glenayre Technologies, Inc. ("Glenayre Technologies"), a paging and
messaging infra-structure technology firm.
18
<PAGE>
Louis Marx, Jr., Chairman of the Management Committee and a Director of the
Company, has been associated with the Company for over 20 years and has played
the key role in helping to guide its affairs during that entire period. Through
discussions with the Chief Executive Officer of Victorinox Cutlery Company
("Victorinox"), the Company's principal supplier, he and Mr. Rawn were
responsible for the Company obtaining exclusive U.S. distribution rights for
Victorinox products and later, together with Mr. Rawn and Mr. Kennedy,
negotiated the expansion of the Company's distribution rights to include Canada,
Bermuda and the Caribbean and also obtained for the Company exclusive
distribution rights to the Victorinox Watch. In a prior year he and Mr. Rawn
played an important part in negotiating, on behalf of the Company, the
settlement of potentially expensive litigation, and more recently, Mr. Marx has
played an active role in the Company's investment policy and, together with the
Company's advisors, has successfully managed the Company's currency hedging
program. Mr. Marx is a director and member of the Compensation Committee of
Cyrk, Inc. ("Cyrk"), a distributer of products for promotional programs and
custom-designed sports apparel and accessories. Mr. Marx has been a venture
capital investor for more than thirty years. Mr. Marx, together with his close
business associates, have been founders or substantial investors in such
companies as Pan Ocean Oil Corporation, Donaldson, Lufkin & Jenrette, Bridger
Petroleum Corporation Ltd., Questor Corporation, Environmental Testing and
Certification Corporation, Garnet Resources Corporation, The Prospect Group,
Inc. and Noel Group, Inc. ("Noel"), a publicly held company which conducts its
principal operations through small and medium sized operating companies in which
it holds controlling interests. Mr. Marx served as a director of The Prospect
Group, Inc., a company which, prior to its adoption in 1990 of a Plan of
Complete Liquidation and Dissolution, conducted its major operations through
subsidiaries acquired in leveraged buyout transactions ("Prospect"), from
February 1986, and as Chairman of Prospect's Asset Committee from October 1988,
until January 1990. Mr. Marx serves as a trustee of the New York University
Medical Center and Middlebury College and as Chairman of the Madison Avenue Fund
for Children. Mr. Marx is also Co-Chairman and a director of Hudson River
Capital LLC, a private equity firm specializing in middle market acquisitions,
recapitalizations and expansion capital investments ("Hudson River"), and a
director of Victory Ventures LLC, a private equity firm specializing in small
market venture capital investments ("Victory Ventures"). He is President and a
director of Victorinox-Swiss Army Knife Foundation, a non-profit corporation
formed by the Company for charitable purposes including the improvement of the
welfare of underprivileged children. Mr. Marx is the father of Lindsay Marx, a
Director of the Company.
Stanley R. Rawn, Jr., Senior Managing Director and a Director of the
Company, actively participates with Messrs. Marx and Kennedy in furthering the
relationship between the Company and Victorinox as well as in coordinating
management strategies. He has also played an important part in obtaining and
expanding the Company's exclusive distribution rights covering Victorinox
products. Mr. Rawn was Chairman and Chief Executive Officer and a director of
Adobe Resources Corporation, an oil and gas exploration and production company
from November, 1985 until the merger of that company in May, 1992. Mr. Rawn is
also the Chief Executive Officer and a director of Noel; a director of Prospect,
Hudson River, Victory Ventures, Staffing Resources, Inc., a temporary help
corporation, and Victorinox - Swiss Army Knife Foundation; and a Trustee of the
California Institute of Technology.
Harry R. Thompson, Managing Director of the Company was appointed Managing
Director in December 1994. From 1987 to 1995, Mr. Thompson was president of The
Strategy Group, a business and marketing consulting firm. Mr. Thompson had
previously served as a director of the Company from June 1987 to June 1991, and
as Chairman of the Company's Board of Directors from January 1990 to October
1990 and served in senior executive capacities with the Interpublic Group of
Companies, Inc., a leading marketing and communications organization.
19
<PAGE>
Stanley G. Mortimer III, Executive Vice President and a Director of the
Company, has served the Company in a variety of capacities since September 1984.
Mr. Mortimer was elected as a director in December 1994. He had previously
served as a director from June 1987 to June 1994.
Thomas M. Lupinski, Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company, has been Vice President of the Company
for more than five years. Prior to joining the Company, Mr. Lupinski was Finance
Manager for The Revlon Health Care Group from 1982 to 1986 and was with Arthur
Andersen & Co., from 1976 through 1982.
David J. Parcells, Vice President - Operations, joined the Company in
December 1992. Mr.Parcells was employed by Arthur Andersen & Co. as a Senior
Manager - Audit and Business Advisory Practice from 1989 through 1992 and as an
Audit Manager from 1986 to 1989.
Michael J. Belleveau, Vice President - Sales and General Manager - Swiss
Army Brands Division, was elected to the office of Vice President in June 1994.
Mr. Belleveau has served the Company in various positions since 1991. Prior to
that Mr. Belleveau was a regional sales manager for Cartier, Inc., a
manufacturer and marketer of watches and luxury goods.
Leslie H. Green, Vice President of Marketing, was elected to the office of
Vice President in December 1995. Ms. Green has served the Company in various
positions since January, 1991.
Jerald J. Rinder, Vice President and General Manager - Victorinox Division,
was elected to the office of Vice President in February, 1996. From 1994 through
1995 Mr Rinder was Executive Vice President of Pringle of Scotland USA, an
apparel company. From 1993 to 1994 Mr. Rinder was Vice President -
Sales/Marketing of Walkover Shoe Co. and from 1991 through 1993 was Vice
President - Sales of Stride Rite Corp.
Robert L. Topazio, Vice President and General Manager - R.H. Forschner
Division, was elected to the office of Vice President in February, 1996. Mr.
Topazio has served the Company in various positions since September, 1992. From
1991 to 1993 Mr. Topazio was Vice President of Cuisine de France, Ltd., a
marketer of consumer cutlery which was purchased by the Company in 1992. Prior
to that Mr. Topazio was National Sales Manager for J.A. Henckels.
Douglas M. Rumbough, Vice President and General Manager - Corporate Markets
Division, was elected to the office of Vice President in June 1992. Mr.Rumbough
has served the Company in various positions since 1981.
A. Clinton Allen, a Director of the Company, is Chairman of A. C. Allen &
Co., a Massachusetts based consulting firm. Mr. Allen also serves as Vice
Chairman and a director of Psychemedics Corporation, a company that provides
testing services for the detection of abused substances through an analysis of
hair samples, and of Dewolfe Companies, Inc., a real estate company, and as a
director of SweetWater and Victory Ventures.
Clarke H. Bailey was elected a director of the Company in January 1997.
Since February 1995, Mr. Bailey has served as Chairman of the Board and Chief
Executive Officer of United Acquisition Company, an acquisition company, and
Chairman of the Board and Chief Executive Officer of United Gas Holding
Corporation, an acquisition company. He is also currently Chairman of the Board
and a director of Arcus, Inc., the leading national provider of secure off-site
computer data storage and related disaster recovery services and information
technology staffing solutions, a director and Co-Chairman of the Board of Hudson
River and a director of Connectivity Technologies, Inc. ("Connectivity
Technologies"), an acquisition company with interests in the wire and cable
industry, and Victory Ventures. He served as Chief Executive Officer and a
director of Glenayre Technologies from December 1990 until March 1994 and as its
Vice Chairman of the Board from November 1992 to July 1996. In March 1994, Mr.
Bailey was named Chairman of the Executive Committee of the Board of Glenayre
Technologies, and he relinquished the title of Chief Executive Officer.
20
<PAGE>
Thomas A. Barron, a Director of the Company, is an author and has been
Chairman of Evergreen Management Corp., a private investment firm since January,
1990. From November, 1983 through November 1989, Mr. Barron was President and
Chief Operating Officer and a director of Prospect. From 1988 through January,
1990, Mr. Barron served as Chairman of the Board of the Company. Mr. Barron also
serves as a director and Chairman of the Board of SweetWater. Mr. Barron has
served as a Trustee of Princeton University.
Herbert M. Friedman, a Director of the Company, is a partner in the law
firm of Zimet, Haines, Friedman & Kaplan, where he has been a member since 1967.
Zimet, Haines, Friedman & Kaplan acts as counsel to the Company. Mr. Friedman is
also a director of Noel, Prospect, Hudson River, Victory Ventures, Connectivity
Technologies and Victorinox - Swiss Army Knife Foundation.
Vincent D. Farrell, Jr., a Director of the Company, has been a Managing
Director of the investment management firm of Spears, Benzak, Salomon & Farrell,
Inc., ("Spears, Benzak") since 1982. Mr. Farrell is a director of Noel.
M. Leo Hart, a Director of the Company, is President and Chief Executive
Officer of Brae Group, Inc., a privately held acquisition company. Until
December 13, 1995, Mr. Hart was Co-Chairman of the Board and Chief Executive
Officer of the Company, which capacity he had served in since February 1994.
Previously, he was Executive Vice President and a Director. Mr. Hart joined the
Company in October 1991. Prior to this, Mr. Hart spent the previous 15 years in
senior sales and marketing positions in the hospitality industry, serving as
Senior Vice President of Marketing for The Ritz-Carlton Hotel Company from 1987
to 1991 and before that as Vice President -Sales and Marketing for Fairmont
Hotels from 1983 to 1987. Until 1991, he was the North American Chairperson of
Leading Hotels of the World, a hotel marketing association. Prior to his career
in sales, Mr. Hart played professional football with the NFL's Atlanta Falcons
and Buffalo Bills. Mr. Hart is also a director of Victory Ventures and a
director of Victorinox - Swiss Army Knife Foundation.
James W. Kennedy, a Director of the Company, is President of Lahinch Group,
Inc., a start-up company engaged in the garment imprinting and apparel business.
Until December 13, 1995, Mr. Kennedy was Co-Chairman of the Board and Chief
Executive Officer of the Company, which capacity he had served in since February
1994. Previously, he was President of the Company, a position he had held since
1988. Prior to 1988, Mr. Kennedy was Senior Vice President of the Company and
had served in various sales and marketing positions with the Company since 1975.
Mr. Kennedy has served on committees for the Specialty Advertising Association
International, the National Restaurant Association, the American Meat Institute,
the Sporting Goods Manufacturers Association and the American Association of
Exporters and Importers.
21
<PAGE>
Keith R. Lively, a Director of the Company, is a private investor and, from
January 1995 through December, 1995, was a consultant to the Company. From 1988
through September 1994, Mr. Lively was the President, Chief Executive Officer
and a Director of The Famous Amos Chocolate Chip Cookie Corporation. From
September 1992 through September 1994, Mr. Lively was also Senior Vice
President, a member of the Executive Committee and a Director of President
Baking Company, which purchased The Famous Amos Chocolate Cookie Corporation in
September 1992. Mr. Lively also serves as a director of SweetWater.
Lindsay Marx, a Director of the Company is a private investor. From
November 1992 to January 1994, she was a production assistant at Iron Mountain
Productions, a dramatic production company. Ms. Marx was an assistant to the
director at the Paper Mill Playhouse in 1992 and, from September 1989 to March
1992, an artistic assistant at The Body Politic, also a dramatic production
company. Ms. Marx graduated from Middlebury College in 1987. Ms. Marx, is the
daughter of Louis Marx, Jr..
Eric M. Reynolds, a Director of the Company, is President, Chief Executive
Officer and a director of SweetWater, a position he has held since January,
1993. Previously, from 1987 through 1990, Mr. Reynolds served as a marketing
consultant to various companies including W.L. Gore & Associates and Marmot
Mountain Works, Ltd., a company founded by Mr. Reynolds in 1974 that is in the
business of designing, manufacturing and marketing mountaineering, backpacking
and ski outerwear products.
John Spencer, a Director of the Company, holds the African Studies
Professorship at Middlebury College where he has served as a member of the
faculty since 1974. Mr. Spencer has also served as Dean of Middlebury College
and Chairman of its History Department. Mr. Spencer is Vice-Chairman of the
African American Institute and of the Institute of Current World Affairs, a
Trustee of the Cape of Good Hope Foundation, the University of Capetown Fund,
Inc. and Atlanta University and a director of Victorinox - Swiss Army Knife
Foundation.
John V. Tunney, a Director of the Company, is currently Chairman of the
Board of Cloverleaf Group, Inc. and a general partner of Sun Valley Ventures, a
partnership engaged in venture capital and leveraged buyout activities. From
1971 to 1977 Mr. Tunney served as a United States Senator from the state of
California and as a Member of the United States House of Representatives from
1965 to 1971. Mr. Tunney is also a director of Prospect, Illinois Central
Corporation, Illinois Central Railroad Company, and Foamex International, Inc.,
a foam manufacturer.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that except for one late filing
of a Form 3 by Mr. Jerald J. Rinder and one late filing of a Form 4 by Mr. Keith
R. Lively, during the year ended December 31, 1996 all filing requirements
applicable to the Company's officers, directors, and greater than ten-percent
beneficial owners were complied with.
22
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
The Summary Compensation Table below sets forth individual compensation
information of the President and the five other most highly paid executive
officers of the Company for services rendered in all capacities during the
fiscal years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Position Year Salary Bonus sation Award SARS Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Merrick Taggart 1996 $250,000 $40,000 $50,809(1) - 40,000 - $3,353(2)
President 1995 $33,654 - - - 100,000(3) - -
1994 - - - - - - -
Peter W. Gilson 1996 $200,000 - - - 20,000 - -
Chairman of the 1995 $150,000 - - - 150,000 - -
Executive Committee 1994 - - - - - - -
Thomas D. Cunningham 1996 $210,000 $20,000 - - - - $4,465(5)
Executive Vice President 1995 $210,000 $10,000 - - 25,000 - $4,400(6)
and Chief Financial 1994 $174,308 $100,000 - - 50,000 - $2,846(7)
Officer(4)
Stanley G. Mortimer III 1996 $210,000 $17,500 - - 10,000 - $10,842(8)
Executive Vice President 1995 $210,000 $5,000 - - 25,000 - $8,584(9)
1994 $220,000 $100,000 - - - $12,845(10)
Harry R. Thompson 1996 $200,000 $20,000 - - 25,000 - $4,750(11)
Managing Director 1995 $200,000 $15,000 - - 25,000 - $2,195(12)
1994 - - - - - - -
Leslie H. Green 1996 $175,000 $17,500 - - 10,000 - $4,750(13)
Vice President 1995 $175,000 $10,000 - - 10,000 - $3,796(14)
1994 $175,000 $45,000 - - - - $3,705(15)
</TABLE>
23
<PAGE>
(1) Includes relocation benefits of $45,109.
(2) Consists of $3,353 contributed by the Company to Mr. Taggart's account
under the Company's 401K savings plan.
(3) Consists of warrants to purchase Common Stock.
(4) Mr. Cunningham resigned from the offices of Executive Vice President
and Chief Financial Officer on November 15, 1996.
(5) Consists of $4,465 contributed by the Company to Mr. Cunningham's
account under the Company's 401K savings plan.
(6) Consists of $4,400 contributed by the Company to Mr. Cunningham's
account under the Company's 401K savings plan.
(7) Consists of $2,846 contributed by the Company to Mr. Cunningham's
account under the Company's 401K savings plan.
(8) Consists of $4,750 contributed by the Company to Mr. Mortimer's
account under the Company's 401K savings plan and $6,092 in benefit to
Mr. Mortimer of insurance premiums paid by the Company with respect to
split dollar life insurance for the benefit of Mr. Mortimer.
(9) Consists of $4,300 contributed by the Company to Mr. Mortimer's
account under the Company's 401K savings plan and $4,284 in benefit to
Mr. Mortimer of insurance premiums paid by the Company with respect to
split dollar life insurance for the benefit of Mr. Mortimer.
(10) Consists of $4,620 contributed by the Company to Mr. Mortimer's
account under the Company's 401K savings plan and $8,225 in benefit to
Mr. Mortimer of insurance premiums paid by the Company with respect to
split dollar life insurance for the benefit of Mr. Mortimer.
(11) Consists of $4,750 contributed by the Company to Mr. Thompson's
account under the Company's 401K savings plan.
(12) Consists of $2,195 contributed by the Company to Mr. Thompson's
account under the Company's 401K savings plans.
(13) Consists of $4,750 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.
(14) Consists of $3,796 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.
(15) Consists of $3,705 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.
24
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table, information regarding individual grants of
options made in the last fiscal year, and their potential realizable values.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted Fiscal Year(1) ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
J. Merrick Taggart 40,000 11.5% $13.625 11/14/06 $342,748 $868,590
Peter W. Gilson 20,000 5.7% $13.625 11/14/06 $171,374 $434,295
Thomas D. Cunningham 0 - - - - -
Stanley G. Mortimer III 10,000 2.9% $13.625 11/14/06 $85,687 $217,147
Harry R. Thompson 25,000 7.2% $13.625 11/14/06 $214,217 $542,869
Leslie H. Green 10,000 2.9% $13.625 11/14/06 $85,687 $217,147
<FN>
(1) Based on 348,750 options granted.
</FN>
</TABLE>
25
<PAGE>
Option Exercises and Year-End Value Table
The following table sets forth option exercise activity in the last fiscal
year and fiscal year-end option values with respect to each of the executive
officers named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option/SAR Value
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
J. Merrick Taggart 3,000 3,189 57,000/80,000 35,250/37,500
Peter W. Gilson 1,000 750 79,000/90,000 55,500/56,250
Thomas D. Cunningham 1,000 1,000 49,000/25,000 41,188/17,188
Stanley G. Mortimer III - - 40,000/20,000 29,688/4,688
Harry R. Thompson 1,000 8,625 27,750/31,250 76,688/4,688
Leslie H. Green - - 27,500/12,500 17,638/1,850
</TABLE>
Compensation of Directors
The Company compensates those of its directors who were not employees of
the Company in the amount of $10,000 annually plus $1,000 for attendance at each
meeting of the Board of Directors. The Chairmen of the Audit Committee and the
Stock Option and Compensation Committee of the Board of Directors are each paid
an additional annual fee of $10,000 in recognition of the additional
responsibilities and time commitments associated with such positions.
In addition, the Company has purchased split dollar life insurance policies
in respect of each of Messrs. Louis Marx, Jr. and Stanley R. Rawn, Jr. See
"Certain Transactions".
Employment Agreement and Severance Arrangements
The Company entered into an employment agreement dated as of January 2,
1996 with Mr. James W. Kennedy, a director of the Company and, until December
13, 1995, Co-Chairman of the Board and Chief Executive Officer of the Company.
The agreement provides that Mr. Kennedy shall be employed in an executive
capacity with the Company and shall be available to consult with and advise the
Company on such matters as might be requested by senior management of the
Company for at least eighty-five hours per month to assist on issues dealing
with the maintenance of corporate trademarks; corporate legal matters; and
strategic support relative to strategic relations with Victorinox Cutlery
Company, the Company's key supplier. Mr. Kennedy is to be paid a salary of
$140,000 per annum and, during 1996, was paid a one time bonus of $300,000. The
agreement, which has a term of five years, also provides that following the
termination of the agreement Mr. Kennedy would be prohibited from competing,
with certain exceptions, with the business of the Company for a period of three
years.
26
<PAGE>
In connection with the resignation of Mr. M. Leo Hart, a director of the
Company, from his position as Co-Chairman of the Board and Chief Executive
Officer of the Company in 1996, the Company paid Mr. Hart the sum of $75,000 and
accepted for surrender and cancellation all of Mr. Hart's outstanding stock
options to purchase Common Stock. To replace such options, the Company has
issued to Mr. Hart new options covering the same number of shares and upon the
same terms and conditions except that the newly issued options were fully vested
upon grant and the exercisability of such options is not contingent on Mr.
Hart's employment with the Company.
The Company entered into an Employment and Severance Agreement dated as of
November 15, 1996 with Mr. Thomas D. Cunningham, who was, until that date, a
Director and Executive Vice President and Chief Financial Officer of the
Company. The agreement provides that in connection with Mr. Cunningham's
resignation from those positions he would be employed by the Company to work
with management of the Company in connection with the sale of the Company's
subsidiary, Cuisine de France Limited. The agreement provides that such
employment shall be for a period of six months provided that satisfactory
progress is made with respect to the disposition of Cuisine de France Limited.
The Company entered into an agreement for the sale of Cuisine de France Limited
on January 31, 1997 and has thus determined that such progress has been made.
Mr. Cunningham is to paid be a salary at the rate of $210,000 per annum during
the term of his employment under the agreement. In addition, subsequent to the
termination of Mr. Cunningham's employment, the agreement provides that Mr.
Cunningham shall be paid a one time severance payment of $210,000 and receive
certain other benefits. The agreement also provides that Mr. Cunningham would be
prohibited from competing with the business of the Company for a period of two
years.
Pension Plan
Each employee of the Company at least twenty years of age, becomes eligible
to participate in the Company's Pension Trust (the "Pension Trust") after
completing two Years of Credited Service (as defined in the Pension Trust).
Monthly benefits at Normal Retirement Age, age sixty-five, are computed as
follows: Average Monthly Compensation (as defined below) multiplied by 0.65%
plus Average Monthly Compensation in excess of Social Security Covered
Compensation (as defined below) multiplied by 0.65%, such sum multiplied by
Years of Credited Service, not to exceed 35 years. Accrued benefits under the
prior formula used by the Company's Pension Trust are grandfathered as of
December 31, 1993 for Non-Highly Compensated Employees and as of December 31,
1988 for Highly Compensated Employees.
"Average Monthly Compensation" is defined as one-twelfth of the highest
five consecutive years of total compensation. Social Security Covered
Compensation is defined as the average of the Taxable Wage Base over the 35-year
period ending with the year of the Social Security Normal Retirement (ages 65 -
67, depending on year of birth).
Participants will receive reduced benefits on a life annuity basis with
continuation of benefits to their spouses after death unless an optional form of
benefit is selected. Preretirement death benefit coverage is also provided. A
participant is 100% vested in his accrued benefits, as defined in the Pension
Trust, upon such accrual. The Years of Credited Service as of December 31, 1996
of each of the individuals named in the Cash Compensation table herein are as
follows:
J. Merrick Taggart.............. 1 year
Peter W. Gilson................. 1 year
Thomas D. Cunningham............ 2 years
Stanley G. Mortimer III......... 12 years
Harry R.Thompson................ 1 year
Leslie H. Green................. 6 years
27
<PAGE>
The following table shows annual pension benefits under the Pension Trust
assuming retirement at age sixty-five in 1997, payable as a life annuity, in
various remuneration and years of employment classifications. Note that the
maximum allowable compensation for years beginning in 1994 is $150,000, so
remuneration in excess of that amount is not shown. Some grandfathering of
benefits earned at higher compensation levels is provided.
<TABLE>
<CAPTION>
Pension Benefits for 1996 Retirees at Age 65
Years of Service
Remuneration 15 20 25 30 35
<C> <C> <C> <C> <C> <C>
50,000 $ 7,061 $ 9,415 $11,769 $14,123 $16,476
75,000 11,936 15,915 19,894 23,873 27,851
100,000 16,811 22,415 28,019 33,623 39,226
125,000 21,686 28,915 36,144 43,373 50,601
150,000 26,561 35,415 44,269 53,123 61,976
</TABLE>
Compensation Committee Interlocks and Insider Participation
In 1996, the Compensation Committee was comprised of A. Clinton Allen,
Keith R. Lively, John V. Tunney and John Spencer. None of these individuals is
an officer or employee of the Company or any of its subsidiaries.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership
of the Common Stock on March 17, 1997, by each person or group known by the
Company to own beneficially 5% or more of the outstanding Common Stock. Except
as otherwise noted, each person listed below has sole voting and investment
power with respect to the shares listed next to his or its name.
28
<PAGE>
<TABLE>
<CAPTION>
Number of
Name of Beneficial Owner Shares Percent owned(1)
<S> <C> <C>
Louis Marx, Jr.
667 Madison Avenue
New York, NY 10021 3,082,222(2) 35.4%
Brae Group, Inc.
15710 John F. Kennedy Blvd.
Houston, TX 77032 3,058,200(3) 35.1%
Victorinox A.G.
CH-6438
Ibach-Schwyz
Switzerland 1,000,000 12.2%
Tweedy, Browne Company L.P.
52 Vanderbilt Avenue
New York, New York 10017 589,150(4) 7.2%
David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142 537,100(5) 6.5%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401 467,724(6) 5.7%
<FN>
(1) Based on 8,209,610 shares of Common Stock outstanding, not including
614,108 shares held as Treasury stock. Treated as outstanding for the
purposes of computing percentage ownership of each holder are shares
issuable to such holder upon exercise of options and warrants.
(2) Consists of 19,730 shares held directly by Mr. Marx, 4,292 shares held
by a trust for the benefit of Mr. Marx, 2,558,200 shares held by Brae
Group, Inc., which corporation Mr. Marx may be deemed to control, and
500,000 shares issuable upon the exercise of a stock option held by
Brae Group, Inc.
(3) Includes 500,000 shares issuable upon the exercise of a stock option
held by Brae Group, Inc..
(4) According to a Schedule 13D filed February 29, 1996, consists of
shares held in the accounts of customers of Tweedy, Browne Company
L.P., a broker-dealer.
(5) According to a Schedule 13G dated February 7, 1997, consists of shares
which David L. Babson & Co., Inc. beneficially owns by virtue of
serving as investment advisor.
(6) According to a Schedule 13G dated February 5, 1997, consists of shares
as to which Dimensional Fund Advisors, Inc. shares power of
disposition by virtue of serving as investment advisor to its clients.
</FN>
</TABLE>
29
<PAGE>
The following table sets forth certain information concerning the
beneficial ownership of Common Stock on March 17, 1997, by each Director, each
officer named in the Summary Compensation Table herein and by all Directors and
officers of the Company as a group.
<TABLE>
<CAPTION>
Number of
Name Shares Percent of Class(1)
<S> <C> <C>
J. Merrick Taggart 60,000(2) *
Stanley G. Mortimer III 47,262(3) *
Harry R. Thompson 33,250(4) *
Leslie H. Green 30,000(5) *
A. Clinton Allen 35,000(6) *
Clarke H. Bailey -0-
Thomas A. Barron 72,500(7) *
Vincent D. Farrell, Jr. 35,000(8) *
Herbert M. Friedman 15,868(9) *
Peter W. Gilson 80,000(10) *
M. Leo Hart 100,500(11) 1.2%
James W. Kennedy 83,960(12) 1.0%
Keith R. Lively -0- *
Lindsay Marx 25,000(13) *
Louis Marx, Jr. 3,082,222(14) 35.4%
Stanley R. Rawn, Jr. 142,711(15) 1.7%
Eric M. Reynolds 25,000(16) *
John Spencer 1,000 *
John V. Tunney -0- *
All officers and directors 3,992,835(17) 42.0%
as a group (25 persons)
*Less than 1% of the Class.
<FN>
(1) Based on 8,209,610 shares of Common Stock outstanding, not including
614,108 shares held as Treasury Stock. Treated as outstanding for the
purpose of computing the percentage ownership of each director and of
all directors and officers as a group are shares issuable to such
individuals upon exercise of options.
(2) Includes 47,000 shares of Common Stock issuable upon exercise of
warrants held by Mr. Taggart and 10,000 shares of Common Stock
issuable upon exercise of Options held by Mr. Taggart.
(3) Includes 46,250 shares of Common Stock issuable upon exercise of
Options held by Mr. Mortimer.
(4) Consists of 33,250 shares of Common Stock issuable upon exercise of
Options held by Mr. Thompson.
(5) Consists of 30,000 shares of Common Stock issuable upon exercise of
Options held by Ms. Green.
(6) Consists of 35,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Allen.
(7) Includes 37,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Barron.
(8) Consists of 35,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Farrell. Excludes shares beneficially owned by
Spears, Benzak, a general partnership in which Mr. Farrell has a 22%
interest.
(9) Includes 12,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Friedman.
(10) Includes 79,000 shares of Common Stock issuable upon exercise of
options held by Mr. Gilson.
(11) Includes 100,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Hart.
(12) Includes 81,250 shares of Common Stock issuable upon exercise of
Options held by Mr. Kennedy and 1,000 shares held by a trust for the
benefit of Mr. Kennedy's son, beneficial ownership of which is
disclaimed by Mr. Kennedy.
(13) Consists of 25,000 shares of Common Stock issuable upon exercise of
Options held by Ms. Marx.
(14) Consists of 19,730 shares of Common Stock held directly by Mr. Marx,
4,292 shares held by a trust for the benefit of Mr. Marx, 2,558,200
shares held by Brae Group, Inc., which corporation Mr. Marx may be
deemed to control, and 500,000 shares issuable upon exercise of
options held by Brae Group, Inc.
(15) Includes 100,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Rawn.
(16) Consists of 25,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Reynolds.
(17) Includes 1,249,750 shares of Common Stock issuable to directors and
officers upon exercise of Options and 47,000 shares of Common Stock
issuable upon exercise of warrants.
</FN>
</TABLE>
30
<PAGE>
Item 13. Certain Relationships and Related Transactions
Messrs. Louis Marx, Jr., Chairman of the Company's Management Committee,
and a Director of the Company, and Stanley R. Rawn Jr., Senior Managing Director
and a Director of the Company, devoted considerable time and attention to the
affairs of the Company during 1996. During 1996 Messrs. Marx and Rawn were
principally compensated through split dollar insurance on their lives, a method
which allows the Company to recover, without interest, all premiums paid on the
death of the insured and which has substantially lower earnings impact over the
years than would similar amounts paid as cash compensation. Specifically, the
Company has purchased split dollar life insurance payable on the death of
Mr. Marx, some of which is payable on the later to die of Mr. Marx and his wife,
and split dollar life insurance payable on the death of Mr. Rawn. Under these
arrangements the Company will pay approximately $4,200,000 over the course of
the next 17 years as premiums under the policies for Mr. Marx and approximately
$3,000,000 over the course of the next 13 years under the policy for Mr. Rawn
(in each case including amounts paid in the first fiscal quarter of 1997), and
will be reimbursed, without interest, for all of the premiums that it has paid
upon the death of the respective insured. The actual premiums to be paid may be
higher than estimated depending upon the performance of the insurance company's
investments and other factors. Pursuant to the terms of life insurance
agreements entered into with each of Messrs. Marx and Rawn, the Company shall
continue to be obligated to pay these premiums during the insured's employment
with the Company and in the event of the termination of such employment for any
reason, unless the insured willfully and materially breaches the terms of a
consulting agreement between him and the Company and such breach continues for
30 days after written notice. Under the terms of such consulting agreements,
each of Messrs. Marx and Rawn is to be engaged as a consultant immediately
following the termination of his employment with the Company and, in such event,
shall receive such compensation as shall be fair under the circumstances. Mr.
Marx has been so engaged as a consultant to the Company since February 15, 1995,
the date on which he ceased to serve as Chairman of the Company's Executive
Committee. The consulting agreements may be terminated by the Company upon
thirty days notice. In 1996, the Company paid an aggregate of $437,072 in
premiums on the policies pertaining to Mr. Marx and $315,150 in premiums on the
policy pertaining to Mr. Rawn. There will be a small, negative earnings impact
through 1998 of the policies on Messrs. Marx's and Rawn's lives, and an
increasingly positive impact on earnings in the later years.
In July 1994, the Company entered into a Services Agreement with Brae
Group, Inc. ("Brae") which beneficially owns 35.4% of the outstanding Common
Stock and in which Louis Marx, Jr., a Director of the Company, has a controlling
interest, and in which Victorinox Cutlery Company ("Victorinox"), a key supplier
and beneficial owner of approximately 12.2% of the outstanding Common Stock, has
a non- controlling stock interest. Mr. M. Leo Hart, a Director of the Company,
is Chief Executive Officer of Brae. Under the Services Agreement, Brae is to
provide various services to the Company for a period of four years relating to
maintaining, enhancing and expanding the Company's relationship with Victorinox.
In exchange for these services, Brae received an option to purchase 500,000
shares of the Company's Common Stock at the then current market price of $10.75
per share. The option is fully vested and can be exercised for ten years from
the date of the Services Agreement.
The Company loaned to Mr. James W. Kennedy, a Director of the Company, a
total of $87,500. The loan bore interest at the prime rate and was paid in full,
together with accrued interest, on January 3, 1996.
Lahinch Group, Inc., of which Mr. James W. Kennedy, a Director of the
Company, is president, director and a significant stockholder, and of which Mr.
Louis Marx, Jr. and Victorinox Cutlery Company are investors, purchased from the
Company products for resale to the golf oriented channel of trade in 1996 in the
amount of $268,679.
In 1996, the Company paid $528,475 for legal services rendered by the law
firm of Zimet, Haines, Friedman & Kaplan, of which Mr. Herbert M. Friedman, a
Director of the Company, is a partner.
Victorinox Cutlery Company owns approximately 12.2% of the outstanding
Common Stock and is the supplier to the Company of Swiss Army Knives,
professional cutlery products and Victorinox Watches. During the year ended
December 31, 1996, the Company purchased Victorinox products in aggregate amount
of approximately $36,360,298.
31
<PAGE>
Swiss Army Brands, Inc. Charitable Insurance Program
The Company recognizes its responsibility to the communities in which its
products are sold and the importance of charitable organizations to the country
at large. The Company is also aware of the benefits to commercial good will
resulting from the proper discharge of its responsibilities. In order to further
these objectives, the Company instituted its Charitable Insurance Program. This
program allows the Company to provide the maximum assistance to numerous
charities by utilizing tax provisions intended to encourage such activities, and
to eventually recover, without interest, all amounts expended.
Under the Company's Charitable Insurance Program (the "Program"), adopted
by the Company's Board of Directors in 1993, the Company will utilize insurance
on the lives of each of its directors and other designated persons (the "Insured
Directors") to fulfill charitable pledges to the Victorinox-Swiss Army Knife
Foundation (the "Foundation") and to charities recommended by the Insured
Directors. The Company previously purchased life insurance on one of the
Company's then Co-Chairmen and designated the Foundation as a beneficiary of a
portion of the proceeds, subject to the Company's right to revoke such
designation.
The Program enables the Company to make a meaningful commitment to the
Victorinox-Swiss Army Knife Foundation, as well as a broad range of charities
benefiting our communities. The Company anticipates that it will be able to make
substantial contributions in the future to these charities at a minimal cost to
the Company.
The Victorinox-Swiss Army Knife Foundation is a tax-exempt private
foundation, funded primarily by contributions from the Company and Victorinox.
It was organized in December, 1992 for general charitable purposes, including
the improvement of the welfare of underprivileged children (and others) through
the encouragement of organized athletic activities, including those sports in
which an underprivileged child would not ordinarily participate. Louis Marx,
Jr., a director of the Company, is President and a director of the Foundation.
Stanley R. Rawn, Jr., Senior Managing Director and a director of the Company,
and Herbert M. Friedman, M. Leo Hart and John Spencer, directors of the Company,
are directors of the Foundation.
The Company is the owner and beneficiary of the policies, with the right to
borrow against them, and will receive the proceeds upon the death of each
Insured. The proceeds will not be legally segregated from the Company's general
funds and will remain subject to claims of the Company's creditors. Upon the
death of an Insured Director, the Company will retain a share of the insurance
proceeds equal to the cumulative premiums paid by the Company for the policy on
that Insured Director's life. One half of the remaining amount will be used to
fulfill a pledge to the Foundation and the other half will be used to fulfill
pledges to tax-exempt charities recommended by Insured Directors and approved by
the Board.
Generally, the Company will be bound to continue to pay all premiums on the
policy for the life of the Insured or, in the case of Mr. Marx, as long as he is
an officer or Board member or agrees to serve as a consultant to the Company.
Generally, there will be a small, negative impact on earnings through 1998,
and an increasingly positive impact on earnings after 1998 as the cash surrender
value of the insurance increases.
If a director were to leave the Company prior to the time when the cash
surrender value of the policy exceeds the aggregate premiums, and the Company
received no further substantial benefit from his or her services, the obligation
to pay future premiums would result in a charge to earnings at the time he or
she left. The charge to earnings for 1996 with respect to directors who left the
Company in 1996 is insignificant.
The Company would not be entitled to a tax deduction, nor would the Company
realize income for regular income tax purposes, at the time the policy is
obtained nor as premiums are paid. Upon the death of the director (when the
policy matures and the insurance proceeds are paid) the Company would not
realize income for "regular" income tax purposes, but the Company might be
subject to alternative minimum tax ("AMT") on a portion of the receipts from the
policy. Upon the making of the cash contribution following the death of the
insured director, the Company would be entitled to a deduction. Since the
Company is entitled to claim as charitable deductions only 10% of its taxable
income in any year, the extent of the utilization of this deduction would depend
upon income. These deductions may be carried forward for a period of five years.
32
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this report: Page(s)
<S> <C> <C>
(1) Financial Statements:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - December 31,
1996 and 1995 F-2 to F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and
1994 F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994 F-6
Notes to Consolidated Financial Statements F-7 to F-25
(2) Schedule --
Schedule II -- Valuation and Qualifying Accounts
for the Years Ended December 31, 1996, 1995 and 1994 F-26
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required, or because the required
information is included in the financial statements or notes thereto.
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swiss Army Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Swiss Army
Brands, Inc., formerly The Forschner Group, Inc., (a Delaware corporation) and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swiss Army Brands, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)(2) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedure applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
February 4, 1997
F-1
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $2,067,346 $608,757
Accounts receivable, less
allowance for doubtful accounts
of $1,032,000 and $975,000, 32,992,281 31,970,449
respectively
Inventories 29,656,511 36,733,146
Deferred income taxes 3,295,488 2,395,858
Prepaid and other 2,921,134 2,647,121
------------ ------------
Total current assets 70,932,760 74,355,331
------------ ------------
Deferred income taxes 1,597,307 771,371
Property, plant and equipment, net 3,968,461 4,105,865
Investments in preferred units, at cost 9,002,999 7,002,990
Investments in common stock and note
receivable of unconsolidated affiliates 150,000 2,591,415
Foreign distribution rights, net of
accumulated amortization of $2,518,116
and $1,843,812, respectively 4,226,092 4,900,396
Other assets, net of accumulated
amortization of $496,436 and
$3,166,339, respectively 8,764,906 7,502,884
----------- -----------
Total assets $98,642,525 $101,230,252
============= ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-2
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
Current liabilities
Accounts payable $10,951,269 $6,479,200
Accrued liabilities 7,835,149 9,812,383
------------- ------------
Total current liabilities 18,786,418 16,291,583
------------- ------------
Commitments and contingencies (Note 13)
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 -
12,000,000; shares issued - 8,822,968
and 8,800,718, respectively 882,297 880,072
Additional paid-in capital 46,181,841 45,897,740
Foreign currency translation adjustment (113,401) (9,216)
Retained earnings 38,018,837 43,283,540
------------- ------------
84,969,574 90,052,136
Less-cost of common stock in
treasury; 614,108 shares (5,113,467) (5,113,467)
------------- ------------
Total stockholders' equity 79,856,107 84,938,669
------------- ------------
Total liabilities and stockholders' equity $98,642,525 $101,230,252
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Net sales $130,029,897 $126,694,786 $144,437,320
Cost of sales 89,193,757 82,430,435 88,633,762
------------- ------------- -------------
Gross profit 40,836,140 44,264,351 55,803,558
Selling, general and administrative
expenses before special charges
and special charitable contribution 43,679,273 40,265,716 38,792,909
Special charges 2,562,000 - -
Special charitable contribution - - 1,500,000
------------- -------------- ------------
Total selling, general and
administrative expenses 46,241,273 40,265,716 40,292,909
------------- -------------- ------------
Operating income (loss) (5,405,133) 3,998,635 15,510,649
Interest expense (147,005) (216,937) (27,674)
Interest income 120,093 556,631 391,387
Gain (loss) on sale (write-down)
of investments (2,381,733) 1,771,456 36,720
Equity interest in unconsolidated
affiliates - (548,200) -
Other income (expense), net 205,411 74,276 81,543
------------- -------------- -----------
Total interest and other
income (expense), net (2,203,234) 1,637,226 481,976
------------- -------------- -----------
Income (loss) before income taxes (7,608,367) 5,635,861 15,992,625
Income tax provision (benefit) (2,343,664) 2,522,645 6,632,895
------------- -------------- -----------
Net income (loss) ($5,264,703) $3,113,216 $9,359,730
============= ============== ===========
Net income (loss) per share ($0.64) $0.38 $1.16
============= ============== ===========
Weighted average number of
shares and equivalents outstanding 8,201,599 8,235,849 8,061,846
============= ============== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
Par Value $.10 Paid-In Translation Retained Treasury
Shares Amount Capital Adjustment Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1993 7,648,968 $764,897 $34,520,872 ($6,829) $30,810,594 ($5,472,110)
Net income - - - - 9,359,730 -
Stock options and warrant
exercised 1,111,000 111,100 10,467,657 - - -
Stock grant 37,000 3,700 486,925 - - -
Issuance of common stock
from treasury - - 391,360 - - 358,643
Foreign currency
translation adjustment - - - (21,256) - -
---------- -------- ----------- --------- ------------ ----------
BALANCE
December 31, 1994 8,796,968 879,697 45,866,814 (28,085) 40,170,324 (5,113,467)
Net income - - - - 3,113,216 -
Stock options exercised 3,750 375 30,926 - - -
Foreign currency
translation adjustment - - - 18,869 - -
---------- --------- ----------- --------- ------------- ----------
BALANCE
December 31, 1995 8,800,718 880,072 45,897,740 (9,216) 43,283,540 (5,113,467)
Net loss - - - - (5,264,703) -
Stock options and warrant
exercised 22,250 2,225 284,101 - - -
Foreign currency
translation adjustment - - - (104,185) - -
---------- -------- ----------- ---------- ----------- -----------
BALANCE
December 31, 1996 8,822,968 $882,297 $46,181,841 ($113,401) $38,018,837 ($5,113,467)
========== ======== =========== ========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($5,264,703) $3,113,216 $9,359,730
Adjustments to reconcile net income
(loss) to cash provided from
(used for) operating activities:
Depreciation and amortization 4,035,399 3,249,376 3,207,294
Deferred income taxes (1,725,566) (643,155) (1,644,567)
Treasury shares contributed to
charitable foundation - - 750,003
Stock award - - 303,125
Equity interest in unconsolidated
affiliates - 548,200 -
(Gain) loss on sales of property,
plant and equipment 3,944 8,788 (9,030)
(Gain) loss on (sale) write-down
of investments 2,381,733 (1,771,456) (36,720)
---------- ----------- ----------
(569,193) 4,504,969 11,929,835
Changes in other current assets and liabilities:
Accounts receivable (1,091,241) (2,329,783) (6,105,787)
Inventories 6,966,002 (9,741,351) (6,281,294)
Prepaid and other (269,983) (1,144,356) 3,020,220
Accounts payable 4,508,883 (7,580,883) 2,765,024
Accrued liabilities (1,937,712) (64,206) 3,525,716
----------- ------------ -----------
Net cash provided from (used for)
operating activities 7,606,756 (16,355,610) 8,853,714
----------- ------------ -----------
Cash flows from investing activities:
Capital expenditures (1,464,699) (1,430,352) (1,676,477)
Proceeds from sales of property,
plant and equipment - 21,500 22,412
Additions to other assets (3,021,214) (2,814,301) (2,205,205)
Investments in preferred units (2,000,009) - (6,250,000)
Investments in common stock - (3,709,546) -
Sales (purchases) of short-term
investments - 5,311,608 (5,311,608)
Proceeds from note receivable - - 186,120
Proceeds from sale of investments 59,682 6,822,282 377,490
----------- ----------- -----------
Net cash provided from (used for)
investing activities (6,426,240) 4,201,191 (14,857,268)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock
options and warrant 286,326 31,301 10,766,257
----------- ----------- -----------
Net cash provided from
financing activities 286,326 31,301 10,766,257
----------- ----------- -----------
Effect of exchange rate changes on cash (8,253) 23,686 109,638
Net increase (decrease) in cash and cash
equivalents 1,458,589 (12,099,432) 4,872,341
Cash and cash equivalents,
beginning of period 608,757 12,708,189 7,835,848
----------- ------------ -----------
Cash and cash equivalents,
end of period $ 2,067,346 $ 608,757 $12,708,189
=========== ============ ===========
Cash paid during the period:
Interest $ 147,005 $ 251,637 $ 27,674
=========== ============ ===========
Income taxes $ 232,985 $3,428,792 $ 6,883,242
=========== ============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS
Swiss Army Brands, Inc. ("Swiss Army" or the "Company", formerly
known as The Forschner Group, Inc. ) is the exclusive distributor in
the United States, Canada (with one minor exception for cutlery) and
the Caribbean of the Victorinox Original Swiss Army Knife, Victorinox
cutlery and Victorinox watches. Swiss Army also markets its own line
of Swiss Army Brand Watches and other high quality Swiss made products
under its Swiss Army Brand worldwide. Swiss Army's cutlery line, which
also includes imported products from Germany, England and France, is
sold primarily to the food processing and service industries. Swiss
Army's wholly-owned subsidiary, Cuisine de France Limited ("CDF"),
imports and distributes high quality French made consumer cutlery
under the Cuisine de France Sabatier brand. Substantially all of the
assets of CDF were sold by the Company in 1997. Swiss Army has only
one business segment - the importation and distribution of cutlery,
knives, watches and other consumer products. Approximately 1%, 6% and
25% of Swiss Army's net sales for the years ended December 31, 1996,
1995 and 1994 respectively, resulted from participation in special
promotional programs with one customer. The Company has received
orders from this customer in 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Foreign currency translation and transactions
Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars using the exchange rate in effect at the
balance sheet date. Results of operations are translated using the
average exchange rate prevailing throughout the period. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are included in the foreign currency
translation adjustment component of stockholders' equity, while gains
and losses resulting from foreign currency transactions are included
in net income (loss). The Company, from time to time, enters into
foreign currency forward contracts and other currency trading
arrangements to hedge specific foreign currency inventory purchase
commitments. Gains and losses on these contracts are deferred and
recognized in cost of sales when the related inventory is sold.
F-7
<PAGE>
Cash and cash equivalents
Cash and cash equivalents consist of all highly liquid investments
with original maturities of three months or less. Investments with
maturities between three and twelve months are considered short-term
investments.
Inventories
Domestic inventories are valued at the lower of cost determined by the
last-in, first-out (LIFO) method or market. Had the first-in,
first-out (FIFO) method been used to value domestic inventories as of
December 31, 1996 and 1995, the balance at which inventories are
stated would have been $3,157,000 and $2,746,000 higher, respectively.
Foreign inventories are valued at the lower of cost or market
determined by the FIFO method. Inventories primarily consist of
finished goods and packaging material.
Property, plant and equipment
Property, plant and equipment are stated at cost. Major improvements
which add to productive capacity or extend the life of an asset are
capitalized while repairs and maintenance are charged to expense as
incurred. Property, plant and equipment are comprised of the
following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Leasehold improvements $ 1,030,138 $ 818,446
Equipment 7,227,788 6,199,914
Furniture and fixtures 1,669,895 1,473,188
----------- -----------
9,927,821 8,491,548
Accumulated depreciation (5,959,360) (4,385,683)
----------- -----------
$3,968,461 $4,105,865
=========== ===========
</TABLE>
Depreciation is computed principally by use of the straight-line
method based on the following estimated useful lives:
<TABLE>
<CAPTION>
Years
<S> <C>
Equipment 3 to 10
Furniture and fixtures 7 to 10
</TABLE>
The provision for amortization of leasehold improvements is provided
on a straight-line basis over the estimated useful lives of the assets
or terms of the leases, whichever is shorter. For the years ended
December 31, 1996, 1995, and 1994, depreciation and amortization
expense of property, plant and equipment was approximately $1,599,000,
$1,521,000 and $1,273,000, respectively.
Long-lived assets
In March 1995, Statement of Financial Accounting Standard ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", was issued. The Company adopted
SFAS No. 121 in 1996, and this accounting standard did not have a
material effect on the Company's financial position or results of
operations. The Company continually reviews the recoverability of the
carrying value of these assets using the provisions of SFAS No. 121.
F-8
<PAGE>
Investments
Investments in common stock of companies in which the Company owns
between 20% to 50% are accounted for under the equity method, with the
Company recording its proportional share of net income or losses of
these companies and amortization of goodwill related to the
acquisition of the investments. These amounts equalled losses of
$548,200 for 1995.
Investments in preferred units or stock, are accounted for at cost,
subject to review for impairment. Since these investments do not have
a readily determinable fair value, the valuation of these investments
is subject to uncertainty.
Investments in common stock of companies in which the Company owns
less than 20% are accounted for at fair value, subject to review for
impairment. Changes between cost and fair value are reflected as a
component of stockholders' equity. Any write-down of the cost due to
impairment are reflected as part of net income (loss).
Earnings per share
Earnings per share are based on the weighted average number of common
and common equivalent shares outstanding during the year. For the
years ended December 31, 1995 and 1994, the computation included
50,000 and 230,000 shares, respectively, issuable upon exercise of
stock options and warrants after the assumed repurchase of common
shares with the related proceeds. For the year ended December 31,
1996, no common equivalents have been included in the computation of
earnings per share as they would have an anti-dilutive effect. There
is no difference between primary and fully diluted earnings per share.
Stock-based compensation
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation", was issued. As permitted under the provisions of SFAS
No. 123, the Company has not changed its method of accounting for
stock-based compensation; however, SFAS No. 123 requires additional
footnote disclosures relating to the effect of using a fair value
based method of accounting for stock-based compensation cost. See Note
12 for the additional footnote disclosures required by SFAS No. 123.
Income taxes
The Company follows SFAS No. 109 "Accounting for Income Taxes". Under
SFAS No. 109, the provision for income taxes, as determined using the
liability method, includes deferred taxes resulting from temporary
differences in income for financial and tax purposes. Such temporary
differences primarily result from differences between the tax bases of
assets and liabilities and their carrying amounts for financial
reporting purposes.
Foreign currency
The vast majority of the Company's products are imported from
Switzerland and are paid for in Swiss francs. Increases in the value
of the Swiss franc versus the dollar may effectively increase the cost
of these products to the Company. The increase in the cost of products
to the Company may result in either higher prices charged to customers
or reductions in gross margin, both of which may have an adverse
effect on the Company's results of operations. The Company enters into
foreign currency contracts and options to hedge the exposure
associated with foreign currency fluctuations. 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 of any increase in the dollar 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.
F-9
<PAGE>
Reclassifications
Certain reclassifications have been made to prior year's financial
statements to conform with the 1996 presentation.
(3) SPECIAL CHARGES
In 1996, the Company recorded special charges of approximately
$9,887,000 ($0.75 per share after tax) related to the completion of an
extensive analysis of the Company's operations and non- strategic
assets. The special charges consisted of:
<TABLE>
<S> <C>
Write-off of inventory $4,932,000 (a)
Selling, general and administrative charges 2,562,000 (b)
Write-down of investments 2,393,000 (c)
------------
$9,887,000
============
(a) Represents the write-off of discontinued inventory, including
certain cutlery products sold by CDF (see Note 7).
(b) Consists of an $870,000 write-off of goodwill and other assets
related to CDF (see Note 7), a $1,151,000 write-off for obsolete
displays and a $541,000 write-off of other assets.
(c) Consists of a $1,593,000 write-down of the Company's common stock
investment in SweetWater, Inc. and a $800,000 write-off of the
Company's investment in a privately held affiliated start-up entity
(see Note 6).
(4) PRINCIPAL SUPPLIERS
Swiss Army imports for resale all of its Swiss Army Knives and certain
of its other cutlery products from a principal supplier, Victorinox
Cutlery Company ("Victorinox"), a Swiss company. Effective December
12, 1993, Swiss Army renewed a five-year agreement (originally signed
on December 12, 1983 and as amended) with Victorinox which appoints
Swiss Army as exclusive distributor of Victorinox Original Swiss Army
Knives and most of its other cutlery products in the United States and
gives Swiss Army exclusive rights to use Victorinox trademarks and
trade names in the United States with respect to Swiss Army Knives and
cutlery. The agreement remains in effect as long as Swiss Army
continues to purchase quantities of Swiss Army Knives and cutlery
(based on the Swiss franc purchase price) at least equal to 85% of the
maximum amount of purchases of each in any preceding year. In 1995,
Victorinox agreed to reduce the 1996 minimum purchase requirements on
knives to 75% of the maximum amount of purchases in any preceding
year. In 1996, Victorinox agreed to reduce the 1997 minimum purchase
requirements on knives to 65% of the maximum amount of purchases in
any preceding years. The Company purchased the required minimums in
1996, with total purchases from Victorinox of approximately
$36,400,000. Pursuant to this agreement, Swiss Army must obtain
Victorinox's permission to sell new cutlery items. All of the Swiss
Army Knives and certain of the cutlery items that Swiss Army sells in
Canada and the Caribbean also are supplied by Victorinox.
F-10
<PAGE>
Foreign distribution rights with Victorinox are comprised of the
following:
</TABLE>
<TABLE>
<CAPTION>
Cost at December 31, Amortization
1996 1995 Period
<S> <C> <C> <C>
Canadian distribution
rights (A) $3,483,064 $3,483,064 10 years
Caribbean and Victorinox Watch
distribution rights (B) 3,261,144 3,261,144 10 years
----------- -----------
6,744,208 6,744,208
Accumulated amortization (2,518,116) (1,843,812)
----------- -----------
$4,226,092 $4,900,396
=========== ===========
</TABLE>
(A) In April 1992, Swiss Army entered into an agreement with
Victorinox under which it received the exclusive distribution rights
for Victorinox Original Swiss Army Knives in Canada and was appointed
the principal distributor of Victorinox professional cutlery in
Canada. In exchange for the grant of these rights, Swiss Army issued
to Victorinox 277,066 shares of its common stock from treasury. The
rights received were awarded to Swiss Army for a fixed term with a
continuous five-year renewal arrangement upon expiration of the fixed
term. Victorinox has the right ot to renew the agreement; however,
should Victorinox choose not to renew upon expiration of the fixed
term, Victorinox is required to pay Swiss Army $3,500,000.
(B) On December 21, 1993, Swiss Army entered into an agreement with
Victorinox under which it received the exclusive distribution rights
for Victorinox Original Swiss Army Knives and professional cutlery in
the Caribbean. Swiss Army also received the right to distribute
Victorinox Swiss-made watches in the United States, Canada and the
Caribbean and acquired the 20% share of the Company's subsidiary,
Victorinox of Switzerland, Ltd., that Victorinox owned. In exchange
for the grant of these rights and the stock acquired, Swiss Army
issued to Victorinox a five-year warrant to purchase 1,000,000 shares
of common stock at a $3.75 discount to the current market price on the
date of exercise. The value of the warrant of $3,750,000 was allocated
between the purchase of the distribution rights ($3,261,144) and the
acquisition of the 20% share of Victorinox of Switzerland, Ltd.,
($488,556). In April 1994, the discount from the current market price
was modified to $4.25 in exchange for Victorinox's agreement to pay
the exercise price immediately instead of after one year as allowed by
the original agreement. All of the shares issued upon exercise of the
warrant were subsequently sold to a corporate shareholder of Swiss
Army that is controlled by a director of Swiss Army, in exchange for
shares of the common stock of that corporation. As part of the
agreement, Swiss Army will pay Victorinox a royalty of 1% of net sales
of Victorinox Watches. The Caribbean distribution rights are for a
fixed term automatically renewable in successive five-year periods
unless either party notifies the other at least six months prior to
expiration of such period of its intent not to renew. The term of
Victorinox Watch distribution rights in each territory coincides with
the term in that territory for Victorinox cutlery products.
F-11
<PAGE>
The Company does not have any manufacturing facilities and imports
virtually all of its products from independent suppliers. The
Company's business is subject to certain risks related to its
arrangements with its foreign suppliers, including possible
restrictions on transfer of funds, the risk of imposition of quotas on
the amount of products which may be imported into the United States
(although no quota currently exists), maritime union strikes and
political instability. Although the Company has a United States
exclusive distributorship agreement with Victorinox, its principal
supplier, it does not have such contractual arrangements with its
other suppliers. The agreement with Victorinox provides for certain
minimum annual purchases of products by the Company, and failure to
achieve these goals would result in Victorinox having the right to
terminate the agreement. Such a termination would have a material
adverse effect upon the Company's operations. The agreement also
provides that the Company will not add non-Victorinox items to its
line of cutlery products without the prior agreement of Victorinox.
Although the Company has a contractual right to receive minimum
quantities of Swiss Army Knives from Victorinox, were this source of
supply to fail for any reason, the Company would probably be unable to
find an alternative source. Any substantial disruption of the
Company's relationships with Victorinox would have a material adverse
effect on its operation and results. Virtually all of the Company's
imported products are subject to United States custom duties.
Although approximately 73%, or $18,800,000, of total payments for
watches and watch parts in 1996 were made to a single watch supplier,
which is responsible for the final assembly of watch components
manufactured by several manufacturers, the Company believes that
alternate watch suppliers would be available, if necessary.
Furthermore, the Company believes that the loss of this supplier of
Swiss Army Brand Watches would not have a material adverse effect on
the Company's business.
(5) RELATED PARTY TRANSACTIONS
One of Swiss Army's directors is a partner in a law firm which
provides legal services to the Company. For the years ended December
31, 1996, 1995 and 1994, Swiss Army incurred fees of $598,000 ,
$516,000 and $588,000, respectively, relating to these services. Of
the 1994 fees, $176,000 were paid on behalf of Forschner Enterprises,
Inc., the predecessor company to Hudson River Capital LLC and Victory
Capital LLC, and capitalized as part of Swiss Army's investment
therein.
Four of Swiss Army's directors serve as directors for Hudson River
Capital LLC, including one who serves as Co-Chairman. Six of Swiss
Army's directors serve as directors for Victory Ventures LLC,
including two who serve as Co-Chairman. Five of Swiss Army's
directors, one of which is an executive officer of Swiss Army, serve
as directors of SweetWater, Inc. See Note 6 for further discussion.
A company policy authorizes Swiss Army to compensate, in the form of a
commission of up to 3% of net sales for up to three years,
non-employees for their direct role in introducing significant new
customers to the Company. In 1995 and 1994, Swiss Army paid to a
relative of one of Swiss Army's directors half of a 3% commission on
net sales to a customer, on whose board the same director also serves
as a member. In 1995 and 1994 this customer represented approximately
6% and 25% of Swiss Army's total revenues (see Note 1).
F-12
<PAGE>
In July 1994, Swiss Army entered into a Services Agreement with Brae
Group, Inc. ("Brae"), a company which is a stockholder of Swiss Army
and in which a Swiss Army director and a principal supplier have a
controlling and minority stock interest, respectively. Under the
Services Agreement, Brae is to provide various services to Swiss Army
for a period of four years relating to maintaining, enhancing and
expanding Swiss Army's relationship with the Company's principal
supplier. In exchange for these services, Brae received an option to
purchase 500,000 shares of Swiss Army's common stock at the then
current market price of $10.75 per share. The option vested
immediately and can be exercised for 10 years from the date of the
Services Agreement (see Note 12).
Effective January 1, 1995, Swiss Army entered into an agreement with a
director, under which the director received $10,000 per month for
consulting services rendered in 1995. This agreement was terminated on
December 31, 1995.
In December 1995, a Swiss Army director and former Co-Chairman entered
into an agreement with the Company to become a sole distributor of
Swiss Army Brand products to the golf market. Investors in this new
entity include the Company's principal supplier and a member of Swiss
Army's Board of Directors, who is a controlling stockholder of Brae.
Sales to this entity were approximately $270,000 in 1996.
(6) INVESTMENTS
Investments consist of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Carrying
Value Cost
<S> <C> <C>
December 31, 1996:
Preferred units of Hudson River
River Capital LLC (A) $ 7,907,345 $ 7,907,345
Preferred units of
Victory Ventures LLC 1,095,654 1,095,654
----------- -----------
Total investments at cost $ 9,002,999 $ 9,002,999
=========== ===========
Common stock of SweetWater, $ 150,000 $ 3,381,742
Inc. (B)
Common stock and note receivable
of affiliated entity (C) - 800,000
----------- -----------
Total investments in common stock
and note receivable of
unconsolidated affiliates $ 150,000 $ 4,181,742
=========== ===========
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
Carrying
Value Cost
<S> <C> <C>
December 31, 1995:
Preferred stock of Forschner
Enterprises, Inc. (A) $7,002,990 $7,002,990
---------- ----------
Total investment at cost $7,002,990 $7,002,990
========== ==========
Common stock of SweetWater,
Inc. (B) $1,791,415 $3,430,175
Common stock and note receivable of
affiliated entity (C) 800,000 800,000
---------- ----------
Total investments in common stock
and note receivable of
unconsolidated affiliates $2,591,415 $4,230,175
========== ==========
</TABLE>
(A) Hudson River Capital LLC ("Hudson River"), formerly known as
Victory Capital LLC ("Victory"), is a private equity firm specializing
in middle market acquisitions, recapitalization and expansion capital
investments. Hudson River currently has equity and other interests in
several private and publicly traded companies. In 1994, Swiss Army
invested a total of $7,002,990 paid in cash and in shares of stock of
a publicly traded corporation, to acquire 700,299 shares of preferred
stock of Forschner Enterprises, Inc. ("FEI"), the predecessor company
to Victory. On March 1, 1996, FEI merged into Victory and the
preferred stock of FEI was converted to preferred units of Victory. In
May 1996, Swiss Army invested a total of $2,000,009 in Victory,
acquiring 190,477 preferred units. In October 1996, Victory Capital
LLC changed its name to Hudson River Capital LLC. In November 1996,
Hudson River distributed to its members its ownership interest in
Victory Ventures LLC ("Victory Ventures"). This event was non-taxable
and resulted in no gain or loss to the Company. Victory Ventures is a
private equity firm specializing in small market venture capital
investments. As a result of the distribution, the Company owns 890,776
preferred units (representing approximately 9.1% of outstanding
equity) of Victory Ventures valued at $1.23 per unit at December 31,
1996. At December 31, 1996, the Company owns 890,776 preferred units
(representing approximately 4.2% of outstanding equity) of Hudson
River. The preferred units in Hudson River and Victory Ventures owned
by Swiss Army carry a preference on liquidation equal to their per
unit cost as well as, in certain instances, an annual preferred
return. Swiss Army is accounting for these investments on the cost
basis, subject to review for impairment. Since these investments do
not have a readily determinable fair value, the valuation of these
investments is subject to uncertainty.
(B) SweetWater, Inc. ("SweetWater") manufactures and sells portable
water purification and filtration systems to the sporting goods,
recreational, travel and tourist, emergency preparedness and military
markets. As of December 31, 1993, SweetWater was a private company and
Swiss Army owned preferred stock with a 40% voting interest. In
January 1994, SweetWater issued 718,750 shares of common stock in an
initial public offering (resulting in 1,837,243 shares of common stock
outstanding), at which time Swiss Army's holdings of preferred stock
were converted into 430,000 shares of common stock. In January 1994,
Swiss Army sold 72,000 shares of SweetWater to a stockholder of
Victorinox for approximately $374,000. Swiss Army's cost for the stock
sold was approximately $338,000. Through December 31, 1994, the
Company accounted for this investment at fair value with changes
between cost and fair value reflected as a component of stockholders'
equity. During 1995, Swiss Army purchased additional shares of common
stock for $1,837,000, raising its percentage ownership to 38%.
F-14
<PAGE>
Accordingly, in 1995, the Company accounted for this investment under
the equity method. Swiss Army's share of the losses of SweetWater,
including amortization of goodwill, totaled $1,638,000. During 1995,
SweetWater issued additional shares to outside investors. As a result,
as of December 31, 1995, Swiss Army owned 20.5% of the outstanding
stock of SweetWater. Effective January 1, 1996, Swiss Army decreased
its percentage of ownership of SweetWater to below 20% due to the sale
by Swiss Army of SweetWater common stock. Accordingly, as of January
1, 1996, this investment was accounted for at fair value. In December
1996, the investment in SweetWater was written down to $150,000, its
estimated fair value, due to the impairment in the value of the
investment. This write-down of approximately $1,593,000 has been
included in gain (loss) on sale (write-down) of investments. Due to
the limited trading of SweetWater's common stock, the valuation of
this investment is subject to uncertainty and could change in the near
term.
(C) In 1995, the Company purchased 5,160 shares of common stock and an
8% convertible note due in the year 2000 of a privately held
affiliated start-up entity that was in the business of designing,
manufacturing and marketing fine jewelry. In 1995, the common stock
and the convertible note had been recorded at cost. In the second
quarter of 1996, the investment was fully written off due to the
impairment in the value of the investment. The write-down of $800,000
has been included in gain (loss) on sale (write-down) of investments.
Simmons Outdoor Corporation ("Simmons") was a publicly traded company
whose primary business is marketing and distributing branded sporting
goods products (principally optical in nature). In the fourth quarter
of 1995 the Company's investment in common stock of Simmons was sold,
resulting in a pre-tax profit of $1,740,000, which is included in the
gain (loss) on sale (write-down) of investments. In 1995, prior to the
sale of the common stock, the Company accounted for this investment
under the equity method. Swiss Army's share of the income of Simmons,
net of amortization of goodwill, totaled $1,090,000.
(7) OTHER ASSETS
Other assets in the accompanying consolidated balance sheets consists
of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, Amortization
1996 1995 Period
<S> <C> <C> <C>
Cash surrender value of
life insurance (See Note 13) $7,317,215 $5,855,757 N/A
Goodwill (A) - 1,179,189 10 years
Other 1,944,127 3,634,277 1-5 years
----------- -----------
Accumulated amortization (496,436) (3,166,339)
----------- -----------
$8,764,906 $7,502,884
=========== ===========
</TABLE>
(A) On September 2, 1992, the Company acquired certain assets and
assumed certain liabilities of CDF. This acquisition was accounted for
as a purchase with the assets acquired and liabilities assumed
recorded at their fair value. As discussed in Note 3, in 1996 the
remaining net book value of the goodwill was written off. In January
1997, the Company entered into an asset purchase agreement to sell
certain assets and liabilities of CDF. No significant gain or loss
will result from this transaction. For the years ended December 31,
1996, 1995 and 1994, amortization expense was approximately
$2,436,000, $1,728,000 and $1,934,000, respectively.
F-15
<PAGE>
(8) ACCRUED LIABILITIES
The components of accrued liabilities were as follows as of December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Sales, marketing and promotional $2,631,384 $3,318,970
Payroll related 1,425,620 1,623,641
Pension 585,706 628,303
Income taxes 314,215 1,114,389
Other 2,878,224 3,127,080
----------- -----------
$7,835,149 $9,812,383
=========== ===========
</TABLE>
(9) REVOLVING CREDIT AGREEMENT
Swiss Army had a $15,000,000 revolving credit agreement which, as
amended, carried interest at either the bank's Base Rate, or the
London Interbank Offered Rate (LIBOR) rate, plus 1.25%. This agreement
expired on January 30, 1997. The interest rate was at Swiss Army's
discretion subject to the terms of the loan. Swiss Army had no
outstanding balance under this agreement at either December 31, 1996
or 1995. Borrowings under this line were used for working capital
requirements and, within certain restrictions, for any corporate
purpose. The revolving term loan agreement contained certain
restrictions relating to the payment of dividends, repurchase of
stock, issuance of additional debt and sale of certain assets. In
addition, the agreement required the continuation of the exclusive
distribution agreement with Swiss Army's principal Swiss Army Knife
and cutlery supplier (see Note 4). The Company is currently reviewing
its options to establish a new revolving credit agreement. The Company
plans to use the line of credit described below for borrowings, if
needed, prior to establishment of a new revolving credit agreement.
The Company maintains a $5,000,000 line of credit with a financial
institution. This facility is unsecured and contains no restrictions
or requirements. The Company had no outstanding balance under this
agreement at December 31, 1996.
F-16
<PAGE>
(10) INCOME TAXES
The income tax provision (benefit) for the years ended December 31,
1996, 1995 and 1994, consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Current
Federal ($1,140,055) $2,614,025 $7,188,549
Foreign 292,215 43,720 -
State 229,742 508,055 1,088,913
---------- ---------- ----------
Total current (618,098) 3,165,800 8,277,462
Deferred
Federal (1,331,981) (492,108) (1,258,334)
State (393,585) (151,047) (386,233)
---------- ---------- ----------
Total deferred (1,725,566) (643,155) (1,644,567)
---------- ---------- ----------
Provision (benefit)
for income taxes ($2,343,664) $2,522,645 $6,632,895
=========== ========== ==========
</TABLE>
The significant components of the deferred tax asset (liability) as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loss on write-down of investments $1,211,493 $651,195
Inventory related reserves 1,151,593 994,807
Sales and marketing reserves 1,074,376 654,856
Depreciation and amortization 552,300 (150,750)
Accrued employee benefits 540,913 755,003
Net operating loss carryforward
for state purposes 196,931 -
Other 165,189 262,118
----------- ----------
$4,892,795 $3,167,229
=========== ==========
</TABLE>
No valuation allowance has been recorded against the Company's
deferred tax assets as the Company believes it is more likely than not
that the Company will realize the deferred tax assets.
F-17
<PAGE>
A reconciliation of the income tax provision (benefit) calculated at
the federal income tax statutory rate and the Company's effective
income tax rate for 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory federal income tax rate (34.0%) 34.0% 35.0%
State income taxes, net of
federal income tax benefit (4.1) 6.8 2.9
Foreign tax rate differences 3.8 0.8 1.4
Other 3.5 3.2 2.2
------- ------- ------
Effective income tax rate (30.8%) 44.8% 41.5%
======= ======= ======
</TABLE>
At December 31, 1996, the Company has net operating loss
carryforwards, subject to Internal Revenue Service review, of
approximately $3.1 million. The Company plans utilize the loss
carryfowards by carrying them back to previous years.
(11) EMPLOYEE BENEFITS
Substantially all employees of the Company are covered by a
noncontributory defined benefit pension plan. Benefits are based on
years of service and the employee's compensation during the five
highest consecutive compensation years. Costs under the plan are
accrued and funded on the basis of accepted actuarial methods. Total
pension expense approximated $232,000, $324,000 and $218,000, for the
years ended December 31, 1996, 1995 and 1994, respectively.
The net periodic pension cost of Swiss Army's pension plan in 1996,
1995 and 1994 includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost - benefits
earned during the period $239,607 $256,331 $196,795
Interest cost on projected
benefit obligation 156,335 159,618 123,590
Return on assets (144,010) (110,233) (94,726)
Amortization of net
transition asset (14,188) (14,188) (14,188)
Amortization of unrecognized
prior service cost (13,253) (13,529) (13,818)
Amortization of net loss 7,424 46,021 19,939
-------- --------- ---------
Net periodic pension cost $231,915 $324,020 $217,592
======== ========= =========
</TABLE>
F-18
<PAGE>
The funded status of the Company's defined benefit plan at December
31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $2,072,841 $1,903,390
========= =========
Accumulated benefit obligation $2,072,841 $1,903,390
========= =========
Projected benefit obligation $2,629,302 $2,694,164
Market value of plan assets 2,110,602 1,565,095
--------- ---------
Plan assets less than projected
benefit obligation (518,700) (1,129,069)
Unrecognized net loss 332,905 896,032
Unrecognized prior service cost (268,515) (281,768)
Unrecognized net transition asset (85,134) (99,322)
---------- ----------
Accrued pension cost ($539,444) ($614,127)
========== ==========
</TABLE>
Rates used in determining the actuarial present value of the projected
benefit obligation were as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Discount rate 7.00% 7.00%
Rate of increase in future compensation levels 5.00% 5.00%
Expected long-term rate of return on plan assets 8.00% 8.00%
</TABLE>
Plan assets consist principally of investments in fixed income
securities, short-term investments and common stock.
The Company maintains a 401(k) employee benefit plan pursuant to which
participants can defer a certain percent of their annual compensation
in order to receive certain benefits upon retirement, death,
disability or termination of employment. The Company can elect to make
a matching contribution of up to 6% of annual eligible compensation
per employee. The determination to make a matching contribution is
made at the beginning of each fiscal year. During 1996, 1995 and 1994
the Company incurred expenses of approximately $135,000, $129,000 and
$88,000 related to this plan.
The Company offers no other post retirement benefits.
(12) STOCKHOLDERS' EQUITY
During 1996 and 1994, the stockholders approved adoption of The
Forschner Group, Inc. 1996 Stock Option Plan and The Forschner Group,
Inc. 1994 Stock Option Plan, respectively, providing for the grant of
options to employees, including officers of the Company, and members
of the Board of Directors. Under these plans and previous stock option
plans, 805,094 shares of common stock are reserved and available for
issuance. Options expire no later than ten years after the date of
grant. Option prices equal at least 100% of the fair market value of
Swiss Army's common stock on the date of grant. The vesting of options
is determined by the Stock Option and Compensation Committee, which
administers the plan, and for options outstanding as of December 31,
1996, vesting ranges from immediately upon grant to three years.
F-19
<PAGE>
The following table summarizes stock option plan and warrant activity
for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
Number
of Shares Option Price
<S> <C> <C>
Outstanding at December 31, 1993 669,533 $ 3.32 - $17.50
Granted 1,325,000 $10.75 - $15.25
Exercised (111,000) $ 5.25 - $11.50
Canceled (535,000) $14.50 - $17.50
----------
Outstanding at December 31, 1994 1,348,533 $ 3.32 - $17.50
Granted (A) (B)(C) (D) 912,000 $11.75 - $12.88
Exercised (3,750) $ 6.50
Canceled (B) (D) (248,658) $ 3.32 - $17.50
----------
Outstanding at December 31, 1995 2,008,125 $ 5.25 - $14.50
Granted (E) 348,750 $13.63
Exercised (22,250) $5.25 - $12.88
Canceled (22,625) $12.25 - $12.88
----------
Outstanding at December 31, 1996 2,312,000 $5.25 - $14.50
==========
</TABLE>
Of the options and warrants outstanding at December 31, 1996,
1,697,688 are exercisable at a weighted average option price of $11.79
per share.
(A) In January 1995, the Company issued 637,000 options to purchase
common stock at $12.88 per share to various Company employees,
officers and directors. These options are exercisable in four equal
installments over three years starting with the grant date.
(B) Included as granted are options to purchase 25,000 shares of
common stock at $11.75 per share to a former director, which replaced
the same number of options granted in 1993 at $17.50 per share, that
were canceled concurrently. The newly issued options retain vesting
rights of the options they replaced.
(C) In December 1995, the Company issued a warrant to purchase 100,000
shares of common stock at $12.50 per share to an officer of the
Company. The warrant is exercisable in four equal installments over
three years starting with the grant date.
(D) Included as canceled are 150,000 options to purchase common stock
at $12.88 per share which were issued to a director. In December 1995,
options covering 150,000 shares were granted to another director at
$12.50 per share. These options are exercisable in four equal
installments over three years starting with the grant date.
(E) In November 1996, the Company issued 348,750 options to purchase
common stock at $13.63 per share to various Company employees and
officers. These options are exercisable in four equal installments
over three years starting with the grant date.
F-20
<PAGE>
The weighted-average fair value of the stock options and warrants
granted in 1996 and 1995 was approximately $5.45 and $5.80,
respectively. The weighted-average fair value of the options and
warrants was estimated using the Black-Scholes option-pricing model
with the following assumptions: expected volatility of 30%; expected
life of options and warrants of 6 years; dividend yield of 0%; and
risk free interest rate of 6.04% in 1996 and 6.70% in 1995,
respectively.
The Company accounts for stock options and warrants under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", under which no compensation cost has been recognized. Had
compensation cost for 1996 and 1995 been determined under the
principles of SFAS No. 123, the Company's net income (loss) and
earnings per share would have been the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Pro forma net income (loss) ($6,386,000) $2,343,000
Pro forma earnings per share ($0.78) $0.28
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are
not indicative of future amounts as SFAS No. 123 does not apply to
stock options and warrants granted prior to 1995, and additional
options and warrants may be granted in future years.
(13) COMMITMENTS AND CONTINGENCIES
The Company has minimum purchase requirements under an agreement with
its principal Swiss Army Knife and cutlery supplier (see Note 4).
On December 18, 1996, the Swiss Military Department representing the
Swiss Confederation ("Swiss Confederation") and the Company entered
into a trademark agreement (the "Trademark Agreement") pursuant to
which the Company was granted certain worldwide use and sublicensing
rights in connection with trademarks containing the words "Swiss Army"
registered by the Swiss Confederation in Switzerland (the "Swiss
Confederation Trademarks"). The Swiss Confederation acknowledged the
Company's exclusive right to use the Company's trademarks in the
countries of their registration or application and agreed to assist
the Company in enforcing the Company's rights with respect to its
trademarks. In addition, the Swiss Confederation stated its intention
to assist Victorinox, the Company and two other companies in
safeguarding their rights with respect to "Swiss Army" as applied to
knives and in preventing the use of "Swiss Army" with respect to
multi-blade pocketknives, multi-tools and other products which are not
Swiss products.
The Trademark Agreement grants the Company the right to an exclusive
royalty free license of the Swiss Confederation Trademarks as applied
to watches and sunglasses in the United States, Canada and the
Caribbean. The Company is also granted such rights with respect to
certain designated products that either it or its licensees sell in
commercial quantities in the United States, Canada and the Caribbean
within designated time periods. In the event the Company or its
licensees do not sell commercial quantities of product categories
within the time periods set by the agreement, the Swiss Confederation
shall have the right, subject to certain conditions, to license the
Swiss Confederation Trademarks to a third party and, in such event,
the Company shall be obligated to offer such third party a license of
the Company's appropriate trademark.
F-21
<PAGE>
Outside of the United States, Canada and the Caribbean, the Trademark
Agreement provides for the grant to the Company of the right to an
exclusive license, subject to the existing legal rights of others, for
watches and sunglasses at a royalty equal to 3% of net sales. In
addition, the Company has the right to a license for certain
designated products outside of the United States, Canada and the
Caribbean also at a royalty equal to 3% of net sales, to use the Swiss
Confederation Trademarks provided that the Company commences the sale
of commercial quantities of such products within time periods
prescribed by the Trademark Agreement.
The Trademark Agreement also provides that all products sold under the
license must be of a quality at least equal in workmanship and
materials to the products currently sold by the Company, Victorinox or
one other company and that in the event the Company discontinues sales
of goods in commercial quantities in any category of goods for three
consecutive years, the Swiss Confederation shall have the right to
terminate the license as to that category after giving the Company
notice and an opportunity to resume sales. Except for the foregoing
limitation, the rights of the Company with respect to the use of the
Swiss Confederation Trademarks under the Trademark Agreement are
perpetual. It is anticipated that the right to utilize the Swiss
Confederation Trademarks on certain products other than timepieces and
sunglasses will be made available to one other company by the Company
on terms yet to be discussed.
At December 31, 1996, minimum rental payment commitments for office
and warehouse space leased by Swiss Army under operating leases are:
<TABLE>
<S> <C>
1997 $1,322,000
1998 1,344,000
1999 1,337,000
2000 1,283,000
2001 819,000
</TABLE>
During the years ended December 31, 1996, 1995 and 1994, rent expense
was approximately $1,313,000, $1,390,000 and $945,000, respectively.
As of February 1, 1997, the Company has open contracts to purchase
approximately 64,000,000 Swiss francs in 1997 as a hedge against
future purchase of inventories.
F-22
<PAGE>
The Company maintains split dollar life insurance agreements covering
two members of the Board of Directors. Primarily, these policies can
only be canceled upon the mutual agreement of the Company and the
insured. However, if these policies were canceled at December 31,
1996, the Company would receive in cash an amount equal to the lesser
of the cash surrender value or cumulative premiums paid to date on
these policies which was approximately $3,283,000. Under the terms of
these life insurance policies, the Company will make approximate
future premium payments, if the policies remain in force, as follows:
<TABLE>
<S> <C>
1997 $812,000
1998 827,000
1999 843,000
2000 858,000
2001 and thereafter 3,940,000
</TABLE>
In 1993, Swiss Army's Board of Directors adopted a charitable
insurance program that will enable Swiss Army to make a commitment to
the Victorinox-Swiss Army Knife Foundation (the "Foundation"), a
foundation which engages in various charitable activities including
the promotion of athletic events for underprivileged urban youth, as
well as a broad range of charities. In 1994, Swiss Army made a special
$1.5 million contribution in the form of cash and common stock to the
Foundation. Under the program, Swiss Army owns, is the beneficiary of,
and pays all the premiums for life insurance policies on the lives of
cerain Board members. Pursuant to the program, upon the death of each
Director, the Company will retain a share of the insurance proceeds
equal to the cumulative premiums paid by the Company for the policy on
that Director's life. One half of any additional insurance proceeds
received upon the death of an insured Director will be used to fulfill
charitable pledges made to the Victorinox-Swiss Army Knife Foundation.
The remaining half of the additional proceeds will be used to fulfill
charitable pledges recommended by the individual Directors. Swiss Army
is generally bound to continue to pay all premiums on the policies for
the lives of the insured Directors or, in the case of the Chairman of
the Management Committee, as long as he is an officer or a board
member or agrees to serve as a consultant to the Company. Swiss Army
will make approximate future premium payments related to these
programs as follows:
<TABLE>
<S> <C>
1997 $1,115,000
1998 1,115,000
1999 1,115,000
2000 1,115,000
2001 and thereafter 8,205,000
</TABLE>
Under existing federal tax laws, the receipt by Swiss Army of the
proceeds from an insurance policy upon the death of a director would
not result in regular taxable income to the Company; however, Swiss
Army may be subject to alternative minimum tax on a portion of the
receipts. When Swiss Army makes cash contributions to a designated
charity, it will be entitled to a tax deduction equivalent to the sum
of those contributions. The extent of the utilization of this
deductSwiss Army isear will depend upon Swiss Army's taxable income,
since entitled to claim as charitable deductions only 10% of its
taxable income in any year. However, these deductions may be carried
forward for tax purposes for a period of five years.
F-23
<PAGE>
Based upon estimates prepared by the Company's insurance agent, the
anticipated earnings impact related to the policies for both the
Foundation and the two members of the Board of Directors is expected
to be insignificant.
Swiss Army entered into an employment agreement dated as of January 2,
1996 with a director of the Company who, until December 13, 1995, was
Co-Chairman of the Board and Chief Executive Officer of Swiss Army.
The agreement provides that the former Co- Chairman shall be employed
in an executive capacity with the Company and shall be available to
consult with and advise the Company on such matters as might be
requested by senior management of the Company for at least eighty-five
hours per month on issues dealing with the maintenance of corporate
trademarks, corporate legal matters, and strategic support relative to
strategic relations with Victorinox, the Company's key supplier. The
former Co- Chairman is being paid a salary of $140,000 per annum and,
during 1996 received a one-time bonus of $300,000. The agreement,
which has a term of five years, also provides that following the
termination of the agreement, this individual would be prohibited from
competing, with certain exceptions, with the business of the Company
for a period of three years.
In 1994, in a case originally brought by the Company against Arrow
Trading Co., Inc. ("Arrow") in September 1992 in the District Court
for the Southern District of New York, the U.S. Court of Appeals for
the Second Circuit reversed a judgment originally issued in the
Company's favor and held that the use of "Swiss Army" on Chinese-made
knives could not be enjoined on grounds of geographic
misdescriptiveness. On remand, the District Court ruled that Arrow had
violated Section 43(a) of the Lanham Act and New York common law in
connection with its sale of Chinese-made multi-bladed pocketknives
which Arrow called "Swiss Army Knives". The Arrow engaged in the
Company had proved its contention that unfair competition and held
that Arrow, although free to use the phrase "Swiss Army Knife" to
designate its product, must amply distinguish it from the Company
product and prohibited Arrow from selling any multi-function
pocketknives as "Swiss Army Knives" unless the phrase "Swiss Army
Knife" is immediately preceded or followed by Arrow's name in such a
way as to clearly designate its origin and that the size of the type
designating origin be no smaller or less prominent than the type used
in the phrase "Swiss Army Knife". The Company intends to utilize all
reasonable means to safeguard the public from being misled by inferior
imitation products. Management and legal counsel are unable to predict
at this time, what impact, if any, the outcome of this litigation will
have on the Company's financial position and results of operations.
In addition, the Company is involved in certain legal matters relating
to trademark, patent, and other general business matters. Management
believes that the outcome of these legal matters will not have a
material adverse effect on the financial position and results of
operations of the Company.
F-24
<PAGE>
(14) INTERNATIONAL OPERATIONS
A summary of selected financial information for international
operations is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net sales $17,239,000 $14,164,000
Operating income (loss) 1,674,000 (185,000)
Identifiable assets 12,204,000 12,801,000
</TABLE>
No selected financial information has been presented for 1994 as
international operations were less than 10% of net sales, operating
income and identifiable assets.
(15) QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C> <C>
1996
Net sales $26,079,513 $28,676,650 $34,616,208 $40,657,526
Gross profit 8,592,757 5,388,921 11,996,389 14,858,073
Income (loss) before income
taxes (414,974) (6,997,867) 1,140,071 (1,335,597)
Net income (loss) (244,974) (4,056,867) 642,071 (1,604,933)
Net income (loss) per share ($0.03) ($0.49) $0.08 ($0.20)
1995
Net sales $ 29,369,721 25,925,259 $ 30,186,155 $ 41,213,651
Gross profit 10,700,594 8,715,449 10,466,106 14,382,202
Income before income taxes 2,194,832 538,773 540,331 2,361,925
Net income 1,270,782 218,183 196,290 1,427,961
Net income per share $ 0.15 $ 0.03 $ 0.02 $ 0.18
</TABLE>
Results for June 30, 1996 and December 31,1996 as compared to the same
periods for 1995 were impacted by inventory write-offs, investment
write-downs and special charges of $7,394,000 and $2,493,000,
respectively. See Note 3 for further discussion.
F-25
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Balance Charged to Balance At
At Costs and End of
Classification Beginning Expenses Deductions Year
of Year
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Allowance for Doubtful Accounts $975,000 $57,000 $ - $1,032,000
======== ========= ========== =========
Inventory Reserve $918,000 $4,932,000 ($3,900,000) $1,950,000
======== ========= ========== =========
Year Ended December 31, 1995:
Allowance for Doubtful Accounts $ 755,000 $220,000 $ - $975,000
======= ======== =========== =========
Inventory Reserve $ 750,000 $168,000 $ - $918,000
======= ======== =========== =========
Year Ended December 31, 1994:
Allowance for Doubtful Accounts $ 710,000 $ 45,000 - $755,000
======= ======== =========== =========
Inventory Reserve $ 201,000 $549,000 - $750,000
======= ======== =========== =========
</TABLE>
F-26
<PAGE>
(3) Exhibits.
Exhibit Title Exhibit No.
(2) Not Applicable
(3) (A) Articles of Incorporation, as amended, incorporated
by reference to the Exhibits to Quarterly Report
on Form 10-Q for the fiscal year ended June 30, 1996. *
(B) By-laws, as amended, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1995. *
(4) Instruments defining the rights of security holders, including
indentures:
(A) Excerpts from Certificate of Incorporation,
as amended, incorporated by reference to Exhibit
3(a) hereto. *
(B) Excerpts from By-Laws, as amended, incorporated
by reference to the Exhibits from Annual Report
on Form 10-K for the fiscal year ended
December 31, 1992. *
(9) Not Applicable.
(10) Material Contracts
(A) Employment Agreement dated as of September 15, 1983
between SABI and Michael M. Weatherly, incorporated
by reference to the Exhibits to Registration Statement
on Form S-18, No. 2-87357-B. *
(B) 1983 Stock Option Plan, incorporated by reference to
the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1990. *
(C) Letter Agreement dated December 12, 1983 between
Victorinox Cutlery Company and R.H. SABI Co., Inc.,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994. *
(D) Mutual Agreement dated as of October 20, 1986
between Victorinox Cutlery Company and The
Forschner Group, Inc., incorporated by reference
to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. *
(E) Letter Agreement dated as of October 20, 1986 between
Victorinox Cutlery Company and The Forschner Group, Inc.,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994. *
(F) Letter Agreement dated August 24, 1988 between The
Forschner Group, Inc. and Recta S.A., incorporated
by reference to the Exhibits to Annual Report on Form
10-K for the fiscal year ended December 31, 1994. *
(G) Mutual Agreement dated October 25, 1988 between
Victorinox Cutlery Co. and The Forschner Group, Inc.,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994. *
(H) Letter Agreement dated June 12, 1989 between
Victorinox Cutlery Co. and The Forschner Group, Inc.,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989. *
(I) Agreement to Lease dated June 14, 1990 between The
SABI Group, Inc. and Petran Trap Falls Associates,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990. *
35
<PAGE>
(J) Security agreement dated January 31, 1991 between
The Forschner Group, Inc. and Connecticut National
Bank, incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989. *
(K) Security agreement dated January 31, 1991 between
Swiss Army Brands Ltd. and Connecticut National Bank,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989. *
(L) Security agreement dated January 31, 1991 between
Victorinox of Switzerland, Ltd. and Connecticut
National Bank, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
(M) Security agreement dated January 31, 1991 between
Excelsior Advertising, Inc. and Connecticut National
Bank, incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989. *
(N) Agreement of guarantee and suretyship dated
January 31, 1991 by Swiss Army Brands Ltd. in favor
of Connecticut National Bank, incorporated by reference
to the Exhibit to Annual Report on Form 10-K for the
fiscal year ended December 31, 1989. *
(O) Agreement of guarantee and suretyship dated
January 31, 1991 by Victorinox of Switzerland, Ltd.
in favor of Connecticut National Bank, incorporated
by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended
December 31, 1989. *
(P) Agreement of guarantee and suretyship dated
January 31, 1991 by Excelsior Advertising Inc. in
favor of Connecticut National Bank, incorporated
by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended
December 31, 1989. *
(Q) Life insurance agreement dated as of December 7, 1991
between The Forschner Group, Inc. and Stanley R. Rawn,
Jr., as Trustee u/a dtd. December 9, 1986 between
Louis Marx, Jr. and Stanley R. Rawn, Jr., incorporated
by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended December 31, 1992. *
(R) Amended and Restated Loan Agreement dated June 18, 1992
between The Forschner Group, Inc. and The Connecticut
National Bank (now known as Shawmut Bank Connecticut,
N.A.), incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1992. *
(S) Letter agreement dated June 18, 1992 between
The Forschner Group, Inc. and The Connecticut National
Bank, incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(T) License Agreement dated June 30, 1992 between The
Forschner Group, Inc. and Precise Imports Corporation,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(U) Letter agreement dated November 11, 1992 between
The Forschner Group, Inc. and Michael M. Weatherly,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992. *
36
<PAGE>
(V) Life insurance agreement dated December 24, 1992
between The Forschner Group, Inc. and Louis Marx, Jr.,
as Trustee u/a dtd. as of October 24, 1988 between
Stanley R. Rawn, Jr. and Barbara Rawn and Louis Marx, Jr.,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(W) License Agreement dated as of January 1, 1993 between
Cuisine de France Limited and Coutel 'Innov, incorporated
by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended December 31, 1992. *
(X) Mutual Agreement dated April 6, 1992 between The
Forschner Group, Inc. and Victorinox Cutlery Company,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1992. *
(Y) 1993 Stock Option Plan, incorporated by reference
to the Exhibits to Annual Report on Form 10-K for
the fiscal year ended December 31, 1993. *
(Z) First Modification to Amended and Restated Loan
Agreement dated as of August 13, 1993 between The
Forschner Group, Inc. and Shawmut Bank Connecticut,
N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993. *
(AA) Second Modification to Amended and Restated Loan
Agreement dated as of February 17, 1994 between The
Forschner Group, Inc., and Shawmut Bank Connecticut,
N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
(BB) Commercial Promissory Note dated February 17, 1994
of The Forschner Group, Inc. in the principal amount
of $15,000,000, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993. *
(CC) Lease dated May 3, 1993 between One Research Drive
Associates Limited Partnership and The Forschner
Group, Inc., incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
(DD) License Agreement dated as of July 1, 1993 between
Cuisine de France Limited and Coutel 'Innov,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993. *
(EE) Life insurance agreement dated as of December 24,
1992 between The Forschner Group, Inc. and Louis
Marx, Jr., incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
37
<PAGE>
(FF) Life insurance agreement dated as of September 24,
1993 between The Forschner Group, Inc. and Louis
Marx, Jr., incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993. *
(GG) Life insurance agreement dated as of September 24,
1993 between The Forschner Group, Inc. and James D.
Rawn, as Trustee u/a dtd. as of June 4, 1992 between
Louis Marx, Jr., Grantor and James D. Rawn, Trustee,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993. *
(HH) Mutual Agreement dated December 21, 1993 between
The Forschner Group, Inc. and Victorinox Cutlery
Company, incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the
fiscal year ended December 31, 1993. *
(II) 1994 Stock Option Plan, incorporated by reference
to the Exhibits to Registration Statement on Form
S-8, No. 33-87078 filed by The Forschner Group, Inc. *
(JJ) Services Agreement dated as of July 29, 1994 between
The Forschner Group, Inc. and Brae Group, Inc.,
incorporated by reference to the Exhibits to
Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1994. *
(KK) Non-Incentive Stock Option Agreement dated as of
July 29, 1994 between The Forschner Group, Inc.
and Brae Group, Inc., incorporated by reference
to the Exhibits to Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1994. *
(LL) Consulting Agreement dated as of December 7, 1991
by and between The Forschner Group, Inc. and Louis
Marx, Jr., incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year
ended December 31, 1994. *
(MM) Third Modification to Amended and Restated Loan
Agreement dated as of September 30, 1994 between
The Forschner Group, Inc. and Shawmut Bank Connecticut,
N.A., incorporated by reference to the Exhibits to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994. *
(NN) First Amendment to Lease dated June 16, 1994 between
The SABI Group, Inc. and Petran Trap Falls Associates,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994. *
38
<PAGE>
(OO) Life insurance agreement dated as of April 15, 1994
between The Forschner Group, Inc. and Lawrence T.
Warble, as Trustee u/a dtd. as of March 21, 1994
between Stanley R. Rawn, Jr., Grantor and Lawrence
T. Warble, Trustee, incorporated by reference to the
Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994. *
(PP) Agreement dated June 30, 1995 between The Forschner
Group, Inc. and Bill-Mar Specialty Company, Inc.,
incorporated by reference to the Exhibits to Quarterly
Report on Form 10-Q for the fiscal quarter ended
June 30, 1995. *
(QQ) Letter agreement dated February 15, 1995 between The
Forschner Group, Inc. and Harry Thompson, incorporated
by reference to the Exhibits to Quarterly Report on
Form 10-Q for the fiscal quarter ended
September 30, 1995. *
(RR) Letter agreement dated October 25, 1995 between The
Forschner Group, Inc. and Harry Thompson, incorporated
by reference to the Exhibits to Quarterly Report on
Form 10-Q for the fiscal quarter ended
September 30, 1995. *
(SS) Employment agreement dated as of January 2, 1996
between The Forschner Group, Inc. and James W. Kennedy,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995. *
(TT) Warrant dated as of December 13, 1995 between The
Forschner Group, Inc. and J. Merrick Taggart,
incorporated by reference to the Exhibits to Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995. *
(UU) Letter Agreement dated December 18, 1995 between
The Forschner Group, Inc. and Victorinox Cutlery
Company, incorporated by reference to the Exhibits
to Annual Report on Form 10-K for the fiscal year
ended December 31, 1995. *
(VV) Watch design and Consulting Agreement dated as
January 2, 1995 between The Forschner Group, Inc.,
Polenberg, Inc. and Myron Polenberg Incorporated by
reference to the Exhibits to quarterly report on
Form 10-Q for the fiscal quarter ended
March 31, 1996. *
(WW) 1996 Stock Option Plan. (10)-1
(XX) Employment and Severance Agreement dated as
November 15, 1996 between Thomas D. Cunningham
and Swiss Army Brands, Inc. (10)-2
(YY) Trademark Agreement dated as of December 18, 1996
by and between the Swiss Confederation represented
by the Federal Military Department represented by the
Federal Defense Production Group and Swiss Army
Brands, Inc. ( confidential treatment has been requested
for certain portions of this exhibit). (10)-3
(ZZ) Asset Purchase Agreement dated January 31, 1997
among Cuisine de France Limited, Sabatier USA, LLC,
Robert P. Wolff and Robert Candler. (10)-4
39
<PAGE>
(11) Statement re computation of per share earnings is not required because
the relevant computations can be clearly determined from the material
contained in the financial statements included herein.
(12) Not applicable.
(13) Not applicable.
(16) Not Applicable.
(18) Not Applicable.
(21) Subsidiaries of Registrant. 21
(22) Not Applicable.
(23) Consents of experts and counsel: Consent of Arthur Andersen LLP. 23
(27) Financial Data Schedule.
(28) Not Applicable.
(99) Not Applicable.
* Incorporated by reference
No Current Reports on Form 8-K were filed during the fiscal quarter ending
December 31, 1996.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SWISS ARMY BRANDS, INC.
(Registrant)
By /s/ J. Merrick Taggart
J. Merrick Taggart
President
Date: March 27 , 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ J. Merrick Taggart March 27, 1997
J. Merrick Taggart
President and Director
/s/ Thomas M. Lupinski March 27, 1997
Thomas M. Lupinski
Chief Financial Officer and
Chief Accounting Officer
/s/ A. Clinton Allen March 27, 1997
A. Clinton Allen
Director
/s/ Clarke H. Bailey March 27, 1997
Clarke H. Bailey
Director
<PAGE>
March 27, 1997
Thomas A. Barron
Director
/s/ Vincent D. Farrell, Jr. March 27, 1997
Vincent D. Farrell, Jr.
Director
/s/ Herbert M. Friedman March 27, 1997
Herbert M. Friedman
Director
/s/ Peter W. Gilson March 27, 1997
Peter W. Gilson
Director
/s/ M. Leo Hart March 27, 1997
M. Leo Hart
Director
/s/ James W. Kennedy March 27, 1997
James W. Kennedy
Director
/s/ Keith R. Lively March 27, 1997
Keith R. Lively
Director
March 27, 1997
Lindsay Marx
Director
<PAGE>
/s/ Louis Marx, Jr. March 27, 1997
Louis Marx, Jr.
Director
March 27, 1997
Stanley G. Mortimer III
Director
/s/ Stanley R. Rawn, Jr. March 27, 1997
Stanley R. Rawn, Jr.
Director
March 27, 1997
Eric M. Reynolds
Director
/s/ John Spencer March 27, 1997
John Spencer
Director
March 27, 1997
John V. Tunney
Director
<PAGE>
1996 STOCK OPTION PLAN
THE FORSCHNER GROUP, INC.
SECTION 1. Establishment. There is hereby established the 1996 Stock Option
Plan (this "Plan"), pursuant to which officers, directors and key employees of
THE FORSCHNER GROUP, INC. (hereinafter the "Company") and its subsidiaries, and
persons or entities who have been or may be in a position to benefit the
Company, may be granted options to purchase shares of common stock of the
Company, par value $.10 per share ("Common Stock"), and thereby share in the
future growth of the business. The subsidiaries of the Company included in this
Plan (the "Subsidiaries") shall be any subsidiary of the Company as defined in
Section 424 of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 2. Status of Options. The options which may be granted pursuant to
this Plan will constitute either incentive stock options within the meaning of
Section 422 of the Code ("Incentive Stock Options") or options which are not
Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock Options
and Non-incentive Stock Options shall be collectively referred to herein as
options.
SECTION 3. Eligibility. All employees and members of the Board of Directors
of the Company or any of its Subsidiaries (including officers), and any persons
or entities who have been or may be in a position to benefit the Company, shall
be eligible to be granted Non-incentive Stock Options to purchase shares of
Common Stock under this Plan. All employees of the Company or any of its
Subsidiaries who are employed at the time of adoption of this Plan or thereafter
shall be eligible to receive grants of Incentive Stock Options pursuant to this
Plan.
SECTION 4. Number of Shares covered by Options; No Preemptive Rights. The
total number of shares which may be issued and sold pursuant to options granted
under this Plan shall be 1,000,000 shares of Common Stock (or the number and
kind of shares of stock or other securities which, in accordance with Section 8
of this Plan, shall be substituted for such shares of Common Stock or to which
said shares shall be adjusted; hereinafter, all references to shares of Common
Stock are deemed to be references to said shares or shares so adjusted). The
issuance of said shares shall be free from any preemptive or preferential right
of subscription or purchase on the part of any stockholder. If any outstanding
option granted under this Plan expires or is terminated, for any reason, the
shares of Common Stock subject to the unexercised portion of such option will
again be available for options issued under this Plan.
SECTION 5. Administration.
(a) This Plan shall be administered by the committee (the "Committee")
referred to in paragraph (b) of this Section. Subject to the express
provisions of this Plan, the Committee shall have complete authority, in
its discretion, to interpret this Plan, to prescribe, amend and rescind
rules and regulations relating to it, to determine the terms and provisions
of the respective option agreements (which need not be identical), to
determine to whom, the times and the prices at which options shall be
granted, the option periods, the number of shares of the Common Stock to be
subject to each option and whether each option shall be an Incentive Stock
Option or a Non-incentive Stock Option, and to make all other
determinations necessary or advisable for the administration of the Plan;
provided, however, that from the date of approval of the Plan by the
stockholders of the Company to the first anniversary of such date options
to purchase no more than 333,333 shares of Common Stock shall be granted
under the Plan and from the date of approval of the Plan to the second
anniversary of such date options to purchase no more than 666,666 shares of
Common Stock in the aggregate shall be granted under the Plan. Each option
shall be clearly identified at the time of grant as to its status as an
Incentive Stock Option or Non-incentive Stock Option. In making such
determinations, the Committee may take into account the nature of the
services rendered by the respective individuals or entities, their present
and potential contributions to the success of the Company and such other
factors as the Committee, in its discretion, shall deem relevant. The
Committee's determination on all of the matters referred to in this Section
5 shall be conclusive.
(b) The Committee shall consist of from two (2) to five (5)
individuals who are "outside directors" within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder. The
Committee shall be appointed by the Board, which may at any time and from
time to time, remove any member of the Committee, with or without cause,
appoint additional members to the Committee and fill vacancies, however
caused, in the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination of the Committee
reduced to writing and signed by all of the members of the Committee shall
be fully as effective as if it had been made at a meeting duly called and
held. Nothing contained in this Plan shall be deemed to give any individual
or entity any right to be granted an option to purchase shares of Common
Stock except to the extent and upon such terms and conditions as may be
determined by the Committee.
SECTION 6. Terms of Options. Each option granted under this Plan shall be
evidenced by a Stock Option Agreement which shall be executed by the Company and
by the person or entity to whom such option is granted, and shall be subject to
the following terms and conditions:
(a) The price at which shares of Common Stock covered by each option
may be purchased pursuant thereto shall be determined in each case on the
date of grant by the Committee, but shall be an amount not less than the
par value of such shares. In the case of Incentive Stock Options, the price
at which shares of Common Stock covered by each Incentive Stock Option may
be purchased pursuant thereto shall be an amount not less than the fair
market value of shares of Common Stock at the time the Incentive Stock
Option is granted. For purposes of this Section, the fair market value of
shares of Common Stock on any day shall be (i) in the event the Common
Stock is not publicly traded, the fair market value on such day as
determined in good faith by the Committee or (ii) in the event the Common
Stock is publicly traded, the last sale price of a share of stock as
reported by the principal quotation service on which the Common Stock is
listed, or, if last sale prices are not reported with respect to the Common
Stock, the mean of the high bid and low asked price of a share of Common
Stock as reported by such principal quotation service, or, if there is no
such report by such quotation service for such day, such fair market value
shall be the average of (i) the last sale price (or, if last sale prices
are not reported with respect to the Common Stock, the mean of the high bid
and low asked prices) on the day next preceding such day for which there
was a report and (ii) the last sale price (or, if last sale prices are not
reported with respect to the Common Stock, the mean of the high bid and low
asked prices) on the day next succeeding such day for which there was a
report, or as otherwise determined by the Committee in its discretion
pursuant to any reasonable method contemplated by Section 422 of the Code
and any treasury regulations issued pursuant to that Section.
(b) The option price of the shares to be purchased pursuant to each
option shall be paid in full in cash, or by delivery (i.e. surrender) of
shares of Common Stock of the Company then owned by the optionee at the
time of the exercise of the option. Shares of Common Stock so delivered
will be valued on the day of delivery for the purpose of determining the
extent to which the option price has been paid thereby, in the same manner
as provided in paragraph (a) of this Section, or as otherwise determined by
the Committee, in its discretion, pursuant to any reasonable method
contemplated by Section 422 of the Code and any treasury regulations issued
pursuant to that section.
(c) Each Stock Option Agreement shall provide that such option may be
exercised by the optionee, in such parts and at such times, as may be
specified in such Agreement, within a period not exceeding ten years after
the date on which the option is granted (hereinafter called the "option
period") and, in any event, in the case of employees of the Company, only
during the continuance of the optionee's employment by the Company or any
of its Subsidiaries or, in the case of Incentive Stock Options, during the
period of thirty days after the termination of such employment to the
extent that the right to exercise such options had accrued at the date of
such termination or, in the case of Non-incentive Stock Options, during the
period of six months after the termination of such employment to the extent
that the right to exercise such options had accrued or the date of such
termination; provided, however, that if options as to 100 or more shares
are held by an optionee, then such options may not be exercised for less
than 100 shares at any one time, and if options for less than 100 shares
are held by an optionee, then options for all such shares must be exercised
at one time; and provided, further, that, if the optionee shall die within
the option period, the option may be exercised, to the extent specified in
such Stock Option Agreement, and as herein provided, but only prior to the
first to occur of:
(i) the expiration of the period of one year after the date of the
optionee's death, or
(ii) the expiration of the option period, by the person or persons
entitled to do so under the optionee's will, or, if the optionee shall fail
to make testamentary disposition of said option, or shall die intestate, by
the optionee's legal representative or representatives.
(d) In the discretion of the Committee, a single Stock Option
Agreement may include both Incentive Stock Options and Non-Incentive Stock
Options, or those options may be included in separate Stock Option
Agreements.
(e) Unless otherwise determined by the Committee with respect to
options that are not Incentive Stock Options, each option granted under
this Plan shall by its terms be non-transferable by the optionee except by
will or by the laws of descent and distribution and shall be exercisable
during the optionee's lifetime only by the optionee.
(f) Notwithstanding the foregoing, if an Incentive Stock Option is
granted to a person at any time when such person owns, within the meaning
of Section 424(d) of the Code, more than 10% of the total combined voting
power of all classes of stock of the employer corporation (or a parent or
subsidiary of such corporation within the meaning of Section 424 of the
Code) the price at which each share of Common Stock covered by such option
may be purchased pursuant to such option shall not be less than 110% of the
fair market value (determined as in paragraph (a) of this Section) of the
shares of Common Stock at the time the option is granted, and such option
must be exercised within a period specified in the Stock Option Agreement
relating to such options which does not exceed five years after the date on
which such option is granted.
(g) Each Stock Option Agreement entered into pursuant hereto may
contain such other terms, provisions and conditions not inconsistent
herewith as shall be determined by the Committee including, without
limitation, provisions (i) requiring the giving of satisfactory assurances
by the optionee that the shares are purchased for investment and not with a
view to resale in connection with a distribution of such shares, and will
not be transferred in violation of applicable securities laws, (ii)
restricting the transferability of such shares during a specified period
and (iii) requiring the resale of such shares to the Company at the option
price if the employment of the optionee terminates prior to a specified
time.
SECTION 7. Limit on Option Amount.
(a) Notwithstanding any provision contained herein, the aggregate fair
market value (determined under Section 6(a) as of the time such Incentive
Stock Options are granted) of the Common Stock with respect to which
Incentive Stock Options are first exercisable by any employee during any
calendar year (under all stock option plans of the employee's employer
corporation and its parent and subsidiary corporation within the meaning of
Section 424 of the Code) shall not exceed $100,000. The limit in this
paragraph shall not apply to options which are designated as Non-incentive
Stock Options, and, except as otherwise provided herein, there shall be no
limit on the amount of such options which may be first exercisable in any
year.
(b) Notwithstanding any provision contained herein, grants of options
under this Plan to any one optionee who is an employee of the Company shall
be limited to options to purchase no more than 250,000 shares of common
stock per calendar year.
SECTION 8. Adjustment of Number of Shares. In the event that a dividend
shall be declared upon the shares of Common Stock payable in shares of Common
Stock, the number of shares of Common Stock then subject to any option granted
hereunder and the number of shares reserved for issuance pursuant to this Plan
but not yet covered by an option, shall be adjusted by adding to each of such
shares the number of shares which would be distributable thereon if such share
had been outstanding on the date fixed for determining the stockholders entitled
to receive such stock dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination of
shares, merger or consolidation, then there shall be substituted for each share
of Common Stock subject to any such option and for each share of Common Stock
reserved for issuance pursuant to the Plan but not yet covered by an option, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed or for which each such
share shall be exchanged; provided, however, that in the event that such change
or exchange results from a merger or consolidation, and in the judgment of the
Committee such substitution cannot be effected or would be inappropriate, or if
the Company shall sell all or substantially all of its assets, the Company shall
use reasonable efforts to effect some other adjustment of each then outstanding
option which the Committee, in its sole discretion, shall deem equitable. In the
event that there shall be any change, other than as specified above in this
Section 8, in the number or kind of outstanding shares of Common Stock or of any
stock or other securities into which such shares of Common Stock shall have been
changed or for which they shall have been exchanged, then, if the Committee
shall determine that such change equitably requires an adjustment in the number
or kind of shares theretofore reserved for issuance pursuant to the Plan but not
yet covered by an option and of the shares then subject to an option or options,
such adjustment shall be made by the Committee and shall be effective and
binding for all purposes of this Plan and of each Stock Option Agreement.
Notwithstanding the foregoing, if any adjustment in the number of shares which
may be issued and sold pursuant to options is required by the Code or
regulations promulgated thereunder to be approved by the stockholders in order
to enable the Company to issue Incentive Stock Options pursuant to this Plan,
then no such adjustment shall be made without the approval of the stockholders.
In the case of any such substitution or adjustment as provided for in this
Section, the option price in each Stock Option Agreement for each share covered
thereby prior to such substitution or adjustment will be the total option price
for all shares of stock or other securities which shall have been substituted
for each such share or to which such share shall have been adjusted pursuant to
this Section 8. No adjustment or substitution provided for in this A - 7 Section
8 shall require the Company, in any Stock Option Agreement, to sell a fractional
share, and the total substitution or adjustment with respect to each Stock
Option Agreement shall be limited accordingly. Notwithstanding the foregoing, in
the case of Incentive Stock Options, if the effect of the adjustments or
substitution is to cause the option to fail to continue to qualify as an
Incentive Stock Option or to cause a modification, extension or renewal of such
option within the meaning of Section 424 of the Code, the Committee shall use
reasonable efforts to effect such other adjustment of each then outstanding
option as the Committee, in its sole discretion, shall deem equitable.
SECTION 9. Amendments. This Plan may be amended from time to time by vote
of the Committee; provided, however, that no amendment which shall (i) change
the total number of shares which may be issued and sold pursuant to options
granted under this Plan, (ii) change the designation of the class of employees
eligible to receive Incentive Stock Options or the class of individuals or
entities eligible to receive Non-incentive Stock Options, (iii) decrease the
minimum option price stated in Section 6(a) of this Plan, (iv) extend the period
during which an option may be granted to exercised beyond the maximum period
specified in this Plan or (v) withdraw the authority to administer this Plan
from the Committee, shall be effective without the approval of the stockholders.
Notwithstanding the foregoing, the Plan may be amended by the Committee to
incorporate or conform to requirements imposed by any amendments made to the
Code or regulations promulgated thereunder which the Committee deems to be
necessary or desirable to preserve (a) incentive stock option status for
outstanding Incentive Stock Options and the ability to issue Incentive Stock
Options pursuant to this Plan, and (b) the deductibility by the Company pursuant
to Section 162(m) of the Code of amounts taxed to Plan participants as ordinary
compensation income.
SECTION 10. Termination. This Plan shall terminate on, and no additional
options shall be granted after, ten years from the date the Plan is adopted by
the Committee. In addition, the Plan may be terminated at any time by a vote of
the Board of Directors.
<PAGE>
EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT made and entered into as of the 15th day of November, 1996
by and between SWISS ARMY BRANDS, INC., a Delaware corporation, (hereinafter
referred to as "SABI" or "the Company"), and THOMAS D. CUNNINGHAM (hereinafter
referred to as "Mr. Cunningham").
WHEREAS, Mr. Cunningham has been Executive Vice President and Chief
Financial Officer of SABI since March 1994;
WHEREAS, Mr. Cunningham has resigned from the office of Executive Vice
President and Chief Financial Officer of the Company and as a director of the
Company effective November 13, 1996;
WHEREAS, the Company desires to continue Mr. Cunningham's employment with
the Company for the period and under the terms and conditions set forth herein
and to provide Mr. Cunningham with certain severance benefits; and
WHEREAS, Mr. Cunningham desires to accept such employment and 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. DUTIES AND PERFORMANCE. (a) During the term of his employment hereunder,
Mr. Cunningham shall be employed by the Company (on a non-exclusive basis) and
shall be charged with the following duties:
(i) to work with management of the Company to identify, evaluate and
review strategic financial alternatives with respect to the Company's
subsidiary, Cuisine de France Limited ("CDFL") including, but not limited
to, a sale of CDFL or the assets of CDFL;
(ii) if requested by the Company, assist in preparation of a
descriptive memorandum concerning CDFL;
(iii) develop, update and review with the Company on an ongoing basis
a list of parties which might be interested in acquiring part or all of
CDFL and contact only parties approved by the Company;
(iv) consult with and advise the Company concerning alternatives with
respect to the disposition of CDFL and, if so requested by the Company,
participate in negotiations relevant to any disposition of CDFL; and
(v) if an agreement with respect to the disposition of CDFL is
reached, work with the Company with respect to the consummation of any such
agreement.
(b) All of the foregoing is to be done under the direction of the President
of the Company and, upon reasonable request, Mr. Cunningham shall report on the
steps he has taken and the progress of his performance hereunder to the
President on a regular basis. Mr. Cunningham shall make himself available to
perform his duties hereunder for such period of time during the term of his
employment as such duties reasonably require. Mr. Cunningham acknowledges that
he shall not have an office on the premises of the Company and shall perform his
duties hereunder at other locations. During the Employment Term (as defined
below), Mr. Cunningham's title shall be Chairman of the Finance Committee.
2. TERM OF EMPLOYMENT. The term of Mr. Cunningham's employment hereunder
shall commence on November 15, 1996 and terminate on May 15, 1997 (the
"Employment Term") except that if the Company in its sole discretion shall
determine that satisfactory progress has not been made on the tasks referred to
in Section 1(a) the Company may, upon written notice to Mr. Cunningham,
terminate the Employment Term at any time after three months from the date
hereof. The execution by the Company of either (i) a definitive agreement with
any party or, (ii) a letter of intent with a party or entity not associated with
either Mr. Robert Candler or Mr. Robert Wolff, for the disposition of CDFL shall
be conclusive evidence that "satisfactory progress" has been made within the
meaning of this Section 2.
3. SALARY. During the Employment Term, SABI shall pay to Mr. Cunningham
base salary at the rate of $210,000 per annum, payable in such installments as
shall accord with the normal pay practices of the Company.
4. BONUS. SABI shall pay to Mr. Cunningham a bonus of $20,000 in respect of
his services to the Company performed in 1996.
5. BENEFITS. (a) When eligible under non- discriminatory standards, Mr.
Cunningham shall be entitled to participate during the Term in any employee
benefit plans maintained by the Company available to employees of the Company
generally.
(b) SABI shall reimburse Mr. Cunningham, in accordance with SABI's policy
then in effect, for reasonable travel expenses incurred at the written request
of SABI.
6. TERMINATION OF EMPLOYMENT. (a) The Company shall be entitled to
terminate Mr. Cunningham's employment in any of the following circumstances:
(i) For "cause" by reason of the occurrence of any of the following:
(A) willful misfeasance or gross negligence by Mr. Cunningham in the
conduct of Mr. Cunningham's duties including the failure of Mr. Cunningham
to follow lawful and reasonable orders of the Board of Directors or
President of the Company, (B) a material breach by Mr. Cunningham of this
Agreement, (C) the commission of acts of dishonesty or moral turpitude by
Mr. Cunningham that are detrimental to the Company and/or its affiliates,
or (D) the conviction of, or nolo contendere plea by, Mr. Cunningham in
respect of any felony;
(ii) Mental or physical incapacity as determined in writing by a
physician selected by the Company, such determination to indicate that Mr.
Cunningham's mental or physical condition will render him unable to perform
his duties hereunder for a period exceeding three months; or
(iii) The death of Mr. Cunningham.
(b) In the event of termination pursuant to the terms of this section,
the obligations of the Company to provide benefits with respect to Mr.
Cunningham's employment hereunder other than those already accrued or
vested as provided herein shall cease upon such termination. Any such
termination shall have no effect on Mr. Cunningham's rights with respect to
the severance benefits set forth in Section 7 below.
7. SEVERANCE BENEFITS. The Company agrees to provide Mr. Cunningham with
the following severance benefits upon the termination of his employment
hereunder for any reason (including a termination under Sections 2, 6(a)(ii) or
6(a)(iii)) except for termination pursuant to Section 6(a)(i), which benefits
Mr. Cunningham acknowledges are over and above those to which he would normally
be entitled and which benefits shall not be reduced by earnings by Mr.
Cunningham from other sources:
(a) Mr. Cunningham shall be paid the sum of $210,000, in a lump sum payment
within seven days of termination or, if the waiting periods set forth in Section
20 hereof have not yet expired, upon such expiration.
(b) The Company shall pay for outplacement services to be provided by Lee
Hecht Harrison (or other services mutually agreed upon) for Mr. Cunningham for a
period of up to one year.
(c) For a period of twelve months, the Company shall pay to the Company's
insurance carrier, the amount of the premium required to be paid to keep the
medical insurance for the benefit of Mr. Cunningham and his dependents effective
for a period of twelve months under COBRA. Subsequent to such twelve month
period Mr. Cunningham shall have the option of continuing coverage under COBRA
at his expense for an additional six month period.
(d) The Company shall pay the base monthly payments (plus insurance) on the
automobile it previously leased for Mr. Cunningham through October 27, 1997. Mr.
Cunningham shall be responsible for and shall pay when due any amounts payable
in connection with such lease other than the base monthly payments (plus
insurance) including, without limitation, any charge for excess mileage or
damage or excess wear and tear to the automobile. The Company shall make
payments (and reimburse business call charges) with respect to the car phone
presently in such automobile throughout Mr. Cunningham's employment hereunder
provided and to the extent that the car phone is used primarily for purposes of
Company business. The Company may set off and withhold any amount due to the
Company or paid by the Company on Mr. Cunningham's behalf in connection with
this Section 7(d) against any amount payable by the Company to Mr. Cunningham
pursuant to this Agreement.
(e) The Company shall reimburse Mr. Cunningham in the amount of up to
$2,500 for the purchase of a computer upon receipt of appropriate documentation.
(f) Maintain phone and voicemail services at SABI for 12 months.
(g) Pursuant to Stock Option Agreements (the "Option Agreements") dated
July 15, 1994 and January 26, 1995 the Company granted to Mr. Cunningham options
to purchase an aggregate of up to 75,000 shares of the Company's common stock.
In order that Mr. Cunningham shall have a period of eight months from the
termination of his employment hereunder to exercise such options that have
vested by the termination of his employment hereunder, Section 7(c) of each of
the Option Agreements is 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 within eight months after the termination of
Grantee's employment but may not be exercised in whole or in part after
such eight month period."
8. COVENANT NOT TO COMPETE. (a) Mr. Cunningham acknowledges that in the
course of the Employment Term and his employment by the Company, he has and will
become privy to various economic and trade secrets and relationships of the
Company and its affiliates. Therefore, in consideration of this Agreement, Mr.
Cunningham hereby agrees that he will not, directly or indirectly, except for
the benefit of the Company or its affiliates:
(i) during the Employment Term and thereafter, on behalf of himself or
any other person:
(A) solicit, entice, persuade or induce any employee of the Company or
any affiliate, or any other person, who is under contract with or rendering
services or supplying products to the Company or any affiliate, or any such
individual or entity who held any such status during the two-year period
preceding termination of this Agreement, (w) to terminate his or its
employment by, or contractual relationship with, the Company or any
affiliate or (x) to refrain from extending or renewing the same (upon the
same or new terms) or (y) to refrain from rendering services to the Company
or any affiliate, or (z) to become employed by or to enter into contractual
relations with persons other than the Company; or
(B) direct, order or assist in the taking of any such actions by any
person other than the Company.
(ii)(A) during the Employment Term and for a period ending two years
after termination of the Employment Term, directly or indirectly, whether
as employee, consultant, officer, director, partner, shareholder or
otherwise compete with the business of SABI as the same is then conducted
nor engage in the sale of knives, cutlery, timepieces, pens, pencils,
multi-tools or any other product which the Company is now selling or is
then selling.
(B) for purposes of this subsection 8 (a)(ii) the term "SABI" shall
include SABI and all entities directly or indirectly controlled,
controlling or under common control with SABI provided that if SABI becomes
controlled by another entity, the restrictions of that section shall not
apply to businesses of that controlling entity and its other controlled
affiliates other than businesses in which SABI and its affiliates were
engaged at the time of such change of control and logical extensions of
such businesses.
(b)(i) Mr. Cunningham acknowledges that he has substantial
capabilities and experience in fields other than those which would be
competitive with the Company and that the restrictions set forth above
would not hinder his ability to earn a livelihood.
(ii) If any of the restrictions set forth in this Section 8 should,
for any reason whatsoever, be declared invalid by a court of competent
jurisdiction, the validity or enforceability of the remainder of such
restrictions shall not thereby be adversely affected. Mr. Cunningham agrees
that the territorial and time limitations and other restrictions in this
Section 8 are reasonable and properly required for the adequate protection
of the business of the Company, and that if any such territorial or time
limitations or other restrictions is held unreasonable by a court of
competent jurisdiction, then he agrees and submits to the reduction of said
territorial or time limitation or other restrictions to such area or period
as such court shall find reasonable.
(c) The provisions of this Section 8 shall survive termination of this
Agreement.
9. CONFIDENTIALITY. During the Employment Term and thereafter, except in
the performance of his duties hereunder, Mr. Cunningham 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. Cunningham 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.
10. REMEDIES. Because the services of Mr. Cunningham hereunder are unique
and extraordinary and the Company does not have an adequate remedy at law to
protect its business from Mr. Cunningham's competition or to protect its
interest in its trade secrets, confidential information and similar commercial
assets, Mr. Cunningham agrees that any breach or threatened breach of any
provision of provisions of this Agreement relating to non-competition and
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.
11. RELEASE. Mr. Cunningham, 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, but
excluding specifically any claims relating to or arising out of this Agreement.
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. Cunningham 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.
12. CONFIRMATION OF RESIGNATION. Mr. Cunningham acknowledges and confirms
that effective November 13, 1996, he resigned from any and all positions held as
an officer and director of SABI and all of SABI's subsidiaries.
13. SPLIT DOLLAR LIFE INSURANCE. Mr. Cunningham agrees to execute, within
thirty days of submission to him, and perform an Insurance Agreement and a
Collateral Assignment Agreement of the split dollar life insurance policies paid
for by SABI for the benefit of Mr. Cunningham in the form determined by SABI,
such agreements to provide that upon termination of the Employment Term, Mr.
Cunningham shall have the right to repay SABI within ninety days of the date of
termination in an amount equal to the cash surrender value of such policy and
that if Mr. Cunningham elects not to repay such amount he shall promptly execute
any and all instruments that may be required to relinquish his interest in such
policies and vest ownership of such policies in SABI.
14. ADVICE OF COUNSEL. SABI encourages Mr. Cunningham to carefully review
the terms of this Agreement and, if he wishes, to seek advise and counsel from
an attorney before signing this Agreement.
15. 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.
16. 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. Cunningham:
8 Nearwater Road
Rowayton, Connecticut 06853
(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.
17. MERGER. This Agreement merges and supersedes any and all other
agreements between the parties hereof related in any way to the employment of
Mr. Cunningham. 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.
18. 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.
19. ASSIGNMENT. This Agreement is personal and non-assignable by Mr.
Cunningham. 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.
20. PERIOD TO REVIEW AND REVOKE. After Mr. Cunningham has had the chance to
review this Agreement and to consult with his attorney, if he wishes, he should
sign the Agreement and return it to SABI within 22 days.
After Mr. Cunningham 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 us 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. Cunningham, 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/ Thomas D. Cunningham
Thomas D. Cunningham
SWISS ARMY BRANDS, INC.
By: /s/ J. Merrick Taggart
Title: President
I acknowledge that I have been given the opportunity to consider this
agreement for at least twenty-one (21) days, that I have been advised to discuss
this agreement with an attorney of my choice, that I have carefully read and
fully understand and agree to all of the provisions of this agreement and that I
am voluntarily entering into this agreement.
Finally, I also understand that I have seven (7) days after I sign this
agreement (or twenty-two days after the date hereof, if later) to change my mind
and that I may revoke this agreement by providing written notice of revocation
to you prior to the expiration of the applicable period.
3/21/97 /s/ Thomas D. Cunningham
Date of Execution Thomas D. Cunningham
<PAGE>
TRADEMARK AGREEMENT
Trademark Agreement executed as of this 18th day of December, 1996 by and
between the Swiss Confederation represented by the Federal Military Department
represented by the Federal Defence Production Group ("BRBT") and Swiss Army
Brands, Inc. ("SABI") a corporation existing under the laws of the state of
Delaware, U.S.A.
WHEREAS, it is in the mutual interest of the parties, and of Swiss
manufacturers and other citizens of the Swiss Confederation that the trademark
SWISS ARMY be confined to a select number of high quality products manufactured
in Switzerland; and
WHEREAS, in the past certain persons have attempted to utilize the
trademark "SWISS ARMY" on products manufactured in Asia and on other
unauthorized goods, thereby misleading purchasers into believing that such
products represent the high quality of workmanship and materials present in
goods of Swiss manufacture; and
WHEREAS, SABI has sold over $650,000,000 of Swiss made products, the vast
majority of which was sold under the trademark SWISS ARMY; and
WHEREAS, SABI has expended over $25,000,000 in the development, protection
and promotion of the SWISS ARMY trademark and has developed a high level of
expertise in such protection; and
WHEREAS, the parties are desirous of protecting consumers and Swiss
manufacturers from misrepresentation as to the source of products bearing the
trademark SWISS ARMY; and
WHEREAS, the parties wish to further the mutual interests set forth above
while respecting existing rights; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained the parties hereto hereby agree as follows:
SECTION 1. Initial Payment.
In order to facilitate the purposes of this Agreement and in consideration
of the matters set forth in Section 5 of this Agreement and elsewhere, SABI
will, upon the execution of this Agreement, commit to the furtherance of its
purposes the amount of. Of this amount will be paid to BRBT at the time of the
signing to be used for such purposes as BRBT shall determine. The remaining will
be utilized during the first year of this Agreement by SABI to assist BRBT in
the registration of the BRBT Trademarks in various jurisdictions as well as to
assist BRBT in the policing of the BRBT Trademarks. In the event is not utilized
in such manner during the first year of this Agreement, SABI shall pay to BRBT
the difference between and the amount so utilized.
SECTION 2. Definitions. For purposes of this Agreement the following
definitions shall apply.
(a) Added American Categories shall have the definition ascribed to
that term in Section 5(d)(i) hereof.
(b) American Territories shall mean the United States, its territories
and possessions, Canada and the Caribbean. The Caribbean shall include
Bermuda and all islands, countries and territories within the area bounded
by 55 degrees west longitude, 85 degrees west longitude, 12 degrees north
latitude and 28 degrees north latitude provided that the Caribbean shall
not be deemed to include any portion of Mexico or the Countries located in
Central or South America.
(c) BRBT Trademarks shall mean the following: (i) Trademark No. 411
840 consisting of the words "Swiss Army" and the Swiss National Emblem
registered in Switzerland by BRBT and depicted on Schedule A hereto, (ii)
if assigned to BRBT pursuant to Section 4(a) hereof, the Wreath Trademark,
(iii) the trademark consisting solely of the words "Swiss Army," (iv) the
Subsequent Registrations, if any, and (v) any and all other trademarks at
any time owned by BRBT which include the words "Swiss Army" or words
confusingly similar thereto.
(d) Commercial Quantities shall mean products in a particular
Designated Category having been sold by a single manufacturer or importer
in normal channels of commerce and not solely for test marketing purposes.
(e) Wreath Trademark shall mean the trademark consisting of the words
"Swiss Army" and the wreath logo for which SABI, through a wholly-owned
subsidiary, has applied with the Swiss Federal Office for Intellectual
Property for registration which application is known as application no.
6250/1994.0, date of request 9/8/94 as depicted in Schedule A-1.
(f) The Designated Categories shall mean the following products which
SABI intends to market under the SABI Trademarks:
(i) Luggage;
(ii) small leather goods;
(iii) boots and footwear;
(iv) camping equipment;
(v) pens and pencils;
(vi) flashlights;
(vii) water purification products;
(viii) cosmetics and fragrances; and
(ix) apparel.
Each of the designations separately listed above shall be considered a
separate "Designated Category".
(g) First Quality shall mean products at least equal in workmanship
and materials to either the Watch Products or Knives currently sold by
SABI, Victorinox or Wenger.
(h) SABI shall mean Swiss Army Brands, Inc. and shall also include
Swiss Army Brand Ltd., a Delaware Corporation and a wholly-owned subsidiary
of Swiss Army Brands, Inc.
(i) SABI Trademarks shall mean the Registered SABI American Trademark
and the trademarks, including applications, held by SABI listed in Schedule
B hereto.
(j) Knives shall mean multi-blade pocket knives (including so-called
"multitools") manufactured or licensed by Victorinox or Wenger.
(k) Net Sales shall mean the gross selling price of licensed products
less V.A.T. and similar taxes or imposts, insurance, freight, discounts and
allowances actually given and returns actually received.
(l) Precise shall mean Precise Imports Corporation, a New York
Corporation which is Wenger's United States Distributor.
(m) Registered SABI American Trademark shall mean the trademarks
listed on Schedule C hereto.
(n) Reserved Products shall mean Watch Products, Knives, products in
the Added American Categories, and products in the Designated Categories
provided, in the case of products in the Designated Categories the right of
SABI to cause such product categories to become Added American Categories
has not expired (without giving effect to the operation of Subsection
5(d)(v)(B)).
(o) Standard Royalties shall mean an amount equal to 3% of the "Net
Sales".
(p) Subsequent Registrations shall have the meaning ascribed to that
term in Section 4(c) hereof.
(q) Swiss Manufacturers shall mean Victorinox and Wenger.
(r) Swiss Product shall mean any product which, under the laws of
Switzerland as presently constituted or as enacted in the future, or
according to normal Swiss standards, may be denominated "Swiss Made" or
"Made in Switzerland".
(s) Swiss Martial Trademark shall mean any words, trademarks or trade
names, other than "Swiss Army", consisting of two or more words or
syllables, one of which is "Swiss", "Switzerland" or a derivation thereof
and another of which is a word or phrase with a military connotation, e.g.
"Swiss Sailor", "Swisstrooper".
(t) Victorinox shall mean Victorinox A.G. of Ibach, Switzerland.
(u) Watch and Sunglass Products shall mean watches and other
timepieces as well as sunglasses which, in each case, are Swiss Products.
(v) Wenger shall mean Wenger S.A. of Delemont, Switzerland.
SECTION 3. Acknowledgement by SABI and BRBT.
(a) SABI acknowledges BRBT's ownership of the BRBT Trademarks in the
country of their registration or application and acknowledges that in the
country of their registration or application, BRBT has the exclusive right to
use the BRBT Trademarks and that any goodwill pertaining thereto belongs
exclusively to BRBT. SABI will not in any way directly or indirectly do or cause
to be done any act or thing contesting, challenging or in any way impairing or
intending to impair any right, title or interest of BRBT in connection with any
of the BRBT Trademarks in the country of its registration or application. It is
the declared intention of SABI to use all reasonable efforts to assist BRBT in
enforcing such rights.
(b) BRBT acknowledges SABI's ownership of the SABI Trademarks in the
countries of registration or application and acknowledges that SABI has the
exclusive right to use the SABI Trademarks in such countries and that the
goodwill pertaining thereto belongs exclusively to SABI. BRBT will not in any
way directly or indirectly do or cause to be done any act or thing contesting,
challenging or in any way impairing or intending to impair any right, title or
interest of SABI in connection with the SABI Trademarks in the countries of
their registration or application. It is the declared intention of BRBT to use
all reasonable efforts to assist SABI in enforcing such rights provided that
BRBT shall not be required to support SABI in enforcing exclusive rights to the
Swiss National Emblem, as distinguished from the words "Swiss Army" (whether or
not such words are used in conjunction with such emblem).
(c) BRBT and SABI recognize that the use of Swiss Martial Trademarks
represents an effort to capitalise upon the success of the trademark SWISS ARMY
and that such use can dilute the value of the trademark SWISS ARMY to the
detriment of the Swiss Confederation as well as of SABI and agree to cooperate
in preventing such use.
SECTION 4. Additional Registrations.
(a) Wreath Trademark. SABI shall assign to BRBT the Wreath Trademark
application, if required for the registration of such trademark, and BRBT agrees
to use its best efforts to obtain a registration pursuant thereto.
(b) Registration of "Swiss Army". BRBT agrees to promptly apply for a
trademark registration in Switzerland for the trademark consisting solely of the
words "Swiss Army" and use its best efforts to obtain a registration of that
mark.
(c) Subsequent Registrations. BRBT agrees to promptly apply for up to three
additional trademark registrations ("Subsequent Registrations") in Switzerland
for such trademarks requested by SABI consisting of the words "Swiss Army" and
such logo or depiction specified by SABI; provided that such trademark is not
violative of applicable law.
(d) Expansion of Coverage. BRBT will expand the products and services
covered by the BRBT Trademarks as set forth in Section 7 hereof.
SECTION 5. The American Territories.
(a) Knives. The parties acknowledge that Victorinox and Wenger have applied
for the registration of the trademark "Swiss Army" as applied to Knives in the
United States and hold common law rights to that trademark in the United States.
The parties are aware that the Swiss Manufacturers have licensed SABI and
Precise to use that trademark. Subject to the provisions of Section 12 hereof,
relating to costs, the parties declare their intention to assist the Swiss
Manufacturers, SABI and Precise in safeguarding those rights and in preventing
the use of "Swiss Army" on multi-blade pocketknives, multitools and other
products which are not Swiss Products.
(b) Watch and Sunglass Products. As previously herein stated, BRBT
recognizes the rights of SABI in the Registered SABI American Trademark,
including, without limitation, its rights in respect of the Registered SABI
American Trademark as applied to Watch and Sunglass Products. BRBT will use all
reasonable efforts to assist SABI and its licensees in strengthening and
protecting those rights in the American Territories and assist SABI in
preventing the unauthorized use of SWISS ARMY.
(c) BRBT Cooperation. In furtherance of the general purposes of this
Agreement to strengthen the trademarks and to prevent the unauthorized use of
SWISS ARMY on products that are not Swiss Products, BRBT agrees:
(i) It will not apply for registration, license or otherwise facilitate the
use of any of the BRBT Trademarks in the American Territories except as provided
herein; and
(ii) At SABI's request and expense, it will register any BRBT Trademark
requested to be registered in the American Territories. Upon such registration,
and without further documentation, SABI shall hold a perpetual royalty free
(subject to the requirement to make the payments otherwise required by Section
1) exclusive license applied to Watch and Sunglass Products.
(d) Designated Categories and Other Products.
(i) If within three years of the date of this Agreement SABI and/or its
licensees shall sell in the American Territories, Commercial Quantities of Swiss
Products in any one or more of the Designated Categories SABI shall so notify
the BRBT and upon such notification such category or categories shall become
"Added American Categories".
(ii) If requested by SABI (and only if so requested) BRBT will, at SABI's
expense, register any BRBT Trademark requested to be registered in the American
Territories in respect of any Added American Category and will grant to SABI a
perpetual royalty free exclusive license to use the BRBT Trademarks in the
American Territories and the rights and obligations of the parties with respect
thereto shall be the same as those applying to Watch and Sunglass Products.
(iii) In the event that within 24 months of any Designated Category
becoming an Added American Category, SABI and/or its licensees shall sell in the
American Territories in Commercial Quantities Swiss Products in another of the
Designated Categories and shall so notify BRBT, such additional Designated
Category shall become an Added American Category.
(iv) In recognition of SABI's legally established trademark rights in the
American Territories and in part consideration for the payment referred to in
Section 1 hereof BRBT agrees that it will not grant any rights to any of the
BRBT Trademarks in the American Territories to any person other than SABI or
permit any person other than SABI to use SWISS ARMY on any products in the
Designated Categories except as set forth in the immediately following
subsection.
(v) BRBT may grant licenses to use the BRBT Trademarks in the American
Territories on products other than Reserved Products provided that:
(A) BRBT has determined that the grant of rights to such person or entity
will (x) enhance and not reduce the value of SWISS ARMY as applied to Swiss
Products already being sold under that trademark, (y) not detract from the
purpose of this Agreement to prevent the use of SWISS ARMY on non-Swiss
products, and (z) increase, over the long term, the amount of Swiss Products
sold in the American Territories and elsewhere. In making such determination
BRBT shall give priority to upholding the image of SWISS ARMY as being
associated with prestige, quality and wholesomeness and shall also consider the
market at which the product sought to be licensed is aimed. In making such
determination the objections made by SABI or any other person authorized to use
SWISS ARMY pursuant to this Agreement shall be given great weight, and
(B) such rights are granted after SABI has received notification of BRBT's
intention to license that category to another party and been granted the right
for an additional period of 18 months to cause that category to become an Added
American Category by making sales in Commercial Quantities.
(vi) In the event BRBT grants any rights to a party other than SABI
pursuant to Section 5(d)(v) above, SABI shall offer such party a license of the
appropriate Registered SABI American Trademark upon mutually agreeable terms and
conditions. Any royalties received by SABI under this subsection, net of
enforcement and other expenses, shall be paid to BRBT.
SECTION 6. Geographical Areas Outside of the American Territories.
(a) Knives. Except as set forth in Section 5(a) above, this Agreement shall
not apply in any way to the use of "SWISS ARMY" on knives outside of the
American Territories.
(b) Watch and Sunglass Products. Subject to any now existing legal rights
of others, BRBT hereby agrees that at SABI's request it will grant to SABI an
exclusive perpetual license for Watch and Sunglass Products at the Standard
Royalty in such jurisdictions as SABI shall request and will, at SABI's request
(and only at SABI's request) and expense, register any BRBT Trademark requested
to be registered in such jurisdictions where it is not already registered. Upon
such request and without further documentation, SABI shall hold a perpetual Z
exclusive license applied to Watch and Sunglass Products. The parties will also
cooperate in preventing the unauthorized use of SWISS ARMY on Watch and Sunglass
Products.
(c) Designated Categories and Added American Categories. As to each
jurisdiction outside of the American Territories BRBT will, at SABI's request,
grant to SABI an exclusive license at the Standard Royalty to use the BRBT
Trademarks in such territory on products in the Designated Categories or Added
American Categories and will register any BRBT Trademark requested to be
registered, at SABI's request (and only at SABI's request) and expense, in
respect of such products. Upon such request and without further documentation
SABI shall hold a perpetual exclusive license applied to such products, provided
that SABI and/or its licensees sell goods in that category in such jurisdiction
in Commercial Quantities within 18 months after such registration. In the event
SABI and/or its licensees do not make sales in Commercial Quantities within 18
months after such registration, BRBT may consider granting a license of the BRBT
Trademarks to another party pursuant to Section 6(d)(ii) below.
(d) Other Products.
(i) If BRBT wishes to grant to any person other than SABI a license to use
any BRBT Trademark on any product other than a Reserved Product, it shall first
offer to SABI an exclusive license to the BRBT Trademarks on such product in
such territory at the Standard Royalty. Such license shall be perpetual provided
that SABI and/or its licensees sells goods in that category in Commercial
Quantities in such jurisdiction within 18 months after receiving such
notification.
(ii) If SABI does not accept that offer or fails to make such sales, BRBT
may consider granting a license to the other applicant. In deciding whether to
grant such license to such other applicant BRBT shall first determine that the
grant of rights to such person or entity will (A) enhance and not reduce the
value of SWISS ARMY as applied to Swiss Products already being sold under that
trademark, (B) not detract from the purpose of this Agreement to prevent the use
of SWISS ARMY on non-Swiss products, and (C) increase, over the long term, the
amount of Swiss Products sold worldwide. In making such determination BRBT shall
give priority to upholding the image of SWISS ARMY as being associated with
prestige, quality and wholesomeness and shall also consider the market at which
the product sought to be licensed is aimed. In making such determination the
objections made by SABI or any other person authorized to use SWISS ARMY
pursuant to this Agreement shall be given great weight.
SECTION 7. Expansion of Classes.
At the request of SABI, BRBT will expand the products and services covered
by the BRBT Trademarks through additional registrations.
SECTION 8. Terms of License.
(a) In the event of any grant of a license in respect of any BRBT Trademark
whether to SABI or to any other party, the following provisions shall apply:
(i) Such products including products sold by licensees of SABI's rights
hereunder, shall be Swiss Products of First Quality.
(ii) The licensee shall, upon request, submit a reasonable number of
samples to BRBT to determine whether such products are of First Quality. In the
event that BRBT determines that such products are not of First Quality, BRBT
shall so notify the licensee, giving full particulars so that the licensee may
cause such products to be of First Quality.
(iii) In respect of any license for which Standard Royalties must be paid,
such royalties shall be paid no later than the end of the calendar quarter
following the calendar quarter in which the relevant sales were made. Each such
payment shall be accompanied by a report setting forth in reasonable detail the
amount of Net Sales and the method by which the standard royalty was computed.
(iv) Notwithstanding anything herein to the contrary, the license of any
BRBT Trademark shall not be deemed to include, and expressly excludes, the Swiss
National Emblem.
(b) In the event of any grant of a license in respect of any BRBT trademark
to SABI, SABI may take such action as it deems appropriate under all the
circumstances to cause any infringement found to exist to be terminated. Any
suits on account thereof shall be controlled by SABI and shall be prosecuted
wherever possible in the name of SABI and by its counsel; and the expenses of
such suit shall be borne by SABI.
SECTION 9. Disputes.
Any dispute arising in connection with this Agreement shall be resolved by
arbitration, the seat of arbitration being Bern, Switzerland. The arbitral
tribunal shall consist of three arbitrators and the arbitration shall be
governed by the rules of the Intercantonal Arbitration Convention, March
27/August 29, 1969, excluding the rules of chapter 12 (International
Arbitration) of the Swiss Private International Law Act, December 18, 1987.
SECTION 10. Notices.
Any notices or other communications required or permitted to be sent under
this Agreement shall be duly given if sent by registered mail return receipt
requested or by facsimile transmission confirmed by mail within three (3)
business days of such transmission and addressed as follows:
(a) If to BRBT:
Defence Procurement Agency
Legal Department
Kasernenstrasse 19
CH-3003 Bern, Switzerland
Attention: Thomas Kopp, Esq.
Corporate Legal Counsel
FAX: 0041-031-324-60-56
(b) If to SABI:
Swiss Army Brands, Inc.
One Research Drive
Shelton, Connecticut 06484-6226
Attention: The President
SECTION 11. Use on Munitions and Weapons.
SABI will not utilize any BRBT Trademark or the words "Swiss Army" in
connection with munitions or weapons.
SECTION 12. Costs.
Elsewhere in this Agreement it is provided that certain registrations
requested by SABI shall be made at the expenses of SABI and not at the expense
of BRBT. Without lessening the authority of such statements but for greater
clarity it is further provided nothing in this Agreement shall require BRBT to
expend in connection with the BRBT Trademarks or otherwise in respect of this
Agreement any sums, for registration or otherwise, other than out of royalties
actually received hereunder. The cost of any registrations effectuated at the
request of SABI shall be borne entirely by SABI.
SECTION 13. Swiss Martial Trademarks.
(a) Mr. Louis Dominique Manigley and/or L.D.M. Engineering, Ltd.
(collectively and including their respective affiliates, "Mr. Manigley") claims
certain rights to use the trademark "Swiss Air Force" in connection with the
sale of watches. Some or all of the rights so claimed are disputed by SABI,
which is currently engaged in litigation in the United States with Mr. Manigley.
BRBT takes no position concerning that dispute and, anything herein to the
contrary notwithstanding, BRBT shall have no obligation to assist SABI in any
way concerning such dispute.
(b) Except for this Agreement and for a prior agreement between Mr.
Manigley and the Air Force branch of the Swiss Military Department relating to
the trademark "Swiss Air Force", which is not affected by this Agreement:
Neither the Swiss Military Department nor any other branch of the Swiss
Government has granted any rights to use or register, nor approved the use or
registration by any person of any Swiss Martial Trademark and no such Swiss
Governmental body will do so during the term of this Agreement. SABI and BRBT
will use their best efforts to prevent the use of Swiss Martial Trademarks. The
immediately preceding sentence shall not apply to "Patrouille Suisse" in the
French language.
SECTION 13A. Termination of Lines of Product.
If: (a) SABI or its affiliates, assignees or licensees has sold under a
license granted pursuant to this Agreement in Commercial Quantities goods in any
"General Product Category" (as defined below) and thereafter,
(b) such sales cease so that such goods are not sold in Commercial
Quantities by any such persons for a consecutive period of three years then BRBT
may terminate this license as to that General Product Category as follows:
(i) BRBT may notify SABI in writing of its intent to terminate and this
Agreement shall terminate for that General Product Category unless during the
180 day period after receipt of such notice, sales in Commercial Quantities are
resumed.
(ii) For purposes of this section, the term "General Product Category"
shall refer to a general group of products such as "timepieces" or "leather
goods" (rather than to specific product designations such as "ladies
wristwatches" or "attache cases").
(c) Nothing in this Section 13A shall operate directly or indirectly to
require SABI to grant any licenses of any SABI Trademark.
SECTION 14. Cooperation Concerning Trademark Infringement.
Each of the parties shall inform the other promptly in writing of (a) any
infringement of any BRBT Trademark or the Registered SABI American Trademark of
which they shall become aware, (b) any challenge by any party to either party's
use of SWISS ARMY, and (c) any proceeding instituted or threatened by or any
claim by any third party of any rights in SWISS ARMY. Subject to Section 12
above relating to cost, the parties hereto shall cooperate and take such action
as reasonably requested by the other party to protect the BRBT Trademarks and
the Registered SABI American Trademark from infringement.
SECTION 15. Miscellaneous.
(a) This Agreement shall be covered by and interpreted by the laws of
Switzerland provided that matters related to trademark rights in a particular
country shall be covered by and interpreted in accordance with the trademark
laws of such country. In the event of a conflict between versions of this
Agreement, the English version shall govern.
(b) This Agreement is the sole agreement between and among the parties
relating to the subject matter hereof and merges and supersedes any and all
agreements between them relating thereto. This Agreement may not be altered or
amended except by a writing duly executed on behalf of the party against whom
such alteration or amendment is sought to be applied.
(c) In the event of the sublicensing of the Agreement by SABI, the
sublicensee must, as a condition of executing any rights hereunder, agree in
writing to abide by the provisions hereof relating to quality, origin and
royalties.
(d) Nothing in this Agreement shall prevent SABI from sublicensing or
otherwise permitting Precise or others to exercise rights herein granted to SABI
nor prevent the use by SABI of trademarks now being used by it nor require
either party hereto to prevent the use by Precise of trademarks now being used
by it provided that SABI has agreed in writing to such use. Notwithstanding
anything herein to the contrary, SABI shall not be required to do anything
pursuant to this Agreement which would constitute a breach or violation of that
certain license agreement dated June 30, 1992 between SABI and Precise.
(e) The Federal Military Department may change the identity of its
representative under this Agreement, in which case the benefits and obligations
of BRBT shall devolve upon that designee.
THE SWISS CONFEDERATION Represented by
The Federal Military Department
Represented by:
FEDERAL DEFENCE PRODUCTION GROUP
Represented by:
/s/ Toni J. Wicki
Toni J. Wicki
Chief of Armament
/s/ Rene Huber
Rene Huber
General Manager Central Administration
SWISS ARMY BRANDS, INC.
By: /s/ Peter W. Gilson
Peter W. Gilson
Authorized Signatory
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of January 31, 1997 between CUISINE DE FRANCE LIMITED, a
Delaware corporation ("Seller"), and Sabatier USA, LLC, a Connecticut Limited
Liability Company ("Purchaser") and, as guarantors, ROBERT CANDLER and ROBERT P.
WOLFF.
W I T N E S S E T H:
WHEREAS, Purchaser desires to acquire, and Seller wishes to sell and
transfer to Purchaser, certain of the assets and properties of Seller, subject
to the assumption by Purchaser of certain liabilities, all upon the terms and
conditions hereinafter set forth; and
WHEREAS, Messrs. Candler and Wolff own Purchaser; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
SECTION 1. Assets to be Sold and Purchased.
A. Subject to the terms and conditions hereof Seller agrees to sell,
transfer, convey, grant, assign and deliver to Purchaser, and Purchaser agrees
to purchase, accept and receive from Seller all of the following assets of
Seller (such assets being sometimes collectively referred to herein as the
"Purchased Assets"):
(a)Inventory. All inventories of Seller, described on Schedule 1(a) hereto
(the "Purchased Inventory").
(b) Contracts. All of Seller's rights in, to and under all of the contracts
and agreements of Seller described in Schedule 1(b) hereto (the "Purchased
Contracts").
(c)Rights to Tooling. All of the Seller's rights, if any, with respect to
tooling paid for or partially paid for by Seller and held by suppliers, as set
forth in Schedule 1(c) hereto (the "Tooling Rights").
(d) Customer List and Marketing Material. All of Seller's customer lists
and all printed marketing material pertaining to the sale of Cuisine de France
merchandise; provided, that any reference on such marketing material to Swiss
Army Brands, Swiss Army or The Forschner Group shall be deleted and Purchaser
agrees to effectuate such deletion.
(e)Trade Show Booth. CDFL's trade show booth. (The Purchased Inventory and
trade show booth shall be sometimes collectively referred to herein as the
"Physical Assets".)
(f)Intellectual Property.
All of Seller's rights, including trademark rights, in and to the name
"Cuisine de France Limited."
All of Seller's rights in and to that certain U.S. letter patent no.
363.867 relating to knife sharpeners.
B. Retained Assets. Any assets of Seller not specifically sold by Seller
pursuant to Section 1(a) above shall be retained by Seller, including without
limitation, any accounts receivable arising from sales made prior to the
Closing.
SECTION 2. Consideration for the Sale of the Purchased Assets.
A. Purchase Price. Subject to the terms and conditions of this Agreement,
and in reliance upon the representations and warranties contained herein, the
purchase price (the "Purchase Price) for the sale, assignment, transfer and
delivery of the Purchased Assets by Seller shall be the following:
(a)$20,000 to be paid at the closing of the sale of the assets set forth in
paragraphs 1(b), 1(c) and 1(d) to occur on January 31, 1997 (the "Initial
Closing");
(b) $15,000 for the purchase of the trade show booth to be paid on March
31, 1997 (the "Booth Closing");
(c)The purchase price for the CDFL Inventory (the "Inventory Purchase
Price") shall be the following percentage of the value of such inventory as
indicated on the books of CDFL at January 31, 1997 or, in the case of the
"Celebration" knife sets, the following prices:
CUTLERY PERCENTAGE OF BOOK VALUE
Commercial 90%
Grand Chef 70%
Grand Chef White 100%
Super Sharp 50%
Never Needs Sharpening 50%
Au Carbone 90%
Sabatier Traditional 50%
Precision 50%
Shears 100%
Knife Sharpener 80%
Blocks 50%
Miscellaneous/Aprons 70%
2 piece Celebration set
4,200 units $12 each
3 piece Celebration set
1,000 units $15 each
PACKAGING
Commercial 90%
Grand Chef 70%
Super Sharp/NNS 50%
Shears 100%
Miscellaneous Sleeves 50%
Block Boxes 50%
B. Payment of Purchase Price. $20,000 of the Purchase Price shall be paid
at the Initial Closing by certified or bank check or by wire transfer. $15,000
shall be paid at the Booth Closing by certified or bank check or by wire
transfer. The Inventory Purchase Price shall be paid by check or by wire
transfer as Purchaser purchases the CDFL Inventory through October 31, 1997;
provided that at least one-half of the Inventory Purchase Price shall paid by
June 30, 1997 and all of the Inventory Purchase Price shall be paid by October
31, 1997. It is anticipated that Purchaser shall purchase the following percent
of the Inventory in the following months:
February 15%
March 10%
April 5%
May 5%
June 15%
July 15%
August 15%
September 10%
October 10%
C. Allocation of Purchase Price. The Purchase Price described in Section
2(a) above will be allocated as set forth in Schedule 2(c) hereto. Purchaser and
Seller represent, warrant, and covenant that such allocation was determined
through arm's length negotiations and that each will adopt and utilize the
amounts allocated to each asset or class of assets described in such schedule
for purposes of all federal, state and other Tax returns filed by it and that it
will not voluntarily take any position inconsistent therewith upon examination
of any such tax return, in any claim, in any litigation or otherwise with
respect to such Tax returns. Each party agrees to prepare and timely file
Internal Revenue Service Form 8594 (Asset Acquisition Statement) and to
cooperate with the other party in the preparation of such form. As used in this
Agreement, the term "Tax" or "Taxes" means any federal, state, local, foreign
and other income, gross receipt profits, franchise, license, transfer, sales,
use, payroll, withholding, employment, occupation, property, social security,
intangible, excise or other taxes, fees, duties, assessments, withholdings or
governmental charges of any nature (including interest, penalties or additions
to such taxes or charges).
SECTION 3. Liabilities.
A. Liabilities Assumed by Purchaser. Subject to the terms and conditions
herein set forth, at the Closing, Purchaser shall assume and agree to pay,
perform or otherwise discharge the liabilities and obligations of Seller (i)
incurred on and after the Closing Date as a result of events occurring on or
after the Closing Date under the Purchased Contracts and agrees to be bound by
the obligations of Seller thereunder; and (ii) the liabilities of Seller under
any product warranties relating to products sold by Seller regardless of when
sold.
B. Indemnification. (a)Seller hereby agrees to indemnify and hold harmless
Purchaser and its officers, directors and employees and its and their successors
and assigns from and against any and all liabilities, obligations, losses,
damages, amounts paid in settlement, diminutions in value, penalties, claims,
actions, suits, costs, expenses and disbursements, including reasonable legal
fees and expenses of whatsoever kind and nature imposed on, incurred by, or
asserted against any of them in any way relating to, or arising out of or
resulting from (A) the conduct of Seller's business or the ownership, use or
operation by Seller of the Purchased Assets at any time prior to the Closing
Date, except with respect to liabilities and obligations expressly assumed by
Purchaser under this Agreement; (B) any representation or warranty made by
Seller in this Agreement or in any other certificate, document or other
instrument delivered hereunder or in connection herewith which is incorrect or
misleading; or (C) any failure on the part of Seller to carry out and fully
perform any covenants or any agreements or other obligations contained herein.
(b) Purchaser hereby agrees to indemnify and hold harmless Seller and its
officers, directors and employees and its and their successors and assigns from
and against any and all liabilities, obligations, losses, damages, amounts paid
in settlement, diminutions in value, penalties, claims, actions, suits, costs,
expenses and disbursements, including reasonable legal fees and expenses, of
whatsoever kind and nature, imposed on, incurred by or asserted against any of
them in any way relating to, arising out of or resulting from (A) the conduct of
Purchaser's business or the ownership, use or operation of the Purchased Assets
at any time from and after the Closing Date, and the liabilities and obligations
which have been expressly assumed by Purchaser hereunder from and after the
Closing Date; (B) any representation or warranty made by Purchaser in this
Agreement or in any other certificate, document or other instrument delivered
hereunder or in connection herewith which is incorrect or misleading; or (C) any
failure on the part of the Purchaser to carry out and fully perform any
covenants or any agreements or other obligations contained herein.
All items covered by subsections (i) and (ii) of this Section 3(b) are
referred to herein as "Indemnified Claims".
(c)An indemnified party hereunder shall promptly notify the indemnifying
party in writing of the assertion of any claim asserted against the indemnified
party which might give rise to an Indemnified Claim against the indemnifying
party stating the nature and basis of such claim and the amount thereof. Except
as set forth herein, the indemnified party shall not pay or provide for the
payment or settlement or discharge of any such claim, for a period of fifteen
days after the date such written notice was given to the indemnifying party, but
thereafter may do so together with all costs and expenses incident thereto,
unless within such fifteen-day period the indemnifying party shall have provided
the indemnified party with notice that the indemnifying party reasonably
disputes such claim.
(d) In the event that any action, suit or proceeding is brought against an
indemnified party with respect to which an indemnifying party may have liability
under the indemnity agreement contained in this Section 3(b), the action, suit
or proceeding shall be defended (including all proceedings on appeal or for
review, which counsel for defendant shall deem appropriate) by the indemnifying
party by counsel of its choice. The indemnified party shall have the right to be
represented by an advisory counsel and accountants, at its own expense, and the
indemnified party shall be kept fully informed of such action, suit or
proceeding at all stages thereof whether or not the indemnified party is so
represented. The indemnifying party shall make available to the indemnified
party, its attorneys and accountants all books and records of the indemnifying
party relating to such proceedings or litigation and the parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such action,
suit or proceeding.
(e)An indemnifying party shall not make any settlement of any claims which
might give rise to an Indemnified Claim under the indemnity agreement contained
in this Section 3(b) without the written consent of the indemnified party,
provided that such consent shall not be unreasonably withheld.
(f)The rights of indemnification contained in this Section 3 shall not be
deemed to be the exclusive remedy of the parties hereto and such rights shall be
in addition to any other rights or remedies which any party hereto may have at
law or equity with respect to a default or breach by any other party under this
Agreement.
SECTION 4. Closings.
A. (a)The Initial Closing will take place at 10:00 A.M. (local time),
January 31, 1997, at the offices of Seller, One Research Drive, Shelton,
Connecticut.
(b) The Booth Closing will take place at 10:00 a.m.(local time), March 31,
1997, at the offices of Seller, One Research Drive, Shelton, Connecticut.
B. At each of the Initial Closing and Booth Closing, Seller shall deliver
to Purchaser a bill of sale, endorsements, assignments and such other
instruments of transfer and conveyance as shall be effective to vest in
Purchaser (A) good and marketable title to the assets to be sold to Purchaser at
such closing as provided herein and (B) all of Seller's rights in and under each
contract and agreement to be assigned to Purchaser as provided herein.
C. At each of the Initial Closing and Booth Closing, Purchaser shall:
(a) cause the cash consideration to be paid to Seller as provided in
Section 2 of this Agreement; and
(b) with respect to the Initial Closing, execute and deliver to Seller such
instruments of assumption or novation as shall be effective to transfer from
Seller at and as of the Closing Date those liabilities and obligations to be
assumed by Purchaser hereunder.
SECTION 5. Royalty Payments.
A. Purchaser shall pay to Seller an amount equal to 1.5% of any and all net
sales ("Sales Royalty") up to net sales of $3,500,000 per annum for all sales
from February 1, 1999 through January 31, 2003 and an amount equal to 1% of any
and all net sales up to net sales of $3,500,000 from February 1, 2003 through
January 31, 2004. For purposes of calculating the Sales Royalty, net sales shall
mean the invoiced amount of all products bearing the names Cuisine de France or
Sabatier sold by Purchaser or its affiliates less only returns and allowances
evidenced by credit memoranda. In determining net sales, no deduction made be
made for early payment discounts, bad debts, advertising allowances or special
promotions of any kind or for costs incurred in manufacture, sale, advertising
or promotion. A sale shall be deemed made when the products are invoiced,
shipped or paid for whichever is first to occur.
B. The Sales Royalty hereunder shall be due and paid semi-annually within
sixty days after the last day of July and January and shall be accompanied by a
statement certified by a duly authorized officer of Purchaser as accurate,
indicating, by month, the number and invoice price of all products shipped
during the period and a computation of the amount of Sales Royalty payable
hereunder.
C. Purchaser shall keep, maintain, and preserve in Purchaser's place of
business until at least January 31, 2006, complete and accurate records of
accounts including without limitation all invoices, foreign exchange
information, correspondence, banking and financial and other records pertaining
to the various items required to be shown on the reports to be submitted by
Purchaser. Seller, or its representatives, shall have the right to examine and
make extracts from all such records, including all invoices during business
hours. Purchaser agrees not to cause or permit any interference with Seller or
its nominees in the performance of their duties of inspection and/or audit.
If any audit shows that the amount of royalties paid by Purchaser to Seller
during the time period covered by the audit is less than the actual royalties
that should have been paid by Purchaser by more than ten percent (10%) of the
amount actually paid to Seller then the cost of such audit shall be paid for by
Purchaser.
The exercise by Seller in whole or in part, or at any time or times, of the
right to inspect or audit records and accounts or of any other right herein
granted, or the acceptance by Seller of any report or the receipt or deposit by
Seller of any payment from Purchaser shall be without prejudice to any other
rights or remedies of Seller and shall not stop or prevent Seller from
thereafter disputing the accuracy of any such report or payment.
SECTION 6. Representations, Warranties and Agreements of Seller.
Seller hereby represents, warrants and agrees with Purchaser as follows:
A. Corporate Existence. Seller is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of Delaware, with full
corporate power and authority to carry on its business as presently conducted by
it.
B. Authority. Seller has full power and authority to execute, deliver and
perform this Agreement, and this Agreement has been duly authorized by all
necessary and proper corporate action of Seller and is the valid and legally
binding obligation of Seller in accordance with its terms.
C. Consents. Neither the execution and delivery of this Agreement by Seller
nor the consummation of the transactions contemplated hereby will violate or
conflict with, result in the breach of, accelerate the performance required by,
or constitute a default under, any provision of any order of any court or other
agency of government, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, agreement or other instrument to which Seller is a party or
by which it or any of its properties is bound or affected or will result in the
creation of any lien, charge or encumbrance on any of the Purchased Assets. No
governmental authorization, approval, order or consent is required in connection
with the execution, delivery and performance of this Agreement by Seller.
D. Title. Seller has good and marketable title to the Physical Assets, free
and clear of all mortgages, liens, pledges, charges, claims, restrictions,
defects of title or other encumbrances or rights of others of any kind
whatsoever.
SECTION 7. Limitation.
No representations or warranties whatsoever, other than the express
representations and warranties set forth in this Section 6 is made by Seller,
and except to the extent of the foregoing, SELLER HEREBY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, AS TO THE PURCHASED ASSETS
AND SPECIFICALLY DISCLAIMS (A) ANY REPRESENTATIONS OR WARRANTY OF
MERCHANTABILITY, USAGE OR FITNESS FOR ANY PARTICULAR PURPOSE AND (B) ANY
REPRESENTATION OR WARRANTY WITH RESPECT TO THE TRADEMARKS CUISINE DE FRANCE AND
SABATIER.
SECTION 8. Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to Seller as follows:
A. Existence. Purchaser is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Connecticut, with
full power to carry out its business as presently being conducted by it.
B. Authority. Purchaser has full power and authority to execute, deliver
and perform this Agreement, and this Agreement has been duly authorized by all
necessary and proper action of Purchaser and is the valid and legally binding
obligation of Purchaser in accordance with its terms.
C. Consents. Neither the execution and delivery of this Agreement by
Purchaser nor the consummation of the transactions contemplated hereby will
violate or conflict with, result in the breach of, accelerate the performance
required by, or constitute a default under, any provision of any order of any
court or other agency of government, the operating agreement of Purchaser, or
any indenture, mortgage, agreement or other instrument to which Purchaser is a
party or by which it or any of its properties is bound or affected. No
governmental authorization, approval, order or consent is required in connection
with the execution, delivery and performance of this Agreement by Purchaser.
SECTION 9. Sales Taxes.
Purchaser agrees to pay and be liable for all sales, use or other transfer
taxes, if any, payable in connection with the sales, transfer and deliveries to
be made pursuant to this Agreement. At the Closing, Purchaser shall pay all such
taxes due or to become due or provide Seller with assurances satisfactory to
Seller that the same has been provided for and agrees to indemnify and hold
harmless Seller against and in respect of any and all claims, liabilities or
expenses which may be incurred as a result of the nonpayment of any such sales
or use taxes.
SECTION 10. Guarantee.
Messrs. Candler and Wolff hereby unconditionally, absolutely and
irrevocably guarantee to Seller all of the obligations of Purchaser hereunder.
This is a joint and several guarantee and shall remain in full force and effect
and be binding upon Messrs. Candler and Wolff; provided, however, that except
with respect to the obligation of Seller to pay royalties pursuant to Section 5
hereof and to purchase the Purchased Inventory hereunder, which the guarantee
shall continue in full force and effect with respect to, this guarantee shall
not apply to liabilities incurred and arising subsequent to three years from the
Initial Closing.
SECTION 11. Name Change.
Promptly following the Closing Seller shall file with the Secretary of
State of Delaware a Certificate of Amendment to Certificate of Incorporation
changing its name from Cuisine de France Limited.
SECTION 12. No Broker.
Each of Buyer and Seller represent and warrant to the other that no agent
or broker or other persons acting pursuant to authority given by either of them
is entitled to any commission or finder's fee in connection with the transaction
contemplated by this Agreement.
SECTION 13. Costs Incident to Agreement.
Each of the parties hereto will pay all the costs incurred by it incident
to the preparation, execution and delivery of this Agreement or the performance
of its obligations hereunder, including, without limitation, the fees and
disbursements of its counsel, accountants and consultants.
SECTION 14. Retention of Celebration Series Knives.
Seller may continue to market and sell its present inventory and any
present inventory not sold hereunder of "Celebration Series" knives, and any
inventory not sold to Purchasers for any reason, under the trademarks presently
being utilized in connection with such products.
SECTION 15. Accounts Receivable.
Seller hereby agrees that in the event it shall receive, for any reason,
payment with respect to goods sold by Buyer it shall promptly remit to Buyer, in
the form received by it, any such payment or proceeds. Buyer agrees that in the
event it shall receive, for any reason, payment with respect to goods sold by
Seller it shall promptly remit to Seller, in the form received by it, any such
payment or proceeds.
SECTION 16. Miscellaneous.
A. Assignment. This Agreement may not be assigned by either party without
the prior written consent of the other party. This Agreement will be binding
upon, and inure to the benefit of, the parties hereto and their successors and
permitted assigns.
B. Notices. Any notices or other communications required or permitted
hereunder must be in writing and will be deemed sufficiently given only if
delivered in person or sent by certified or registered mail, return receipt
requested, postage prepaid to the parties at the respective addressed set forth
below:
(a)If to Purchaser to:
Sabatier USA, LLC
3368 Fairfield Avenue
Bridgeport, Connecticut 06605
With a copy to:
Kenneth R. Wolff, Esq.
3 Manhattanville Road
Purchase, New York 10577
(b) If to Seller:
Cuisine de France Limited
c/o Swiss Army Brands, Inc.
One Research Drive
Shelton Connecticut 06484
(c) If to Robert Candler:
118 Dickinson Drive
Shelton, Connecticut 06484
(d) If to Robert P. Wolff:
344 Main Street
Mt. Kisko, New York 10546
Any Party by written notice to the other may change the address to which
notices shall be directed.
C. Entire Agreement. This Agreement constitutes the entire understanding of
the parties relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings, whether oral or written, relating
to the subject matter hereof. The terms of this Agreement cannot be changed,
released or discharged orally.
D. Waiver. Any term or condition of this Agreement may be waived at any
time by the party entitled to the benefit thereof by a written instrument
executed by a duly authorized officer of such party. No delay or failure on the
part of any party in exercising any rights hereunder, and no partial or single
exercise thereof, will constitute a waiver of such rights or of any other rights
hereunder.
E. Third Party Rights. Nothing in this Agreement will be construed as
giving any person, firm, corporation or other entity, other than the parties
hereto, their successors and permitted assigns any right, remedy or claim under
or in respect of this Agreement or any provision hereof.
F. Governing Law. This Agreement will be construed and interpreted in
accordance with the laws of the State of Connecticut applicable to contracts
made and to be performed entirely within such state.
G. Counterparts. This Agreement may be executed in any number of
counterparts, each of which so executed will be deemed to be an original; such
counterparts will together constitute but one agreement.
H. Headings. The section and other headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
CUISINE DE FRANCE LIMITED
By /s/ Robert Topazio
SABATIER USA, INC.
By /s/ Robert Candler
/s/ Robert Candler
Robert Candler, as guarantor
/s/ Robert P. Wolff
Robert P. Wolff, as guarantor
Schedule 1(a)
Inventory
Schedule 1(b)
Contracts
1. License Agreement dated January 1, 1993 between Coutel Inov and Cuisine
de France Limited.
2. License Agreement dated July 1, 1993 between Coutel Inov and Cuisine de
France Limited.
3. Agreement and Assignment dated March 7, 1994 between Marc Harrison and
Cuisine de France Limited.
Schedule 1(c)
Tooling Rights
[describe rights to tooling to be transferred]
Schedule 2(c)
Allocation of Purchase Price
Trade Show Booth $ 15,000
Goodwill $ 20,000
Inventory Remainder of
Purchase Price
<PAGE>
Subsidiaries of Swiss Army Brands, Inc.
Swiss Army Brand Ltd.
Forcan, Inc.
The Forschner Group (Suisse) S.A.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 4, 1997,
included in Swiss Army Brands, Inc. Form 10-K for the year ended December 31,
1996, and to all references to our firm in this registration statement.
ARTHUR ANDERSEN LLP
Stamford, Connecticut,
March 27, 1997
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<ARTICLE> 5
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<NAME> Swiss Army Brands, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,067
<SECURITIES> 0
<RECEIVABLES> 34,024
<ALLOWANCES> 1,032
<INVENTORY> 29,657
<CURRENT-ASSETS> 70,933
<PP&E> 9,928
<DEPRECIATION> 5,959
<TOTAL-ASSETS> 98,643
<CURRENT-LIABILITIES> 18,786
<BONDS> 0
0
0
<COMMON> 882
<OTHER-SE> 78,974
<TOTAL-LIABILITY-AND-EQUITY> 98,643
<SALES> 130,030
<TOTAL-REVENUES> 130,030
<CGS> 89,194
<TOTAL-COSTS> 46,241
<OTHER-EXPENSES> (2,350)
<LOSS-PROVISION> (57)
<INTEREST-EXPENSE> (147)
<INCOME-PRETAX> (7,608)
<INCOME-TAX> (2,344)
<INCOME-CONTINUING> (5,265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,265)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
