SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1282-3
Swiss Army Brands, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2797726
(State of incorporation) (I.R.S. Employer Identification No.)
One Research Drive, Shelton, Connecticut 06484
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 929-6391
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of Issuer's Common Stock, $.10 par value, outstanding on
November 10, 1998, was 7,900,110 shares.
<PAGE>
SWISS ARMY BRANDS, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I: FINANCIAL INFORMATION Page No.
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997. 3 - 4
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1998 and 1997. 5
Consolidated Statements of Stockholders' Equity
for the Nine Months Ended September 30, 1998 and 1997. 6
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997. 7
Notes to Consolidated Financial Statements 8 - 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 11 - 14
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
Part II: OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 15
Signatures 16
The Exhibit Index appears on page 15.
</TABLE>
2
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 616 $1,078
Accounts receivable, less
allowance for doubtful accounts
of $975 for both periods,
respectively 28,402 28,224
Inventories 28,599 27,438
Deferred income taxes 3,571 3,519
Prepaid and other 4,285 3,885
-------- -------
Total current assets 65,473 64,144
-------- -------
Deferred income taxes 2,329 2,407
Property, plant and equipment, net 3,852 3,751
Investments in preferred units, at cost 7,199 8,793
Investments in common stock 2,153 369
Foreign distribution rights, net of
accumulated amortization of $3,694
and $3,193 respectively 3,044 3,551
Other assets, net of accumulated
amortization of $1,762 and
$1,223 respectively 12,308 11,036
-------- --------
Total Assets $ 96,358 $94,051
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
3
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $9,763 $8,478
Accrued liabilities 10,555 9,865
Line of credit 1,830 -
-------- --------
Total current liabilities 22,148 18,343
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10
per share: shares authorized -
2,000,000; no shares issued - -
Common stock, par value $.10 per
share: shares authorized -
18,000,000; shares issued -
8,858,218 and 8,822,968, respectively 885 882
Additional paid-in capital 46,472 46,186
Foreign currency translation
adjustment (405) (240)
Unrealized gain on marketable securities 303 -
Retained earnings 34,847 33,993
-------- --------
82,102 80,821
Less: Tresury stock;
900,108 shares (7,676) (5,113)
Deferred compensation (216) -
-------- ---------
Total stockholders' equity 74,210 75,708
-------- ---------
Total Liabilities and
Stockholders' Equity $96,358 $94,051
======== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
4
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $31,370 $27,866 $86,167 $80,943
Cost of sales 18,680 17,270 52,605 51,019
-------- -------- --------- --------
Gross profit 12,690 10,596 33,562 29,924
Selling, general and
administrative expenses 11,880 12,160 33,715 35,095
-------- --------- --------- --------
Operating income (loss) 810 (1,564) (153) (5,171)
Interest and other income
(expense), net (4) 29 112 140
Gain on sale of investments - 285 1,500 395
-------- ---------- --------- --------
Total interest and other
income,net 4 314 1,612 535
-------- ---------- --------- --------
Income (loss) before income taxes 806 (1,250) 1,459 (4,636)
Income tax provision (benefit) 341 (475) 605 (1,847)
-------- ---------- --------- --------
Net income (loss) $465 ($775) $854 ($2,789)
======== ========== ========= ========
Earnings per share:
Basic $0.06 ($0.09) $0.10 ($0.34)
======== ========== ========= ========
Diluted $0.06 ($0.09) $0.10 ($0.34)
======== ========== ========= ========
Weighted average number of
shares outstanding:
Basic 8,213 8,210 8,215 8,209
======== ========== ========= ========
Diluted 8,237 8,210 8,241 8,209
======== ========== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands, except for share data)
<TABLE>
<CAPTION>
Foreign Unrealized
Common Stock Additional Currency Gain on
Par Value $.10 Paid-In Translation Marketable Retained Treasury
Shares Amount Capital Adjustment Securities Earnings Stock
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
December 31, 1996 8,822,968 $882 $46,182 ($113) $ - $38,018 ($5,113)
Net loss for
nine months ended
September 30, 1997
(unaudited) - - - - - (2,789) -
Stock options
exercised 750 - 4 - - - -
Foreign currency
translation adjustment - - - (31) - - -
----------- ------ ---------- -------- ------ ---------- --------
BALANCE,
September 30, 1997
(unaudited) 8,823,718 $882 $46,186 ($144) $ - $35,229 ($5,113)
=========== ====== ========== ======== ====== ========== ========
BALANCE
December 31,1997 8,823,718 $882 $46,186 ($240) $ - $33,993 ($5,113)
Net income for
nine months ended
September 30, 1998
(unaudited) - - - - - 854 -
Stock options
exercised 9,500 - 70 - - - -
Stock grant 25,000 3 216 - - - -
Stock repurchase - - - - - - (2,563)
Unrealized gain on
marketable securities - - - - 303 - -
Foreign currency
translation adjustment - - - (165) - - -
--------- ------- ---------- -------- ------- ---------- ---------
BALANCE, September
30, 1998 (unaudited) 8,858,218 $885 $46,472 ($405) $303 $34,847 ($7,676)
========== ======= ========== ======== ======= ========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 854 ($2,789)
Adjustments to reconcile net income (loss) to cash
provided from (used for) operating activities:
Depreciation and amortization 2,172 2,068
Stock compensation expense 3 -
Deferred income taxes 26 -
Gain on sale of investments (1,500) (285)
-------- --------
1,555 (1,006)
Changes in other current assets and liabilities:
Accounts receivable (257) 10,041
Inventories (1,253) (6,118)
Prepaid and other (446) (1,791)
Accounts payable 1,296 (2,389)
Accrued liabilities 692 67
--------- ---------
Net cash provided from (used for)
operating activities 1,587 (1,196)
Cash flows from investing activities:
Capital expenditures (1,115) (881)
Additions to other assets (1,917) (1,149)
Proceeds from sale of investment 1,613 438
--------- ---------
Net cash (used for) investing activities (1,419) (1,592)
--------- ---------
Cash flows from financing activities:
Net borrowings under line of credit agreement 1,830 1,630
Repurchase of common stock (2,563) -
Proceeds from exercise of stock options 70 4
--------- ---------
Net cash provided from (used for)
financing activities (663) 1,634
--------- ---------
Effect of exchange rate changes on cash 33 (52)
--------- ---------
Net decrease in cash and cash equivalents (462) (1,206)
Cash and cash equivalents, beginning of period 1,078 2,067
--------- ---------
Cash and cash equivalents, end of period $ 616 $ 861
========= =========
Cash paid during the period:
Interest $ 32 $ 15
========= =========
Income taxes $ 1,062 $ 453
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
7
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 and 1997
(unaudited)
CONSOLIDATED FINANCIAL STATEMENTS
- - ---------------------------------
The consolidated financial statements included in this Form 10-Q have been
prepared by Swiss Army Brands, Inc. ("Swiss Army", the "Company") without audit.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's report on Form 10-K for the year ended
December 31, 1997. In the opinion of management of the Company, the interim
financial statements included herein reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Due to the seasonal nature of the Company's business, the results of
operations for the interim periods presented are not necessarily indicative of
the operating results for the full year.
INVENTORIES
- - -----------
Domestic inventories are stated at the lower of cost (determined by the
last-in, first-out (LIFO) method) or market. Foreign inventories are valued at
the lower of cost or market determined by the FIFO method. Inventories
principally consist of finished goods.
COMPREHENSIVE INCOME
- - --------------------
Effective January 1, 1998, the Company adopted Statement of Financial
Standards ("SFAS") No. 130, "Reporting Comprehensive Income" which establishes
standards for the reporting and display of comprehensive income and its
components.
The components of comprehensive income (loss), net of tax, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $465 ($775) $854 ($2,789)
Other comprehensive income,
net of tax:
Foreign currency
translation adjustment (36) (1) (96) (18)
Unrealized gain on
marketable securities (14) - 177 -
------- ------- ------- --------
Other comprehensive income (50) (1) 81 (18)
------- ------- ------- --------
Comprehensive income (loss) $415 ($776) $935 ($2,807)
======= ======= ======= ========
</TABLE>
8
<PAGE>
INVESTMENTS
- - -----------
Investments consist of the following:
<TABLE>
<CAPTION>
September 30,1998 December 31, 1997
(in thousands)
<S> <C> <C>
Preferred units of Hudson
River Capital LLC (A) $6,313 $7,907
Preferred units of
Victory Ventures LLC (B) 886 886
------- -------
Total investments in preferred units $7,199 $8,793
======= =======
Common stock of Iron Mountain
Incorporated (C) $1,891 $ -
Common stock of Chaparral Resources,
Inc. (D) 112 219
Common stock of SWWT, Inc. (E) 150 150
------- --------
Total investments in common stock $2,153 $369
======= ========
</TABLE>
(A) Hudson River Capital LLC ("Hudson River"), is a private equity firm
specializing in middle market acquisitions, re-capitalization and expansion
capital investments. In January 1998, Hudson River distributed to the Company
$1,613,000 in cash and authorized the distribution of 63,019 (as adjusted for a
three to two stock split which occurred in July 1998) shares of common stock
(valued at $1,481,000) of Iron Mountain Incorporated. The Company received the
common stock in June 1998. In the first quarter of 1998, the Company recognized
a $1.5 million gain on the cash and common stock distribution which is included
in gain on sale of investment in the accompanying financial statements.
(B) Victory Ventures LLC is a private equity firm specializing in small venture
capital investments.
(C) Iron Mountain Incorporated ("Iron Mountain"), a publicly traded company, is
a full service provider of records management and related services. At September
30, 1998, the Company owns 63,019 shares of Iron Mountain stock valued at $30
per share. The Company accounts for this investment at fair value, with changes
between cost and fair value reflected as a component of stockholders' equity.
(D) Chapparal Resources, Inc. ("Chapparal"), a publicly traded company, is an
independent oil and gas exploration and production company. At September 30,
1998 the Company owns 87,634 shares of Chapparal common stock valued at $1.28
per share. The Company accounts for this investment at fair value, with changes
between cost and fair value reflected as a component of stockholders'equity.
(E) SWWT, Inc is a holding company formerly in the business of manufacturing and
marketing portable water purification and filtration systems to certain markets.
The Company has recorded this investment at its estimated fair value.
9
<PAGE>
INCOME TAXES
- - ------------
Income taxes are provided at the projected annual effective tax rate. The
income tax provisions (benefits) for the interim 1998 and 1997 periods exceed
the federal statutory rate of 34% due primarily to state income taxes (net of
federal benefit).
EARNINGS PER SHARE
- - ------------------
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". This statement replaces the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. All earnings per
share amounts for all periods presented have been restated to conform to the
requirements of this statement.
For the periods ended September 30, 1997, the weighted average number of
shares of common stock outstanding do not include the dilutive effect of stock
options as they would have anti-dilutive effect.
STOCK REPURCHASE
- - ----------------
On September 16, 1998, the Company's Board of Directors authorized a
repurchase of up to 400,000 shares of its common stock. At September 30, 1998,
the Company had repurchased 286,000 shares for a total purchase price of
approximately $2,563,000.
STOCK GRANT
- - -----------
On September 16, 1998, the Company issued 25,000 shares of common stock to
certain key members of management. The stock vests in four equal installments
over three years starting with the grant date.
LINE OF CREDIT
- - --------------
On September 30, 1998, the Company amended its line of credit agreement,
which among other things, extended the maturity of the agreement to June 29,
1999. The agreement states that the Company can borrow up to $10,000,000 for
working capital purposes at one of three interest rate options available; (i)
LIBOR plus 1.1%; (ii) Base Rate, as defined; or (iii) Cost of Funds rate, as
defined. The line of credit is unsecured and contains certain financial
covenants including, but not limited to, minimum tangible net worth, interest
rate coverage, current ratio, and the continuation of the exclusive
distributorship arrangement with Victorinox Cutlery Company. As of September 30,
1998, the Company had $1,830,000 outstanding under the line of credit and is in
compliance with the covenants contained in the agreement.
10
<PAGE>
SWISS ARMY BRANDS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(unaudited)
FORWARD LOOKING STATEMENTS
--------------------------
The following discussion contains, in addition, to historical information,
forward looking statements. The forward looking statements were prepared on the
basis of certain assumptions which relate, among other things, to the demand for
and cost of purchasing and marketing the Company's products; the prices at which
such products may be sold; new product development; seasonal selling trends; the
Swiss franc- U.S. dollar exchange rates; the extent to which the Company is able
to successfully hedge against foreign currency fluctuations; the impact of the
year 2000 issue on the Company's financial position or results of operations 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
---------------------
Comparison for the Three Months Ended September 30, 1998 and 1997
- - -----------------------------------------------------------------
Sales for the three months ended September 30, 1998 were $31.4 million
compared with $27.9 million for the same period in 1997, representing an
increase of $3.5 million or 12.6%. Sales comparisons for the three months ended
September 30, 1998, were impacted by sales related to special promotional
programs with one customer which accounted for approximately 8.9% and 5.6% of
sales in the three months ended September 30, 1998 and 1997, respectively.
Excluding sales related to these special promotional programs, sales increased
by $2.4 million or 8.9% in the three months ended September 30,1998 , as
compared to the comparable period in 1997. The sales increase was due of to an
increase in sales of Victorinox(r) products, primarily Victorinox(r) Original
Swiss Army Knives and the Victorinox(r) SwissTool(tm), and Swiss Army Brand(r)
Sunglasses.
Gross profit of $12.7 million for the three months ended September 30, 1998
increased $2.1 million or 19.8% from 1997. The gross profit margin percentage
for the third quarter of 1998 of 40.4% was higher than the gross profit margin
percentage of 38.0%, reported for the same period in 1997 primarily due to the
increase in the value of the U.S. dollar versus the Swiss franc. The Company's
gross profit margin is a function of both product mix and Swiss franc exchange
rates. Since the Company imports virtually all of its products from Switzerland,
its costs are affected by both the spot rate of exchange and by its foreign
currency-hedging program. The Company enters into foreign currency contracts and
options to hedge the exposure associated with foreign currency fluctuations.
Based upon current Swiss franc requirements the Company believes it is hedged
through the third quarter of 1999. However, such hedging activity cannot
eliminate the long-term adverse impact on the Company's competitive position and
results of operations that would result from a sustained decrease in the value
of the dollar versus the Swiss franc. These hedging transactions, which are
meant to reduce foreign currency risk, also reduce the beneficial effects to the
Company if the dollar increases relative to the Swiss franc. The Company plans
to continue to engage in hedging transactions; however, it is uncertain as to
what extent to which such hedging transactions will reduce the effect of adverse
currency fluctuations.
11
<PAGE>
Selling, general and administrative expenses for the three months ended
September 30, 1998 of $11.9 million were $0.3 million or 2.3% lower than the
amount for the comparable period in 1997.
As a percentage of net sales, total selling general and administrative
expenses decreased from 43.6% in 1997 to 37.9% in 1998.
Interest and other income (expense), net of $4,000 of expense for the three
months ended September 30, 1998 versus income of $29,000 for the comparable
period in 1997 was primarily due to increased borrowings during 1998 as compared
to 1997.
As a result of these changes, income (loss) before income taxes for the
three months ended September 30, 1998 was income of $806,000 versus a loss of
$1,250,000 for the same period in 1997, an improvement of $2,056,000.
Income tax expense (benefit) was provided at an effective rate of 42.3% and
38.0% in 1998 and 1997, respectively.
As a result, net income (loss) for the three months ended September 30,
1998 was income of $465,000 ($0.06 per share, basic and diluted) versus a loss
of $775,000 ($0.09 per share, basic and diluted) for the same period in 1997, an
improvement of $1,240,000.
Comparison for the Nine Months Ended September 30, 1998 and 1997
- - ----------------------------------------------------------------
Sales for the nine months ended September 30, 1998 were $86.2 million
compared with $80.9 million for the same period in 1997, representing an
increase of $5.2 million or 6.5%. Sales comparison for the nine months ended
September 30, 1998, were impacted by sales related to special promotional
programs with one customer which accounted for approximately 3.6% and 9.2% and
of sales in the nine months ended September 30, 1998 and 1997, respectively.
Excluding sales related to these special promotional programs, sales increased
by $6.9 million or 9.4% in the nine months ended September 30, 1998, as compared
to the comparable period in 1997. The sales increase was due of to an increase
in sales of Victorinox(r) products, primarily the Victorinox(r) SwissTool(tm)
and the Victorinox(r) SwissCard(tm), and Swiss Army Brand(r) Sunglasses.
Gross profit of $33.6 million for the nine months ended September 30, 1998
increased $3.6 million or 12.2% from 1997. The gross profit margin percentage
for the nine months ended September 30, 1998 of 38.9% was higher than the gross
profit margin percentage of 37.0%, reported for the same period in 1997. The
gross profit percentage increase is primarily due to the increase in the value
of the U.S. dollar versus the Swiss franc. The Company's gross profit margin is
a function of both product mix and Swiss franc exchange rates. Since the Company
imports virtually all of its products from Switzerland, its costs are affected
by both the spot rate of exchange and by its foreign currency-hedging program.
The Company enters into foreign currency contracts and options to hedge the
exposure associated with foreign currency fluctuations. Based upon current Swiss
franc requirements the Company believes it is hedged through the third quarter
of 1999. However, such hedging activity cannot eliminate the long-term adverse
impact on the Company's competitive position and results of operations that
would result from a sustained decrease in the value of the dollar versus the
Swiss franc. These hedging transactions, which are meant to reduce foreign
currency risk, also reduce the beneficial effects to the Company if the dollar
increases relative to the Swiss franc. The Company plans to continue to engage
in hedging transactions; however, it is uncertain as to what extent to which
such hedging transactions will reduce the effect of adverse currency
fluctuations.
12
<PAGE>
Selling, general and administrative expenses for the nine months ended
September 30, 1998 of $33.7 million were $1.4 million or 3.9% lower than the
amount for the comparable period in 1997.
As a percentage of net sales, total selling general and administrative
expenses decreased from 43.4% in 1997 to 39.1% in 1998.
Interest and other income (expense) , net was $112,000 for the nine months
ended September 30, 1998 versus $140,000 for the comparable period in 1997
primarily due to increased invested cash balances during 1997 as compared to
1998.
Gain on sale of investments was $1,500,000 and $395,000 in the nine months
ended September 30, 1998 and 1997, respectively. In 1998, the Company recorded a
$1.5 million gain due to a cash and stock distribution from the Company's
investment in Hudson River Capital LLC. In 1997, the Company recovered $110,000
related to an investment in a privately held start-up entity, which the Company
had written off in 1996, and the Company received a $438,000 distribution from
its investment in Victory Ventures LLC, which resulted in a gain of $285,000.
As a result of these changes, income (loss) before income taxes for the
nine months ended September 30, 1998 was income of $1,459,000 versus a loss
$4,636,000 for the same period in 1997, an improvement of $6,095,000.
Income tax expense (benefit) was provided at an effective rate of 41.5% and
39.8% in 1998 and 1997, respectively.
As a result, net income (loss) for the nine months ended September 30, 1998
was $854,000 ($0.10 per share, basic and diluted) versus a loss of $2,789,000
($0.34 per share) for the same period in 1997, an improvement of $3,643,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of September 30, 1998, the Company had working capital of $43.3 million
compared with $45.8 million as of December 31, 1997, a decrease of $2.5 million.
Significant uses of working capital included a stock repurchase of $2.6 million,
$1.9 million increase in other assets and capital expenditures of $1.1 million.
The Company currently has no material commitments for capital expenditures.
Cash provided from operating activities was approximately $1.6 million in
the nine months ended September 30, 1998 compared with cash used from operating
activities of $1.2 million in the comparable period in 1996. The change resulted
primarily from a smaller increase in inventory in 1998 versus 1997 and an
increase in accounts payable in 1998 versus a decrease in 1997, offset in part
by an increase in accounts receivables in 1998 versus a decrease in 1997.
The Company meets its short-term liquidity needs with cash generated from
operations, and, when necessary, bank borrowings under its credit agreement. As
of September 30, 1998, the Company has a $10.0 million revolving credit
agreement, which expires in June 1999. The Company's short-term liquidity is
affected by seasonal changes in inventory levels, payment terms and seasonality
of sales. The Company believes its current liquidity levels and financial
resources will be sufficient to meet its operating needs in the near-term.
13
<PAGE>
Year 2000
- - ---------
The Company has been conducting a review of its computer systems and
operations 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 and
hardware, of which some already have been implemented, and investment in new
software and hardware, the Year 2000 problem as it relates to its own computer
systems will not pose significant operational concerns. The costs associated
with the Year 2000 compliance for the Company's computer systems primarily
include costs to upgrade computer systems not currently compliant. The majority
of these costs will be incurred in the normal course of business as the Company
has continually upgraded their hardware and software to keep pace with
technological advances. These costs over the next twelve months could range up
to $350,000, of which most will be capitalized. All of the material systems
with-in the Company are expected to be Year 2000 compliant by June 30, 1999.
In addition to its internal assessment, the Company is currently assessing
the Year 2000 readiness of its key suppliers and service providers and their
ability to continue provide service and products through the change to 2000. If
any of the Company's significant suppliers and service providers do not
successfully and in a timely manner achieve Year 2000 compliance, the Company's
business could be materially affected. The Company has not developed a
contingency plan regarding the Year 2000 readiness of its key suppliers and
service providers, but intends to do so if further discussions with its
suppliers and service providers warrant the development of such contingency
plan.
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. At September 30, 1998, the
Company entered into foreign currency contracts and options to purchase
approximately 69,800,000 Swiss francs in 1998 and 1999 at a weighted average
rate $1.418 Swiss franc/dollar. At September 30, 1998, the unrealized gain on
these contracts and options was approximately $0.8 million. The Company's
ultimate unrealized gain or loss on these contracts and options will primarily
depend on the currency exchange rates in effect at the time the contracts and
options mature.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A.) Exhibits
(2) Not Applicable
(3) Not Applicable
(4) Not Applicable
(10.1) 1998 Amended and Restated Commercial Loan Agreement dated September 30,
1998 between Fleet National Bank and Swiss Army Brands, Inc.
(11) Statement regarding computation of per share earnings is not required
because the relevant computation can be clearly determined from the
material contained in the Financial Statements included herein.
(15) Not Applicable
(18) Not Applicable
(19) Not Applicable
(22) Not Applicable
(23) Not Applicable
(24) Not Applicable
(27) Financial Data Schedule
(99) Not Applicable
B.) There were no reports or exhibits on Form 8-K filed for the three months
ended September 30, 1998.
15
<PAGE>
Pursuant to the requirements to the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SWISS ARMY BRANDS, INC.
-----------------------
Registrant
Date: November 12, 1998
By /s/ Thomas M. Lupinski
Name: Thomas M. Lupinski
Title: Senior Vice President &
Chief Financial Officer, Secretary
and Treasurer
16
FLEET NATIONAL BANK
1998 Amended and Restated
Commercial Revolving Line of Credit Agreement
THIS 1998 AMENDED AND RESTATED COMMERCIAL REVOLVING LINE OF CREDIT AGREEMENT
("Agreement"), dated as of September 30, 1998, between FLEET NATIONAL BANK (the
"Bank"), having an office at 777 Main Street, Hartford, Connecticut 06115 and
SWISS ARMY BRANDS, INC. (the "Borrower"), having its chief executive office at
One Research Drive, Shelton, Connecticut 06484.
This Agreement constitutes the amendment and restatement of that certain
Amended and Restated Loan Agreement (the "Original 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.
W I T N E S S E T H:
Section 1. Definitions
Unless otherwise defined or specified herein, all accounting terms shall be
construed and all accounting determinations shall be made in accordance with
GAAP.
Advance means a Base Rate Advance or LIBOR Advance made by the Bank to the
Borrower pursuant to the Agreement.
Affiliate means any person or corporation which directly or indirectly
controls, or is controlled by, or is under common control with the Borrower.
Agreement means this Commercial Revolving Line of Credit Agreement.
Applicable Interest Period means the interest period selected by the
Borrower pursuant to this Agreement.
Base Rate Advance means an Advance that bears interest at a rate per annum
equal to the Base Rate.
Base Rate means the variable per annum rate of interest so designated by
the Bank from time to time as its Base Rate. The Base Rate is a reference rate
and does not necessarily represent the lowest or best rate being charged to any
customer.
Borrowing Date means the date on which the Bank shall make an Advance
pursuant to the terms of this Agreement.
Business Day means in respect of any date that is specified in this
Agreement or the Note to be subject to adjustment in accordance with the
Modified Business Day Convention, a day on which commercial banks settle
payments in (i) New York or London if the payment obligation is calculated by
reference to LIBOR, or (ii) Connecticut, if the payment obligation is calculated
by reference to any Base Rate.
Control shall be deemed to exist if any person, entity or corporation, or
combination thereof shall have possession, directly or indirectly, of the power
to direct the management or policies of the Borrower or any person, entity, or
corporation deemed to be an Affiliate of the Borrower, and shall be deemed to
include any holder of 10% or more of any stock or other interest in the Borrower
or in any person, entity or corporation deemed to be an Affiliate of the
Borrower, whether such holding is direct or indirect.
Cost of Funds means the per annum rate of interest which Bank is required
to pay, or is offering to pay, for wholesale liabilities, adjusted for reserve
requirements and such other requirements as may be imposed by federal, state or
local government and regulatory agencies, as determined by Fleet Treasury Group.
Current Ratio means the ratio of Total Current Assets to Total Current
Liabilities.
Dividends means, for the applicable period, the aggregate of all amounts
paid or payable as dividends, with respect to Borrower's shares of stock,
whether now or hereafter outstanding.
Earnings Before Interest and Taxes means, for the applicable period, income
from continuing operations before the payment of interest and taxes determined
in accordance with GAAP.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
means, for the applicable period, income from continuing operations before the
payment of interest and taxes plus depreciation and amortization determined in
accordance with GAAP.
Events of Default shall have the meaning given such term in Section 8 of
this Agreement.
Eurocurrency Liabilities shall have the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
Fixed Rate Advance means a LIBOR Advance or a Cost of Funds Advance.
GAAP means generally accepted accounting principles in the United States of
America, as from time to time in effect; provided, however, that for purposes of
compliance of Section 7 of this Agreement and the related definitions, GAAP
means such principles as in effect on the date of the preparation and delivery
of the financial statements described in Section 3.3 and Schedule A hereto and
consistently followed, without giving effect to any subsequent changes other
than changes consented to in writing by the Bank.
Indebtedness means all obligations that in accordance with GAAP should be
classified as liabilities upon Borrower's balance sheet or to which reference
should be made by footnotes thereto.
Intangible Assets means assets that in accordance with GAAP are properly
classifiable as intangible assets, including, but not limited to, goodwill,
franchises, licenses, patents, trademarks, tradenames and copyrights.
Interest means, for the applicable period, all interest paid or payable,
including, but not limited to, interest paid or payable on Indebtedness and on
Capital Leases, determined in accordance with GAAP.
Interest Coverage Ratio means the ratio of Earnings Before Interest and
Taxes to Interest.
Interest Period means with respect to each LIBOR Advance:
(i) initially the period (A) commencing on the Borrowing Date of such
Advance, and (B) ending at the end of the Applicable Interest Period one, two or
three months thereafter, as the case may be, as selected by the Borrower, and
(ii) thereafter, such subsequent Interest Period for such LIBOR Advance shall
begin on the last day of the preceding Interest Period for such LIBOR Advance
and shall end at the end of the Applicable Interest Period one, two or three
months thereafter as the Borrower may select pursuant to this Agreement;
provided that (A) any Interest Period which would otherwise end on a day which
is not a Business Day shall end and the next Interest Period shall commence on
the next preceding or the next succeeding day which is a Business Day as
determined conclusively by the Bank in accordance with the then current bank
practices in London, England and (B) no Interest Period for a LIBOR Advance
shall end after the Termination Date.
LIBOR Advance means an Advance that bears interest at a rate per annum
equal to the LIBOR Interest Rate.
LIBOR shall mean, 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. "Banking
Day" shall mean, in respect of any city, any date on which commercial banks are
open for business in that city.
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 least 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 LIBOR Advance cannot be determined.
In the event that the Board of Governors of the Federal Reserve System
shall impose a Reserve Rate with respect to LIBOR deposits of Bank then for any
period during which such Reserve Rate shall apply, LIBOR shall be equal to the
amount determined above divided by an amount equal to 1 minus the Reserve Rate.
LIBOR Margin means one and ten one hundredths (1.10%) percent per annum.
LIBOR Interest Rate means an interest rate per annum equal at all times
during an Interest Period equal to the aggregate of (i) LIBOR and (ii) the LIBOR
Margin.
Line of Credit means the maximum principal amount set forth in Section 2.1
of this Agreement that the Bank may advance to the Borrower and the Borrower may
borrow from the Bank.
Modified Following Business Day Convention shall mean the convention for
adjusting any relevant date if it would otherwise fall on a day that is not a
Business Day. The following terms, when used in conjunction with the term,
"Modified Following Business Day Convention", and a date, shall mean that an
adjustment will be made if that date would otherwise fall on a day that is not a
Business Day so that the date will be the first following day that is a Business
Day.
Net Income (Net Loss) means the net income (or net loss, expressed as a
negative number) for any period, after all taxes actually paid or accrued and
all expenses and other charges determined in accordance with GAAP.
Note means the note executed and delivered by the Borrower in substantially
the form of Exhibit 1 hereto and which evidences the Line of Credit.
Related Agreements means the various agreements and documents described
under the heading "Related Agreements" in Schedule A to this Agreement and such
other documents as requested by the Bank, delivered or caused to be delivered,
by the Borrower to the Bank.
Reserve Rate means the rate (expressed as a decimal) at which the Bank
would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System against Eurocurrency Liabilities if such
liabilities were outstanding. The LIBOR Interest Rate shall be adjusted
automatically on and as of the effective date of any change in the Reserve Rate,
and the rate of interest thereby effected shall simultaneously change.
Subsidiary means any corporation, a majority of whose outstanding stock
having ordinary voting powers for the election of directors, shall at any time
be owned or controlled by the Borrower or one or more of its subsidiaries.
Stock Repurchase Advances shall have the meaning given such term in Section
5.12(b) of this Agreement.
Stockholder Equity means total stockholder equity determined in accordance
with GAAP.
Tangible Net Worth means Stockholder Equity minus Intangible Assets.
Termination Date shall have the meaning given such term in Section 2.1 of
this Agreement.
Total Current Assets means total current assets determined in accordance
with GAAP.
Total Current Liabilities means total current Indebtedness determined in
accordance with GAAP.
Total Liabilities means total Indebtedness determined in accordance with
GAAP.
Working Capital means Total Current Assets less Total Current Liabilities.
Section 2. The Line of Credit
2.1 The Line of Credit. Pursuant to the terms of this Agreement and upon
the satisfaction of the conditions precedent referred to in Section 4 hereof,
the Bank will lend to the Borrower, and the Borrower may, in its sole
discretion, borrow from the Bank, advances not to exceed the aggregate principal
amount to be outstanding at any time of Ten Million and No/100 DOLLARS
($10,000,000.00) (the "Line of Credit") as evidenced by the Note. If any
advances are made during the period from the date hereof until June 29, 1999 as
adjusted by the Modified Following Business Day Convention (as such date may be
extended in writing from time to time in the Bank's sole and absolute
discretion, the "Termination Date"), unless an Event of Default occurs and is
continuing, the Borrower may borrow, repay and reborrow under this Agreement;
provided, however, that all outstanding principal plus accrued and unpaid
interest shall be paid in full on the Termination Date.
2.2 Advances. (a) If any Advance is made, the Advance shall be made by a
deposit to any of Borrower's accounts with the Bank. Advances will be payable as
provided in the Note. Prior to the Termination Date, all LIBOR Advances and Cost
of Funds Advances shall be repaid in full at the end of the Agreement. In the
event the Borrower fails to provide notice of the type of Advance to be effected
by a new borrowing, Borrower shall be deemed to have elected a Base Rate
Advance. If any Advance is made, the Bank may, at its option, record on the
books and records of the Bank or endorse on a schedule attached to the Note, an
appropriate notation evidencing any Advance, each repayment on account of the
principal thereof and the amount of interest paid; and the Borrower authorizes
the Bank to maintain such records or make such notations and agrees that the
amount shown on the books and records or on said schedule, as applicable, as
outstanding from time to time shall constitute the amount owing to the Bank
pursuant to this Agreement, absent manifest error. In the event the amount shown
on the schedule conflicts with the amount noted as due pursuant to the books and
records of the Bank, the books and records of the Bank shall control the
disposition of the conflict.
(b) Whenever Borrower desires that the Bank make an Advance which is to be
a Base Rate Advance, it shall give the Bank notice of such request. The
Borrowing Date relating to such Advance shall be a Business Day.
(c) When Borrower desires that Bank make an Advance which is to be a LIBOR
Advance or a Cost of Funds Advance, it shall give Bank not less than two (2)
Business Days notice of such request. The Borrowing Date relating to such
Advance shall be a Business Day.
(d) Each request for an Advance shall specify whether such Advance is to be
a Base Rate Advance, a LIBOR Advance or a Cost of funds Advance and, once so
specified, such specification may not be changed except with prior approval of
the Bank. Each such request shall further specify the Interest Period to be
applicable to such Advance as follows:
(i) for Base Rate Advances no Interest Period need be specified and
(ii) for LIBOR Advances, the Interest Period may be of a duration of one, two or
three months; and
(iii)for Cost of Funds Advances, the Interest Period may be of a duration of
from 7 to 30 days.
2.2.A Letters of Credit; Reduction in Availability.
(a) Within the limits set forth in 2.1 of this Agreement and subject to the
provisions of this Section 2.2.A, the Borrower may, from time to time, request
the Lender to issue commercial letters of credit and standby letters of credit
("L/Cs"). The aggregate outstanding available undrawn amount of all outstanding
Letters of Credit plus the aggregate amount of Advances outstanding under the
Line of Credit shall not exceed $10,000,000.
(b) The amount of Advances which would otherwise be available to the
Borrower under the Line of Credit shall be reduced by the aggregate outstanding
available undrawn amount of outstanding Letters of Credit.
(c) A draw under a Letter of Credit shall be deemed to be a request for an
Advance under the Line of Credit.
(d) No Letters of Credit shall be issued with an expiration date later than
180 days after the Termination Date.
(e) Borrower shall execute any additional documentation as the Bank may
request in connection with the issuance of Letters of Credit including, without
limitation, reimbursement agreements.
(f) The Bank's obligation to issue Letters of Credit is contingent upon the
payment by the Borrower of the applicable fees from the Bank's then current fee
schedule for commercial letters of credit, and a fee of 1.5% of the face amount
for standby letters of credit.
2.3 Interest; Principal. LIBOR Advances, Base Rate Advances and Cost of
Funds Advances will bear interest at a per annum rate as provided in the Note.
Such interest shall be payable as specified in the Note. Principal shall also be
repaid in accordance with the terms of the Note. Upon the occurrence of and
during the continuance of an Event of Default or after maturity or after
judgment has been rendered on this Note, Borrower's right to select pricing
options shall, at the option of the Bank, cease and the unpaid principal of all
advances shall, at the option of the Bank, bear interest at a rate which is four
(4) percentage points per annum greater than that which would otherwise be
applicable.
All agreements between Borrower and Bank are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to Bank for the use or the forbearance of the
indebtedness evidenced hereby exceed the maximum permissible under applicable
law. As used herein, the term "applicable law" shall mean the law in effect as
of the date hereof provided, however that in the event there is a change in the
law which results in a higher permissible rate of interest, then this Note shall
be governed by such new law as of its effective date. In this regard, it is
expressly agreed that it is the intent of Borrower and Lender in the execution,
delivery and acceptance of this Note to contract in strict compliance with the
laws of the State of Connecticut from time to time in effect. If, under or from
any circumstances whatsoever, fulfillment of any provision hereof, the Note or
of any of the Related Agreements at the time of performance of such provision
shall be due, shall involve transcending the limit of such validity prescribed
by applicable law, then the obligation to be fulfilled shall automatically be
reduced to the limits of such validity, and if under or from any circumstances
whatsoever Bank should ever receive as interest an amount which would exceed the
highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced hereby and not to
the payment of interest. This provision shall control every other provision of
all agreements between Borrower and Bank.
2.4 Computation of Interest. All computations of interest on the Note shall
be made on the basis of a three hundred sixty (360) day year and the actual days
elapsed.
2.5 Payment of Principal and Interest. All payments shall be made in lawful
money of the United States in immediately available funds. The Bank is
authorized (but not required) to charge principal and interest and all other
amounts due hereunder and under the Note to any account of the Borrower when and
as it becomes due.
2.6 Prepayments. (a) The Borrower may prepay Base Rate Advances, LIBOR
Advances or Cost of Funds Advances in accordance with the terms of the Note. If
at any time, the aggregate principal amount of all Advances under the Note shall
exceed the Line of Credit, the Borrower shall immediately prepay so much of the
outstanding principal balance, together with accrued interest on the portion of
principal so prepaid as shall be necessary in order that the unpaid principal
balance, after giving effect to such prepayments, shall not be in excess of the
Line of Credit. Any such prepayment will, at the option of the Bank, be applied
first to the payment of all costs and expenses incurred by the Bank and arising
out of this Agreement, the Note or any Related Agreement and which has not been
paid or reimbursed to the Bank, then to accrued interest to the date of the
prepayment and the remainder to the outstanding principal.
(b) Notwithstanding any other provision of this Agreement, (i) if, after
the date of this Agreement, the introduction of or any change in any law or
regulation (or change in the interpretation thereof by regulatory authorities)
applicable to the Bank, shall make it, or (ii) if any central bank or other
governmental authority having jurisdiction over the Bank shall assert that it
is, unlawful for the Bank to perform its obligations hereunder to make LIBOR
Advances to the Borrower or to continue to fund or maintain LIBOR Advances to
the Borrower hereunder, then, on notice thereof by the Bank to the Borrower, (A)
the obligation of the Bank to the Borrower to make LIBOR Advances shall
terminate, and (B) within five (5) Business Days after the Bank gives notice,
the Borrower shall prepay in full all such LIBOR Advances then outstanding,
which the Bank is prohibited from maintaining or continuing, together with
interest accrued thereon, provided, however, the Borrower may elect to convert
all outstanding LIBOR Advances to Base Rate Advances.
(c) The Borrower may, at its option, prepay any Base Rate Advances, in
whole or in part, at any time, without fee or premium.
(d) 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 United 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 2.2 of this Loan Agreement and the Note.
If by reason of the occurrence and continuance 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
2.7 Review Fee. Intentionally Omitted.
2.8 Late Charge. If the entire amount of any required installment of
principal and/or interest is not paid in full within ten (10) days after the
same is due, Borrower shall, at the discretion of the Bank, pay to the Bank a
late fee equal to five percent (5%) of the required payment. The minimum late
charge shall be $25.00. The assessment and collection of a late fee by the Bank
shall not waive any Event of Default or preclude the exercise of the other
rights and remedies available to the Bank hereunder.
2.9 Additional Payments. (a) If the Bank shall deem applicable to this
Agreement or the Note (including, in each case, any borrowed and any unused
portion thereof), any requirement of any law of the United States of America,
any regulation, order, interpretation, ruling, official directive or guideline
(whether or not having the force of law) of the Board of Governors of the
Federal Reserve System, the Comptroller of the Currency, the Federal Deposit
Insurance Corporation or any other board or governmental or administrative
agency of the United States of America which shall impose, increase, modify or
make applicable to this Agreement or the Note or cause this Agreement or the
Note to be included in any reserve, special deposit, calculation used in the
computation of regulatory capital standards, assessment or other requirement
which imposes on the Bank any cost that is attributable to the maintenance
thereof, then, and in each such event, the Borrower shall promptly pay the Bank,
upon its demand, such amount as will compensate the Bank for any such cost,
which determination may be based upon the Bank's reasonable allocation of the
aggregate of such costs resulting from such events. In the event any such cost
is a continuing cost, a fee payable to the Bank may be imposed upon the Borrower
periodically for so long as any such cost is deemed applicable by the Bank, in
an amount determined by the Bank to be necessary to compensate the Bank for any
such cost, which determination may be based upon the Bank's reasonable
allocation of the aggregate of such costs resulting from such events. The
determination by the Bank of the existence and amount of any such costs shall,
in the absence of manifest error, be conclusive.
(b) In the event the Bank shall determine that, by reason of circumstances
affecting the London inter-bank Eurodollar market, adequate and reasonable
methods do not exist for ascertaining the LIBOR Interest Rate which would
otherwise be applicable during any Interest Period, the Bank shall forthwith
give notice of such determination (which shall be conclusive and binding on the
Borrower) to the Borrower at least one Business Day before the first day of such
Interest Period. In such event: (i) any pending notice of borrowing which
specified a LIBOR Advance shall be of no effect; and (ii) the obligation of the
Bank to make the LIBOR Advance shall be suspended until the Bank determines that
the circumstances giving rise to such suspension no longer exist, whereupon the
Bank shall notify the Borrower.
(c) If, after the date of this Agreement, there shall be any increase in
the cost to the Bank due to either (i) the introduction of or any change in any
law or regulation (or the interpretation thereof by regulatory authorities) or
(ii) compliance with any written guideline or written request from any central
bank or other governmental authority having jurisdiction over Bank (whether or
not such guideline or request has the force of law), of agreeing to make or
making, funding or maintaining LIBOR Advances to the Borrower, then the Borrower
shall, from time to time, upon such notice by the Bank, pay to the Bank
additional amounts sufficient to reimburse the Bank for such increased cost.
Section 3. Representations and Warranties
The Borrower hereby represents and warrants to the Bank (which
representations and warranties will survive the delivery of the Note and this
Agreement and the making of any Advances and shall be deemed to be continuing
until the Note is fully paid and this Agreement is terminated) that:
3.1 Existence and Power. (a) The Borrower is a corporation which is and
will continue to be, duly organized and validly existing; the Borrower is in
good standing under the laws of its state of organization; (b) the Borrower is
qualified and in good standing to do business in all other jurisdictions in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary; (c) the Borrower has the
power to execute and deliver this Agreement, the Note, the Related Agreements
and to borrow hereunder, and (d) the Borrower has all permits, authorizations
and licenses, without unusual restrictions or limitations, to own, operate and
lease its properties and to conduct the business in which it is presently
engaged, all of which are in full force and effect.
3.2 Authority. The making and performance by the Borrower of this Agreement
and the Related Agreements have been authorized by all necessary action. The
execution and delivery of this Agreement, the Note and the Related Agreements,
the consummation of the transactions herein and therein contemplated, the
fulfillment of or compliance with the terms and provisions hereof and thereof,
(a) are within its powers, (b) will not violate any provision of law or, of its
certificate of incorporation or by-laws or (c) will not result in the breach of,
or constitute a default under, or result in the creation of any lien, charge or
encumbrance upon any property or assets of the Borrower pursuant to any
indenture or bank loan or credit agreement (other than pursuant to this
Agreement) or other agreement or instrument to which the Borrower is a party. No
approval, authorization, consent or other order of or registration or filing
with any governmental body is required in connection with the making and
performance of this Agreement, the Note or the Related Agreements.
3.3 Financial Condition. The financial statements described in Schedule A
hereto under the heading "Description of Financial Statements," heretofore
delivered to the Bank, were prepared in conformity with GAAP and are correct and
complete and fairly present the financial condition and the results of
operations of the Borrower for the period(s) and as of the date(s) thereof with
the exception of all interim statements. The Borrower has no direct or
contingent liabilities not disclosed in such statements or in Schedule A hereto
under the heading "Liabilities Not Disclosed in Financial Statements." Since the
date of the latest financial statement delivered to the Bank, there has been no
adverse change in the assets, liabilities, financial condition or business of
the Borrower and, except as disclosed to the Bank in writing, no Dividends have
been declared or made to shareholders.
3.4 Information Complete. Subject to any limitations stated therein or in
connection therewith, all information furnished or to be furnished by the
Borrower pursuant to the terms hereof is, or will be at the time the same is
furnished, accurate and complete in all respects necessary in order to make the
information furnished, in the light of the circumstances under which such
information is furnished, not misleading.
3.5 Statutory Compliance. The Borrower is in compliance with all federal,
state, county and municipal laws, ordinances, rules or regulations applicable to
it, its property or the conduct of its business, including, without limitation,
those pertaining to or concerning the employment of labor, employee benefits,
public health, safety and the environment.
3.6 Litigation. No proceedings by or before any private, public or
governmental body, agency or authority and no litigation is pending, or, so far
as is known to the Borrower or, a any of its officers, threatened against it
except such as are disclosed in Schedule A hereto under the heading "Litigations
Pending or Threatened."
3.7 Subsidiaries, Affiliates. The Borrower has no Subsidiaries or
Affiliates other than those shown on Schedule A attached hereto under the
heading "Subsidiaries, Affiliates and Trade Names" and the Borrower has not
invested in the stock, common or preferred, of any other corporation and there
are no fixed, contingent or other obligations on the part of the Borrower to
issue any additional shares of its capital stock
3.8 Events of Default. No Event of Default has occurred and no event has
occurred or is continuing which, pursuant to the provisions of Section 8, with
the lapse of time and/or the giving of a notice specified therein, would
constitute such an Event of Default.
3.9 Validity. This Agreement, the Note and all Related Agreements, upon the
execution and delivery thereof, will be legal, valid, binding and enforceable
obligations of the Borrower or the person executing the same, as the case may
be, in accordance with the terms of each.
3.10 Title to Property. The Borrower has good and marketable title to its
properties and assets subject to no mortgage, pledge, lien, security interest,
encumbrance or other charge not set forth in (a) Schedule A hereto under the
heading "Encumbrances Not Otherwise Disclosed" or (b) Section 6.1 hereinafter
stated.
3.11 Taxes. The Borrower has filed all tax returns and reports required to
be filed by it with all federal, state or local authorities and has paid in full
or made adequate provision for the payment of all taxes, interest, penalties,
assessments or deficiencies shown to be due or claimed to be due on or in
respect of such tax returns and reports.
3.12 Business Name and Locations. The Borrower conducts its business solely
in its own name without the use of a trade name or the intervention of or
through any other entity of any kind, other than as disclosed on Schedule A
under the heading "Subsidiaries, Affiliates and Trade Names." All books and
records relating to Borrower's assets are located at the Borrower's chief
executive office as set forth above and its other places and locations, where
its assets are located, are as set forth on Schedule A hereto under the heading
"Places of Business."
3.13 Notices of Environmental Problems. The Borrower and any tenants have
not given nor have they received, any notice that: (a) there has been a release,
or there is a threat of release, of toxic substances or hazardous wastes from
any real property owned or operated by the Borrower, (b) the Borrower or any
tenants may be or is liable for the costs of cleaning up or responding to a
release of any toxic substances or hazardous wastes; or (c) any of such real
property is subject to a lien for any liability arising from costs incurred in
response to a release of toxic substances or hazardous wastes.
Section 4. Conditions Precedent
4.1 The initial Advance under the Line of Credit shall be subject to the
following conditions precedent:
(a) Approval of Bank Counsel. All legal matters incident to the
transactions hereby contemplated shall be reasonably satisfactory to counsel for
the Bank.
(b) Proof of Action. The Bank shall have received such documents evidencing
the Borrower's power to execute and deliver this Agreement, the Note and the
Related Agreements as the Bank or its counsel shall reasonably request.
(c) The Note, Related Agreements and Documents. The Borrower shall have
delivered to the Bank the Note, this Agreement and the Related Agreements and
such other documents as the Bank may reasonably request.
4.2 Every Advance under the Line of Credit shall be subject to the
following conditions precedent that:
(a) No Event of Default. No Event of Default has occurred and is continuing
and no event has occurred or is continuing which, pursuant to the provisions of
Section 8, with the lapse of time and/or the giving of a notice as specified
therein, would constitute an Event of Default.
(b) No Material Adverse Change. There has been no material adverse change
in the assets, liabilities, financial condition or business of the borrower or
any Guarantor since the date of any financial statements delivered to the Bank
before or after the date of this Agreement.
(c) Representations and Warranties. That the representations and warranties
contained in Sections 3.1 through 3.14 are true and correct, and that the
Borrower shall have so certified to the Bank. Any request for a borrowing shall
be deemed a certification by the Borrower as to the truth and accuracy of the
representations and warranties contained in Sections 3.1 through 3.14 as of the
date of such request.
Section 5. Affirmative Covenants
The Borrower covenants and agrees that from the date hereof until payment
in full of the Note, the performance of all Borrower's obligations hereunder and
under any Related Agreement is complete and the termination of this Agreement,
unless the Bank otherwise consents in writing, the Borrower shall:
5.1 Financial Statements; Notice of Default. Deliver to the Bank (a)within
forty-five (45) days after close of each of the quarters of each fiscal year of
the Borrower, consolidated financial statements that are internally prepared,
consisting of a balance sheet and statement of income and retained earnings for
that portion of the fiscal year to date then ended, which statements shall be
prepared in accordance with GAAP consistently applied; (b) within ninety (90)
days after the close of each fiscal year of the Borrower, consolidated financial
statements including a balance sheet as of the close of such year and statements
of income and retained earnings and cash flows for the year then ended, prepared
in conformity with GAAP and audited by a firm of independent certified public
accountants selected by the Borrower and acceptable to the Bank; (c) within
ninety (90) days after the close of each fiscal year, a copy of the Borrowers'
form 10k as filed with the Securities and Exchange Commission together with all
schedules, exhibits and attachments thereto; (d) promptly upon the Bank's
written request, such other information about the financial condition, business
and operations of the Borrower, or any Guarantor (if any), as the Bank may, from
time to time, reasonably request; and (e) promptly upon becoming aware of any
occurrence but for the giving of notice or the passage of time which would
constitute an Event of Default, notice thereof in writing. Together with any and
all financial statements to be delivered to the Bank pursuant to Section 5.1,
the Borrower shall submit a certificate of compliance by the president or chief
financial officer of the Borrower, certifying that the Borrower is in compliance
with all affirmative and negative covenants of this Agreement.
The Borrower shall also deliver to the Bank, promptly upon receipt thereof,
any management audit letter issued to the Borrower by its firm of certified
public accountants.
5.2 Insurance. (a) Keep its properties insured against fire and other
hazards (so called "All Risk" coverage) in amounts and with companies reasonably
satisfactory to the Bank to the same extent and covering such risks as is
customary in the same or a similar business, (b) maintain public liability
coverage against claims for personal injuries or death, and (c) maintain all
worker's compensation, employment or similar insurance as may be required by
applicable law. Such All Risk property insurance coverage shall provide for a
minimum of thirty (30) days' written cancellation notice to the Bank. Borrower
agrees to deliver certificates of insurance to the Bank upon request.
5.3 Compliance with Laws; Payment of Taxes and Other Liens. Comply in all
respects with all federal, state, county and municipal laws, rules, ordinances
and regulations applicable to Borrower, Borrower's business or property,
including without limitation, those pertaining to or concerning the employment
of labor, employee benefits, public health, safety and the environment. The
Borrower shall pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against Borrower or
Borrower's property which, if unpaid, might become a lien or charge against the
Borrower or Borrower's property, except liabilities being contested in good
faith and against which, if requested by the Bank, the Borrower shall maintain
reasonable reserves.
5.4 Chief Executive Office and Places of Business. Keep its chief executive
office, principal places of business and locations of assets at the locations
set forth in this Agreement and maintain its principal places of business, its
chief executive office and locations of assets at said locations or, in the
event that the Borrower changes any of such locations or adds any new locations,
Borrower shall promptly give Bank written notice of any change in any of such
addresses or such new locations. All business records of the Borrower, including
those pertaining to all accounts and contract rights, shall be kept at the said
chief executive office of the Borrower unless prior written notice is given to
the Bank with respect to a change of location.
5.5 Inspection. Allow the Bank by or through any of its officers, agents,
attorneys, or accountants designated by it, for the purpose of ascertaining
whether or not the provisions hereof and of any Related Agreement, instrument or
document is being performed and for the purpose of examining the assets of the
Borrower and the records relating thereto, to enter the offices, and plants of
the Borrower to examine or inspect any of the properties, books and records or
extracts therefrom and to discuss the affairs, finances and accounts thereof
with the Borrower with prior notification and consent; such consent not to be
unreasonably withheld, all at reasonable times and as often as the Bank may
reasonably request.
5.6 Litigation. Promptly advise the Bank of the commencement of litigation,
including arbitration proceedings and any proceedings before any governmental
agency, which might have a material adverse effect upon the assets, liabilities,
financial condition or business of the Borrower, or where the amount involved is
$100,000.00 or more.
5.7 Notices of Environmental and Labor Actions and Claims. Promptly notify
the Bank in writing of (a) any enforcement, clean-up, removal or other action
instituted by any federal, state, county or municipal authority or agency
pursuant to any public health, safety or environmental laws, rules, ordinances
and regulations, (b) any and all claims made by any third party against Borrower
or any real property owned or operated by either relating to the existence of,
or damage, loss or injury from any toxic substances or hazardous wastes or any
other conditions constituting actual or potential violations of such laws,
rules, ordinances or regulations and (c) any enforcement or compliance action,
instituted or claim made by any federal or state authority relating to the
employment of labor or employee benefits.
5.8 Maintenance of Existence. Continue to conduct its business as presently
conducted, maintain its existence and maintain its properties in good repair,
working order and operating condition. The Borrower shall promptly notify the
Bank of any event causing material loss or unusual depreciation in the value of
its business assets and the amount of same.
5.9 Performance. Comply with all terms and conditions of this Agreement,
the Related Agreements and the Note and pay all debts of the Borrower before the
same shall become delinquent.
5.10 Covenant to Secure Equally and Ratably. Secure the Note or cause the
Note to be secured equally and ratably with any and all Indebtedness secured by
any lien or encumbrance created after the date hereof by the Borrower or any
Subsidiary upon any of its property or assets, whether owned or hereafter
acquired, other than liens or encumbrances permitted pursuant to Section 6.1
hereof.
5.11 Deposits. Maintain the Bank as its principal bank of deposit and
account.
5.12 Use of Proceeds. The Borrower shall use the proceeds of each Advance
for: (a) general commercial purposes, provided that no part of such proceeds
will be used, in whole or in part, for the purpose of (i) purchasing or carrying
any "margin stock" as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System, or (ii) acquiring all or substantially
all of the assets or stock of, or otherwise investing in, any person, firm or
corporation; or (b) the repurchase of Borrower's capital stock, provided that no
more than $2,500,000, in the aggregate, of Advances may be used for this purpose
from the date hereof through the Termination Date, however, upon the written
consent of the Bank, in its sole and absolute discretion, the Borrower may be
permitted to use up to an additional $2,500,000 of Advances for the repurchase
of Borrower's capital stock through the Termination Date (collectively, "Stock
Repurchase Advances").
5.13 Victorinox Contract. The Borrower shall maintain in full force and
effect the exclusive distribution agreement with Victorinox Cutlery Company,
dated December 12, 1983, as amended and modified from time to time (the
"Victorinox Cutlery Contract"). The Borrower will not modify or amend the
Victorinox Cutlery Contract so as to disturb its status as the exclusive
distributor thereunder without the prior express written consent of the Bank.
Section 6. Negative Covenants
The Borrower covenants and agrees that until payment is made in full of the
Note, the performance of all Borrower's obligations hereunder and under any
Related Agreement is complete and the termination of this Agreement, unless the
Bank otherwise consents in writing which consent shall not be unreasonably
withheld, the Borrower shall not:
6.1 Encumbrances. Incur or permit to exist any lien, mortgage, security
interest, pledge, charge or other encumbrance against any of its property or
assets (including, without limitation, the Victorinox Cutlery Contract), whether
now owned or hereafter acquired (including, without limitation, any lien or
encumbrance relating to any response, removal or clean-up of any toxic
substances or hazardous wastes), except: (a) pledges or deposits in connection
with or to secure workers' compensation and unemployment insurance; (b) tax
liens which are being contested in good faith and in compliance with Section 5.3
hereof; (c)liens, mortgages, security interests, pledges, charges or other
encumbrances in favor of the Bank or specifically permitted, in writing, by the
Bank; and (d) purchase money security interests provided such purchase money
security interest does not attach to any property other than the property being
acquired with the proceeds of purchase money security interest indebtedness
permitted under Section 6.2 hereof.
6.2 Limitation on Indebtedness. Create or incur any Indebtedness for
borrowed money, become liable, either actually or contingently, in respect of
letters of credit or banker's acceptances or issue or sell any obligations of
the Borrower, excluding, however, from the operation of this covenant: (a) the
Line of Credit hereunder and all other Indebtedness of the Borrower to the Bank;
(b) Indebtedness subordinated in payment and priority to all Indebtedness of the
Borrower to the Bank in writing and in form and substance reasonably
satisfactory to the Bank; (c) trade debt incurred in the ordinary course of
business; (d) Indebtedness secured by a purchase money security interest,
provided such Indebtedness does not exceed the lesser of (i) the purchase price
or (ii) the value of the property acquired with the proceeds thereof;
(e) obligations in connection with performance bonds which the Borrower is
required to provide in the ordinary course of its business; and (f) Indebtedness
to financial institutions under or pursuant to foreign currency exchange
facilities.
6.3 Disposition of Assets. Without prior notice to the Bank sell, lease,
pledge, transfer or otherwise dispose of all or any of its assets whether now
owned or hereafter acquired except for liens or encumbrances required or
permitted hereby or by any Related Agreement, except (a) sales of inventory in
the ordinary course of business; (b) sales of machinery, equipment and inventory
which has become obsolete and is no longer used or useful; (c) sales of
machinery or equipment in the ordinary course of business if such machinery and
equipment is replaced with other similar equipment or machinery; (d) sales of
any assets not described in (a), (b), or (c) above, having an aggregate value
not in the excess of $50,000 in any year calculated on a consolidated basis; and
(e) a lien on the currency or contracts which are the subject of any foreign
exchange transaction.
6.4 Contingent Liabilities. Without prior notice to the Bank (Bank consent
not required) assume, guarantee, endorse or otherwise become liable upon the
obligations of any person, firm or corporation except by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business.
6.5 Consolidation or Merger. Merge or consolidate with, or acquire all or
substantially all of the assets of, or make any investment in the securities of,
any other person, firm, corporation, or other entity, except that (a) the
Borrower may merge or consolidate with one or more of its Subsidiaries, provided
that the Borrower is the surviving corporation, or, if it is not the surviving
corporation, the surviving corporation assumes all of the Borrower's liabilities
hereunder and under the Note and the Security Agreement; (b) the Borrower's
Subsidiaries may merge or consolidate with one another so long as the surviving
corporation is a Guarantor hereunder; and (c) Borrower may issue shares of its
stock, without dollar limitation, and Borrower may expend up to $15,000,000 in
cash or cash equivalents, in the aggregate, during the term of this Agreement,
as modified, to merge with or acquire all or any portion of the securities, or
all or any portion of the assets, of any person, firm, corporation, or other
entity, provided that following such merger, securities acquisition, or asset
acquisition, there exists no Event of Default hereunder or any event or
condition which, with the passage of time or the giving of notice or both, would
constitute an Event of Default hereunder.
The acquisition by the Borrower of all or substantially all of the assets,
together with the assumption of all or substantially all of the obligations and
liabilities, of any corporation shall be deemed to be a consolidation of such
corporation with the Borrower.
6.6 Loans, Advances, Investments. Subject to Sections 5.12 and 6.14 of this
Agreement, purchase or otherwise acquire any shares of stock or obligations of,
or make loans or advances to, or investments in, any individual, firm, entity or
corporation through Advances under this Line of Credit.
6.7 Dividends. Declare or pay dividends or make any distributions of its
property or assets upon any of its stock or make any loans, advances, or
extension of credit to any of its stockholders unless no Event of Default, or
any event or condition which with the passage of time, the giving of notice or
both would constitute an Event of Default, is existing hereunder at the time of
or immediately following such transaction; provided, however, that,
notwithstanding this Section: (1) any Subsidiaries of the Borrower may declare
or pay dividends or make distributions of its property or assets upon any of its
stock to the Borrower or make loans, advances or extensions of credit to the
Borrower, (2) the Borrower or any Subsidiary may extend credit to any customer
of the Borrower or such Subsidiary who is also a stockholder of the Borrower or
such Subsidiary, provided such extension of credit meets the standards set forth
in Section 6.8 below; and (3) the Borrower and any Subsidiary may make loans or
advances to any other person or entity, provided that the aggregate amount of
all such loans or advances outstanding at any time does not exceed $150,000.
6.8 Transactions with Subsidiaries and Affiliates. Enter into, or be a
party to, any transaction with any Subsidiary or Affiliate (including, without
limitation, transactions involving the purchase, sale or exchange of property,
the rendering of services or the sale of stock) except in the ordinary course of
business pursuant to the reasonable requirements of the Borrower and upon fair
and reasonable terms no less favorable to the Borrower than Borrower would
obtain in a comparable arm's-length transaction with a person other than a
Subsidiary or an Affiliate.
6.9 Change of Name or Location. Without prior notice to the Bank change its
name or conduct its business under any trade name or style other than as herein
above set forth or change its chief executive office, or if the Borrower is an
individual with no place of business, its residence, places of business or the
present locations of its assets or records relating thereto from those
address(es) herein above set forth.
6.10 Subsidiaries, Affiliates. Without prior notice to the Bank (acquire,
form or dispose of any Subsidiary or Affiliate or acquire all or substantially
all or any portion of the stock or assets of any other person, firm or
corporation.
6.11 Management, Capital Structure, Accounting Methods. Make or consent to
a change in the ownership or capital structure of the Borrower, or make a change
in the management of the Borrower or in the manner in which the business of the
Borrower is conducted or in its method of accounting.
6.12 Use of Property. Allow any business or activity to be conducted on
real property owned or occupied by the Borrower that uses, manufacturers,
treats, stores or disposes of any toxic substances or hazardous wastes which are
prohibited or regulated under any public health, safety or environmental law,
rule, ordinance or regulation or contrary to the provisions of any insurance
policy.
6.13 Grant of Negative Pledge. Enter into any agreement with any person or
entity (other than the Bank) in which the Borrower agrees not to create or
suffer to exist any liens or encumbrances of any kind on any property of the
Borrower, except that the Borrower may enter into such an agreement with respect
to assets which are subject to liens permitted under Section 6.1.
6.14 Acquisition of Stock of Borrower. Purchase, acquire, redeem or retire,
or make any commitment to purchase, acquire, redeem or retire any of the capital
stock of the Borrower, whether now or hereafter outstanding, except: (a) as
permitted pursuant to Section 5.12 of this Agreement; and (b) the acquiring,
redeeming or repurchasing of up to 400,000 shares of the capital stock of the
Borrower ("Permitted Stock Repurchases").
6.15 Transactions with Victorinox Cutlery Company. Make any distributions
of its assets or any loans, advances or extensions of credit to Victorinox
Cutlery Company, except in the ordinary course of business as reasonable payment
for goods or services actually received.
Section 7. Financial Covenants
The Borrower covenants and agrees that until payment is made in full of the
Note, the performance of Borrower's obligations hereunder and under any Related
Agreement is complete and the termination of this Agreement, unless the Bank
otherwise consents in writing:
7.1 Calculation of Financial Covenants. The calculation of the financial
covenants set forth in this Section 7 shall be measured against the Borrower's
financial statements required to be delivered to the Bank pursuant to Section
3.1 of this Agreement on a Consolidated basis.
All financial covenants set forth below are to be tested quarterly.
7.2 Intentionally Omitted.
7.3 Current Ratio. Borrower shall not permit its Current Ratio to be less
than 2.5 to 1.0.
7.4 Intentionally Omitted.
7.5 Tangible Net Worth: Borrower shall not permit the sum of Tangible Net
Worth plus the lesser of (i) the aggregate amount expended in making Permitted
Stock Repurchases or (ii) $5,000,000, to be less than $71,500,000 as of
September 30, 1998, and not less than $72,500,000 as of December 31, 1998 and
thereafter.
7.6 Intentionally Omitted.
7.7 Total Liabilities to Tangible Net Worth Ratio. Borrower shall not
permit its ratio of Total Liabilities to the sum of Tangible Net Worth plus the
lesser of (i) the aggregate amount expended in making Permitted Stock Repurchase
Repurchases or (ii) $5,000,000, to be less than .75 to 1.0.
7.8 - 7.9 Intentionally Omitted.
7.10 Interest Coverage Ratio: Borrower shall not permit the Interest
Coverage Ratio to be less than 1.5 to 1.0.
Section 8. Events of Default
If any one or more of the following "Events of Default" shall occur and be
continuing:
8.1 Failure to make due payment of the principal of the Note, or in the
payment of interest on the Note or in the payment of any other liability owing
by the Borrower to the Bank within 10 days of the due date, now existing or
hereinafter incurred, whether direct or contingent; or
8.2 Failure by the Borrower to observe or perform any covenant contained in
Sections 5, 6 or 7 hereof, or failure by the Borrower to perform any of its
obligations under any Related Agreement; or
8.3 Failure by the Borrower to perform any act, duty, obligation or other
agreement contained herein and not otherwise constituting an Event of Default
hereunder which shall occur and continue without correction for thirty (30) days
following the Bank giving the Borrower notice thereof; or
8.4 Any representation or warranty made by the Borrower herein or in any
Related Agreement, or any statement, certificate or other data furnished by the
Borrower in connection herewith or with any Related Agreement, proves to have
been incorrect when made in any material respect; or
8.5 A judgment or judgments for the payment of money shall be rendered
against the Borrower, and any such judgment shall remain unsatisfied and in
effect for any period of thirty (30) consecutive days without a stay of
execution; or
8.6 Any levy, seizure, attachment, execution or similar process shall be
issued or levied on any of the Borrower's property in excess of $100,000 and
Borrower shall not in good faith be contesting such situation; or
8.7 The Borrower shall (a) apply for or consent to the appointment of a
receiver, conservator, trustee or liquidator of all or a substantial part of any
of its assets; (b) be unable, or admit in writing its inability to pay its debts
as they mature; (c) file or permit the filing of any petition, case,
arrangement, reorganization, or the like under any insolvency or bankruptcy law,
or the adjudication of it as a bankrupt, or the making of an assignment for the
benefit of creditors or the consenting to any form of arrangement for the
satisfaction settlement or delay of debt or the appointment of a receiver for
all or any part of its properties; or (d) take any action for the purpose of
effecting any of the foregoing; or
8.8 An order, judgment or decree shall be entered, or a case shall be
commenced, against the Borrower, without the application, approval or consent of
the Borrower by or in any court of competent jurisdiction, approving a petition
or permitting the commencement of a case seeking reorganization or liquidation
of the Borrower or appointing a receiver, trustee, conservator or liquidator of
the Borrower or of all or a substantial part of its assets and Borrower, by any
act, indicates its approval thereof, consent thereto, or acquiescence therein,
or such order, judgment, decree or case shall continue unstayed and in effect
for any period of one hundred twenty (120) consecutive days; or
8.9 The Borrower shall dissolve or liquidate, or be dissolved or
liquidated, or cease to legally exist; or
8.10 Intentionally Omitted; or
8.11 failure by the Borrower to pay any other Indebtedness in an amount in
excess of $100,000, whether contingent or otherwise and if such other
Indebtedness shall be accelerated; unless such other Indebtedness is subject to
a bona fide dispute and the Borrower maintains on its books an adequate reserve
with respect to such Indebtedness; or
8.12 Any material adverse change in the assets, liabilities, financial
condition or business of the Borrower has occurred since the date of any
financial statements delivered to the Bank before or after the date of this
Agreement which condition shall remain in effect for thirty (30) days after
notice and an opportunity to cure;
then, and in such event, the Bank may declare the then outstanding
principal balance and all interest accrued on the Note and all applicable late
charges and surcharges and all other liabilities and obligations of the Borrower
to the Bank to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, the availability of the Line of Credit shall be
deemed to be automatically terminated, and the Bank may exercise its rights and
remedies under this Agreement and the Related Agreements; all of the foregoing
without presentment or demand for payment, notice of non-payment, protest or any
other notice or demand of any kind, all of which are expressly waived by the
Borrower and each Guarantor.
Section 9. Intentionally Omitted
Section 10. Miscellaneous
10.1 Waivers.
(a) Borrower hereby waives presentment, demand, notice, protest, notice of
acceptance of this Agreement, notices of advances made, credit extended,
collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect to this
Agreement, the Related Agreements, the Note and any collateral now or hereafter
securing the Note, Borrower assents to any extension or postponement of the time
of payment or any other indulgence, to any substitution, to the addition or
release of any party or person primarily or secondarily liable, to the
acceptance of partial payments thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Bank may deem advisable. The Bank shall not be deemed to have waived any of its
rights upon or under any document or agreement relating to the liabilities of
the Borrower, unless such waiver be in writing and signed by the Bank. No delay
or omission on the part of the Bank in exercising any right shall operate as a
waiver of such right or any other right. A waiver on any one occasion shall not
be construed as a bar to or waiver of any right on any future occasion. The Bank
may revoke any permission or waiver previously granted to Borrower such
revocation shall be effective whether given orally or in writing. All rights and
remedies of the Bank with respect to this Agreement, the Related Agreements or
the Note whether evidenced hereby or by any other instrument or document, shall
be cumulative and may be exercised singularly or concurrently.
(b) BORROWER AND BANK MUTUALLY HEREBY 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 AGREEMENT OR THE 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 THE NOTE AND MAKE THE LOAN.
(c) BORROWER (i) ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT
IS A PART IS A COMMERCIAL TRANSACTION AND (ii) TO THE EXTENT PERMITTED BY ANY
STATE OR FEDERAL LAW, WAIVES THE RIGHT ANY OF THEM MAY HAVE TO PRIOR NOTICE OF
AND A HEARING AND THE POSTING OF A BOND ON THE RIGHT OF ANY HOLDER OF THE NOTE
TO ANY REMEDY OR COMBINATION OF REMEDIES THAT ENABLES SAID HOLDER BY WAY OF
ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN, TO DEPRIVE BORROWER OR
ANY GUARANTOR OF ANY OF THEIR PROPERTY, AT ANY TIME, PRIOR TO FINAL JUDGMENT IN
ANY LITIGATION INSTITUTED IN CONNECTION WITH THIS AGREEMENT.
10.2 Notices. All other notices, requests or demands to or upon a party to
this Agreement shall be given or made by the other party hereto in writing, in
person or by depositing in the mails postage prepaid, return receipt requested
addressed to the addressee at the address set forth above or to such other
addresses as such addressee may have designated in writing to the other party
hereto. No other method of giving any notice, request or demand is hereby
precluded.
10.3 Expenses; Additional Documents. The Borrower will pay all taxes levied
or assessed upon the principal sum of the Advances made against the Bank and all
reasonable expenses arising out of the preparation, administration, amendment,
waiver, modification, protection, collection and/or other enforcement of this
Agreement, the Related Agreements, and the Note. The Borrower will, from time to
time, at its expense, execute and deliver to the Bank all such other and further
instruments and documents as the Bank shall reasonably request.
10.4 Lien, Security Interest and Set Off. Borrower hereby grants to Bank, a
lien, security interest and right of setoff as security for all liabilities and
obligations to Bank, whether now existing or hereafter arising, upon and against
all deposits and credits, now or hereafter in the possession, custody,
safekeeping or control of Bank or in transit to the Bank. At any time, without
demand or notice, Bank may set off the same or any part thereof and apply the
same to any liability or obligation of Borrower even though unmatured.
10.5 Indemnification. The Borrower agrees to defend, indemnify and hold
harmless the Bank and any participants, successors or assigns of the Bank and
the officers, directors, employees and agents of each of them from and against
any and all losses, claims, liabilities, asserted liabilities, reasonable costs
and expenses, including, without limitation, reasonable costs of litigation and
reasonable attorneys' fees (both the allocated costs of internal counsel and
outside counsel) incurred in connection with any and all claims or proceedings
for bodily injury, property damage, abatement or remediation, environmental
damage or impairment or any other injury or damage (including all foreseeable
damage) or any diminution in value of any real property resulting from or
relating, directly or indirectly, to (a) a release into the environment of any
toxic substances or hazardous wastes (a "Release") a threatened Release, the
existence or removal of any toxic substances or hazardous wastes on, into, from,
through or under any real property owned or operated by the Borrower or any
Guarantor (whether or not such Release caused by Borrower, or Borrower
Affiliate, tenant, subtenant, prior owner or prior tenant or any other Person
and whether or not the alleged liability is attributable to the handling,
storage, generation, transportation or disposal of toxic substances or hazardous
wastes or the mere presence of such toxic substances or hazardous wastes) or (b)
the breach or alleged breach by Borrower of any federal, state or local law or
regulation concerning public health, safety or the environment with respect to
any real property owned or operated by the Borrower and/or any business
conducted thereon.
10.6 Stamp Tax. The Borrower will pay any stamp or other tax which becomes
payable in respect of the Note, this Agreement or the Related Agreements.
10.7 Schedule A. Schedule A which is attached hereto is and shall
constitute a part of this Agreement.
10.8 Connecticut Law. This Agreement, the Related Agreements and the rights
and obligations of the parties hereunder and thereunder shall be construed and
interpreted in accordance with the laws of Connecticut. The Borrower and each
Guarantor agree that the execution of this Agreement and Related Agreements and
the performance of the Borrower's obligations hereunder and thereunder shall be
deemed to have a Connecticut situs and the Borrower shall be subject to the
personal jurisdiction of the courts of the State of Connecticut with respect to
any action the Bank or its successors or assigns may commence hereunder or
thereunder. Accordingly, the Borrower hereby specifically and irrevocably
consents to the jurisdiction of the courts of the State of Connecticut with
respect to all matters concerning this Agreement, the Related Agreements, the
Note, or the enforcement of any of the foregoing.
10.9 Survival of Representations. All representations, warranties,
covenants and agreements herein contained or made in writing in connection with
this Agreement shall survive the execution and delivery of the Note, shall
continue in full force and effect until all amounts payable on account of the
Note, the Related Agreements and this Agreement shall have been paid in full and
this Agreement has been terminated.
10.10 Severability. If any provision of this Agreement shall to any extent
be held invalid or unenforceable, then only such provision shall be deemed
ineffective and the remainder of this Agreement shall not be affected.
10.11 Integration; Modifications. This Agreement is intended by the parties
as the final, complete and exclusive statement of the transactions evidenced by
this Agreement. No modification or amendment hereof shall be effective unless
the same shall be in writing and signed by the parties hereto.
10.12 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Borrower, the Bank and their respective
successors and assigns.
10.13 Pledge by Bank to Federal Reserve. Bank may at any time pledge all or
any portion of its rights under this Agreement or the Note including any portion
of the 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 this Agreement
or any of the Related Agreements.
10.14 Lost, Stolen, Destroyed or Mutilated Documents. Upon receipt of an
affidavit of an officer of Bank as to the loss, theft, destruction or mutilation
of the Note or any other security document which is not of public record, and,
in the case of any such loss, theft, destruction or mutilation, upon surrender
and cancellation of such Note or other security document, Borrower will issue,
in lieu thereof, a replacement Note or other security document in the same
principal amount thereof and otherwise of like tenor.
10.15 Assignment of Bank's Interest. Bank shall have the unrestricted right
at any time or from time to time, and without Borrower's or any Guarantor's
consent, to assign all or any portion of its rights and obligations hereunder to
one or more banks or other financial institutions (each, an "Assignee"), and
Borrower and each Guarantor agrees that it shall execute, or cause to be
executed, such documents, including without limitation, amendments to this
Agreement and to any other documents, instruments and agreements executed in
connection herewith as Bank shall deem necessary to effect the foregoing. In
addition, at the request of Bank and any such Assignee, Borrower shall issue one
or more new promissory notes, as applicable, to any such Assignee, and, if Bank
has retained any of its rights and obligations hereunder following such
assignment, to Bank, which new promissory notes shall be issued in replacement
of, but not in discharge of, the liability evidenced by the promissory note held
by Bank prior to such assignment and shall reflect the amount of the respective
commitments and loans held by such Assignee and Bank after giving effect to such
assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments and any other documentation required by Bank in
connection with such assignment, and the payment by Assignee of the purchase
price agreed to by Bank, and such Assignees, such Assignee shall be a party to
this Agreement and shall have all of the rights and obligations of Bank
hereunder (and under any and all other guaranties, documents, instruments and
agreements executed in connection herewith) to the extent that such rights and
obligations have been assigned by Bank pursuant to the assignment documentation
between Bank and such Assignee, and Bank shall be released from its obligations
hereunder and thereunder to a corresponding extent.
10.16 Participations. Bank shall have the unrestricted right at any time
and from time to time, and without the consent of or notice to Borrower or any
Guarantor to grant to one or more banks or other financial institutions (each a
"Participant") participating interest in Bank's obligation to lend hereunder
and/or any or all of the loans held by Bank hereunder. In the event of any such
grant by Bank of a participating interest to a Participant, whether or not upon
notice to Borrower, Bank shall remain responsible for the performance of its
obligations hereunder and Borrower shall continue to deal solely and directly
with Bank in connection with Bank's rights and obligations hereunder.
Bank may furnish any information concerning Borrower in its possession from
time to time to prospective Assignees and Participants, provided that Bank shall
require any such prospective Assignee or Participant to agree in writing to
maintain the confidentiality of such information.
IN WITNESS WHEREOF, the parties hereto have caused this Commercial
Revolving Line of Credit Agreement to be duly executed as a sealed instrument as
of the day and year first above written.
SWISS ARMY BRANDS, INC.
Witness:
By Thomas M. Lupinski
Its
FLEET NATIONAL BANK
Witness:
By
Its
<PAGE>
SCHEDULE A
Annexed to and made a part of the Commercial Revolving Line of Credit Agreement
of even date between FLEET NATIONAL BANK and SWISS ARMY BRANDS, INC. (defined in
said Commercial Revolving Line of Credit Agreement as the Borrower).
Description of Financial Statements (See Section 3.3 of Agreement):
Liabilities Not Disclosed in Financial Statements (Section 3.3 of Agreement):
Litigation, Pending or Threatened (See Section 3.6 of Agreement):
See addendum to Schedule A.
Subsidiaries, Affiliates and Trade Names-list name and state of organization of
each Subsidiary and Affiliate (See Section 3.7 of Agreement) and percentage
ownership if less than 100% and list each Trade Name used by Borrower (See
Section 3.13 of Agreement):
Encumbrances Not Otherwise Disclosed (See Section 3.11 of Agreement):
Places of Business (See Section 3.13 of Agreement):
Chief Executive Office and location of material assets.
Related Agreements (See Section 1 of Agreement, Definitions):
Borrowing Resolution
Opinion of Counsel
Guarantees
Commercial Transaction Waiver
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000731947
<NAME> Swiss Army Brands, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.0000
<CASH> 616
<SECURITIES> 0
<RECEIVABLES> 29,377
<ALLOWANCES> 975
<INVENTORY> 28,599
<CURRENT-ASSETS> 65,473
<PP&E> 8,179
<DEPRECIATION> (4,327)
<TOTAL-ASSETS> 96,358
<CURRENT-LIABILITIES> 22,148
<BONDS> 0
0
0
<COMMON> 885
<OTHER-SE> 73,325
<TOTAL-LIABILITY-AND-EQUITY> 96,358
<SALES> 86,167
<TOTAL-REVENUES> 86,167
<CGS> 52,605
<TOTAL-COSTS> 33,715
<OTHER-EXPENSES> 1,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 1,459
<INCOME-TAX> 605
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-PRIMARY> .10
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</TABLE>
