SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 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 no. 1-5354
SWANK, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-1886990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Hazel Street, Attleboro, Massachusetts 02703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 508) 222-3400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the Common Stock of the
Registrant held by non-affiliates of the Registrant on March 7,
2000 was $7,704,049. Such aggregate market value is computed by
reference to the last sale price of the Common Stock on such
date.
The number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
16,569,423 shares of Common Stock as of the close of business on
March 7, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31,
1999 - Incorporated by reference into Parts I and II of
this Form 10-K.
Portions of the Registrant's Proxy Statement relating
to the Registrant's 2000 Annual Meeting of
Stockholders - Incorporated by reference into Part III
of this Form 10-K
PART I
Item 1. Business.
Swank, Inc. (the "Company") was incorporated on April 17,
1936. The Company is engaged in the manufacture, sale and
distribution of men's and women's fashion accessories under the
names "Kenneth Cole", "Geoffrey Beene", "Pierre Cardin",
"Claiborne", "John Henry","Yves Saint Laurent", "Swank", "Colours
by Alexander Julian", "Anne Klein", "Anne Klein II", "Guess?" and
"DKNY", among others.
Products
The Company's segments, men's accessories and women's
accessories, are described below:
Men's Accessories. Men's leather accessories,
principally belts, wallets and other small leather goods
including billfolds, key cases, card holders and other items, and
suspenders are distributed under the names "Geoffrey Beene",
"Pierre Cardin", "Claiborne", "John Henry", "Kenneth Cole", "Yves
Saint Laurent", "Guess?", "Swank" and "Colours by Alexander
Julian". The Company also manufactures and distributes men's
leather accessories for customers' private labels. Men's jewelry
consists principally of cuff links, tie klips, chains and tacs,
bracelets, neck chains, vest chains, collar pins, key rings,
money klips which are distributed under the names "Geoffrey
Beene", "Pierre Cardin", "Claiborne", "John Henry", "Kenneth
Cole", "Yves Saint Laurent", "Guess?", "Swank" and "Colours by
Alexander Julian".
Women's Accessories. Women's accessories consist of
women's jewelry products, primarily necklaces, earrings,
pendants, chokers, bracelets, hair ornaments and scarf clips
which are distributed under the names "Anne Klein" and "Anne
Klein II", "Guess?", "Yves Saint Laurent", "Kenneth Cole" and
"DKNY". The Company also manufactures women's jewelry
(principally necklaces, brooches, hair accessories and earrings)
for private label distribution.
As is customary in the fashion accessories industry,
substantial percentages of the Company's sales and earnings for
each of its segments 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. The Company's bank borrowings are at a peak
during the months of August, September, October and November to
enable the Company to carry significant amounts of inventory and
accounts receivable.
In addition to product, pricing and terms of payment,
the Company's customers generally consider one or more factors,
such as electronic order processing and timeliness and
completeness of shipments, as important in maintaining ongoing
relationships. In addition, the Company generally will allow
customers to return merchandise in order to achieve proper stock
balances. These factors, among others, result in the Company
increasing its inventory levels during the Fall selling season in
order to meet customer imposed requirements. These practices are
applicable to each of the Company's segments and the Company
believes that they are substantially consistent throughout the
fashion accessories industry.
The relative contributions to total net sales and
gross profit from the Company's segments, men's accessories and
women's accessories, for the last three fiscal years and the
relative year-to-year changes in such contributions during such
period are shown in the following table (in thousands):
Fiscal Year Ended December 31, Percentage Change
1999 1998 1997 1999-98 1998-97
Contribution to Net Sales
$ 102,446 $ 95,356 $ 86,574 Mens Accessories 7% 10%
54,302 49,972 43,999 Womens Accessories 9% 14%
6,071 6,442 6,501 Other (6)% (1)%
$ 162,819 $ 151,770 $ 137,074 Total Net Sales 7% 11%
Contribution to Gross Profit
$ 36,536 $ 36,986 $ 34,594 Mens Accessories (1)% 7%
22,427 24,008 21,276 Womens Accessories (7)% 13%
3,437 3,646 3,657 Other (6)% 0%
$ 62,400 $ 64,640 $ 59,527 Total Gross profit (4)% 9%
The components of Net Sales are gross sales less cash
discounts, allowances and customer returns. Other includes sales
of the Company's products and other products through the
Company's factory outlet stores.
Certain other financial information with regard to
men's accessories and women's accessories, including revenue,
segment profit and segment assets, appears in Note K to the
Company's consolidated financial statements on page 16 of the
Company's 1999 Annual Report to Stockholders (the "1999 Annual
Report"), which is Exhibit 13.01 to this Annual Report on Form 10-K,
which information is incorporated herein by reference.
Sales and Distribution
The Company's customers are primarily major retailers
within the United States. Sales to the Company's two largest
customers, Federated Department Stores, Inc. and The May
Department Stores Company, accounted for approximately 17% and
14%, respectively, of consolidated net sales in 1999,
approximately 16% and 15%, respectively, in 1998 and
approximately 17% and 13%, respectively, in 1997. In addition,
Dayton Hudson Corp. accounted for approximately 10% of
consolidated net sales in 1998. No other customer accounted for
more than 10% of consolidated net sales during fiscal years
1999, 1998 and 1997 . Exports to foreign countries accounted for
5%, 5% and 8% of consolidated net sales in each of the Company's
fiscal years ended December 31, 1999, 1998 and 1997, respectively.
Approximately 98 salespeople and district managers are
engaged in the sale of products of the Company, working out of
sales offices located in four major cities in the United States.
The Company has separate sales forces to handle the distribution
to retailers of men's accessories and women's accessories. In
addition, the Company sells certain of its products at retail in
17 factory outlet stores located in 10 states. The Company has
licensed or sub-licensed the production and sale of certain of
its lines in certain foreign countries under royalty arrangements.
Manufacturing
Items manufactured by the Company accounted for
approximately 52% of consolidated net sales in fiscal 1999. The
Company manufactures and/or assembles women's and men's jewelry
products at the Company's plant in Attleboro, Massachusetts and
the Company's 65% owned subsidiary, Joyas y Cueros de Costa Rica,
S.A. ("Joyas y Cueros"), manufactures women's jewelry at a plant
located in Cartago, Costa Rica. However, the Company recently
announced that it was ceasing jewelry production operations at
its Attleboro facility and would transfer its remaining
production requirements to third party vendors and to Joyas y
Cueros. See "Recent Developments" below for further information
concerning the termination of jewelry production operations at
the Attleboro facility. The Company manufactures belts at the
Company's plant located in South Norwalk, Connecticut and Joyas y
Cueros manufactures belts at a second facility located in
Cartago, Costa Rica.
The Company purchases substantially all of its small
leather goods, principally wallets, from a single supplier in
India. Unexpected disruption of this source of supply could
have an adverse effect on the Company's small leather goods
business in the short-term depending upon the Company's inventory
position and on the seasonal shipping requirements at that time.
However, the Company believes that alternative sources for small
leather goods are available and could be utilized by the Company
within several months. The Company also purchases finished
women's jewelry, finished belts and other accessories as well as
certain belt components, including buckles, from a number of
suppliers in Europe, South America and the Far East. The Company
believes that alternative suppliers are readily available for
substantially all purchased items. Raw materials are purchased
in the open market from a number of domestic and foreign
suppliers and are readily available.
Advertising Media and Promotion
Substantial expenditures on advertising and promotions
are an integral part of the Company's business. Approximately 7%
of net sales was expended on promotions in 1999, of which
approximately 1% was for advertising media, principally in
national consumer magazines, trade publications, newspapers,
radio and television. The remaining approximately 6% was expended
for in-store promotions, cooperative advertising, fixtures,
displays and point-of-sale materials.
Competition
The businesses in which the Company is engaged are
highly competitive. The Company competes with, among others,
Trafalgar, Salant, Humphrey, Fossil, Tandy Brands Accessories,
Inc. and private label programs in men's belts; Tandy Brands
Accessories, Inc., Fossil, Mundy, and retail private label
programs in small leather goods; David Donahue in men's jewelry;
and Liz Claiborne, Monet, Carol Lee, and Victoria Creations in
women's jewelry. The ability of the Company to continue to
compete will depend largely upon its ability to create new
designs and products, to meet the increasing service and
technology requirements of its customers and to offer consumers
high quality merchandise at popular prices.
Patents, Trademarks and Licenses
The Company owns the rights to various patents,
trademarks, trade names and copyrights and has exclusive licenses
in the United States for, among other things, (i) men's and
women's leather accessories under the name "Pierre Cardin", (ii)
men's costume jewelry under the name "Pierre Cardin", (iii)
women's costume jewelry under the names "Anne Klein" and "Anne
Klein II", "Kenneth Cole" and "DKNY", (iv) men's leather
accessories and costume jewelry under the names "Geoffrey Beene",
"Claiborne", "Kenneth Cole", "John Henry", "Yves Saint Laurent"
and "Colours by Alexander Julian" and (v) men's small leather
goods and men's and women's costume jewelry under the name
"Guess?". The Company also has exclusive licenses for men's and
women's costume jewelry under the name "Yves Saint Laurent" in
the United States and certain other areas of the world. The
Company's "Geoffrey Beene", "Pierre Cardin", "Claiborne",
"Kenneth Cole", "John Henry", "Yves Saint Laurent", "Anne Klein"
and "Anne Klein II", "Guess?" and "DKNY" licenses collectively
may be considered material to the Company's business. The Company
does not believe that its business is materially dependent on any
one license agreement. The "Pierre Cardin" leather accessories
license provides for percentage royalty payments not exceeding 5%
of net sales. The "Anne Klein", "Anne Klein II", "Claiborne",
and "John Henry" licenses provide for percentage royalty payments
not exceeding 6% of net sales. The "Guess?" and "Geoffrey Beene"
licenses provide for percentage royalty payments not exceeding 7%
of net sales. The "Yves Saint Laurent" leather accessories
license, the "Kenneth Cole" licenses and the "Pierre Cardin"
costume jewelry license provide for percentage royalty payments
not exceeding 8% of net sales. The "Yves Saint Laurent" jewelry
licenses and the "DKNY" license provide for percentage royalty
payments not exceeding 10% of net sales. The license agreements
to which the Company is a party generally specify minimum
royalties and minimum advertising and promotion expenditures. The
Company's "Geoffrey Beene" license expires June 30, 2002. The
Company's licenses to distribute "Pierre Cardin" jewelry and
leather accessories, and "Kenneth Cole" leather accessories
expire December 31, 2000. The Company's "Kenneth Cole" jewelry
licenses and its "Claiborne" and "Yves Saint Laurent" licenses
expire December 31, 2001. The Company's "DKNY" license and its
"Anne Klein" and "Anne Klein II" license expire December 31,
2002. The Company's "Guess?" licenses expire June 30, 2000.
Employees
The Company has approximately 1,300 employees, of whom
approximately 900 are production employees. Approximately 230
employees are employed by Joyas y Cueros at its facilities
located in Costa Rica. None of the Company's or Joyas y Cueros'
employees are represented by labor unions and management believes
its relationships with their respective employees to be
satisfactory.
Recent Developments
On March 16, 2000, the Company announced a plan to
cease production operations at its jewelry manufacturing facility
located in Attleboro, Massachusetts and transfer its remaining
domestic jewelry production requirements to its majority-owned
subsidiary, Joyas y Cueros, S.A. de Costa Rica, and certain third-
party vendors. Manufacturing operations at Attleboro will cease
following the orderly transition of merchandise requirements to
other resources which is expected to be completed during the
second quarter of 2000. Management has concluded that its
Attleboro manufacturing facility can no longer be competitive in
light of the increasing pressure to sustain gross margins at both
the wholesale and retail level and that maintaining a domestic
large-scale jewelry manufacturing operation is not economically
viable. In connection with the closure, the Company will take a
charge against pretax earnings of approximately $1,400,000 to
$1,600,000 in the first quarter of 2000 to cover employee
severance and related costs. Additional integration expenses
associated with the writedown of certain inventory, currently
estimated at $550,000, are also likely to be incurred in fiscal
2000 as the Company completes the process of resourcing its
remaining merchandise requirement. Integration costs will be
expensed as incurred.
Item 2. Properties.
The Company's main administrative office is located in
a three-story building, containing approximately 193,000 square
feet, on a seven-acre site owned by the Company in Attleboro,
Massachusetts. The Company manufactures and/or assembles jewelry
products for both the women's accessories and men's accessories
segments at this facility. Reference is made to the information
with regard to the Company's Attleboro jewelry manufacturing
facility set forth above in Item 1 under the caption "Recent
Developments."
The Company's national and international sales offices,
executive offices and regional sales offices are located in
leased premises at 90 Park Avenue, New York City. The leases of
such premises expire in 2010. Regional sales offices are also
located in leased premises in Atlanta, Chicago and Beverly Hills
and a branch office is leased in Scottsdale. The leases for the
preceding premises expire from 2001 to 2003. Collectively, these
offices contain approximately 25,000 square feet.
The Company also leases a warehouse containing
approximately 242,000 square feet in Taunton, Massachusetts,
which is used in the distribution of all of the Company's
products. In addition, one of the Company's factory stores is
located within the Taunton location. The lease for these
premises expires in 2001.
Men's belts, suspenders and certain other leather
accessories within the men's accessories segment are manufactured
in premises owned by the Company in South Norwalk, Connecticut
consisting of a manufacturing plant and office space in a 126,500
square foot building, located on approximately seven and one-half
acres.
Joyas y Cueros manufactures and/or assembles women's
jewelry products in a leased building of approximately 27,700
square feet and manufactures men's belts in a leased building of
approximately 45,600 square feet. Both of these buildings are
located in Cartago, Costa Rica. The leases for these premises
expire in 2003.
The Company's manufacturing and distribution facilities
are equipped with modern machinery and equipment, substantially
all of which is owned by the Company with the remainder leased.
In management's opinion, the Company's properties and machinery
and equipment are adequate for the conduct of the respective
businesses to which they relate.
The Company presently operates 16 factory outlet stores
in addition to the outlet store in Taunton, Massachusetts as
described above. These stores have leases with terms not in
excess of five years and contain approximately 38,000 square feet
in the aggregate.
Item 3. Legal Proceedings.
(a) On June 7, 1990, the Company received notice from
the United States Environmental Protection Agency ("EPA") that
it, along with fifteen others, had been identified as a
Potentially Responsible Party ("PRP") in connection with the
release of hazardous substances at a Superfund site located in
Massachusetts. This notice does not constitute the commencement
of a proceeding against the Company nor necessarily indicate that
a proceeding against the Company is contemplated. The Company,
along with six other PRP's, has entered into an Administrative
Order pursuant to which, inter alia, they have undertaken to
conduct a remedial investigation/feasibility study (the "RI/FS")
with respect to the alleged contamination at the site.
It is the position of the PRPs who have undertaken to
perform the RI/FS at the Massachusetts Superfund site that the
remedial investigation has been completed. The Massachusetts
Superfund site is adjacent to a municipal landfill that is in the
process of being closed under Massachusetts law. The Company
believes that the issues regarding the site are under discussion
among state and federal agencies due to the proximity of the site
to the landfill and the composition of waste at the site.
Therefore, it is premature to make a determination whether this
matter may have a material adverse effect on the company's
operating results, financial condition or cash flows. The PRP
Group's accountant's records reflect group expenses since
December 31, 1990, independent of legal fees, in the amount of
$1,944,930 as of December 31, 1999. The Company's share of costs
for the RI/FS is being allocated on an interim basis at 12.5177%.
In September 1991, the Company signed a judicial
consent decree relating to the Western Sand and Gravel site
located in Burrillville and North Smithfield, Rhode Island. The
consent decree was entered on August 28, 1992 by the United
States District Court for the District of Rhode Island. The most
likely scenario for remediation of the ground water at this site
is through natural attenuation which will be monitored for a
period of up to 24 years. Estimates of the costs of remediation
range from approximately $2.8 million for natural attenuation to
approximately $7.8 million for other remediation. Based on
current participation, the Company's share is 7.99% of
approximately 75% of the costs. Management believes that this
site will not result in any material adverse effect on the
Company's operating results, financial condition or cash flows
based on the results of periodic tests conducted at the site.
In 1988, the Company received notice from the
Department of Pollution Control and Ecology of the State of
Arkansas that the Company, together with numerous other
companies, had been identified as a PRP in connection with the
release or threatened release of hazardous substances from the
Diaz Refinery, Incorporated site in Diaz, Arkansas. The Company
has advised the State of Arkansas that it intends to participate
in negotiations with the Department of Pollution Control and
Ecology through the committees formed by the PRPs. The Company
has not received further communications regarding the Diaz site.
Therefore, it is premature to make a determination whether this
matter may have a material adverse effect on the Company's
operating results, financial condition or cash flows.
(b) No material pending legal proceedings were
terminated during the three-month period ended December 31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company are as follows:
Name Age Title
Marshall Tulin 82 Chairman of the Board and
Director
John A. Tulin 53 President and Chief
Executive Officer and
Director
James E. Tulin 48 Senior Vice President -
Merchandising and
Director
Richard V. Byrnes, Jr. 40 Senior Vice President -
Operations
Paul Duckett 59 Senior Vice President -
Distribution and Retail
Store Operations
Melvin Goldfeder 63 Senior Vice President -
Special Markets Division
Jerold R. Kassner 43 Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Eric P. Luft 44 Senior Vice President -
Men's Division
Lewis Valenti 60 Senior Vice President -
Women's Division
There are no family relationships among any of the
persons listed above or among such persons and the directors of
the Company except that John A. Tulin and James E. Tulin are the
sons of Marshall Tulin.
Marshall Tulin has served as Chairman of the Board
since October 1995. He joined the Company in 1940, was elected a
Vice President in 1954 and President in 1957. Mr. Tulin has
served as a director of the Company since 1956.
John A. Tulin has served as President and Chief
Executive Officer of the Company since October 1995. Mr. Tulin
joined the Company in 1971, was elected a Vice President in 1974,
Senior Vice President in 1979 and Executive Vice President in
1982. He has served as a director since 1975.
James E. Tulin has been Senior Vice President-
Merchandising since October 1995. For more than five years prior
to October 1995, Mr. Tulin served as a Senior Vice President of
the Company. Mr. Tulin has been a director of the Company since
1985.
Richard V. Byrnes, Jr. has been Senior Vice President-
Operations since October 1995. Mr. Byrnes joined the Company in
December 1991 as a Divisional Vice President of the Crestline
Division and was elected a Vice President in April 1994. Prior
to joining the Company, Mr. Byrnes was a consultant with the
accounting firm of Coopers & Lybrand L.L.P.
Paul Duckett has been Senior Vice President-
Distribution and Retail Store Operations since October 1995. For
more than five years prior to October 1995, Mr. Duckett served as
a Senior Vice President of the Company.
Melvin Goldfeder has been Senior Vice President-Special
Markets Division since October 1995. For more than five years
prior to October 1995, Mr. Goldfeder served as a Senior Vice
President of the Company.
Jerold R. Kassner has been Senior Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since
July 1999. Mr. Kassner joined the Company in November 1988 and
was elected Vice President and Controller in September 1997.
Eric P. Luft has been Senior Vice President-Men's
Division since October 1995. Mr. Luft served as a Divisional
Vice President of the Men's Products Division from June 1989
until January 1993, when he was elected a Senior Vice President
of the Company.
Lewis Valenti has been Senior Vice President - Women's
Division since October 1995. For more than five years prior to
October 1995, Mr. Valenti served as a Senior Vice President of
the Company.
Each officer of the Company serves, at the pleasure of
the Board of Directors, for a term of one year and until his
successor is elected and qualified.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The information called for by this Item 5 with respect
to market information and the number of holders of the
Registrant's Common Stock is incorporated herein by reference to
the caption "Market for the Company's Common Stock and Related
Stockholder Matters" on page 18 of the Company's 1999 Annual
Report, which is Exhibit 13.01 to this Annual Report on Form 10-K.
The Company's financing agreement with its lender
prohibits the payment of cash dividends on the Company's Common
Stock (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" incorporated by reference in
Item 7 of this Report). The Company has not paid any cash
dividends on its Common Stock in the last ten years and has no
current expectation that cash dividends will be paid in the
foreseeable future.
Item 6. Selected Financial Data.
The information called for by this Item 6 is
incorporated herein by reference to the information under the
caption "Financial Highlights" on page 1 of the Company's 1999
Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information called for by this Item 7 is
incorporated herein by reference to the information under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 2-5 of the
Company's 1999 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.
The information called for by this Item 7A is
incorporated herein by reference to the information under the
caption "Notes to Consolidated Financial Statements B. Summary
of Significant Accounting Policies" on pages 9 and 10 of the
Company's 1999 Annual Report.
Item 8. Financial Statements and Supplementary Data.
The information called for by this Item 8 is
incorporated herein by reference to the information under the
following captions on pages 6-18 of the Company's 1999 Annual
Report:
I. Consolidated Balance Sheets as of December 31,
1999 and 1998.
II. Consolidated Statements of Operations for each of
the three years ended December 31, 1999, 1998 and 1997.
III. Consolidated Statements of Changes in
Stockholders' Equity for each of the three years
ended December 31, 1999, 1998 and 1997.
IV. Consolidated Statements of Cash Flows for each of
the three years ended December 31, 1999, 1998 and 1997.
V. Notes to Consolidated Financial Statements.
VI. Report of Independent Accountants
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this Item 10 (except for
information as to the Company's executive officers, which
information appears following Part I in this Annual Report on
Form 10-K under the caption "Executive Officers of the
Registrant") is incorporated herein by reference to the Company's
definitive proxy statement relating to the Company's 2000 Annual
Meeting of Stockholders filed pursuant to Regulation 14A under
the Securities Act of 1934, as amended (the "2000 Proxy
Statement").
Item 11. Executive Compensation.
The information called for by this Item 11 is
incorporated herein by reference to the 2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information called for by this Item 12 is
incorporated herein by reference to the 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item 13 is
incorporated herein by reference to the 2000 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Documents filed as part of this Report
1. Financial Statements filed as part of this Report:
The financial statements of the
Company and the report of
independent accountants thereon,
included on pages 6-18 of the 1999
Annual Report, are incorporated
herein by reference to Item 8 of
this Annual Report on Form 10-K.
2. Financial Statement Schedules filed as part of
this Report:
The following financial statement
schedule and the report of
independent accountants thereon are
submitted herewith in response to
Item 14(d) of Part IV of this
Annual Report on Form 10-K:
Report of Independent Accountants on Financial
Statement Schedule
Financial Statement Schedule for the years ended
December 31, 1999, 1998 and 1997.
II. Valuation and Qualifying Accounts
(b) Current Reports on Form 8-K during the quarter ended
December 31, 1999
The Company filed a Current Report on Form 8-K dated
October 29, 1999 with respect to an event reported under Item 5-
Other Events.
(c) Exhibits
Exhibit Description
3.01 Restated Certificate of Incorporation of the
Company dated May 1, 1987, as amended to date.*
3.02 By-laws of the Company, as amended to date.
(Exhibit 3.02 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, File No. 1-5354, is incor
porated herein by reference).
4.01 Revolving Credit and Security Agreement dated
as of July 27, 1998 between the Company and PNC Bank, National
Association, as Lender and as Agent ("PNC"). (Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1998, File No. 1-5354, is incorporated herein by
reference).
4.01.1 First Amendment to Revolving Credit and
Security Agreement dated as of July 12, 1999 between the Company
and PNC Bank, National Association, as lender and Agent.
(Exhibit 4.0 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1999, File No. 1-5354, is
incorporated herein by reference).
4.01.2 Second Amendment to Revolving Credit and
Security Agreement dated as of November 1, 1999 between the
Company and PNC Bank, National Association, as lender and Agent.
(Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1999, File No. 1-5354, is
incorporated herein by reference).
4.01.3 Third Amendment to Revolving Credit and
Security Agreement dated as of December 31, 1999 between the
Company and PNC Bank, National Association, as lender and Agent.*
4.01.4 Waiver dated March 7, 2000 to Revolving
Credit and Security Agreement dated as of July 27, 1998 between
the Company and PNC Bank, National Association, as lender and
Agent.*
4.02 Pledge Agreement dated as of July 27, 1998
between the Company and PNC. (Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1998, File No. 1-5354, is incorporated herein by reference).
4.03 Rights Agreement, dated as of October 26,
1999, between the Company and American Stock Transfer & Trust
Company, as Rights Agent. (Exhibit 4.1 to the Company's Current
Report on Form 8-K dated October 29, 1999, File No. 1-5354, is
incorporated herein by reference).
10.01 Employment Agreement dated June 20, 1991
between the Company and Marshall Tulin. (Exhibit 10.01 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991, File No. 1-5354, is incorporated herein by
reference).+
10.01.1 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.01.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.01.2 Amendment effective as of October 30, 1995 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.01.2 to the Company's Annual Report on Form 10K for
the fiscal year ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.01.3 Amendment effective as of January 1, 1992 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.01.3 to the Company's Annual Report on Form 10K for
the fiscal year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference).+
10.01.4 Amendment dated as of May 4, 1998 to
Employment Agreement between the Company and Marshall Tulin.
(Exhibit 10.0 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1998, File No. 1-5354, is incor
porated herein by reference).+
10.02 Employment Agreement dated as of January 1,
1990 between the Company and John Tulin. (Exhibit 10-03 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1989, File No. 1-5354, is incorporated herein by
reference).+
10.02.1 Amendments dated as of September 1, 1993 and
September 2, 1993, respectively, between the Company and John
Tulin. (Exhibit 10.02.1 to the Company's Annual Report on Form 10-
K for the fiscal year ended December 31, 1993, File No. 1-5354,
is incorporated herein by reference).+
10.02.2 Amendment dated as of January 1, 1997 to
Employment Agreement between the Company and John Tulin.
(Exhibit 10.02.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.02.3 Amendment dated as of January 1, 1992 to
Employment Agreement between the Company and John Tulin. (Exhibit
10.02.3 to the Company's Annual Report on Form 10K for the fiscal
year ended December 31, 1998, File No. 1-5354, is incorporated
herein by reference).+
10.02.4 Amendment dated as of December 10, 1998 to
Employment Agreement between the Company and John Tulin. (Exhibit
10.02.4 to the Company's Annual Report on Form 10K for the fiscal
year ended December 31, 1998, File No. 1-5354, is incorporated
herein by reference).+
10.03 Employment Agreement dated as of March 1,
1989 between the Company and James Tulin. (Exhibit 10.05 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-5354, is incorporated herein by
reference).+
10.03.1 Amendment dated as of January 4, 1990 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.05 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989, File No. 1-5354, is
incorporated herein by reference).+
10.03.2 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.03.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.03.3 Amendment dated as of January 1, 1997 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.03.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.03.4 Amendment dated as of January 1, 1992 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.03.4 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference).+
10.03.5 Amendment dated as of December 10, 1998 to
Employment Agreement between the Company and James Tulin.
(Exhibit 10.03.5 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference).+
10.04 1987 Incentive Stock Option Plan of the Com
pany. (Exhibit 10.05 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, File No. 1-5354, is
incorporated herein by reference).+
10.05 Form of Termination Agreement effective
January 1, 1999 between the Company and each of the Company's
officers listed on Schedule A thereto. (Exhibit 10.05 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated herein by
reference).+
10.06 Deferred Compensation Plan of the Company
dated as of January 1, 1987. (Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1988, File No. 1-5354, is incorporated herein by reference).+
10.07 Agreement dated as of July 14, 1981 between
the Company and Marshall Tulin, John Tulin and Raymond Vise as
investment managers of the Company's pension plans. (Exhibit
10.12(b) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1981, File No. 1-5354, is
incorporated herein by reference).
10.08 The New Swank, Inc. Retirement Plan Trust
Agreement dated as of January 1, 1994 among the Company and
Marshall Tulin, John Tulin and Raymond Vise, as co-trustees.
(Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-5354, is
incorporated herein by reference).
10.09 Plan of Recapitalization of the Company dated
as of September 28, 1987, as amended (Exhibit 2.01 to
Post-Effective Amendment No.1 to the Company's S-4 Registration
Statement, File No.33-19501, filed on February 9, 1988, is
incorporated herein by reference).
10.10 Key Employee Deferred Compensation Plan.
(Exhibit 10.17 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.10.1 First Amendment effective January 1, 1997 to
Key Employee Deferred Compensation Plan. (Exhibit 10.14.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.11 1994 Non-Employee Director Stock Option Plan.
(Exhibit 10.15 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, File No. 1-5354, is
incorporated herein by reference).+
10.11.1 Stock Option Contracts dated as of December
31, 1994 between the Company and each of Mark Abramowitz and
Raymond Vise. (Exhibit 10.15.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, File No. 1-
5354, is incorporated herein by reference).+
10.11.2 Stock Option Contract dated as of April 20,
1995 between the Company and Raymond Vise. (The third exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, File No. 1-5354, is incorporated herein by
reference).+
10.11.3 Stock Option Contract dated as of April 20,
1995 between the Company and Mark Abramowitz. (The fifth exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, File No. 1-5354, is incorporated herein by
reference).+
10.11.4 Stock Option Contract dated December 12, 1995
between the Company and John J. Macht. (Exhibit 10.15.5 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, File No. 1-5354, is incorporated herein by
reference).+
10.11.5 Stock Option Contracts dated as of July 31,
1996 between the Company and each of Mark Abramowitz, Raymond
Vise and John J. Macht. (Exhibit 10.15.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996,
File No. 1-5354, is incorporated herein by reference).+
10.11.6 Stock Option Contracts dated as of April 24,
1997 between the Company and each of Mark Abramowitz, Raymond
Vise and John J. Macht. (Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997,
File No. 1-5354, is incorporated herein by reference). +
10.11.7 Stock Option Contract dated as of April 23,
1998 between the Company and John J. Macht. (Exhibit 10.11.7 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference). +
10.11.8 Stock Option Contract dated as of April 23,
1998 between the Company and Raymond Vise. (Exhibit 10.11.8 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference). +
10.11.9 Stock Option Contract dated as of April 23,
1998 between the Company and Mark Abramowitz. (Exhibit 10.11.9 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference). +
10.11.10 Stock Option Contract dated as of April 22,
1999 between the Company and Mark Abramowitz. (Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, File No. 1-5354, is incorporated herein by
reference).+
10.11.11 Stock Option Contract dated as of April 22,
1999 between the Company and Raymond Vise. (Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, File No. 1-5354, is incorporated herein by
reference).+
10.11.12 Stock Option Contract dated as of April 22,
1999 between the Company and John J. Macht. (Exhibit 10.0 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, File No. 1-5354, is incorporated herein by
reference).+
10.12 Letter Agreement effective August 1, 1996
between the Company and John J. Macht. (Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.13 Letter Agreement effective August 1, 1998
between the Company and The Macht Group. (Exhibit 10.14 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated herein by
reference).+
10.14 Swank, Inc. 1998 Equity Incentive
Compensation Plan (Exhibit 10.0 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1998,
File No. 1-5354, is incorporated herein by reference).+
10.15 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to John Tulin under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated herein by
reference). +
10.16 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to Eric P. Luft under Swank,
Inc. 1998 Equity Incentive Compensation Plan. (Exhibit 10.17 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference). +
10.17 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to James Tulin under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated herein by
reference). +
10.18 Notice Of Performance Award And Award
Agreement as of October 21, 1998 to Lewis Valenti under Swank,
Inc. 1998 Equity Incentive Compensation Plan. (Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference). +
13.01 1999 Annual Report to Stockholders.*
21.01 Subsidiaries of the Company. (Exhibit 21.01
to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, File No. 1-5354, is incorporated herein
by reference). +
23.01 Consent of independent accountants.*
27.01 Financial Data Schedule.*
___________________________
*Filed herewith.
+Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 29, 2000 SWANK, INC.
(Registrant)
By: /s/ Jerold R. Kassner
Jerold R. Kassner,
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ John A. Tulin President and Director March 29, 2000
John A. Tulin (principal executive
officer)
/s/ Jerold R. Kassner Senior Vice President, March 29, 2000
Jerold R. Kassner Chief Financial Officer,
Treasurer and
Secretary(principal
financial and accounting
officer)
/s/ Mark Abramowitz Director March 29, 2000
Mark Abramowitz
/s/ John J. Macht Director March 29, 2000
John J. Macht
Signature Title Date
/s/ James E. Tulin Director March 29, 2000
James E. Tulin
/s/ Marshall Tulin Director March 29, 2000
Marshall Tulin
/s/ Raymond Vise Director March 29, 2000
Raymond Vise
Report of Independent Accountants on
Financial Statement Schedule
To the Stockholders of Swank, Inc.
Our audits of the consolidated financial statements referred
to in our report dated February 29, 2000 except for Note N
for which the dates are March 7, 2000, March 16, 2000, and
March 17, 2000 appearing on page 18 of the 1999 Annual
Report to Stockholders of Swank, Inc. (which report and
consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included
an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the financial
statement schedule presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 29, 2000, except for Note N of the consolidated
financial statements for which the dates are
March 7, 2000, March 16, 2000, and March 17, 2000
<TABLE>
Swank, Inc.
Schedule II - Valuation and Qualifying Accounts
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Additions Balance
Beginning Charged at End
of Period to Expense Deductions of Period
<S> <C> <C> <C> <C>
For the year ended December 31, 1999
Reserve for Receivables
Allowance for doubtful accounts $1,500,000 $ 395,000 (G) $595,000 (A)(I) $1,300,000
Allowance for cash discounts 230,000 1,508,000 (H) 1,523,000 (B) 215,000
Allowance for customer returns 4,336,000 8,439,000 (F) 7,479,000 (C) 5,296,000
Allowance for cooperative advertising 600,000 911,000 (G) 1,067,000 (D) 444,000
Allowance for in-store markdowns 2,375,000 8,002,000 (G) 7,456,000 (E) 2,921,000
Total 9,041,000 19,255,000 18,120,000 10,176,000
Reserve for Inventory Obsolescence $485,000 $1,385,000 (J) $435,000 (K) $1,435,000
For the year ended December 31, 1998
Reserve for Receivables
Allowance for doubtful accounts $1,500,000 $ (171,000) (G) $(171,000) (A)(I) $1,500,000
Allowance for cash discounts 227,000 1,381,000 (H) 1,378,000 (B) 230,000
Allowance for customer returns 5,213,000 7,033,000 (F) 7,910,000 (C) 4,336,000
Allowance for cooperative advertising 456,000 1,355,000 (G) 1,211,000 (D) 600,000
Allowance for in-store markdowns 2,310,000 7,059,000 (G) 6,994,000 (E) 2,375,000
Total 9,706,000 16,657,000 17,322,000 9,041,000
Reserve for Inventory Obsolescence $874,000 0 (J) $389,000 (K) $485,000
For the year ended December 31, 1997
Reserve for Receivables
Allowance for doubtful accounts $1,481,000 $92,000 (G) $73,000 (A) $1,500,000
Allowance for cash discounts 176,000 1,427,000 (H) 1,376,000 (B) 227,000
Allowance for customer returns 4,826,000 7,025,000 (F) 6,638,000 (C) 5,213,000
Allowance for cooperative advertising 537,000 1,106,000 (G) 1,187,000 (D) 456,000
Allowance for in-store markdowns 3,443,000 5,717,000 (G) 6,850,000 (E) 2,310,000
Total 10,463,000 15,367,000 16,124,000 9,706,000
Reserve for Inventory Obsolescence $574,000 $439,000 (J) $139,000 (K) $874,000
(A) Bad debts charged off as uncollectable, net of reserves.
(B) Cash discounts taken by customers.
(C) Customer returns.
(D) Credits issued to customers for cooperative advertising.
(E) Credits issued to customers for in-store markdowns.
(F) Net reduction in sales and cost of sales.
(G) Located in selling and administrative.
(H) Located in net sales.
(I) Accounts receivable recoveries in excess of charge-offs.
(J) Located in cost of sales.
(K) Inventory charged-off.
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1999
SWANK, INC.
Exhibit Description
3.01 Restated Certificate of Incorporation of the
Company dated May 1, 1987, as amended to date.*
3.02 By-laws of the Company, as amended to date.
(Exhibit 3.02 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1995, File No. 1-5354, is incorporated herein by
reference).
4.01 Revolving Credit and Security Agreement dated as of
July 27, 1998 between the Company and PNC Bank,
National Association, as Lender and as Agent
("PNC"). (Exhibit 4.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
June 30, 1998, File No. 1-5354, is incorporated
herein by reference).
4.01.1 First Amendment to Revolving Credit and Security
Agreement dated as of July 12, 1999 between the
Company and PNC Bank, National Association, as
lender and Agent. (Exhibit 4.0 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999, File No. 1-5354, is
incorporated herein by reference).
4.01.2 Second Amendment to Revolving Credit and Security
Agreement dated as of November 1, 1999 between the
Company and PNC Bank, National Association, as
lender and Agent. (Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999, File No. 1-5354,
is incorporated herein by reference).
4.01.3 Third Amendment to Revolving Credit and Security
Agreement dated as of December 31, 1999 between the
Company and PNC Bank, National Association, as
lender and Agent.*
4.01.4 Waiver dated March 7, 2000 to Revolving Credit and
Security Agreement dated as of July 27, 1998
between the Company and PNC Bank, National
Association, as lender and Agent.*
4.02 Pledge Agreement dated as of July 27, 1998 between
the Company and PNC. (Exhibit 4.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998, File No. 1-5354, is
incorporated herein by reference).
4.03 Rights Agreement, dated as of October 26, 1999,
between the Company and American Stock Transfer &
Trust Company, as Rights Agent. (Exhibit 4.1 to the
Company's Current Report on Form 8-K dated October
29, 1999, File No. 1-5354, is incorporated herein
by reference).
10.01 Employment Agreement dated June 20, 1991 between
the Company and Marshall Tulin. (Exhibit 10.01 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, File No. 1-
5354, is incorporated herein by reference).+
10.01.1 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and
Marshall Tulin. (Exhibit 10.01.1 to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.01.2 Amendment effective as of October 30, 1995 to
Employment Agreement between the Company and
Marshall Tulin. (Exhibit 10.01.2 to the Company's
Annual Report on Form 10K for the fiscal year ended
December 31, 1996, File No. 1-5354, is incorporated
herein by reference).+
10.01.3 Amendment effective as of January 1, 1992 to
Employment Agreement between the Company and
Marshall Tulin. (Exhibit 10.01.3 to the Company's
Annual Report on Form 10K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated
herein by reference).+
10.01.4 Amendment dated as of May 4, 1998 to Employment
Agreement between the Company and Marshall Tulin.
(Exhibit 10.0 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30,
1998, File No. 1-5354, is incorporated herein by
reference).+
10.02 Employment Agreement dated as of January 1, 1990
between the Company and John Tulin. (Exhibit 10-03
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989,
File No. 1-5354, is incorporated herein by
reference).+
10.02.1 Amendments dated as of September 1, 1993 and
September 2, 1993, respectively, between the
Company and John Tulin. (Exhibit 10.02.1 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, File No. 1-5354, is
incorporated herein by reference).+
10.02.2 Amendment dated as of January 1, 1997 to Employment
Agreement between the Company and John Tulin.
(Exhibit 10.02.2 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996, File No. 1-5354, is incorporated herein by
reference).+
10.02.3 Amendment dated as of January 1, 1992 to Employment
Agreement between the Company and John Tulin.
(Exhibit 10.02.3 to the Company's Annual Report on
Form 10K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference).+
10.02.4 Amendment dated as of December 10, 1998 to
Employment Agreement between the Company and John
Tulin. (Exhibit 10.02.4 to the Company's Annual
Report on Form 10K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated
herein by reference).+
10.03 Employment Agreement dated as of March 1, 1989
between the Company and James Tulin. (Exhibit
10.05 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988, File
No. 1-5354, is incorporated herein by reference).+
10.03.1 Amendment dated as of January 4, 1990 to Employment
Agreement between the Company and James Tulin.
(Exhibit 10.05 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1989, File No. 1-5354, is incorporated herein by
reference).+
10.03.2 Amendment dated as of September 1, 1993 to
Employment Agreement between the Company and James
Tulin. (Exhibit 10.03.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1993, File No. 1-5354, is incorporated
herein by reference).+
10.03.3 Amendment dated as of January 1, 1997 to Employment
Agreement between the Company and James Tulin.
(Exhibit 10.03.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996, File No. 1-5354, is incorporated herein by
reference).+
10.03.4 Amendment dated as of January 1, 1992 to Employment
Agreement between the Company and James Tulin.
(Exhibit 10.03.4 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference).+
10.03.5 Amendment dated as of December 10, 1998 to
Employment Agreement between the Company and James
Tulin. (Exhibit 10.03.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1998, File No. 1-5354, is incorporated
herein by reference).+
10.04 1987 Incentive Stock Option Plan of the Company.
(Exhibit 10.05 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996, File No. 1-5354, is incorporated herein by
reference).+
10.05 Form of Termination Agreement effective January 1,
1999 between the Company and each of the Company's
officers listed on Schedule A thereto. (Exhibit
10.05 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File
No. 1-5354, is incorporated herein by reference).+
10.06 Deferred Compensation Plan of the Company dated as
of January 1, 1987. (Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1988, File No. 1-5354, is
incorporated herein by reference).+
10.07 Agreement dated as of July 14, 1981 between the
Company and Marshall Tulin, John Tulin and Raymond
Vise as investment managers of the Company's
pension plans. (Exhibit 10.12(b) to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1981, File No. 1-5354, is
incorporated herein by reference).
10.08 The New Swank, Inc. Retirement Plan Trust Agreement
dated as of January 1, 1994 among the Company and
Marshall Tulin, John Tulin and Raymond Vise, as co-
trustees. (Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994, File No. 1-5354, is incorporated
herein by reference).
10.09 Plan of Recapitalization of the Company dated as of
September 28, 1987, as amended (Exhibit 2.01 to
Post-Effective Amendment No.1 to the Company's S-4
Registration Statement, File No.33-19501, filed on
February 9, 1988, is incorporated herein by
reference).
10.10 Key Employee Deferred Compensation Plan. (Exhibit
10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, File
No. 1-5354, is incorporated herein by reference).+
10.10.1 First Amendment effective January 1, 1997 to Key
Employee Deferred Compensation Plan. (Exhibit
10.14.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, File
No. 1-5354, is incorporated herein by reference).+
10.11 1994 Non-Employee Director Stock Option Plan.
(Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1994, File No. 1-5354, is incorporated herein by
reference).+
10.11.1 Stock Option Contracts dated as of December 31,
1994 between the Company and each of Mark
Abramowitz and Raymond Vise. (Exhibit 10.15.1 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, File No. 1-
5354, is incorporated herein by reference).+
10.11.2 Stock Option Contract dated as of April 20, 1995
between the Company and Raymond Vise. (The third
exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, File No.
1-5354, is incorporated herein by reference).+
10.11.3 Stock Option Contract dated as of April 20, 1995
between the Company and Mark Abramowitz. (The fifth
exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995, File No.
1-5354, is incorporated herein by reference).+
10.11.4 Stock Option Contract dated December 12, 1995
between the Company and John J. Macht. (Exhibit
10.15.5 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, File
No. 1-5354, is incorporated herein by reference).+
10.11.5 Stock Option Contracts dated as of July 31, 1996
between the Company and each of Mark Abramowitz,
Raymond Vise and John J. Macht. (Exhibit 10.15.5
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-
5354, is incorporated herein by reference).+
10.11.6 Stock Option Contracts dated as of April 24, 1997
between the Company and each of Mark Abramowitz,
Raymond Vise and John J. Macht. (Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, File No. 1-
5354, is incorporated herein by reference). +
10.11.7 Stock Option Contract dated as of April 23, 1998
between the Company and John J. Macht. (Exhibit
10.11.7 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File
No. 1-5354, is incorporated herein by reference). +
10.11.8 Stock Option Contract dated as of April 23, 1998
between the Company and Raymond Vise. (Exhibit
10.11.8 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File
No. 1-5354, is incorporated herein by reference). +
10.11.9 Stock Option Contract dated as of April 23, 1998
between the Company and Mark Abramowitz. (Exhibit
10.11.9 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File
No. 1-5354, is incorporated herein by reference). +
10.11.10 Stock Option Contract dated as of April 22, 1999
between the Company and Mark Abramowitz. (Exhibit
10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, File
No. 1-5354, is incorporated herein by reference).+
10.11.11 Stock Option Contract dated as of April 22, 1999
between the Company and Raymond Vise. (Exhibit
10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, File
No. 1-5354, is incorporated herein by reference).+
10.11.12 Stock Option Contract dated as of April 22, 1999
between the Company and John J. Macht. (Exhibit
10.0 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, File
No. 1-5354, is incorporated herein by reference).+
10.12 Letter Agreement effective August 1, 1996 between
the Company and John J. Macht. (Exhibit 10.18 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-
5354, is incorporated herein by reference).+
10.13 Letter Agreement effective August 1, 1998 between
the Company and The Macht Group. (Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-
5354, is incorporated herein by reference).+
10.14 Swank, Inc. 1998 Equity Incentive Compensation Plan
(Exhibit 10.0 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September
30, 1998, File No. 1-5354, is incorporated herein
by reference).+
10.15 Notice Of Performance Award And Award Agreement as
of October 21, 1998 to John Tulin under Swank, Inc.
1998 Equity Incentive Compensation Plan. (Exhibit
10.16 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File
No. 1-5354, is incorporated herein by reference). +
10.16 Notice Of Performance Award And Award Agreement as
of October 21, 1998 to Eric P. Luft under Swank,
Inc. 1998 Equity Incentive Compensation Plan.
(Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference). +
10.17 Notice Of Performance Award And Award Agreement as
of October 21, 1998 to James Tulin under Swank,
Inc. 1998 Equity Incentive Compensation Plan.
(Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference). +
10.18 Notice Of Performance Award And Award Agreement as
of October 21, 1998 to Lewis Valenti under Swank,
Inc. 1998 Equity Incentive Compensation Plan.
(Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1998, File No. 1-5354, is incorporated herein by
reference). +
13.01 1999 Annual Report to Stockholders.*
21.01 Subsidiaries of the Company. (Exhibit 21.01 to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, File No. 1-5354, is
incorporated herein by reference). +
23.01 Consent of independent accountants.*
27.01 Financial Data Schedule.*
*Filed herewith.
+Management contract or compensatory plan or arrangement.
EXHIBIT 3.01
RESTATED CERTIFICATE OF INCORPORATION
OF
SWANK, INC.
It is hereby certified that:
1. (a) The present name of the corporation (hereinafter called
the "Corporation") is Swank, Inc.
(b) The name under which the Corporation was originally
incorporated is Swank Products, Inc., and the date of filing of
the original certificate of incorporation of the Corporation with
the Secretary of State of the State of Delaware is April 17,
1936.
2. The provisions of the certificate of incorporation of the
Corporation as heretofore amended and/or supplemented, are hereby
restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Restated Certificate
of Incorporation of Swank, Inc., without further amendment and
without any discrepancy between the provisions of the certificate
of incorporation as heretofore amended and supplemented and the
provisions of the said single instrument hereinafter set forth.
3. The Board of Directors of the Corporation has duly adopted
this Restated Certificate of Incorporation pursuant to the
provisions of Section 245 of the General Corporation Law of the
State of Delaware in the form set forth as follows:
"RESTATED CERTIFICATE OF INCORPORATION
OF
SWANK, INC."
FIRST : The name of the Corporation (hereinafter called the
"Corporation") is SWANK, INC.
SECOND: The address, including street, number, city and
county of the registered office of the Corporation in the State
of Delaware is 229 South State Street, City of Dover, County of
Kent; and the name of the registered agent of the Corporation in
the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The nature of the business, or objects or purposes
to be transacted, promoted or carried on are:
To manufacture, buy, sell,
import, export, trade and deal in
jewelry and wearing apparel of
every kind and description.
To manufacture, purchase or
otherwise acquire, own, mortgage,
pledge, sell, assign and transfer,
or otherwise dispose of, to invest,
trade, deal in and deal with goods,
wares and merchandise and personal
property of every class and
description.
To acquire, and pay for in
cash, stock or bonds of this
Corporation or otherwise, the good
will, rights, assets and property,
and to undertake or assume the
whole or any part of the
obligations or liabilities of any
person, firm, association or
corporation.
To acquire, hold, use, sell,
assign, lease, grant licenses in
respect of, mortgage or otherwise
dispose of letters patent of the
United States or any foreign
country, patent rights, licenses
and privileges, inventions,
improvements and processes,
copyrights, trademarks and trade
names, relating to or useful in
connection with any business of
this Corporation.
To guarantee, purchase, hold,
sell, assign, transfer, mortgage,
pledge or otherwise dispose of
shares of the capital stock of, or
any bonds, securities or evidences
of indebtedness created by any
other corporation or corporations
organized under the laws of this
state or any other state, country,
nation or government, and while the
owner thereof to exercise all the
rights, powers and privileges of
ownership, including the right to
vote thereon.
To enter into, make and
perform contracts of every kind and
description with any person, firm,
association, corporation,
municipality, county, state, body
politic or government or colony or
dependency thereof.
To borrow or raise moneys for
any of the purposes of the
Corporation and, from time to time,
without limit as to amount, to
draw, make, accept, endorse,
execute and issue promissory notes,
drafts, bills of exchange,
warrants, bonds, debentures and
other negotiable or non-negotiable
instruments and evidences of
indebtedness, and to secure the
payment of any thereof and of the
interest thereon by mortgage upon
or pledge, conveyance or assignment
in trust of the whole or any part
of the property of the Corporation,
whether at the time owned or
thereafter acquired and to sell,
pledge or otherwise dispose of such
bonds or other obligations of the
Corporation for its corporate
purposes.
To purchase, hold, sell and
transfer the shares of its own
capital stock; provided it shall
not use its funds or property for
the purchase of its own shares of
capital stock when such use would
cause any impairment of its capital
except as otherwise permitted by
law, and provided further that
shares of its own capital stock
belonging to it shall not be voted
upon directly or indirectly.
To have one or more offices,
to carry on all or any of its
operations and business and without
restriction or limit as to amount
to purchase or otherwise acquire,
hold, own, mortgage, sell, convey,
or otherwise dispose of real and
personal property of every class
and description in any of the
States, Districts, Territories, or
Colonies of the United States, and
in any and all foreign countries,
subject to the laws of such State,
District, Territory, Colony or
Country.
In general, to carry on any
other business in connection with
the foregoing, and to have and
exercise all the powers conferred
by the laws of Delaware upon
corporations formed under the act
hereinafter referred to, and to do
any or all of the things
hereinbefore set forth to the same
extent as natural persons might or
could do.
The objects and purposes
specified in the foregoing clauses
shall, except where otherwise
expressed, be in no way limited or
restricted by reference to, or
inference from, the terms of any
other clause in this Certificate of
Incorporation, but the objects and
purposes specified in each of the
foregoing clauses of this article
shall be regarded as independent
objects and purposes.
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is
seven million (7,000,000) shares of which six million (6,000,000)
shares shall be designated Common Stock of the par value of One
Dollar ($1.00) per share, and one million (1,000,000) shares
shall be designated Preferred Stock of the par value of One
Dollar ($1.00) per share.
The designations, preferences and relative,
participating, optional and other special rights of the Preferred
Stock and the Common Stock and the qualifications, limitations
and restrictions thereof, are as follows:
I. Common Stock
1. Subject to provisions of law and the preferences of the
Preferred Stock and of any other stock ranking prior to the
Common Stock as to dividends, the holders of the Common Stock
shall be entitled to receive dividends at such time and in such
amounts as may be determined by the Board of Directors.
2. Except as otherwise provided by law and in the Certificate
of Incorporation or except as determined pursuant to authority of
the Board of Directors as herein provided (i) all voting rights
shall be vested exclusively in the holders of the outstanding
shares of Common Stock and each such holder shall be entitled to
one vote per share for all purposes for each share of Common
Stock held of record by him and (ii) the holders of Preferred
Stock shall not be entitled to vote for any purpose nor shall
they be entitled to notice of meetings of stockholders.
3. In the event of any liquidation, dissolution or winding up
of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation and the
preferential amounts to which the holders of any stock ranking
prior to the Common Stock in the distribution of assets upon
liquidation shall be entitled to share in the remaining assets of
the Corporation according to their respective interests.
II. Preferred Stock
The Preferred Stock may be issued from time to time in
one or more series. All shares of any one series of Preferred
Stock shall be identical except as to the dates of issue and the
dates from which dividends on shares of the same series issued on
different dates shall cumulate (if cumulative). Subject to the
Certificate of Incorporation, authority is expressly granted to
the Board of Directors to authorize the issue of one or more
series of Preferred Stock, and to fix by resolution or
resolutions providing for the issue of each such series the
voting powers, designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of such
series, to the full extent now or hereafter permitted by law,
including but not limited to the following:
(a) the distinctive designations of such series and the
number of shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of
Directors in creating such series) or decreased (but not below
the number of shares thereof then outstanding) from time to time
by action of the Board of Directors;
(b) the dividend rights of such series, the extent,
if any, to which such dividends shall be cumulative, the conditions upon
which and/or the dates when such dividends shall be payable and
the date from which dividends on cumulative series shall accrue
and be cumulative; provided that accumulated dividends shall not
bear interest;
(c) whether such series shall be redeemable and,
if so, the terms and conditions of such redemption, including the
time or times when and the price or prices at which shares of such
series shall be redeemed;
(d) the rights of such series in the event of liquidation,
dissolution or winding up of the Corporation (consolidation or
merger of the Corporation with or into one or more other
corporations or a sale, lease or exchange of all or substantially
all of the assets of the Corporation shall not be deemed to be a
liquidation, dissolution or winding up, within the meaning of
this Article FOURTH);
(e) the terms and conditions, if any, upon which the
shares of such series shall be convertible into or exchangeable for shares
of any other series, class or classes, or any other securities,
to the full extent now or hereafter permitted by law; and
(f) whether such series shall have any voting rights
in addition to those prescribed by law and, if so, the terms and conditions
of exercise of such voting rights.
No holder of any shares of Preferred Stock of any
series shall have any preemptive right whatsoever to purchase or
subscribe for any additional shares of Preferred Stock of any
series or any shares of any other class of stock or bonds,
certificates of indebtedness, debentures, warrants, options or
other securities convertible into or carrying any right to
purchase or subscribe for any shares of stock of any class.
FIFTH: The amount of capital with which the Corporation
will commence business is One Thousand Dollars ($1,000.00).
SIXTH: The names and places of residence of the
incorporators are as follows:
NAMES RESIDENCES
L.H. Herman Wilmington, Delaware
Walter Lenz Wilmington, Delaware
W. T. Hobson Wilmington, Delaware
SEVENTH: The Corporation is to have perpetual existence.
EIGHTH: The private property of the stockholders shall not
be subject to the payment of corporate debts to any extent
whatever.
NINTH: The Board of Directors is expressly authorized and
empowered to make, alter, amend and repeal the by-laws, subject
to the power of the stockholders to alter or repeal the by-laws
made by the Board of Directors.
TENTH: In furtherance, and not in limitation of the powers
conferred by statute, the Board of Directors is expressly
authorized:
To authorize and cause to be executed mortgages and
liens upon the real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper
purpose or to abolish any such reserve in the manner in which it
was created.
By resolution or resolutions, passed by a majority of
the whole board to designate one or more committees, each
committee to consist of two or more of the directors of the
Corporation, which, to the extent provided in said resolution or
resolutions or in the by-laws of the Corporation, shall have and
may exercise the powers of the Board of Directors in the
management of the business and affairs of the Corporation to be
affixed to all papers which may require it. Such committee or
committees shall have such name or names as may be stated in the
by-laws of the Corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the
holders of a majority of the stock issued and outstanding having
voting power given at a stockholders' meeting duly called for
that purpose, or when authorized by the written consent of the
holders of a majority of the voting stock issued and outstanding,
to sell, lease or exchange all of the property and assets of the
Corporation, including its good will and its corporate
franchises, upon such terms and conditions and for such
consideration, which may be in whole or in part shares of stock
in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient and
for the best interests of the Corporation.
The Corporation may in its by-laws confer powers upon
its Board of Directors in addition to the foregoing, and in
addition to the powers and authorities expressly conferred upon
it by statute.
ELEVENTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this
Corporation under the provisions of Section 3883 of the Revised
Code of 1915 of said State, or on the application of trustees in
dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 43 of the General
Corporation Law of the State of Delaware, order a meeting of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to
be summoned in such manner as the said Court directs. If a
majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to
be summoned in such manner as the said Court directs. If a
majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization
of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the Court to which the
said application has been made, be binding on all the creditors
or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also
on this Corporation.
TWELFTH: Both stockholders and directors shall have power,
if the by-laws so provide, to hold their meetings, and to have
one or more offices within or without the State of Delaware, and
to keep the books of this Corporation (subject to the provisions
of the statutes), outside of the State of Delaware at such places
as may be from time to time designated by the Board of Directors.
THIRTEENTH: No contract or other transaction between the
Corporation and any other corporation and no act of the
Corporation shall in any way be affected or invalidated by the
fact that any of the directors of the Corporation are pecuniary
or otherwise interested in, or are directors or officers of, such
other corporation; any director individually, or any firm of
which any director may be a member, may be a party to, or may be
pecuniary or otherwise interested in, any contract or transaction
of the Corporation, provided that the fact that he or such firm
is so interested shall be disclosed or shall have known to the
Board of Directors or a majority thereof; and any director of the
Corporation who is also a director or officer of such other
corporation or who is so interested may be counted in determining
the existence of a quorum at any meeting of the Board of
Directors of the Corporation which shall authorize any such
contract or transaction and may vote thereat to authorize any
such contract or transaction with like force and effect as if he
were not such director or officer of such other corporation or
not so interested.
FOURTEENTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
FIFTEENTH: No stockholder shall have any preemptive right to
subscribe to, purchase, or otherwise acquire any shares of stock,
rights, options, bonds, securities, or obligations of the
Corporation of any class or series, and any such preemptive right
in existence prior to the effective date of the amendment whereby
this Article FIFTEENTH has been added to the Certificate of
Incorporation of the Corporation is hereby expressly terminated.
SIXTEENTH: No director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except
that this Article SIXTEENTH, does not eliminate or limit the
liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law of the State of Delaware, as same
exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. No
amendment to or repeal of this Article SIXTEENTH, or adoption of
any provision of this Certificate of Incorporation inconsistent
with this Article SIXTEENTH, shall prejudice the exculpatory
effect of this Article SIXTEENTH with respect to any act or
omission occurring prior to the effective date of such amendment,
repeal or inconsistent provision.
Signed and attested to on May 1, 1987.
/s/ Marshall Tulin
Marshall Tulin, President
Attest:
/s/ Andrew C. Corsini
Andrew C. Corsini, Secretary
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF SERIES C
PARTICIPATING PREFERRED STOCK
of
SWANK, INC.
Pursuant to Section 151 of the Corporation Law
of the State of Delaware
We, John Tulin, Executive Vice President, and Andrew C.
Corsini, Secretary 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 151 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board
of Directors by the Restated Certificate of Incorporation of
the said Corporation, the said Board of Directors on
September 28, 1987, adopted the following resolution
creating a series of Series C 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 Restated
Certificate of Incorporation, a series of Preferred
Stock of the Corporation be and hereby is created, and
that the designation and amount thereof and the voting
rights, preferences privileges, qualifications,
limitations, conversion rights, restrictions and
relative, participating, optional and other special
rights of the shares of such series are as follows:
SECTION 1. .Designation and Amount. The shares
of such series shall be designated as "Series C
Participating Preferred Stock" (the "Series C
Participating Stock"). The number of shares
constituting such series shall be as follows:
Series Number of Shares
Series C Participating 160,000
Preferred Stock
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 C Participating Stock with respect to dividends,
the holders of shares of Series C Participating Stock,
in preference to the holders of Common Stock and of any
other junior 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 first day of February,
May, August and November 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 such Series C
Participating Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (a) $1 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 or
distribution payable in shares of Common Stock, par
value $1.00 per share (the "Common Stock"), declared on
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 such
Series C Participating Stock. In the event the
Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, otherwise than
pursuant to the Recapitalization (as hereinafter
defined), then in each such case the amount to which
holders of shares of Series C Participating 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 C Participating Stock as
provided in paragraph (A) of this Section 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 $1 per
share on the Series C Participating 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 C
Participating Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares of
Series C Participating 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 C Participating 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 C Participating 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 C Participating Stock
entitled to receive payment of a dividend or
distribution declared thereof, which record date shall
be not more than 60 days prior to the date fixed for
the payment thereof.
SECTION 3. Voting Rights. The holders of shares
of Series C Participating Stock shall have the
following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series C
Participating 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, when any shares of
Series C Participating Stock are outstanding, declare
or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in
each such case the number of votes per share to which
holders of shares of Series C Participating 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 C Participating
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, holders of Series
C Participating 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 C
Participating 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 C Participating Stock outstanding
shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends on, make any
other distributions on, any shares of stock
ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Series C Participating 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 C Participating Stock, except dividends
paid ratably on the Series C Participating 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 junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Series C Participating Stock, provided that the
Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior 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 C Participating Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Series C Participating
Stock, or any shares of stock ranking on a parity
with the Series C Participating 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 C Participating Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever
shall be retired and cancelled 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. Upon any liquidation, dissolution or winding up of
the Corporation, no distribution shall be made (1) to
the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or
winding up) to the Series C Participating Stock unless,
prior thereto, the holders of shares of Series C
Participating Stock shall have received an amount equal
to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such
payment, plus an amount equal to the greater of (a)
$100 per share, or (b) an aggregate amount per share,
subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, or
(2) to the holders of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or
winding up) with the Series C Participating Stock,
except distributions made ratably on the Series C
Participating Stock and all other such parity stock in
proportion to the total amounts to which the holders of
all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the
Corporation shall at any time, when any shares of
Series C Participating Stock are outstanding, declare
or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment
of a dividend in shares of Common Stock or the
Recapitalization) into a greater or lesser number of
shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series C
Participating Stock were entitled immediately prior to
such event under the proviso in clause (1) 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.
SECTION 7. Consolidation or Merger. In case
the Corporation shall enter into any consolidation or
merger in which the shares of Common Stock are
exchanged for or changed into other stock or
securities, cash and/or other property, then in any
such case the shares of Series C Participating 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, when any shares of
Series C Participating Stock are outstanding, declare
or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater
or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding
sentence with respect to the exchange or change of
shares of Series C Participating 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. Redemption. The outstanding shares
of Series C Participating Stock may be redeemed at the
option only of the Corporation in whole, but not in
part, at any time, without notice, at a redemption
price (the "Redemption Price") of $5,050 per share.
Upon consummation of the recapitalization of the
Corporation approved by its Board of Directors on
September 28, 1987 as the same may be amended or
modified (the "Recapitalization"), the Redemption Price
for each outstanding share of Series C Participating
Stock shall be adjusted, and shall be determined by
multiplying $5,050 by a fraction, the numerator of
which shall be the number of shares of Common Stock
issued and outstanding immediately before giving effect
to the transactions contemplated in the
Recapitalization, and the denominator of which shall be
the number of shares of Common Stock which shall be
issued and outstanding immediately following the
transaction contemplated in the Recapitalization. At
the time of redemption specified in the resolution of
the Board of Directors authorizing such redemption, the
rights of the holders of Series C Participating Stock
redeemed shall cease, except for the right to receive
the Redemption Price, without interest.
Notwithstanding any provision contained herein to the
contrary, no accrued dividends will be paid on the
shares of Series C Participating Stock upon redemption.
IN WITNESS WHEREOF, this Certificate of Designation has
been executed on behalf of the Corporation by its Executive Vice
President and attested by its Secretary this 23rd day of October,
1987.
/s/ John Tulin
John Tulin,
Executive Vice President
ATTEST:
/s/ Andrew C. Corsini
Andrew C. Corsini, Secretary
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A PARTICIPATING PREFERRED STOCK
AND SERIES B PARTICIPATING PREFERRED STOCK
OF
SWANK, INC.
Pursuant to Section 151 of the Corporation Law
of the State of Delaware
We, Marshall Tulin, President, and Andrew C. Corsini,
Secretary, of SWANK, INC., a corporation organized and existing
under the General Corporation Law f the State of Delaware (the
"Corporation"), in accordance with the provision of Section 151
thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by the Restated Certificate of Incorporation of the
said Corporation, the said Board of Directors on September 28,
1987, adopted the following resolution creating a series of
Series A Participating Preferred Stock and a series of Series B
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vesting the
Board of Directors of this Corporation in accordance with
the provisions of its Restated Certificate of Incorporation,
two series of Preferred Stock of the Corporation be and
hereby are created, and that the designations and amounts
thereof and the voting rights, preferences, privileges,
qualifications, limitations, conversions rights,
restrictions and relative, participating optional and other
special rights of the shares of such series are as follows:
Section 1. Designation and Amount. The shares of
such series shall be designated as "Series A Participating
Preferred Stock" (the "Series A Participating Stock")
(collectively, the "Participating Stock"). The number of
shares constituting such series shall be as follows:
Series Number of
Shares
Series A Participating Preferred Stock 12,000
Series B Participating Preferred Stock 24,000
The powers, preferences and rights of each series of
Participating Stock shall be identical except as set forth
herein.
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
Participating Stock with respect to dividends, the
holders of shares of each series of Participating
Stock, in preferences to the holders of Common Stock
and of any other junior 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
first day of February, May, August and November 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 share or fraction of a share of such series
of Participating Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1 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, par value $1.00 per
share, or Common Stock, par value $.10 per share of the
Corporation (collectively, the "Common Stock") or a
subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise), declared on 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 such
series of Participating Stock. In the event the
Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or
lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of
Participating 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 Participating Stock as provided in
paragraph (A) of this Section 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 divided 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 $1 per share on the
Participating 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 Participating Stock
from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Participating
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
Participating 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 Participating Stock in an amount less than the total
amount of such dividends at the tine 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
Participating Stock entitled to receive payment of a
dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of
Participating Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Participating
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 declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the number of
votes per share to which holders of shares of
Participating 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 provide herein or by law,
the holders of shares of Participating 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, holders of
Participating Stock shall have no special voting rights
and their consent shall not be required (except to the
extent they are entitle 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 Participating
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
Participating Stock outstanding shall have been paid in
full, the Corporation shall not:
(i) declare or pay dividends on, make any
other distributions on any shares of stock ranking
junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Participating 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
Participating Stock, except dividends paid ratably
on the Participating 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 junior (either as to dividends or upon
liquidation, dissolution or winding up) to the
Participating Stock, provided that the Corporation
may at any time redeem, purchase or otherwise
acquire shares of any such junior 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 Participating Stock; or
(iv) purchase or otherwise acquire for
consideration any shares of Participating Stock,
or any shares of stock ranking on a parity with
the Participating 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
Participating Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled 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.
Upon any liquidation or winding up of the Corporation, no
distribution shall be made (1) to the holders of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Participating Stock
unless, prior thereto, the holders of shares of
Participating Stock shall have received $100 per share, plus
an amount equal to accrued an unpaid dividends and
distributions thereon, whether or not declared, to the date
of such payment, provided that the holders of shares of
Participating Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of
Common Stock, or (2) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Participating Stock,
except distributions made ratably on the Participating Stock
and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled
upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the aggregate amount to
which holders of shares of Participating Stock were entitled
immediately prior to such event under the provision clause
(1) 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.
Section 7. Consolidation or Merger. In case the
Corporation shall enter into any consolidation or merger in
which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or other
property, then in any such case the shares of Participating
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
declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of
Participating 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. Redemption. The outstanding shares of
each of the series of Participating Stock may be redeemed at
the option only of the Corporation in whole, but not in
part, at any time, without notice, at a redemption price
(the "Redemption Price") of $1,700 per share. At the time
of redemption specified in the resolution of the Board of
Directors authorizing such redemption, the rights of the
holders of the series of Participating Stock redeemed shall
cease, except for the right to receive the Redemption Price,
without interest. Notwithstanding any provision contained
herein t the contrary, no accrued dividends will be paid on
the shares of Participating Stock upon redemption.
IN WITNESS WHEREOF, this Certificate of Designation has been
executed on behalf of the Corporation by its President and
attested by its Secretary this 29th, day of January, 1988.
/s/ Marshall Tulin
Attest:
/s/ A. C. Corsini
Secretary
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
-of-
SWANK, INC.
(Pursuant to Section 242)
It is hereby certified that:
1. The name of the corporation (hereinafter called
the "Corporation") is SWANK, INC.
2. The First Paragraph of Article FOURTH of the
restated certificate of incorporation of the Corporation is
hereby amended to read as follows:
FOURTH: The total number of shares of
capital stock which the Corporation shall
have authority to issue is 67,000,000 shares,
consisting of 66,000,000 shares of Common
Stock, par value $.10 per share, and
1,000,000 shares of Preferred Stock, par
value $1.00 per share. Effective upon this
filing of this certificate of amendment to
the Corporation's Restated Certificate of
Incorporation (i) each outstanding share of
Common Stock, $1.00 par value, of the
Corporation shall be reclassified as, and
converted into, one share of Common Stock,
par value $.10 per share, of the Corporation
(the "New Shares") and one one-hundredth of a
share of Series B Participating Preferred
Stock, $1.00 par value, of the Corporation;
(ii) each outstanding one one-hundredth of a
share of Series A Participating Preferred
Stock, par value $1.00 per share, of the
Corporation shall be reclassified as, and
converted into one New Share plus an
additional number of New Shares equal to the
quotient of $17 divided by the median of the
daily closing sales price of the New Shares
or if no New Shares are traded on a trading
day the last bid price for the New Shares as
reported on the New York Stock Exchange
Composite Tape or if the New Shares are not
listed on the New York Stock Exchange
Composite Tape on a trading day, the mean
between the highest bid and lowest asked
price of the New Shares as quoted by the
National Association of Securities Dealers
Automated Quotation System ("NASDAQ") for
such trading day or if the New Shares are not
quoted on the NASDAQ, the mean between the
highest bid and the lowest asked price for
such trading day as supplied by Reporting
Broker Dealers for the 20 trading days
following the date on which the Effective
Time occurs. Upon consummation of the
reclassification of the capital stock of the
Corporation set forth in this paragraph, the
holders of shares of capital stock of the
Corporation shall have all of the rights
accorded to them by law and by the Plan of
Recapitalization, as amended, dated as of
September 28, 1987, of the Corporation.
3. The amendment of the certificate of incorporation herein
certified have been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the
State of Delaware.
Signed and attested to on Feb. 29, 1988.
/s/ John Tulin
John Tulin, Executive Vice
President
Attest:
/s/ A. C. Corsini
Andrew C. Corsini, Secretary
CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
-of-
SWANK, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is SWANK, Inc.
2. The restated certificate of incorporation of the
Corporation, as amended to date, is hereby amended, in order to
reduce the number of authorized shares of capital stock of the
Corporation from 67,000,000 shares to 44,000,000 shares and to
reduce the number of authorized shares of Common Stock of the
Corporation from 66,000,000 shares to 43,000,000 shares, by
striking out the first paragraph of ARTICLE FOURTH thereof and by
substituting in lieu of the first paragraph of said ARTICLE the
following new paragraph:
"FOURTH": The total number of shares of
capital stock which the Corporation shall
have authority to issue is 44,000,000 shares,
consisting of 43,000,000 shares of Common
Stock, $.10 per value per share, and
1,000,000 shares of Preferred Stock, $1.00
par value per share"
3. The amendment of the restated certificate of incorporation
of the Corporation, as amended to date, herein certified has been
duly adopted in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
Signed on April 21, 1995
/s/ John Tulin
John A. Tulin, Executive Vice
President
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:
The 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 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 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 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 the share, or unless the date
of issue is a 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 holders 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 dividend 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 at the time outstanding. The Board
of Directors may fix a record date for the determination of
holders of shares of the 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 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 that were
outstanding immediately prior to such events.
(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. 4.
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
EXHIBIT 4.01.3
THIRD AMENDMENT TO REVOLVING CREDIT
AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO REVOLVIING CREDIT AND SECURITY
AGREEMENT (this "Amendment") is made as of December 31, 1999,
among SWANK, INC., a corporation organized under the laws of the
State of Delaware (the "Borrower), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC"), as agent for
the Lenders described below (in such capacity, the "Agent") and
as a Lender.
WITNESSETH:
A. Pursuant to the Revolving Credit and Security
Agreement dated as of July 27, 1998, as amended by the Amendment
to Revolving Credit and Security Agreement dated as of July 12,
1999 and the Second Amendment to Loan Documents dated as of
October 29, 1999 (as further amended, supplemented or modified
from time to time, the "Credit Agreement"), by and among the
Borrower, the financial institutions and insurance companies
which are now or which hereafter become a party thereto
(collectively, the "Lenders" and individually a "Lender"), and
the Agent, as agent for the Lenders, the Lenders agreed to make
revolving credit loans to, and issue letters of credit for the
account of the Borrower upon the terms and conditions set forth
therein.
B. PNC is currently the sole Lender.
C. The Borrower, the sole Lender and the Agent have agreed
to amend the Credit Agreement upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the
sole Lender and the Agent agree as follows:
1. Capitalized terms used in this Amendment shall have the
same meanings given them in the Credit Agreement, unless
otherwise defined herein.
2. The definition of "Revolving Interest Rate" in Section
1.2 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Revolving Interest Rate" shall mean an interest
rate per annum equal to (a) the sum of (i) the Base Rate
plus (ii) the Applicable Margin with respect to Domestic
Rate Loans, or (b) the sum of (i) the Eurodollar Rate plus
(ii) the Applicable Margin with respect to Eurodollar Rate
Loans, as applicable."
3. The definition of "Seasonal Advance Period" in Section
1.2 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Seasonal Advance Period" shall mean (a) the period
commencing on June l, 1999 and ending on October 31, 1999,
(b) the period commencing on June 1, 2000 and ending on
October 31, 2000, and (c) with respect to each other year
during the Term, the period commencing on July 1 of such
year and ending on September 30 of such year."
4. A new definition of "Applicable Margin" is hereby added
to Section 1.2 of the Credit Agreement read in its entirety as
follows:
"Applicable Margin" shall mean with respect to the
unpaid balance of Revolving Advances, (a) during the period
prior to receipt by Agent of Borrower's audited financial
statements for the fiscal year ending December 3l, 2000
pursuant to Section 9.7 of this Agreement, (i)
three-quarters of one percent (0.75%), for Domestic Rate
Loans, and (ii) two and one-half percent (2.50%), for
Eurodollar Rate Loans, and (b) thereafter, the applicable
percentages set forth below:
Fixed Charge Applicable Margin Applicable Martin
Coverage Ratio For Domestic Rate for Eurodollar Rate
Loans Loans
greater than or 0% 1.75%
equal to 1.1:1.0
0.50% 2.25%
less than 1.1:1.0
but greater than or
equal to .05:1.0
0.75% 2.50%
less than 0.5:1.0
but greater than or
equal to 0:1.0
1.00% 2.75%
less than 0:1.0
The foregoing shall not be deemed to be a modification or
waiver of Borrower's obligations under Section 6.5 of this
Agreement."
5. A new definition of "Tangible Net Worth" is hereby
added to Section 1.2 of the Credit Agreement read in its entirety
as follows:
"Tangible Net Worth" shall mean, at a particular
date,(a) the aggregate amount of all assets of Borrower on a
consolidated basis as may be properly classified as such in
accordance with GAAP consistently applied excluding such
other assets as are properly classified as intangible assets
under GAAP, less (b) the aggregate amount of all liabilities
of Borrower on a consolidated basis.
6. Section 3.2 of, the Credit Agreement is hereby amended
to read in its entirety as follows:
"3.2 Letters of Credit Fees. Borrower shall pay
(a) to Agent, for the benefit of Lenders, fees for each
Lender of Credit for the period from and excluding the date
of issuance of same to and including the date of expiration
or termination, equal to the average daily face amount of
each outstanding Letter of Credit multiplied by the
Applicable Margin for Revolving Advances that are Eurodollar
Rate Loans as in effect on the date of issuance thereof or
on the date of any renewal thereof, as the case may be, such
fees to be calculated on the basis of a 360-day year for the
actual number of day elapsed and to be payable monthly in
arrears on the first day of each month and on the last day
of the Term and (b) to the Issuer, any and all fees and
expenses as agreed upon by the Issuer and Borrower in
connection with any Letter of Credit, including, without
limitation, in connection with the opening, amendment or
renewal of any such Letter of Credit and any acceptances
created thereunder and shall reimburse Agent for any and all
fees and expenses, if any, paid by Agent to the Issuer (all
of the foregoing fees, the "Letter of Credit Fees"). Any
such charge in effect at the time of a particular
transaction shall be the charge for that transaction,
notwithstanding any subsequent change in the Issuer's
prevailing charges for that type of transaction. All Letter
of Credit Fees payable hereunder shall be deemed earned in
full on the date when the same are due and payable hereunder
and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason."
7. Section 6.5 of the Credit Agreement is hereby amended
to read in its entirety as follows:
"6.5 Fixed Charge Coverage Ratio. Maintain a Fixed
Charge Coverage Ratio of not less than (a) .30 to 1.00 at
the end of the fiscal quarter of Borrower ending on December
31, 2000, for the period of twelve (12) consecutive calendar
months then ending, and (b) 1.10 to 1.00 at the end of each
fiscal quarter of Borrower thereafter, for the period of
twelve (12) consecutive calendar months then ending."
8. A new Section 6.10 and a new Section 6.11 are hereby
added to the Credit Agreement to read in their entirety as
follows:
"6.10 Minimum Tangible Net Worth. Maintain a Tangible
Net Worth at all times during the quarters set forth below
in the amounts set forth below:
Quarter Ending Minimum Tangible
Net Worth
December 31, 1999 $33,000,000
March 31, 2000 $31,000,000
June 30, 2000 $29,000,000
September 30, 2000 $30,000,000
December 31, 2000 $34,000,000
and each quarter
thereafter
6.11 Minimum EBITDA. Maintain EBITDA for the fiscal
year of Borrower ending December 31, 2000 of not less than four
million dollars ($4,000,000)."
9. In order to induce the sole Lender and the Agent to
enter into this Amendment, the Borrower hereby represents and
warrants that:
(a) after giving effect to paragraph 7 of this
Amendment, no Default or Event of Default has occurred and is
continuing;
(b) this Amendment has been duly authorized, executed
and delivered by the Borrower and constitutes its legal, valid
and binding obligation, enforceable in accordance with its terms;
(c) the Credit Agreement and each of the Other
Documents to which the Borrower is a party, after giving effect
to this Amendment and the transactions contemplated hereby,
continue so be in full force and effect and to constitute the
legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms;
and
(d) the representations and warranties made by the
Borrower in or pursuant to the Credit Agreement or any Other
Document, or which are contained in any certificate, document or
financial or other statement furnished at any time under or in
connection herewith or therewith, are each true and correct in
all material respects on and as of the date hereof, as though
made on and as of such date.
10. This Amendment shall become effective as of the date
above upon receipt the Agent of (a) two (2) copies of this
Amendment executed by the Borrower, and (b) a modification fee of
twenty-five thousand dollars ($25,000) in immediately available
funds.
11. The borrower hereby confirms that all liens granted on
the Collateral shall continue unimpaired and in full force and
effect.
12. This Amendment may be executed in several counterparts,
each of which, when executed and delivered, shall be deemed an
original, and all of which together shall constitute one
agreement. Any signature delivered by a party by facsimile
transmission shall be deemed to be original signature hereto.
13. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York applied to
contracts to be performed wholly within the State of New York,
without giving effect to the principles of conflicts of law. This
Amendment shall be binding upon and inure to the benefit of the
Borrower, the Lenders and the Agent, and their respective
successors and permitted assigns
14. From and after the effectiveness hereof, all references
to the Credit Agreement in the Other Documents shall mean the
Credit Agreement as amended and modified by this Amendment.
15. Except as amended and otherwise modified by this
Amendment, the Credit Agreement and the Other Documents shall
remain in full force and effect in accordance with their
respective terms. Except as expressly provided herein, this
Amendment shall not constitute an amendment, waiver, consent or
release with respect to any provision of thc Credit Agreement or
any Other Document, a waiver of any Default or Event of Default
thereunder, or a waiver or release of any of the Agent's or any
Lender's rights or remedies (all of which are hereby reserved).
Thc Borrower expressly ratifies and confirms the waiver of jury
trial and other provisions of Section 12.3 of the Credit
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
ATTEST: SWANK, INC.
/s/ Brett L. Cambridge By: /s/ Jerold R. Kassner
Brett L. Cambridge Name: Jerold R. Kassner
Controller Title: Sr. Vice President
PNC BANK, NATIONAL ASSOCIATION
as Lender and as Agent
By: /s/ Peter Schryver
Name: Peter Schryver
Title: Senior Vice President
EXHIBIT 4.01.4
PNC Business Credit
Two Tower Center Boulevard
8th Floor
East Brunswick, NJ 08816
March 7,2000
Mr. Jerold Kassner
Senior Vice President
Swank, Inc.
6 Hazel St.
PO Box 2962
Attleboro, Ma. 02703-9062
Re: Waiver to REVOLVING CREDIT AND SECURITY AGREEMENT dated July
27, 1998 as such has been amended and/or supplemented from time
to time, (the "Agreement") between Swank, Inc. (hereinafter
referred to as the "Borrower") and PNC Bank, National
Association, (the "Agent").
Dear Mr. Kassner:
The Borrower has acknowledged and agreed with the Agent that:
1. With reference to section 6.5 of the Agreement Fixed Charge
Coverage Ratio, Borrower advised the Agent that Borrower was
not in compliance for the Year Ended 12/31/99.
The Borrower has requested that the Agent grant a waiver for the
above listed events.
In reliance upon the Borrower's representations and warranties
and subject to the terms and conditions herein set forth, the
Agent agrees to grant a waiver as follows:
1. Defined Terms. Terms used herein which are defined in the
Agreement shall have the same meanings herein as therein
defined.
2. Waiver. The Agent hereby grants a waiver of Borrower's
non-compliance with sections 6.5 of the Agreement and of any
Event of Default that would otherwise result from a violation
of said Section. The Borrower agrees that the Agreement and
all related documents, instruments and agreements
(collectively, the "Loan Documents"), will remain in full
force and effect, irrespective of this waiver.
3. Extent of Waiver. Except as expressly described above, this
waiver shall not constitute (a) a modification or an
alteration of the terms, conditions or covenants of the
Agreement or any other Loan Documents or (b) a waiver, release
or limitation upon the Agent's exercise of any of its rights
and remedies thereunder, which shall not relieve or release
the Borrower or any guarantor in any way from any of its
respective duties, obligations, covenants or agreements under
the Agreement or the other Loan Documents or from the
consequences of any Event of Default thereunder, except as
expressly described above. This waiver shall not obligate the
Agent, or be construed to require the Agent, to waive any
other Events of Default or defaults whether now existing or
which may occur after the date of this waiver.
4. Execution in Counterparts. This letter agreement may be
executed in multiple counterparts, and by the parties hereto
on separate counterparts, each complete set of which, when so
executed and delivered, shall constitute an original, but all
such counterparts shall constitute but one and the same
instrument.
5. Waiver Fee: $10,000
Please execute the enclosed extra copy of this letter in the
space provided below and return the fully executed document to
the undersigned for this waiver to be effective.
Very truly yours,
PNC Bank, National Association
By: /s/ Arthur V. Lippens
Name: Arthur V, Lippens
Title: Vice President
Accepted and agreed to as of the date written above:
Swank, Inc.
By: /s/ Jerold R. Kassner
Jerold R. Kassner
Senior Vice President
Swank, Inc.
EXHIBIT 13.01
SWANK
ANNUAL REPORT
1999
To Our Shareholders and Friends
Chairman's Message
Although results for 1999 were below expectations, it was a
busy year for SWANK. The Company launched several new merchandise
lines and posted its third consecutive year of increased sales.
At the same time, we continued our programs aimed at reducing
inventory levels, increasing margins, and reducing operating
costs. We are encouraged by our progress so far and hopeful that
these programs and other steps we have taken will enable us to
report improved profitability and continued success in the
future.
During the coming year, we will build upon what we have started
to better prepare SWANK to compete in today's global economy. We
are pleased by the continued growth of our core businesses and by
the market's favorable reaction to our newest collections, and we
will continue to identify and pursue profitable growth
opportunities. We look forward to the challenges of 2000.
Sincerely,
/s/ Marshall Tulin
Marshall Tulin
Chairman
President's Letter
1999 was a challenging year for SWANK. Net sales increased 7%
to $162,819,000 from $151,770,000 the year before, although net
income decreased to $2,387,000 from $3,662,000 last year. Our
1999 results were impacted primarily by higher product costs,
increased sales of excess inventories and increased promotional
spending. However, our licensed brands and private label
merchandise continue to enjoy broad-based consumer acceptance.
And, despite the disappointing results, 1999 was also a year of
accomplishments upon which we plan to build in the year 2000.
Net sales and earnings of our Men's Accessories Division
continued to improve, fueled by increases from branded and
designer collections, led by our Kenneth Cole and Claiborne for
Men lines, and from new and existing private label programs. In
the third quarter, the Company launched its initial collections
of John Henry men's belts, small leather goods and jewelry and
they have been enthusiastically received by consumers. We also
began to reorganize and streamline our Women's Jewelry Division
in order to better position us for the future. While some of
these changes impacted earnings in 1999, we believe they will
substantially benefit a division that markets its collections
under such internationally known names as Anne Klein, Anne Klein
II, Guess?, Kenneth Cole, and DKNY.
At the beginning of the year, we established an off-shore
manufacturing presence in Costa Rica through our joint venture,
Joyas y Cueros de Costa Rica, S.A. Our investment in Joyas y
Cueros, which manufactures both women's jewelry and men's belts,
is part of SWANK's overall effort to increase gross margins while
continuing to deliver the highest possible value to today's
fashion-conscious consumers. Joyas y Cueros was profitable
throughout the second half of 1999 and is expected to play a key
role in SWANK's overall global sourcing strategy for 2000 and
beyond.
In October, SWANK launched its corporate Internet site
(www.swankaccessories.com). Our goals are to strengthen the
Company's communications with investors and customers and to
establish SWANK as a participant in the rapidly growing field of
e-commerce. We expect to advertise the web site during 2000 and
to offer as exciting a selection of high quality merchandise as
our traditional retail customers have come to expect from SWANK.
Our objectives for 2000 include continuing the Company's
efforts to reduce inventories, improve inventory management,
reduce costs, expand global sourcing initiatives, continue sales
growth, and increase earnings. We are confident that the steps
we have already taken in 1999, and that we will continue to take
in 2000, will help us achieve these goals.
As always, I am grateful for the contributions and support of
our officers, employees, customers, and suppliers. I am also
grateful for the wisdom and assistance of our Chairman and our
Board of Directors. With their help, I look forward to reporting
continuing progress in the years ahead.
Sincerely yours,
/s/ John Tulin
John Tulin
President and Chief Executive Officer
February 29, 2000
<TABLE>
Financial Highlights
<CAPTION>
For each of the Five Years Ended
December 31
(In thousands, except share and per share data) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales $162,819 $151,770 $137,074 $132,642 $140,102
Cost of goods sold 100,419 87,130 77,547 74,396 85,774
Gross profit 62,400 64,640 59,527 58,246 54,328
Selling and administrative expenses 57,547 56,871 53,195 54,232 60,193
Income (loss) from operations 4,853 7,769 6,332 4,014 (5,865)
Interest expense, net 1,790 1,672 1,484 1,855 2,085
Income (loss) before income taxes and minority 3,063 6,097 4,848 2,159 (7,950)
interest
Provision for income taxes 961 2,435 1 860 994
Minority interest in net loss of consolidated 285 - - - -
subsidiary
Net income (loss) $ 2,387 $ 3,662 $ 4,847 $ 1,299 $ (8,944)
Share and per share information:
Weighted average common shares 16,568,724 16,535,670 16,378,645 16,053,135 16,135,368
outstanding
Net income (loss) per common share $.14 $ .22 $ .30 $ .08 $ (.55)
Weighted average common shares
outstanding assuming dilution 16,685,668 16,746,946 16,434,541 16,053,135 16,135,368
Net income (loss) per share assuming $.14 $ .22 $ .29 $ .08 $ (.55)
dilution
Additions to property, plant and equipment $1,520 $ 1,156 $ 1,155 $ 1,250 $ 2,006
Depreciation and amortization $1,616 $ 2,181 $ 2,167 $ 2,027 $ 1,523
Financial Position (In thousands, except per share data)
Current assets $61,271 $61,733 $48,840 $37,905 $45,768
Current liabilities 30,842 32,228 24,485 18,865 29,218
Net working capital 30,429 29,505 24,355 19,040 16,550
Property, plant and equipment, net 5,796 5,574 6,157 6,760 7,457
Total assets 74,940 72,969 59,949 48,787 57,324
Long-term obligations 9,999 9,563 8,603 8,591 7,573
Stockholders' equity 33,594 31,178 26,861 21,331 20,533
Stockholders' equity per weighted average
common share assuming dilution $ 2.01 $ 1.86 $ 1.63 $ 1.33 $ 1.27
</TABLE>
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Percentage
Changes
1999 1998 1997 1999-98 1998-97
Contribution to Net Sales
$ 102,446 $ 95,356 $ 86,574 Men's Accessories 7% 10%
54,302 49,972 43,999 Women's Accessories 9% 14%
6,071 6,442 6,501 Other (6)% (1)%
$ 162,819 $151,770 $137,074 Total Net Sales 7% 11%
Contribution to Gross Profit
$ 36,536 $ 36,986 $34,594 Men's Accessories (1)% 7%
22,427 24,008 21,276 Women's Accessories (7)% 13%
3,437 3,646 3,657 Other (6)% 0%
$ 62,400 $ 64,640 $59,527 Total Gross Profit (4)% 9%
The table indicates the relative contribution to net sales and
gross profit for each of the Company's reportable segments (in
thousands except for percentage changes). Men's Accessories
include belts, wallets and other small leather goods, suspenders,
and jewelry. Women's Accessories consist of jewelry products.
Other includes sales through the Company's factory outlet stores.
The components of Net Sales are gross sales less cash discounts,
allowances and customer returns.
1999 vs. 1998
Net sales
Net sales for the year ended December 31, 1999 increased by
$11,049,000 or 7.3% compared to 1998, reflecting the Company's
third consecutive year of increased sales. Net Sales increased by
$7,090,000 or 7.4% for Men's Accessories and $4,330,000 or 8.7%
for Women's Accessories. The improvement in Men's Accessories Net
Sales in 1999 was primarily due to increased domestic shipments
of private label men's personal leather goods and belts to both
new and existing customers and increased sales of certain branded
men's merchandise, including the Company's Claiborne for Men line
which was introduced during the third quarter of 1998. The
Company commenced shipments of a new private label personal
leather goods program during the first quarter of 1999 and also
increased its shipments of excess and discontinued merchandise
during the year compared to 1998. Women's Accessories Net Sales
rose in 1999 as the Company substantially increased its shipments
of private label women's jewelry in response to improved retail
sales and commenced shipments of several new private label
programs during the year. The increase in Women's Accessories Net
Sales was also due to higher shipments of the Company's Kenneth
Cole merchandise first sold to retailers during the fourth
quarter of 1998 and the introduction of the Company's new DKNY
women's jewelry line which the Company began shipping during the
third quarter of 1999.
Net Sales in 1999 were also affected by the returns adjustments
set forth below. As described in Note B to the accompanying
consolidated financial statements, the Company reduces net sales
and cost of sales by the estimated effect of future returns of
current period shipments. Each spring upon the completion of
processing returns from the preceding fall season, the Company
records adjustments to net sales in the second quarter to reflect
the difference between customer returns of prior year shipments
actually received in the current year and the estimate used to
establish the allowance for customer returns at the end of the
preceding fiscal year. These adjustments were as follows:
Increase (decrease)in net sales (in thousands)
1999 1998 Change
Men's Accessories $(488) $1,693 $(2,181)
Women's Accessories 846 848 (2)
Gross profit
Gross profit for the year ended December 31, 1999 decreased by
$2,240,000 or 3.5% compared to 1998 due primarily to higher
inventory and manufacturing related costs, partially offset by
increased Net Sales. Gross profit expressed as a percentage of
net sales fell to 38.3% from 42.6% in 1998.
Gross profit for Men's Accessories decreased by $450,000 or 1.2%
in 1999 due mainly to unfavorable capacity variances associated
with a decrease in domestic production levels in response to
inventory requirements for manufactured men's belts, partially
offset by an increase in gross margin from higher sales. Men's
Accessories gross profit as a percentage of net sales declined to
35.7% from 38.8% in 1998 due to increased domestic production-
related costs, higher inventory control expenses related to the
disposition of excess and out of line merchandise, and increased
product costs resulting from a less favorable sales mix.
Gross profit for Women's Accessories declined by $1,581,000 or
6.6% due to increases in certain inventory-related costs
associated with increased sales of out of line merchandise and
unfavorable domestic manufacturing variances, partially offset by
an increase in Net Sales. The Company reduced production at its
domestic jewelry manufacturing facility in 1999 in response to
ongoing changes in product sourcing strategies. Gross profit was
also unfavorably impacted by start-up losses associated with the
acquisition of Joyas y Cueros de Costa Rica, S.A. during the
first half of the year. Women's Accessories gross profit as a
percentage of sales was 41.3% in 1999 compared to 48.0% for the
prior year.
Gross profit includes the effect of adjustments recorded in the
second quarter to reflect the variance between customer returns
of prior year shipments actually received in the current year and
the estimate used to establish the allowance for customer returns
at the end of the preceding fiscal year. The effect of these
adjustments on gross profit was as follows:
Increase (decrease) in gross profit (in thousands)
1999 1998 Change
Men's Accessories $(305) $1,155 $(1,460)
Women's Accessories 577 633 (56)
Selling and Administrative Expenses
Selling and administrative expenses increased by $676,000 or
1.2% in 1999 compared to the prior year but, expressed as a
percentage of Net Sales, fell to 35.3% compared to 37.5% in 1998
principally due to the increase in Net Sales. The increase in
selling expenses was primarily due to higher variable selling
costs associated with increased sales volume and increased
advertising and promotional expenditures to support both new and
existing Women's jewelry retail merchandise programs, partially
offset by reductions in employee incentive compensation, a gain
on the curtailment of the 1987 deferred compensation plan as
described in Note F, and certain other fringe benefit costs.
Expenses recorded primarily in the second quarter for severance
costs associated with a voluntary workforce reduction program
were largely offset by a gain of $500,000 also recorded during
the second quarter in connection with the settlement of
litigation. Advertising and promotional expenditures as a
percentage of Net Sales increased to 7.3% in 1999 from 7.1% in
1998 (see table under "Promotional Expenditures" below).
Interest Expense
Net interest expense increased $118,000 or 7.1% for the year
ended December 31, 1999 compared to 1998. The effect on interest
expense of higher borrowing levels in 1999 was partially offset
by lower average interest rates. Although domestic short term
interest rates generally rose in 1999, the Company's weighted
average interest rate fell by 119 basis points compared to last
year generally reflecting more favorable borrowing terms (see
"Interest Charges" and "Liquidity and Capital Resources").
Net Income Per Share
Net income per share includes shares held by the Company's
employee stock ownership plan and deemed to be allocated to
participants. Net income per share assuming full dilution
includes the effects of options.
1998 vs. 1997
Net sales
Net sales for the year ended December 31, 1998 increased by
$14,696,000 or 10.7 % compared to 1997 with both the Men's
Accessories and Women's Accessories segments experiencing gains
over the prior year's results. Net Sales increased by $8,782,000
or 10.1% for Men's Accessories and $5,973,000 or 13.6% for
Women's Accessories. The improvement in Men's Accessories sales
in 1998 was primarily due to increased domestic shipments of the
Company's branded merchandise in the Geoffrey Beene, Kenneth Cole
and Yves St. Laurent designer lines which were first introduced
during the second and third quarters of 1997. Sales to certain
mass merchandising customers also increased in 1998 compared to
the prior year. Exports of Men's Accessories declined by
approximately $1,452,000 during 1998 as Asian markets remained
depressed. Sales during the first half of 1997 may have been
adversely affected by a reduction in orders for established lines
by certain retailers, pending the availability of the new
designer lines. Women's Accessories sales rose in 1998 due to
stronger domestic shipments of the Company's Guess? jewelry line
and increased shipments to both new and existing mass
merchandising customers. These increases are attributable, in
part, to an overall strengthening of consumer demand for Women's
jewelry which began in the second half of 1997. Net sales of
Women's Accessories were significantly affected by the events in
Asia as exports declined by approximately $2,025,000 to about 9%
of net sales of Women's Accessories from over 15% in 1997.
Net Sales in 1998 were favorably impacted by the returns
adjustments set forth below. As described in Note B to the
accompanying consolidated financial statements, the Company
reduces net sales and cost of sales by the estimated effect of
future returns of current period shipments. Each spring upon the
completion of processing returns from the preceding fall season,
the Company records adjustments to net sales in the second
quarter to reflect the difference between customer returns of
prior year shipments actually received in the current year and
the estimate used to establish the allowance for customer returns
at the end of the preceding fiscal year. These adjustments were
as follows:
Increase in net sales (in thousands)
1998 1997 Change
Men's Accessories $1,693 $947 $746
Women's Accessories 848 94 754
Gross profit
Gross profit for the year ended December 31, 1998 increased by
$5,113,000 or 8.6% compared to 1997 principally due to higher
sales. Gross profit expressed as a percentage of net sales
decreased to 42.6% from 43.4% in 1997 due to higher product and
inventory control costs.
Gross profit for Men's Accessories rose by $2,392,000 or 6.9% in
1998 primarily due to increased sales of Men's belts. Men's
Accessories gross profit as a percentage of net sales declined to
38.8% from 40.0% in 1997 due to higher inventory control costs
related to the disposition of excess and out of line merchandise
and higher product costs resulting from a less favorable sales
mix. Gross profit for Women's Accessories increased by
$2,732,000 or 12.8% due to higher sales offset partially by
increased product costs. Gross profit as a percentage of net
sales was 48.0% in 1998 compared to 48.4% for the prior year.
Gross profit includes 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
customer returns at the end of the preceding fiscal year. The
effect of these adjustments on gross profit was as follows:
Increase in gross profit (in thousands)
1998 1997 Change
Men's Accessories $1,155 $629 $526
Women's Accessories 633 55 578
Selling and Administrative Expenses
Selling and administrative expenses increased by $3,676,000 or
6.9% for the year and, as a percentage of Net Sales, fell to
37.5% compared to 38.8% in 1997. The increase in selling expenses
was primarily due to higher variable selling costs associated
with increased sales volume and increased advertising and
promotional expenditures incurred in connection with certain new
merchandise programs. Advertising and promotion as a percentage
of Net Sales increased to 7.1% 1998 from 6.6% in 1997 (see table
under "Promotional Expenditures" below).
Interest Expense
Net interest expense increased $188,000 or 12.7% for the year
ended December 31, 1998 compared to 1997. Average borrowings
increased in 1998 reflecting additional funding requirements to
support the Company's incremental working capital investment. The
weighted average interest rate for 1998 fell by 190 basis points
compared to 1997 generally reflecting more favorable borrowing
terms (see "Interest Charges" and "Liquidity and Capital
Resources") and the overall low interest rate environment.
Provision for Income Taxes
The Company recorded an income tax provision in 1999 at a
combined federal and state effective tax rate of 31.4%. The
effective rate in 1999 reflects the effects of certain tax rate
differences associated with nontaxable life insurance benefits,
the operating loss incurred by Joyas y Cueros de Costa Rica,
S.A., resolution of a prior year charitable contributions
carryback adjustment, and other items. The Company's effective
tax rate in 1998 was 39.9% which approximated the combined
federal and state statutory rate. An income tax benefit of
$2,389,000 was recorded to offset the income tax expense
associated with 1997's pretax income resulting in a net provision
for income taxes in that year of only $1,000. The tax benefit
resulted in 1997 upon the elimination of the remainder of the
valuation allowance against deferred tax assets which had been
established in 1995. Management determined in 1997 that the
Company's history of profitable performance and the actions it
has undertaken to enhance future performance enable the Company
to meet the criteria for assuming that it is more likely than not
that deferred tax assets will be realized from future taxable
income.
Net Income Per Share
Net income per share includes shares held by the Company's
employee stock ownership plan and deemed to be allocated to
participants. Net income per share assuming full dilution
includes the effects of options.
Promotional Expenditures
The Company routinely makes advertising and promotional
expenditures to enhance its business and to support the
advertising and promotion activity required by its licensors.
These expenses increased by $1,040,000 in 1999 due primarily to
increased Net Sales and additional in-store promotion and
national advertising related to certain branded women's jewelry
lines. Advertising expenditures increased by $1,778,000 in 1998
primarily due to the increase in Net Sales and an increase in in-
store markdown expenditures associated with the introduction of
certain new merchandise programs in 1998. The following table
summarizes the various promotional expenses incurred by the
Company:
1999 1998 1997
In-store markdowns $7,993 $7,059 $5,442
Cooperative advertising 910 1,355 1,106
Displays 1,314 1,227 1,357
National advertising and other 1,620 1,156 1,114
Total $11,837 $10,797 $9,019
Percentage of net sales 7.3% 7.1% 6.6%
Interest Charges
Average monthly borrowings and weighted average borrowing
interest rates under the Company's revolving credit facility
were, respectively $22,995,000 and 7.69% in 1999; $16,572,000 and
8.88% in 1998 and $8,296,000 and 10.78% in 1997.
Liquidity and Capital Resources
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 the holiday season. As a result, the Company generally
builds inventory during the first three quarters of the year to
meet the seasonal demand and accounts receivable peak in the
fourth quarter. The required cash is provided by a revolving
credit facility.
In 1999, the Company increased its efforts to reduce excess
inventories by decreasing production levels at its domestic
manufacturing facilities, adjusting the content of certain
merchandise assortments, and increasing sales of closeout and
discontinued merchandise. As a result of these programs,
inventory levels were lower by $4,791,000 at December 31, 1999,
compared to the prior year. In connection with the closure of the
Company's domestic jewelry manufacturing facility announced on
March 16, 2000, the Company expects to incur additional severance
and related costs of $1,400,000 to $1,600,000. See Note N.
Inventories increased by $10,217,000 in 1998 as a result of a
slowdown in retail activity during the second half of the year
relative to earlier forecasts. Merchandise commitments for the
fall selling season had been developed based upon, among other
things, the strong demand for the Company's products during the
spring, but turmoil in world financial markets and other factors
apparently softened the business which had been expected over the
remainder of the year.
Cash flows. Cash provided by operations totaled $1,636,000 in
1999 compared to cash used of $3,655,000 in 1998. Cash from
operations in both 1999 and 1998 was provided principally from
net income and depreciation and amortization and, in 1999, from a
reduction in consolidated inventory levels of $4,791,000, net of
an increase of $397 due to the inclusion of the accounts of Joyas
y Cueros de Costa Rica, S.A. The Company used cash in both years
to increase accounts receivable and net deferred tax assets. In
1998, cash was also used to fund an increase in inventories of
$10,217,000 as described above. Working capital increased
$924,000 in 1999 and $5,150,000 in 1998. Cash used in investing
activities for capital expenditures was $1,520,000 and $1,156,000
in 1999 and 1998, respectively, and $707 and $794, respectively,
was used for life insurance premiums principally to fund deferred
compensation. Financing activities provided $1,092,000 in 1999
primarily from an increase in net borrowings under the Company's
revolving credit facility, offset by repayments of long-term
debt. In 1998, financing activities provided $4,700,000 through
an increase in revolving credit borrowings in excess of
repayments of long-term debt.
Financing arrangements. In July 1998, the Company signed a new
five year $30 million revolving credit agreement (the "1998
Revolving Credit Agreement") with PNC Bank, National Association
(the "Bank"). The new financing replaced the Company's prior $25
million credit facility and is collateralized by substantially
all of the Company's domestic accounts receivable, inventory and
machinery and equipment. The terms of the 1998 Revolving Credit
Agreement permit the Company to borrow against a percentage of
eligible accounts receivable and eligible inventory at an
interest rate equal to the Bank's prime rate or at a Eurodollar
lending rate plus 1.75%. The 1998 Revolving Credit Agreement
requires a facility fee of 3/8% per annum on the unused portion
of the revolving credit facility. Under the 1998 Revolving
Credit Agreement, the Company must maintain a certain Fixed
Charge Coverage ratio and payment of dividends is prohibited. In
addition, the 1998 Revolving Credit Agreement imposes limits on
capital expenditures and additional indebtedness for borrowed
money. In July 1999, the Company negotiated with the Bank a
temporary increase in the Company's revolving credit facility to
$33 million for the period August 1, 1999 through November 30,
1999 in anticipation of peak seasonal working capital needs.
Management believes that the current credit facility is adequate
to meet the Company's working capital needs over the foreseeable
future at existing levels of operations.
At December 31, 1999, the Company was not in compliance with the
Bank's Fixed Charge Coverage ratio as required by the 1998
Revolving Credit Agreement. The bank has waived that requirement
of the agreement as of and for the period ended December 31,
1999.
Environmental Matters
Environmental expenditures that relate to current operations are
expensed or capitalized, as appropriate. Expenditures that relate
to an existing condition caused by past operations and which do
not contribute to current or future revenue generation are
expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and the costs can be
reasonably estimated. Generally, adjustments to these accruals
coincide with the completion of a feasibility study or the
Company's commitment to a formal plan of action or other
appropriate benchmark.
Capital Expenditures
The Company expects that cash from operations will be sufficient
to fund its ongoing program of replacing aging machinery and
equipment to maintain or enhance operating efficiencies. The
Company also expects to continue to make enhancements and
upgrades to its information and telecommunications systems.
Year 2000
Management believes that the Company has been able to modify
its significant software systems to make them Year 2000
compliant without material effects on the Company's business or
results of operations. The identification of date issues
associated with key applications software developed both
internally by the Company and by third-party vendors and the
necessary modifications were completed at December 31, 1999. The
Company to date has not experienced any Year 2000-events that had
a material adverse affect on its operations or business.
As part of its program to identify and remediate potential
Year 2000 exposures, the Company, beginning in September 1998,
began surveying third parties with whom it had material business
relationships to obtain information and representations
concerning the respective readiness of each relative to Year
2000.
Because many of the Company's third party relationships are with
public companies, the Company also began reviewing the various
public filings of these companies to monitor the status of their
representations concerning Year 2000 readiness. Third parties
contacted or monitored included major customers, determined
regardless of whether there is an existing Electronic Data
Interchange ("EDI") relationship, major vendors and suppliers of
key services such as utilities, telecommunications and banking.
As described above, the Company to date has not experienced any
material Year 2000-related disruptions in its operations arising
from third party relationships. The Company installed Year 2000
compliant EDI software in 1999 and has to date experienced no
material interruption in electronic sales order processing. A
significant disruption in EDI processing could materially impair
the Company's shipments.
Because the first quarter is historically a relatively low
volume period for the Company, management believes that although
no material Year 2000 disruptions have occurred to date, the
Company's seasonality provides something of a buffer against date-
related risks that may be as yet unidentified. Management has not
developed a formal contingency plan to with regard to potential
future risks but the Company intends to continue to monitor its
key relationships with suppliers, customers, and service
providers for any Year 2000 issues that may arise.
Most of the Company's applications software was internally
developed and the necessary modifications were made utilizing
existing internal personnel resources. The cost of these
modifications is 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
purchased specific Year 2000 upgrades with respect to certain
third party software applications. The aggregate cost of these
upgrades through December 31, 1999 was approximately $75,000. In
addition, the costs required to make the Company's network Year
2000 compliant was approximately $25,000. The Company does not
believe that any future expenditures related to Year 2000
compliance will be significant.
Forward Looking Statements
Certain of the preceding paragraphs contain "forward looking
statements" which are based upon current expectations and involve
certain risks and uncertainties. Under the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995, readers
should note that these statements may be impacted by, and the
Company's actual performance may vary as a result of, a number of
factors including general economic and business conditions,
continuing sales patterns, pricing, competition, consumer
preferences, and other factors.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
SFAS 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet
as either an asset or liability measured at its fair value. This
statement also requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge
accounting criteria are met. SFAS 133 is effective for fiscal
years beginning after June 30, 1999. However, Statement of
Accounting Standards No. 137, "Deferral of the Effective Date of
SFAS 133" was issued in July 1999 and delayed the effective date
of SFAS 133 to fiscal years beginning after June 15, 2000.
Management believes that the adoption of SFAS 133 will have no
material effect on the company's financial statements.
Swank, Inc.
Consolidated Balance Sheets as of December 31
(Dollars in thousands)
Assets 1999 1998
Current:
Cash and cash equivalents $ 1,258 $ 757
Accounts receivable, less allowances
of $10,176 and 9,041 16,328 14,756
Inventories,net:
Raw materials 7,666 7,028
Work in process 5,924 7,337
Finished goods 22,803 26,819
36,393 41,184
Deferred income taxes 5,963 4,069
Prepaid and other 1,329 967
Total current assets 61,271 61,733
Property, plant and equipment, at cost:
Land and buildings 7,717 7,623
Machinery, equipment and software 18,340 16,849
Improvements to leased premises 1,049 989
Capital leases 1,471 1,471
28,577 26,932
Less accumulated depreciation and
amortization 22,531 21,358
Net property, plant and equipment 6,046 5,574
Other assets 7,623 5,662
Total Assets $ 74,940 $ 72,969
Liabilities
Current:
Notes payable to banks $ 16,762 $ 15,321
Current portion of long-term debt 181 242
Accounts payable 4,162 5,770
Accrued employee compensation 3,296 4,775
Accrued royalties payable 1,896 1,639
Income taxes payable 1,701 1,888
Other liabilities 2,844 2,593
Total current liabilities 30,842 32,228
Long-term obligations 9,999 9,563
Total Liabilities $ 40,841 $ 41,791
Minority Interest in consolidated subsidiary 505 -
Commitments and contingencies (Note I)
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 31,672 29,285
Accumulated other comprehensive income 15 -
34,303 31,887
Treasury stock at cost, 333,519 and
333,519 shares (709) (709)
Total stockholders' equity 33,594 31,178
Total Liabilities and Stockholders' Equity $ 74,940 $ 72,969
The accompanying notes are an integral part of the consolidated
financial statements
<TABLE>
Swank, Inc.
Consolidated Statements of Operations
<CAPTION>
For Each of the Three Years Ended
December 31
(In thousands, except share and per share data) 1999 1998 1997
<S> <C> <C> <C>
Net sales $162,819 $151,770 $137,074
Cost of goods sold 100,419 87,130 77,547
Gross profit 62,400 64,640 59,527
Selling and administrative expenses 57,547 56,871 53,195
Income from operations 4,853 7,769 6,332
Interest expense, net 1,790 1,672 1,484
Income before income taxes and minority interest 3,063 6,097 4,848
Provision for income taxes 961 2,435 1
Minority interest in net loss of consolidated
subsidiary 285
Net income $ 2,387 $ 3,662 $ 4,847
Net income per common share $ .14 $ .22 $ .30
Net income per common share assuming dilution $ .14 $ .22 $ .29
Weighted average common shares outstanding 16,568,724 16,535,670 16,378,645
Weighted average common shares outstanding
assuming dilution 16,685,668 16,746,946 16,434,541
</TABLE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
For Each of the Three Years Deferred Employee
Ended December 31, Common Capital in Accum Other Benefits Treasury Stock
1999, 1998 and 1997 Stock, Par Excess of Comprehensive Retained Number Number
(Dollars in thousands) Value $.10 Par Value Income Earnings of Shares Amount of shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 1,684 $ 852 $ 0 $ 20,776 1,274,788 $(1,272) 333,519 $ (709)
Advance to retirement plan 514,437 (307)
Allocation to plan participants (282) (1,274,788) 1,272
Net income 4,847
Balance, December 31, 1997 1,684 570 0 25,623 514,437 (307) 333,519 (709)
Exercise of stock options 5 40
Allocation to plan participants 163 (514,437) 307
Equity incentive compensation 140
Net income 3,662
Balance, December 31, 1998 1,689 913 0 29,285 0 0 333,519 (709)
Exercise of stock options 1 13
Currency translation adjustment 15
Net income 2,387
Balance, December 31, 1999 $ 1,690 $ 926 $ 15 $ 31,672 0 $ 0 333,519 $ (709)
The accompanying notes are an integral part of the consolidated
financial statements
</TABLE>
<TABLE>
Swank, Inc.
Consolidated Statements of Cash Flows
<CAPTION>
(Dollars in thousands)
For Each of the Three Years Ended December 31 1999 1998 1997
<S> <C> <C> <C>
Cash flow from operating activities:
Net income $ 2,387 $ 3,662 $ 4,847
Adjustments to reconcile net income to net cash
(used in) provided by operations:
(Recoveries) provision for bad debts 304 (171) 92
Minority interest in net loss of consolidated
subsidiary (284)
Depreciation and amortization 1,616 2,181 2,167
Loss (gain) on sale of equipment and investments 13 10 (1)
Increase in deferred income taxes (1,894) (827) (321)
Compensation adjustment to capital in excess of par 140
Increase in cash surrender value of life insurance (195)
Change in assets and liabilities:
Increase in accounts receivable (2,014) (2,761) (4,288)
(Increase) decrease in inventories 5,188 (10,217) (8,597)
(Increase) decrease in prepaid and other (1,667) 64 250
Increase (decrease) in accounts payable,
accrued and other liabilities (2,579) 1,429 1,423
Increase (decrease) in income taxes payable (187) 1,635 (1,230)
Increase in long-term obligations 738 1,200 350
Net cash provided by (used in) operations 1,621 (3,655) (5,503)
Cash flow from investing activities:
Capital expenditures (1,520) (1,156) (1,073)
Proceeds from sale of equipment 7 1
Premiums on life insurance (707) (794) (628)
Proceeds from sale of investments 420
Net cash (used in) investing activities (2,227) (1,523) (1,700)
Cash flow from financing activities:
Borrowings under revolving credit agreements 70,733 86,545 54,304
Payments of revolving credit obligations (69,292) (78,741) (46,787)
Debt issuance costs (253)
Principal payments on long-term debt (363) (2,896) (1,643)
Proceeds from exercise of employees' stock options 14 45
Advance to retirement plan (307)
Net cash provided by financing activities 1,092 4,700 5,567
Currency translation adjustment 15
Net increase (decrease) in cash and equivalents 501 (478) (1,636)
Cash and cash equivalents at beginning of year 757 1,235 2,871
Cash and cash equivalents at end of year $ 1,258 $ 757 $ 1,235
Cash paid during the year for:
Interest $ 1,806 $ 1,587 $ 1,384
Income taxes $ 3,400 $ 1,626 $ 1,789
Noncash transactions:
Allocation of shares to ESOP participants $ 470 $ 990
Capital lease obligation incurred $ 67
Minority interest in acquisition of subsidiary $789
The accompanying notes are an integral part of the consolidated
financial statements
</TABLE>
Notes to Consolidated Financial Statements
A. The Company
The Company is engaged in the manufacture, sale and distribution
of men's belts, leather accessories, suspenders and jewelry and
women's jewelry. Its products are sold both domestically and
internationally, principally through department stores, and also
through specialty stores and mass merchandisers. The Company
operates a number of factory outlet stores primarily to
distribute excess and out of line merchandise. See Note K.
B. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements include the accounts of
Swank, Inc., its majority-owned Costa Rican subsidiary, and a
wholly-owned foreign sales corporation. All intercompany amounts
have been eliminated.. Dollar amounts are in thousands except
for per share data.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
Revenue Recognition
Net sales are comprised of gross sales less sales allowances,
including cash discounts, and customer returns. Net sales are
recorded upon shipment.
Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid instruments purchased with
original maturities of three months or less to be cash
equivalents.
Allowances for Accounts Receivable
The Company's allowances for receivables are comprised of cash
discounts, doubtful accounts, in-store markdowns, cooperative
advertising and customer returns. Provisions for doubtful
accounts, in-store markdowns and cooperative advertising are
reflected in selling and administrative expenses. The Company
performs ongoing credit evaluations of its customers and
maintains allowances for potential bad debt losses. The allowance
for customer returns results from the reversal of sales for
estimated returns and associated costs. Allowances for in-store
markdowns and cooperative advertising reflect the estimated costs
of the Company's share of certain promotions by its retail
customers. Allowances for accounts receivable are generally at
their seasonal highs on December 31. Reductions of allowances
occur principally in the first and second quarters when the
balances are adjusted to reflect actual charges as processed.
Allowances for accounts receivable are estimates made by
management based on historical experience, adjusted for current
conditions, and may differ from actual results. The provisions
(recoveries) for bad debts in 1999, 1998 and 1997 were $304,
$(171), and $92, respectively.
Concentrations of Credit Risk
The Company sells products primarily to major retailers within
the United States. The Company's two largest customers accounted
for 16% and 15% of consolidated trade receivables (gross of
allowances) in 1999 and 17% and 12% in 1998.
Inventories
Inventories are stated at the lower of cost (principally average
cost which approximates FIFO) or market. The Company's inventory
is fashion oriented and, as a result, is subject to risk of rapid
obsolescence. Management believes that inventory has been
adequately marked down, where appropriate, and that the Company
has adequate channels to dispose of excess and obsolete
inventory.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company
provides for depreciation of plant and equipment by charges
against income which are sufficient to write off the cost of the
assets on a straight-line or double declining-balance basis over
estimated useful lives of 10-45 years for buildings and
improvements and 3-12 years for machinery, equipment and
software. Improvements to leased premises are amortized on a
straight-line basis over the shorter of the useful life of the
improvement or the term of the lease.
Effective January 1, 1999 the Company adopted the provisions of
Statement of Position 98-1 ("SOP 98-1"), "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use" 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. In 1999, the Company capitalized software
development costs pursuant to SOP 98-1 which had the effect of
increasing income before taxes by $250 and net income by $172.
Exclusive of the effects of this change, net income per share and
net income per share assuming dilution would have been $.13 and
$.13, respectively.
The Company has capitalized lease obligations for computer
hardware and software equal to the lesser of the present value of
the minimum lease payments or the fair market value of the leased
property at the inception of the lease. The cost of the leased
assets is amortized on a straight line basis over the lesser of
the term of the lease obligation or the life of the asset,
generally 3 to 5 years.
Expenditures for maintenance and repairs and minor renewals are
charged to expense; betterments and major renewals are
capitalized. Upon disposition, cost and related accumulated
depreciation are removed from the accounts with any related gain
or loss reflected in results of operations.
Periodically, management assesses, based on undiscounted cash
flows, if there has been a permanent impairment in the carrying
value of its long-lived assets and, if so, the amount of any such
impairment, by comparing anticipated discounted future operating
income resulting from intangible assets with the carrying value
of the related asset. In performing this analysis, management
considers such factors as current results, trends and prospects,
in addition to other economic factors.
Fair Value of Financial Instruments
The carrying value of notes payable to banks approximates fair
value because these financial instruments have variable interest
rates.
Advertising Costs
The Company charges advertising costs to expense as they are
incurred including estimates for cooperative advertising costs.
Environmental Costs
Environmental expenditures that relate to current operations are
expensed or capitalized, as appropriate. Expenditures that
relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation,
are expensed. In 1997, the Company adopted Statement of Position
96-1 ("SOP 96-1"), "Environmental Remediation Liabilities,"
issued by the American Institute of Certified Public Accountants.
SOP 96-1 provides guidance on the recognition of expenses related
to environmental remediation activities and the related financial
statement disclosures. Adoption of SOP 96-1 did not have a
material effect on the Company's financial statements.
Liabilities are recorded when environmental assessments and/or
remedial efforts are probable and the costs can be reasonably
estimated. Generally, adjustments to these accruals coincide
with the completion of a feasibility study or the Company's
commitment to a formal plan of action or other appropriate
benchmark.
Income Taxes
The Company utilizes the liability method of accounting for
income taxes. Under the liability method, deferred taxes are
determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse. Net deferred tax assets are recorded when it
is more likely than not that such tax benefits will be realized.
Stock-Based Compensation
The Company measures the cost of stock-based compensation
associated with the stock option plans described in Note G using
the "intrinsic value" method. Under this method, the increment
of fair value, if any, at the date of grant over the exercise
price is charged to expense over the period that the employee
provides the associated services. In 1996, the Company adopted
the disclosure provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock Based Compensation",
which include information with respect to stock-based
compensation determined under the "fair value" method. The
Company uses the Black-Scholes formula to determine the fair
value of options on the grant date for purposes of this
disclosure.
Net Income (loss) per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share" which replaced primary
and fully diluted earnings per share with "basic" and "diluted"
earnings per share. Net income (loss) per common share or basic
earnings per share amounts are adjusted to include, where appropriate,
shares held by the Company's employee stock ownership plan and
deemed to be allocated to participants. Net income (loss) per
share assuming full dilution includes the effects of options.
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This Statement requires that certain items recognized
under generally accepted accounting standards as separate
components of stockholders' equity be reported as comprehensive
income in an annual financial statement that is displayed with
the same prominence as the other annual financial statements.
This statement also requires that an entity classify items of
other comprehensive income by their nature in an annual financial
statement and display the accumulated balance of other
comprehensive income separately from retained earnings and
additional capital in excess of par value in the equity section
of the balance sheet. Reportable other comprehensive income of
$15 in 1999 arose from gains resulting from the effects of
foreign currency translation.
Segments and Related Information
The Company adopted Statement of Financial Accounting Standards
No. 131 "Disclosures About Segments of an Enterprise and Related
Information" ("Statement No. 131") in 1998. Statement No. 131
supercedes the prior standards for reporting information about
operating segments and requires a management approach whereby
public disclosures are determined based on the internal
information utilized by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Adoption of Statement No. 131 had no effect on the financial
position of the Company or on the results of operations but it
did modify certain disclosures. See Note K.
C. Short-Term Borrowings
1999 1998 1997
At December 31:
Total lines $30,000 $30,000 $25,000
Weighted average interest rate 8.50% 7.75% 10.00%
For the year:
Monthly average borrowing 22,995 16,572 8,296
outstanding
Maximum borrowing outstanding 29,974 25,460 16,712
at any month end
Monthly interest rate 7.69% 8.88% 10.78%
(weighted average)
Balance at December 31 16,762 15,321 7,517
The average amounts outstanding and weighted average interest
rates during each year are based on average monthly balances
outstanding under the Company's revolving credit facility for
seasonal working capital needs. In July 1999, the Company
negotiated with its lender a temporary increase in its $30 million
revolving credit facility to $33 million for the period through
November 30, 1999 to accommodate seasonal working capital
requirements.
In July 1998, the Company signed a new five year $30 million
revolving credit agreement with a sublimit of $3 million in
letters of credit (the "1998 Revolving Credit Agreement") with
PNC Bank, National Association (the "Bank"). The new financing
replaced the Company's prior $25 million credit facility and is
collateralized by substantially all of the Company's domestic
accounts receivable, inventory and machinery and equipment. The
terms of the 1998 Revolving Credit Agreement permit the Company
to borrow against a percentage of eligible accounts receivable
and eligible inventory at an interest rate equal to the Lender's
prime rate or at a Eurodollar lending rate plus 1.75%. The 1998
Revolving Credit Agreement requires a facility fee of 3/8% per
annum on the unused portion of the revolving credit facility.
Under the 1998 Revolving Credit Agreement, the Company must
maintain a certain fixed charge coverage ratio and payment of
dividends is prohibited. In addition, the 1998 Revolving Credit
Agreement imposes limits on capital expenditures and on
additional indebtedness for borrowed money. Based upon present
information, the Company expects that it will continue to meet
the financial covenants contained in the 1998 Revolving Credit
Agreement as amended from time to time and that the facility will
be adequate to meet the Company's seasonal working capital needs
for the foreseeable future.
At December 31, 1999, the Company was not in compliance with the
Bank's Fixed Charge Coverage ratio as required by the 1998
Revolving Credit Agreement. The bank has waived that requirement
of the agreement as of and for the period ended December 31,
1999. See note N.
In May, 1996, the Company obtained revolving credit financing
from IBJ Schroder Bank & Trust Company, as agent for up to
$25,000 with a sublimit of $3,000 in letters of credit (the "1996
Revolving Credit Agreement"). The proceeds of the 1996 Revolving
Credit Agreement were used, in part, to repay all but $4 million
of the outstanding balance under the then existing revolving loan
agreement with other banks and under which the Company was then
in default. In connection with the May 1996 refinancing, other
banks amended and restated an existing agreement to provide the
Company with a $4,000 term loan (the "Term Loan") in lieu of a
like amount of revolving credit debt then outstanding under the
existing agreement. The Term Loan was payable in $200 quarterly
increments beginning in June 1997 with the final balance due in
May 1999, if not prepaid earlier pursuant to annual prepayments
based on excess cash flow, as defined. The Company prepaid the
remaining Term Loan balance in April 1998 and, as a result of the
prepayment and the refinancing of the 1996 Revolving Credit
Agreement, recorded an aftertax gain of approximately $38 in the
second quarter of 1998 and an aftertax loss of approximately $111
in the third quarter of 1998, respectively.
D. Income Taxes
Provision (benefit) for income taxes:
1999 1998 1997
Currently payable:
Federal $2,199 $2,560 $253
State 638 690 51
Foreign sales corporation 18 12 18
2,855 3,262 332
Deferred:
Federal (1,630) (719) (282)
State (264) (108) (39)
(1,894) (827) (321)
Total provision $961 $2,435 $1
Deferred tax provision (benefit):
1999 1998 1997
Accounts receivable reserves $(631) $148 $1,398
Deferred compensation (429) (638) 65
Inventory capitalization 421 (197) (573)
Postretirement benefits (77) (122) (152)
Environmental costs 5
Inventory reserves (397) 157 (119)
Workman'scompensation 76 66 389
Termination costs (116) 114 (53)
Capital leases 74 92
Borrowing costs 178
Corporate owned life insurance (1,098) (373) 621
Depreciation (101) (120) (153)
AMT credit carryforwards 38 627
State NOL carryforwards. 50
Other items 458 (152) (129)
Valuation allowance (2,389)
$(1,894) $(827) $(321)
Effective income tax rate:
1999 1998 1997
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of
federal tax benefit 5.1 5.5 5.5
Life insurance (11.7) (1.5) 4.0
Valuation allowance (49.3)
Allocation of ESOP shares 1.1
Foreign tax rate differentials 9.0
Resolution of federal tax (9.6)
carryback
Other items, net 4.6 1.9 4.7
31.4% 39.9% 0.0%
Components of the net deferred tax asset at December 31:
1999 1998 1997
Deferred tax assets
Accounts receivable reserves $2,040 $1,410 $1,558
Deferred compensation 2,831 2,402 1,764
Inventory capitalization 823 1,244 1,047
Postretirement benefits 867 790 668
Environmental costs 662 662 662
Inventory reserves 592 195 352
Workman's compensation 57 133 199
Termination costs 303 187 301
Capital leases 87 161
Borrowing costs 178
AMT credit carryforward 38
Other 308 678 526
Gross deferred asset 8,483 7,788 7,454
Deferred tax liabilities
Depreciation (326) (427) (547)
Corporate owned life insurance (2,194) ( 3,292) (3,665)
Net deferred tax asset $5,963 $4,069 $ 3,242
During 1999, the Company settled with the Internal Revenue
Service regarding a carryback claim filed by the Company, which
resulted in a refund of federal income taxes paid in prior years
in the amount of $293. The foreign rate differentials resulted
from startup expenses related to the Costa Rica joint venture,
which are not benefited for U.S. or foreign tax purposes.
The Health Insurance and Accountability Act of 1996 (the
"Act") phased out the deduction of interest on policy loans on a
significant portion of the Company's corporate owned life
insurance and, therefore, substantially increased the after tax
cost of maintaining these policies. As a result, in 1996 the
Company announced its intention to surrender the affected
policies and recorded a deferred tax liability for the estimated
income taxes that will become due over a four year period, 1998
through 2001. The surrender of these policies was completed in
November 1998. See Note F.
E. Long-Term Obligations
Long-term obligations, excluding the current portion, at
December 31, were as follows:
1999 1998
Benefits under 1987 Deferred Compensation
Plan and Postretirement benefits (See Note F) $3,499 $4,031
1993 Deferred Compensation Plan (See Note F) 4,192 2,786
1998 Equity Incentive Plan (See Note G) 210 210
Environmental liabilities (See Note I) 1,588 1,588
Supplemental death benefits 120 150
Other 195 528
Long-term portion of capital leases 195 270
$9,999 $9,563
The Company's lease agreements for certain computer hardware and
software have been classified as capital leases for financial
reporting purposes. Accumulated amortization of assets under
capital leases was $1,416 and $1,395 as of December 31, 1999 and
1998, respectively. Office equipment and computer hardware with
aggregate fair values of approximately $0, $0 and $67 were added
to capitalized leases in 1999, 1998 and 1997, respectively.
Future minimum lease payments and the present value of the
minimum lease payments as of December 31, 1999 were:
2000 210
2001 64
2002 18
Subtotal 292
Imputed interest at 11.0% (25)
Present value of minimum
lease payments 267
F. Employee Benefits
Effective January 1, 1994, the Company amended and restated the
Swank, Inc. Employees' Stock Ownership Plan in a merger with the
Swank, Inc. Employees' Stock Ownership Plan No. 2 and the Swank,
Inc. Savings Plan. The combined plans became The New Swank, Inc.
Retirement Plan (the "Plan"). The Plan incorporates the
characteristics of the three predecessor plans, covers
substantially all full time employees and reflects the Company's
continued desire to provide added incentives and to enable
employees to acquire shares of the Company's Common Stock. The
cost of the Plan has been borne by the Company.
The savings (401(k)) component of the Plan provides employees an
election to reduce taxable compensation through contributions to
the Plan. Matching cash contributions from the Company are
determined annually at the Board's discretion. Shares of Common
Stock acquired by the stock ownership component of the Plan are
allocated to participating employees to the extent of
contributions to the Plan, as determined annually at the
discretion of the Board of Directors, and are vested on a
prescribed schedule. Expenses for the Company's contributions to
the Plan were $451, $1,200 and $1,256 in 1999, 1998 and 1997,
respectively. The 1997 contribution included $470 determined at
average fair value, upon the commitment to allocate 514,437
shares with a fair value of $579 at December 31, 1997 to
participants in the stock ownership component of the Plan. The
allocation of these shares was made in February 1998 to
individual employees' accounts as of the preceding December 31
and are reflected in the consolidated statements of changes in
stockholders' equity and as a noncash transaction for purposes of
the consolidated statements of cash flows in the year allocated.
At December 31, 1999 and 1998, the Plan held a total of 9,789,817
and 10,001,506 shares, respectively, of the Company's outstanding
stock, of which 9,789,817 and 10,001,506, respectively, were
allocated to participants. The Company from time to time makes
loans to the Plan at an interest rate equal to the Prime lending
rate plus 2 percentage points per annum to provide the Plan with
liquidity, primarily to enable the Plan to make distributions of
cash rather than shares to former employees. There were no
outstanding balances due from the Plan to the Company at December
31, 1999 and 1998.
In October 1999, the Plan's 401(k) Savings and Stock Ownership
Plan Committee authorized the repurchase by the Plan of up to
600,000 shares of the Company's common stock. Purchases will be
made at the discretion of the Plan's trustees from time to time
in the open market and through privately negotiated transactions,
subject to general market and other conditions. Repurchases are
intended to be financed by the Plan with its own funds and from
any future cash contributions made by the Company to the Plan.
Shares acquired will be used to provide benefits to employees
under the terms of the Plan. No shares had been repurchased as
of December 31, 1999.
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits" which modified and standardized
disclosure requirements for postretirement benefits. In this
connection, the Company determined that the new disclosure
requirements are applicable to defined benefits provided under
the 1987 Deferred Compensation Plan.
The Company provides postretirement life insurance, supplemental
pension and medical benefits for certain groups of active and
retired employees. The postretirement medical plan is
contributory, with contributions adjusted annually; the death
benefit is noncontributory. The Company recognizes the cost of
postretirement benefits over the period in which they are earned
and amortizes the transition obligation for all plan participants
on a straight-line basis over a 20 year period which began in
1993.
The following table sets forth reconciliations of the beginning
and ending balances of the postretirement benefits and defined
benefits under the 1987 Deferred Compensation Plan described
below:
Postretirement Defined
Benefits Benefits
Change in Benefit Obligation 1999 1998 1999 1998
Benefit obligation at
beginning of year: $5,399 $5,467 $2,329 $2,583
Service cost 39 34 40 110
Interest cost 338 349 141 177
Participants' contributions 23 19 0 0
Amendments 0 (40) 0 (216)
Curtailment 0 0 297 0
Actuarial (gain) loss (575) (254) (121) 24
Benefits paid (461) (176) (330) (349)
Benefit obligation at end
of year $4,763 $5,399 $2,356 $2,329
Change in Plan Assets
Plan assets at beginning
of year at fair value 0 0 0 0
Employer contributions 438 157 330 349
Participants' contributions 23 19 0 0
Benefits paid (461) (176) (330) (349)
Plan assets at end of year
at fair value 0 0 0 0
Funded status $(4,763) $(5,399) $(2,356) $(2,329)
Unrecognized actuarial 583 1,205 0 (10)
(gain) loss
Unrecognized transition
obligation 2,036 2,193 0 (158)
Unrecognized prior service
(credit) cost 0 0 0 (215)
Accrued benefit cost (1) $(2,144) $(2,001) $(2,356) $(2,712)
(1) Amounts totaling $1,050 and $682 have been included in
accrued employee compensation as of December 31, 1999 and 1998,
respectively. The remaining balance has been included in long-
term obligations as set forth in Note E.
The weighted-average discount rate used in determining the
accumulated benefit obligations was 7.75%, 6.5% and 7.0% at
December 31, 1999, 1998 and 1997, respectively. For measurement
purposes, a 5.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2000 and all
years thereafter.
Net periodic postretirement benefit cost for 1999, 1998 and 1997
included the following components:
Postretirement Defined
Benefits Benefits
1999 1998 1997 1999 1998 1997
Service cost $ 39 $ 34 $ 45 $ 40 $110 $217
Interest cost 338 349 379 141 177 181
Expected return on plan
assets 0 0 0 0 0 0
Recognized actuarial
(gain) loss 48 51 73 (1) 134 22
Amortization of
transition obligation 156 160 160 (20) (20) (20)
Amortization of prior
service (credit) cost 0 0 0 (18) 0 0
Net periodic benefit
costs included in
selling and
administrative expenses $581 $594 $657 $142 $401 $400
Gain recognized due to
curtailment 0 0 0 169 0 0
Total plan cost (income) $581 $594 $657 $(27) $401 $400
The Company has multiple health care and life insurance
postretirement benefit programs which are generally available to
executives. The health care plans are contributory (except for
certain AARP and Medicare Part B coverage) and the life insurance
plans are noncontributory. A portion of the life benefits is
fully insured through group life coverage and the remaining life
benefits are self insured. Life insurance contracts have been
purchased on the lives of certain employees in order to fund
postretirement death benefits to beneficiaries of salaried
employees who reach age sixty with ten years of service.
Proceeds from these contracts are expected to be adequate to fund
the Company's obligations although there are likely to be
differences in the timing of cash flows over the life of the
program. The cost of these contracts is included in the annual
postretirement cost shown above. On December 31, 1998, the health
plan was changed from an indemnity coverage program to a
preferred provider arrangement.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the health care plans. A one-
percentage point decrease in assumed health care cost trend rates
would decrease the total of service and interest cost by $4 and
the postretirement benefit obligation by $51, respectively, while
a one-percentage point increase would increase the total of
service and interest cost by $4 and the postretirement benefit
obligation by $51.
In 1987, the Company adopted a deferred compensation plan (the
"1987 Plan") available to certain key executives for the purpose
of providing retirement benefits. Interest credited to
participants' accounts is paid at retirement in the form of a
monthly annuity over a period of ten years. All compensation that
was deferred under the 1987 Plan has been returned to
participants following seven years after the year of original
deferral. The 1987 Plan was amended at the end of 1998 to change
the method of determining future interest credits on
participants' accounts. Life insurance contracts intended to
fund 1987 Plan benefits through future death proceeds were
purchased on the lives of the participants and on certain other
employees with annual net carrying cost of approximately $300 per
year. However, as described in Note D, these contracts were
surrendered in November, 1998 with a corresponding reduction in
gross cash surrender value and policy loans as set forth below.
In 1999, the Company determined that it would be advantageous to
place all remaining participants in the 1987 Plan who were not
currently receiving benefits into payout status, effective
January 1, 2000. Participants will receive benefit payments over
ten years resulting in the elimination of the Company's liability
under the 1987 Plan by the end of 2009. The curtailment of the
1987 Plan resulted in an acceleration of the unrecognized
liability to participants which was offset by a reduction in plan
liabilities associated with a change in certain actuarial
assumptions. The net effect of these adjustments was a gain of
$169 included in selling and administrative expenses which was
recorded in the fourth quarter.
In 1993, the Company established a deferred compensation plan
for certain key executives (the "1993 Plan") that provides for
payments of the amounts deferred and the earnings thereon upon
retirement, death or other termination of employment. Amounts
payable to participants in the 1993 Plan aggregated $4,495 and
$3,021 at December 31, 1999 and 1998, respectively, of which $303
and $235, respectively, have been classified in accrued employee
compensation. The remaining balances of $4,192 and $2,786,
respectively, have been included in long-term obligations (See
Note E). Variable life insurance contracts have been purchased on
the lives of participants and on certain other employees. These
contracts are held in a grantor trust and the contract values are
expected to be adequate to fund the benefit obligations under the
1993 Plan. The net costs related to the 1993 deferred
compensation plans are included in selling and administrative
expense and aggregated approximately $330, $271 and $171, in
1999, 1998 and 1997, respectively.
The Company uses loans against the policy cash values to pay
part or all of annual life insurance premiums, except for the
variable life policies. The aggregate gross cash surrender value
of all policies was approximately $10,701 and $9,298, at December
31, 1999 and 1998, respectively, which is included in other
assets, net of policy loans aggregating approximately $3,132 and
$3,552, respectively. The Company has no intention of repaying
any policy loans and expects that they will be liquidated from
future death benefits or by surrender of the policies. Interest
on policy loans amounted to approximately $285, $1,997 and
$2,041 in 1999, 1998 and 1997, respectively, and is included in
the net costs of the various plans described above. The weighted
average interest rate on policy loans was 6.3%, 7.7% and 7.8% at
December 31, 1999, 1998 and 1997, respectively.
G. Stock Options
Under the Company's 1987 and 1981 employee stock option plans,
options were granted to key employees to purchase shares of
Common Stock at the market value on the date of grant. These
options are generally exercisable during a period beginning one
year after the date of grant and continuing for an additional
nine years. No additional options may be granted under the 1987
and 1981 plans.
In 1994, the Company established a directors' stock option
plan pursuant to which options may be granted to non-employee
directors to purchase 150,000 shares of Common Stock at market
value on the date of grant. Options granted under this plan are
for a period of five years and are immediately exercisable.
Options to purchase 15,000 shares of Common Stock were granted
under this plan in each of 1999, 1998 and 1997. At December 31,
1999, a total of 55,000 shares of Common Stock were reserved for
future grants under the directors' plan.
The following table summarizes stock option activity for the
years 1997 through 1999:
Weighted average
Options Shares Exercise Price
Outstanding at
December 31, 1996 2,111,388 1.03
Exercised
Forfeited (80,600) .97
Expired (1,074,988) 1.16
Granted 15,000 .78
Outstanding at
December 31, 1997 970,800 .89
Exercised (44,900) .94
Forfeited (10,400) .94
Expired
Granted 15,000 1.28
Outstanding at
December 31, 1998 930,500 $.90
Exercised (15,000) .94
Forfeited (201,200) .71
Expired (10,000) 1.16
Granted 15,000 1.22
Outstanding at
December 31, 1999 719,300 $.95
For options granted in 1999, 1998 and 1997, the estimated
weighted average fair value, assuming no dividends, was
approximately $.94, $1.18 and $.67, respectively, using a risk-
free rate of 6.5%, and an expected volatility of .99 in each
year, and expected lives of 5, 10 and 5 years in 1999, 1998 and
1997, respectively. Pro forma net income and pro forma net
income per share for options granted using the fair value method
was $2,378 and $.14 per share in 1999, $3,627 and $.22 per share
in 1998, and $4,819 and $.29 per share in 1997.
Options outstanding as of December 31, 1999 were as follows:
Weighted Weighted Number Weighted
Exercise Shares Average Average Exer- Average
Price Outstanding Life (Years) Price cisable Price
$.78-$1.28 75,000 2.35 $1.06 75,000 $1.06
$.94 644,300 1.75 .94 644,300 .94
Total 719,300 1.81 $.95 719,300 $.95
At December 31, 1998 and 1997 there were 868,833 and 898,114
exercisable options, respectively, and the weighted-average
exercise prices were $.91 and $.92, respectively.
In April 1998, the Company's stockholders approved the Swank,
Inc. 1998 Equity Incentive Compensation Plan (the "1998 Plan")
which replaced the Company's prior incentive stock plans, all of
which had expired by their terms. The 1998 Plan permits the
Company's Board to grant a maximum of 3,000,000 shares to key
employees through stock options, stock appreciation rights,
restricted stock units, performance awards and other stock-based
awards. Long-term performance awards were granted under the 1998
Plan in October 1998 to certain key employees. Awards are based
upon a formula which incorporates a minimum and maximum range of
cumulative earnings, determined before incentive compensation
pursuant to the awards and before income taxes, for the three
year period ending December 31, 2000. If earned, the awards will
be payable partially in cash and partially in restricted shares
of the Company's common stock. Each award is entirely denominated
in dollars. The number of restricted shares to be issued to
participants will be the aggregate dollar amount of the equity
portion of the awards divided by the fair value of the Company's
shares at the date of distribution. No awards were granted by
the Board in 1999. In 1998, based on a market value of $1.08625
per share for the Company's common stock when the awards were
granted, a maximum of approximately 1,383,100 shares have been
awarded. Restrictions on any shares actually issued will lapse
over a three year period from the date of issuance. Compensation
expense of $350 was recorded as of December 31, 1998 in
connection with the 1998 Plan.
H. Net Income Per Share
The following table sets forth the computation of net income per
share:
Year Ended December 31,
1999 1998 1997
Numerator:
Net Income $2,387 $3,662 $4,847
Denominator:
Weighted average common
shares outstanding 16,568,724 16,535,670 16,509,523
Effect of excluding
unallocated shares held in
ESOP 0 0 (130,878)
Shares used in computing net
income per common share 16,568,724 16,535,670 16,378,645
Effect of dilutive options 116,944 211,276 55,896
Shares used in computing
net income per common share
assuming dilution 16,685,668 16,746,946 16,434,541
Net income per common share $.14 $ .22 $.30
Net income per common share
assuming dilution $.14 $ .22 $ .29
Unallocated shares maintained in the Company's Employee Stock
Ownership Plan ("ESOP"), described in Note F, are reflected as a
reduction of outstanding shares for earnings per share purposes
until such shares are committed to be allocated. There were no
shares at December 31, 1999, 1998 and 1997, remaining in the ESOP
which were not committed to be allocated.
I. Commitments and Contingencies
The Company leases certain of its warehousing, sales and office
facilities, automobiles and equipment under noncancelable long-
term operating leases. Certain of the leases provide renewal
options ranging from one to ten years and escalation clauses
covering increases in various costs. Total rental expenses
amounted to $3,354, $3,298 and $3,373, in 1999, 1998 and 1997,
respectively.
Future minimum lease payments under noncancelable operating
leases as of December 31, 1999 are as follows:
2000 $ 2,707
2001 1,959
2002 1,687
2003 1,452
2004 1,344
Thereafter 6,918
Total minimum payments $ 16,067
The Company owns the rights to various patents, trademarks,
trade names and copyrights and has exclusive licenses to market
certain products in specified territories, principally in the
United States. The Company's licenses for "Yves Saint Laurent",
"Geoffrey Beene", "Guess?", "Kenneth Cole", "Pierre Cardin"
(men's), and "Anne Klein", "Anne Klein II", "DKNY", and "Guess?"
(women's) collectively may be considered material to the
Company's business. The Company is obligated to pay minimum
royalties under certain license agreements as follows: 2000-
$4,550; 2001- $4,202; and 2002 - $2,727. Generally, the license
agreements require the Company to provide various forms of
advertising and promotional support determined as a percentage of
annual net sales of licensed merchandise and licensors generally
retain audit rights for a specified period. The Company also pays
a percentage of net sales to a consulting firm controlled by one
of the Company's directors in connection with certain license
agreements which that firm introduced to the Company. Management
believes that the Company's license obligations have been
adequately reflected in the accompanying financial statements.
On June 7, 1990 the Company received notice from the United
States Environmental Protection Agency ("EPA") that it, along
with fifteen others, had been identified as a Potentially
Responsible Party ("PRP") in connection with the release of
hazardous substances at a Superfund Site located in
Massachusetts. This notice does not constitute the commencement
of a proceeding against the Company or necessarily indicate that
a proceeding against the Company is contemplated. The Company,
along with six other PRP's, has voluntarily entered into an
Administrative Order pursuant to which, inter alia, they have
undertaken to conduct a remedial investigation/feasibility study
("RI/FS") with respect to the alleged contamination at the site.
It is reasonably possible that the Company's potential obligation
may change in the near term. The Company's share of costs for
the RI/FS is being allocated on an interim basis at approximately
12.5%. This Superfund site is adjacent to a municipal landfill
that is in the process of being closed under Massachusetts law.
The Company believes that the issues regarding the site are under
discussion among state and federal agencies due to the proximity
of the site to the landfill and the composition of waste at the
site. At December 31, 1999 and 1998 the company had accrued
approximately $1,223 and $1,223, respectively in connection with
this site based on the assumption that the issues relating to the
availability of federal funding and the allocation of costs of
remediation, among others, will not be resolved for many years
and that significant legal and technical fees and expenses will
be incurred prior to such resolution.
The Company signed a judicial consent decree relating to the
Western Sand and Gravel site located in Burrillville and North
Smithfield, Rhode Island which was entered on August 28, 1992 by
the U.S. District Court for the District of Rhode Island. The
most likely scenario for remediation of ground water at this site
is through natural attenuation which will be monitored over a
period of up to 24 years. Estimates of the costs of remediation
range from approximately $2.8 million for natural attenuation to
approximately $7.8 million for other remediation. The Company's
share is approximately 8% of approximately 75% of the costs. At
December 31, 1999 and 1998 the Company had accrued approximately
$453 and $453 respectively, in connection with this site based on
the results of tests conducted in 1999 and 1998. Management
believes that this site will not have a material adverse effect
on the Company's operating results or financial condition based
on the results of periodic tests conducted at the site. In 1988,
the Company received notice that it had been identified as a PRP,
together with numerous other companies, in connection with an
unrelated site in Diaz, Arkansas. The Company has appropriately
responded but has received no further communications on this
matter. The Company has recorded no liability with respect to
this site as it has no basis on which to estimate potential
costs, if any.
The estimated liability for costs associated with environmental
sites is included in Long-term obligations in the accompanying
balance sheets (See Note E), exclusive of additional currently
payable amounts of approximately $88 and $88 included in Other
liabilities in 1999 and 1998, respectively. These amounts have
not been discounted. Management believes that the accompanying
financial statements include adequate provision for environmental
exposures.
J. Promotional Expenses
Substantial expenditures for advertising and promotion are
considered necessary to maintain and enhance the Company's
business and, as described in Note I, certain license agreements
require specified levels of spending. These expenditures are
included in selling and administrative expenses in the year
incurred. The following table summarizes the various promotional
expenses incurred by the Company:
1999 1998 1997
In-store markdowns $7,993 $7,059 $5,442
Cooperative advertising 910 1,355 1,106
Displays 1,314 1,227 1,357
National advertising and other 1,620 1,156 1,114
Total $11,837 $10,797 $9,019
Percentage of net sales 7.3% 7.1% 6.6%
K. Disclosures About Segments of an Enterprise and Related
Information
The men's and women's accessories businesses have pronounced
differences including the frequency of markets, the degree of
fashion orientation in the products and, at the retail level,
separate departments with separate buying structures. Management
considers meeting the specific demands of each of these
marketplaces as the most important factor in managing the
Company's business and in developing appropriate reporting of
results. The Company's products are sold principally domestically
through department stores and, to a lesser extent, through
specialty stores and mass merchandisers. The Company and its
corresponding customer relationships are organized along men's
and women's lines. As a result, the Company has two reportable
segments, Men's Accessories consisting of belts, wallets and
other small leather goods, suspenders and jewelry and Women's
Accessories consisting of jewelry products. Management measures
segment profit or loss for each segment based on income or loss
before income taxes utilizing the accounting policies consistent
in all material respects with those described in Note B.
Reportable segment assets consist of inventory. No intersegment
revenue is recorded. Reportable segment assets are transferred to
Other, which includes the Company's outlet stores, at carrying
cost.
1999 Men's Women's Other Consol-
idated
Total
Revenue from external $102,446 $54,302 $6,071 $162,819
Interest Expense, net 1,076 633 81 1,790
Depreciation Expense 963 554 48 1,565
Segment Profit 5,252 (2,313) 409 3,348
Other noncash item:
(Recoveries) provision 203 101 304
Segment Assets 23,223 11,390 1,780 36,393
1998 Men's Women's Other Consol-
idated
Total
Revenue from external $95,356 $49,972 $6,442 $151,770
Interest Expense, net 1,005 592 75 1,672
Depreciation Expense 1,129 547 60 1,736
Segment Profit 4,746 948 403 6,097
Other noncash item:
(Recoveries) provision (183) 12 (171)
Segment Assets 26,279 13,242 1,663 41,184
1997 Men's Women's Other Consol-
idated
Total
Revenue from external $86,574 $43,999 $6,501 $137,074
Interest Expense, net 928 462 94 1,484
Depreciation Expense 1,162 523 73 1,758
Segment Profit 4,199 286 363 4,848
Other noncash item:
(Recoveries) provision 56 36 92
Segment Assets 18,064 11,457 1,446 30,967
Reconciliation of assets 1999 1998 1997
Reportable segment assets $35,363 $39,521 $29,521
All other Assets 40,204 33,448 30,428
Total consolidated assets $75,567 $72,969 $59,949
Sales to the Company's two largest customers accounted for
approximately 17% and 14% of consolidated net sales in 1999, 16%
and 15% of consolidated net sales in 1998 and 17% and 13% of
consolidated net sales in 1997, respectively. Each of these
customers accounted for in excess of 10% of net sales in each of
the Company's reportable segments in 1999. Exports to foreign
countries accounted for approximately 5%, 5% and 8% of
consolidated net sales in 1999, 1998 and 1997, respectively.
L. Quarterly Financial Data (unaudited)
The Company believes that the results of operations are more
meaningful on a seasonal basis (approximately January-June and
July-December) 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
and related earnings between quarters within a season differently
in one year than in another.
1999 First Second Third Fourth
Net sales $37,199 $32,725 $40,938 $51,957
Gross profit 13,569 12,042 16,259 20,530
Net income (loss) $ (66) $ (565) $ 673 $ 2,345
Per share $ .00 $ (.04) $ .04 $ .14
Per share
assumng dilution $ .00 $ (.04) $ .04 $ .14
1998 First Second Third Fourth
Net sales $33,630 $32,177 $39,041 $46,922
Gross profit 14,145 13,259 16,189 21,047
Net income (loss) $ 809 $ (503) $ 906 $ 2,450
Per share $ .05 $ (.03) $ .05 $ .15
Per share
assumng dilution $ .05 $ (.03) $ .05 $ .15
The first and second quarter results above have been restated to
reflect the effects of adjustments made to reduce the value of
certain work-in-process inventories to their proper amounts. The
restatement decreased net income of the first quarter by $181 or
$.01 per share, with a corresponding increase to net income and
net income per share in the second quarter, from the previously
reported amounts.
M. Stockholder Rights Plan
On October 26, 1999 the Company's Board of Directors adopted a
new Stockholder Rights Plan (the "Rights Plan") to succeed a
similar plan which originally was adopted in 1988 and had expired
by its terms in 1998. Under the Rights Plan, the Company
declared a dividend of one Right to purchase one one-hundredth of
a share of newly created Series D Junior Participating Preferred
Stock at an initial exercise price of $5.50 (the "Purchase
Price"). One Right was distributed for each share of the
Company's common stock outstanding to shareholders of record on
November 12, 1999.
Initially, the Rights will be attached to and trade with the
Company's outstanding common stock. A Distribution Date will
occur and the Rights will separate from the common stock and be
distributed to shareholders upon the earlier of (i) 10 days
following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has
acquired or obtained the right to acquire, beneficial ownership
of 15% or more of the shares of common stock then outstanding or
(ii) 10 business days following the commencement of a tender
offer or exchange offer that would result in a person or group
beneficially owning 15% or more of such outstanding shares of
common stock (unless such tender offer or exchange offer is an
offer for all outstanding shares of common stock which a majority
of the unaffiliated directors who are not officers of the Company
determine to be at a price which is fair to all stockholders and
otherwise in the best interests of the Company and its
stockholders).
In the event that an Acquiring Person becomes the beneficial
owner of 15% or more of the then outstanding shares of the
Company's common stock (except pursuant to a tender offer or
exchange offer for all outstanding shares of common stock which a
majority of the unaffiliated directors who are not officers of
the Company determine to be at a price which is fair to all
stockholders and otherwise in the best interests of the Company
and its stockholders (a "Qualifying Offer")), each holder of a
Right will thereafter have the right to receive, upon payment of
the Purchase Price, common stock (or in certain circumstances,
cash, property, or other securities of the Company) having a
value equal to two times the Purchase Price of the Right. In
addition, in the event that at any time after the Stock
Acquisition Date (i) the Company is involved in a merger or other
business combination transaction in which the Company is not the
surviving corporation or in which it is the surviving corporation
but its Common Stock is changed or exchanged (other than a merger
consummated pursuant to a Qualifying Offer), or (ii) more than
50% of the Company's assets or earning power is sold or
transferred, each holder of a Right shall, after the expiration
of the redemption period referred to below, have the right to
receive, upon payment of the Purchase Price, common stock of the
acquiring company having a value equal to two times the Purchase
Price.
The Rights are not exercisable until the Distribution Date and,
under certain circumstances, are redeemable by the Company at a
price of $.01 per right. The Company at its option may also
exchange the Rights for shares of common stock at an exchange
ratio of one share of common stock per Right. The Rights will
expire at the close of business on November 11, 2009, unless
redeemed or exchanged earlier by the Company pursuant to the
terms of the Rights Plan.
N. Subsequent Event
At December 31, 1999, the Company was not in compliance with the
Bank's Fixed Charge Coverage ratio as required by the 1998
Revolving Credit Agreement. The bank waived that requirement of
the agreement on March 7, 2000 as of and for the period ended
December 31, 1999.
On March 16, 2000, the Company announced a plan to cease
production operations at its jewelry manufacturing facility
located in Attleboro, Massachusetts ("Attleboro") and transfer
its remaining domestic jewelry production requirements to its
majority-owned subsidiary, Joyas y Cueros, S.A. de Costa Rica,
and certain third-party vendors. Manufacturing operations at
Attleboro will cease following the orderly transition of
merchandise requirements to other resources which is expected to
be completed during the second quarter of 2000. Management has
concluded that its Attleboro manufacturing facility can no longer
be competitive in light of the increasing pressure to sustain
gross margins at both the wholesale and retail level and that
maintaining a domestic large-scale jewelry manufacturing
operation is not economically viable. In connection with the
closure, the Company will take a charge against pretax earnings
of approximately $1,400 to $1,600 in the first quarter of 2000 to
cover employee severance and related costs. Additional
integration expenses associated with the writedown of certain
inventory, currently estimated at $550 are also likely to be
incurred in fiscal 2000 as the Company completes the process of
resourcing its remaining merchandise requirement. Integration
costs will be expensed as incurred.
On March 17, 2000, the Company entered into an amendment to the
1998 Revolving Credit Agreement that resets the Fixed Charge
Covenant Ratio. As a result of the amendment, the Company is
permitted to borrow against a percentage of eligible accounts
receivable and eligible inventory at a maximum interest rate,
depending on certain factors, equal to the Lender's prime rate
plus 1% or at Eurodollar lending rate plus 2.75%.
Report of Independent Accountants
To the Stockholders of Swank, Inc.
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of operations, of
stockholders' equity and of cash flows, present fairly, in all
material respects, the financial position of Swank, Inc. at
December 31, 1999 and 1998 and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial
statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 29, 2000, except for
Note N for which the dates
are March 7, 2000, March 16, 2000, and March 17, 2000
About the Company
Swank, Inc. is a leading U.S. manufacturer and distributor of
men's belts, leather accessories, suspenders and jewelry and
women's jewelry. The Company is dedicated to maintaining style
and quality leadership in the broad diversity of products it
markets.
The Company's customers are primarily major retailers within the
United States. Sales have become more concentrated as a result of
consolidations within the retail industry. The Company's ten
largest customers represented approximately 71% of consolidated
net sales in 1999 compared to 66% in 1998.
In order to appeal to a large economic cross-section of the
buying public, most of Swank's collections are offered in a wide
variety of styles and price ranges.
The Company takes great pride in the strength of its consumer
franchise and the brand name recognition of its products such as
"Kenneth Cole", "DKNY", "Claiborne", "Guess?", "Anne Klein",
"Anne Klein II", "Geoffrey Beene", "John Henry", "Yves Saint
Laurent", "Pierre Cardin", and "Colours by Alexander Julian",
and "Swank".
Approximately 99 sales people and regional managers are engaged
in the sale of Company products, working out of offices located
in 4 major cities in the United States. The Company employs
approximately 1,200 people in the United States and approximately
230 in Costa Rica.
Swank operates a production facility in each of Massachusetts
and Connecticut, two production facilities in Costa Rica, a
distribution facility in Massachusetts and 17 factory outlet
stores in 10 states.
Market for the Company's Common Stock and Related
Stockholder Matters
The Company's common stock trades on The Nasdaq Stock Market
under the symbol SNKI. The following table sets forth in 1999 and
1998 the range of high and low sales prices of the Company's
Common Stock as reported by The Nasdaq Stock Market for the
calender quarters indicated.
1999 1998
Quarter High Low High Low
First $1.81 $1.00 $1.56 $1.00
Second 1.63 1.00 2.19 1.09
Third 1.34 .88 2.00 1.13
Fourth 1.13 .78 2.75 .94
For the Year $1.81 $ .78 $2.75 $ .94
Number of Record Holders at February 24, 2000 - 1,556
Estimated number of stockholders - 3,189
Form 10-K
The Company's Annual Report on Form 10-K will be furnished
without charge to stockholders. Written requests for this report
should be forwarded to Mr. Jerold R. Kassner, Corporate
Secretary, Swank, Inc., P.O. Box 2962, Attleboro, Massachusetts
02703-0962.
Corporate Information
Board of Directors
Mark Abramowitz
Parker Chapin LLP
John J. Macht
The Macht Group, Retail and
Marketing Consultants
James E. Tulin
Senior Vice President-
Merchandising
John Tulin
President and Chief Executive
Officer
Marshall Tulin
Chairman of the Board
Raymond H. Vise
Retired Senior Vice President
Corporate Data
Executive and Production and Distribution
Administrative Facilities
Office Attleboro, MA
6 Hazel Street South Norwalk, CT
Attleboro, MA Taunton, MA
02703 Cartago, Costa Rica
Executive and General Counsel
National Sales Parker Chapin LLP
Offices 405 Lexington Avenue
90 Park Avenue New York, NY 10174
New York, NY
10016
International Independent Accountants
Division Sales PricewaterhouseCoopers LLP
Office One Post Office Square
90 Park Avenue Boston, MA 02109
New York, NY
10016
Regional Sales Transfer Agent and Registrar
Offices American Stock Transfer & Trust
Atlanta, Company
Chicago, Beverly 40 Wall Street
Hills, New York New York, NY 10005
Corporate Officers
Marshall Tulin Jerold R. Kassner William B. Heuser
Chairman of the Board Senior Vice President- Vice President-
Chief Financial Officer Merchandising
Secretary and Treasurer Belt Division
John Tulin William F. Rubin Jennifer Cowan Heuser
President and Senior Vice President- Vice President-
Chief Executive Officer Regional Sales Merchandising
Belt Division
Richard V. Byrnes, Jr. Bruce Shopoff Frederick M. Moehle
Senior Vice President- Senior Vice President- Vice President-
Operations Regional Sales Merchandising
Women's Division
Paul Duckett James E. Tulin Kimberly Renk
Senior Vice President- Senior Vice President- Vice President-
Distribution and Merchandising Merchandising
Retail Store Operations Women's Division
Melvin Goldfeder Lewis Valenti Robert Rosenberg
Senior Vice President- Senior Vice President- Vice President-
Special Markets Women's Division Regional Sales
Eric P. Luft Arthur T. Gately, III
Senior Vice President- Vice President-
Men's Division Administration
EXHIBIT 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-23914) of Swank, Inc.
of our report dated February 29, 2000 except for Note N for which
the dates are March 7, 2000, March 16, 2000 and March 17, 2000
relating to the consolidated financial statements, which appears
in the Annual Report to Shareholders, which is incorporated in
this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated February 29, 2000,
except for Note N of the consolidated financial statements for
which the dates are March 7, 2000, March 16, 2000 and March 17,
2000 relating to the financial statement schedule, which appears
in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 2000
<TABLE> <S> <C>
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<NAME> SWANK, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
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0
0
<COMMON> 1,690
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