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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1282-3
Swiss Army Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
One Research Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 929-6391
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, 1998, was approximately $52,436,400. On such date, the
closing price of registrant's common stock was $11( 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, 1998, was 8,217,860 shares.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I: INFORMATION Page No.
<S> <C> <C>
Item 1. Business 3 - 9
Item 2. Properties 9
Item 3. Legal Proceedings 9 - 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
PART II:
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 16
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Disagreements on Accounting and Financial
Disclosure 17
PART III:
Item 10: Directors and Executive Officers of the
Registrant 18 - 22
Item 11: Executive Compensation 23 - 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management 26 - 29
Item 13. Certain Relationships and Related Transactions 29 - 31
PART IV: FINANCIAL INFORMATION
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 32
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 1997 and 1996. F-2 to F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1997, 1996
and 1995. F-4
Consolidated Statements of Stockholders Equity
for the Years Ended December 31, 1997,
1996 and 1995. F-5
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1997, 1996
and 1995. F-6
Notes to Consolidated Financial Statements F-7 to F-22
Schedule II F-23
Exhibits and Reports 32
</TABLE>
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 (r) Original Swiss Army(tm) Knife,
Victorinox(r) SwissTool(tm), Victorinox(r) SwissCard(tm), Victorinox(r) cutlery
and Victorinox(tm) watches. SABI also markets its own line of Swiss Army(r)
Brand Watches, Swiss Army Brand(tm) Sunglasses 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, Victorinox SwissTools and
Victorinox SwissCards, accounted for approximately 34% of SABI's 1997 sales
while watches and other Swiss Army Brand products accounted for approximately
50%. Sales of professional and consumer cutlery accounted for approximately 16%
of SABI's 1997 sales. Total SABI sales for the calendar years 1997, 1996 and
1995 were $118,744,000, $130,030,000 and $126,695,000, respectively. No customer
accounted for more than 10% of net sales during any year in the three year
period ended December 31, 1997. Foreign operations accounted for 14%,13% and 11%
of SABI's net sales in the three year period ended December 31, 1997,
respectively. See Note 14 to the Company's Financial Statements included herein
for further information regarding the Company's foreign operations. At December
31, 1997 SABI had backlog orders of approximately $5,746,000, compared to
backlog orders of $5,193,000 at December 31, 1996.
During the past two years the Company has recorded special charges,
primarily related to discontinued inventory, investment write-downs and
restructuring costs. In 1997, the Company recorded a special charge of $1.3
million related to discontinued inventory and $0.8 million in restructuring
costs. These restructuring costs primarily consisted of severance and related
expenses. 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 recorded an additional special charge of approximately $2.5
million. The special charge consisted of $1.6 million write-down related to
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, 1997, SABI and its subsidiaries had 226 full-time employees,
including 10 in Canada and 5 in Switzerland.
Swiss Army Knives and Swiss Army Brand Products
-----------------------------------------------
SABI is the exclusive United States, Canadian (with one minor exception for
cutlery) and Caribbean distributor of Victorinox Original Swiss Army Knives,
Victorinox SwissTools, Victorinox SwissCards 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 $16, features a knife, scissors, nail file with
screwdriver tip, toothpick and tweezers. SABI markets more than 50 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 $70
as well as a SwissChamp(r) Deluxe SOS kit with a suggested retail price of $175.
SABI also sells multi-function lockblade knives designed for the hunting and
outdoor market. In 1997, the Company added to its product line the
SwissCard(tm), a credit card shaped, ten function instrument, and the
SwissTool(tm), a multi-tool with 23 features, including a full size pliers. The
Company's line of Victorinox watches currently includes four models with a dozen
styles, with suggested retail prices ranging from $110 to $150. The Company
distributes its Victorinox Original Swiss Army Knives throughout the United
States, Canada and the Caribbean through independent sales representatives and
its direct sales force 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 8 models of Swiss Army
Brand Watches with over 60 styles ranging from the Renegade(r), with a suggested
retail price of $85 to the Titanium Two-Tone with a stainless steel bracelet,
with a suggested retail price of $595. Swiss Army Brand Watches are sold both
through a direct sales force selling to approximately 550 department, specialty
and jewelry stores and the same independent sales representatives which sell
Victorinox products. In the first quarter of 1997, the Company added to its
product line newly designed Swiss Army(r) Brand Sunglasses. The Company's
sunglass line includes fifty styles with suggested retail prices ranging from
$85 to $110. In addition, SABI sells Swiss Army(tm) Brand writing instruments,
and introduced in 1997 a line of watches under the Allenby trademark. Also in
1997, the Company entered into an arrangement pursuant to which it distributes
in North America and serves as sales and marketing agent in most of the rest of
the world a line of watches under the Swiss Air Force(tm) trademark. 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.
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.
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. SABI and Precise are currently
involved in arbitration related to this agreement, see Item 3 for further
discussion.
4
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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
<PAGE>
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.
In 1997, the Company entered into the cut-resistant glove category. This
glove is being sold to the same class of trade as the professional cutlery and
is being manufactured by an independent third party in the United States.
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(r) Sabatier(r)" brand. 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. This transaction was completed in the
fourth quarter of 1997.
License Agreement
-----------------
On May 15, 1997, SABI entered into an agreement with St. John Knits, Inc.
("St. John") providing for the grant of an exclusive license, subject to certain
terms and conditions, to SABI to market watches bearing the St. John(r)
trademark. St. John is a leading designer, manufacturer and marketer of fine
woman's apparel. SABI is presently in the process of designing watches to be
marketed under the St. John trademark.
6
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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. The Company met this requirement in 1997.
The Company is currently in the process of establishing the minimum
requirement for 1998. Pursuant to U.S. Distribution Agreement, the Company
has notified Victorinox of its desire to renew the agreement for another
five-year term commencing December 12, 1998.
* 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.
7
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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.
Investments
-----------
In 1994, 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
$2,000,209, 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 the time of the distribution at $1.23 per unit, currently
representing approximately 1.3% 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 2,327,382 of Hudson River's
Series B Preferred Units (currently representing, in the aggregate,
approximately 28.7% of Hudson River's outstanding equity) are held by Brae
Capital Corporation ("Brae Capital"), a wholly-owned subsidiary of Brae. Mr.
Marx is the owner of 700,000 plan units (representing approximately 7.1% of
Hudson River's outstanding equity) issued by Hudson River under its Equity
Incentive Plan, which entitle Mr. Marx to voting rights and to receive a portion
of the appreciation of Hudson River's assets after the date of grant of such
units under certain circumstances.
490,000 of Victory Ventures' common units and 12,440,088 of Victory
Ventures' Series A Preferred Units (currently representing in the aggregate,
approximately 18.2% of Victory Ventures' outstanding equity) are held by Brae
Capital. In addition, Brae Capital is the owner of 2,911,613 plan units
(representing approximately 4.1% of Victory Ventures' outstanding equity) issued
by Victory Ventures under its Equity Incentive Plan, which entitle Brae Capital
to voting rights and to receive a portion of the appreciation of Victory
Ventures' assets after the date of grant of such units, under certain
circumstances. 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.
8
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Mr. Marx, a Director of SABI, is a Co-Chairman of the Board, a director and
an equity holder of each of Hudson River and Victory Ventures, and a consultant
to Victory Ventures. Mr. Clarke H. Bailey, a Director of SABI, is a Co-Chairman
of the Board, a Director and an equityholder of Hudson River. 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. M. Leo Hart, a Director of SABI, also
serves as a director of Victory Ventures.
Item 2. Properties.
The executive and administrative offices of SABI occupy approximately
42,500 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 expired in
December, 1997. The Company has extended the term on this lease for a one year
period.
In 1996, SABI entered into a four-year lease for 7,000 square feet of space
in a 30,000 square foot building in Bienne, 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.
K-Swiss filed on December 30, 1996 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". The Company believes it has meritorious defenses to these
petitions although their outcome cannot be predicted at this time.
On July 14, 1997, the Company filed with the American Arbitration
Association in New York, New York a demand for arbitration against Precise
Imports Corporation, the United States and Canadian distributor of Swiss Army
Knives manufactured by Wenger S.A., the only company other than Victorinox
supplying pocketknives to the Swiss Armed Forces. In the demand for arbitration,
the Company charges that Precise has violated the license agreement dated June
30, 1992 between Precise and the Company by utilizing the trademark Swiss Army
in ways prohibited by the agreement. The Company seeks to enjoin future
violations by Precise as well as damages resulting from past violations. Precise
has filed an answer, defenses and counterclaims denying the Company's claims and
alleging, as counterclaims, that the Company has violated the license agreement
to Precise's detriment, that the Company has engaged in anti-competitive
activity against Precise in violation of both the license agreement and
anti-trust laws, that the Company has engaged in acts of unfair competition
against Precise and that the Company has knowingly published false statements
regarding Precise in addition to other counterclaims. Precise seeks to enjoin
the Company from all of the acts cited in Precise's counterclaims as well as an
award of the Company's profits and Precise's damages caused by the Company's
alleged acts. While the Company cannot predict the outcome of the arbitration,
it believes that its claims against Precise are meritorious, it has meritorious
defenses to Precise's counterclaims and intends to vigorously pursue its claims
and defend against the counterclaims.
Certain parties have informed the Company that they believe that the
Victorinox SwissTool or portions of it infringe patent rights held by them. If
the Company is unable to resolve these issues amicably no assurance can be given
as to the outcome and the Company may incur substantial legal fees in connection
with the infringement defense of any patent action that may be brought. The
result of an adverse decision in any such action could be the issuance of an
injunction prohibiting the Company's sale of the Victorinox SwissTool or the
imposition of damages or both. Any of these could have material adverse effect
on the Company's future results of operations.
9
<PAGE>
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.
10
<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 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 1996 were as follows:
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1997 Fiscal 1998*
----------- ----------- ------------
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter $12 1/2 $11 1/4 $14 1/8 $11 3/4 $12 1/2 $9 3/4
Second Quarter 15 12 13 11 1/8
Third Quarter 14 11 1/2 13 1/2 9 1/8
Fourth Quarter 14 1/4 12 3/4 11 1/2 9 5/8
*Through March 17, 1998.
</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, 1998 shares of Common Stock were held by 341 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 expires on June 30, 1998, 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.
11
<PAGE>
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31,
1997, was derived from the consolidated financial statements of the Company.
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,
1997(1) 1996(2) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Net sales $118,744 $130,030 $126,695 $144,437 $102,543
Gross profit 42,724 40,836 44,264 55,804 42,027
Selling, general and
administrative expenses 49,639 46,241 40,265 40,293 30,753
Operating income (loss) (6,915) (5,405) 3,999 15,511 11,274
Gain (loss) on sale
(write-down) of investments 398 (2,382) 1,771 37 -
Other income (expense), net 116 179 (134) 445 251
Income (loss) before income
taxes and cumulative effect
of accounting change (6,401) (7,608) 5,636 15,993 11,525
Income tax provision
(benefit) (2,376) (2,343) 2,523 6,633 4,221
Income (loss) before
cumulative effect of
accounting change (4,025) (5,265) 3,113 9,360 7,304
Cumulative effect of
accounting change for
income taxes - - - - 220
-------- -------- -------- -------- -------
Net income (loss) ($4,025) ($5,265) $3,113 $ 9,360 $ 7,524
--------- -------- -------- -------- -------
Earnings per share:
Income (loss) before
cumulative effect of
accounting change:
Basic ($0.49) ($0.64) $ 0.38 $ 1.20 $ 1.10
Diluted ($0.49) ($0.64) $ 0.38 $ 1.16 $ 1.04
Net income (loss)
per share
Basic ($0.49) ($0.64) $ 0.38 $ 1.20 $ 1.14
Diluted ($0.49) ($0.64) $ 0.38 $ 1.16 $ 1.07
Other Financial Data:
Current assets $64,144 $70,933 $74,355 $78,641 $57,551
Total assets 94,051 98,643 101,230 105,708 78,004
Current liabilities 18,343 18,787 16,291 23,932 17,651
Long-term debt - - - - -
Stockholders' equity 75,708 79,856 84,939 81,775 60,353
Cash dividends per common
share $ - $ - $ - $ - $ -
Weighted average number
of shares outstanding:
Basic 8,209 8,202 8,185 7,832 6,610
Diluted 8,209 8,202 8,236 8,062 7,053
</TABLE>
(1) The financial results for 1997 include a $1.3 million write-off of
discontinued inventory (included in cost of sales) and $0.8 million of
restructuring costs (included in selling, general and administrative expenses).
See Note 3 to the Company's Consolidated Financial Statements.
(2) 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.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD LOOKING STATEMENTS
--------------------------
The following discussion, as well as other portions of this Annual Report
on Form 10-K, contains, in addition to historical information, forward looking
statements. The forward looking statements were prepared on the basis of certain
assumptions which relate, among other things, to the demand for and cost of
purchasing and marketing the Company's products; the prices at which such
products may be sold; new product development; seasonal selling trends; the
Swiss franc-U.S. dollar exchange rates; the extent to which the Company is able
to successfully hedge against foreign currency fluctuations; and the Company's
anticipated credit needs and ability to obtain such credit. Even if the
assumptions upon which the projections are based prove accurate and appropriate,
the actual results of the Company's operations in the future may vary widely
from financial projections due to increased competition, changes in consumer
tastes and other factors not yet known or anticipated. Accordingly, the actual
results of the Company's operations in the future may vary widely from the
forward looking statements included herein.
Results of Operations
In 1997, net sales totaled $118.7 million, an 8.7% decrease from 1996. The
financial results for 1997 and 1996 have been negatively impacted by inventory
write-offs and restructuring costs. The 1997 financial results include a $1.3
million inventory write-off of discontinued inventory (included in cost of
sales) and $0.8 million of restructuring costs (included in selling, general and
administrative expenses). These restructuring costs primarily consisted of
severance and related expenses. The 1996 financial results include special
charges of approximately $9.9 million, which resulted from an extensive analysis
of the Company's operations. The special charges in 1996 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
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, 1997:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 64.0 68.6 65.1
----- ----- -----
Gross profit 36.0 31.4 34.9
Selling, general and administrative
expenses before special charges 41.8 33.6 31.8
Special charges - 2.0 -
----- ----- -----
Total selling, general and
administrative expenses 41.8 35.6 31.8
Operating income (loss) (5.8) (4.2) 3.1
Interest expense - (.1) (.2)
Interest income .1 .1 .4
Gain (loss) on sale (write-down) of
investments .3 (1.8) 1.4
Equity interest in
unconsolidated affiliates - - (.4)
Other income, net - .2 .1
------ ------- -------
Income (loss) before income taxes (5.4) (5.8) 4.4
Income tax provision (benefit) (2.0) (1.8) 2.0
------ ------- -------
Net income (loss) (3.4)% (4.0)% 2.4%
====== ======= =======
</TABLE>
13
<PAGE>
Comparison of the Years Ended December 31, 1997 and December 31, 1996
- ---------------------------------------------------------------------
Net sales for the year ended December 31, 1997 were $118.7 million, $11.3
million or 8.7% lower than in 1996. Approximately $3.6 million of the decrease
is due to the sale of substantially all the assets of Cuisine de France Limited
("CDF") in January 1997, with the remaining sales decrease due primarily to a
17% decrease in Victorinox Original Swiss Army Knife sales, a 6% decrease in
watch sales, a 6% decrease in cutlery sales offset in part sales of Swiss Army
Brand Sunglasses, Victorinox SwissCards and Victorinox SwissTools.
Gross profit for the year ended December 31, 1997 was $42.7 million, 4.6%
higher than in 1996. This is due primarily to an inventory write-off of $4.9
million in 1996, and the increase in the value of the U.S. dollar versus the
Swiss franc, offset in part by lower net sales and a $1.3 million inventory
write-off in 1997. The inventory write-off in 1997, was primarily the result of
discontinuing certain watch styles. The inventory write-off in 1996, was the
result of the Company discontinuing certain products, including certain cutlery
products sold by CDF. Excluding the inventory write-offs in 1997 and 1996, the
gross profit margin percentage increased from 35.2% in 1996 to 37.1% in 1997.
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 1998. 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, the extent to which such hedging
transactions will reduce the effect of adverse currency fluctuations is
uncertain.
Selling, general and administrative expenses (excluding the special charges
described below) for the year ended December 31, 1997 were $49.6 million, $6.0
million or 13.6% higher than in 1996. The expense increase resulted primarily
from increased selling expenses and increased expenditures in the areas of
merchandising and promotion and approximately $0.8 million related to continued
restructuring costs. As a percentage of net sales, selling, general and
administrative expenses (excluding the special charges described below)
increased from 33.6% in 1996 to 41.8% in 1997.
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 CDF, and was taken due to the lack of
recoverability of the asset. Substantially all 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 $6.9
million for the year ended December 31, 1997 as compared to an operating loss of
$5.4 million in 1996. Excluding the effects of the inventory write-offs,
restructuring costs and the special charges, the Company recorded an operating
loss of $4.8 million in 1997, as compared to operating income of $2.1 million in
1996.
Interest expense of $40,000 for the year ended December 31, 1997 was
$107,000 lower than interest expense in 1996, due to lower borrowings in 1997 as
compared to 1996.
Interest income of $155,000 for the year ended December 31, 1997 was
$35,000 higher than interest income in 1996, due to increased invested cash
balances during 1997 as compared to 1996.
14
<PAGE>
The gain on the sale of investments for the year ended December 31, 1997
was $398,000, as compared to a loss of $2.4 million in 1996. The gain in 1997
was due to a distribution from the Company's investment in Victory Ventures LLC,
which resulted in a gain of $286,000 and a $112,000 recovery of a privately held
startup entity that was written-off in 1996. The loss in 1996 was primarily due
to the $1.6 million write-down of the Company's investment in the common stock
of SWWT, Inc.( formerly known as SweetWater, Inc.), a publicly-traded entity,
and an $800,000 write-down of the Company's investment in the aforementioned
privately held start-up entity.
As a result of the above, the loss before income taxes for the year ended
December 31, 1997 was $6.4 million compared to $7.6 million in 1996.
Income tax expense (benefit) was provided at an effective rate of 37.1% for
the year ended December 31, 1997 as compared to 30.8% for the year ended
December 31, 1996. 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, 1997
was $4.0 million ($0.49 per share) as compared to $5.3 million ($0.64 per share)
in 1996.
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 Company's net sales increased for the
year due to a 6% increase in watch sales and a 13% increase in cutlery sales,
offset in part by a 9% 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 CDF.
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. 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, the extent to
which such hedging transactions will reduce the effect of adverse currency
fluctuations is uncertain.
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 CDF, and was written-off due to the lack of
recoverability of the asset.
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 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.
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.
15
<PAGE>
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 SWWT, Inc., a
publicly-traded entity, and an $800,000 write-down 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 SWWT, 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.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1997, the Company had working capital of $45.8 million
compared with $52.1 million as of December 31, 1995, a decrease of $6.3 million.
Significant uses of working capital consisted of additions to other assets of
$3.1 million and capital expenditures of $1.1 million. The Company currently has
no material commitments for capital expenditures.
Cash provided from operating activities was approximately $2.7 million in
the year ended December 31, 1997 compared with cash provided from operating
activities of $7.6 million in the year ended December 31, 1996. The change
primarily resulted from a smaller decrease in inventory in 1997 as compared to
1996 and decrease in accounts payable in 1997 as compared to an increase in
1996, offset in part by a decrease in accounts receivable in 1997 as compared to
an increase in 1996 and an increase in accrued liabilities in 1997 as compared
to a decrease in 1996.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its bank agreements. As
of December 31, 1997, the Company had no outstanding borrowings under its bank
agreements. The Company currently has a $5.0 million line of credit which it can
use for any borrowings and a $5.0 million commercial promissory note agreement
which expires on June 30, 1998. 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 continue to be sufficient to meet its operating needs.
Year 2000
- ---------
The Company has been conducting a review of its computer systems to
identify those areas that could be affected by the "Year 2000" issue and has
developed an implementation plan to minimize disruption. The Company presently
believes that, with modifications to existing software, of which some already
have been implemented, and investment in new software, the Year 2000 problem as
it relates to its own computer systems will not pose significant operational
concerns, and the costs to ensure compliances of its own computer systems will
not have a material impact on the financial position or results of operations in
any given year. However, the Year 2000 readiness of the Company's customers,
suppliers and lenders may vary, and no assurances can be given that Year 2000
problem will not have a material impact on the financial condition or results of
operations in any given year.
16
<PAGE>
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
- ---------------------
The Company is exposed to market risk from changes in foreign exchange
rates as the Company imports virtually all its products from Switzerland. To
minimize the risks associated with fluctuations in the value of the Swiss franc
versus the U.S. dollar, the Company enters into foreign currency contracts and
options. Pursuant to guidelines approved by its Board of Directors, the Company
is to engage in these activities only as a hedging mechanism against foreign
exchange rate fluctuations associated with specific inventory purchase
commitments to protect gross margin and is not to engage in speculative trading.
Gains or losses on these contracts and options are deferred and recognized in
cost of sales when the related inventory is sold. See further discussion in
"Results of Operations". At December 31, 1997, the Company has entered into
foreign currency contracts and options to purchase 46,000,000 Swiss francs in
1998 at a weighted average contractual rate of 1.443 Swiss franc/dollar.
Deferred gains and losses on these contracts are immaterial at December 31,
1997.
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.
17
<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 47 President (1) 1995
Peter W. Gilson 58 Chairman of the Executive
Committee and Director (2) 1994
Louis Marx, Jr. 66 Chairman of the Management
Committee and Director (3) 1990
Stanley R. Rawn, Jr. 70 Senior Managing Director
and Director (4) 1990
Harry R. Thompson 68 Managing Director 1994
Thomas M. Lupinski 45 Senior Vice President, Chief
Financial Officer, Secretary
and Treasurer 1986
Michael J. Belleveau 41 Vice President and General Manager -
Swiss Army Brands Division 1994
David J. Parcells 39 Vice President - Operations 1992
Jerald J. Rinder 51 Vice President and General Manager -
Victorinox Division 1996
Robert L. Topazio 49 Vice President and General Manager -
R.H. Forschner Division 1996
Douglas M. Rumbough 41 Vice President and General Manager -
Corporate Markets Division 1992
A. Clinton Allen 54 Director (5) 1993
Clarke H. Bailey 43 Director (6) 1997
Thomas A. Barron 46 Director 1983
Vincent D. Farrell, Jr. 51 Director (7) 1992
Herbert M. Friedman 66 Director (8) 1981
M. Leo Hart 49 Director (9) 1991
James W. Kennedy 47 Director (10) 1981
Keith R. Lively 46 Director (11) 1994
Lindsay Marx 32 Director 1994
Eric M. Reynolds 45 Director 1994
John Spencer 68 Director (12) 1990
John V. Tunney 63 Director (13) 1992
</TABLE>
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. 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.
4. Mr. Rawn is a member of the Company's Executive Committee, Management
Committee and Nominating Committee.
5. Mr. Allen is Chairman of the Company's Stock Option and Compensation
Committee and a member of the Executive Committee.
6. Mr. Bailey is a member of the Company's Executive Committee.
7. Mr. Farrell is Chairman of the Company's Audit Committee and a member of
the Executive Committee and Foreign Exchange Committee.
8. Mr. Friedman is a member of the Company's Executive Committee, Audit
Committee and Nominating Committee.
9. Mr. Hart is a member of the Company's Nominating Committee.
18
<PAGE>
10. Mr. Kennedy is a member of the Company's Foreign Exchange Committee.
11. Mr. Lively is a member of the Company's Stock Option and Compensation
Committee.
12. Mr. Spencer is a member of the Company's Audit Committee and Stock
Option and Compensation Committee.
13. 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, also served as President and Chief Executive Officer of Physician
Support Systems, Inc., a company specializing in the management of physicians'
health care practices, from 1991 through January 1998. 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 SWWT,
Inc. ("SWWT"), a holding company formerly in the business of manufacturing and
marketing portable water filtration systems and Glenayre Technologies, Inc.
("Glenayre Technologies"), a paging and messaging infra-structure technology
firm.
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 prior to its
adoption in 1996 of a Plan of Complete Liquidation and Dissolution, conducted
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
Co-Chairman, director and consultant 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.
19
<PAGE>
Stanley R. Rawn, Jr., Senior Managing Director and a Director of the
Company, actively participates with Messrs. Marx, Taggart 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 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.
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.
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 SWWT, and of Response U.S.A., a company in the home alarm business.
Clarke H. Bailey was elected a director of the Company in January 1997. 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. Since February 1995, Mr. Bailey has served
as Co-Chairman of the Board and a director of Hudson River. He is also currently
Chairman of the Executive Committee and a director of Connectivity Technologies,
Inc., an acquisition company with interests in the wire and cable industry, and
a director of Iron Mountain Incorporated. He served as Chairman, Chief Executive
Officer and a director of Arcus Group Inc., the leading national provider of
secure off-site computer data storage and related disaster recovery services as
well as information technology staffing solutions, from February 1995 to January
1998.
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 SWWT. 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 also a director of
HealthPlan Services Corporation, a provider of marketing and administrative
services for health and benefit programs.
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.
Keith R. Lively, a Director of the Company, is Chairman of the Board and
Chief Executive Officer of Authentic Specialty Foods, Inc., a manufacturer and
marketer of specialty foods, a position he has held since August 1997. Prior to
that Mr. Lively was 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 SWWT.
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 a private investor and was
President, Chief Executive Officer and a director of SWWT, from January, 1993 to
February 5, 1998. 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.
21
<PAGE>
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., a general partner of Sun Valley Ventures, a
partnership engaged in venture capital and leveraged buyout activities and a
consultant to Trace International, Inc. an investment firm. 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 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 during the year ended
December 31, 1997 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, 1997, 1996 and 1995.
<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 1997 $300,000 - - - - - $ 4,750 (1)
President 1996 $250,000 $40,000 $50,809 (2) - 40,000 - $ 3,353 (3)
1995 $ 33,654 - - - 100,000 (4) - -
Peter W. Gilson 1997 $210,000 - - - - - -
Chairman of the 1996 $200,000 - - - 20,000 - -
Executive Committee 1995 $150,000 - - - 150,000 -
Stanley G. Mortimer III 1997 $109,200 - - - - - $255,029 (6)
Executive Vice 1996 $210,000 $17,500 - - 10,000 - $8,515 (7)
President (5) 1995 $210,000 $ 5,000 - - 25,000 - $8,584 (8)
Harry R. Thompson 1997 $210,000 - - - - - $2,410 (9)
Managing Director 1996 $200,000 $20,000 - - 25,000 - $2,392 (10)
1995 $200,000 $15,000 - - 25,000 - $2,195 (11)
Leslie H. Green 1997 $185,000 - - - - - $281,444 (13)
Vice President (12) 1996 $175,000 $17,500 - - 10,000 - $3,845 (14)
1995 $175,000 $10,000 - - 10,000 - $3,796 (15)
Jerald J. Rinder 1997 $170,000 $15,000 $103,737 (17) - - - $2,779 (18)
Vice President (16) 1996 $153,546 $25,000 $44,797 (19) - 10,000 - -
Michael J. Belleveau 1997 $160,000 - - - - - $3,145 (20)
Vice President 1996 $150,000 $17,500 - - 10,000 - $2,740 (21)
1995 $120,000 $18,000 - - 10,000 - $2,440 (22)
</TABLE>
1 Consists of $4,750 contributed by the Company to Mr. Taggart's account
under the Company's 401K savings plan.
2 Includes relocation benefits of $45,109.
3 Consists of $3,353 contributed by the Company to Mr. Taggart's account
under the Company's 401K savings plan.
4 Consists of warrants to purchase Common Stock.
5 Mr. Mortimer resigned from the office of Executive Vice President on May
23, 1997.
6 Consists of a $250,000 payment in 1997 related to Mr. Mortimer's
resignation, $2,215 contributed by the Company to Mr. Mortimer's account under
the Company's 401K savings plan and $2,814 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.
7 Consists of $2,423 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.
23
<PAGE>
8 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.
9 Consists of $2,410 contributed by the Company to Mr. Thompson's account
under the Company's 401K savings plan.
10 Consists of $2,392 contributed by the Company to Mr. Thompson's account
under the Company's 401K savings plan.
11 Consists of $2,195 contributed by the Company to Mr. Thompson's account
under the Company's 401K savings plan.
12 Ms. Green resigned from the office of Vice President on December
12,1997.
13 Consists of a $278,250 payment made in January 1998 related to Ms.
Green's resignation and $3,194 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.
14 Consists of $3,845 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.
15 Consists of $3,796 contributed by the Company to Ms. Green's account
under the Company's 401K savings plan.
16 Mr. Rinder joined the Company on January 11, 1996.
17 Includes relocation benefits of $102,297.
18 Consists of $2,779 contributed by the Company to Mr. Rinder's account
under the Company's 401K savings plan.
19 Includes relocation benefits of $40,693.
20 Consists of $3,145 contributed by the Company to Mr. Belleveau's account
under the Company's 401K savings plan.
21 Consists of $2,740 contributed by the Company to Mr. Belleveau's account
under the Company's 401K savings plan.
22 Consists of $2,440 contributed by the Company to Mr. Belleveau's account
under the Company's 401K savings plan.
Option Grants in Last Fiscal Year
---------------------------------
The following table sets forth, for each of the executive officers named in
the Summary Compensation Table information regarding individual grants of
options made in the last fiscal year, and their potential realizable values.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
----------------- -----------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Options Granted Exercise or
Options To Employees in Base Price Expiration
Name Granted Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ---- ------- --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Merrick Taggart N/A N/A N/A N/A N/A N/A
Peter W. Gilson N/A N/A N/A N/A N/A N/A
Stanley G. Mortimer III N/A N/A N/A N/A N/A N/A
Harry R. Thompson N/A N/A N/A N/A N/A N/A
Leslie H. Green N/A N/A N/A N/A N/A N/A
Jerald J. Rinder N/A N/A N/A N/A N/A N/A
Michael J. Belleveau N/A N/A N/A N/A N/A N/A
</TABLE>
24
<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.
Aggregated Options Exercises in Last Fiscal year, and FY -End Option/SAR Value
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End # FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
J. Merrick Taggart - - 92,000/45,000 -/-
Peter W. Gilson - - 121,500/47,500 -/-
Stanley G. Mortimer III - - 46,250/- -/-
Harry R. Thompson 750 $5,531 39,500/18,750 40,219/-
Leslie Green - - 32,500/- -/-
Jerald J. Rinder - - 5,000/5,000 -/-
Michael J. Belleveau - - 23,750/7,500 -/-
</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 a Severance Agreement dated as of July 1, 1997
with Mr. Stanley G. Mortimer III, who was, until May 23, 1997, a Director and
Executive Vice President of the Company. The agreement provides that in
connection with Mr. Mortimer's resignation from those positions he would be
provided certain severance benefits including a one time payment of $250,000.
The Company entered into a Severance Agreement dated as of December 12,
1997 with Ms. Leslie H. Green, who was, until that date, a Vice President of the
Company. The agreement provides that in connection with Ms. Green's resignation
from that position she would be provided certain severance benefits including a
one time severance payment of $ 278,250 which was paid in January 1998. Ms.
Green is also to receive certain other specified benefits through June 30, 1999.
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.
25
<PAGE>
"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. Pre-retirement 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, 1997
of each of the individuals named in the Cash Compensation table herein are as
follows:
<TABLE>
<CAPTION>
<S> <C>
J. Merrick Taggart 2 year
Peter W. Gilson 2 year
Stanley G. Mortimer III 12 years
Harry R. Thompson 2 year
Leslie H. Green 7 years
Jerald J. Rinder 2 years
Michael J. Belleveau 6 years
</TABLE>
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 1997 Retirees at Age 65
--------------------------------------------
Years of Service
Remuneration 15 20 25 30 35
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
50,000 $ 6,715 $ 8,953 $ 11,192 13,430 $ 15,668
75,000 11,590 15,453 19,317 23,180 27,043
100,000 16,465 21,953 27,442 32,930 38,418
125,000 21,340 28,453 35,567 42,680 49,793
150,000 26,215 34,953 43,692 52,430 61,168
</TABLE>
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
In 1997, 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, 1998, 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.
26
<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 3,099,2222 (2) 35.6%
Brae Group, Inc.
15710 John F. Kennedy Blvd.
Houston, TX 77032 3,075,2003 (3) 35.3%
Victorinox A.G.
CH-6438
Ibach-Schwyz
Switzerland 1,999,500 24.3%
David L. Babson & Co., Inc.
One Memorial Drive
Cambridge, MA 02142 535,5004 (4) 6.5%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue
Santa Monica, CA 90401 477,9245 (5) 5.8%
</TABLE>
1.Based on 8,217,860 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, 2,575,200 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 13G dated January 20, 1998, consists of shares
which David L. Babson & Co., Inc. beneficially owns by virtue of serving as
investment advisor.
5.According to a Schedule 13G dated February 9, 1998, consists of shares as
to which Dimensional Fund Advisors, Inc. shares power of disposition by virtue
of serving as investment advisor to its clients.
The following table sets forth certain information concerning the
beneficial ownership of Common Stock on March 17, 1998, by each Director, each
officer named in the Summary Compensation Table herein and by all Directors and
officers of the Company as a group.
27
<PAGE>
<TABLE>
<CAPTION>
Number of
Name Shares Percent of Class (1)
---- --------- --------------------
<S> <C> <C>
J. Merrick Taggart 95,000 (2) 1.1%
Stanley G. Mortimer III 1,010 *
Harry R. Thompson 37,500 (3) *
Leslie H. Green 32,500 (4) *
Jerald J. Rinder 5,000 (5) *
Michael J. Belleveau 26,250 (6) *
A. Clinton Allen 35,000 (7) *
Clarke H. Bailey -0-
Thomas A. Barron 85,000 (8) 1.0%
Vincent D. Farrell, Jr. 35,000 (9) *
Herbert M. Friedman 15,868 (10) *
Peter W. Gilson 122,500 (11) 1.5%
M. Leo Hart 101,000 (12) 1.2%
James W. Kennedy 101,010 (13) 1.2%
Keith R. Lively 1,000 *
Lindsay Marx 25,000 (14) *
Louis Marx, Jr. 3,099,222 (15) 35.6%
Stanley R. Rawn, Jr. 142,711 (16) 1.7%
Eric M. Reynolds 26,000 (17) *
John Spencer 1,000 *
John V. Tunney -0- *
All officers and directors 4,106,133 (18) 42.7%
as a group (25 persons)
</TABLE>
*Less than 1% of the Class.
1.Based on 8,217,860 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 72,000 shares of Common Stock issuable upon exercise of
warrants held by Mr. Taggart and 20,000 shares of Common Stock issuable upon
exercise of Options held by Mr. Taggart.
3. Consists of 37,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Thompson.
4. Consists of 32,500 shares of Common Stock issuable upon exercise of
Options held by Ms. Green.
5. Consists of 5,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Rinder.
6. Consists of 26,250 shares of Common Stock issuable upon exercise of
Options held by Mr. Belleveau.
7. Consists of 35,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Allen.
8. Includes 50,000 shares of Common Stock issuable upon exercise of Options
held by Mr. Barron.
9. 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.
10. Includes 12,500 shares of Common Stock issuable upon exercise of
Options held by Mr. Friedman.
11. Includes 121,500 shares of Common Stock issuable upon exercise of
options held by Mr. Gilson.
12. Includes 100,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Hart.
13. Includes 100,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Kennedy.
28
<PAGE>
14. Consists of 25,000 shares of Common Stock issuable upon exercise of
Options held by Ms. Marx.
15. 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, 2,575,200 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.
16. Includes 100,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Rawn.
17. Includes 25,000 shares of Common Stock issuable upon exercise of
Options held by Mr. Reynolds.
18. Includes 1,320,250 shares of Common Stock issuable to directors and
officers upon exercise of Options and 72,000 shares of Common Stock issuable
upon exercise of warrants.
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 1997. During 1997 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 $3,700,000 over the course of
the next 16 years as premiums under the policies for Mr. Marx and approximately
$2,700,000 over the course of the next 12 years under the policy for Mr. Rawn
(in each case including amounts paid in the first fiscal quarter of 1998), 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 1997, the Company paid an aggregate of $552,664 in
premiums on the policies pertaining to Mr. Marx and $315,150 in premiums on the
policy pertaining to Mr. Rawn. There will be an insignificant earnings impact in
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 35.6% 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 24.3% 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.
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 1997 in the
amount of $172,670.
29
<PAGE>
In 1997, the Company paid $555,000 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 24.3% 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, 1997, the Company purchased Victorinox products in aggregate amount
of approximately $31,000,000.
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 in 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 1997 with respect to directors who left the
Company in 1997 was insignificant.
30
<PAGE>
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.
31
<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, 1997 and 1996 F-2 to F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 to F-22
(2)
Schedule --
Schedule II -- Valuation and Qualifying Accounts for
the Years Ended December 31, 1997, 1996 and 1995 F-23
</TABLE>
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.
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Swiss Army Brands, Inc.:
We have audited the accompanying consolidated balance sheets of Swiss Army
Brands, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, 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 10, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 31,
1997 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $1,078 $2,067
Accounts receivable, less
allowance for doubtful accounts
of $975 and $1,032, respectively 28,224 32,992
Inventories 27,438 29,657
Deferred income taxes 3,519 3,295
Prepaid and other 3,885 2,922
------ ------
Total current assets 64,144 70,933
------ ------
Deferred income taxes 2,407 1,597
Property, plant and equipment, net 3,751 3,969
Investments in preferred units 8,793 9,003
Investments in common stock 369 150
Foreign distribution rights, net 3,551 4,226
Other assets, net 11,036 8,765
------ ------
Total assets $94,051 $98,643
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-2
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1997 1996
<S> <C> <C>
Current liabilities
Accounts payable $8,478 $10,952
Accrued liabilities 9,865 7,835
------ -------
Total current liabilities 18,343 18,787
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 -
18,000,000; shares issued - 8,823,718
and 8,822,968, respectively 882 882
Additional paid-in capital 46,186 46,182
Foreign currency translation adjustment (240) (113)
Retained earnings 33,993 80,821
------- ------
38,018 84,969
Less-cost of common stock in
treasury; 614,108 shares (5,113) (5,113)
------- -------
Total stockholders' equity 75,708 79,856
------- -------
Total liabilities and stockholders' equity $94,051 $98,643
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $118,744 $130,030 $126,695
Cost of sales 76,020 89,194 82,431
-------- -------- --------
Gross profit 42,724 40,836 44,264
Selling, general, administrative
expenses before special charges 49,639 43,679 40,265
Special charges - 2,562 -
-------- -------- --------
Total selling, general and
administrative expenses 49,639 46,241 40,265
Operating income (loss) (6,915) (5,405) 3,999
Interest expense (40) (147) (217)
Interest income 155 120 557
Gain (loss) on sale (write-down) of
investments 398 (2,382) 1,771
Equity interest in unconsolidated affiliates - - (548)
Other income, net 1 206 74
------- ------- -------
Total interest and other income
(expense), net 514 (2,203) 1,637
------- ------- --------
Income (loss) before income taxes (6,401) (7,608) 5,636
Income tax provision (benefit) (2,376) (2,343) 2,523
------- ------- -------
Net income (loss) ($4,025) ($5,265) $3,113
======= ======= =======
Earnings per share:
Basic earnings per share ($0.49) ($0.64) $0.38
======= ======= =======
Diluted earnings per share ($0.49) ($0.64) $0.38
======= ======= =======
Weighted average number of shares
outstanding:
Basic 8,209 8,202 8,185
======= ======= =======
Diluted 8,209 8,202 8,185
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands, except share data)
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, 1994 8,796,968 $880 $45,867 ($28) $40,170 ($5,113)
Net income - - - - 3,113 -
Stock options exercised 3,750 - 31 - - -
Foreign currency
translation adjustment - - - 19 - -
--------- ----- -------- --------- ------- ---------
BALANCE
December 31, 1995 8,800,718 $880 45,898 (9) 43,283 (5,113)
Net loss - - - - (5,265) -
Stock options and
warrants exercised 22,250 2 284 - - -
Foreign currency
translation adjustment - - - (104) - -
--------- ----- -------- --------- ------- ---------
8,822,968 882 46,182 (113) 38,018 (5,113)
BALANCE
December 31, 1996
Net loss - - - - (4,025) -
Stock options exercised 750 - 4 - - -
Foreign currency
translation adjustment - - - (127) - -
--------- ----- --------- --------- ------- ---------
BALANCE
December 31, 1997 8,823,718 $882 $46,182 ($240) $33,993 ($5,113)
========= ===== ========= ========= ======= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($4,025) ($5,265) $3,113
Adjustments to reconcile net income (loss)
to cash provided from (used for) operating
activities:
Depreciation and amortization 2,709 4,035 3,249
Deferred income taxes (1,034) (1,725) (643)
Equity interest in unconsolidated affiliates - - 548
Loss on sales of property, plant and equipment - 3 9
(Gain) loss on (sale) write-down of
investments (398) 2,382 (1,771)
-------- ------- -------
(2,748) (570) 4,505
Changes in other current assets and liabilities:
Accounts receivable 4,745 (1,091) (2,330)
Inventories 2,204 6,966 (9,741)
Prepaid and other (967) (270) (1,144)
Accounts payable (2,462) 4,509 (7,581)
Accrued liabilities 1,880 (1,937) (64)
-------- ------- -------
Net cash provided from (used for)
operating activities 2,652 7,607 (16,355)
-------- ------- --------
Cash flows from investing activities:
Capital expenditures (1,056) (1,465) (1,430)
Proceeds from sale of property, plant
and equipment - - 22
Additions to other assets (3,070) (3,021) (2,814)
Investment in preferred units - (2,000) -
Investments in common stock - - (3,710)
Sales of short-term investments - - 5,311
Proceeds from sale of investments 550 60 6,822
-------- -------- --------
Net cash provided from (used for)
investing activities (3,576) (6,426) 4,201
-------- -------- --------
Cash flows from financing activities:
Borrowings under bank agreements 1,930 10,246 15,970
Repayments under bank agreements (1,930) (10,246) (15,970)
Proceeds from exercise of stock options
and warrants 4 286 31
-------- -------- --------
Net cash provided from financing activities 4 286 31
Effect of exchange rate changes on cash (69) (9) 24
Net increase (decrease) in cash and cash
equivalents (989) 1,458 (12,099)
Cash and cash equivalents, beginning of period 2,067 609 12,708
--------- -------- --------
Cash and cash equivalents, end of period $1,078 $2,067 $ 609
========= ======== ========
Cash paid during the period:
Interest $34 $147 $252
========= ======== ========
Income taxes $321 $233 $3,429
========= ======== ========
</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") 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 SwissTool, Victorinox SwissCard,
Victorinox cutlery and Victorinox watches. Swiss Army also markets its
own line of Swiss Army Brand Watches, Sunglasses and other high
quality Swiss made products under its Swiss Army Brand worldwide. The
Company'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 has only one business segment - the
importation and distribution of cutlery, knives, watches and other
consumer products. No customer accounted for greater than 10% of net
sales in the three years ended December 31,1997.
(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
inter-company transactions have been eliminated.
Revenue recognition
The Company recognizes revenue upon shipment of product. Net sales is
comprised of gross revenues less expected returns, trade discounts and
customer allowances.
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 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. Gains and losses on these contracts are deferred and
recognized in cost of sales when the related inventory is sold. 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 the
extent to which such hedging transactions will reduce the effect of
adverse currency fluctuations.
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.
F-7
<PAGE>
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, 1997 and 1996, the balance at which inventories are
stated would have been $2,993,000 and $3,157,000 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 materials.
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,
1997 1996
(in thousands)
<S> <C> <C>
Leasehold improvements $1,090 $1,030
Equipment 7,945 7,228
Furniture and fixtures 1,923 1,670
------ -----
10,958 9,928
Accumulated depreciation (7,207) (5,959)
------ ------
$3,751 $3,969
====== =======
</TABLE>
Depreciation is computed principally by use of the straight-line method
based on the following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Years
Equipment 3 to 10
Furniture and fixtures 3 t0 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, 1997, 1996, and 1995, depreciation and amortization
expense of property, plant and equipment was approximately $1,260,000,
$1,599,000 and $1,521,000, respectively.
Long-lived assets
The Company adopted 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" 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.
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 equaled 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.
F-8
<PAGE>
Investments in common stock of companies in which the Company owns
less than 20% are accounted for at fair value, subject to review for
permanent impairment. Changes between cost and fair value are
reflected as a component of stockholders' equity. Any write-down of
the cost due to impairment is reflected in income.
Earnings per share
In 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share", and the Company's
reported earnings per share were restated. There was no effect on
diluted earnings per share in the three years ended December 31, 1997.
Basic earnings per share is computed by dividing net income (loss) by
the number of weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing net income (loss)
by the weighted average number of common shares and dilutive common
share equivalents outstanding during the period. No common share
equivalents have been included in the years ended December 31, 1997
and 1996, as they would have had an anti-dilutive effect. Common share
equivalents are calculated using the treasury stock method.
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.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income." This statement,
which establishes standards for reporting and disclosure of
comprehensive income, is effective for interim and annual periods
beginning after December 15, 1997, although earlier adoption is
permitted. Reclassification of financial information for earlier
periods presented for comparative purposes is required under SFAS No.
130. As this statement only requires additional disclosures in the
Company's consolidated financial statements, its adoption will not
have any impact on the Company's consolidated financial position or
results of operations. The Company will adopt SFAS No. 130 effective
January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement,
which establishes standards for the reporting of information about
operating segments and requires the reporting of selected information
about operating segments in interim financial statements, is effective
for fiscal years beginning after December 15, 1997, although earlier
application is permitted. The Company does not expect adoption of this
statement to result in significant changes to its presentation of
financial data. The Company will adopt SFAS No. 131 effective January
1, 1998.
(3) SPECIAL CHARGES
In 1997, the Company recorded $0.8 million of restructuring costs
(included in selling, general and administrative expenses) and a
special charge of $1.3 million (included in cost of sales) related to
discontinued inventory. The restructuring costs primarily consisted of
severance and related expenses.
In 1996, the Company recorded special charges of approximately
$9,887,000 related to an extensive analysis of the Company's
operations and non-strategic assets. The special charges consisted of:
F-9
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Write-off of inventory $4,932 (A)
Selling, general and administrative charges 2,562 (B)
Write-down of investments 2,393 (C)
--------
$9,887
========
</TABLE>
(A) Represents the write-off of discontinued inventory, including
certain cutlery products sold by Cuisine de France Limited ("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 SWWT, Inc. (formerly known as SweetWater, Inc.), and an
$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,
SwissTools, SwissCards 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, SwissTools,
Victorinox SwissCards 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 is subject to renewal at five
year intervals at the Company's option and 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 year. The Company purchased the required
minimums in 1997, with total purchases from Victorinox of
approximately $31,000,000. The Company is currently in the process of
establishing the minimum purchase requirement for 1998. As required
under the agreement, Swiss Army has notified Victorinox of its desire
to renew the agreement for another five year term commencing December
12, 1998. 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.
<TABLE>
<CAPTION>
Foreign distribution rights with Victorinox are comprised of the following:
December 31, Amortization
1997 1996 Period
(in thousands)
<S> <C> <C> <C>
Canadian distribution
rights (A) $3,483 $3,483 10 Years
Caribbean and Victorinox Watch
distribution rights (B) 3,261 3,261 10 Years
------ ------
6,744 6,744
Accumulated amortization (3,193) (2,518)
------ ------
$3,551 $4,226
====== ======
</TABLE>
F-10
<PAGE>
(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 seven-year term with a continuous five-year renewal
arrangement upon expiration of the fixed term. Victorinox has the right not
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., ($488,856). 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 pays Victorinox a royalty of 1% of net sales of
Victorinox Watches. The Caribbean distribution rights are for a fixed
seven-year 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 for Victorinox cutlery products in that territory.
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
exclusive distributorship agreements 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. 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 probably would 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 60%, or $16,700,000, of total payments for watches
and watch parts in 1997 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, 1997, 1996
and 1995, Swiss Army incurred fees of $629,000, $598,000 and $516,000,
respectively, relating to these services.
F-11
<PAGE>
Four of Swiss Army's directors serve as directors of Hudson River Capital
LLC, including two who serve as Co-Chairman. Four of Swiss Army's directors
serve as directors of Victory Ventures LLC, including one who serves as
Co-Chairman. Four of Swiss Army's directors serve as directors of SWWT,
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, 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, this customer
represented approximately 6% of Swiss Army's net sales.
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
non-controlling 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.
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. This agreement ended
in the fourth quarter of 1997. Sales to this entity were approximately
$173,000 and $270,000 in 1997 and 1996, respectively.
(6) INVESTMENTS
Investments consist of the following:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Preferred units of Hudson
River Capital LLC (A) $7,907 $7,907
Preferred units of
Victory Ventures LLC (B) 886 1,096
------ ------
Total investments in preferred units $8,793 $9,003
====== ======
Common stock of Chaparral Resources, Inc. (C) $219 -
Common stock of SWWT, Inc. (D) 150 150
------ ------
Total investments in common stock $369 $150
====== ======
</TABLE>
F-12
<PAGE>
(A) Hudson River Capital LLC ("Hudson River"), formerly known as Victory
Capital LLC ("Victory"), is a private equity firm specializing in middle
market acquisitions, re-capitalization 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. See (B) for
further discussion of Victory Ventures. At December 31, 1997 and 1996, the
Company owns 890,776 preferred units of Hudson River, which represents
approximately 9.1% of the outstanding equity of Hudson River, respectively.
The preferred units in Hudson River owned by the Company carry a preference
on liquidation equal to their per unit cost as well as, in certain
instances, an annual preferred return. The Company is accounting for this
investment on the cost basis, subject to review for permanent impairment.
Since these investments do not have a readily determinable fair value, the
valuation of these investments is subject to uncertainty.
(B) Victory Ventures is a private equity firm specializing in small market
venture capital investments. As a result of the distribution from Hudson
River, the Company received 890,776 preferred units of Victory Ventures
valued at $1.23 per unit. The Company owns 890,776 preferred units as of
December 31, 1997 and 1996, which represent approximately 1.3% and 4.2% of
the outstanding equity of Victory Ventures, respectively. In the third
quarter of 1997, the Company received a cash distribution from Victory
Ventures of $438,000, of which $286,000 was recorded as a gain and has been
included in gain (loss) on sale (write-down) of investments with remaining
distribution of $152,000 recorded as a return of capital. On December 3,
1997, Victory Ventures distributed to its members its investment in
Chaparral Resources, Inc. ("Chaparral"). See (C) for further discussion.
The preferred units in Victory Ventures owned by the Company carry a
preference on liquidation equal to their per unit cost as well as, in
certain instances, an annual preferred return. The Company is accounting
for this investment on the cost basis, subject to review for permanent
impairment. Since these investments do not have a readily determinable fair
value, the valuation of these investments is subject to uncertainty.
(C) Chaparral, a publicly traded company, is an independent oil and gas
exploration and production company. As a result of the distribution from
Victory Ventures, at December 31, 1997, the Company owns 87,634 shares of
common stock of Chaparral valued at $2.50 per share.
F-13
<PAGE>
(D) SWWT, Inc. ("SWWT") is a holding company formerly in the business of
manufacturing and marketing portable water purification and filtration
systems to the sporting goods, recreational, travel and tourist, emergency
preparedness and military markets. As of December 31, 1993, SWWT was a
private company and Swiss Army owned preferred stock with a 40% voting
interest. In January 1994, SWWT 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 SWWT 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%. Accordingly, in 1995, the Company accounted for this
investment under the equity method. Swiss Army's share of the 1995 losses
of SWWT, including amortization of goodwill, totaled $1,638,000. During
1995, SWWT issued additional shares to outside investors. As a result, as
of December 31, 1995, Swiss Army owned 20.5% of the outstanding stock of
SWWT. Effective January 1, 1996, Swiss Army decreased its percentage of
ownership of SWWT to below 20% due to the sale by Swiss Army of SWWT common
stock. Accordingly, as of January 1, 1996, this investment was accounted
for at fair value. In December 1996, the investment in SWWT was written
down to $150,000, its estimated fair value, due to 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. At December
31, 1997, the Company has recorded this investment at $150,000, the
estimated fair value. At December 31, 1997, the Company's cost of the SWWT
investment was $3,382,000. Due to the limited trading of SWWT's common
stock, the valuation of this investment is subject to uncertainty and could
change in the near term.
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 of $800,000. 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. During 1997, the Company recovered
$112,000 related to this investment which is included in gain (loss) on
sale (write-down) of investments.
Simmons Outdoor Corporation ("Simmons") was a publicly traded company whose
primary business was 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
<TABLE>
<CAPTION>
Other assets consist of the following :
Amortization
1997 1996 Period
(in thousands)
<S> <C> <C> <C>
Cash surrender value of
life insurance (see Note 13) $9,804 $7,317 N/A
Goodwill (A) - - 10 years
Other 2,455 1,944 1-5 years
------ ------
Accumulated amortization (1,223) (496)
------ ------
$11,036 $8,765
======= ======
</TABLE>
F-14
<PAGE>
(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. The
Company completed the sale in the fourth quarter of 1997.
For the years ended December 31, 1997, 1996 and 1995, amortization expense
was approximately $1,449,000, $2,436,000 and $1,728,000, respectively.
(8) ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Accrued liabilities consist of the following:
1997 1996
(in thousands)
<S> <C> <C>
Sales, marketing and promotional $4,374 $2,631
Payroll related 1,269 1,425
Other 4,222 3,779
------ ------
$9,865 $7,835
====== ======
</TABLE>
(9) DEBT AGREEMENTS
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 December 31, 1996. 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 Victorinox. On December 4, 1997, the Company entered into a $5,000,000
commercial promissory note agreement with same financial institution. This
agreement expires on June 30, 1998 and is governed by the terms included in
the prior revolving credit agreement. No borrowings were outstanding under
this agreement as of December 31, 1997. The Company is currently reviewing
its options to establish a long term revolving credit agreement, and
believes it can establish a new credit agreement at the appropriate date.
The Company plans to use the borrowings available under the current
agreement and 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, 1997 and 1996, respectively.
(10) INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 1997,
1996 and 1995, consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Current
Federal ($1,276) ($1,140) $2,614
Foreign (280) 292 44
State 214 230 508
-------- -------- --------
Total current (1,342) (618) 3,166
Deferred
Federal (700) (1,332) (492)
State (334) (394) (151)
-------- --------- --------
Total deferred (1,034) (1,726) (643)
-------- --------- --------
Provision (benefit) for income taxes ($2,376) ($2,344) $2,523
======== ========= ========
</TABLE>
F-15
<PAGE>
The significant components of the deferred tax asset as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Loss on write-down of investments $1,211 $1,211
Inventory related reserves 1,400 1,152
Sales and marketing reserves 1,608 1,074
Depreciation and amortization 666 586
Accrued employee benefits 471 541
Net operating loss carryforward for state purposes 411 197
Other, net 159 131
------- -------
$5,926 $4,892
======= =======
</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.
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 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory federal income tax rate (34.0%) (34.0%) 34.0%
State income taxes, net of
federal income tax benefit (.08) (4.1) 6.8
Foreign taxes (4.0) 3.8 0.8
Other 1.7 3.5 3.2
------ ------ ------
Effective income tax rate (37.1%) (30.8%) 44.8%
====== ====== ======
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards,
subject to Internal Revenue Service review, of approximately $3.7 million.
The Company plans to utilize the loss carryforwards 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
$336,000, $232,000 and $324,000, for the years ended December 31, 1997,
1996 and 1995, respectively.
The net periodic pension cost of Swiss Army's pension plan in 1997, 1996
and 1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Service cost - benefits
earned during the period $339 $240 $256
Interest cost on projected
benefit obligation 189 156 160
Return on assets (171) (144) (110)
Amortization of net
transition asset (14) (14) (14)
Amortization of unrecognized
prior service cost (13) (13) (14)
Amortization of net loss 6 7 46
-------- -------- -------
Net periodic pension cost $336 $232 $324
======== ======== =======
</TABLE>
The funded status of the Company's defined benefit plan at December 31,
1997 and 1996 follows:
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $1,970 $2,073
====== ======
Accumulated benefit obligation $1,970 $2,073
====== ======
Projected benefit obligation $3,211 $2,629
Market value of plan assets 1,792 2,111
------ ------
Plan assets less than projected
benefit obligation (1,419) (518)
Unrecognized net loss 1,036 333
Unrecognized prior service cost (256) (269)
Unrecognized net transition asset (71) (85)
------ -------
Accrued pension cost ($710) ($539)
====== =======
</TABLE>
Rates used in determining the actuarial present value of the projected
benefit obligation are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<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 1997, 1996 and 1995, the Company incurred expenses
of approximately $175,000, $135,000 and $129,000 related to this plan.
The Company offers no other post retirement benefits.
(12) STOCKHOLDERS' EQUITY
During 1996 and 1994, the stockholders approved adoption of Swiss Army
Brands, 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, 872,813
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 of the Board of Directors, which administers the
plan, and for options outstanding as of December 31, 1997, vesting ranges
from immediately upon grant to three years.
F-17
<PAGE>
The following table summarizes stock option plan and warrant activity for
the three years ended December 31, 1997:
<TABLE>
<CAPTION>
Number
of Shares Option Price
<S> <C> <C>
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
Granted - -
Exercised (750) $ 5.25
Canceled (70,219) $12.25 - $14.00
----------
Outstanding at December 31, 1997 2,241,031 $ 5.25 - $14.50
==========
</TABLE>
Of the options and warrants outstanding at December 31, 1997, 1,928,594 are
exercisable at a weighted average option price of $12.10 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.
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 the three years ending December 31, 1997, been
determined under the principles of SFAS No. 123, the Company's net income
(loss) and earnings per share would have been the following:
F-18
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) As reported: ($4,025) ($5,265) $3,113
Pro forma: ($5,320) ($6,386) $2,343
Earnings per share As reported:
Basic ($0.49) ($0.64) $0.38
Diluted ($0.49) ($0.64) $0.38
Pro forma:
Basic ($0.65) ($0.78) $0.28
Diluted ($0.65) ($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.
In 1997, the Company's stockholders approved an increase in the number of
authorized shares of its common stock from 12,000,000 to 18,000,000.
(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.
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.
F-19
<PAGE>
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, 1997, minimum rental payment commitments for office and
warehouse space leased by Swiss Army under operating leases are, as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $1,320
1999 1,345
2000 1,296
2001 828
</TABLE>
During the years ended December 31, 1997, 1996 and 1995, rent expense was
approximately $1,390,000, $1,313,000 and $1,390,000, respectively.
At December 31, 1997, the Company has open contracts to purchase
approximately 46,000,000 Swiss francs in 1998 as a hedge against future
purchase of inventories. Deferred gains and losses on these contracts are
immaterial at December 31, 1997.
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, 1997, 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 $4,487,000. Under the terms of these life insurance policies,
the Company will make approximate future premium payments, if the policies
remain in force, as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $827
1999 843
2000 858
2001 788
2002 and thereafter 3,152
</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 certain 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
(in thousands):
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1998 $1,115
1999 1,115
2000 1,115
2001 1,102
2002 and thereafter 7,103
</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 deduction in that year will depend upon Swiss
Army's taxable income, since Swiss Army is 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.
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.
On July 14, 1997 the Company filed with the American Arbitration
Association in New York, New York a demand for arbitration against Precise
Imports Corporation, the United States and Canadian distributor of Swiss
Army Knives manufactured by Wenger S.A., the only company other than
Victorinox supplying pocketknives to the Swiss Armed Forces. In the demand
for arbitration, the Company charges that Precise has violated the license
agreement dated June 30, 1992 between Precise and the Company by utilizing
the trademark Swiss Army in ways prohibited by the agreement. The Company
seeks to enjoin future violations by Precise as well as damages resulting
from past violations. Precise has filed an answer, defenses and
counterclaims denying the Company's claims and alleging, as counterclaims,
that the Company has violated the license agreement to Precise's detriment,
that the Company has engaged in anti-competitive activity against Precise
in violation of both the license agreement and anti-trust laws, that the
Company has engaged in acts of unfair competition against Precise and that
the Company has knowingly published false statements regarding Precise in
addition to other counterclaims. Precise seeks to enjoin the Company from
all of the acts cited in Precise's counterclaims as well as an award of the
Company's profits and Precise's damages caused by the Company's alleged
acts. While the Company cannot predict the outcome of the arbitration, it
believes that its claims against Precise are meritorious, it has
meritorious defenses to Precise's counterclaims and intends to vigorously
pursue its claims and defend against the counterclaims.
Certain parties have informed the Company that they believe that the
Victorinox SwissTool or portions of it infringe patent rights held by them.
If the Company is unable to resolve these issues amicably no assurance can
be given as to the outcome and the Company may incur substantial legal fees
in connection with the infringement defense of any patent action that may
be brought. The result of an adverse decision in any such action could be
the issuance of an injuction prohibiting the Company's sale of the
Victorinox SwissTool or the imposition of damages or both. Any of these
could have a material adverse effect on the Company's future results of
operations.
F-21
<PAGE>
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.
(14) INTERNATIONAL OPERATIONS
A summary of selected financial information for international operations is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Net sales $16,122 $17,239 $14,164
Operating income (loss) 783 1,674 (185)
Identifiable assets 10,760 12,204 12,801
</TABLE>
The Company's net assets of foreign operations amounted to approximately
$6.6 million at December 31, 1997.
(15) QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
(in thousands, except per share data)
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1997
Net sales $24,215 $28,862 $27,866 $37,801
Gross profit 9,020 10,308 10,596 12,800
Loss before income
taxes (1,762) (1,624) (1,250) (1,765)
Net loss (1,048) (966) (775) (1,236)
Net loss per share ($0.13) ($0.12) ($0.09) ($0.15)
1996
Net sales $26,079 $28,677 $34,616 $40,658
Gross profit 8,593 5,389 11,996 14,858
Income (loss) before income
taxes (415) (6,998) 1,140 (1,335)
Net income (loss) (245) (4,057) 642 (1,605)
Net income (loss) per share ($0.03) ($0.49) $0.08 ($0.20)
</TABLE>
Results for the quarter ended June 30, 1997 and December 31, 1997 were impacted
by an inventory write-off and restructuring costs of $300,000 and $1,800,000,
respectively. See Note 3 for further discussion.
Results for the quarter ended June 30, 1996 and December 31,1996 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.
There was no difference between basic and fully diluted earnings per share for
the periods presented above.
(16) SUBSEQUENT EVENT (Unaudited)
In January 1998, the Company received a distribution from Hudson River
consisting of $1.6 million in cash and 42,018 shares of common stock (valued at
approximately $1,480,000 on February 10, 1998) of Iron Mountain Incorporated
("Iron Mountain"). Iron Mountain, a publicly traded company, is a full service
provider of records management and related services.
<TABLE>
<CAPTION>
F-22
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
Column A Column B Column C Column D Column E
Additions
Balance At Charged to Balance At
Beginning Costs and End of
Classification of Year Expenses Deductions Year
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for Doubtful Accounts $1,032 $ 57 - $975
======= ======= ======== ======
Inventory Reserve $1,950 $1,310 (410) $2,852
======= ======= ======== ======
Year Ended December 31, 1996:
Allowance for Doubtful Accounts $ 975 $ 57 - $1,032
======= ======= ======== ======
Inventory Reserve $ 918 $4,932 ($3,900) $1,950
======= ======= ======== ======
Year Ended December 31, 1995:
Allowance for Doubtful Accounts $ 755 $ 220 - $ 975
======= ======= ======== ======
Inventory Reserve $ 750 $ 168 - $ 918
======= ======= ======== ======
</TABLE>
F-23
<PAGE>
(3) Exhibits.
<TABLE>
<CAPTION>
Exhibit Title Exhibit No.
<S> <C>
(2) Not Applicable
(3) (A) Articles of Incorporation, as amended, incorporated by
reference to theExhibits to Quarterly Report on Form 10-Q for
the fiscal year ended June 30, 1997. *
(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 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. *
(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 Forschner
Group, Inc. and Pefran Trap Falls Associates, incorporated by
reference to the Exhibits to Annual Report on Form 10-K for the
fiscal year ended December 31, 1990. *
<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 Exhibits 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. *
(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. *
<PAGE>
(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. *
(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. *
<PAGE>
(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
Forschner Group, Inc. and Pefran Trap Falls Associates,
incorporated by reference to the Exhibits to Annual Report on
Form 10-K for the fiscal year ended December 31, 1994. *
(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 incorporated by reference to the
Exhibits on Form 10-K for the fiscal year ended December 31, 1996. *
(XX)Employment and Severance Agreement dated as November 15, 1996
between Thomas D. Cunningham and Swiss Army Brands, Inc.
incorporated by reference to the Exhibits on Form 10-K for the
fiscal year ended December 31, 1996. *
(YY) Trademark Agreement dated as of December 18, 1996 by and
between the Swiss Confederation represented by the Federal
Military Department represented b the Federal Defense
Production Group and Swiss Army Brands, Inc. (confidential
treatment has been granted for certain portions of this exhibit)
incorporated by reference to the Exhibits on Form 10-K for
the fiscal year ended December 31, 1996. *
(ZZ) Asset Purchase Agreement dated January 31, 1997 among
Cuisine de France Limited, Sabatier USA, LLC, Robert P. Wolff
and Robert Candler incorporated by reference on Form 10-K for
the fiscal year ended December 31, 1996. *
<PAGE>
(AAA) Agreement dated July 1, 1997 by and between Swiss Army
Brands, Inc. and Stanley G. Mortimer III, incorporated by
reference to the Exhibits on Form 10-Q for the fiscal quarter
ended June 30, 1997. *
(BBB) License Agreement dated May 15, 1997 by and between
Swiss Army Brands, Inc. and St. John Knits, Inc., incorporated
by reference to the Exhibits on Form 10-Q for the fiscal quarter
ended June 30, 1997. *
(CCC) Letter Agreement dated September 27, 1996 between Swiss
Army Brands, Inc. and Victorinox Cutlery Company. (10)-1
(DDD) Agreement dated December 12,1997 by and between Swiss
Army Brands, Inc. and Leslie H. Green. (10)-2
(EEE) Commericial Promissory Note Agreement dated December 4, 1997
between Swiss Army Brands, Inc. and Fleet National Bank. (10)-3
(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.
</TABLE>
* Incorporated by reference
No Current Reports on Form 8-K were filed during the fiscal quarter ending
December 31, 1997.
<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
By /s/ Thomas M. Lupinski
Thomas M. Lupinski
Senior Vice President, Chief
Financial Officer, Secretary, and
Treasurer
Date: March 26,1998
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 26, 1998
J. Merrick Taggart
President and Director
/s/ Thomas M. Lupinski March 26, 1998
Thomas M. Lupinski
Senior Vice President,
Chief Financial Officer,
Secretary, and Treasurer
/s/ A. Clinton Allen March 26, 1998
A. Clinton Allen
Director
/s/ Clarke H. Bailey March 26, 1998
Clarke H. Bailey
Director
/s/ Thomas A. Barron
Thomas A. Barron March 26, 1998
Director
/s/ Vincent D. Farrell, Jr. March 26, 1998
Vincent D. Farrell, Jr.
Director
/s/ Herbert M. Friedman March 26, 1998
Herbert M. Friedman
Director
/s/ Peter W. Gilson March 26, 1998
Peter W. Gilson
Director
/s/ M. Leo Hart March 26, 1998
M. Leo Hart
Director
/s/ James W. Kennedy March 26, 1998
James W. Kennedy
Director
Keith R. Lively March 26, 1998
Director
Lindsay Marx March 26, 1998
Director
<PAGE>
/s/ Louis Marx, Jr. March 26, 1998
Louis Marx, Jr.
Director
/s/ Stanley R. Rawn, Jr. March 26, 1998
Stanley R. Rawn, Jr.
Director
/s/ Eric M. Reynolds March 26, 1998
Eric M. Reynolds
Director
John Spencer March 26, 1998
Director
/s/ John V. Tunney
John V. Tunney March 26, 1998
Director
<PAGE>
VICTORINOX
Schmiedgasse 57
CH-6438 Ibach-Schwyz, Switzerland
Tel. (...41) (0) 41 818 12 70
Fax. (...41) (0) 41 818 15 70
Swiss Army Brands Inc.
Attn: Mr. J. Merrick Taggart
P.O. Box 874
One Research Drive
Shelton, CT 06484-6226
USA
U/Ref. CJ/ml 6438 Ibach, 27 September 1996
Dear Rick:
We hereby mutually agree to reduce the minimum purchase requirement for
1997 for SAOK to 65% of the highest year's purchase amount.
If this meets with your approval, please sign where indicated.
Kind regards,
VICTORINOX Accepted and agreed:
/s/ Charles Elsener, Sr. /s/ J. Merrick Taggart
Charles Elsener, Sr. J. Merrick Taggart
NOTE: This does not include direct Cyrk orders nor does it include
multi-tool orders.
SEVERANCE AGREEMENT
THIS AGREEMENT made and entered into as of the 12th day of December, 1997
by and between SWISS ARMY BRANDS, INC., a Delaware corporation, (hereinafter
referred to as "SABI" or "the Company"), and LESLIE H. GREEN (hereinafter
referred to as "Ms. Green").
WHEREAS, Ms. Green has been Vice President of SABI since December, 1995;
WHEREAS, Ms. Green has resigned from the office of Vice President of the
Company and as an employee of the Company effective December 12, 1997;
WHEREAS, the Company desires to provide Ms. Green with certain severance
benefits; and
WHEREAS, Ms. Green desires to accept such benefits under the terms and
conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
1. SEVERANCE BENEFITS. The Company agrees to provide Ms. Green with the
following severance benefits, which benefits Ms. Green acknowledges are over and
above those to which she would normally be entitled:
(a) Ms. Green or, in the event of her death, her estate shall be paid, as a
severance payment, at the rate of $185,500 per annum, payable on a bi-weekly
basis through December 31, 1997 and shall receive a lump sum payment in the
amount of $278,250 on the later to occur of January 9, 1998 or the expiration of
the waiting periods set forth in section 14 hereof. All payments under this
Agreement shall be subject to applicable withholding.
(b) The Company shall pay to the Company's insurance carrier, the amount of
the premium required to be paid to keep the medical and dental insurance for the
benefit of Ms. Green and her dependents (to the extent her dependents were so
covered immediately prior to the date hereof) under COBRA effective for the
period terminating on June 30, 1999.
(c) The Company shall pay to Ms. Green on a monthly basis an automobile
allowance of $600 per month through December 31, 1997 and a lump sum payment in
the amount of $10,800 of the later to occur on January 9, 1998 or the expiration
of the waiting period set forth in section 14 hereof. While payments under this
Agreement shall be subject to applicable withholding.
(d) The Company shall pay for outplacement services, including phone,
office and secretarial services, provided by Lee Hecht Harrison for Ms. Green
for a period of up to one year. The Company shall have no obligation to pay, and
Ms. Green shall have no right to receive, cash or other payment in lieu of such
service nor shall Ms. Green be entitled to an office or phone services at the
Company's offices.
(e) The Company shall reimburse Ms. Green in the amount of up to $3,000 for
the purchase of a computer and related equipment upon receipt of appropriate
documentation evidencing such expenditures.
(f) Pursuant to Stock Option Agreements (the "Option Agreements") dated May
18, 1992, July 15, 1994, January 26, 1995 and November 14, 1996, the Company
granted to Ms. Green options to purchase an aggregate of up to 40,000 shares of
the Company's common stock. The Option Agreements provide that Ms. Green shall
have a period of six months from the termination of her employment hereunder to
exercise such options that have vested by the termination of her employment.
<PAGE>
2. COVENANT NOT TO COMPETE. (a) Ms. Green acknowledges that in the course
of her employment by the Company, she has been privy to various economic and
trade secrets and relationships of the Company and its affiliates. Therefore, in
consideration of this Agreement, Ms. Green hereby agrees that she will not,
directly or indirectly, except for the benefit of the Company or its affiliates:
(i) on behalf of herself 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, (w) to terminate her 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 provided, however, that the prohibition set
forth in this subsection 2(a)(i)(A)(z) shall not apply to solicitations of
persons other than employees of the Company or an affiliate; or
(B) authorize or knowingly approve or assist in the taking of any such
actions by any person other than the Company; provided, however, that nothing
herein shall prohibit Ms. Green providing employment references.
(ii) directly or indirectly, whether as employee, consultant, officer,
director, partner, shareholder or otherwise engage in the business of marketing,
distributing, offering for sale or selling products manufactured, distributed or
licensed by Wenger S.A. or Precise Imports Corporation or any entity directly or
indirectly controlled, controlling or under common control with either of them
or any successor to the business of either of them.
(b)(i) Ms. Green acknowledges that she has substantial capabilities and
experience in fields other than those which would be prohibited hereunder and
that the restrictions set forth above would not hinder her ability to earn a
livelihood.
(ii) If any of the restrictions set forth in this Section 2 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. Ms. Green agrees that the time limitations and
other restrictions in this Section 2 are reasonable and properly required for
the adequate protection of the business of the Company, and that if any such
time limitations or other restrictions is held unreasonable by a court of
competent jurisdiction, then she agrees and submits to the reduction of said
time limitation or other restrictions to such area or period as such court shall
find reasonable.
(c) The provisions of this Section 2 shall survive termination of this
Agreement and be effective for a period of eighteen months from the date hereof.
3. CONFIDENTIALITY. Ms. Green 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 Ms. Green 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 her in the course of her employment by
the Company including, without limitation, information concerning products,
profitability, the identity of, and information relating to dealings with
customers and suppliers; or
(b) retain for the benefit of herself or any third person any document or
paper used or owned by the Company or any affiliate or coming into her
possession in the course of her employment by the Company or make or cause to be
made any copy, abstract, or summary thereof.
4. REMEDIES. Because the services of Ms. Green hereunder are unique and
extraordinary and the Company does not have an adequate remedy at law to protect
its business from Ms. Green's competition or to protect its interest in its
trade secrets, confidential information and similar commercial assets, Ms. Green
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.
<PAGE>
5. RELEASE. Ms. Green, for her and for her 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 whatsoever, both in law and in equity ("claims") of
any kind and any character that she might now have, or could have had, whether
in contract, tort or otherwise, including specifically any claims of
discrimination that she may claim in connection with her employment or the
termination thereof but excluding claims for the enforcement of Ms. Green's
rights under 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
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 Ms. Green 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 her employment, and the terms of this Agreement supersede any and
all other agreements relating to her employment whether written or oral.
6. CONFIRMATION OF RESIGNATION. Ms. Green acknowledges and confirms that
effective the date hereof, she resigns from any and all positions held as an
officer and employee of SABI and all of SABI's subsidiaries.
7. ADVICE OF COUNSEL. SABI encourages Ms. Green to carefully review the
terms of this Agreement and, if she wishes, to seek advise and counsel from an
attorney before signing this Agreement.
8. SPLIT DOLLAR LIFE INSURANCE. Ms. Green agrees to deliver to the Company
simultaneously with the execution and delivery of this Agreement, a duly and
validly executed Insurance Agreement and Collateral Assignment Agreement of the
Split Dollar Life Insurance Policy paid for by SABI for the benefit of Ms. Green
in the form attached as Exhibit A hereto.
9. 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.
10. 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 Ms. Green:
4 Pebble Beach Drive
Purchase, New York 10577
(b) If to SABI:
Swiss Army Brands, Inc
One Research Drive
Shelton, Connecticut 06484
Either party may change her 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.
11. MERGER. This Agreement merges and supersedes any and all other
agreements between the parties hereof related in any way to the employment of
Ms. Green. 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.
12. GOVERNING LAW AND ARBITRATION. (a) 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.
(b) Any dispute between SABI and Ms. Green arising out of this Agreement
shall be submitted to arbitration in the City of New York in accordance with the
rules of the American Arbitration Association then obtaining. The decision of
the arbitrator or arbitrators shall be final, conclusive, non-appealable and
binding upon the parties and judgment thereunder may be entered in any court of
competent jurisdiction.
<PAGE>
13. ASSIGNMENT. This Agreement is personal and non-assignable by Ms. Green.
It shall inure to the benefit 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.
14. PERIOD TO REVIEW AND REVOKE. After Ms. Green has had the chance to
review this Agreement and to consult with her attorney, if she wishes, she
should sign the Agreement and return it to SABI within 22 days.
After Ms. Green has executed and delivered this Agreement, she shall have
seven (7) days following the date of execution during which time she may revoke
this agreement, provided, however, that, if she elects to return an executed
copy of the document to us before the expiration of 22 days from the date
hereof, she 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 Ms. Green, or her attorney,
prior to the expiration of the period in which she 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/ Leslie H. Green
Leslie H. Green
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.
December 12, 1997 /s/ Leslie H. Green
Date of Execution Leslie H. Green
COMMERCIAL PROMISSORY NOTE
$5,000,000 December 4, 1997
New Haven, Connecticut
FOR VALUE RECEIVED, the undersigned, SWISS ARMY BRANDS, INC., a Delaware
corporation having its principal office at One Research Drive, Shelton,
Connecticut 06484 (hereinafter referred to as the "Borrower"), promises to pay
to the order of FLEET NATIONAL BANK ("Fleet" or the "Lender"; Fleet being also
hereinafter referred to as the "Holder," which term shall also include any
subsequent holder hereof) at its office at 157 Church Street, New Haven,
Connecticut 06510, or at such other place as the Holder may designate, from time
to time, the sum of Five Million Dollars ($5,000,000), or, if lesser, so much
thereof as has actually been advanced hereunder, together with interest thereon
as set forth below.
1. Payment of Interest. Interest on the principal amount outstanding
hereunder shall be payable monthly in arrears on the first day of each month
commencing on the first day of the month following the date hereof. Interest
shall be computed on the basis of a 360-day year and for the actual number of
days elapsed.
Interest on sums advanced hereunder shall be payable at the rates set forth
herein until all such sums are fully paid, whether before or after maturity, by
acceleration or otherwise, and whether or not any judgment has been issued
thereon.
2. Interest Rate Options. Interest shall be payable on the outstanding
principal balance of this Note at a rate which shall be, at the election of the
Borrower to be made from time to time as set forth herein and subject to the
limitations set forth herein, equal to (i) the Prime Rate (as hereinafter
defined) or (ii) the LIBOR Rate (as hereinafter defined).
Notwithstanding anything herein to the contrary: (i) no Advance may be made
as a LIBOR Loan nor may any portion of this Note be converted to a LIBOR Loan in
a principal amount of less than $100,000; and (ii) in no event shall there be an
aggregate total of more than eight (8) LIBOR Loans outstanding hereunder at any
time.
3. Election of Interest Rate Options; Limitations. So long as there exists
no Event of Default (as defined in the Loan Agreement) or in the event or
condition which, with the passage of time, the giving of notice or both would
constitute an Event of Default, the Borrower may make such election ("Election")
with respect to any Advance to be made hereunder or with respect to any portion
of the outstanding balance of this Note, by notifying the Lender, either orally
or in writing (a "Notice of Borrowing or Conversion"), which notice shall
specify:
(i) that no Event of Default or event or condition which with the passage
of time, the giving of notice or both would constitute an Event of Default has
occurred and is continuing;
(ii) the effective date and amount of each Advance or the portion of the
outstanding balance hereof which is to be subject to such Election, which
effective date shall be a Banking Day and which effective date with respect to
existing balances of this Note which are then subject to the LIBOR Rate shall
not be prior to the last day of the Interest Period (as hereinafter defined) for
such loans;
(iii) the interest rate option to be applicable thereto; and
(iv) in the event of a request for a LIBOR Loan the duration of the
applicable Interest Period subject to the limitation contained herein.
Each such oral notification shall be immediately followed by a written
confirmation thereof by the Borrower; provided, however, that if such Notice of
Borrowing or Conversion differs in any material respect from the action taken by
the Lender, the records of the Lender shall control absent manifest error. In
the absence of an effective election by the Borrower of the LIBOR Rate, loans
shall be Prime Rate Loans.
<PAGE>
So long as no Event of Default or event or condition which, with the
passage of time, the giving of notice or both, would constitute an Event of
Default, shall have occurred and be continuing, the Borrower shall have the
option, only as of the first Banking Day following the then current Interest
Period applicable to a LIBOR Loan, to continue such outstanding LIBOR Loan as a
LIBOR Loan or to convert it to a Prime Rate Loan in the same aggregate principal
amount.
The interest on a Prime Rate Loan shall be payable at a per annum rate
equal to the Prime Rate as it exists from time to time.
The interest on a LIBOR Loan shall be payable at the LIBOR Rate for the
entire Interest Period, except as otherwise set forth herein.
Advances may be made to the Borrower as LIBOR Loans and an existing Prime
Rate Loan may be converted to a LIBOR Loan in the same aggregate principal
amount, provided that such principal amount is not less than $100,000, upon
receipt by the Lender from the Borrower of Notice of Borrowing or Conversion,
either orally or in writing, not later than 11:00 A.M., New Haven time, on the
third Banking Day preceding the date on which the Borrower requests a LIBOR Loan
or a conversion of a portion of the existing balance of this Note to a LIBOR
Loan. Upon the expiration of the Interest Period so selected, the principal
amount of the LIBOR Loan specified in the Notice of Borrowing or Conversion will
automatically be converted to a Prime Rate Loan, unless a new Notice of
Borrowing or Conversion shall have been given in accordance with the foregoing.
Each Interest Period of a LIBOR Loan shall commence on the date such LIBOR
Loan is made and shall end on the date the Borrower may select in accordance
with the preceding paragraph, provided, that:
(i) any Interest Period which would otherwise end on a day which is not a
Banking Day shall end on the next preceding or succeeding Banking Day as is the
Lender's custom with respect to LIBOR Loans;
(ii) all Interest Periods which commence on the same date shall end on the
same date;
(iii) no Interest Period can extend beyond the Maturity Date; and
(iv) any Interest Period which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end, shall (subject to clause (i) above) end on the last day of
such calendar month.
In the event the Lender determines that by reason of circumstances
affecting the inter-bank Eurodollar market, adequate and reasonable means do not
exist for determining the LIBOR Rate or Eurodollar deposits in the relevant
amount and for the relevant maturity are not available to the Lender in the
inter-bank Eurodollar market, with respect to a proposed LIBOR Loan, the Lender
shall give the Borrower prompt notice of such determination. If such notice is
given, then (a) any requested LIBOR Loan shall be made as a Prime Rate Loan,
unless the Borrower gives the Lender one Banking Day's prior oral or written
notice that its request for such borrowing is cancelled (any oral notice of such
cancellation shall be confirmed by the Borrower to the Lender in writing within
24 hours); and (b) any outstanding LIBOR Loan shall be converted to a Prime Rate
Loan on the last Banking Day of the then current Interest Period for such LIBOR
Loan. Until such notice has been withdrawn, the Lender shall have no obligation
to make LIBOR Loans or maintain outstanding LIBOR Loans.
4. Commitment Fee. The Borrower agrees to pay to the Lender a commitment
fee equal to one eighth of one percent per annum (.125%) (computed on the basis
of the actual number of days elapsed in a year of 360 days) of the average daily
balance of the unused portion of the Line of Credit available during the
immediately preceding calendar quarter. The Lender shall charge the account of
the Borrower maintained with the Bank for such fee following the end of each
calendar quarter commencing with the quarter ending on December 31, 1997. The
fee shall be payable whether or not the Borrower has the ability to obtain loans
or advances hereunder.
5. Prepayment of Principal; Yield Maintenance Fee. The Borrower may pay
before due the unpaid balance of any Prime Rate Loan or any part thereof without
premium.
<PAGE>
If, at any time (i) the interest rate on the loan is a fixed rate, and (ii)
Bank in its sole discretion should determine that current market conditions can
accommodate a prepayment request, Borrower shall have the right at any time and
from time to time to prepay the loan in whole (but not in part), and Borrower
shall pay to Bank a yield maintenance fee in an amount computed as follows: The
current rate for Untied States Treasury securities (bills on a discounted basis
shall be converted to a bond equivalent) with a maturity date closest to the
maturity date of the term chosen pursuant to the Fixed Rate Election as to which
the prepayment is made, shall be subtracted from the "cost of funds" component
of the fixed rate in effect at the time of prepayment. If the result is zero or
a negative number, there shall be no yield maintenance fee. if the result is a
positive number, then the resulting percentage shall be multiplied by the amount
of the principal balance being prepaid. The resulting amount shall be divided by
360 and multiplied by the number of days remaining in the term chosen pursuant
to the Fixed Rate Election as to which the prepayment is made. Said amount shall
be reduced to present value calculated by using the above-referenced United
States Treasury security rate and the number of days remaining in the term
chosen pursuant to the Fixed Rate Election as to which the prepayment is made.
The resulting amount shall be the yield maintenance fee due to Bank upon
prepayment of the fixed rate loan. Each reference in this paragraph to "Fixed
Rate Election" shall mean the election by Borrower pursuant to paragraph 3 of
this Promissory Note.
Any partial prepayment of principal, whether or not subject to a prepayment
premium, shall be applied against payments coming due hereunder in the inverse
order of their maturity and shall not relieve the Borrower of the obligation to
make the scheduled payments of principal required hereunder until this Note has
been fully paid.
If by reason of an event of default Bank elects to declare the loan to be
immediately due and payable, then any yield maintenance fee with respect to the
loan shall become due and payable in the same manner as though
Borrower had exercised such right of prepayment.
6. Loan Agreement. The terms of loans and advances to be made hereunder
shall be governed by the terms of an Amended and Restated Loan Agreement between
the Borrower (then known as The Forschner Group, Inc.) and the Lender (then
known as The Connecticut National Bank) dated as of June 18, 1992, as modified
by a First Modification to Amended and Restated Loan Agreement dated as of
August 13, 1993, a Second Modification to Amended and Restated Loan Agreement
dated as of February 17, 1994, and a Third Modification to Amended and Restated
Loan Agreement dated as of September 30, 1994 (the Loan Agreement, as so
modified, is hereinafter referred to as the "Loan Agreement"), provided,
however, that in the event of any conflict between the terms of this Commercial
Promissory Note and the terms of the Loan Agreement, the terms of this
Commercial Promissory Note shall govern and prevail.
7. Certain Definitions. In addition to other words and terms defined
elsewhere in this Note and in the Loan Agreement, as used herein the following
words and terms shall have the following meanings, respectively, unless the
context otherwise clearly requires:
(a) "Banking Day" shall mean, in respect of any city, any date on which
commercial banks are open for business in that city.
(b) "Basis Point" means one one-hundredth (1/100) of one percent.
(c) "Interest Period" means, with respect to any LIBOR Loan, the period
selected by the Borrower in the Notice of Borrowing or Conversion as the period
during which such LIBOR Loan shall bear interest at the LIBOR Rate. Subject to
the limitations contained in this Note, an Interest Period for LIBOR Loans shall
be a period of 30 days, 60 days, or 90 days.
(d) "LIBOR Loan" means a Loan that bears interest at a rate per annum equal
to the LIBOR Rate.
(e) LIBOR Rate means (i) as applicable to any LIBOR Advance, the rate per
annum (rounded upward, if necessary, to the nearest 1/32 of one percent) as
determined on the basis of the offered rates for deposits in U.S. dollars, for a
period of time comparable to such LIBOR Advance which appears on the Telerate
page 3750 as of 11:00 a.m. London time on the day that is two London Banking
Days preceding the first day of such LIBOR Advance; provided, however, if the
rate described above does not appear on the telerate system on any applicable
interest determination date, the LIBOR rate shall be the rate (rounded upwards
as described above, if necessary) for deposits in dollars for a period
substantially equal to the interest period on the Reuters Page "LIBO" (or such
other page as may replace the LIBO Page on that service for the purpose of
displaying such rates), as of 11:00 a.m. (London Time), on the day that is two
(2) London Banking Days prior to the beginning of such interest period, plus
(iii) 125 Basis Points.
<PAGE>
If both the Telerate and Reuters system are unavailable, then the rate for
that date will be determined on the basis of the offered rates for deposits in
U.S. dollars for a period of time comparable to such LIBOR Advance which are
offered by four major banks in the London interbank market at approximately
11:00 a.m. London time, on the day that is two (2) london Banking Days preceding
the first day of such LIBOR Advance as selected by the Calculation Agent. The
principal London office of each of the four major London banks will be requested
to provide a quotation of its U.S. dollar deposit offered rate. If at lest two
such quotations are provided, the rate for that date will be the arithmetic mean
of the quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S. dollars to leading European banks for a period of time comparable to
such LIBOR Advance offered by major banks in New York City at approximately
11:00 a.m. New York City time, on the day that its two London Banking Days
preceding the first day of such LIBOR Advance. In the event that Bank is unable
to obtain any such quotation as provided above, it will be deemed that LIBOR
pursuant to a LIBOR Advance cannot be determined.
(f) "Maturity Date" means June 30, 1998.
(g) "Prime Rate" means that interest rate which the Lender designates from
time to time as its base (or equivalent) rate for commercial loans. The Prime
Rate is not necessarily its lowest or best rate.
(h) "Prime Rate Loan" means an Advance that bears interest at a rate per
annum which is equal to or based upon the Prime Rate.
8. Application of Payments. All payments received by the Lender shall be
applied first to the payment of costs, fees, and expenses due from the Borrower
to the Lender, then to the payment of interest, and finally to the payment of
principal.
9. Payments to be Made in Lawful Currency. All payments due hereunder shall
be made in lawful money of the United States of America and in immediately
available funds.
10. Interest Rate After Default. Upon and after the occurrence of an Event
of Default, interest shall be payable at a variable rate which is equal to two
percent (2%) per annum in excess of the rate which would otherwise be in effect
hereunder. Upon the occurrence of an Event of Default, the Borrower's right to
select pricing options hereunder shall cease.
11. Late Payment Charge. If any payment shall not be made on the day on
which it is due, whether on maturity, by acceleration or otherwise, the entire
amount owing hereunder shall thereupon, at the option of the Lender, and without
notice or demand, become immediately due and payable. If this Note is not paid
when due, whether in accordance with the terms hereof, by acceleration or
otherwise, the Borrower agrees to pay all costs of collection, including
reasonable attorneys' fees. Without in any way waiving, or otherwise affecting
or limiting any rights of the Lender under this Note or under law, including,
without limitation, the rights set forth in the preceding paragraph, any monthly
payment of principal or interest or both which is received more than ten (10)
days after its due date shall be subject to a late charge of five percent (5%)
of the amount due.
12. Lender's Lien and Right of Set Off. From and after the occurrence of an
Event of Default, the Lender shall have a lien on, and an option to set off
against, all deposits and other property of the Borrower at any time in the
possession or control of or in transit to it, against all amounts owing
hereunder, without prior demand or notice and without resort to legal process or
judicial proceeding, order or authorization.
13. Waiver of Demand, etc. The Borrower hereby waives demand, presentment,
notice of dishonor, protest, and notice of protest.
14. Acknowledgement of Commercial Transaction and Waiver. THE BORROWER
ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION
AND WAIVES ITS RIGHT TO NOTICE AND HEARING AND TO THE POSTING OF A BOND UNDER
CHAPTER 902A OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY
STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER MAY
DESIRE TO USE. 15. Waiver of Jury Trial.
BORROWER AND BANK MUTUALLY HEREBY ACKNOWLEDGE KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED
HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH [THIS NOTE] OR ANY OTHER
LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH OR ANY COURSE
OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO
ACCEPT [THIS NOTE] AND MAKE THE LOAN.
<PAGE>
16. Governing Law. This Note shall be governed by the laws of the State of
Connecticut, without regard to rules pertaining to conflicts of law.
17. Right of Bank to Pledge Rights. Bank may at any time pledge all or any
portion of its rights under the loan documents including any portion of the
promissory note to any of the twelve (12) Federal Reserve Banks organized under
Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
enforcement thereof shall release Bank from its obligations under any of the
loan documents.
SWISS ARMY BRANDS, INC.
By /s/ Thomas M. Lupinski
Its Senior Vice President
Chief Vice President &
Chief Financial Officier
Exhibit 21
List of Subsidiaries of Swiss Amry Brands, Inc.
- -----------------------------------------------
Excelsior Advertising, Inc.
Forcan, Inc.
The Forschner Group (Suisse) SA
Swiss Army Brands, Ltd.
Swiss Army, Inc.
Victorinox Watch Importing Corporation
Forschner Watch Repair, Inc.
Exhibit 23
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
10, 1998, included in Swiss Army Brands, Inc. Form 10-K for the year ended
December 31, 1997, and to all references to our firm in this registration
statement.
ARTHUR ANDERSON LLP
Stamford, Connecticut,
March 30, 1998
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