SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 1-5354
SWANK, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-1886990
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
6 Hazel Street, Attleboro, Massachusetts 02703
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 508-222-3400
Former name, former address and former fiscal year, if changed
since last report.
Indicate by X 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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court:
Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable
date:
Title of Class Shares Outstanding on October 31, 1999
Common stock, $.10 par value 16,569,423
SWANK, INC.
PART I - FINANCIAL STATEMENTS
Item 1. Financial Statements. CONDENSED CONSOLIDATED BALANCE
SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents $ 17 $ 757
Accounts receivable, less allowances
of $7,429 and $9,041 22,714 14,756
Inventories
Raw materials $8,582 $7,028
Work in process 9,711 7,337
Finished goods 26,394 44,687 26,819 41,184
Deferred income taxes 4,069 4,069
Prepaid income taxes 1,124 -
Prepaid and other 1,626 967
Total current assets 74,237 61,733
Property, plant and equipment, at cost 28,270 26,932
less accumulated depreciation and amortization 22,405 5,865 21,358 5,574
Other assets 6,435 5,662
Total assets $ 86,537 $ 72,969
LIABILITIES
Current:
Notes payable to banks $ 29,405 $ 15,321
Current portion of long-term debt 243 242
Accounts payable 7,174 5,770
Accrued employee compensation 3,601 4,775
Income taxes payable - 1,888
Other current liabilities 4,705 4,232
Total current liabilities 45,128 32,228
Long-term obligations 9,566 9,563
Total liabilities 54,694 41,791
Minority Interest in consolidated subsidiary 597 -
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00
Authorized 1,000,000 shares
Common stock, par value $.10
Authorized 43,000,000 shares:
Issued 16,902,942 and 16,887,942 shares 1,690 1,689
Capital in excess of par value 926 913
Retained earnings 29,326 29,285
Accumulated other comprehensive income 16 -
31,958 31,887
Treasury stock , at cost, 333,519 shares (709) (709)
Deferred employee benefits (3) -
Total stockholders' equity 31,246 31,178
Total liabilities and stockholders' equity $ 86,537 $ 72,969
The accompanying notes are an integral part of the condensed
consolidated financial statements.
</TABLE>
SWANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE QUARTERS ENDED SEPTEMBER 30, 1999 AND 1998
(Dollars in thousands except per share data)
---------------------------------
1999 1998
Net Sales $ 40,938 $ 39,041
Cost of goods sold 24,679 22,852
Gross profit 16,259 16,189
Selling and administrative expenses 14,500 14,181
Income from operations 1,759 2,008
Interest expense, net 513 523
Income before income taxes and minority 1,246 1,485
interest
Provision for income taxes 541 579
Minority interest in income of consolidated (32) 0
subsidiary
Net Income $673 $906
Share and per share information:
Weighted average common shares outstanding 16,569,423 16,550,736
Net income per common share $ .04 $ .05
Weighted average common shares outstanding 16,710,989 16,968,035
assuming dilution
Net income per common share assuming $ .04 $ .05
dilution
The accompanying notes are an integral part of the condensed
consolidated financial statements.
SWANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Dollars in thousands except per share data)
----------------
1999 1998
Net Sales $ 110,862 $ 104,847
Cost of goods sold 68,992 61,255
Gross profit 41,870 43,592
Selling and administrative expenses 40,899 40,413
Income from operations 971 3,179
Interest charges, net 1,252 1,192
Income (loss) before income taxes and (281) 1,987
minority interest
Provision (benefit) for income taxes (130) 775
Minority interest in loss of consolidated 193 0
subsidiary
Net Income $ 42 $1,212
Share and per share information:
Weighted average common shares outstanding 16,568,491 16,529,419
Net income (loss) per common share $ .00 $ .07
Weighted average common shares outstanding 16,723,209 16,747,542
assuming dilution
Net income (loss) per share assuming $ .00 $ .07
dilution
The accompanying notes are an integral part of the condensed
consolidated financial statements.
SWANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Dollars in thousands)
--------------
1999 1998
Cash flow from operating activities:
Net income $ 42 $1,212
Adjustments to reconcile net income
to net cash used in operations:
Depreciation and amortization 1,124 1,668
Gain on sale of fixed assets - (3)
Recoveries of bad debts (11) (294)
Minority interest in net loss of consolidated (193) -
subsidiary
Changes in assets and liabilities
Increase in accounts receivable (8,085) (8,834)
Increase in inventory (3,106) (10,898)
(Increase) decrease in prepaid and other (714) 295
(Increase) decrease in other assets (58) 100
Increase in prepaid income taxes (1,124) (791)
Increase in accounts payable 912 3,531
and accrued liabilities
Decrease in income taxes payable (1,888) (253)
Increase (decrease) in long-term obligations 137 (31)
Net cash used in operations (12,964) (14,298)
Cash flow from investing activities:
Capital expenditures (1,013) (698)
Proceeds from sale of fixed assets 9 6
Premiums on life insurance (540) (622)
Net cash used in investing activities (1,544) (1,314)
Cash flow from financing activities:
Borrowing under revolving credit agreements 57,034 54,339
Payments of revolving credit obligations (42,950) (37,001)
Principal payments on long-term debt (327) (2,992)
Proceeds from exercise of employee stock options 14 42
Advance to retirement plan (3) (2)
Net cash provided by financing 13,768 14,386
activities
Net decrease in cash and cash equivalents (740) (1,226)
Cash and cash equivalents at beginning of period 757 1,235
Cash and cash equivalents at end of period $17 $9
The accompanying notes are an integral part of the condensed
consolidated financial statements.
SWANK, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1) The unaudited information furnished herein reflects all
adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary to present a
fair statement of the results for the three and nine month
periods ended September 30, 1999 and 1998. The financial
information contained herein represents condensed financial data
and, therefore, does not include all footnote disclosures
required to be included in financial statements prepared in
conformity with generally accepted accounting principles. Certain
amounts from previous periods have been reclassified to conform
with the current presentation. Footnote information was included
in financial statements included in the Company's 1998 Annual
Report to Stockholders which was incorporated by reference in the
Company's annual report on Form 10-K for the fiscal year ended
December 31, 1998. The condensed financial data included herein
should be read in conjunction with the information in the annual
report.
(2) Effective January 8, 1999, the Company acquired 65% of
the shares of Joyas y Cueros S.A. de Costa Rica ("Joyas"), a
newly formed corporation located in Cartago, Costa Rica in
exchange for approximately $1.7 million in cash, equipment and
inventory (the "Transaction"). The minority shareholder
contributed approximately $.9 million in equipment and inventory.
Joyas presently manufactures women's jewelry and men's belts.
Substantially all of Joyas' revenue is derived from products
manufactured for the Company and the results of Joyas' operations
have been included in the Company's condensed consolidated
financial statements from the Transaction's effective date. The
Condensed Consolidated Financial Statements include the accounts
of Swank, Joyas, and a wholly-owned foreign sales corporation.
All significant intercompany amounts have been eliminated.
Accumulated other comprehensive income arises from the effects of
currency translation.
(3) During the nine month period ended September 30, 1999, the
Company has not incurred any material changes in
commitments and contingencies set forth in Footnote I of the
1998 Annual Report to Stockholders.
(4) The following table sets forth the computation of net income
per share for the quarters ended September 30, 1999 and
September 30, 1998 (in thousands, except for share and per
share data):
<TABLE>
<CAPTION>
Quarter Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Numerator:
Net income $ 673 $ 906 $ 42 $1,212
Denominators:
Shares used in computing net income per
common share 16,569,423 16,550,736 16,568,491 16,529,419
Effect of dilutive options 141,566 417,299 154,718 218,123
Shares used in computing net income per common 16,710,989 16,968,035 16,723,209 16,747,542
share assuming dilution
Net income per common share $ .04 $ .05 $.00 $.07
Net income per common share assuming dilution $ .04 $ .05 $.00 $.07
</TABLE>
Notes to Condensed Consolidated Financial Statements (Unaudited)
(continued)
(5) Segment Information (in thousands):
Men's Women's Other Consolidated
3 months ended September 30
1999
Revenue from external customers $25,935 $13,214 $1,789 $40,938
Segment income before tax 703 359 152 1,214
1998
Revenue from external customers 23,536 13,694 1,811 39,041
Segment income before tax 662 635 188 1,485
9 months ended September 30
1999
Revenue from external customers 68,438 38,366 4,058 110,862
Segment income (loss) before tax (130) 86 (44) (88)
1998
Revenue from external customers 64,562 36,126 4,159 104,847
Segment income before tax 1,295 688 4 1,987
(6) Effective January 1, 1999 the Company adopted the provisions
of Statement of Position 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use"
("SOP 98-1") which establishes criteria for capitalizing
internal and external costs associated with software
development. SOP 98-1 requires that the new accounting
treatment be applied prospectively from the date of adoption.
During the quarter and nine months ended September 30, 1999,
the Company capitalized software development costs pursuant to
SOP 98-1 which had the effect of increasing income before
income taxes by $75,000 and $175,000, respectively, and net
income by approximately $40,125 and $93,625, respectively.
Exclusive of the effects of this change, net income per share
and net income per share assuming dilution would have been
$.04 and $.04, respectively for the quarter and $.00 and $.00,
respectively for the nine months ended September 30, 1999.
(7) Subsequent Event. On October 26, 1999, the Board of
Directors of the Company declared a dividend of one Right for
each outstanding share of the Company's common stock, $.10 par
value per share, to stockholders of record at the close of
business on November 12, 1999. Each Right, when exercisable,
entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series D Junior Participating
Preferred Stock, par value $1.00 per share, at a purchase
price of $5.50 per one one-hundredth of a share, subject to
adjustment. The description and terms of the Rights are set
forth in a Rights Agreement dated as of October 26, 1999
between the Company and American Stock Transfer & Trust
Company, as Rights Agent.
Item 2. Management's Discussion and Analysis of the Financial
Condition and Results of Operations (continued)
Results of Operations
As is customary in the fashion accessories industry, the
Company makes modifications to its lines coinciding with the
Spring (approximately January - June) and Fall (approximately
July - December) seasons. The Company believes that results of
operations are more meaningful on a seasonal basis than on a
quarterly basis. The timing of shipments can be affected by the
availability of materials, retail sales and fashion trends. These
factors may shift volume between quarters within a season
differently in one year than in another. Due to seasonality and
other factors, the results of the quarter are not necessarily
indicative of the results to be expected for the full year.
Net Sales
Net sales for the quarter and nine months ended September 30,
1999 were $40,938,000 and $110,862,000, respectively, an increase
of $1,897,000 or 4.9% and $6,015,000 or 5.7% compared to the
quarter and nine months ended September 30, 1998, respectively.
Included in net sales for the nine month period ended September 30
are annual second quarter adjustments to record the variance
between customer returns of prior year shipments actually
received in the current year and the estimate used to establish
the allowance for returns at the end of the preceding fiscal
year. At December 31, 1997, the allowance for returns anticipated
during the spring 1998 season was established in consideration of
new product lines for which initial shipments were made in 1997
and for which the Company had no direct prior experience. These
customer returns adjustments increased net sales in both 1999 and
1998 as set forth in the following table:
Increase (Decrease) in net sales
1999 1998 Change
Men's Accessories $ (488,000) $ 1,692,000 $ (2,180,000)
Women's Accessories 846,000 849,000 (3,000)
Total $ 358,000 $ 2,541,000 $ (2,183,000)
Net sales for Men's Accessories increased by $2,399,000 (10.2%)
and $3,876,000 (6.0%) for the quarter and nine months ended
September 30, 1999 respectively, both as compared to the quarter
and nine months ended September 30, 1998. Net sales for Women's
Accessories declined by $480,000 (3.5%) for the quarter and
increased by $2,240,000 (6.2%) for the nine months ended
September 30, 1999, respectively.
The increase in net sales for Men's Accessories for the nine
months ended September 30, 1999 was primarily due to increased
shipments of men's personal leather goods and belts reflecting
improved sales to existing mass merchandising customers,
increased sales of excess and discontinued merchandise, and
initial spring shipments of the Company's Claiborne for Men line,
which was introduced during the third quarter of 1998. In
addition, the Company commenced shipments of a new private-label
personal leather goods program during the first quarter of 1999.
These increases were partially offset by the second quarter
returns adjustment described above. Net sales for the quarter
ended September 30, 1999 were favorably impacted by shipments of
men's personal leather goods under
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
the new private-label program described above and initial
shipments of the Company's John Henry line of men's accessories
first shipped to retailers during the third quarter.
The increase in Women's Accessories net sales for the nine
months ended September 30, 1999 was principally due to shipments
of the Company's Kenneth Cole Women's jewelry line which was
first introduced to retailers late last fall. The Company has
also substantially increased its shipments of private-label
women's jewelry merchandise in response to improved performance
at retail and has also commenced shipments of certain new private-
label programs during the year. Net sales for Women's
Accessories declined during the quarter ended September 30, 1999
due to reduced shipments of certain branded and off-price
merchandise compared to the prior year, partially offset by
increased sales volume to export and mass merchandise accounts
under both new and existing private-label programs.
Gross Profit
Gross profit for the quarter and nine months ended September
30, 1999 increased by $70,000 or less than one percent and
decreased by $1,722,000 or 4.0% respectively, compared to the
quarter and nine months ended September 30, 1998. Gross profit
for Men's Accessories increased by $109,000 for the quarter and
decreased by $1,469,000 for the nine months ended September 30,
1999. Women's Accessories gross profit increased by $55,000 for
the quarter and decreased by $88,000 for the nine months ended
September 30, 1999, compared to the quarter and nine months ended
September 30, 1998. Gross profit as a percentage of net sales
fell to 39.7% from 41.5% for the quarter and to 37.8% from 41.6%
for the nine months ended September 30, 1999, both compared to
the corresponding periods in 1998.
Included in gross profit for the nine months ended September
30, 1999 are annual second quarter adjustments to record the
variance between customer returns of prior year shipments
actually received in the current year and the allowance for
customer returns which was established at the end of the
preceding fiscal year. At December 31, 1997, the allowance for
returns anticipated during the spring 1998 season was established
in consideration of new product lines for which initial shipments
were made in 1997 and for which the Company had no direct prior
experience. These customer returns adjustments increased gross
profit in both years as set forth in the following table:
Increase (Decrease) in gross profit
1999 1998 Change
Men's Accessories $ (305,000) $ 1,155,000 $ (1,460,000)
Women's Accessories 577,000 633,000 (56,000)
Total $ 272,000 $ 1,788,000 $ (1,516,000)
Gross profit expressed as a percentage of net sales for Men's
Accessories fell to 34.5% from 37.6% for the quarter and to 33.3%
from 37.6% for the nine months ended September 30,1999, both as
compared to the quarter and nine months ended September 30, 1998.
The decline in gross profit for both the quarter and nine months
was primarily attributable to increased inventory-related costs
associated with the disposition of excess and discontinued
merchandise at reduced margins and from a less favorable sales
mix. The decrease in gross profit was also due to unfavorable
overhead variances associated with a decrease in production
levels in response to current inventory
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
requirements for manufactured belts and, for the nine months
ended September 30, 1999, the gross profit adjustment described
above.
Gross profit expressed as a percentage of net sales increased
to 48.1% for Women's Accessories from 46.1% and fell to 44.0%
from 46.9% for the quarter and nine months ended September 30,
1999, both as compared to the quarter and nine months ended
September 30, 1998. The improvement in gross profit for Women's
Accessories during the quarter was mainly due to a more favorable
sales mix, partially offset by higher unfavorable overhead
variances resulting from a decrease in jewelry production. Gross
profit declined as percentage of sales for the nine months ended
September 30, 1999 due to higher inventory-related costs
resulting from an increase in sales of excess and discontinued
merchandise and to unfavorable manufacturing overhead variances.
The Company reduced production at its domestic jewelry
manufacturing facility during the year compared to both the
quarter and nine months ended September 30, 1998 in response to
ongoing changes in product sourcing strategies. Gross profit for
the nine months ended September 30, 1999 was also adversely
affected by the Company's share of the start-up losses associated
with the acquisition of Joyas y Cueros de Costa Rica, S.A.
incurred primarily during the first half of 1999.
Selling and Administrative Expenses
Selling and administrative expenses increased by $319,000
(2.2%) for the quarter and $486,000 (1.2%) for the nine months
ended September 30, 1999 both as compared to the quarter and nine
months ended September 30, 1998. The increase in selling
expenses for the quarter is principally due to higher advertising
and promotional expenditures incurred in connection with new
Women's Accessories product launches and increased variable
expenses associated with higher sales. The increase in variable
selling expenses was partially offset by reductions in incentive
compensation and employee benefit accruals, both as compared to
the quarter ended September 30, 1998. The increase in selling
expenses for the nine months ended September 30, 1999 is
primarily attributable to annual second quarter adjustments
associated with recording the variance between actual prior year
in-store markdown and cooperative advertising activity processed
during the spring season compared to the amounts used to
establish the respective allowances at the end of the preceding
fiscal year, increases in variable costs associated with higher
sales, and planned increases in product development and
advertising expenditures.
Advertising and promotional expenditures totaled 7.3% and 6.8%
of net sales for the quarters ended September 30, 1999 and
September 30, 1998, respectively and totaled 6.8% of net sales
for both the nine months ended September 30, 1999 and September
30, 1998. The increase in advertising expense expressed as a
percentage of net sales for the quarter reflects higher markdown
accruals and national advertising expenditures in support of
various new and existing retail merchandise programs.
Administrative expenses decreased for both the quarter and nine
months ended September 30, 1999 compared to the corresponding
periods in 1998. The decrease for the nine month period was
primarily due to reduced expenses associated with certain fringe
benefit programs and reductions in current year accruals for
incentive compensation. Expenses recorded primarily in the
second quarter for severance benefits associated with a
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
voluntary workforce reduction program at one of the Company's
manufacturing facilities were largely offset by a gain of
$500,000 also recorded during the second quarter in connection
with the settlement of litigation.
Interest Expense
Net interest expense decreased by $10,000 during the quarter
and increased by $60,000 for the nine months ended September 30,
1999 compared to the quarter and nine months ended September 30,
1998, respectively. Net interest expense for both the quarter
and nine months ended September 30, 1999 reflects the effects of
lower interest rates compared to the comparable prior year
periods, offsetting higher average borrowing levels. The increase
for the nine months ended September 30, 1999 compared to the
prior year is primarily due to $78,000 in non-recurring interest
income recorded in the first quarter of 1998.
Provision for Income Taxes
The Company recorded a provision for income taxes on
domestic pretax income for the quarter and a benefit for income
taxes on the domestic pretax loss for the nine months ended
September 30, 1999 at approximately the blended state and federal
statutory rate. The Company records income taxes at the expected
full-year blended effective rate and no income tax benefit is
anticipated on the losses incurred by the Company's Costa Rican
subsidiary. For the nine months ended September 30, 1999, the
Company recorded a benefit for income taxes on the domestic
pretax loss at an effective rate of 46.5% which approximated
blended state and federal statutory rates.
Liquidity and Capital Resources
The Company's working capital decreased by $396,000 during the
nine months ended September 30, 1999 compared to an increase of
$1,431,000 for the nine months ended September 30, 1998.
As is customary in the fashion accessories industry,
substantial percentages of the Company's sales and earnings occur
in the months of September, October and November, during which
the Company makes significant shipments of its products to
retailers for sale during the holiday season. As a result,
receivables peak in the fourth quarter. The Company builds its
inventory during the year to meet the demand for the holiday
season. The required cash is provided by a revolving credit
facility.
Cash used in operations for the nine months ended September 30,
1999 totaled $12,964,000 consisting primarily of increases in
accounts receivable balances, inventories, and prepaid taxes, and
decreases in income taxes payable. Accounts receivable increased
by $3,106,000 reflecting the seasonal increase in net sales and
reduction in allowances during the nine month period. Accounts
receivable allowances decreased at September 30, 1999 as compared
to the preceding year-end due to actual current year charges
processed for customer returns, cash discounts, doubtful
accounts, in-store markdowns, and cooperative advertising. These
reductions are partially offset by increases resulting from
accruals associated with current period sales activity. Income
taxes payable declined by
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
$1,888,000 reflecting payments made during the year. Inventory
levels increased by $3,106,000 during the nine months ended
September 30, 1999 compared to an increase of $10,898,000 for the
comparable prior year period reflecting the Company's ongoing
efforts to reduce inventory levels and dispose of excess and out-
of-line merchandise.
Cash used in investing activities was $1,544,000 for capital
expenditures and life insurance premiums. Cash provided by
financing activities totaled $13,768,000 consisting primarily of
net borrowings under the Company's revolving credit agreement.
In July and November 1999, the Company and its bank lender
amended the Company's revolving credit agreement to reflect,
among other things, a temporary increase of $3,000,000 in its
revolving credit facility for the fall 1999 season.
Year 2000
Management's present assessment is that the Company
will be able to modify its significant software systems on a
timely basis to make them Year 2000 compliant without material
effects on the Company's business or results of operations. This
assessment is unchanged from that previously reported.
Management has completed the identification of date
issues associated with key applications software and the
necessary modifications are complete. Most of the Company's
applications software was internally developed and the necessary
modifications have been and are being made utilizing internal
resources.
Through consultation with its vendors the Company
believes that the operating systems for key hardware components
are Year 2000 compliant. Assessment of the Company's network is
substantially complete and various components had been identified
as requiring upgrades from vendors. Certain operating system
upgrades were installed and substantially tested during the
second quarter and testing of most of the Company's other
mainframe-dependant systems was completed during the third
quarter.
The process of identifying potential issues associated
with embedded technology or so-called non-IT systems has been
completed. Management has considered the Company's manufacturing
processes, the age of its facilities and the associated building
systems in determining that non-IT systems represent relatively
low risk.
The Company's principal retail customers have been
extending the scope of their electronic interfaces with the
Company and management believes that this is likely to continue.
To date, these interfaces have consisted principally of sales
order entry transactions through Electronic Data Interchange
("EDI"). The Company has been able to respond to its customers'
Year 2000 requirements without material effects on the Company's
business or results of operations and management presently has no
reason to believe that the Company will not be able to continue
to do so. The Company has installed Year 2000 compliant EDI
software.
In September 1998, the Company implemented a program to
contact third parties with whom it has material business
relationships to obtain information and representations with
respect to the respective readiness of each for Year 2000. Third
parties contacted include major customers, determined regardless
of whether there is an existing EDI relationship, major vendors
and suppliers of key services such as utilities,
telecommunications and banking. The Company has received
responses to most of these requests.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Various third parties with whom the Company has material
business relationships have represented that they have programs
in place to attain Year 2000 compliance but with a completion
date in 1999. Since many of the Company's third party
relationships are with public companies the Company has
instituted a program to review their public filings with respect
to the Year 2000 issue. The most recent information that the
Company has reviewed is generally set forth in first or second
quarter fiscal 1999 or 2000 filings with the Securities and
Exchange Commission. These filings reveal that, in general, the
companies have largely completed testing of most significant
systems and expect to achieve compliance sometime prior to the
end of the third quarter of 1999. The Company will continue to
update this process during the remaining months of 1999.
Management has determined that for the time being it is in the
best interest of the Company to periodically monitor the progress
of key vendors and suppliers by obtaining updated representations
and/or by review of their public disclosures, where available.
The Company expects to continue to assess each individual case
through the balance 1999 in light of the information then
available.
With respect to material customers, management is relatively
less concerned about EDI transactions per se because of their
defined protocols, the utilization of generally available third
party translators and the ability to conduct mutual testing.
However, there remains the risk that EDI customers' may
experience other systems issues internal to them that disrupt the
functionality of otherwise Year 2000 compliant EDI systems. A
significant disruption in EDI processing could materially impair
the Company's shipments. Management has determined that, for the
time being, it is in the best interest of the Company to
periodically monitor the progress of key customers by obtaining
updated representations and/or by review of their public
disclosures (see above), where available. Major customers'
progress will continue to be reassessed over the balance of 1999
and, if issues remain, management anticipates the ability to
ameliorate the problem, at least temporarily, through development
of mutually agreed strategies which might include some
acceleration of order placement during 1999. January and February
are typically important cash flow months as the Company's retail
customers remit payments for their seasonally high pre-holiday
purchases. Irrespective of EDI, it is possible that the ability
of one or more material customers to process payments may be
impaired. Management believes that the existing revolving line
of credit will be adequate for a number of months in the event of
unanticipated delays in customer remittances.
Presently, it is management's view that service providers
represent the greatest conceptual risk to material disruption in
the Company's operations. The Company is dependent upon utilities
and telecommunications entities for day-to-day operations as well
as upon the ability of its banks to provide cash receipts and
disbursements services as well as working capital. To the extent
that any of these entities are significantly impaired for more
than a relatively short period the corresponding impact on the
Company is likely to be material. Service providers are included
among the companies whose public filings the Company is reviewing
as described above.
The Company has not yet developed a contingency plan and
currently has no definitive plans in this regard based for the
most part on the results of the periodic monitoring of material
third parties as described above and internal testing. Management
notes that relatively modest actions may be sufficient to
significantly reduce certain risks to the Company. For example,
if it appears warranted, management has the ability prior to year-
end to accelerate procurement of inventories that would otherwise
take place in the first quarter. In addition, management
believes that alternative sources of supply are readily available
for most of its purchased materials and finished products and
that relationships with such sources could be developed within a
few months. Management believes that the Company's seasonality
with reduced activity in the first quarter provides something of
a buffer against the
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
worst case customer and service provider scenarios. The Company's
exposure to lost revenue and the risk of reduction in its other
activities will be significantly less in the first quarter of
2000 than in the last quarter of 1999.
January will be the first month in a Year 2000 operating
environment and January is historically a relatively low volume
month for the Company.
As described above, most of the Company's applications
software was internally developed and the necessary modifications
have been utilizing existing internal personnel resources. These
resources are included in the Company's recurring IT budget.
Management does not believe that use of existing resources for
Year 2000 remediation has been materially detrimental to the
completion of other significant IT projects. The Company has had
to purchase specific Year 2000 upgrades with respect to both
certain third party software applications and its internal
network. The aggregate cost of these upgrades through September
30, 1999 was approximately $105,000. However, it remains
possible that the ongoing testing process will reveal new areas
requiring expenditures.
"Forward Looking Statements"
Certain of the preceding paragraphs contain "forward
looking statements" under the securities laws of the United
States. Actual results may vary from anticipated results as a
result of various risks and uncertainties, including sales
patterns, overall economic conditions, competition, pricing,
consumer buying trends and other factors.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
During the nine month period ended September 30, 1999, there
were no material changes in the information called for by this
item from the information contained in Item 7A of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
3.1 Certificate of Designation, Preferences, and Rights
of Series D Junior Participating Preferred Stock of
the Company.
4.1 Second Amendment to Revolving Credit and Security
Agreement dated as of November 1, 1999 between the
Company and PNC Bank, National Association as lender.
4.2 Rights Agreement dated as of October 26, 1999 between
the Company and American Stock Transfer & Trust
Company, as Rights Agent (incorporated by reference
to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated October 29, 1999, file number 1-5354).
10.1 Amendment dated as of June 10, 1999 to Employment
Agreement between the Company and John Tulin.
10.2 Amendment dated as of June 10, 1999 to Employment
Agreement between the Company and James Tulin
27.0 Financial data schedule.
(b) Reports on Form 8-K.
The Company did not file a Current Report on Form 8-K
during the quarter ended September 30, 1999.
On October 29, 1999, the Company filed a Current Report on
Form 8-K (the "October 1999 Form 8-K") reporting an item
under the caption "Item 5-Other Events". Among other
things, the Company reported that the Board of Directors
of the Company declared a dividend of one Right for each
outstanding share of the Company's common stock, $.10 par
value per share, to stockholders of record at the close of
business on November 12, 1999. Each Right, when
exercisable, entitles the registered holder to purchase
from the Company one one-hundredth of a share of Series D
Junior Participating Preferred Stock, par value $1.00 per
share, at a purchase price of $5.50 per one one-hundredth
of a share, subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement
dated as of October 26, 1999 between the Company and
American Stock Transfer & Trust Company, as Rights Agent.
The foregoing is qualified in its entirety to the October
1999 Form 8-K and to the Rights Agreement, which was filed
as Exhibit 4.1 thereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SWANK, INC.
Registrant
/s/ Jerold R. Kassner
Jerold R. Kassner
Senior Vice President,
Chief Financial Officer
And Treasurer
Date: November 12, 1999
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/27/1999
991455323 - 0349202
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES D JUNIOR
PARTICIPATING PREFERRED STOCK
of
SWANK, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The undersigned officers of Swank, Inc., a corporation
organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Amended and Restated Certificate of
Incorporation, as amended (the "Restated Certificate of
Incorporation"), of the said Corporation, the said Board of
Directors, by unanimous written consent dated October 26, 1999,
adopted the following resolution creating a series of 430,000
shares of Preferred Stock designated as Series D Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the
provisions of its Amended and Restated Certificate of
Incorporation, a series of Series D Preferred Stock of the
Corporation be and it hereby is created, and that the designation
and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the
shares of such series, and the qualifications, limitations or
restrictions thereof are as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such
series shall be designated as "Series D Junior Participating
Preferred Stock" and the number of shares constituting such
series shall be 430,000.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series D Junior
Participating Stock, the holders of shares of Series D
Junior Participating Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly
dividends payable in cash on the last day of March, June,
September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share
of Series D Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the
greater of (a) $0.01 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $0.10
per share, of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share
of Series D Junior Participating Preferred Stock. In the
event the Corporation shall at any time after October 26,
1999 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number
of shares, then in each such case the amount to which
holders of shares of Series D Junior Participating Preferred
Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which
is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series D Junior Participating Preferred
Stock as provided in Paragraph (A) above immediately after
it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend
of $0.01 per share on the Series D Junior Participating
Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series D Junior Participating
Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series D
Junior Participating Preferred Stock, unless the date of
issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of
Series D Junior Participating Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the
shares of Series D Junior Participating Preferred Stock in
an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of shares
of Series D Junior Participating Preferred Stock entitled to
receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days
prior to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series D
Junior Participating Preferred Stock shall have the following
voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series D Junior
Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of
the stockholders of the Corporation. In the event the
Corporation shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the
number of votes per share to which holders of shares of
Series D Junior Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which
is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series D Junior Participating Preferred
Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth herein or as provided by law,
holders of Series D Junior Participating Preferred Stock
shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series D Junior Participating
Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series
D Junior Participating Preferred Stock outstanding shall
have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series D Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Junior
Participating Preferred Stock, except dividends paid
ratably on the Series D Junior Participating Preferred
Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total
amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series D Junior
Participating Preferred Stock, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series D
Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series D Junior
Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series D Junior
Participating Preferred Stock, except in accordance
with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and
equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless
the Corporation could, under Paragraph (A) of this Section
4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series D Junior
Participating Preferred Stock purchased or otherwise acquired by
the Corporation in any manner whatsoever shall be retired and
canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. (A) Upon
any liquidation (voluntary or otherwise), dissolution or winding
up of the Corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series D
Junior Participating Preferred Stock unless, prior thereto, the
holders or shares of Series D Junior Participating Preferred
Stock shall have received $100.00 per share, plus an amount equal
to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment (the "Series
D Liquidation Preference"). Following the payment of the full
amount of the Series D Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series D
Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount
per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the Series D Liquidation Preference by
(ii) 100 (as appropriately adjusted as set forth in subparagraph
(C) below to reflect such events as stock splits, stock dividends
and recapitalization with respect to the Common Stock) (such
number in clause (ii), the "Adjustment Number"). Following the
payment of the full amount of the Series D Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of
Series D Junior Participating Preferred Stock and Common Stock,
respectively, holders of Series D Junior Participating Preferred
Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to one (1) with
respect to such Preferred Stock and Common Stock, on a per share
basis, respectively.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of the
Series D Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any,
which rank on a parity with the Series D Junior
Participating Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation
preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the
Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
the shares of Series D Junior Participating Preferred Stock shall
at the same time be similarly exchanged or changed in an amount
per share (subject to the provision for adjustment hereinafter
set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common
Stock is changed or exchanged. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series D
Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. NO REDEMPTION. The shares of Series D Junior
Participating Preferred Stock shall not be redeemable. However,
the Company may purchase Series D Preferred Stock in the open
market or pursuant to an offer to a holder or holders of Series D
Preferred Stock.
Section 9. RANKING. The Series D Junior Participating
Preferred Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and
the distribution of assets, unless the terms of any such series
shall provide otherwise. The Series D Junior Participating
Preferred Stock shall rank senior to the Corporation's Common
Stock.
Section 10. AMENDMENT. The Restated Certificate of
Incorporation shall not be further amended in any manner which
would alter or change the powers, preferences or special rights
of the Series D Junior Participating Preferred Stock so as to
affect them adversely without the affirmative vote of the holders
of a majority or more of the outstanding shares of Series D
Junior Participating Preferred Stock, voting separately as a
class.
Section 11. FRACTIONAL SHARES. Series D Junior
Participating Preferred Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and to have the benefit
of all other rights of holders of Series D Junior Participating
Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the
penalties of perjury as of the 26th day of October 1999.
SWANK, INC.
/s/ John Tulin
Name: John Tulin
Title: President
Attest:
/s/ Jerold R. Kassner
Secretary
SECOND AMENDMENT TO LOAN DOCUMENTS
THIS SECOND AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is
made effective as of this 29th day of October, 1999 by and among
SWANK, INC., a corporation organized under the laws of the State
of Delaware (the "Borrower"), the financial institutions which
are now or which hereafter become a party hereto (collectively,
the "Lenders" and individually a "Lender") and PNC BANK, NATIONAL
ASSOCIATION, ("PNC"), as agent for Lenders (PNC, in such
capacity, the "Agent"). a national banking association ("PNC"),
as agent for the Lenders described below (PNC, in such capacity,
the "Agent").
BACKGROUND
A. The Borrower has executed and delivered to the Lender (or
a predecessor which is now known by the Lender's name as set
forth above), one or more promissory notes, letter agreements,
loan agreements, security agreements, mortgages, pledge
agreements, collateral assignments, and other agreements,
instruments, certificates and documents, some or all of which are
more fully described on attached Exhibit A, which is made a part
of this Amendment (collectively as amended from time to time, the
"Loan Documents") which evidence or secure some or all of the
Borrower's obligations to the Lender for one or more loans or
other extensions of credit (the "Obligations").
B. The Borrower and the Lender desire to amend the Loan
Documents as provided for in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Certain of the Loan Documents are amended as set forth in
Exhibit A. Any and all references to any Loan Document in any
other Loan Document shall be deemed to refer to such Loan
Document as amended by this Amendment. This Amendment is deemed
incorporated into each of the Loan Documents. Any initially
capitalized terms used in this Amendment without definition shall
have the meanings assigned to those terms in the Loan Documents.
To the extent that any term or provision of this Amendment is or
may be inconsistent with any term or provision in any Loan
Document, the terms and provisions of this Amendment shall
control.
2. The Borrower hereby certifies that: (a) all of its
representations and warranties in the Loan Documents, as amended
by this Amendment, are, except as may otherwise be stated in this
Amendment: (i) true and correct in all material respects as of
the date of this Amendment, (ii) ratified and confirmed without
condition as if made anew, and (iii) incorporated into this
Amendment by reference, (b) no Event of Default or event which,
with the passage of time or the giving of notice or both, would
constitute an Event of Default, exists under any Loan Document
which will not be cured by the execution and effectiveness of
this Amendment, (c) no consent, approval, order or authorization
of, or registration or filing with, any third party is required
in connection with the execution, delivery and carrying out of
this Amendment or, if required, has been obtained, and (d) this
Amendment has been duly authorized, executed and delivered so
that it constitutes the legal, valid and binding obligation of
the Borrower, enforceable in accordance with its terms. The
Borrower confirms that the Obligations remain outstanding without
defense, set off, counterclaim, discount or charge of any kind as
of the date of this Amendment.
-1-
3. The Borrower hereby confirms that any collateral for the
Obligations, including liens, security interests, mortgages, and
pledges granted by the Borrower or third parties (if applicable),
shall continue unimpaired and in full force and effect, and shall
cover and secure all of the Borrower's existing and future
Obligations to the Lender, as modified by this Amendment.
4. As a condition precedent to the effectiveness of this
Amendment, the Borrower shall comply with the terms and
conditions (if any) specified in Exhibit A.
5. This Amendment may be signed in any number of counterpart
copies and by the parties to this Amendment on separate
counterparts, but all such copies shall constitute one and the
same instrument. Delivery of an executed counterpart of a
signature page to this Amendment by facsimile transmission shall
be effective as delivery of a manually executed counterpart. Any
party so executing this Amendment by facsimile transmission shall
promptly deliver a manually executed counterpart, provided that
any failure to do so shall not affect the validity of the
counterpart executed by facsimile transmission.
6. This Amendment will be binding upon and inure to the
benefit of the Borrower and the Lender and their respective
heirs, executors, administrators, successors and assigns.
7. This Amendment has been delivered to and accepted by the
Lender and will be deemed to be made in the State where the
Lender's office indicated in the Loan Documents is located. This
Amendment will be interpreted and the rights and liabilities of
the parties hereto determined in accordance with the laws of the
State where the Lender's office indicated in the Loan Documents
is located, excluding its conflict of laws rules.
8. Except as amended hereby, the terms and provisions of the
Loan Documents remain unchanged, are and shall remain in full
force and effect unless and until modified or amended in writing
in accordance with their terms, and are hereby ratified and
confirmed. Except as expressly provided herein, this Amendment
shall not constitute an amendment, waiver, consent or release
with respect to any provision of any Loan Document, a waiver of
any default or Event of Default under any Loan Document, or a
waiver or release of any of the Lender's rights and remedies (all
of which are hereby reserved). The Borrower expressly ratifies
and confirms the confession of judgment (if applicable) and
waiver of jury trial provisions contained in the Loan Documents.
-2-
WITNESS the due execution of this Amendment as a document under
seal as of this 3rd day of November, 1999.
(SEAL)
ATTEST: SWANK, INC.
By: /s/ Laura McPherson By: /s/ Jerold R. Kassner
JEROLD R. KASSNER
Print Name: Laura McPherson Sr. Vice Pres. and CFO
Title: Executive Assistant
(Include title only if an officer of entity signing to the right)
PNC BANK, NATIONAL ASSOCIATION
As Lender and as Agent
By: /s/ Arthur Lippens
ARTHUR LIPPENS
Vice President
-3 -
EXEIIBIT A TO
SECOND AMENDMENT TO LOAN DOCUMENTS
DATED EFFECTIVE AS OF OCTOBER 29, 1999
A. The "Loan Documents" that are the subject of this Amendment
include the following (as any of the foregoing have
previously been amended, modified or otherwise supplemented):
1. Revolving Credit and Security Agreement dated as of July
27, 1998, as such has been amended and or supplemented from
time to time, (the "Loan Agreement").
2. Amendment to Revolving Credit and Security Agreement
dated as of July 12, 1999.
3. Revolving Credit Note dated as of July 27, 1998 in the
principal sum of $3,000,000.00, and any renewal, extension,
modification or amendment thereto or substitution therefor
("Revolving Credit Note").
4. Pledge Agreement dated as of July 27, 1998.
5. All other documents, instruments, agreements, and
certificates executed and delivered in connection with the Loan
Documents listed in this Section A.
B. The Loan Documents are amended as follows:
1. The definition of "Maximum Revolving Advance Amount" in
Section 1.2 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"Maximum Revolving Advance Amount" shall mean (a) THIRTY-THREE
MILLION DOLLARS ($33,000,000.00) during the period commencing
October 31, 1999 and ending on November 30, 1999, and (b)
THIRTY MILLION DOLLARS ($30,000,000.00) at all other times
subsequent to November 30, 1999."
2. Amendment to Revolving Credit Note. The Revolving Credit
Note shall be amended as follows: (a) THIRTY-THREE MILLION
DOLLARS ($33,000,000.00) during the period commencing October
31, 1999 and ending on November 30, 1999, and (b) THIRTY
MILLION DOLLARS ($30,000,000.00) at all other times subsequent
to November 30, 1999.
C. Conditions to Effectiveness of Amendment: The effectiveness of
the amendments set forth in this Amendment are subject to the
prior satisfaction of the following conditions:
1. Execution by Borrower and delivery to the Lender on or
before November 1, 1999 of this Amendment and such supporting
authority documents as the Lender may require.
-4-
Swank, Inc.
90 Park Avenue
New York, New York 10016
June 10, 1999
Mr. John A. Tulin
1196 Elinore Road
Hewlett, New York 11557
Dear Mr. Tulin:
Reference is hereby made to the Agreement dated as of
January 1, 1990 between Swank, Inc. (the "Corporation") and you
concerning your employment by the Corporation, as amended by
letter agreements dated as of January 1, 1992, September 1,1993,
January 1, 1997 and December 10,1998 between the Corporation and
you (as amended, the "Existing Employment Agreement"). This
letter will serve to confirm our agreement to amend the Existing
Employment Agreement as of the date hereof as follows:
The term of the Existing Employment Agreement is hereby
extended for an additional three (3) year period, commencing on
January 1, 1999 and ending on December 31, 2001 (the "Extension
Period"). During the Extension Period, the Corporation shall pay
to you, and you agree to accept, a base salary at the rate of
$410,000, payable in such installments as shall be mutually
agreed upon by you and the Corporation, plus such additional
compensation, if any, as the Board of Directors of the
Corporation shall from time to time determine.
Except as modified and amended by this letter, the Existing
Employment Agreement shall remain and continue in full force and
effect on and after the date hereof.
This letter may be executed in any number of counterparts,
each of which shall be deemed an original and all of which taken
together shall constitute one and the same agreement.
This letter shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York,
without regard to principles of conflicts or choice of law.
If the foregoing correctly sets forth our understanding and
agreement, kindly countersign this letter in the space provided
below.
Very truly yours,
SWANK, INC.
By: /s/ Christopher F. Wolf
Name: Christopher F. Wolf
Title: Chief Financial Officer
ACCEPTED AND AGREED:
/s/ John A. Tulin
John A. Tulin
Swank, Inc.
90 Park Avenue
New York, New York 10016
June 10, 1999
Mr. James E. Tulin
c/o Swank, Inc.
8800 North Gainey Center Drive
Scottedale, Arizona 85258
Dear Mr. Tulin:
Reference is made to the Agreement dated as of March 1, 1989
between Swank, Inc. (the "Corporation") and you, as amended to
date (as so amended, the "Existing Employment Agreement"),
concerning your employment by the Corporation. This letter will
serve to confirm our agreement to amend the Existing Employment
Agreement as of the date hereof as follows:
The term of the Existing Employment Agreement is hereby
extended for an additional period, commencing on January 1, 1999
to and including December 31, 2001(the "Extension Period").
During the Extension Period, the Corporation shall pay to you,
and you agree to accept, a base salary at the rate of $260,000,
payable in such installments as shall be mutually agreed upon by
you and the Corporation, plus such additional compensation, if
any, as the Board of Directors of the Corporation shall from time
to time determine.
Except as modified and amended by this letter, the Existing
Employment Agreement shall remain and continue in full force and
effect on and after the date hereof.
This letter may be executed in any number of counterparts,
each of which shall be deemed an original and all of which taken
together shall constitute one and the same agreement.
This letter shall be governed by, and construed and enforced
in accordance with, the laws of the State of New York, without
regard to principles of conflicts or choice of law.
If the foregoing correctly sets forth our understanding and
agreement, kindly countersign this letter in the space provided
below.
Very truly yours,
SWANK, INC.
By: /s/ Christopher F. Wolf
Name: Christopher F. Wolf
Title: Chief Financial Officer
ACCEPTED AND AGREED:
/s/James E. Tulin
James E. Tulin
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000095779
<NAME> SWANK, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17
<SECURITIES> 0
<RECEIVABLES> 30,143
<ALLOWANCES> 7,429
<INVENTORY> 44,687
<CURRENT-ASSETS> 74,237
<PP&E> 28,270
<DEPRECIATION> 22,405
<TOTAL-ASSETS> 86,537
<CURRENT-LIABILITIES> 45,128
<BONDS> 0
0
0
<COMMON> 1,690
<OTHER-SE> 29,556
<TOTAL-LIABILITY-AND-EQUITY> 86,537
<SALES> 110,862
<TOTAL-REVENUES> 110,862
<CGS> 68,992
<TOTAL-COSTS> 68,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (11)
<INTEREST-EXPENSE> 1,252
<INCOME-PRETAX> (281)
<INCOME-TAX> (130)
<INCOME-CONTINUING> 42
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
