-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Swnz4cOUett7Xj14oKK0R/fUT8OlcEdRalCHdf1Yr2N2tDy6HrfQkumN/0tZLWCp v2g+aKENrw8hBFI17FbNIQ== 0000731947-97-000002.txt : 19970401 0000731947-97-000002.hdr.sgml : 19970401 ACCESSION NUMBER: 0000731947-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SWISS ARMY BRANDS INC CENTRAL INDEX KEY: 0000731947 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-JEWELRY, WATCHES, PRECIOUS STONES & METALS [5094] IRS NUMBER: 132797726 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12823 FILM NUMBER: 97569920 BUSINESS ADDRESS: STREET 1: ONE RESEARCH DRIVE CITY: SHELTON STATE: CT ZIP: 06484-6226 BUSINESS PHONE: 2039296391 MAIL ADDRESS: STREET 1: ONE RESEARCH DRIVE CITY: SHELTON STATE: CT ZIP: 06484-6226 FORMER COMPANY: FORMER CONFORMED NAME: FORSCHNER GROUP INC DATE OF NAME CHANGE: 19920703 10-K 1 ANNUAL REPORT FOR SWISS ARMY BRANDS, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-1282-3 Swiss Army Brands, Inc. (Exact name of registrant as specified in its charter) Delaware 13-2797726 (State of incorporation) (I.R.S. Employer Identification No.) One Research Drive, Shelton, Connecticut 06484 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 929-6391 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None Not applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value per share (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the registrant on March 17, 1997, was approximately $56,206,950. On such date, the closing price of registrant's common stock was $12.50 per share. Solely for purposes of this calculation, shares beneficially owned by directors, executive officers and stockholders of the registrant that beneficially own more than 10% of the registrant's common stock have been excluded, except shares with respect to which such directors and officers disclaim beneficial ownership. Such exclusion should not be deemed a determination or admission by the registrant that such individuals are, in fact, affiliates of the registrant. The number of shares of Registrant's Common Stock, $.10 par value, outstanding on March 17, 1997, was 8,209,610 shares. DOCUMENTS INCORPORATED BY REFERENCE: NONE SWISS ARMY BRANDS, INC. AND SUBSIDIARIES INDEX
PART I: INFORMATION Page No. Item 1. Business 3 - 8 Item 2. Properties 9 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II: Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 10 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 15 Item 8. Financial Statements and Supplementary Data 16 Item 9. Disagreements on Accounting and Financial Disclosure 16 PART III: Item 10: Directors and Executive Officers of the Registrant 17 - 22 Item 11: Executive Compensation 23 - 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 - 31 Item 13. Certain Relationships and Related Transactions 31 - 33 PART IV: FINANCIAL INFORMATION Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Report of Independent Public Accountants F-1 Consolidated Balance Sheets as of December 31, 1996 and 1995. F-2 to F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994. F-4 Consolidated Statements of Stockholders Equity for the Years Ended December 31, 1996, 1995 and 1994. F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994. F-6 Notes to Consolidated Financial Statements F-7 to F-25 Schedule II F-26 Exhibits and Reports 43
2 PART I Item 1. Business Swiss Army Brands, Inc. ("SABI" or the "Company") is the exclusive distributor in the United States, Canada (with one minor exception for cutlery) and the Caribbean of the Victorinox Original Swiss Army Knife, Victorinox cutlery and Victorinox watches. SABI also markets its own line of Swiss Army Brand Watches and other high quality Swiss-made products under its Swiss Army Brand worldwide. The Company has been marketing Victorinox Original Swiss Army Knives and Victorinox cutlery for over fifty years and has been the exclusive United States distributor of such products since 1972, an arrangement that was formalized in 1983. SABI added Canada and the Caribbean (including Bermuda) to its exclusive territory for Victorinox Original Swiss Army Knives in 1992 and 1993, respectively. Victorinox Original Swiss Army Knives as well as watches and other Swiss Army Brand products are marketed primarily to retailers and also to corporate gift buyers as advertising specialty products. SABI's cutlery line, which also includes imported products from Germany, England and France, is sold primarily to the food processing and service industries. Sales of Victorinox Original Swiss Army Knives accounted for approximately 34% of SABI's 1996 sales while watches and other Swiss Army Brand products accounted for approximately 48%. Sales of professional and consumer cutlery accounted for approximately 18% of SABI's 1996 sales. Total SABI sales for the calendar years 1996, 1995 and 1994 were $130,030,000, $126,695,000 and $144,437,000, respectively. Approximately 1%, 6% and 25% of the Company's net sales for each of the three years ended December 31, 1996, 1995 and 1994, respectively, were to Cyrk, Inc. ("Cyrk"), a Massachusetts- based company in the business of developing, manufacturing and distributing products for promotional programs. No other customer accounted for more than 10% of net sales during any year in the three year period ended December 31, 1996. Foreign operations accounted for 13% of the Company's net sales in 1996. See Note 14 to the Company's Financial Statements included herein for further information regarding the Company's foreign operations. At December 31, 1996 SABI had backlog orders of approximately $5,193,000, compared to backlog orders of $4,631,000 at December 31, 1995. In the second quarter of 1996, as part of an extensive analysis of the Company's operations, the Company recorded a special charge of approximately $7.4 million. The special charge consisted of a $4.5 million write-off of discontinued inventory and a $2.9 million write-off of obsolete displays, goodwill,non- strategic investments and other assets. In the fourth quarter of 1996, the Company completed its analysis and recorded an additional special charge of approximately $2.5 million. The special charge consisted of a $1.6 million write-down related to a non-strategic investment, a $0.4 million write-off of discontinued inventory and a $0.5 million write-off of obsolete displays and other assets. See further discussion in Management's Discussions and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and related notes included herein. The Company was incorporated on December 12, 1974 as a successor to a New York corporation. SABI's principal executive offices are located at One Research Drive, Shelton, Connecticut 06484 and its telephone number is (203) 929-6391. As of December 31, 1996, SABI and its subsidiaries had 223 full- time employees, including 10 in Canada and 4 in Switzerland. Swiss Army Knives and Swiss Army Brand Products SABI is the exclusive United States, Canadian and Caribbean distributor of Victorinox Original Swiss Army Knives and Victorinox Watches under agreements with SABI's principal supplier of pocket knives and cutlery, Victorinox Cutlery Company ("Victorinox"), a Swiss corporation and Europe's largest cutlery producer. SABI also sells watches and other high quality products under the Swiss Army Brand worldwide. 3 Victorinox Original Swiss Army Knives are multiblade pocket knives containing implements capable of more functions than standard pocket knives. For example, SABI's most popular Swiss Army Knife model, the Classic, with a suggested retail price of $20, features a knife, scissors, nail file with screwdriver tip, toothpick and tweezers. SABI markets more than 40 different models of Victorinox Original Swiss Army Knives containing up to 30 different implements (with up to 40 separate features), ranging from a basic knife with a suggested retail price of $10 to the highest priced model at approximately $145 as well as a SwissChamp Deluxe SOS kit with a suggested retail price of $175. SABI also sells multi-function lock-back knives designed for the hunting and sporting goods market. In 1997, the Company added to its product line the SwissCard, a credit card shaped, ten function instrument, and will introduce the SwissTool, a multi-tool. The Company's line of Victorinox watches, which were recently redesigned, currently includes 15 models with suggested retail prices ranging from $75 to $150. The Company distributes its Victorinox Original Swiss Army Knives throughout the United States, Canada and the Caribbean through its direct sales force and independent sales representatives to over 3,800 wholesalers and retailers, including cutlery shops, department, specialty, jewelry and sporting goods stores, catalog showrooms, mass merchandisers and mail order houses. In Canada and the Caribbean, the Company distributes its Victorinox Original Swiss Army Knives principally through independent sales representatives. In addition, SABI sells Victorinox Original Swiss Army Knives through distributors to corporations and other organizations for promotional purposes, premium, employee gift award programs and corporate identity catalogs. SABI imprints these knives primarily at its own facilities with the customer's corporate name or logo. SABI's line of Swiss Army Brand products includes ten models of Swiss Army Brand Watches ranging from the Renegade, with a suggested retail price of $85 to the Chronograph with a stainless steel bracelet, with a suggested retail price of $495. Swiss Army Brand Watches are sold both through the direct sales force which markets Victorinox Original Swiss Army Knives and through a separate direct sales force selling to approximately 550 department, specialty and jewelry stores. In addition to its Swiss Army Brand Watches, SABI sells Swiss Army Brand Pens and Compasses. SABI currently obtains a majority of its Swiss Army Brand Watches from a single Swiss supplier, who is responsible for the final assembly of watch components manufactured by several manufacturers. The Company believes that alternate suppliers would be available if necessary and that the loss of its current supplier of Swiss Army Brand Watches would not have a material adverse effect on the Company's business. In the first quarter of 1997, the Company added to its product line newly designed Swiss Army Brand Sunglasses. The Company's sunglass line will include forty-eight styles with suggested retail prices ranging $100 to $185. In 1997, SABI will add to its line of Swiss Army Brand Watches a small group of watches made of titanium, as well as several extensions of existing models. Also, in 1997, the Company added to its watch line a new line of watches marketed under the Allenby trademark. Sales of Swiss Army Knives and Swiss Army Brand products are seasonal with sales typically stronger during July through December. Although the Company is the largest United States seller of Swiss Army Knives, it faces competition from Precise Imports Corp. ("Precise"), the United States and Canadian distributor of Swiss Army Knives manufactured by Wenger S.A. ("Wenger"), the only company other than Victorinox supplying pocket knives to the Swiss armed forces. Precise imports a substantially smaller number of knives into the United States than does SABI. The Company also faces competition from the manufacturers and importers of other multiblade knives and multi-tools including importers which sell non Swiss-made pocket knives under the "Swiss Army Knife" name. SABI is unable to determine its competitive position with respect to the estimated seven major competitors in the general United States pocket knife market. SABI's direct competitors in the specialty advertising market are manufacturers of name brand products of similar price and quality. SABI has many competitors in the sale of watches and sunglasses at all price points. Many of these competitors have market shares and resources substantially greater than those of SABI. 4 In 1992, in connection with the settlement of litigation with Precise, SABI granted Precise a perpetual worldwide royalty free license to use the trademark Swiss Army in connection with Swiss made non-knife goods, other than time pieces, sunglasses and compasses. Under this agreement, Precise acknowledges SABI's exclusive rights to the Swiss Army trademark for non-knife products including time pieces, compasses and sunglasses. The Company is the owner of United States and certain foreign trademark registrations for "Swiss Army", as applied to watches and sunglasses and has successfully defended this trademark in lawsuits in Federal courts. Although the Company's registrations have been challenged, on the basis of the advice of its trademark counsel, SABI expects to prevail in those proceedings. The Company is dedicated to a vigorous enforcement of these exclusive trademark rights. No U.S. trademark registrations have ever been issued for "Swiss Army" as applied to multi-bladed knives. In 1994, in a case originally brought by SABI against Arrow Trading Co., Inc. ("Arrow") in September 1992 in the District Court for the Southern District of New York, the U.S. Court of Appeals for the Second Circuit reversed a judgment originally issued in the Company's favor and held that the use of "Swiss Army" on Chinese made knives could not be enjoined on grounds of geographic misdescriptiveness. On remand, the District Court ruled that Arrow had violated Section 43(a) of the Lanham Act and New York common law in connection with its sale of Chinese-made multi-bladed pocketknives which Arrow called "Swiss Army Knives." The court found that SABI had proved its contention that Arrow engaged in unfair competition and held that Arrow, although free to use the phrase "Swiss Army Knife" to designate its product, must amply distinguish it from the SABI product and prohibited Arrow from selling any multi-function pocketknives as "Swiss Army Knives" unless the phrase "Swiss Army Knife" is immediately preceded or followed by Arrow's name in such a way as to clearly designate its origin and that the size of the type designating origin be no smaller or less prominent than the type used in the phrase "Swiss Army Knife.". The Company intends to utilize all reasonable means to safeguard the public from being misled by inferior imitation products. On January 17, 1995, Victorinox and Wenger confirmed and memorialized in writing the grant of separate trademark licenses of Swiss Army as applied to multifunction pocket knives to each of SABI and Precise. The license to the Company is royalty free and continues so long as SABI is a distributor of Victorinox. Victorinox and Wenger have filed with the U.S. Patent and Trademark Office a dual application for "Swiss Army" as applied to multibladed knives, which application has been opposed by various third parties. If the Company's efforts to protect its trademarks prove to be unsuccessful, the Company may incur increased competition from non-Swiss made knives and other products sold under the "Swiss Army" name. No assurances can be given that such competition from non-Swiss made products would not have a material adverse effect on the business and prospects of the Company. The Swiss Confederation Trademark Agreement On December 18, 1996, the Swiss Military Department representing the Swiss Confederation ("Swiss Confederation") and SABI entered into a trademark agreement (the "Trademark Agreement") pursuant to which SABI was granted certain worldwide use and sublicensing rights in connection with trademarks containing the words "Swiss Army" registered by the Swiss Confederation in Switzerland (the "Swiss Confederation Trademarks"). The Swiss Confederation acknowledged SABI's exclusive right to use SABI's trademarks in the countries of their registration or application and agreed to assist SABI in enforcing SABI's rights with respect to its trademarks. In addition, the Swiss Confederation stated its intention to assist Victorinox, Wenger, SABI and Precise in safeguarding their rights with respect to "Swiss Army" as applied to knives and in preventing the use of "Swiss Army" with respect to multi-blade pocketknives, multi-tools and other products which are not Swiss products. The Trademark Agreement grants SABI the right to an exclusive royalty free license of the Swiss Confederation Trademarks as applied to watches and sunglasses in the United States, Canada and the Caribbean. SABI is also granted such rights with respect to certain designated products that either it or its licensees sell in commercial quantities in the United States, Canada and the Caribbean within designated time periods. In the event SABI or its licensees do not sell commercial quantities of product categories within the time periods set by the agreement, the Swiss Confederation shall have the right, subject to certain conditions, to license the Swiss Confederation Trademarks to a third party and, in such event, SABI shall be obligated to offer such third party a license of SABI's appropriate trademark. 5 Outside of the United States, Canada and the Caribbean, the Trademark Agreement provides for the grant to SABI of the right to an exclusive license, subject to the existing legal rights of others, for watches and sunglasses at a royalty equal to 3% of net sales. In addition, SABI has the right to a license for certain designated products outside of the United States,Canada and the Caribbean, also at a royalty equal to 3% of net sales, to use the Swiss Confederation Trademarks provided that SABI commences the sale of commercial quantities of such products within time periods prescribed by the Trademark Agreement. The Trademark Agreement also provides that all products sold under the license must be of a quality at least equal in workmanship and materials to the products currently sold by SABI, Victorinox or Wenger and that in the event SABI discontinues sales of goods in commercial quantities in any category of goods for three consecutive years, the Swiss Confederation shall have the right to terminate the license as to that category after giving SABI notice and an opportunity to resume sales. Except for the foregoing limitation, the rights of SABI with respect to the use of the Swiss Confederation Trademarks under the Trademark Agreement are perpetual. It is anticipated that the right to utilize the Swiss Confederation Trademarks on certain products other than timepieces and sunglasses will be made available to Precise by SABI on terms yet to be discussed. Professional and Consumer Cutlery The majority of SABI's professional cutlery products, made of stainless steel, are manufactured by Victorinox and by other manufacturers located in Germany, England and France. Although the majority of SABI's professional cutlery products are marketed under the trademarks "Forschner" and R.H. Forschner," the Company also has a private label business. SABI's customers for professional cutlery include distributors of hotel, restaurant, butcher, institutional, commercial fishing and slaughterhouse supplies and retail cutlery stores located throughout the United States and Canada. In addition, SABI markets the Victorinox line of floral knives to wholesale florists. Except for retail sales made by the Company's sales force, the majority of SABI's cutlery is sold through manufacturers' representatives and can be obtained from approximately 2,500 dealers. Professional cutlery imported from Switzerland and Germany is generally more expensive than domestic United States products. SABI believes that it has the largest market share of imported professional cutlery products sold in the United States and that its share of all professional cutlery, foreign and domestic, sold in this country is second to the dominant seller of such products. SABI believes that it has achieved and maintained its market share due to the quality of its products and its merchandising efforts. Sales of professional cutlery products are not seasonal. Until January 31, 1997, SABI's wholly owned subsidiary, Cuisine de France Limited, imported and distributed cutlery products for consumer use under the "Cuisine de France Sabatier" brand. Cuisine de France Limited held the U.S. trademark for "Cuisine de France" and had been granted the right by the holder of the U.S. trademark registration for "Sabatier" to use the name as applied to knives in the United States. Cuisine de France Limited distributed its consumer cutlery through sales representatives to retail cutlery stores and department stores. On January 31, 1997 Cuisine de France Limited entered into an agreement providing for the sale of substantially all of the assets of Cuisine de France Limited. 6 Victorinox Agreements All of SABI's products are manufactured by independent suppliers. SABI's principal supplier of pocket knives and cutlery is Victorinox, which has manufactured the Original Swiss Army Knife for the Swiss Army for more than 100 years. The loss of this supplier would have a material adverse effect on SABI's business. SABI, now Victorinox's largest single customer, has been distributing Victorinox's products since 1937. Distribution was on a non-exclusive basis for more than 45 years when, as a result of understandings reached on SABI's behalf by Mr. Louis Marx, Jr. and Mr. Stanley R. Rawn, Jr., both now SABI Directors, and Mr. Charles Elsener, Sr., Chief Executive Officer of Victorinox, SABI became Victorinox's exclusive United States distributor of Victorinox Original Swiss Army Knives under an agreement dated December 12, 1983 (as subsequently amended, the "U.S. Distribution Agreement"). In 1992 and 1993, Messrs. Marx and Rawn, together with Mr. James W. Kennedy, then Co-Chairman of the Company, held extensive conversations, principally in Switzerland, with Victorinox looking to expand the scope of SABI's exclusive territory. This resulted in SABI obtaining exclusive distributorship rights first in Canada, and then in Bermuda and the Caribbean areas, as well as SABI's receipt of exclusive U.S., Canadian and Caribbean distribution rights to the Victorinox watch, which is supplied to the Company by another Swiss manufacturer. The U.S. Distribution Agreement, together with the Company's agreements with respect to the rights obtained in 1992 and 1993 (together, the "Victorinox Agreements"), provides: - SABI is the exclusive distributor in the United States, its territories and possessions, Canada (with one minor exception), Bermuda and the Caribbean (excluding Cuba so long as SABI is prohibited by United States law from operating therein) (together, the "Territories"), of Victorinox Original Swiss Army Knives and most other Victorinox cutlery products and Victorinox Swiss-made watches (collectively, "Products"). - The U.S. Distribution Agreement was renewed through December 12, 1998 and is subject to renewal at five year intervals at SABI's option unless, in any two consecutive years, purchases of Products by SABI fall below the average purchases for 1981 and 1982, which was 19,766,035 Swiss francs. SABI's distribution rights in Canada and the Caribbean are for initial terms of seven years (expiring in 1999 and 2000, respectively), subject to renewal for successive five year periods. In the event that Victorinox elects not to renew SABI's Canada distribution rights, Victorinox will be required to pay SABI the amount of $3,500,000. - During each calendar year SABI must purchase from Victorinox at least 85% of the maximum quantities of each of Swiss Army Knives and cutlery (expressed in Swiss francs) purchased in any prior year. The only remedy of Victorinox for SABI's failure to achieve these goals would be the termination of SABI's U.S. distribution rights. By agreement dated December 18, 1995, Victorinox and the Company agreed that for 1996 the minimum purchase requirement for Swiss Army Knives would be reduced to 75% of the maximum quantity purchased in any prior year. The Company met this requirement in 1996. In 1996, Victorinox agreed to reduce the 1997 minimum purchase requirements for Swiss Army Knives to 65% of the maximum quantity purchased in any preceding year. - In each calendar year Victorinox must, if requested, furnish SABI with up to 105% of each type of product purchased during the immediately preceding year. Victorinox has historically been able to accommodate SABI's supply requirements even when they have exceeded such amount. However, Victorinox's plant has a finite capacity and no assurances can be given that Victorinox will continue to meet any increased supply requirements of SABI. - Pricing provisions assure that the prices paid by SABI for products shipped to the United States will be as low or lower than those charged to any other Victorinox customer. In addition, SABI is granted a 4% discount on purchases of pocket knives and a 3% discount on purchases of cutlery. For products shipped directly to Canada and the Caribbean (including Bermuda), the prices paid by SABI are Victorinox's regular export prices. SABI also pays a royalty to Victorinox of 1% of net sales of Victorinox Watches. In addition, Victorinox has informally undertaken to share in SABI's promotional costs with respect to the Victorinox brand in an amount of up to 750,000 Swiss francs per year. 7 - SABI will not sell any new cutlery items without the agreement of Victorinox. - SABI will have complete discretion as to advertising, packaging, pricing and other marketing matters. In consideration of the grant of the Canada distributorship rights in 1992, SABI issued to Victorinox 277,066 shares of common stock, par value $.10 per share, of SABI ("Common Stock"). In consideration for the grant of the Caribbean distribution rights in 1993, the Victorinox watch distribution rights and the acquisition by SABI of Victorinox's 20% interest in a subsidiary of SABI, SABI issued to Victorinox a five-year warrant to purchase 1,000,000 shares of Common Stock at a discount from the market price on the date of exercise. Victorinox exercised the warrant in full in April 1994 at a price per share of $9.75, a discount of $4.25 per share from the then current market price of SABI Common Stock. All of the shares issued upon exercise of the warrant were subsequently sold to Brae Group, Inc. ("Brae"), a corporate shareholder of SABI that is controlled by Louis Marx, Jr., a Director of SABI, in exchange for shares of the common stock of that corporation. Hudson River Capital LLC In 1994, in furtherance of its acquisition strategy, SABI invested a total of $7,002,990, paid in cash and in shares of stock of a publicly traded corporation, to acquire 700,299 shares of Series A Preferred Stock of Forschner Enterprises, Inc., a privately held corporation which was merged into Victory Capital LLC. In 1996, Victory Capital LLC changed its name to Hudson River Capital LLC ("Hudson River"). In 1996, SABI invested $2,000,009, paid in cash, to acquire 190,477 Series B Preferred Units of Hudson River. SABI's interest in Hudson River currently represents, in the aggregate, approximately 9.1% of the equity of Hudson River. Hudson River is a private equity firm specializing in middle market acquisitions, recapitalizations and expansion capital investments. Hudson River currently has equity and other interests in several private and publicly traded companies. The preferred units of Hudson River held by SABI carry a preference on liquidation equal to their cost and, in certain instances, are entitled to an annual preferred return. In 1996, Hudson River distributed pro-rata to its members all of its interest in Victory Ventures LLC, a private equity firm specializing in small market venture capital investments ("Victory Ventures"). SABI received in the distribution, and continues to hold, 890,776 Series A Preferred Units of Victory Ventures valued at $1.23 per unit, currently representing approximately 4.2% of the equity of Victory Ventures. The preferred units of Victory Ventures held by SABI carry a preference on liquidation equal to the value of the Series A Preferred Units on the date of the distribution and, in certain instances, are entitled to an annual preferred return. 490,000 of Hudson River's common units and 2,338,170 of Hudson River's Series B Preferred Units (currently representing, in the aggregate, approximately 29.2% of Hudson River's outstanding equity) are held by Brae Capital Corporation ("Brae Capital"), a wholly-owned subsidiary of Brae. 490,000 of Victory Ventures' common units and 4,697,985 of Victory Ventures' Series A Preferred Units (currently representing in the aggregate, approximately 25.1% of Victory Ventures' outstanding equity) are held by Brae Capital. Pursuant to an agreement between Hudson River and Brae, if certain conditions are met, Brae is required to purchase from Hudson River at Hudson River's cost 10%, and may purchase up to 20%, of the "equity portion" (defined as the common and warrant portion, or the preferred and warrant portion if no common is purchased provided that the preferred portion is participating) of each investment made by Hudson River. Brae may allocate all or a portion of the securities to be acquired pursuant to such agreement among the officers, directors, employees, consultants and common equityholders of Hudson River and such other persons who may be in a position to benefit Hudson River in such proportions as Brae shall determine. Brae is party to a similar agreement with Victory Ventures. Mr. Marx, a Director of SABI, is a Co-Chairman of the Board and a Director and an equityholder of Hudson River and, a director and, indirectly, an equity holder of Victory Ventures. Mr. Clarke H. Bailey, a Director of SABI, is a Co-Chairman of the Board and a Director and an equityholder of Hudson River and a Director and equityholder of Victory Ventures. Mr. Stanley R. Rawn, Jr., Senior Managing Director and a Director of SABI, and Mr. Herbert M. Friedman, a Director of SABI, also serve as directors and are equityholders of each of Hudson River and Victory Ventures. Messrs. A. Clinton Allen and M. Leo Hart, Directors of SABI, also serve as directors of Victory Ventures. 8 Item 2. Properties. The executive and administrative offices of SABI occupy approximately 37,500 square feet of leased space in an office building located in Shelton, Connecticut. SABI moved into these premises in September, 1993. The initial term of the lease on this space expires on September 1, 2001, subject to a renewal option for an additional five-year term. In addition, SABI leases approximately 7.4 acres in Shelton, Connecticut upon which the landlord has constructed a 85,000 square foot building, increased in January 1995 from 60,000 square feet, which SABI uses as a facility for warehousing, distribution, imprinting and assembly. The lease commenced in June, 1991 and has a term of ten years. SABI also leases approximately 13,000 square feet in a building in Toronto, Canada which it uses for office space and warehousing of products. The lease commenced in December, 1992 and has a term of five years. In 1996, SABI entered into a four-year lease for 7,000 square feet of space in a 30,000 square foot building in Nidau, Switzerland for use as a distribution center. SABI believes its properties are sufficient for the current and anticipated needs of its business. Item 3. Legal Proceedings. Except as set forth or referenced below, the Company is not involved in any material pending legal proceedings. Arrow filed on November 15, 1994 petitions to cancel the Company's U.S. Trademark Reg. No. 1,734,665 for watches and Reg. No. 1,715,093 for sunglasses for "Swiss Army". Arrow failed to file evidence in support of its cancellation petitions and the Company moved to dismiss the petitions on ground of lack of prosecution. Arrow has opposed the motions to dismiss, arguing inadvertent failure to prosecute. The Company believes it has meritorious defenses to these petitions although their outcome cannot be predicted at this time. The Company is also a plaintiff in several proceedings to enforce its intellectual property rights. In addition, see "Business - Swiss Army Knives and Swiss Army Brand Products". Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. A. Market Information. Shares of SABI's Common Stock are traded on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol SABI. The range of high and low transactions for shares of Common Stock, which is the only class of capital stock of SABI outstanding, as reported by Nasdaq since the first quarter of 1995 were as follows:
Fiscal 1995 Fiscal 1996 Fiscal 1997* High Low High Low High Low First Quarter $12.88 $10.50 $12.50 $11.25 $14.13 $12.25 Second Quarter 10.88 10.00 15.00 12.00 Third Quarter 12.50 10.25 14.00 11.50 Fourth Quarter 12.38 11.13 14.25 12.75 *Through March 17, 1997.
The public market for Common Stock is limited and the foregoing quotations should not be taken as necessarily reflective of prices which might be obtained in actual market transactions or in transactions involving substantial numbers of shares. B. Holders. On March 17, 1997 shares of Common Stock were held by 352 persons, based on the number of record holders, including several holders who are nominees for an undetermined number of beneficial owners. C. Dividends. The Company has not paid a cash dividend since its inception, and its present policy is to retain earnings for use in its business. Payment of dividends is dependent upon the earnings and financial condition of SABI and other factors which its Board of Directors may deem appropriate. Under SABI's bank loan agreement, as amended, which expired on January 30, 1997, SABI agreed not to declare or pay any dividends unless immediately following such payment SABI's ratio of indebtedness to tangible net worth, calculated as set forth in the agreement, does not exceed 0.75 to one, and SABI's ratio of current assets to current liabilities is in excess of 2.5 to one. The Company is currently negotiating a new bank loan agreement which could contain similar restrictions. 10 Item 6. Selected Financial Data The following selected financial data for the five years ended December 31, 1996, was derived from the consolidated financial statements of SABI. This data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements, related notes and other financial information included herein.
(In thousands, except per share amounts) Year Ended December 31, 1996(1) 1995 1994 1993 1992 Net sales...................... $130,030 $126,695 $144,437 $102,543 $74,148 Gross profit................... 40,836 44,264 55,804 42,027 29,779 Selling, general and administrative expenses...... 46,241 40,265 40,293 30,753 21,016 Operating income............... (5,405) 3,999 15,511 11,274 8,763 Gain (loss) on sale (write-down) of investments............... (2,382) 1,771 37 - - Other income (expense), net.... 179 (134) 445 251 143 Income (loss) before income taxes and cumulative effect of accounting change............ (7,608) 5,636 15,993 11,525 8,906 Income tax provision (benefit). (2,343) 2,523 6,633 4,221 3,974 Income (loss) before cumulative effect of accounting change.. (5,265) 3,113 9,360 7,304 4,932 Cumulative effect of accounting change for income taxes...... - - - 220 - --------- --------- --------- -------- -------- Net income (loss).............. ($5,265) $3,113 $ 9,360 $ 7,524 $ 4,932 Earnings per share: Income (loss) before cumulative effect of accounting change. ($0.64) $ 0.38 $ 1.16 $ 1.04 $ 0.80 Cumulative effect of accounting change for income taxes.... - - - 0.03 - --------- --------- --------- -------- -------- Net income (loss)............ ($0.64) $ 0.38 $ 1.16 $ 1.07 $ 0.80 Other Financial Data: Current assets................. $70,933 $74,355 $78,641 $57,551 $43,664 Total assets................... 98,643 101,230 105,708 78,004 54,283 Current liabilities............ 18,787 16,291 23,932 17,651 10,756 Long-term debt ................ - - - - - Stockholders' equity........... 79,856 84,939 81,775 60,353 43,038 Cash dividends per common share $ - $ - $ - $ - $ - Weighted average number of shares outstanding.................. 8,202 8,236 8,062 7,053 6,186
(1) The financial results for 1996 include special charges of approximately $9.9 million. See Note 3 to the Company's Consolidated Financial Statements. The special charges consisted of a $4.9 million write-off of discontinued inventory (included in cost of sales), a $2.6 million write-off of obsolete displays, goodwill and other assets (included in selling, general and administrative expenses) and a $2.4 million write-down of non-strategic investments. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations In 1996, net sales totaled $130.0 million, a 2.6% increase from 1995. However, excluding sales to a single customer for special promotional programs, the Company experienced sales growth of 8% primarily due to growth in its Swiss Army Brand Watch and cutlery businesses offset in part by a decrease in sales of Victorinox Original Swiss Army Knives. Sales relating to this single customer for these special promotional programs represented 1%, 6% and 25% of net sales in 1996, 1995 and 1994, respectively. The Company has received orders from this customer in 1997. The financial results for 1996 have been negatively impacted by special charges of approximately $9.9 million which resulted from an extensive analysis of the Company's operations. The special charges consisted of a $4.9 million write-off of discontinued inventory (included in total cost of sales), a $2.6 million write-off of obsolete displays, goodwill and other assets (included in total selling, general and administrative expenses), and a $2.4 million write-down of non-strategic investments. The following table shows, as a percentage of net sales, the Company's Consolidated Statements of Operations for each of the three years in the period ended December 31, 1996:
Year Ended December 31, 1996 1995 1994 Net sales.............................. 100.0% 100.0% 100.0% Cost of Sales.......................... 68.6 65.1 61.4 ------ ------ ------ Gross Profit........................... 31.4 34.9 38.6 Selling, general and administrative expenses before special charges and special charitable contributions..... 33.6 31.8 26.9 Special charges........................ 2.0 - - Special charitable contribution........ - - 1.0 ------ ------ ------ Total selling, general and administrative expenses.............. 35.6 31.8 27.9 Operating income (loss)................ (4.2) 3.1 10.7 Interest expense....................... (.1) (.2) - Interest income........................ .1 .4 .3 Gain (loss) on sale (write-down) of investments.......................... (1.8) 1.4 - Equity interest in unconsolidated affiliates............ - (.4) - Other income (expense), net............ .2 .1 .1 ------ ------ ------ Income (loss) before income taxes...... (5.8) 4.4 11.1 Income tax provision (benefit)......... (1.8) 2.0 4.6 ------ ------ ------ Net income (loss)................. (4.0)% 2.4% 6.5% ====== ====== ======
12 Comparison of the Years Ended December 31, 1996 and December 31, 1995 Net sales for the year ended December 31, 1996 were $130.0 million, $3.3 million or 2.6% higher than in 1995. The comparison of sales between 1996 and 1995 is effected by the Company's decreased participation in special promotional programs with one customer that accounted for 1% and 6% of the Company's 1996 and 1995 net sales, respectively. Excluding the special promotional programs, the Company's net sales increased by 8% for the year due to an 18% increase in watch sales and a 15% increase in cutlery sales offset in part by a 7% decrease in Victorinox Original Swiss Army Knife sales. Gross profit for the year ended December 31, 1996 was $40.8 million, 7.7% lower than in 1995. This is due primarily to an inventory write-off of $4.9 million in 1996. The inventory write-off was the result of the Company discontinuing certain products, including certain cutlery products sold by the Company's wholly-owned subsidiary, Cuisine de France Limited ("CDF"). Substantially all of the assets of CDF were sold by the Company in 1997. Excluding the $4.9 million inventory write-off, the gross profit margin percentage increased from 34.9% in 1995 to 35.2% in 1996. The Company's gross profit margin is a function of both product mix and Swiss franc exchange rates. Since the Company imports virtually all of its products from Switzerland, its costs are affected by both the spot rate of exchange and by its foreign currency hedging program. Increases in the value of the Swiss franc versus the dollar may effectively increase the cost of these products to the Company. The increase in the cost of products to the Company may result in either higher prices charged to customers or reductions in gross profit, both of which may have an adverse effect on the Company's results of operations. The Company enters into foreign currency contracts and options to hedge the exposure associated with foreign currency fluctuations. Based upon current estimated Swiss franc requirements, the Company believes it is hedged through the third quarter of 1997. However, such hedging activity cannot eliminate the long-term adverse impact on the Company's competitive position and results of operations that would result from a sustained decrease in the value of the dollar versus the Swiss franc. These hedging transactions, which are meant to reduce foreign currency risk, also reduce the beneficial effects to the Company of any increase in the dollar relative to the Swiss franc. The Company currently plans to continue to engage in hedging transactions; however, it is uncertain as to what extent to which such hedging transactions will reduce the effect of adverse currency fluctuations. Selling, general and administrative expenses (excluding the special charges described below) for the year ended December 31, 1996 were $43.7 million, $3.4 million or 8.5% higher than in 1995. The expense increase resulted primarily from increased selling expenses and increased expenditures in the areas of merchandising and promotion. As a percentage of net sales, selling, general and administrative expenses (excluding the special charges described below) increased from 31.8% in 1995 to 33.6% in 1996. Special selling, general and administrative expenses of $2.6 million in 1996 consisted of the write- off of obsolete displays, goodwill and other assets. The goodwill write-off related to the Company's wholly-owned subsidiary CDF, and was written-off due to the lack of recoverability of the asset. Substantially all of the assets of CDF were sold by the Company in 1997 with no significant gain or loss. As a result of the above, the Company recorded an operating loss of $5.4 million for the year ended December 31, 1996 as compared to operating income of $4.0 million in 1995. Excluding the effects of the inventory write-off and the special selling, general and administrative charges, the Company recorded operating income of $2.1 million in 1996, as compared to operating income of $4.0 million in 1995. This decrease is due to higher selling, general and administrative expenses, offset in part by higher gross profit. 13 Interest expense of $147,000 for the year ended December 31, 1996 was $70,000 lower than interest expense in 1995, due to lower borrowings in 1996 as compared to 1995. Interest income of $120,000 for the year ended December 31, 1996 was $437,000 lower than interest income in 1995, due to decreased invested cash balances during 1996 as compared to 1995. The loss on the write-down of investments for the year ended December 31, 1996 was $2.4 million, as compared to a gain on the sale of investments of $1.8 million in 1995. The loss in 1996 was primarily due to the $1.6 million write-down of the Company's investment in the common stock of SweetWater, Inc., a publicly-traded entity, and an $800,000 write-off of the Company's investment in a privately held start-up entity. Both of these investments became impaired in 1996. Gain on sale of investments of $1.8 million in 1995 was due primarily to the sale of the Company's investment in the common stock of Simmons Outdoor Corporation. Equity interest in unconsolidated affiliates was a loss of $548,000 in 1995 due to the Company using the equity method of accounting for its investments in Simmons Outdoor Corporation and SweetWater, Inc. The equity method of accounting was not applicable in 1996. As a result of the above, the loss before income taxes for the year ended December 31, 1996 was $7.6 million compared to income before taxes of $5.6 million in 1995. Income tax expense (benefit) was provided at an effective rate of 30.8% for the year ended December 31, 1996 as compared to 44.8% for the year ended December 31, 1995. The change in the effective tax rate was due to foreign and state income taxes. As a result of the above, the net loss for the year ended December 31, 1996 was $5.3 million ($0.64 per share) as compared to net income of $3.1 million ($0.38 per share) in 1995. Comparison of the Years Ended December 31, 1995 and December 31, 1994 Net sales for the year ended December 31, 1995 was $126.7 million, $17.7 million or 12.2% lower than in 1994. Sales of Swiss Army Brands products decreased significantly in 1995, due in part, to the Company's decreased participation in a special promotional program with one customer that accounted for 6% and 25% of the Company's 1995 and 1994 net sales, respectively. Excluding the special promotional program, the Company's net sales increased by 10% for the year due to a 19% increase in watch sales, a 7% increase in cutlery sales and a 3% increase in Victorinox Original Swiss Army Knife sales. Gross profit for the year ended December 31, 1995, was $44.3 million, 20.7% lower than in 1994. This is due primarily to lower sales volume as a result of the special promotional program with one customer in 1994 and unfavorable exchange rates. The Company's gross profit margin is a function of both product mix and Swiss franc exchange rates. Since the Company imports virtually all of its products from Switzerland, its costs are affected by both the spot rate of exchange and by its foreign currency hedging program. The Company attempts to mitigate the impact on gross margin of exchange rate changes through selective hedging of anticipated Swiss franc purchases. Selling, general and administrative expenses for the year ended December 31, 1995 were $40.3 million, $1.5 million or 3.8% higher than the amount for the comparable period in 1994, excluding special charitable contribution of $1.5 million in 1994. The expense increase resulted primarily from increased selling expenses and increased expenditures in the areas of merchandising and promotion. As a percentage of net sales, selling, general and administrative expenses (excluding the special charitable contribution) increased from 26.9% in 1994 to 31.8% in 1995. 14 Interest expense of $217,000 for the year ended December 31, 1995 was $189,000 higher than interest expense for the comparable period in 1994, due to increased borrowings in 1995 as compared to 1994. Interest income of $557,000 for the year ended December 31, 1995 was $166,000 higher than interest income for the comparable period in 1994, due to higher invested cash balances during 1995 as compared to 1994. Gain on sale of investments of $1.8 million was due primarily to the sale of the common stock of Simmons Outdoor Corporation in 1995. Gain on sale of investments was not significant in 1994. Equity interest in unconsolidated affiliates with a loss of $548,000 in 1995 was due to the Company using the equity method of accounting for its investments in Simmons Outdoor Corporation and SweetWater, Inc. in 1995. The equity method of accounting was not applicable in 1994. As a result of these changes, income before income taxes and cumulative effect of accounting change for the year ended December 31, 1995 was $5.6 million versus $16.0 million for 1994, a decrease of $10.4 million or 64.8%. Income tax expense was provided at an effective rate of 44.8% for the year ended December 31, 1995 versus 41.5% in 1994 due to increased state taxes. As a result of the above, net income was $3.1 million ($0.38 per share) for the year ended December 31, 1995 versus $9.4 million ($1.16 per share) in 1994, representing a decrease of $6.3 million or 66.7%. Liquidity and Capital Resources As of December 31, 1996, the Company had working capital of $52.1 million compared with $58.1 million as of December 31, 1995, a decrease of $6.0 million. Significant uses of working capital included investments in preferred units of Hudson River of $2.0 million, additions to other assets of $3.0 million and capital expenditures of $1.5 million. The Company currently has no material commitments for capital expenditures. Cash provided from operating activities was approximately $7.6 million in the year ended December 31, 1996 compared with cash used for operating activities of $16.4 million in the year ended December 31, 1995. The change primarily resulted from a decrease in inventory in 1996 as compared to an increase in 1995, an increase in accounts payable in 1996 as compared to a decrease in 1995, offset in part by the net loss incurred in 1996 as compared to net income in 1995. The Company meets its short-term liquidity needs with cash generated from operations, and, when necessary, bank borrowings under its revolving credit agreements. As of December 31, 1996, the Company had no outstanding borrowings under its revolving line of credit agreements. The Company currently has a $5.0 million line of credit which it can use for any borrowings. The Company had a $15.0 million revolving credit agreement which expired in January 1997. The Company is currently reviewing its options to establish a new revolving credit agreement. The Company's short-term liquidity is affected by seasonal changes in inventory levels, payment terms and seasonality of sales. The Company believes its current liquidity levels and financial resources will be sufficient to meet its operating needs. 15 Item 8. Financial Statements and Supplementary Data The financial information required by Item 8 is included elsewhere in this report. See Part IV, Item 14. Item 9. Disagreements on Accounting and Financial Disclosure None. 16 PART III Item 10. Directors and Executive Officers of the Registrant The Directors and Executive Officers of SABI are as follows:
Director and/or Name Age Position(s) Officer Since J. Merrick Taggart 46 President(1) Dec., 1995 Peter W. Gilson 57 Chairman of the Executive Committee and Director(2) 1994 Stanley R. Rawn, Jr. 69 Senior Managing Director and Director(3) 1990 Harry R. Thompson 67 Managing Director 1994 Stanley G. Mortimer III 54 Executive Vice President and Director 1994 Thomas M. Lupinski 44 Senior Vice President, Chief Financial Officer, Secretary and Treasurer 1986 Michael J. Belleveau 40 Vice President - Sales and General Manager - Swiss Army Brands Division 1994 Leslie H. Green 49 Vice President of Marketing Dec., 1995 David J. Parcells 38 Vice President - Operations 1992 Jerald J. Rinder 50 Vice President and General Manager - Victorinox Division Feb., 1996 Robert L. Topazio 48 Vice President and General Manager - R.H. Forschner Division Feb., 1996 Douglas M. Rumbough 40 Vice President and General Manager - Corporate Markets Division 1992 A. Clinton Allen 53 Director(4) 1993 Clarke H. Bailey 42 Director(5) Jan., 1997 Thomas A. Barron 45 Director 1983 Vincent D. Farrell, Jr. 50 Director(6) 1992 Herbert M. Friedman 65 Director(7) 1981 M. Leo Hart 48 Director(8) 1991 James W. Kennedy 46 Director(9) 1981 Keith R. Lively 45 Director 1994 Lindsay Marx 31 Director 1994 Louis Marx, Jr. 65 Director(10) 1990 Eric M. Reynolds 44 Director 1994 John Spencer 67 Director(11) 1990 John V. Tunney 62 Director(12) 1992
17 (1) Mr. Taggart is a member of the Company's Executive Committee, Management Committee and Foreign Exchange Committee. (2) Mr. Gilson is Chairman of the Company's Executive Committee and a member of the Nominating Committee. (3) Mr. Rawn is a member of the Company's Executive Committee, Management Committee and Nominating Committee. (4) Mr. Allen is Chairman of the Company's Stock Option and Compensation Committee and a member of the Executive Committee. (5) Mr. Bailey is a member of the Company's Executive Committee. (6) Mr. Farrell is Chairman of the Company's Audit Committee and a member of the Executive Committee and Foreign Exchange Committee. (7) Mr. Friedman is a member of the Company's Executive Committee, Audit Committee and Nominating Committee. (8) Mr. Hart is a member of the Company's Nominating Committee. (9) Mr. Kennedy is a member of the Company's Foreign Exchange Committee. (10) Mr. Marx is Chairman of the Company's Management Committee and Nominating Committee and a member of the Company's Executive Committee and Foreign Exchange Committee. Mr. Marx was Chairman of the Company's Executive Committee until June, 1995. (11) Mr. Spencer is a member of the Company's Audit Committee and Stock Option and Compensation Committee. (12) Mr. Tunney is a member of the Company's Stock Option and Compensation Committee. Biographical Information J. Merrick Taggart, President and a Director of the Company, was elected President on December 13, 1995. From 1993 to November 1995 Mr. Taggart was President of Duofold, Inc, a sports apparel company, and Pringle of Scotland U.S.A., an apparel company. From 1990 to November 1992 Mr. Taggart was President of O'Brien International, a manufacturer and marketer of water sports equipment. Prior to that Mr. Taggart was Senior Vice President of Product Development for the Timberland Company, a footwear and apparel company. Peter W. Gilson, Chairman of the Executive Committee and a Director of the Company, has served as President and Chief Executive Officer of Physician Support Systems, Inc., a company specializing in the management of physicians' health care practices, since 1991. From 1989 to the present, Mr. Gilson has also served as President and Chief Executive Officer of the Warrington Group, Inc., a manufacturer of safety products which was previously a division of The Timberland Company. From 1987 to 1988, Mr.Gilson served as Chief Operating Officer of The Timberland Company, a manufacturer of footwear and outdoor clothing. From 1978 to 1986, he served as President of the Gortex Fabrics Division of W.L. Gore Associates. Mr. Gilson is also a director of SweetWater, Inc. ("SweetWater"), a manufacturer and marketer of portable water filtration systems and Glenayre Technologies, Inc. ("Glenayre Technologies"), a paging and messaging infra-structure technology firm. 18 Louis Marx, Jr., Chairman of the Management Committee and a Director of the Company, has been associated with the Company for over 20 years and has played the key role in helping to guide its affairs during that entire period. Through discussions with the Chief Executive Officer of Victorinox Cutlery Company ("Victorinox"), the Company's principal supplier, he and Mr. Rawn were responsible for the Company obtaining exclusive U.S. distribution rights for Victorinox products and later, together with Mr. Rawn and Mr. Kennedy, negotiated the expansion of the Company's distribution rights to include Canada, Bermuda and the Caribbean and also obtained for the Company exclusive distribution rights to the Victorinox Watch. In a prior year he and Mr. Rawn played an important part in negotiating, on behalf of the Company, the settlement of potentially expensive litigation, and more recently, Mr. Marx has played an active role in the Company's investment policy and, together with the Company's advisors, has successfully managed the Company's currency hedging program. Mr. Marx is a director and member of the Compensation Committee of Cyrk, Inc. ("Cyrk"), a distributer of products for promotional programs and custom-designed sports apparel and accessories. Mr. Marx has been a venture capital investor for more than thirty years. Mr. Marx, together with his close business associates, have been founders or substantial investors in such companies as Pan Ocean Oil Corporation, Donaldson, Lufkin & Jenrette, Bridger Petroleum Corporation Ltd., Questor Corporation, Environmental Testing and Certification Corporation, Garnet Resources Corporation, The Prospect Group, Inc. and Noel Group, Inc. ("Noel"), a publicly held company which conducts its principal operations through small and medium sized operating companies in which it holds controlling interests. Mr. Marx served as a director of The Prospect Group, Inc., a company which, prior to its adoption in 1990 of a Plan of Complete Liquidation and Dissolution, conducted its major operations through subsidiaries acquired in leveraged buyout transactions ("Prospect"), from February 1986, and as Chairman of Prospect's Asset Committee from October 1988, until January 1990. Mr. Marx serves as a trustee of the New York University Medical Center and Middlebury College and as Chairman of the Madison Avenue Fund for Children. Mr. Marx is also Co-Chairman and a director of Hudson River Capital LLC, a private equity firm specializing in middle market acquisitions, recapitalizations and expansion capital investments ("Hudson River"), and a director of Victory Ventures LLC, a private equity firm specializing in small market venture capital investments ("Victory Ventures"). He is President and a director of Victorinox-Swiss Army Knife Foundation, a non-profit corporation formed by the Company for charitable purposes including the improvement of the welfare of underprivileged children. Mr. Marx is the father of Lindsay Marx, a Director of the Company. Stanley R. Rawn, Jr., Senior Managing Director and a Director of the Company, actively participates with Messrs. Marx and Kennedy in furthering the relationship between the Company and Victorinox as well as in coordinating management strategies. He has also played an important part in obtaining and expanding the Company's exclusive distribution rights covering Victorinox products. Mr. Rawn was Chairman and Chief Executive Officer and a director of Adobe Resources Corporation, an oil and gas exploration and production company from November, 1985 until the merger of that company in May, 1992. Mr. Rawn is also the Chief Executive Officer and a director of Noel; a director of Prospect, Hudson River, Victory Ventures, Staffing Resources, Inc., a temporary help corporation, and Victorinox - Swiss Army Knife Foundation; and a Trustee of the California Institute of Technology. Harry R. Thompson, Managing Director of the Company was appointed Managing Director in December 1994. From 1987 to 1995, Mr. Thompson was president of The Strategy Group, a business and marketing consulting firm. Mr. Thompson had previously served as a director of the Company from June 1987 to June 1991, and as Chairman of the Company's Board of Directors from January 1990 to October 1990 and served in senior executive capacities with the Interpublic Group of Companies, Inc., a leading marketing and communications organization. 19 Stanley G. Mortimer III, Executive Vice President and a Director of the Company, has served the Company in a variety of capacities since September 1984. Mr. Mortimer was elected as a director in December 1994. He had previously served as a director from June 1987 to June 1994. Thomas M. Lupinski, Senior Vice President, Chief Financial Officer, Secretary and Treasurer of the Company, has been Vice President of the Company for more than five years. Prior to joining the Company, Mr. Lupinski was Finance Manager for The Revlon Health Care Group from 1982 to 1986 and was with Arthur Andersen & Co., from 1976 through 1982. David J. Parcells, Vice President - Operations, joined the Company in December 1992. Mr.Parcells was employed by Arthur Andersen & Co. as a Senior Manager - Audit and Business Advisory Practice from 1989 through 1992 and as an Audit Manager from 1986 to 1989. Michael J. Belleveau, Vice President - Sales and General Manager - Swiss Army Brands Division, was elected to the office of Vice President in June 1994. Mr. Belleveau has served the Company in various positions since 1991. Prior to that Mr. Belleveau was a regional sales manager for Cartier, Inc., a manufacturer and marketer of watches and luxury goods. Leslie H. Green, Vice President of Marketing, was elected to the office of Vice President in December 1995. Ms. Green has served the Company in various positions since January, 1991. Jerald J. Rinder, Vice President and General Manager - Victorinox Division, was elected to the office of Vice President in February, 1996. From 1994 through 1995 Mr Rinder was Executive Vice President of Pringle of Scotland USA, an apparel company. From 1993 to 1994 Mr. Rinder was Vice President - Sales/Marketing of Walkover Shoe Co. and from 1991 through 1993 was Vice President - Sales of Stride Rite Corp. Robert L. Topazio, Vice President and General Manager - R.H. Forschner Division, was elected to the office of Vice President in February, 1996. Mr. Topazio has served the Company in various positions since September, 1992. From 1991 to 1993 Mr. Topazio was Vice President of Cuisine de France, Ltd., a marketer of consumer cutlery which was purchased by the Company in 1992. Prior to that Mr. Topazio was National Sales Manager for J.A. Henckels. Douglas M. Rumbough, Vice President and General Manager - Corporate Markets Division, was elected to the office of Vice President in June 1992. Mr.Rumbough has served the Company in various positions since 1981. A. Clinton Allen, a Director of the Company, is Chairman of A. C. Allen & Co., a Massachusetts based consulting firm. Mr. Allen also serves as Vice Chairman and a director of Psychemedics Corporation, a company that provides testing services for the detection of abused substances through an analysis of hair samples, and of Dewolfe Companies, Inc., a real estate company, and as a director of SweetWater and Victory Ventures. Clarke H. Bailey was elected a director of the Company in January 1997. Since February 1995, Mr. Bailey has served as Chairman of the Board and Chief Executive Officer of United Acquisition Company, an acquisition company, and Chairman of the Board and Chief Executive Officer of United Gas Holding Corporation, an acquisition company. He is also currently Chairman of the Board and a director of Arcus, Inc., the leading national provider of secure off-site computer data storage and related disaster recovery services and information technology staffing solutions, a director and Co-Chairman of the Board of Hudson River and a director of Connectivity Technologies, Inc. ("Connectivity Technologies"), an acquisition company with interests in the wire and cable industry, and Victory Ventures. He served as Chief Executive Officer and a director of Glenayre Technologies from December 1990 until March 1994 and as its Vice Chairman of the Board from November 1992 to July 1996. In March 1994, Mr. Bailey was named Chairman of the Executive Committee of the Board of Glenayre Technologies, and he relinquished the title of Chief Executive Officer. 20 Thomas A. Barron, a Director of the Company, is an author and has been Chairman of Evergreen Management Corp., a private investment firm since January, 1990. From November, 1983 through November 1989, Mr. Barron was President and Chief Operating Officer and a director of Prospect. From 1988 through January, 1990, Mr. Barron served as Chairman of the Board of the Company. Mr. Barron also serves as a director and Chairman of the Board of SweetWater. Mr. Barron has served as a Trustee of Princeton University. Herbert M. Friedman, a Director of the Company, is a partner in the law firm of Zimet, Haines, Friedman & Kaplan, where he has been a member since 1967. Zimet, Haines, Friedman & Kaplan acts as counsel to the Company. Mr. Friedman is also a director of Noel, Prospect, Hudson River, Victory Ventures, Connectivity Technologies and Victorinox - Swiss Army Knife Foundation. Vincent D. Farrell, Jr., a Director of the Company, has been a Managing Director of the investment management firm of Spears, Benzak, Salomon & Farrell, Inc., ("Spears, Benzak") since 1982. Mr. Farrell is a director of Noel. M. Leo Hart, a Director of the Company, is President and Chief Executive Officer of Brae Group, Inc., a privately held acquisition company. Until December 13, 1995, Mr. Hart was Co-Chairman of the Board and Chief Executive Officer of the Company, which capacity he had served in since February 1994. Previously, he was Executive Vice President and a Director. Mr. Hart joined the Company in October 1991. Prior to this, Mr. Hart spent the previous 15 years in senior sales and marketing positions in the hospitality industry, serving as Senior Vice President of Marketing for The Ritz-Carlton Hotel Company from 1987 to 1991 and before that as Vice President -Sales and Marketing for Fairmont Hotels from 1983 to 1987. Until 1991, he was the North American Chairperson of Leading Hotels of the World, a hotel marketing association. Prior to his career in sales, Mr. Hart played professional football with the NFL's Atlanta Falcons and Buffalo Bills. Mr. Hart is also a director of Victory Ventures and a director of Victorinox - Swiss Army Knife Foundation. James W. Kennedy, a Director of the Company, is President of Lahinch Group, Inc., a start-up company engaged in the garment imprinting and apparel business. Until December 13, 1995, Mr. Kennedy was Co-Chairman of the Board and Chief Executive Officer of the Company, which capacity he had served in since February 1994. Previously, he was President of the Company, a position he had held since 1988. Prior to 1988, Mr. Kennedy was Senior Vice President of the Company and had served in various sales and marketing positions with the Company since 1975. Mr. Kennedy has served on committees for the Specialty Advertising Association International, the National Restaurant Association, the American Meat Institute, the Sporting Goods Manufacturers Association and the American Association of Exporters and Importers. 21 Keith R. Lively, a Director of the Company, is a private investor and, from January 1995 through December, 1995, was a consultant to the Company. From 1988 through September 1994, Mr. Lively was the President, Chief Executive Officer and a Director of The Famous Amos Chocolate Chip Cookie Corporation. From September 1992 through September 1994, Mr. Lively was also Senior Vice President, a member of the Executive Committee and a Director of President Baking Company, which purchased The Famous Amos Chocolate Cookie Corporation in September 1992. Mr. Lively also serves as a director of SweetWater. Lindsay Marx, a Director of the Company is a private investor. From November 1992 to January 1994, she was a production assistant at Iron Mountain Productions, a dramatic production company. Ms. Marx was an assistant to the director at the Paper Mill Playhouse in 1992 and, from September 1989 to March 1992, an artistic assistant at The Body Politic, also a dramatic production company. Ms. Marx graduated from Middlebury College in 1987. Ms. Marx, is the daughter of Louis Marx, Jr.. Eric M. Reynolds, a Director of the Company, is President, Chief Executive Officer and a director of SweetWater, a position he has held since January, 1993. Previously, from 1987 through 1990, Mr. Reynolds served as a marketing consultant to various companies including W.L. Gore & Associates and Marmot Mountain Works, Ltd., a company founded by Mr. Reynolds in 1974 that is in the business of designing, manufacturing and marketing mountaineering, backpacking and ski outerwear products. John Spencer, a Director of the Company, holds the African Studies Professorship at Middlebury College where he has served as a member of the faculty since 1974. Mr. Spencer has also served as Dean of Middlebury College and Chairman of its History Department. Mr. Spencer is Vice-Chairman of the African American Institute and of the Institute of Current World Affairs, a Trustee of the Cape of Good Hope Foundation, the University of Capetown Fund, Inc. and Atlanta University and a director of Victorinox - Swiss Army Knife Foundation. John V. Tunney, a Director of the Company, is currently Chairman of the Board of Cloverleaf Group, Inc. and a general partner of Sun Valley Ventures, a partnership engaged in venture capital and leveraged buyout activities. From 1971 to 1977 Mr. Tunney served as a United States Senator from the state of California and as a Member of the United States House of Representatives from 1965 to 1971. Mr. Tunney is also a director of Prospect, Illinois Central Corporation, Illinois Central Railroad Company, and Foamex International, Inc., a foam manufacturer. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten-percent shareholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that except for one late filing of a Form 3 by Mr. Jerald J. Rinder and one late filing of a Form 4 by Mr. Keith R. Lively, during the year ended December 31, 1996 all filing requirements applicable to the Company's officers, directors, and greater than ten-percent beneficial owners were complied with. 22 Item 11. Executive Compensation Summary Compensation Table The Summary Compensation Table below sets forth individual compensation information of the President and the five other most highly paid executive officers of the Company for services rendered in all capacities during the fiscal years ended December 31, 1996, 1995 and 1994.
Annual Compensation Long-Term Compensation Awards Payouts (a) (b) (c) (d) (e) (f) (g) (h) (i) Other Annual Restricted All Other Name and Compen- Stock Options/ LTIP Compen- Principal Position Year Salary Bonus sation Award SARS Payouts sation J. Merrick Taggart 1996 $250,000 $40,000 $50,809(1) - 40,000 - $3,353(2) President 1995 $33,654 - - - 100,000(3) - - 1994 - - - - - - - Peter W. Gilson 1996 $200,000 - - - 20,000 - - Chairman of the 1995 $150,000 - - - 150,000 - - Executive Committee 1994 - - - - - - - Thomas D. Cunningham 1996 $210,000 $20,000 - - - - $4,465(5) Executive Vice President 1995 $210,000 $10,000 - - 25,000 - $4,400(6) and Chief Financial 1994 $174,308 $100,000 - - 50,000 - $2,846(7) Officer(4) Stanley G. Mortimer III 1996 $210,000 $17,500 - - 10,000 - $10,842(8) Executive Vice President 1995 $210,000 $5,000 - - 25,000 - $8,584(9) 1994 $220,000 $100,000 - - - $12,845(10) Harry R. Thompson 1996 $200,000 $20,000 - - 25,000 - $4,750(11) Managing Director 1995 $200,000 $15,000 - - 25,000 - $2,195(12) 1994 - - - - - - - Leslie H. Green 1996 $175,000 $17,500 - - 10,000 - $4,750(13) Vice President 1995 $175,000 $10,000 - - 10,000 - $3,796(14) 1994 $175,000 $45,000 - - - - $3,705(15)
23 (1) Includes relocation benefits of $45,109. (2) Consists of $3,353 contributed by the Company to Mr. Taggart's account under the Company's 401K savings plan. (3) Consists of warrants to purchase Common Stock. (4) Mr. Cunningham resigned from the offices of Executive Vice President and Chief Financial Officer on November 15, 1996. (5) Consists of $4,465 contributed by the Company to Mr. Cunningham's account under the Company's 401K savings plan. (6) Consists of $4,400 contributed by the Company to Mr. Cunningham's account under the Company's 401K savings plan. (7) Consists of $2,846 contributed by the Company to Mr. Cunningham's account under the Company's 401K savings plan. (8) Consists of $4,750 contributed by the Company to Mr. Mortimer's account under the Company's 401K savings plan and $6,092 in benefit to Mr. Mortimer of insurance premiums paid by the Company with respect to split dollar life insurance for the benefit of Mr. Mortimer. (9) Consists of $4,300 contributed by the Company to Mr. Mortimer's account under the Company's 401K savings plan and $4,284 in benefit to Mr. Mortimer of insurance premiums paid by the Company with respect to split dollar life insurance for the benefit of Mr. Mortimer. (10) Consists of $4,620 contributed by the Company to Mr. Mortimer's account under the Company's 401K savings plan and $8,225 in benefit to Mr. Mortimer of insurance premiums paid by the Company with respect to split dollar life insurance for the benefit of Mr. Mortimer. (11) Consists of $4,750 contributed by the Company to Mr. Thompson's account under the Company's 401K savings plan. (12) Consists of $2,195 contributed by the Company to Mr. Thompson's account under the Company's 401K savings plans. (13) Consists of $4,750 contributed by the Company to Ms. Green's account under the Company's 401K savings plan. (14) Consists of $3,796 contributed by the Company to Ms. Green's account under the Company's 401K savings plan. (15) Consists of $3,705 contributed by the Company to Ms. Green's account under the Company's 401K savings plan. 24 Option Grants in Last Fiscal Year The following table sets forth, for each of the executive officers named in the Summary Compensation Table, information regarding individual grants of options made in the last fiscal year, and their potential realizable values.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Individual Grants Option Term (a) (b) (c) (d) (e) (f) (g) % of Total Options Granted Exercise or Options to Employees in Base Price Expiration Name Granted Fiscal Year(1) ($/Sh) Date 5% ($) 10% ($) J. Merrick Taggart 40,000 11.5% $13.625 11/14/06 $342,748 $868,590 Peter W. Gilson 20,000 5.7% $13.625 11/14/06 $171,374 $434,295 Thomas D. Cunningham 0 - - - - - Stanley G. Mortimer III 10,000 2.9% $13.625 11/14/06 $85,687 $217,147 Harry R. Thompson 25,000 7.2% $13.625 11/14/06 $214,217 $542,869 Leslie H. Green 10,000 2.9% $13.625 11/14/06 $85,687 $217,147 (1) Based on 348,750 options granted.
25 Option Exercises and Year-End Value Table The following table sets forth option exercise activity in the last fiscal year and fiscal year-end option values with respect to each of the executive officers named in the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option/SAR Value (a) (b) (c) (d) (e) Value of Number of Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at FY-End (#) FY-End ($) Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($) Unexercisable Unexercisable J. Merrick Taggart 3,000 3,189 57,000/80,000 35,250/37,500 Peter W. Gilson 1,000 750 79,000/90,000 55,500/56,250 Thomas D. Cunningham 1,000 1,000 49,000/25,000 41,188/17,188 Stanley G. Mortimer III - - 40,000/20,000 29,688/4,688 Harry R. Thompson 1,000 8,625 27,750/31,250 76,688/4,688 Leslie H. Green - - 27,500/12,500 17,638/1,850
Compensation of Directors The Company compensates those of its directors who were not employees of the Company in the amount of $10,000 annually plus $1,000 for attendance at each meeting of the Board of Directors. The Chairmen of the Audit Committee and the Stock Option and Compensation Committee of the Board of Directors are each paid an additional annual fee of $10,000 in recognition of the additional responsibilities and time commitments associated with such positions. In addition, the Company has purchased split dollar life insurance policies in respect of each of Messrs. Louis Marx, Jr. and Stanley R. Rawn, Jr. See "Certain Transactions". Employment Agreement and Severance Arrangements The Company entered into an employment agreement dated as of January 2, 1996 with Mr. James W. Kennedy, a director of the Company and, until December 13, 1995, Co-Chairman of the Board and Chief Executive Officer of the Company. The agreement provides that Mr. Kennedy shall be employed in an executive capacity with the Company and shall be available to consult with and advise the Company on such matters as might be requested by senior management of the Company for at least eighty-five hours per month to assist on issues dealing with the maintenance of corporate trademarks; corporate legal matters; and strategic support relative to strategic relations with Victorinox Cutlery Company, the Company's key supplier. Mr. Kennedy is to be paid a salary of $140,000 per annum and, during 1996, was paid a one time bonus of $300,000. The agreement, which has a term of five years, also provides that following the termination of the agreement Mr. Kennedy would be prohibited from competing, with certain exceptions, with the business of the Company for a period of three years. 26 In connection with the resignation of Mr. M. Leo Hart, a director of the Company, from his position as Co-Chairman of the Board and Chief Executive Officer of the Company in 1996, the Company paid Mr. Hart the sum of $75,000 and accepted for surrender and cancellation all of Mr. Hart's outstanding stock options to purchase Common Stock. To replace such options, the Company has issued to Mr. Hart new options covering the same number of shares and upon the same terms and conditions except that the newly issued options were fully vested upon grant and the exercisability of such options is not contingent on Mr. Hart's employment with the Company. The Company entered into an Employment and Severance Agreement dated as of November 15, 1996 with Mr. Thomas D. Cunningham, who was, until that date, a Director and Executive Vice President and Chief Financial Officer of the Company. The agreement provides that in connection with Mr. Cunningham's resignation from those positions he would be employed by the Company to work with management of the Company in connection with the sale of the Company's subsidiary, Cuisine de France Limited. The agreement provides that such employment shall be for a period of six months provided that satisfactory progress is made with respect to the disposition of Cuisine de France Limited. The Company entered into an agreement for the sale of Cuisine de France Limited on January 31, 1997 and has thus determined that such progress has been made. Mr. Cunningham is to paid be a salary at the rate of $210,000 per annum during the term of his employment under the agreement. In addition, subsequent to the termination of Mr. Cunningham's employment, the agreement provides that Mr. Cunningham shall be paid a one time severance payment of $210,000 and receive certain other benefits. The agreement also provides that Mr. Cunningham would be prohibited from competing with the business of the Company for a period of two years. Pension Plan Each employee of the Company at least twenty years of age, becomes eligible to participate in the Company's Pension Trust (the "Pension Trust") after completing two Years of Credited Service (as defined in the Pension Trust). Monthly benefits at Normal Retirement Age, age sixty-five, are computed as follows: Average Monthly Compensation (as defined below) multiplied by 0.65% plus Average Monthly Compensation in excess of Social Security Covered Compensation (as defined below) multiplied by 0.65%, such sum multiplied by Years of Credited Service, not to exceed 35 years. Accrued benefits under the prior formula used by the Company's Pension Trust are grandfathered as of December 31, 1993 for Non-Highly Compensated Employees and as of December 31, 1988 for Highly Compensated Employees. "Average Monthly Compensation" is defined as one-twelfth of the highest five consecutive years of total compensation. Social Security Covered Compensation is defined as the average of the Taxable Wage Base over the 35-year period ending with the year of the Social Security Normal Retirement (ages 65 - 67, depending on year of birth). Participants will receive reduced benefits on a life annuity basis with continuation of benefits to their spouses after death unless an optional form of benefit is selected. Preretirement death benefit coverage is also provided. A participant is 100% vested in his accrued benefits, as defined in the Pension Trust, upon such accrual. The Years of Credited Service as of December 31, 1996 of each of the individuals named in the Cash Compensation table herein are as follows: J. Merrick Taggart.............. 1 year Peter W. Gilson................. 1 year Thomas D. Cunningham............ 2 years Stanley G. Mortimer III......... 12 years Harry R.Thompson................ 1 year Leslie H. Green................. 6 years 27 The following table shows annual pension benefits under the Pension Trust assuming retirement at age sixty-five in 1997, payable as a life annuity, in various remuneration and years of employment classifications. Note that the maximum allowable compensation for years beginning in 1994 is $150,000, so remuneration in excess of that amount is not shown. Some grandfathering of benefits earned at higher compensation levels is provided.
Pension Benefits for 1996 Retirees at Age 65 Years of Service Remuneration 15 20 25 30 35 50,000 $ 7,061 $ 9,415 $11,769 $14,123 $16,476 75,000 11,936 15,915 19,894 23,873 27,851 100,000 16,811 22,415 28,019 33,623 39,226 125,000 21,686 28,915 36,144 43,373 50,601 150,000 26,561 35,415 44,269 53,123 61,976
Compensation Committee Interlocks and Insider Participation In 1996, the Compensation Committee was comprised of A. Clinton Allen, Keith R. Lively, John V. Tunney and John Spencer. None of these individuals is an officer or employee of the Company or any of its subsidiaries. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information regarding beneficial ownership of the Common Stock on March 17, 1997, by each person or group known by the Company to own beneficially 5% or more of the outstanding Common Stock. Except as otherwise noted, each person listed below has sole voting and investment power with respect to the shares listed next to his or its name. 28
Number of Name of Beneficial Owner Shares Percent owned(1) Louis Marx, Jr. 667 Madison Avenue New York, NY 10021 3,082,222(2) 35.4% Brae Group, Inc. 15710 John F. Kennedy Blvd. Houston, TX 77032 3,058,200(3) 35.1% Victorinox A.G. CH-6438 Ibach-Schwyz Switzerland 1,000,000 12.2% Tweedy, Browne Company L.P. 52 Vanderbilt Avenue New York, New York 10017 589,150(4) 7.2% David L. Babson & Co., Inc. One Memorial Drive Cambridge, MA 02142 537,100(5) 6.5% Dimensional Fund Advisors, Inc. 1299 Ocean Avenue Santa Monica, CA 90401 467,724(6) 5.7% (1) Based on 8,209,610 shares of Common Stock outstanding, not including 614,108 shares held as Treasury stock. Treated as outstanding for the purposes of computing percentage ownership of each holder are shares issuable to such holder upon exercise of options and warrants. (2) Consists of 19,730 shares held directly by Mr. Marx, 4,292 shares held by a trust for the benefit of Mr. Marx, 2,558,200 shares held by Brae Group, Inc., which corporation Mr. Marx may be deemed to control, and 500,000 shares issuable upon the exercise of a stock option held by Brae Group, Inc. (3) Includes 500,000 shares issuable upon the exercise of a stock option held by Brae Group, Inc.. (4) According to a Schedule 13D filed February 29, 1996, consists of shares held in the accounts of customers of Tweedy, Browne Company L.P., a broker-dealer. (5) According to a Schedule 13G dated February 7, 1997, consists of shares which David L. Babson & Co., Inc. beneficially owns by virtue of serving as investment advisor. (6) According to a Schedule 13G dated February 5, 1997, consists of shares as to which Dimensional Fund Advisors, Inc. shares power of disposition by virtue of serving as investment advisor to its clients.
29 The following table sets forth certain information concerning the beneficial ownership of Common Stock on March 17, 1997, by each Director, each officer named in the Summary Compensation Table herein and by all Directors and officers of the Company as a group.
Number of Name Shares Percent of Class(1) J. Merrick Taggart 60,000(2) * Stanley G. Mortimer III 47,262(3) * Harry R. Thompson 33,250(4) * Leslie H. Green 30,000(5) * A. Clinton Allen 35,000(6) * Clarke H. Bailey -0- Thomas A. Barron 72,500(7) * Vincent D. Farrell, Jr. 35,000(8) * Herbert M. Friedman 15,868(9) * Peter W. Gilson 80,000(10) * M. Leo Hart 100,500(11) 1.2% James W. Kennedy 83,960(12) 1.0% Keith R. Lively -0- * Lindsay Marx 25,000(13) * Louis Marx, Jr. 3,082,222(14) 35.4% Stanley R. Rawn, Jr. 142,711(15) 1.7% Eric M. Reynolds 25,000(16) * John Spencer 1,000 * John V. Tunney -0- * All officers and directors 3,992,835(17) 42.0% as a group (25 persons) *Less than 1% of the Class. (1) Based on 8,209,610 shares of Common Stock outstanding, not including 614,108 shares held as Treasury Stock. Treated as outstanding for the purpose of computing the percentage ownership of each director and of all directors and officers as a group are shares issuable to such individuals upon exercise of options. (2) Includes 47,000 shares of Common Stock issuable upon exercise of warrants held by Mr. Taggart and 10,000 shares of Common Stock issuable upon exercise of Options held by Mr. Taggart. (3) Includes 46,250 shares of Common Stock issuable upon exercise of Options held by Mr. Mortimer. (4) Consists of 33,250 shares of Common Stock issuable upon exercise of Options held by Mr. Thompson. (5) Consists of 30,000 shares of Common Stock issuable upon exercise of Options held by Ms. Green. (6) Consists of 35,000 shares of Common Stock issuable upon exercise of Options held by Mr. Allen. (7) Includes 37,500 shares of Common Stock issuable upon exercise of Options held by Mr. Barron. (8) Consists of 35,000 shares of Common Stock issuable upon exercise of Options held by Mr. Farrell. Excludes shares beneficially owned by Spears, Benzak, a general partnership in which Mr. Farrell has a 22% interest. (9) Includes 12,500 shares of Common Stock issuable upon exercise of Options held by Mr. Friedman. (10) Includes 79,000 shares of Common Stock issuable upon exercise of options held by Mr. Gilson. (11) Includes 100,000 shares of Common Stock issuable upon exercise of Options held by Mr. Hart. (12) Includes 81,250 shares of Common Stock issuable upon exercise of Options held by Mr. Kennedy and 1,000 shares held by a trust for the benefit of Mr. Kennedy's son, beneficial ownership of which is disclaimed by Mr. Kennedy. (13) Consists of 25,000 shares of Common Stock issuable upon exercise of Options held by Ms. Marx. (14) Consists of 19,730 shares of Common Stock held directly by Mr. Marx, 4,292 shares held by a trust for the benefit of Mr. Marx, 2,558,200 shares held by Brae Group, Inc., which corporation Mr. Marx may be deemed to control, and 500,000 shares issuable upon exercise of options held by Brae Group, Inc. (15) Includes 100,000 shares of Common Stock issuable upon exercise of Options held by Mr. Rawn. (16) Consists of 25,000 shares of Common Stock issuable upon exercise of Options held by Mr. Reynolds. (17) Includes 1,249,750 shares of Common Stock issuable to directors and officers upon exercise of Options and 47,000 shares of Common Stock issuable upon exercise of warrants.
30 Item 13. Certain Relationships and Related Transactions Messrs. Louis Marx, Jr., Chairman of the Company's Management Committee, and a Director of the Company, and Stanley R. Rawn Jr., Senior Managing Director and a Director of the Company, devoted considerable time and attention to the affairs of the Company during 1996. During 1996 Messrs. Marx and Rawn were principally compensated through split dollar insurance on their lives, a method which allows the Company to recover, without interest, all premiums paid on the death of the insured and which has substantially lower earnings impact over the years than would similar amounts paid as cash compensation. Specifically, the Company has purchased split dollar life insurance payable on the death of Mr. Marx, some of which is payable on the later to die of Mr. Marx and his wife, and split dollar life insurance payable on the death of Mr. Rawn. Under these arrangements the Company will pay approximately $4,200,000 over the course of the next 17 years as premiums under the policies for Mr. Marx and approximately $3,000,000 over the course of the next 13 years under the policy for Mr. Rawn (in each case including amounts paid in the first fiscal quarter of 1997), and will be reimbursed, without interest, for all of the premiums that it has paid upon the death of the respective insured. The actual premiums to be paid may be higher than estimated depending upon the performance of the insurance company's investments and other factors. Pursuant to the terms of life insurance agreements entered into with each of Messrs. Marx and Rawn, the Company shall continue to be obligated to pay these premiums during the insured's employment with the Company and in the event of the termination of such employment for any reason, unless the insured willfully and materially breaches the terms of a consulting agreement between him and the Company and such breach continues for 30 days after written notice. Under the terms of such consulting agreements, each of Messrs. Marx and Rawn is to be engaged as a consultant immediately following the termination of his employment with the Company and, in such event, shall receive such compensation as shall be fair under the circumstances. Mr. Marx has been so engaged as a consultant to the Company since February 15, 1995, the date on which he ceased to serve as Chairman of the Company's Executive Committee. The consulting agreements may be terminated by the Company upon thirty days notice. In 1996, the Company paid an aggregate of $437,072 in premiums on the policies pertaining to Mr. Marx and $315,150 in premiums on the policy pertaining to Mr. Rawn. There will be a small, negative earnings impact through 1998 of the policies on Messrs. Marx's and Rawn's lives, and an increasingly positive impact on earnings in the later years. In July 1994, the Company entered into a Services Agreement with Brae Group, Inc. ("Brae") which beneficially owns 35.4% of the outstanding Common Stock and in which Louis Marx, Jr., a Director of the Company, has a controlling interest, and in which Victorinox Cutlery Company ("Victorinox"), a key supplier and beneficial owner of approximately 12.2% of the outstanding Common Stock, has a non- controlling stock interest. Mr. M. Leo Hart, a Director of the Company, is Chief Executive Officer of Brae. Under the Services Agreement, Brae is to provide various services to the Company for a period of four years relating to maintaining, enhancing and expanding the Company's relationship with Victorinox. In exchange for these services, Brae received an option to purchase 500,000 shares of the Company's Common Stock at the then current market price of $10.75 per share. The option is fully vested and can be exercised for ten years from the date of the Services Agreement. The Company loaned to Mr. James W. Kennedy, a Director of the Company, a total of $87,500. The loan bore interest at the prime rate and was paid in full, together with accrued interest, on January 3, 1996. Lahinch Group, Inc., of which Mr. James W. Kennedy, a Director of the Company, is president, director and a significant stockholder, and of which Mr. Louis Marx, Jr. and Victorinox Cutlery Company are investors, purchased from the Company products for resale to the golf oriented channel of trade in 1996 in the amount of $268,679. In 1996, the Company paid $528,475 for legal services rendered by the law firm of Zimet, Haines, Friedman & Kaplan, of which Mr. Herbert M. Friedman, a Director of the Company, is a partner. Victorinox Cutlery Company owns approximately 12.2% of the outstanding Common Stock and is the supplier to the Company of Swiss Army Knives, professional cutlery products and Victorinox Watches. During the year ended December 31, 1996, the Company purchased Victorinox products in aggregate amount of approximately $36,360,298. 31 Swiss Army Brands, Inc. Charitable Insurance Program The Company recognizes its responsibility to the communities in which its products are sold and the importance of charitable organizations to the country at large. The Company is also aware of the benefits to commercial good will resulting from the proper discharge of its responsibilities. In order to further these objectives, the Company instituted its Charitable Insurance Program. This program allows the Company to provide the maximum assistance to numerous charities by utilizing tax provisions intended to encourage such activities, and to eventually recover, without interest, all amounts expended. Under the Company's Charitable Insurance Program (the "Program"), adopted by the Company's Board of Directors in 1993, the Company will utilize insurance on the lives of each of its directors and other designated persons (the "Insured Directors") to fulfill charitable pledges to the Victorinox-Swiss Army Knife Foundation (the "Foundation") and to charities recommended by the Insured Directors. The Company previously purchased life insurance on one of the Company's then Co-Chairmen and designated the Foundation as a beneficiary of a portion of the proceeds, subject to the Company's right to revoke such designation. The Program enables the Company to make a meaningful commitment to the Victorinox-Swiss Army Knife Foundation, as well as a broad range of charities benefiting our communities. The Company anticipates that it will be able to make substantial contributions in the future to these charities at a minimal cost to the Company. The Victorinox-Swiss Army Knife Foundation is a tax-exempt private foundation, funded primarily by contributions from the Company and Victorinox. It was organized in December, 1992 for general charitable purposes, including the improvement of the welfare of underprivileged children (and others) through the encouragement of organized athletic activities, including those sports in which an underprivileged child would not ordinarily participate. Louis Marx, Jr., a director of the Company, is President and a director of the Foundation. Stanley R. Rawn, Jr., Senior Managing Director and a director of the Company, and Herbert M. Friedman, M. Leo Hart and John Spencer, directors of the Company, are directors of the Foundation. The Company is the owner and beneficiary of the policies, with the right to borrow against them, and will receive the proceeds upon the death of each Insured. The proceeds will not be legally segregated from the Company's general funds and will remain subject to claims of the Company's creditors. Upon the death of an Insured Director, the Company will retain a share of the insurance proceeds equal to the cumulative premiums paid by the Company for the policy on that Insured Director's life. One half of the remaining amount will be used to fulfill a pledge to the Foundation and the other half will be used to fulfill pledges to tax-exempt charities recommended by Insured Directors and approved by the Board. Generally, the Company will be bound to continue to pay all premiums on the policy for the life of the Insured or, in the case of Mr. Marx, as long as he is an officer or Board member or agrees to serve as a consultant to the Company. Generally, there will be a small, negative impact on earnings through 1998, and an increasingly positive impact on earnings after 1998 as the cash surrender value of the insurance increases. If a director were to leave the Company prior to the time when the cash surrender value of the policy exceeds the aggregate premiums, and the Company received no further substantial benefit from his or her services, the obligation to pay future premiums would result in a charge to earnings at the time he or she left. The charge to earnings for 1996 with respect to directors who left the Company in 1996 is insignificant. The Company would not be entitled to a tax deduction, nor would the Company realize income for regular income tax purposes, at the time the policy is obtained nor as premiums are paid. Upon the death of the director (when the policy matures and the insurance proceeds are paid) the Company would not realize income for "regular" income tax purposes, but the Company might be subject to alternative minimum tax ("AMT") on a portion of the receipts from the policy. Upon the making of the cash contribution following the death of the insured director, the Company would be entitled to a deduction. Since the Company is entitled to claim as charitable deductions only 10% of its taxable income in any year, the extent of the utilization of this deduction would depend upon income. These deductions may be carried forward for a period of five years. 32 PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) Documents filed as part of this report: Page(s) (1) Financial Statements: Report of Independent Public Accountants F-1 Consolidated Balance Sheets - December 31, 1996 and 1995 F-2 to F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-7 to F-25 (2) Schedule -- Schedule II -- Valuation and Qualifying Accounts for the Years Ended December 31, 1996, 1995 and 1994 F-26 All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto. 33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Swiss Army Brands, Inc.: We have audited the accompanying consolidated balance sheets of Swiss Army Brands, Inc., formerly The Forschner Group, Inc., (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Swiss Army Brands, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedure applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Stamford, Connecticut, February 4, 1997 F-1 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
December 31, December 31, 1996 1995 Current assets: Cash and cash equivalents $2,067,346 $608,757 Accounts receivable, less allowance for doubtful accounts of $1,032,000 and $975,000, 32,992,281 31,970,449 respectively Inventories 29,656,511 36,733,146 Deferred income taxes 3,295,488 2,395,858 Prepaid and other 2,921,134 2,647,121 ------------ ------------ Total current assets 70,932,760 74,355,331 ------------ ------------ Deferred income taxes 1,597,307 771,371 Property, plant and equipment, net 3,968,461 4,105,865 Investments in preferred units, at cost 9,002,999 7,002,990 Investments in common stock and note receivable of unconsolidated affiliates 150,000 2,591,415 Foreign distribution rights, net of accumulated amortization of $2,518,116 and $1,843,812, respectively 4,226,092 4,900,396 Other assets, net of accumulated amortization of $496,436 and $3,166,339, respectively 8,764,906 7,502,884 ----------- ----------- Total assets $98,642,525 $101,230,252 ============= ============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-2 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31, 1996 1995 Current liabilities Accounts payable $10,951,269 $6,479,200 Accrued liabilities 7,835,149 9,812,383 ------------- ------------ Total current liabilities 18,786,418 16,291,583 ------------- ------------ Commitments and contingencies (Note 13) Stockholders' equity Preferred stock, par value $.10 per share: shares authorized - 2,000,000; no shares issued _ _ Common stock, par value $.10 per share: shares authorized - 12,000,000; shares issued - 8,822,968 and 8,800,718, respectively 882,297 880,072 Additional paid-in capital 46,181,841 45,897,740 Foreign currency translation adjustment (113,401) (9,216) Retained earnings 38,018,837 43,283,540 ------------- ------------ 84,969,574 90,052,136 Less-cost of common stock in treasury; 614,108 shares (5,113,467) (5,113,467) ------------- ------------ Total stockholders' equity 79,856,107 84,938,669 ------------- ------------ Total liabilities and stockholders' equity $98,642,525 $101,230,252 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. F-3 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, 1996 1995 1994 Net sales $130,029,897 $126,694,786 $144,437,320 Cost of sales 89,193,757 82,430,435 88,633,762 ------------- ------------- ------------- Gross profit 40,836,140 44,264,351 55,803,558 Selling, general and administrative expenses before special charges and special charitable contribution 43,679,273 40,265,716 38,792,909 Special charges 2,562,000 - - Special charitable contribution - - 1,500,000 ------------- -------------- ------------ Total selling, general and administrative expenses 46,241,273 40,265,716 40,292,909 ------------- -------------- ------------ Operating income (loss) (5,405,133) 3,998,635 15,510,649 Interest expense (147,005) (216,937) (27,674) Interest income 120,093 556,631 391,387 Gain (loss) on sale (write-down) of investments (2,381,733) 1,771,456 36,720 Equity interest in unconsolidated affiliates - (548,200) - Other income (expense), net 205,411 74,276 81,543 ------------- -------------- ----------- Total interest and other income (expense), net (2,203,234) 1,637,226 481,976 ------------- -------------- ----------- Income (loss) before income taxes (7,608,367) 5,635,861 15,992,625 Income tax provision (benefit) (2,343,664) 2,522,645 6,632,895 ------------- -------------- ----------- Net income (loss) ($5,264,703) $3,113,216 $9,359,730 ============= ============== =========== Net income (loss) per share ($0.64) $0.38 $1.16 ============= ============== =========== Weighted average number of shares and equivalents outstanding 8,201,599 8,235,849 8,061,846 ============= ============== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Foreign Common Stock Additional Currency Par Value $.10 Paid-In Translation Retained Treasury Shares Amount Capital Adjustment Earnings Stock BALANCE December 31, 1993 7,648,968 $764,897 $34,520,872 ($6,829) $30,810,594 ($5,472,110) Net income - - - - 9,359,730 - Stock options and warrant exercised 1,111,000 111,100 10,467,657 - - - Stock grant 37,000 3,700 486,925 - - - Issuance of common stock from treasury - - 391,360 - - 358,643 Foreign currency translation adjustment - - - (21,256) - - ---------- -------- ----------- --------- ------------ ---------- BALANCE December 31, 1994 8,796,968 879,697 45,866,814 (28,085) 40,170,324 (5,113,467) Net income - - - - 3,113,216 - Stock options exercised 3,750 375 30,926 - - - Foreign currency translation adjustment - - - 18,869 - - ---------- --------- ----------- --------- ------------- ---------- BALANCE December 31, 1995 8,800,718 880,072 45,897,740 (9,216) 43,283,540 (5,113,467) Net loss - - - - (5,264,703) - Stock options and warrant exercised 22,250 2,225 284,101 - - - Foreign currency translation adjustment - - - (104,185) - - ---------- -------- ----------- ---------- ----------- ----------- BALANCE December 31, 1996 8,822,968 $882,297 $46,181,841 ($113,401) $38,018,837 ($5,113,467) ========== ======== =========== ========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 Cash flows from operating activities: Net income (loss) ($5,264,703) $3,113,216 $9,359,730 Adjustments to reconcile net income (loss) to cash provided from (used for) operating activities: Depreciation and amortization 4,035,399 3,249,376 3,207,294 Deferred income taxes (1,725,566) (643,155) (1,644,567) Treasury shares contributed to charitable foundation - - 750,003 Stock award - - 303,125 Equity interest in unconsolidated affiliates - 548,200 - (Gain) loss on sales of property, plant and equipment 3,944 8,788 (9,030) (Gain) loss on (sale) write-down of investments 2,381,733 (1,771,456) (36,720) ---------- ----------- ---------- (569,193) 4,504,969 11,929,835 Changes in other current assets and liabilities: Accounts receivable (1,091,241) (2,329,783) (6,105,787) Inventories 6,966,002 (9,741,351) (6,281,294) Prepaid and other (269,983) (1,144,356) 3,020,220 Accounts payable 4,508,883 (7,580,883) 2,765,024 Accrued liabilities (1,937,712) (64,206) 3,525,716 ----------- ------------ ----------- Net cash provided from (used for) operating activities 7,606,756 (16,355,610) 8,853,714 ----------- ------------ ----------- Cash flows from investing activities: Capital expenditures (1,464,699) (1,430,352) (1,676,477) Proceeds from sales of property, plant and equipment - 21,500 22,412 Additions to other assets (3,021,214) (2,814,301) (2,205,205) Investments in preferred units (2,000,009) - (6,250,000) Investments in common stock - (3,709,546) - Sales (purchases) of short-term investments - 5,311,608 (5,311,608) Proceeds from note receivable - - 186,120 Proceeds from sale of investments 59,682 6,822,282 377,490 ----------- ----------- ----------- Net cash provided from (used for) investing activities (6,426,240) 4,201,191 (14,857,268) ----------- ----------- ----------- Cash flows from financing activities: Proceeds from exercise of stock options and warrant 286,326 31,301 10,766,257 ----------- ----------- ----------- Net cash provided from financing activities 286,326 31,301 10,766,257 ----------- ----------- ----------- Effect of exchange rate changes on cash (8,253) 23,686 109,638 Net increase (decrease) in cash and cash equivalents 1,458,589 (12,099,432) 4,872,341 Cash and cash equivalents, beginning of period 608,757 12,708,189 7,835,848 ----------- ------------ ----------- Cash and cash equivalents, end of period $ 2,067,346 $ 608,757 $12,708,189 =========== ============ =========== Cash paid during the period: Interest $ 147,005 $ 251,637 $ 27,674 =========== ============ =========== Income taxes $ 232,985 $3,428,792 $ 6,883,242 =========== ============ ===========
The accompanying notes to consolidated financial statements are an integral part of these statements. F-6 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NATURE OF BUSINESS Swiss Army Brands, Inc. ("Swiss Army" or the "Company", formerly known as The Forschner Group, Inc. ) is the exclusive distributor in the United States, Canada (with one minor exception for cutlery) and the Caribbean of the Victorinox Original Swiss Army Knife, Victorinox cutlery and Victorinox watches. Swiss Army also markets its own line of Swiss Army Brand Watches and other high quality Swiss made products under its Swiss Army Brand worldwide. Swiss Army's cutlery line, which also includes imported products from Germany, England and France, is sold primarily to the food processing and service industries. Swiss Army's wholly-owned subsidiary, Cuisine de France Limited ("CDF"), imports and distributes high quality French made consumer cutlery under the Cuisine de France Sabatier brand. Substantially all of the assets of CDF were sold by the Company in 1997. Swiss Army has only one business segment - the importation and distribution of cutlery, knives, watches and other consumer products. Approximately 1%, 6% and 25% of Swiss Army's net sales for the years ended December 31, 1996, 1995 and 1994 respectively, resulted from participation in special promotional programs with one customer. The Company has received orders from this customer in 1997. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Foreign currency translation and transactions Assets and liabilities of the Company's foreign operations are translated into U.S. dollars using the exchange rate in effect at the balance sheet date. Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are included in the foreign currency translation adjustment component of stockholders' equity, while gains and losses resulting from foreign currency transactions are included in net income (loss). The Company, from time to time, enters into foreign currency forward contracts and other currency trading arrangements to hedge specific foreign currency inventory purchase commitments. Gains and losses on these contracts are deferred and recognized in cost of sales when the related inventory is sold. F-7 Cash and cash equivalents Cash and cash equivalents consist of all highly liquid investments with original maturities of three months or less. Investments with maturities between three and twelve months are considered short-term investments. Inventories Domestic inventories are valued at the lower of cost determined by the last-in, first-out (LIFO) method or market. Had the first-in, first-out (FIFO) method been used to value domestic inventories as of December 31, 1996 and 1995, the balance at which inventories are stated would have been $3,157,000 and $2,746,000 higher, respectively. Foreign inventories are valued at the lower of cost or market determined by the FIFO method. Inventories primarily consist of finished goods and packaging material. Property, plant and equipment Property, plant and equipment are stated at cost. Major improvements which add to productive capacity or extend the life of an asset are capitalized while repairs and maintenance are charged to expense as incurred. Property, plant and equipment are comprised of the following:
December 31, 1996 1995 Leasehold improvements $ 1,030,138 $ 818,446 Equipment 7,227,788 6,199,914 Furniture and fixtures 1,669,895 1,473,188 ----------- ----------- 9,927,821 8,491,548 Accumulated depreciation (5,959,360) (4,385,683) ----------- ----------- $3,968,461 $4,105,865 =========== ===========
Depreciation is computed principally by use of the straight-line method based on the following estimated useful lives:
Years Equipment 3 to 10 Furniture and fixtures 7 to 10
The provision for amortization of leasehold improvements is provided on a straight-line basis over the estimated useful lives of the assets or terms of the leases, whichever is shorter. For the years ended December 31, 1996, 1995, and 1994, depreciation and amortization expense of property, plant and equipment was approximately $1,599,000, $1,521,000 and $1,273,000, respectively. Long-lived assets In March 1995, Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", was issued. The Company adopted SFAS No. 121 in 1996, and this accounting standard did not have a material effect on the Company's financial position or results of operations. The Company continually reviews the recoverability of the carrying value of these assets using the provisions of SFAS No. 121. F-8 Investments Investments in common stock of companies in which the Company owns between 20% to 50% are accounted for under the equity method, with the Company recording its proportional share of net income or losses of these companies and amortization of goodwill related to the acquisition of the investments. These amounts equalled losses of $548,200 for 1995. Investments in preferred units or stock, are accounted for at cost, subject to review for impairment. Since these investments do not have a readily determinable fair value, the valuation of these investments is subject to uncertainty. Investments in common stock of companies in which the Company owns less than 20% are accounted for at fair value, subject to review for impairment. Changes between cost and fair value are reflected as a component of stockholders' equity. Any write-down of the cost due to impairment are reflected as part of net income (loss). Earnings per share Earnings per share are based on the weighted average number of common and common equivalent shares outstanding during the year. For the years ended December 31, 1995 and 1994, the computation included 50,000 and 230,000 shares, respectively, issuable upon exercise of stock options and warrants after the assumed repurchase of common shares with the related proceeds. For the year ended December 31, 1996, no common equivalents have been included in the computation of earnings per share as they would have an anti-dilutive effect. There is no difference between primary and fully diluted earnings per share. Stock-based compensation In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation", was issued. As permitted under the provisions of SFAS No. 123, the Company has not changed its method of accounting for stock-based compensation; however, SFAS No. 123 requires additional footnote disclosures relating to the effect of using a fair value based method of accounting for stock-based compensation cost. See Note 12 for the additional footnote disclosures required by SFAS No. 123. Income taxes The Company follows SFAS No. 109 "Accounting for Income Taxes". Under SFAS No. 109, the provision for income taxes, as determined using the liability method, includes deferred taxes resulting from temporary differences in income for financial and tax purposes. Such temporary differences primarily result from differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Foreign currency The vast majority of the Company's products are imported from Switzerland and are paid for in Swiss francs. Increases in the value of the Swiss franc versus the dollar may effectively increase the cost of these products to the Company. The increase in the cost of products to the Company may result in either higher prices charged to customers or reductions in gross margin, both of which may have an adverse effect on the Company's results of operations. The Company enters into foreign currency contracts and options to hedge the exposure associated with foreign currency fluctuations. However, such hedging activity cannot eliminate the long-term adverse impact on the Company's competitive position and results of operations that would result from a sustained decrease in the value of the dollar versus the Swiss franc. These hedging transactions, which are meant to reduce foreign currency risk, also reduce the beneficial effects to the Company of any increase in the dollar relative to the Swiss franc. The Company plans to continue to engage in hedging transactions; however, it is uncertain as to what extent to which such hedging transactions will reduce the effect of adverse currency fluctuations. F-9 Reclassifications Certain reclassifications have been made to prior year's financial statements to conform with the 1996 presentation. (3) SPECIAL CHARGES In 1996, the Company recorded special charges of approximately $9,887,000 ($0.75 per share after tax) related to the completion of an extensive analysis of the Company's operations and non- strategic assets. The special charges consisted of: Write-off of inventory $4,932,000 (a) Selling, general and administrative charges 2,562,000 (b) Write-down of investments 2,393,000 (c) ------------ $9,887,000 ============ (a) Represents the write-off of discontinued inventory, including certain cutlery products sold by CDF (see Note 7). (b) Consists of an $870,000 write-off of goodwill and other assets related to CDF (see Note 7), a $1,151,000 write-off for obsolete displays and a $541,000 write-off of other assets. (c) Consists of a $1,593,000 write-down of the Company's common stock investment in SweetWater, Inc. and a $800,000 write-off of the Company's investment in a privately held affiliated start-up entity (see Note 6). (4) PRINCIPAL SUPPLIERS Swiss Army imports for resale all of its Swiss Army Knives and certain of its other cutlery products from a principal supplier, Victorinox Cutlery Company ("Victorinox"), a Swiss company. Effective December 12, 1993, Swiss Army renewed a five-year agreement (originally signed on December 12, 1983 and as amended) with Victorinox which appoints Swiss Army as exclusive distributor of Victorinox Original Swiss Army Knives and most of its other cutlery products in the United States and gives Swiss Army exclusive rights to use Victorinox trademarks and trade names in the United States with respect to Swiss Army Knives and cutlery. The agreement remains in effect as long as Swiss Army continues to purchase quantities of Swiss Army Knives and cutlery (based on the Swiss franc purchase price) at least equal to 85% of the maximum amount of purchases of each in any preceding year. In 1995, Victorinox agreed to reduce the 1996 minimum purchase requirements on knives to 75% of the maximum amount of purchases in any preceding year. In 1996, Victorinox agreed to reduce the 1997 minimum purchase requirements on knives to 65% of the maximum amount of purchases in any preceding years. The Company purchased the required minimums in 1996, with total purchases from Victorinox of approximately $36,400,000. Pursuant to this agreement, Swiss Army must obtain Victorinox's permission to sell new cutlery items. All of the Swiss Army Knives and certain of the cutlery items that Swiss Army sells in Canada and the Caribbean also are supplied by Victorinox. F-10 Foreign distribution rights with Victorinox are comprised of the following:
Cost at December 31, Amortization 1996 1995 Period Canadian distribution rights (A) $3,483,064 $3,483,064 10 years Caribbean and Victorinox Watch distribution rights (B) 3,261,144 3,261,144 10 years ----------- ----------- 6,744,208 6,744,208 Accumulated amortization (2,518,116) (1,843,812) ----------- ----------- $4,226,092 $4,900,396 =========== ===========
(A) In April 1992, Swiss Army entered into an agreement with Victorinox under which it received the exclusive distribution rights for Victorinox Original Swiss Army Knives in Canada and was appointed the principal distributor of Victorinox professional cutlery in Canada. In exchange for the grant of these rights, Swiss Army issued to Victorinox 277,066 shares of its common stock from treasury. The rights received were awarded to Swiss Army for a fixed term with a continuous five-year renewal arrangement upon expiration of the fixed term. Victorinox has the right ot to renew the agreement; however, should Victorinox choose not to renew upon expiration of the fixed term, Victorinox is required to pay Swiss Army $3,500,000. (B) On December 21, 1993, Swiss Army entered into an agreement with Victorinox under which it received the exclusive distribution rights for Victorinox Original Swiss Army Knives and professional cutlery in the Caribbean. Swiss Army also received the right to distribute Victorinox Swiss-made watches in the United States, Canada and the Caribbean and acquired the 20% share of the Company's subsidiary, Victorinox of Switzerland, Ltd., that Victorinox owned. In exchange for the grant of these rights and the stock acquired, Swiss Army issued to Victorinox a five-year warrant to purchase 1,000,000 shares of common stock at a $3.75 discount to the current market price on the date of exercise. The value of the warrant of $3,750,000 was allocated between the purchase of the distribution rights ($3,261,144) and the acquisition of the 20% share of Victorinox of Switzerland, Ltd., ($488,556). In April 1994, the discount from the current market price was modified to $4.25 in exchange for Victorinox's agreement to pay the exercise price immediately instead of after one year as allowed by the original agreement. All of the shares issued upon exercise of the warrant were subsequently sold to a corporate shareholder of Swiss Army that is controlled by a director of Swiss Army, in exchange for shares of the common stock of that corporation. As part of the agreement, Swiss Army will pay Victorinox a royalty of 1% of net sales of Victorinox Watches. The Caribbean distribution rights are for a fixed term automatically renewable in successive five-year periods unless either party notifies the other at least six months prior to expiration of such period of its intent not to renew. The term of Victorinox Watch distribution rights in each territory coincides with the term in that territory for Victorinox cutlery products. F-11 The Company does not have any manufacturing facilities and imports virtually all of its products from independent suppliers. The Company's business is subject to certain risks related to its arrangements with its foreign suppliers, including possible restrictions on transfer of funds, the risk of imposition of quotas on the amount of products which may be imported into the United States (although no quota currently exists), maritime union strikes and political instability. Although the Company has a United States exclusive distributorship agreement with Victorinox, its principal supplier, it does not have such contractual arrangements with its other suppliers. The agreement with Victorinox provides for certain minimum annual purchases of products by the Company, and failure to achieve these goals would result in Victorinox having the right to terminate the agreement. Such a termination would have a material adverse effect upon the Company's operations. The agreement also provides that the Company will not add non-Victorinox items to its line of cutlery products without the prior agreement of Victorinox. Although the Company has a contractual right to receive minimum quantities of Swiss Army Knives from Victorinox, were this source of supply to fail for any reason, the Company would probably be unable to find an alternative source. Any substantial disruption of the Company's relationships with Victorinox would have a material adverse effect on its operation and results. Virtually all of the Company's imported products are subject to United States custom duties. Although approximately 73%, or $18,800,000, of total payments for watches and watch parts in 1996 were made to a single watch supplier, which is responsible for the final assembly of watch components manufactured by several manufacturers, the Company believes that alternate watch suppliers would be available, if necessary. Furthermore, the Company believes that the loss of this supplier of Swiss Army Brand Watches would not have a material adverse effect on the Company's business. (5) RELATED PARTY TRANSACTIONS One of Swiss Army's directors is a partner in a law firm which provides legal services to the Company. For the years ended December 31, 1996, 1995 and 1994, Swiss Army incurred fees of $598,000 , $516,000 and $588,000, respectively, relating to these services. Of the 1994 fees, $176,000 were paid on behalf of Forschner Enterprises, Inc., the predecessor company to Hudson River Capital LLC and Victory Capital LLC, and capitalized as part of Swiss Army's investment therein. Four of Swiss Army's directors serve as directors for Hudson River Capital LLC, including one who serves as Co-Chairman. Six of Swiss Army's directors serve as directors for Victory Ventures LLC, including two who serve as Co-Chairman. Five of Swiss Army's directors, one of which is an executive officer of Swiss Army, serve as directors of SweetWater, Inc. See Note 6 for further discussion. A company policy authorizes Swiss Army to compensate, in the form of a commission of up to 3% of net sales for up to three years, non-employees for their direct role in introducing significant new customers to the Company. In 1995 and 1994, Swiss Army paid to a relative of one of Swiss Army's directors half of a 3% commission on net sales to a customer, on whose board the same director also serves as a member. In 1995 and 1994 this customer represented approximately 6% and 25% of Swiss Army's total revenues (see Note 1). F-12 In July 1994, Swiss Army entered into a Services Agreement with Brae Group, Inc. ("Brae"), a company which is a stockholder of Swiss Army and in which a Swiss Army director and a principal supplier have a controlling and minority stock interest, respectively. Under the Services Agreement, Brae is to provide various services to Swiss Army for a period of four years relating to maintaining, enhancing and expanding Swiss Army's relationship with the Company's principal supplier. In exchange for these services, Brae received an option to purchase 500,000 shares of Swiss Army's common stock at the then current market price of $10.75 per share. The option vested immediately and can be exercised for 10 years from the date of the Services Agreement (see Note 12). Effective January 1, 1995, Swiss Army entered into an agreement with a director, under which the director received $10,000 per month for consulting services rendered in 1995. This agreement was terminated on December 31, 1995. In December 1995, a Swiss Army director and former Co-Chairman entered into an agreement with the Company to become a sole distributor of Swiss Army Brand products to the golf market. Investors in this new entity include the Company's principal supplier and a member of Swiss Army's Board of Directors, who is a controlling stockholder of Brae. Sales to this entity were approximately $270,000 in 1996. (6) INVESTMENTS Investments consist of the following as of December 31, 1996 and 1995:
Carrying Value Cost December 31, 1996: Preferred units of Hudson River River Capital LLC (A) $ 7,907,345 $ 7,907,345 Preferred units of Victory Ventures LLC 1,095,654 1,095,654 ----------- ----------- Total investments at cost $ 9,002,999 $ 9,002,999 =========== =========== Common stock of SweetWater, $ 150,000 $ 3,381,742 Inc. (B) Common stock and note receivable of affiliated entity (C) - 800,000 ----------- ----------- Total investments in common stock and note receivable of unconsolidated affiliates $ 150,000 $ 4,181,742 =========== ===========
F-13
Carrying Value Cost December 31, 1995: Preferred stock of Forschner Enterprises, Inc. (A) $7,002,990 $7,002,990 ---------- ---------- Total investment at cost $7,002,990 $7,002,990 ========== ========== Common stock of SweetWater, Inc. (B) $1,791,415 $3,430,175 Common stock and note receivable of affiliated entity (C) 800,000 800,000 ---------- ---------- Total investments in common stock and note receivable of unconsolidated affiliates $2,591,415 $4,230,175 ========== ==========
(A) Hudson River Capital LLC ("Hudson River"), formerly known as Victory Capital LLC ("Victory"), is a private equity firm specializing in middle market acquisitions, recapitalization and expansion capital investments. Hudson River currently has equity and other interests in several private and publicly traded companies. In 1994, Swiss Army invested a total of $7,002,990 paid in cash and in shares of stock of a publicly traded corporation, to acquire 700,299 shares of preferred stock of Forschner Enterprises, Inc. ("FEI"), the predecessor company to Victory. On March 1, 1996, FEI merged into Victory and the preferred stock of FEI was converted to preferred units of Victory. In May 1996, Swiss Army invested a total of $2,000,009 in Victory, acquiring 190,477 preferred units. In October 1996, Victory Capital LLC changed its name to Hudson River Capital LLC. In November 1996, Hudson River distributed to its members its ownership interest in Victory Ventures LLC ("Victory Ventures"). This event was non-taxable and resulted in no gain or loss to the Company. Victory Ventures is a private equity firm specializing in small market venture capital investments. As a result of the distribution, the Company owns 890,776 preferred units (representing approximately 9.1% of outstanding equity) of Victory Ventures valued at $1.23 per unit at December 31, 1996. At December 31, 1996, the Company owns 890,776 preferred units (representing approximately 4.2% of outstanding equity) of Hudson River. The preferred units in Hudson River and Victory Ventures owned by Swiss Army carry a preference on liquidation equal to their per unit cost as well as, in certain instances, an annual preferred return. Swiss Army is accounting for these investments on the cost basis, subject to review for impairment. Since these investments do not have a readily determinable fair value, the valuation of these investments is subject to uncertainty. (B) SweetWater, Inc. ("SweetWater") manufactures and sells portable water purification and filtration systems to the sporting goods, recreational, travel and tourist, emergency preparedness and military markets. As of December 31, 1993, SweetWater was a private company and Swiss Army owned preferred stock with a 40% voting interest. In January 1994, SweetWater issued 718,750 shares of common stock in an initial public offering (resulting in 1,837,243 shares of common stock outstanding), at which time Swiss Army's holdings of preferred stock were converted into 430,000 shares of common stock. In January 1994, Swiss Army sold 72,000 shares of SweetWater to a stockholder of Victorinox for approximately $374,000. Swiss Army's cost for the stock sold was approximately $338,000. Through December 31, 1994, the Company accounted for this investment at fair value with changes between cost and fair value reflected as a component of stockholders' equity. During 1995, Swiss Army purchased additional shares of common stock for $1,837,000, raising its percentage ownership to 38%. F-14 Accordingly, in 1995, the Company accounted for this investment under the equity method. Swiss Army's share of the losses of SweetWater, including amortization of goodwill, totaled $1,638,000. During 1995, SweetWater issued additional shares to outside investors. As a result, as of December 31, 1995, Swiss Army owned 20.5% of the outstanding stock of SweetWater. Effective January 1, 1996, Swiss Army decreased its percentage of ownership of SweetWater to below 20% due to the sale by Swiss Army of SweetWater common stock. Accordingly, as of January 1, 1996, this investment was accounted for at fair value. In December 1996, the investment in SweetWater was written down to $150,000, its estimated fair value, due to the impairment in the value of the investment. This write-down of approximately $1,593,000 has been included in gain (loss) on sale (write-down) of investments. Due to the limited trading of SweetWater's common stock, the valuation of this investment is subject to uncertainty and could change in the near term. (C) In 1995, the Company purchased 5,160 shares of common stock and an 8% convertible note due in the year 2000 of a privately held affiliated start-up entity that was in the business of designing, manufacturing and marketing fine jewelry. In 1995, the common stock and the convertible note had been recorded at cost. In the second quarter of 1996, the investment was fully written off due to the impairment in the value of the investment. The write-down of $800,000 has been included in gain (loss) on sale (write-down) of investments. Simmons Outdoor Corporation ("Simmons") was a publicly traded company whose primary business is marketing and distributing branded sporting goods products (principally optical in nature). In the fourth quarter of 1995 the Company's investment in common stock of Simmons was sold, resulting in a pre-tax profit of $1,740,000, which is included in the gain (loss) on sale (write-down) of investments. In 1995, prior to the sale of the common stock, the Company accounted for this investment under the equity method. Swiss Army's share of the income of Simmons, net of amortization of goodwill, totaled $1,090,000. (7) OTHER ASSETS Other assets in the accompanying consolidated balance sheets consists of the following at December 31, 1996 and 1995:
December 31, Amortization 1996 1995 Period Cash surrender value of life insurance (See Note 13) $7,317,215 $5,855,757 N/A Goodwill (A) - 1,179,189 10 years Other 1,944,127 3,634,277 1-5 years ----------- ----------- Accumulated amortization (496,436) (3,166,339) ----------- ----------- $8,764,906 $7,502,884 =========== ===========
(A) On September 2, 1992, the Company acquired certain assets and assumed certain liabilities of CDF. This acquisition was accounted for as a purchase with the assets acquired and liabilities assumed recorded at their fair value. As discussed in Note 3, in 1996 the remaining net book value of the goodwill was written off. In January 1997, the Company entered into an asset purchase agreement to sell certain assets and liabilities of CDF. No significant gain or loss will result from this transaction. For the years ended December 31, 1996, 1995 and 1994, amortization expense was approximately $2,436,000, $1,728,000 and $1,934,000, respectively. F-15 (8) ACCRUED LIABILITIES The components of accrued liabilities were as follows as of December 31, 1996 and 1995:
1996 1995 Sales, marketing and promotional $2,631,384 $3,318,970 Payroll related 1,425,620 1,623,641 Pension 585,706 628,303 Income taxes 314,215 1,114,389 Other 2,878,224 3,127,080 ----------- ----------- $7,835,149 $9,812,383 =========== ===========
(9) REVOLVING CREDIT AGREEMENT Swiss Army had a $15,000,000 revolving credit agreement which, as amended, carried interest at either the bank's Base Rate, or the London Interbank Offered Rate (LIBOR) rate, plus 1.25%. This agreement expired on January 30, 1997. The interest rate was at Swiss Army's discretion subject to the terms of the loan. Swiss Army had no outstanding balance under this agreement at either December 31, 1996 or 1995. Borrowings under this line were used for working capital requirements and, within certain restrictions, for any corporate purpose. The revolving term loan agreement contained certain restrictions relating to the payment of dividends, repurchase of stock, issuance of additional debt and sale of certain assets. In addition, the agreement required the continuation of the exclusive distribution agreement with Swiss Army's principal Swiss Army Knife and cutlery supplier (see Note 4). The Company is currently reviewing its options to establish a new revolving credit agreement. The Company plans to use the line of credit described below for borrowings, if needed, prior to establishment of a new revolving credit agreement. The Company maintains a $5,000,000 line of credit with a financial institution. This facility is unsecured and contains no restrictions or requirements. The Company had no outstanding balance under this agreement at December 31, 1996. F-16 (10) INCOME TAXES The income tax provision (benefit) for the years ended December 31, 1996, 1995 and 1994, consists of the following:
Year Ended December 31, 1996 1995 1994 Current Federal ($1,140,055) $2,614,025 $7,188,549 Foreign 292,215 43,720 - State 229,742 508,055 1,088,913 ---------- ---------- ---------- Total current (618,098) 3,165,800 8,277,462 Deferred Federal (1,331,981) (492,108) (1,258,334) State (393,585) (151,047) (386,233) ---------- ---------- ---------- Total deferred (1,725,566) (643,155) (1,644,567) ---------- ---------- ---------- Provision (benefit) for income taxes ($2,343,664) $2,522,645 $6,632,895 =========== ========== ==========
The significant components of the deferred tax asset (liability) as of December 31, 1996 and 1995 are as follows:
1996 1995 Loss on write-down of investments $1,211,493 $651,195 Inventory related reserves 1,151,593 994,807 Sales and marketing reserves 1,074,376 654,856 Depreciation and amortization 552,300 (150,750) Accrued employee benefits 540,913 755,003 Net operating loss carryforward for state purposes 196,931 - Other 165,189 262,118 ----------- ---------- $4,892,795 $3,167,229 =========== ==========
No valuation allowance has been recorded against the Company's deferred tax assets as the Company believes it is more likely than not that the Company will realize the deferred tax assets. F-17 A reconciliation of the income tax provision (benefit) calculated at the federal income tax statutory rate and the Company's effective income tax rate for 1996, 1995 and 1994 is as follows:
1996 1995 1994 Statutory federal income tax rate (34.0%) 34.0% 35.0% State income taxes, net of federal income tax benefit (4.1) 6.8 2.9 Foreign tax rate differences 3.8 0.8 1.4 Other 3.5 3.2 2.2 ------- ------- ------ Effective income tax rate (30.8%) 44.8% 41.5% ======= ======= ======
At December 31, 1996, the Company has net operating loss carryforwards, subject to Internal Revenue Service review, of approximately $3.1 million. The Company plans utilize the loss carryfowards by carrying them back to previous years. (11) EMPLOYEE BENEFITS Substantially all employees of the Company are covered by a noncontributory defined benefit pension plan. Benefits are based on years of service and the employee's compensation during the five highest consecutive compensation years. Costs under the plan are accrued and funded on the basis of accepted actuarial methods. Total pension expense approximated $232,000, $324,000 and $218,000, for the years ended December 31, 1996, 1995 and 1994, respectively. The net periodic pension cost of Swiss Army's pension plan in 1996, 1995 and 1994 includes the following components:
1996 1995 1994 Service cost - benefits earned during the period $239,607 $256,331 $196,795 Interest cost on projected benefit obligation 156,335 159,618 123,590 Return on assets (144,010) (110,233) (94,726) Amortization of net transition asset (14,188) (14,188) (14,188) Amortization of unrecognized prior service cost (13,253) (13,529) (13,818) Amortization of net loss 7,424 46,021 19,939 -------- --------- --------- Net periodic pension cost $231,915 $324,020 $217,592 ======== ========= =========
F-18 The funded status of the Company's defined benefit plan at December 31, 1996 and 1995 follows:
1996 1995 Actuarial present value of: Vested benefit obligation $2,072,841 $1,903,390 ========= ========= Accumulated benefit obligation $2,072,841 $1,903,390 ========= ========= Projected benefit obligation $2,629,302 $2,694,164 Market value of plan assets 2,110,602 1,565,095 --------- --------- Plan assets less than projected benefit obligation (518,700) (1,129,069) Unrecognized net loss 332,905 896,032 Unrecognized prior service cost (268,515) (281,768) Unrecognized net transition asset (85,134) (99,322) ---------- ---------- Accrued pension cost ($539,444) ($614,127) ========== ==========
Rates used in determining the actuarial present value of the projected benefit obligation were as follows:
December 31, 1996 1995 Discount rate 7.00% 7.00% Rate of increase in future compensation levels 5.00% 5.00% Expected long-term rate of return on plan assets 8.00% 8.00%
Plan assets consist principally of investments in fixed income securities, short-term investments and common stock. The Company maintains a 401(k) employee benefit plan pursuant to which participants can defer a certain percent of their annual compensation in order to receive certain benefits upon retirement, death, disability or termination of employment. The Company can elect to make a matching contribution of up to 6% of annual eligible compensation per employee. The determination to make a matching contribution is made at the beginning of each fiscal year. During 1996, 1995 and 1994 the Company incurred expenses of approximately $135,000, $129,000 and $88,000 related to this plan. The Company offers no other post retirement benefits. (12) STOCKHOLDERS' EQUITY During 1996 and 1994, the stockholders approved adoption of The Forschner Group, Inc. 1996 Stock Option Plan and The Forschner Group, Inc. 1994 Stock Option Plan, respectively, providing for the grant of options to employees, including officers of the Company, and members of the Board of Directors. Under these plans and previous stock option plans, 805,094 shares of common stock are reserved and available for issuance. Options expire no later than ten years after the date of grant. Option prices equal at least 100% of the fair market value of Swiss Army's common stock on the date of grant. The vesting of options is determined by the Stock Option and Compensation Committee, which administers the plan, and for options outstanding as of December 31, 1996, vesting ranges from immediately upon grant to three years. F-19 The following table summarizes stock option plan and warrant activity for the three years ended December 31, 1996:
Number of Shares Option Price Outstanding at December 31, 1993 669,533 $ 3.32 - $17.50 Granted 1,325,000 $10.75 - $15.25 Exercised (111,000) $ 5.25 - $11.50 Canceled (535,000) $14.50 - $17.50 ---------- Outstanding at December 31, 1994 1,348,533 $ 3.32 - $17.50 Granted (A) (B)(C) (D) 912,000 $11.75 - $12.88 Exercised (3,750) $ 6.50 Canceled (B) (D) (248,658) $ 3.32 - $17.50 ---------- Outstanding at December 31, 1995 2,008,125 $ 5.25 - $14.50 Granted (E) 348,750 $13.63 Exercised (22,250) $5.25 - $12.88 Canceled (22,625) $12.25 - $12.88 ---------- Outstanding at December 31, 1996 2,312,000 $5.25 - $14.50 ==========
Of the options and warrants outstanding at December 31, 1996, 1,697,688 are exercisable at a weighted average option price of $11.79 per share. (A) In January 1995, the Company issued 637,000 options to purchase common stock at $12.88 per share to various Company employees, officers and directors. These options are exercisable in four equal installments over three years starting with the grant date. (B) Included as granted are options to purchase 25,000 shares of common stock at $11.75 per share to a former director, which replaced the same number of options granted in 1993 at $17.50 per share, that were canceled concurrently. The newly issued options retain vesting rights of the options they replaced. (C) In December 1995, the Company issued a warrant to purchase 100,000 shares of common stock at $12.50 per share to an officer of the Company. The warrant is exercisable in four equal installments over three years starting with the grant date. (D) Included as canceled are 150,000 options to purchase common stock at $12.88 per share which were issued to a director. In December 1995, options covering 150,000 shares were granted to another director at $12.50 per share. These options are exercisable in four equal installments over three years starting with the grant date. (E) In November 1996, the Company issued 348,750 options to purchase common stock at $13.63 per share to various Company employees and officers. These options are exercisable in four equal installments over three years starting with the grant date. F-20 The weighted-average fair value of the stock options and warrants granted in 1996 and 1995 was approximately $5.45 and $5.80, respectively. The weighted-average fair value of the options and warrants was estimated using the Black-Scholes option-pricing model with the following assumptions: expected volatility of 30%; expected life of options and warrants of 6 years; dividend yield of 0%; and risk free interest rate of 6.04% in 1996 and 6.70% in 1995, respectively. The Company accounts for stock options and warrants under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", under which no compensation cost has been recognized. Had compensation cost for 1996 and 1995 been determined under the principles of SFAS No. 123, the Company's net income (loss) and earnings per share would have been the following:
1996 1995 Pro forma net income (loss) ($6,386,000) $2,343,000 Pro forma earnings per share ($0.78) $0.28
The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts as SFAS No. 123 does not apply to stock options and warrants granted prior to 1995, and additional options and warrants may be granted in future years. (13) COMMITMENTS AND CONTINGENCIES The Company has minimum purchase requirements under an agreement with its principal Swiss Army Knife and cutlery supplier (see Note 4). On December 18, 1996, the Swiss Military Department representing the Swiss Confederation ("Swiss Confederation") and the Company entered into a trademark agreement (the "Trademark Agreement") pursuant to which the Company was granted certain worldwide use and sublicensing rights in connection with trademarks containing the words "Swiss Army" registered by the Swiss Confederation in Switzerland (the "Swiss Confederation Trademarks"). The Swiss Confederation acknowledged the Company's exclusive right to use the Company's trademarks in the countries of their registration or application and agreed to assist the Company in enforcing the Company's rights with respect to its trademarks. In addition, the Swiss Confederation stated its intention to assist Victorinox, the Company and two other companies in safeguarding their rights with respect to "Swiss Army" as applied to knives and in preventing the use of "Swiss Army" with respect to multi-blade pocketknives, multi-tools and other products which are not Swiss products. The Trademark Agreement grants the Company the right to an exclusive royalty free license of the Swiss Confederation Trademarks as applied to watches and sunglasses in the United States, Canada and the Caribbean. The Company is also granted such rights with respect to certain designated products that either it or its licensees sell in commercial quantities in the United States, Canada and the Caribbean within designated time periods. In the event the Company or its licensees do not sell commercial quantities of product categories within the time periods set by the agreement, the Swiss Confederation shall have the right, subject to certain conditions, to license the Swiss Confederation Trademarks to a third party and, in such event, the Company shall be obligated to offer such third party a license of the Company's appropriate trademark. F-21 Outside of the United States, Canada and the Caribbean, the Trademark Agreement provides for the grant to the Company of the right to an exclusive license, subject to the existing legal rights of others, for watches and sunglasses at a royalty equal to 3% of net sales. In addition, the Company has the right to a license for certain designated products outside of the United States, Canada and the Caribbean also at a royalty equal to 3% of net sales, to use the Swiss Confederation Trademarks provided that the Company commences the sale of commercial quantities of such products within time periods prescribed by the Trademark Agreement. The Trademark Agreement also provides that all products sold under the license must be of a quality at least equal in workmanship and materials to the products currently sold by the Company, Victorinox or one other company and that in the event the Company discontinues sales of goods in commercial quantities in any category of goods for three consecutive years, the Swiss Confederation shall have the right to terminate the license as to that category after giving the Company notice and an opportunity to resume sales. Except for the foregoing limitation, the rights of the Company with respect to the use of the Swiss Confederation Trademarks under the Trademark Agreement are perpetual. It is anticipated that the right to utilize the Swiss Confederation Trademarks on certain products other than timepieces and sunglasses will be made available to one other company by the Company on terms yet to be discussed. At December 31, 1996, minimum rental payment commitments for office and warehouse space leased by Swiss Army under operating leases are: 1997 $1,322,000 1998 1,344,000 1999 1,337,000 2000 1,283,000 2001 819,000
During the years ended December 31, 1996, 1995 and 1994, rent expense was approximately $1,313,000, $1,390,000 and $945,000, respectively. As of February 1, 1997, the Company has open contracts to purchase approximately 64,000,000 Swiss francs in 1997 as a hedge against future purchase of inventories. F-22 The Company maintains split dollar life insurance agreements covering two members of the Board of Directors. Primarily, these policies can only be canceled upon the mutual agreement of the Company and the insured. However, if these policies were canceled at December 31, 1996, the Company would receive in cash an amount equal to the lesser of the cash surrender value or cumulative premiums paid to date on these policies which was approximately $3,283,000. Under the terms of these life insurance policies, the Company will make approximate future premium payments, if the policies remain in force, as follows: 1997 $812,000 1998 827,000 1999 843,000 2000 858,000 2001 and thereafter 3,940,000
In 1993, Swiss Army's Board of Directors adopted a charitable insurance program that will enable Swiss Army to make a commitment to the Victorinox-Swiss Army Knife Foundation (the "Foundation"), a foundation which engages in various charitable activities including the promotion of athletic events for underprivileged urban youth, as well as a broad range of charities. In 1994, Swiss Army made a special $1.5 million contribution in the form of cash and common stock to the Foundation. Under the program, Swiss Army owns, is the beneficiary of, and pays all the premiums for life insurance policies on the lives of cerain Board members. Pursuant to the program, upon the death of each Director, the Company will retain a share of the insurance proceeds equal to the cumulative premiums paid by the Company for the policy on that Director's life. One half of any additional insurance proceeds received upon the death of an insured Director will be used to fulfill charitable pledges made to the Victorinox-Swiss Army Knife Foundation. The remaining half of the additional proceeds will be used to fulfill charitable pledges recommended by the individual Directors. Swiss Army is generally bound to continue to pay all premiums on the policies for the lives of the insured Directors or, in the case of the Chairman of the Management Committee, as long as he is an officer or a board member or agrees to serve as a consultant to the Company. Swiss Army will make approximate future premium payments related to these programs as follows: 1997 $1,115,000 1998 1,115,000 1999 1,115,000 2000 1,115,000 2001 and thereafter 8,205,000
Under existing federal tax laws, the receipt by Swiss Army of the proceeds from an insurance policy upon the death of a director would not result in regular taxable income to the Company; however, Swiss Army may be subject to alternative minimum tax on a portion of the receipts. When Swiss Army makes cash contributions to a designated charity, it will be entitled to a tax deduction equivalent to the sum of those contributions. The extent of the utilization of this deductSwiss Army isear will depend upon Swiss Army's taxable income, since entitled to claim as charitable deductions only 10% of its taxable income in any year. However, these deductions may be carried forward for tax purposes for a period of five years. F-23 Based upon estimates prepared by the Company's insurance agent, the anticipated earnings impact related to the policies for both the Foundation and the two members of the Board of Directors is expected to be insignificant. Swiss Army entered into an employment agreement dated as of January 2, 1996 with a director of the Company who, until December 13, 1995, was Co-Chairman of the Board and Chief Executive Officer of Swiss Army. The agreement provides that the former Co- Chairman shall be employed in an executive capacity with the Company and shall be available to consult with and advise the Company on such matters as might be requested by senior management of the Company for at least eighty-five hours per month on issues dealing with the maintenance of corporate trademarks, corporate legal matters, and strategic support relative to strategic relations with Victorinox, the Company's key supplier. The former Co- Chairman is being paid a salary of $140,000 per annum and, during 1996 received a one-time bonus of $300,000. The agreement, which has a term of five years, also provides that following the termination of the agreement, this individual would be prohibited from competing, with certain exceptions, with the business of the Company for a period of three years. In 1994, in a case originally brought by the Company against Arrow Trading Co., Inc. ("Arrow") in September 1992 in the District Court for the Southern District of New York, the U.S. Court of Appeals for the Second Circuit reversed a judgment originally issued in the Company's favor and held that the use of "Swiss Army" on Chinese-made knives could not be enjoined on grounds of geographic misdescriptiveness. On remand, the District Court ruled that Arrow had violated Section 43(a) of the Lanham Act and New York common law in connection with its sale of Chinese-made multi-bladed pocketknives which Arrow called "Swiss Army Knives". The Arrow engaged in the Company had proved its contention that unfair competition and held that Arrow, although free to use the phrase "Swiss Army Knife" to designate its product, must amply distinguish it from the Company product and prohibited Arrow from selling any multi-function pocketknives as "Swiss Army Knives" unless the phrase "Swiss Army Knife" is immediately preceded or followed by Arrow's name in such a way as to clearly designate its origin and that the size of the type designating origin be no smaller or less prominent than the type used in the phrase "Swiss Army Knife". The Company intends to utilize all reasonable means to safeguard the public from being misled by inferior imitation products. Management and legal counsel are unable to predict at this time, what impact, if any, the outcome of this litigation will have on the Company's financial position and results of operations. In addition, the Company is involved in certain legal matters relating to trademark, patent, and other general business matters. Management believes that the outcome of these legal matters will not have a material adverse effect on the financial position and results of operations of the Company. F-24 (14) INTERNATIONAL OPERATIONS A summary of selected financial information for international operations is as follows:
1996 1995 Net sales $17,239,000 $14,164,000 Operating income (loss) 1,674,000 (185,000) Identifiable assets 12,204,000 12,801,000
No selected financial information has been presented for 1994 as international operations were less than 10% of net sales, operating income and identifiable assets. (15) QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended March 31 June 30 September 30 December 31 1996 Net sales $26,079,513 $28,676,650 $34,616,208 $40,657,526 Gross profit 8,592,757 5,388,921 11,996,389 14,858,073 Income (loss) before income taxes (414,974) (6,997,867) 1,140,071 (1,335,597) Net income (loss) (244,974) (4,056,867) 642,071 (1,604,933) Net income (loss) per share ($0.03) ($0.49) $0.08 ($0.20) 1995 Net sales $ 29,369,721 25,925,259 $ 30,186,155 $ 41,213,651 Gross profit 10,700,594 8,715,449 10,466,106 14,382,202 Income before income taxes 2,194,832 538,773 540,331 2,361,925 Net income 1,270,782 218,183 196,290 1,427,961 Net income per share $ 0.15 $ 0.03 $ 0.02 $ 0.18
Results for June 30, 1996 and December 31,1996 as compared to the same periods for 1995 were impacted by inventory write-offs, investment write-downs and special charges of $7,394,000 and $2,493,000, respectively. See Note 3 for further discussion. F-25 SWISS ARMY BRANDS, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Column A Column B Column C Column D Column E Additions Balance Charged to Balance At At Costs and End of Classification Beginning Expenses Deductions Year of Year Year Ended December 31, 1996: Allowance for Doubtful Accounts $975,000 $57,000 $ - $1,032,000 ======== ========= ========== ========= Inventory Reserve $918,000 $4,932,000 ($3,900,000) $1,950,000 ======== ========= ========== ========= Year Ended December 31, 1995: Allowance for Doubtful Accounts $ 755,000 $220,000 $ - $975,000 ======= ======== =========== ========= Inventory Reserve $ 750,000 $168,000 $ - $918,000 ======= ======== =========== ========= Year Ended December 31, 1994: Allowance for Doubtful Accounts $ 710,000 $ 45,000 - $755,000 ======= ======== =========== ========= Inventory Reserve $ 201,000 $549,000 - $750,000 ======= ======== =========== =========
F-26 (3) Exhibits. Exhibit Title Exhibit No. (2) Not Applicable (3) (A) Articles of Incorporation, as amended, incorporated by reference to the Exhibits to Quarterly Report on Form 10-Q for the fiscal year ended June 30, 1996. * (B) By-laws, as amended, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1995. * (4) Instruments defining the rights of security holders, including indentures: (A) Excerpts from Certificate of Incorporation, as amended, incorporated by reference to Exhibit 3(a) hereto. * (B) Excerpts from By-Laws, as amended, incorporated by reference to the Exhibits from Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (9) Not Applicable. (10) Material Contracts (A) Employment Agreement dated as of September 15, 1983 between SABI and Michael M. Weatherly, incorporated by reference to the Exhibits to Registration Statement on Form S-18, No. 2-87357-B. * (B) 1983 Stock Option Plan, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1990. * (C) Letter Agreement dated December 12, 1983 between Victorinox Cutlery Company and R.H. SABI Co., Inc., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (D) Mutual Agreement dated as of October 20, 1986 between Victorinox Cutlery Company and The Forschner Group, Inc., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (E) Letter Agreement dated as of October 20, 1986 between Victorinox Cutlery Company and The Forschner Group, Inc., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (F) Letter Agreement dated August 24, 1988 between The Forschner Group, Inc. and Recta S.A., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (G) Mutual Agreement dated October 25, 1988 between Victorinox Cutlery Co. and The Forschner Group, Inc., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (H) Letter Agreement dated June 12, 1989 between Victorinox Cutlery Co. and The Forschner Group, Inc., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (I) Agreement to Lease dated June 14, 1990 between The SABI Group, Inc. and Petran Trap Falls Associates, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1990. * 35 (J) Security agreement dated January 31, 1991 between The Forschner Group, Inc. and Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (K) Security agreement dated January 31, 1991 between Swiss Army Brands Ltd. and Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (L) Security agreement dated January 31, 1991 between Victorinox of Switzerland, Ltd. and Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (M) Security agreement dated January 31, 1991 between Excelsior Advertising, Inc. and Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (N) Agreement of guarantee and suretyship dated January 31, 1991 by Swiss Army Brands Ltd. in favor of Connecticut National Bank, incorporated by reference to the Exhibit to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (O) Agreement of guarantee and suretyship dated January 31, 1991 by Victorinox of Switzerland, Ltd. in favor of Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (P) Agreement of guarantee and suretyship dated January 31, 1991 by Excelsior Advertising Inc. in favor of Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1989. * (Q) Life insurance agreement dated as of December 7, 1991 between The Forschner Group, Inc. and Stanley R. Rawn, Jr., as Trustee u/a dtd. December 9, 1986 between Louis Marx, Jr. and Stanley R. Rawn, Jr., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (R) Amended and Restated Loan Agreement dated June 18, 1992 between The Forschner Group, Inc. and The Connecticut National Bank (now known as Shawmut Bank Connecticut, N.A.), incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (S) Letter agreement dated June 18, 1992 between The Forschner Group, Inc. and The Connecticut National Bank, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (T) License Agreement dated June 30, 1992 between The Forschner Group, Inc. and Precise Imports Corporation, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (U) Letter agreement dated November 11, 1992 between The Forschner Group, Inc. and Michael M. Weatherly, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * 36 (V) Life insurance agreement dated December 24, 1992 between The Forschner Group, Inc. and Louis Marx, Jr., as Trustee u/a dtd. as of October 24, 1988 between Stanley R. Rawn, Jr. and Barbara Rawn and Louis Marx, Jr., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (W) License Agreement dated as of January 1, 1993 between Cuisine de France Limited and Coutel 'Innov, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (X) Mutual Agreement dated April 6, 1992 between The Forschner Group, Inc. and Victorinox Cutlery Company, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1992. * (Y) 1993 Stock Option Plan, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (Z) First Modification to Amended and Restated Loan Agreement dated as of August 13, 1993 between The Forschner Group, Inc. and Shawmut Bank Connecticut, N.A., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (AA) Second Modification to Amended and Restated Loan Agreement dated as of February 17, 1994 between The Forschner Group, Inc., and Shawmut Bank Connecticut, N.A., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (BB) Commercial Promissory Note dated February 17, 1994 of The Forschner Group, Inc. in the principal amount of $15,000,000, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (CC) Lease dated May 3, 1993 between One Research Drive Associates Limited Partnership and The Forschner Group, Inc., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (DD) License Agreement dated as of July 1, 1993 between Cuisine de France Limited and Coutel 'Innov, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (EE) Life insurance agreement dated as of December 24, 1992 between The Forschner Group, Inc. and Louis Marx, Jr., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * 37 (FF) Life insurance agreement dated as of September 24, 1993 between The Forschner Group, Inc. and Louis Marx, Jr., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (GG) Life insurance agreement dated as of September 24, 1993 between The Forschner Group, Inc. and James D. Rawn, as Trustee u/a dtd. as of June 4, 1992 between Louis Marx, Jr., Grantor and James D. Rawn, Trustee, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (HH) Mutual Agreement dated December 21, 1993 between The Forschner Group, Inc. and Victorinox Cutlery Company, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1993. * (II) 1994 Stock Option Plan, incorporated by reference to the Exhibits to Registration Statement on Form S-8, No. 33-87078 filed by The Forschner Group, Inc. * (JJ) Services Agreement dated as of July 29, 1994 between The Forschner Group, Inc. and Brae Group, Inc., incorporated by reference to the Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1994. * (KK) Non-Incentive Stock Option Agreement dated as of July 29, 1994 between The Forschner Group, Inc. and Brae Group, Inc., incorporated by reference to the Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1994. * (LL) Consulting Agreement dated as of December 7, 1991 by and between The Forschner Group, Inc. and Louis Marx, Jr., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (MM) Third Modification to Amended and Restated Loan Agreement dated as of September 30, 1994 between The Forschner Group, Inc. and Shawmut Bank Connecticut, N.A., incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (NN) First Amendment to Lease dated June 16, 1994 between The SABI Group, Inc. and Petran Trap Falls Associates, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * 38 (OO) Life insurance agreement dated as of April 15, 1994 between The Forschner Group, Inc. and Lawrence T. Warble, as Trustee u/a dtd. as of March 21, 1994 between Stanley R. Rawn, Jr., Grantor and Lawrence T. Warble, Trustee, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1994. * (PP) Agreement dated June 30, 1995 between The Forschner Group, Inc. and Bill-Mar Specialty Company, Inc., incorporated by reference to the Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995. * (QQ) Letter agreement dated February 15, 1995 between The Forschner Group, Inc. and Harry Thompson, incorporated by reference to the Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995. * (RR) Letter agreement dated October 25, 1995 between The Forschner Group, Inc. and Harry Thompson, incorporated by reference to the Exhibits to Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995. * (SS) Employment agreement dated as of January 2, 1996 between The Forschner Group, Inc. and James W. Kennedy, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1995. * (TT) Warrant dated as of December 13, 1995 between The Forschner Group, Inc. and J. Merrick Taggart, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1995. * (UU) Letter Agreement dated December 18, 1995 between The Forschner Group, Inc. and Victorinox Cutlery Company, incorporated by reference to the Exhibits to Annual Report on Form 10-K for the fiscal year ended December 31, 1995. * (VV) Watch design and Consulting Agreement dated as January 2, 1995 between The Forschner Group, Inc., Polenberg, Inc. and Myron Polenberg Incorporated by reference to the Exhibits to quarterly report on Form 10-Q for the fiscal quarter ended March 31, 1996. * (WW) 1996 Stock Option Plan. (10)-1 (XX) Employment and Severance Agreement dated as November 15, 1996 between Thomas D. Cunningham and Swiss Army Brands, Inc. (10)-2 (YY) Trademark Agreement dated as of December 18, 1996 by and between the Swiss Confederation represented by the Federal Military Department represented by the Federal Defense Production Group and Swiss Army Brands, Inc. ( confidential treatment has been requested for certain portions of this exhibit). (10)-3 (ZZ) Asset Purchase Agreement dated January 31, 1997 among Cuisine de France Limited, Sabatier USA, LLC, Robert P. Wolff and Robert Candler. (10)-4 39 (11) Statement re computation of per share earnings is not required because the relevant computations can be clearly determined from the material contained in the financial statements included herein. (12) Not applicable. (13) Not applicable. (16) Not Applicable. (18) Not Applicable. (21) Subsidiaries of Registrant. 21 (22) Not Applicable. (23) Consents of experts and counsel: Consent of Arthur Andersen LLP. 23 (27) Financial Data Schedule. (28) Not Applicable. (99) Not Applicable. * Incorporated by reference No Current Reports on Form 8-K were filed during the fiscal quarter ending December 31, 1996. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SWISS ARMY BRANDS, INC. (Registrant) By /s/ J. Merrick Taggart J. Merrick Taggart President Date: March 27 , 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ J. Merrick Taggart March 27, 1997 J. Merrick Taggart President and Director /s/ Thomas M. Lupinski March 27, 1997 Thomas M. Lupinski Chief Financial Officer and Chief Accounting Officer /s/ A. Clinton Allen March 27, 1997 A. Clinton Allen Director /s/ Clarke H. Bailey March 27, 1997 Clarke H. Bailey Director March 27, 1997 Thomas A. Barron Director /s/ Vincent D. Farrell, Jr. March 27, 1997 Vincent D. Farrell, Jr. Director /s/ Herbert M. Friedman March 27, 1997 Herbert M. Friedman Director /s/ Peter W. Gilson March 27, 1997 Peter W. Gilson Director /s/ M. Leo Hart March 27, 1997 M. Leo Hart Director /s/ James W. Kennedy March 27, 1997 James W. Kennedy Director /s/ Keith R. Lively March 27, 1997 Keith R. Lively Director March 27, 1997 Lindsay Marx Director /s/ Louis Marx, Jr. March 27, 1997 Louis Marx, Jr. Director March 27, 1997 Stanley G. Mortimer III Director /s/ Stanley R. Rawn, Jr. March 27, 1997 Stanley R. Rawn, Jr. Director March 27, 1997 Eric M. Reynolds Director /s/ John Spencer March 27, 1997 John Spencer Director March 27, 1997 John V. Tunney Director EX-10.1 2 1996 STOCK OPTION PLAN 1996 STOCK OPTION PLAN THE FORSCHNER GROUP, INC. SECTION 1. Establishment. There is hereby established the 1996 Stock Option Plan (this "Plan"), pursuant to which officers, directors and key employees of THE FORSCHNER GROUP, INC. (hereinafter the "Company") and its subsidiaries, and persons or entities who have been or may be in a position to benefit the Company, may be granted options to purchase shares of common stock of the Company, par value $.10 per share ("Common Stock"), and thereby share in the future growth of the business. The subsidiaries of the Company included in this Plan (the "Subsidiaries") shall be any subsidiary of the Company as defined in Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"). SECTION 2. Status of Options. The options which may be granted pursuant to this Plan will constitute either incentive stock options within the meaning of Section 422 of the Code ("Incentive Stock Options") or options which are not Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock Options and Non-incentive Stock Options shall be collectively referred to herein as options. SECTION 3. Eligibility. All employees and members of the Board of Directors of the Company or any of its Subsidiaries (including officers), and any persons or entities who have been or may be in a position to benefit the Company, shall be eligible to be granted Non-incentive Stock Options to purchase shares of Common Stock under this Plan. All employees of the Company or any of its Subsidiaries who are employed at the time of adoption of this Plan or thereafter shall be eligible to receive grants of Incentive Stock Options pursuant to this Plan. SECTION 4. Number of Shares covered by Options; No Preemptive Rights. The total number of shares which may be issued and sold pursuant to options granted under this Plan shall be 1,000,000 shares of Common Stock (or the number and kind of shares of stock or other securities which, in accordance with Section 8 of this Plan, shall be substituted for such shares of Common Stock or to which said shares shall be adjusted; hereinafter, all references to shares of Common Stock are deemed to be references to said shares or shares so adjusted). The issuance of said shares shall be free from any preemptive or preferential right of subscription or purchase on the part of any stockholder. If any outstanding option granted under this Plan expires or is terminated, for any reason, the shares of Common Stock subject to the unexercised portion of such option will again be available for options issued under this Plan. SECTION 5. Administration. (a) This Plan shall be administered by the committee (the "Committee") referred to in paragraph (b) of this Section. Subject to the express provisions of this Plan, the Committee shall have complete authority, in its discretion, to interpret this Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), to determine to whom, the times and the prices at which options shall be granted, the option periods, the number of shares of the Common Stock to be subject to each option and whether each option shall be an Incentive Stock Option or a Non-incentive Stock Option, and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that from the date of approval of the Plan by the stockholders of the Company to the first anniversary of such date options to purchase no more than 333,333 shares of Common Stock shall be granted under the Plan and from the date of approval of the Plan to the second anniversary of such date options to purchase no more than 666,666 shares of Common Stock in the aggregate shall be granted under the Plan. Each option shall be clearly identified at the time of grant as to its status as an Incentive Stock Option or Non-incentive Stock Option. In making such determinations, the Committee may take into account the nature of the services rendered by the respective individuals or entities, their present and potential contributions to the success of the Company and such other factors as the Committee, in its discretion, shall deem relevant. The Committee's determination on all of the matters referred to in this Section 5 shall be conclusive. (b) The Committee shall consist of from two (2) to five (5) individuals who are "outside directors" within the meaning of section 162(m) of the Code and applicable interpretive authority thereunder. The Committee shall be appointed by the Board, which may at any time and from time to time, remove any member of the Committee, with or without cause, appoint additional members to the Committee and fill vacancies, however caused, in the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. Nothing contained in this Plan shall be deemed to give any individual or entity any right to be granted an option to purchase shares of Common Stock except to the extent and upon such terms and conditions as may be determined by the Committee. SECTION 6. Terms of Options. Each option granted under this Plan shall be evidenced by a Stock Option Agreement which shall be executed by the Company and by the person or entity to whom such option is granted, and shall be subject to the following terms and conditions: (a) The price at which shares of Common Stock covered by each option may be purchased pursuant thereto shall be determined in each case on the date of grant by the Committee, but shall be an amount not less than the par value of such shares. In the case of Incentive Stock Options, the price at which shares of Common Stock covered by each Incentive Stock Option may be purchased pursuant thereto shall be an amount not less than the fair market value of shares of Common Stock at the time the Incentive Stock Option is granted. For purposes of this Section, the fair market value of shares of Common Stock on any day shall be (i) in the event the Common Stock is not publicly traded, the fair market value on such day as determined in good faith by the Committee or (ii) in the event the Common Stock is publicly traded, the last sale price of a share of stock as reported by the principal quotation service on which the Common Stock is listed, or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked price of a share of Common Stock as reported by such principal quotation service, or, if there is no such report by such quotation service for such day, such fair market value shall be the average of (i) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next preceding such day for which there was a report and (ii) the last sale price (or, if last sale prices are not reported with respect to the Common Stock, the mean of the high bid and low asked prices) on the day next succeeding such day for which there was a report, or as otherwise determined by the Committee in its discretion pursuant to any reasonable method contemplated by Section 422 of the Code and any treasury regulations issued pursuant to that Section. (b) The option price of the shares to be purchased pursuant to each option shall be paid in full in cash, or by delivery (i.e. surrender) of shares of Common Stock of the Company then owned by the optionee at the time of the exercise of the option. Shares of Common Stock so delivered will be valued on the day of delivery for the purpose of determining the extent to which the option price has been paid thereby, in the same manner as provided in paragraph (a) of this Section, or as otherwise determined by the Committee, in its discretion, pursuant to any reasonable method contemplated by Section 422 of the Code and any treasury regulations issued pursuant to that section. (c) Each Stock Option Agreement shall provide that such option may be exercised by the optionee, in such parts and at such times, as may be specified in such Agreement, within a period not exceeding ten years after the date on which the option is granted (hereinafter called the "option period") and, in any event, in the case of employees of the Company, only during the continuance of the optionee's employment by the Company or any of its Subsidiaries or, in the case of Incentive Stock Options, during the period of thirty days after the termination of such employment to the extent that the right to exercise such options had accrued at the date of such termination or, in the case of Non-incentive Stock Options, during the period of six months after the termination of such employment to the extent that the right to exercise such options had accrued or the date of such termination; provided, however, that if options as to 100 or more shares are held by an optionee, then such options may not be exercised for less than 100 shares at any one time, and if options for less than 100 shares are held by an optionee, then options for all such shares must be exercised at one time; and provided, further, that, if the optionee shall die within the option period, the option may be exercised, to the extent specified in such Stock Option Agreement, and as herein provided, but only prior to the first to occur of: (i) the expiration of the period of one year after the date of the optionee's death, or (ii) the expiration of the option period, by the person or persons entitled to do so under the optionee's will, or, if the optionee shall fail to make testamentary disposition of said option, or shall die intestate, by the optionee's legal representative or representatives. (d) In the discretion of the Committee, a single Stock Option Agreement may include both Incentive Stock Options and Non-Incentive Stock Options, or those options may be included in separate Stock Option Agreements. (e) Unless otherwise determined by the Committee with respect to options that are not Incentive Stock Options, each option granted under this Plan shall by its terms be non-transferable by the optionee except by will or by the laws of descent and distribution and shall be exercisable during the optionee's lifetime only by the optionee. (f) Notwithstanding the foregoing, if an Incentive Stock Option is granted to a person at any time when such person owns, within the meaning of Section 424(d) of the Code, more than 10% of the total combined voting power of all classes of stock of the employer corporation (or a parent or subsidiary of such corporation within the meaning of Section 424 of the Code) the price at which each share of Common Stock covered by such option may be purchased pursuant to such option shall not be less than 110% of the fair market value (determined as in paragraph (a) of this Section) of the shares of Common Stock at the time the option is granted, and such option must be exercised within a period specified in the Stock Option Agreement relating to such options which does not exceed five years after the date on which such option is granted. (g) Each Stock Option Agreement entered into pursuant hereto may contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee including, without limitation, provisions (i) requiring the giving of satisfactory assurances by the optionee that the shares are purchased for investment and not with a view to resale in connection with a distribution of such shares, and will not be transferred in violation of applicable securities laws, (ii) restricting the transferability of such shares during a specified period and (iii) requiring the resale of such shares to the Company at the option price if the employment of the optionee terminates prior to a specified time. SECTION 7. Limit on Option Amount. (a) Notwithstanding any provision contained herein, the aggregate fair market value (determined under Section 6(a) as of the time such Incentive Stock Options are granted) of the Common Stock with respect to which Incentive Stock Options are first exercisable by any employee during any calendar year (under all stock option plans of the employee's employer corporation and its parent and subsidiary corporation within the meaning of Section 424 of the Code) shall not exceed $100,000. The limit in this paragraph shall not apply to options which are designated as Non-incentive Stock Options, and, except as otherwise provided herein, there shall be no limit on the amount of such options which may be first exercisable in any year. (b) Notwithstanding any provision contained herein, grants of options under this Plan to any one optionee who is an employee of the Company shall be limited to options to purchase no more than 250,000 shares of common stock per calendar year. SECTION 8. Adjustment of Number of Shares. In the event that a dividend shall be declared upon the shares of Common Stock payable in shares of Common Stock, the number of shares of Common Stock then subject to any option granted hereunder and the number of shares reserved for issuance pursuant to this Plan but not yet covered by an option, shall be adjusted by adding to each of such shares the number of shares which would be distributable thereon if such share had been outstanding on the date fixed for determining the stockholders entitled to receive such stock dividend. In the event that the outstanding shares of Common Stock shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split-up, combination of shares, merger or consolidation, then there shall be substituted for each share of Common Stock subject to any such option and for each share of Common Stock reserved for issuance pursuant to the Plan but not yet covered by an option, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged; provided, however, that in the event that such change or exchange results from a merger or consolidation, and in the judgment of the Committee such substitution cannot be effected or would be inappropriate, or if the Company shall sell all or substantially all of its assets, the Company shall use reasonable efforts to effect some other adjustment of each then outstanding option which the Committee, in its sole discretion, shall deem equitable. In the event that there shall be any change, other than as specified above in this Section 8, in the number or kind of outstanding shares of Common Stock or of any stock or other securities into which such shares of Common Stock shall have been changed or for which they shall have been exchanged, then, if the Committee shall determine that such change equitably requires an adjustment in the number or kind of shares theretofore reserved for issuance pursuant to the Plan but not yet covered by an option and of the shares then subject to an option or options, such adjustment shall be made by the Committee and shall be effective and binding for all purposes of this Plan and of each Stock Option Agreement. Notwithstanding the foregoing, if any adjustment in the number of shares which may be issued and sold pursuant to options is required by the Code or regulations promulgated thereunder to be approved by the stockholders in order to enable the Company to issue Incentive Stock Options pursuant to this Plan, then no such adjustment shall be made without the approval of the stockholders. In the case of any such substitution or adjustment as provided for in this Section, the option price in each Stock Option Agreement for each share covered thereby prior to such substitution or adjustment will be the total option price for all shares of stock or other securities which shall have been substituted for each such share or to which such share shall have been adjusted pursuant to this Section 8. No adjustment or substitution provided for in this A - 7 Section 8 shall require the Company, in any Stock Option Agreement, to sell a fractional share, and the total substitution or adjustment with respect to each Stock Option Agreement shall be limited accordingly. Notwithstanding the foregoing, in the case of Incentive Stock Options, if the effect of the adjustments or substitution is to cause the option to fail to continue to qualify as an Incentive Stock Option or to cause a modification, extension or renewal of such option within the meaning of Section 424 of the Code, the Committee shall use reasonable efforts to effect such other adjustment of each then outstanding option as the Committee, in its sole discretion, shall deem equitable. SECTION 9. Amendments. This Plan may be amended from time to time by vote of the Committee; provided, however, that no amendment which shall (i) change the total number of shares which may be issued and sold pursuant to options granted under this Plan, (ii) change the designation of the class of employees eligible to receive Incentive Stock Options or the class of individuals or entities eligible to receive Non-incentive Stock Options, (iii) decrease the minimum option price stated in Section 6(a) of this Plan, (iv) extend the period during which an option may be granted to exercised beyond the maximum period specified in this Plan or (v) withdraw the authority to administer this Plan from the Committee, shall be effective without the approval of the stockholders. Notwithstanding the foregoing, the Plan may be amended by the Committee to incorporate or conform to requirements imposed by any amendments made to the Code or regulations promulgated thereunder which the Committee deems to be necessary or desirable to preserve (a) incentive stock option status for outstanding Incentive Stock Options and the ability to issue Incentive Stock Options pursuant to this Plan, and (b) the deductibility by the Company pursuant to Section 162(m) of the Code of amounts taxed to Plan participants as ordinary compensation income. SECTION 10. Termination. This Plan shall terminate on, and no additional options shall be granted after, ten years from the date the Plan is adopted by the Committee. In addition, the Plan may be terminated at any time by a vote of the Board of Directors. EX-10.2 3 EMPLOYMENT AND SEVERANCE AGREEMENT EMPLOYMENT AND SEVERANCE AGREEMENT THIS AGREEMENT made and entered into as of the 15th day of November, 1996 by and between SWISS ARMY BRANDS, INC., a Delaware corporation, (hereinafter referred to as "SABI" or "the Company"), and THOMAS D. CUNNINGHAM (hereinafter referred to as "Mr. Cunningham"). WHEREAS, Mr. Cunningham has been Executive Vice President and Chief Financial Officer of SABI since March 1994; WHEREAS, Mr. Cunningham has resigned from the office of Executive Vice President and Chief Financial Officer of the Company and as a director of the Company effective November 13, 1996; WHEREAS, the Company desires to continue Mr. Cunningham's employment with the Company for the period and under the terms and conditions set forth herein and to provide Mr. Cunningham with certain severance benefits; and WHEREAS, Mr. Cunningham desires to accept such employment and such benefits under the terms and conditions contained herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. DUTIES AND PERFORMANCE. (a) During the term of his employment hereunder, Mr. Cunningham shall be employed by the Company (on a non-exclusive basis) and shall be charged with the following duties: (i) to work with management of the Company to identify, evaluate and review strategic financial alternatives with respect to the Company's subsidiary, Cuisine de France Limited ("CDFL") including, but not limited to, a sale of CDFL or the assets of CDFL; (ii) if requested by the Company, assist in preparation of a descriptive memorandum concerning CDFL; (iii) develop, update and review with the Company on an ongoing basis a list of parties which might be interested in acquiring part or all of CDFL and contact only parties approved by the Company; (iv) consult with and advise the Company concerning alternatives with respect to the disposition of CDFL and, if so requested by the Company, participate in negotiations relevant to any disposition of CDFL; and (v) if an agreement with respect to the disposition of CDFL is reached, work with the Company with respect to the consummation of any such agreement. (b) All of the foregoing is to be done under the direction of the President of the Company and, upon reasonable request, Mr. Cunningham shall report on the steps he has taken and the progress of his performance hereunder to the President on a regular basis. Mr. Cunningham shall make himself available to perform his duties hereunder for such period of time during the term of his employment as such duties reasonably require. Mr. Cunningham acknowledges that he shall not have an office on the premises of the Company and shall perform his duties hereunder at other locations. During the Employment Term (as defined below), Mr. Cunningham's title shall be Chairman of the Finance Committee. 2. TERM OF EMPLOYMENT. The term of Mr. Cunningham's employment hereunder shall commence on November 15, 1996 and terminate on May 15, 1997 (the "Employment Term") except that if the Company in its sole discretion shall determine that satisfactory progress has not been made on the tasks referred to in Section 1(a) the Company may, upon written notice to Mr. Cunningham, terminate the Employment Term at any time after three months from the date hereof. The execution by the Company of either (i) a definitive agreement with any party or, (ii) a letter of intent with a party or entity not associated with either Mr. Robert Candler or Mr. Robert Wolff, for the disposition of CDFL shall be conclusive evidence that "satisfactory progress" has been made within the meaning of this Section 2. 3. SALARY. During the Employment Term, SABI shall pay to Mr. Cunningham base salary at the rate of $210,000 per annum, payable in such installments as shall accord with the normal pay practices of the Company. 4. BONUS. SABI shall pay to Mr. Cunningham a bonus of $20,000 in respect of his services to the Company performed in 1996. 5. BENEFITS. (a) When eligible under non- discriminatory standards, Mr. Cunningham shall be entitled to participate during the Term in any employee benefit plans maintained by the Company available to employees of the Company generally. (b) SABI shall reimburse Mr. Cunningham, in accordance with SABI's policy then in effect, for reasonable travel expenses incurred at the written request of SABI. 6. TERMINATION OF EMPLOYMENT. (a) The Company shall be entitled to terminate Mr. Cunningham's employment in any of the following circumstances: (i) For "cause" by reason of the occurrence of any of the following: (A) willful misfeasance or gross negligence by Mr. Cunningham in the conduct of Mr. Cunningham's duties including the failure of Mr. Cunningham to follow lawful and reasonable orders of the Board of Directors or President of the Company, (B) a material breach by Mr. Cunningham of this Agreement, (C) the commission of acts of dishonesty or moral turpitude by Mr. Cunningham that are detrimental to the Company and/or its affiliates, or (D) the conviction of, or nolo contendere plea by, Mr. Cunningham in respect of any felony; (ii) Mental or physical incapacity as determined in writing by a physician selected by the Company, such determination to indicate that Mr. Cunningham's mental or physical condition will render him unable to perform his duties hereunder for a period exceeding three months; or (iii) The death of Mr. Cunningham. (b) In the event of termination pursuant to the terms of this section, the obligations of the Company to provide benefits with respect to Mr. Cunningham's employment hereunder other than those already accrued or vested as provided herein shall cease upon such termination. Any such termination shall have no effect on Mr. Cunningham's rights with respect to the severance benefits set forth in Section 7 below. 7. SEVERANCE BENEFITS. The Company agrees to provide Mr. Cunningham with the following severance benefits upon the termination of his employment hereunder for any reason (including a termination under Sections 2, 6(a)(ii) or 6(a)(iii)) except for termination pursuant to Section 6(a)(i), which benefits Mr. Cunningham acknowledges are over and above those to which he would normally be entitled and which benefits shall not be reduced by earnings by Mr. Cunningham from other sources: (a) Mr. Cunningham shall be paid the sum of $210,000, in a lump sum payment within seven days of termination or, if the waiting periods set forth in Section 20 hereof have not yet expired, upon such expiration. (b) The Company shall pay for outplacement services to be provided by Lee Hecht Harrison (or other services mutually agreed upon) for Mr. Cunningham for a period of up to one year. (c) For a period of twelve months, the Company shall pay to the Company's insurance carrier, the amount of the premium required to be paid to keep the medical insurance for the benefit of Mr. Cunningham and his dependents effective for a period of twelve months under COBRA. Subsequent to such twelve month period Mr. Cunningham shall have the option of continuing coverage under COBRA at his expense for an additional six month period. (d) The Company shall pay the base monthly payments (plus insurance) on the automobile it previously leased for Mr. Cunningham through October 27, 1997. Mr. Cunningham shall be responsible for and shall pay when due any amounts payable in connection with such lease other than the base monthly payments (plus insurance) including, without limitation, any charge for excess mileage or damage or excess wear and tear to the automobile. The Company shall make payments (and reimburse business call charges) with respect to the car phone presently in such automobile throughout Mr. Cunningham's employment hereunder provided and to the extent that the car phone is used primarily for purposes of Company business. The Company may set off and withhold any amount due to the Company or paid by the Company on Mr. Cunningham's behalf in connection with this Section 7(d) against any amount payable by the Company to Mr. Cunningham pursuant to this Agreement. (e) The Company shall reimburse Mr. Cunningham in the amount of up to $2,500 for the purchase of a computer upon receipt of appropriate documentation. (f) Maintain phone and voicemail services at SABI for 12 months. (g) Pursuant to Stock Option Agreements (the "Option Agreements") dated July 15, 1994 and January 26, 1995 the Company granted to Mr. Cunningham options to purchase an aggregate of up to 75,000 shares of the Company's common stock. In order that Mr. Cunningham shall have a period of eight months from the termination of his employment hereunder to exercise such options that have vested by the termination of his employment hereunder, Section 7(c) of each of the Option Agreements is hereby amended to read as follows: "If the employment of the Grantee shall be terminated and Grantee shall not have fully exercised the Option, the Option may be exercised to the extent that the Grantee's right to exercise the Option had accrued at the time of the termination of his employment and had not been previously exercised, at any time within eight months after the termination of Grantee's employment but may not be exercised in whole or in part after such eight month period." 8. COVENANT NOT TO COMPETE. (a) Mr. Cunningham acknowledges that in the course of the Employment Term and his employment by the Company, he has and will become privy to various economic and trade secrets and relationships of the Company and its affiliates. Therefore, in consideration of this Agreement, Mr. Cunningham hereby agrees that he will not, directly or indirectly, except for the benefit of the Company or its affiliates: (i) during the Employment Term and thereafter, on behalf of himself or any other person: (A) solicit, entice, persuade or induce any employee of the Company or any affiliate, or any other person, who is under contract with or rendering services or supplying products to the Company or any affiliate, or any such individual or entity who held any such status during the two-year period preceding termination of this Agreement, (w) to terminate his or its employment by, or contractual relationship with, the Company or any affiliate or (x) to refrain from extending or renewing the same (upon the same or new terms) or (y) to refrain from rendering services to the Company or any affiliate, or (z) to become employed by or to enter into contractual relations with persons other than the Company; or (B) direct, order or assist in the taking of any such actions by any person other than the Company. (ii)(A) during the Employment Term and for a period ending two years after termination of the Employment Term, directly or indirectly, whether as employee, consultant, officer, director, partner, shareholder or otherwise compete with the business of SABI as the same is then conducted nor engage in the sale of knives, cutlery, timepieces, pens, pencils, multi-tools or any other product which the Company is now selling or is then selling. (B) for purposes of this subsection 8 (a)(ii) the term "SABI" shall include SABI and all entities directly or indirectly controlled, controlling or under common control with SABI provided that if SABI becomes controlled by another entity, the restrictions of that section shall not apply to businesses of that controlling entity and its other controlled affiliates other than businesses in which SABI and its affiliates were engaged at the time of such change of control and logical extensions of such businesses. (b)(i) Mr. Cunningham acknowledges that he has substantial capabilities and experience in fields other than those which would be competitive with the Company and that the restrictions set forth above would not hinder his ability to earn a livelihood. (ii) If any of the restrictions set forth in this Section 8 should, for any reason whatsoever, be declared invalid by a court of competent jurisdiction, the validity or enforceability of the remainder of such restrictions shall not thereby be adversely affected. Mr. Cunningham agrees that the territorial and time limitations and other restrictions in this Section 8 are reasonable and properly required for the adequate protection of the business of the Company, and that if any such territorial or time limitations or other restrictions is held unreasonable by a court of competent jurisdiction, then he agrees and submits to the reduction of said territorial or time limitation or other restrictions to such area or period as such court shall find reasonable. (c) The provisions of this Section 8 shall survive termination of this Agreement. 9. CONFIDENTIALITY. During the Employment Term and thereafter, except in the performance of his duties hereunder, Mr. Cunningham will keep secret and will not, without the express written consent of the Company: (a) knowingly divulge or communicate to any third person, or use for the benefit of Mr. Cunningham or any third person, any trade secrets or privileged, proprietary or confidential information used or owned by the Company or any affiliate or disclosed to or learned by him in the course of his employment by the Company including, without limitation, non- public information concerning products, profitability, the identity of, and information relating to dealings with customers and suppliers; or (b) retain for the benefit of himself or any third person any document or paper used or owned by the Company or any affiliate or coming into his possession in the course of his employment by the Company or make or cause to be made any copy, abstract, or summary thereof. 10. REMEDIES. Because the services of Mr. Cunningham hereunder are unique and extraordinary and the Company does not have an adequate remedy at law to protect its business from Mr. Cunningham's competition or to protect its interest in its trade secrets, confidential information and similar commercial assets, Mr. Cunningham agrees that any breach or threatened breach of any provision of provisions of this Agreement relating to non-competition and confidentiality shall entitle the Company, in addition to any other legal or equitable remedies available to it, to apply to any court of competent jurisdiction to enjoin such breach or threatened breach without the posting of any bond or any security. 11. RELEASE. Mr. Cunningham, for him and for his successors and assigns, does hereby fully and completely RELEASE, ACQUIT and FOREVER DISCHARGE SABI, and its affiliates, subsidiaries or other related entities as well as its shareholders, officers, directors, employees or agents, from any and all claims, debts, demands, actions, causes of action, suits, sums of money, contracts, agreements, judgements and liabilities, including attorney's fees, whatsoever, both in law and in equity ("claims") of any kind and any character that he ever had, might now or hereafter have, or could have had, whether in contract, tort or otherwise, including specifically any claims of discrimination that he may claim in connection with his employment or the termination thereof, but excluding specifically any claims relating to or arising out of this Agreement. This includes but is not limited to, claims arising under the federal, state or local laws prohibiting discrimination on the basis of one's sex, race, age, disability, national origin, color or religion, or other reason forbidden by federal, state or local laws or claims growing out of any legal restrictions on SABI's right to terminate its employees. This also specifically includes the waiver of any rights or claims arising under the Age Discrimination in Employment Act of 1967 (29 U.S.C. 621 et seq.). It is also understood that the execution of this Agreement shall be construed as a release and covenant not to sue, that Mr. Cunningham will not sue SABI or any subsidiary, affiliate, officer, director, employee or committee thereof, or file any claims of any sort with any administrative agency for anything arising out of his employment, and the terms of this Agreement supersede any and all other agreements relating to his employment whether written or oral. 12. CONFIRMATION OF RESIGNATION. Mr. Cunningham acknowledges and confirms that effective November 13, 1996, he resigned from any and all positions held as an officer and director of SABI and all of SABI's subsidiaries. 13. SPLIT DOLLAR LIFE INSURANCE. Mr. Cunningham agrees to execute, within thirty days of submission to him, and perform an Insurance Agreement and a Collateral Assignment Agreement of the split dollar life insurance policies paid for by SABI for the benefit of Mr. Cunningham in the form determined by SABI, such agreements to provide that upon termination of the Employment Term, Mr. Cunningham shall have the right to repay SABI within ninety days of the date of termination in an amount equal to the cash surrender value of such policy and that if Mr. Cunningham elects not to repay such amount he shall promptly execute any and all instruments that may be required to relinquish his interest in such policies and vest ownership of such policies in SABI. 14. ADVICE OF COUNSEL. SABI encourages Mr. Cunningham to carefully review the terms of this Agreement and, if he wishes, to seek advise and counsel from an attorney before signing this Agreement. 15. DIVISIBILITY OF AGREEMENT. In the event that any term, condition or provision of this Agreement is for any reason rendered void, all remaining terms, conditions and provisions shall remain and continue as valid and enforceable obligations of the parties hereto. 16. NOTICES. Any notices or other communications required or permitted to be sent hereunder shall be in writing and shall be duly given if personally delivered or sent postage pre-paid by certified or registered mail, return receipt requested, or sent by electronic transmission and confirmed by mail within two business days of such transmission, as follows: (a) If to Mr. Cunningham: 8 Nearwater Road Rowayton, Connecticut 06853 (b) If to SABI: Swiss Army Brands, Inc One Research Drive Shelton, Connecticut 06484 Either party may change his or its address for the sending of notice to such party by written notice to the other party sent in accordance with the provisions hereof. 17. MERGER. This Agreement merges and supersedes any and all other agreements between the parties hereof related in any way to the employment of Mr. Cunningham. This Agreement may not be altered or amended except by a writing, duly executed by the party against whom such alteration or amendment is sought to be enforced. 18. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the state of Connecticut with respect to agreements made and to be performed wholly therein. 19. ASSIGNMENT. This Agreement is personal and non-assignable by Mr. Cunningham. It shall inure to the benefit of, and be the valid and binding obligation of, any corporation or other entity with which the Company shall merge or consolidate or to which the Company shall lease or sell all or substantially all of its assets and may be assigned by the Company to any affiliate of the Company or to any corporation or entity with which such affiliate shall merge or consolidate or which shall lease or acquire all or substantially all of the assets of such affiliate. 20. PERIOD TO REVIEW AND REVOKE. After Mr. Cunningham has had the chance to review this Agreement and to consult with his attorney, if he wishes, he should sign the Agreement and return it to SABI within 22 days. After Mr. Cunningham has executed and delivered this Agreement, he shall have seven (7) days following the date of execution during which time he may revoke this agreement, provided, however, that, if he elects to return an executed copy of the document to us before the expiration of 22 days from the date hereof, he may revoke this Agreement at any time before the later to occur of seven (7) days following the date of execution or 22 days after the date hereof. If SABI does not receive a written revocation from Mr. Cunningham, or his attorney, prior to the expiration of the period in which he may revoke this Agreement, this Agreement will become effective on the date after the expiration of the applicable revocation period. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the day and year first above written. /s/ Thomas D. Cunningham Thomas D. Cunningham SWISS ARMY BRANDS, INC. By: /s/ J. Merrick Taggart Title: President I acknowledge that I have been given the opportunity to consider this agreement for at least twenty-one (21) days, that I have been advised to discuss this agreement with an attorney of my choice, that I have carefully read and fully understand and agree to all of the provisions of this agreement and that I am voluntarily entering into this agreement. Finally, I also understand that I have seven (7) days after I sign this agreement (or twenty-two days after the date hereof, if later) to change my mind and that I may revoke this agreement by providing written notice of revocation to you prior to the expiration of the applicable period. 3/21/97 /s/ Thomas D. Cunningham Date of Execution Thomas D. Cunningham EX-10.3 4 TRADEMARK AGREEMENT TRADEMARK AGREEMENT Trademark Agreement executed as of this 18th day of December, 1996 by and between the Swiss Confederation represented by the Federal Military Department represented by the Federal Defence Production Group ("BRBT") and Swiss Army Brands, Inc. ("SABI") a corporation existing under the laws of the state of Delaware, U.S.A. WHEREAS, it is in the mutual interest of the parties, and of Swiss manufacturers and other citizens of the Swiss Confederation that the trademark SWISS ARMY be confined to a select number of high quality products manufactured in Switzerland; and WHEREAS, in the past certain persons have attempted to utilize the trademark "SWISS ARMY" on products manufactured in Asia and on other unauthorized goods, thereby misleading purchasers into believing that such products represent the high quality of workmanship and materials present in goods of Swiss manufacture; and WHEREAS, SABI has sold over $650,000,000 of Swiss made products, the vast majority of which was sold under the trademark SWISS ARMY; and WHEREAS, SABI has expended over $25,000,000 in the development, protection and promotion of the SWISS ARMY trademark and has developed a high level of expertise in such protection; and WHEREAS, the parties are desirous of protecting consumers and Swiss manufacturers from misrepresentation as to the source of products bearing the trademark SWISS ARMY; and WHEREAS, the parties wish to further the mutual interests set forth above while respecting existing rights; and NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained the parties hereto hereby agree as follows: SECTION 1. Initial Payment. In order to facilitate the purposes of this Agreement and in consideration of the matters set forth in Section 5 of this Agreement and elsewhere, SABI will, upon the execution of this Agreement, commit to the furtherance of its purposes the amount of. Of this amount will be paid to BRBT at the time of the signing to be used for such purposes as BRBT shall determine. The remaining will be utilized during the first year of this Agreement by SABI to assist BRBT in the registration of the BRBT Trademarks in various jurisdictions as well as to assist BRBT in the policing of the BRBT Trademarks. In the event is not utilized in such manner during the first year of this Agreement, SABI shall pay to BRBT the difference between and the amount so utilized. SECTION 2. Definitions. For purposes of this Agreement the following definitions shall apply. (a) Added American Categories shall have the definition ascribed to that term in Section 5(d)(i) hereof. (b) American Territories shall mean the United States, its territories and possessions, Canada and the Caribbean. The Caribbean shall include Bermuda and all islands, countries and territories within the area bounded by 55 degrees west longitude, 85 degrees west longitude, 12 degrees north latitude and 28 degrees north latitude provided that the Caribbean shall not be deemed to include any portion of Mexico or the Countries located in Central or South America. (c) BRBT Trademarks shall mean the following: (i) Trademark No. 411 840 consisting of the words "Swiss Army" and the Swiss National Emblem registered in Switzerland by BRBT and depicted on Schedule A hereto, (ii) if assigned to BRBT pursuant to Section 4(a) hereof, the Wreath Trademark, (iii) the trademark consisting solely of the words "Swiss Army," (iv) the Subsequent Registrations, if any, and (v) any and all other trademarks at any time owned by BRBT which include the words "Swiss Army" or words confusingly similar thereto. (d) Commercial Quantities shall mean products in a particular Designated Category having been sold by a single manufacturer or importer in normal channels of commerce and not solely for test marketing purposes. (e) Wreath Trademark shall mean the trademark consisting of the words "Swiss Army" and the wreath logo for which SABI, through a wholly-owned subsidiary, has applied with the Swiss Federal Office for Intellectual Property for registration which application is known as application no. 6250/1994.0, date of request 9/8/94 as depicted in Schedule A-1. (f) The Designated Categories shall mean the following products which SABI intends to market under the SABI Trademarks: (i) Luggage; (ii) small leather goods; (iii) boots and footwear; (iv) camping equipment; (v) pens and pencils; (vi) flashlights; (vii) water purification products; (viii) cosmetics and fragrances; and (ix) apparel. Each of the designations separately listed above shall be considered a separate "Designated Category". (g) First Quality shall mean products at least equal in workmanship and materials to either the Watch Products or Knives currently sold by SABI, Victorinox or Wenger. (h) SABI shall mean Swiss Army Brands, Inc. and shall also include Swiss Army Brand Ltd., a Delaware Corporation and a wholly-owned subsidiary of Swiss Army Brands, Inc. (i) SABI Trademarks shall mean the Registered SABI American Trademark and the trademarks, including applications, held by SABI listed in Schedule B hereto. (j) Knives shall mean multi-blade pocket knives (including so-called "multitools") manufactured or licensed by Victorinox or Wenger. (k) Net Sales shall mean the gross selling price of licensed products less V.A.T. and similar taxes or imposts, insurance, freight, discounts and allowances actually given and returns actually received. (l) Precise shall mean Precise Imports Corporation, a New York Corporation which is Wenger's United States Distributor. (m) Registered SABI American Trademark shall mean the trademarks listed on Schedule C hereto. (n) Reserved Products shall mean Watch Products, Knives, products in the Added American Categories, and products in the Designated Categories provided, in the case of products in the Designated Categories the right of SABI to cause such product categories to become Added American Categories has not expired (without giving effect to the operation of Subsection 5(d)(v)(B)). (o) Standard Royalties shall mean an amount equal to 3% of the "Net Sales". (p) Subsequent Registrations shall have the meaning ascribed to that term in Section 4(c) hereof. (q) Swiss Manufacturers shall mean Victorinox and Wenger. (r) Swiss Product shall mean any product which, under the laws of Switzerland as presently constituted or as enacted in the future, or according to normal Swiss standards, may be denominated "Swiss Made" or "Made in Switzerland". (s) Swiss Martial Trademark shall mean any words, trademarks or trade names, other than "Swiss Army", consisting of two or more words or syllables, one of which is "Swiss", "Switzerland" or a derivation thereof and another of which is a word or phrase with a military connotation, e.g. "Swiss Sailor", "Swisstrooper". (t) Victorinox shall mean Victorinox A.G. of Ibach, Switzerland. (u) Watch and Sunglass Products shall mean watches and other timepieces as well as sunglasses which, in each case, are Swiss Products. (v) Wenger shall mean Wenger S.A. of Delemont, Switzerland. SECTION 3. Acknowledgement by SABI and BRBT. (a) SABI acknowledges BRBT's ownership of the BRBT Trademarks in the country of their registration or application and acknowledges that in the country of their registration or application, BRBT has the exclusive right to use the BRBT Trademarks and that any goodwill pertaining thereto belongs exclusively to BRBT. SABI will not in any way directly or indirectly do or cause to be done any act or thing contesting, challenging or in any way impairing or intending to impair any right, title or interest of BRBT in connection with any of the BRBT Trademarks in the country of its registration or application. It is the declared intention of SABI to use all reasonable efforts to assist BRBT in enforcing such rights. (b) BRBT acknowledges SABI's ownership of the SABI Trademarks in the countries of registration or application and acknowledges that SABI has the exclusive right to use the SABI Trademarks in such countries and that the goodwill pertaining thereto belongs exclusively to SABI. BRBT will not in any way directly or indirectly do or cause to be done any act or thing contesting, challenging or in any way impairing or intending to impair any right, title or interest of SABI in connection with the SABI Trademarks in the countries of their registration or application. It is the declared intention of BRBT to use all reasonable efforts to assist SABI in enforcing such rights provided that BRBT shall not be required to support SABI in enforcing exclusive rights to the Swiss National Emblem, as distinguished from the words "Swiss Army" (whether or not such words are used in conjunction with such emblem). (c) BRBT and SABI recognize that the use of Swiss Martial Trademarks represents an effort to capitalise upon the success of the trademark SWISS ARMY and that such use can dilute the value of the trademark SWISS ARMY to the detriment of the Swiss Confederation as well as of SABI and agree to cooperate in preventing such use. SECTION 4. Additional Registrations. (a) Wreath Trademark. SABI shall assign to BRBT the Wreath Trademark application, if required for the registration of such trademark, and BRBT agrees to use its best efforts to obtain a registration pursuant thereto. (b) Registration of "Swiss Army". BRBT agrees to promptly apply for a trademark registration in Switzerland for the trademark consisting solely of the words "Swiss Army" and use its best efforts to obtain a registration of that mark. (c) Subsequent Registrations. BRBT agrees to promptly apply for up to three additional trademark registrations ("Subsequent Registrations") in Switzerland for such trademarks requested by SABI consisting of the words "Swiss Army" and such logo or depiction specified by SABI; provided that such trademark is not violative of applicable law. (d) Expansion of Coverage. BRBT will expand the products and services covered by the BRBT Trademarks as set forth in Section 7 hereof. SECTION 5. The American Territories. (a) Knives. The parties acknowledge that Victorinox and Wenger have applied for the registration of the trademark "Swiss Army" as applied to Knives in the United States and hold common law rights to that trademark in the United States. The parties are aware that the Swiss Manufacturers have licensed SABI and Precise to use that trademark. Subject to the provisions of Section 12 hereof, relating to costs, the parties declare their intention to assist the Swiss Manufacturers, SABI and Precise in safeguarding those rights and in preventing the use of "Swiss Army" on multi-blade pocketknives, multitools and other products which are not Swiss Products. (b) Watch and Sunglass Products. As previously herein stated, BRBT recognizes the rights of SABI in the Registered SABI American Trademark, including, without limitation, its rights in respect of the Registered SABI American Trademark as applied to Watch and Sunglass Products. BRBT will use all reasonable efforts to assist SABI and its licensees in strengthening and protecting those rights in the American Territories and assist SABI in preventing the unauthorized use of SWISS ARMY. (c) BRBT Cooperation. In furtherance of the general purposes of this Agreement to strengthen the trademarks and to prevent the unauthorized use of SWISS ARMY on products that are not Swiss Products, BRBT agrees: (i) It will not apply for registration, license or otherwise facilitate the use of any of the BRBT Trademarks in the American Territories except as provided herein; and (ii) At SABI's request and expense, it will register any BRBT Trademark requested to be registered in the American Territories. Upon such registration, and without further documentation, SABI shall hold a perpetual royalty free (subject to the requirement to make the payments otherwise required by Section 1) exclusive license applied to Watch and Sunglass Products. (d) Designated Categories and Other Products. (i) If within three years of the date of this Agreement SABI and/or its licensees shall sell in the American Territories, Commercial Quantities of Swiss Products in any one or more of the Designated Categories SABI shall so notify the BRBT and upon such notification such category or categories shall become "Added American Categories". (ii) If requested by SABI (and only if so requested) BRBT will, at SABI's expense, register any BRBT Trademark requested to be registered in the American Territories in respect of any Added American Category and will grant to SABI a perpetual royalty free exclusive license to use the BRBT Trademarks in the American Territories and the rights and obligations of the parties with respect thereto shall be the same as those applying to Watch and Sunglass Products. (iii) In the event that within 24 months of any Designated Category becoming an Added American Category, SABI and/or its licensees shall sell in the American Territories in Commercial Quantities Swiss Products in another of the Designated Categories and shall so notify BRBT, such additional Designated Category shall become an Added American Category. (iv) In recognition of SABI's legally established trademark rights in the American Territories and in part consideration for the payment referred to in Section 1 hereof BRBT agrees that it will not grant any rights to any of the BRBT Trademarks in the American Territories to any person other than SABI or permit any person other than SABI to use SWISS ARMY on any products in the Designated Categories except as set forth in the immediately following subsection. (v) BRBT may grant licenses to use the BRBT Trademarks in the American Territories on products other than Reserved Products provided that: (A) BRBT has determined that the grant of rights to such person or entity will (x) enhance and not reduce the value of SWISS ARMY as applied to Swiss Products already being sold under that trademark, (y) not detract from the purpose of this Agreement to prevent the use of SWISS ARMY on non-Swiss products, and (z) increase, over the long term, the amount of Swiss Products sold in the American Territories and elsewhere. In making such determination BRBT shall give priority to upholding the image of SWISS ARMY as being associated with prestige, quality and wholesomeness and shall also consider the market at which the product sought to be licensed is aimed. In making such determination the objections made by SABI or any other person authorized to use SWISS ARMY pursuant to this Agreement shall be given great weight, and (B) such rights are granted after SABI has received notification of BRBT's intention to license that category to another party and been granted the right for an additional period of 18 months to cause that category to become an Added American Category by making sales in Commercial Quantities. (vi) In the event BRBT grants any rights to a party other than SABI pursuant to Section 5(d)(v) above, SABI shall offer such party a license of the appropriate Registered SABI American Trademark upon mutually agreeable terms and conditions. Any royalties received by SABI under this subsection, net of enforcement and other expenses, shall be paid to BRBT. SECTION 6. Geographical Areas Outside of the American Territories. (a) Knives. Except as set forth in Section 5(a) above, this Agreement shall not apply in any way to the use of "SWISS ARMY" on knives outside of the American Territories. (b) Watch and Sunglass Products. Subject to any now existing legal rights of others, BRBT hereby agrees that at SABI's request it will grant to SABI an exclusive perpetual license for Watch and Sunglass Products at the Standard Royalty in such jurisdictions as SABI shall request and will, at SABI's request (and only at SABI's request) and expense, register any BRBT Trademark requested to be registered in such jurisdictions where it is not already registered. Upon such request and without further documentation, SABI shall hold a perpetual Z exclusive license applied to Watch and Sunglass Products. The parties will also cooperate in preventing the unauthorized use of SWISS ARMY on Watch and Sunglass Products. (c) Designated Categories and Added American Categories. As to each jurisdiction outside of the American Territories BRBT will, at SABI's request, grant to SABI an exclusive license at the Standard Royalty to use the BRBT Trademarks in such territory on products in the Designated Categories or Added American Categories and will register any BRBT Trademark requested to be registered, at SABI's request (and only at SABI's request) and expense, in respect of such products. Upon such request and without further documentation SABI shall hold a perpetual exclusive license applied to such products, provided that SABI and/or its licensees sell goods in that category in such jurisdiction in Commercial Quantities within 18 months after such registration. In the event SABI and/or its licensees do not make sales in Commercial Quantities within 18 months after such registration, BRBT may consider granting a license of the BRBT Trademarks to another party pursuant to Section 6(d)(ii) below. (d) Other Products. (i) If BRBT wishes to grant to any person other than SABI a license to use any BRBT Trademark on any product other than a Reserved Product, it shall first offer to SABI an exclusive license to the BRBT Trademarks on such product in such territory at the Standard Royalty. Such license shall be perpetual provided that SABI and/or its licensees sells goods in that category in Commercial Quantities in such jurisdiction within 18 months after receiving such notification. (ii) If SABI does not accept that offer or fails to make such sales, BRBT may consider granting a license to the other applicant. In deciding whether to grant such license to such other applicant BRBT shall first determine that the grant of rights to such person or entity will (A) enhance and not reduce the value of SWISS ARMY as applied to Swiss Products already being sold under that trademark, (B) not detract from the purpose of this Agreement to prevent the use of SWISS ARMY on non-Swiss products, and (C) increase, over the long term, the amount of Swiss Products sold worldwide. In making such determination BRBT shall give priority to upholding the image of SWISS ARMY as being associated with prestige, quality and wholesomeness and shall also consider the market at which the product sought to be licensed is aimed. In making such determination the objections made by SABI or any other person authorized to use SWISS ARMY pursuant to this Agreement shall be given great weight. SECTION 7. Expansion of Classes. At the request of SABI, BRBT will expand the products and services covered by the BRBT Trademarks through additional registrations. SECTION 8. Terms of License. (a) In the event of any grant of a license in respect of any BRBT Trademark whether to SABI or to any other party, the following provisions shall apply: (i) Such products including products sold by licensees of SABI's rights hereunder, shall be Swiss Products of First Quality. (ii) The licensee shall, upon request, submit a reasonable number of samples to BRBT to determine whether such products are of First Quality. In the event that BRBT determines that such products are not of First Quality, BRBT shall so notify the licensee, giving full particulars so that the licensee may cause such products to be of First Quality. (iii) In respect of any license for which Standard Royalties must be paid, such royalties shall be paid no later than the end of the calendar quarter following the calendar quarter in which the relevant sales were made. Each such payment shall be accompanied by a report setting forth in reasonable detail the amount of Net Sales and the method by which the standard royalty was computed. (iv) Notwithstanding anything herein to the contrary, the license of any BRBT Trademark shall not be deemed to include, and expressly excludes, the Swiss National Emblem. (b) In the event of any grant of a license in respect of any BRBT trademark to SABI, SABI may take such action as it deems appropriate under all the circumstances to cause any infringement found to exist to be terminated. Any suits on account thereof shall be controlled by SABI and shall be prosecuted wherever possible in the name of SABI and by its counsel; and the expenses of such suit shall be borne by SABI. SECTION 9. Disputes. Any dispute arising in connection with this Agreement shall be resolved by arbitration, the seat of arbitration being Bern, Switzerland. The arbitral tribunal shall consist of three arbitrators and the arbitration shall be governed by the rules of the Intercantonal Arbitration Convention, March 27/August 29, 1969, excluding the rules of chapter 12 (International Arbitration) of the Swiss Private International Law Act, December 18, 1987. SECTION 10. Notices. Any notices or other communications required or permitted to be sent under this Agreement shall be duly given if sent by registered mail return receipt requested or by facsimile transmission confirmed by mail within three (3) business days of such transmission and addressed as follows: (a) If to BRBT: Defence Procurement Agency Legal Department Kasernenstrasse 19 CH-3003 Bern, Switzerland Attention: Thomas Kopp, Esq. Corporate Legal Counsel FAX: 0041-031-324-60-56 (b) If to SABI: Swiss Army Brands, Inc. One Research Drive Shelton, Connecticut 06484-6226 Attention: The President SECTION 11. Use on Munitions and Weapons. SABI will not utilize any BRBT Trademark or the words "Swiss Army" in connection with munitions or weapons. SECTION 12. Costs. Elsewhere in this Agreement it is provided that certain registrations requested by SABI shall be made at the expenses of SABI and not at the expense of BRBT. Without lessening the authority of such statements but for greater clarity it is further provided nothing in this Agreement shall require BRBT to expend in connection with the BRBT Trademarks or otherwise in respect of this Agreement any sums, for registration or otherwise, other than out of royalties actually received hereunder. The cost of any registrations effectuated at the request of SABI shall be borne entirely by SABI. SECTION 13. Swiss Martial Trademarks. (a) Mr. Louis Dominique Manigley and/or L.D.M. Engineering, Ltd. (collectively and including their respective affiliates, "Mr. Manigley") claims certain rights to use the trademark "Swiss Air Force" in connection with the sale of watches. Some or all of the rights so claimed are disputed by SABI, which is currently engaged in litigation in the United States with Mr. Manigley. BRBT takes no position concerning that dispute and, anything herein to the contrary notwithstanding, BRBT shall have no obligation to assist SABI in any way concerning such dispute. (b) Except for this Agreement and for a prior agreement between Mr. Manigley and the Air Force branch of the Swiss Military Department relating to the trademark "Swiss Air Force", which is not affected by this Agreement: Neither the Swiss Military Department nor any other branch of the Swiss Government has granted any rights to use or register, nor approved the use or registration by any person of any Swiss Martial Trademark and no such Swiss Governmental body will do so during the term of this Agreement. SABI and BRBT will use their best efforts to prevent the use of Swiss Martial Trademarks. The immediately preceding sentence shall not apply to "Patrouille Suisse" in the French language. SECTION 13A. Termination of Lines of Product. If: (a) SABI or its affiliates, assignees or licensees has sold under a license granted pursuant to this Agreement in Commercial Quantities goods in any "General Product Category" (as defined below) and thereafter, (b) such sales cease so that such goods are not sold in Commercial Quantities by any such persons for a consecutive period of three years then BRBT may terminate this license as to that General Product Category as follows: (i) BRBT may notify SABI in writing of its intent to terminate and this Agreement shall terminate for that General Product Category unless during the 180 day period after receipt of such notice, sales in Commercial Quantities are resumed. (ii) For purposes of this section, the term "General Product Category" shall refer to a general group of products such as "timepieces" or "leather goods" (rather than to specific product designations such as "ladies wristwatches" or "attache cases"). (c) Nothing in this Section 13A shall operate directly or indirectly to require SABI to grant any licenses of any SABI Trademark. SECTION 14. Cooperation Concerning Trademark Infringement. Each of the parties shall inform the other promptly in writing of (a) any infringement of any BRBT Trademark or the Registered SABI American Trademark of which they shall become aware, (b) any challenge by any party to either party's use of SWISS ARMY, and (c) any proceeding instituted or threatened by or any claim by any third party of any rights in SWISS ARMY. Subject to Section 12 above relating to cost, the parties hereto shall cooperate and take such action as reasonably requested by the other party to protect the BRBT Trademarks and the Registered SABI American Trademark from infringement. SECTION 15. Miscellaneous. (a) This Agreement shall be covered by and interpreted by the laws of Switzerland provided that matters related to trademark rights in a particular country shall be covered by and interpreted in accordance with the trademark laws of such country. In the event of a conflict between versions of this Agreement, the English version shall govern. (b) This Agreement is the sole agreement between and among the parties relating to the subject matter hereof and merges and supersedes any and all agreements between them relating thereto. This Agreement may not be altered or amended except by a writing duly executed on behalf of the party against whom such alteration or amendment is sought to be applied. (c) In the event of the sublicensing of the Agreement by SABI, the sublicensee must, as a condition of executing any rights hereunder, agree in writing to abide by the provisions hereof relating to quality, origin and royalties. (d) Nothing in this Agreement shall prevent SABI from sublicensing or otherwise permitting Precise or others to exercise rights herein granted to SABI nor prevent the use by SABI of trademarks now being used by it nor require either party hereto to prevent the use by Precise of trademarks now being used by it provided that SABI has agreed in writing to such use. Notwithstanding anything herein to the contrary, SABI shall not be required to do anything pursuant to this Agreement which would constitute a breach or violation of that certain license agreement dated June 30, 1992 between SABI and Precise. (e) The Federal Military Department may change the identity of its representative under this Agreement, in which case the benefits and obligations of BRBT shall devolve upon that designee. THE SWISS CONFEDERATION Represented by The Federal Military Department Represented by: FEDERAL DEFENCE PRODUCTION GROUP Represented by: /s/ Toni J. Wicki Toni J. Wicki Chief of Armament /s/ Rene Huber Rene Huber General Manager Central Administration SWISS ARMY BRANDS, INC. By: /s/ Peter W. Gilson Peter W. Gilson Authorized Signatory EX-10.4 5 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT AGREEMENT dated as of January 31, 1997 between CUISINE DE FRANCE LIMITED, a Delaware corporation ("Seller"), and Sabatier USA, LLC, a Connecticut Limited Liability Company ("Purchaser") and, as guarantors, ROBERT CANDLER and ROBERT P. WOLFF. W I T N E S S E T H: WHEREAS, Purchaser desires to acquire, and Seller wishes to sell and transfer to Purchaser, certain of the assets and properties of Seller, subject to the assumption by Purchaser of certain liabilities, all upon the terms and conditions hereinafter set forth; and WHEREAS, Messrs. Candler and Wolff own Purchaser; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties hereto agree as follows: SECTION 1. Assets to be Sold and Purchased. A. Subject to the terms and conditions hereof Seller agrees to sell, transfer, convey, grant, assign and deliver to Purchaser, and Purchaser agrees to purchase, accept and receive from Seller all of the following assets of Seller (such assets being sometimes collectively referred to herein as the "Purchased Assets"): (a)Inventory. All inventories of Seller, described on Schedule 1(a) hereto (the "Purchased Inventory"). (b) Contracts. All of Seller's rights in, to and under all of the contracts and agreements of Seller described in Schedule 1(b) hereto (the "Purchased Contracts"). (c)Rights to Tooling. All of the Seller's rights, if any, with respect to tooling paid for or partially paid for by Seller and held by suppliers, as set forth in Schedule 1(c) hereto (the "Tooling Rights"). (d) Customer List and Marketing Material. All of Seller's customer lists and all printed marketing material pertaining to the sale of Cuisine de France merchandise; provided, that any reference on such marketing material to Swiss Army Brands, Swiss Army or The Forschner Group shall be deleted and Purchaser agrees to effectuate such deletion. (e)Trade Show Booth. CDFL's trade show booth. (The Purchased Inventory and trade show booth shall be sometimes collectively referred to herein as the "Physical Assets".) (f)Intellectual Property. All of Seller's rights, including trademark rights, in and to the name "Cuisine de France Limited." All of Seller's rights in and to that certain U.S. letter patent no. 363.867 relating to knife sharpeners. B. Retained Assets. Any assets of Seller not specifically sold by Seller pursuant to Section 1(a) above shall be retained by Seller, including without limitation, any accounts receivable arising from sales made prior to the Closing. SECTION 2. Consideration for the Sale of the Purchased Assets. A. Purchase Price. Subject to the terms and conditions of this Agreement, and in reliance upon the representations and warranties contained herein, the purchase price (the "Purchase Price) for the sale, assignment, transfer and delivery of the Purchased Assets by Seller shall be the following: (a)$20,000 to be paid at the closing of the sale of the assets set forth in paragraphs 1(b), 1(c) and 1(d) to occur on January 31, 1997 (the "Initial Closing"); (b) $15,000 for the purchase of the trade show booth to be paid on March 31, 1997 (the "Booth Closing"); (c)The purchase price for the CDFL Inventory (the "Inventory Purchase Price") shall be the following percentage of the value of such inventory as indicated on the books of CDFL at January 31, 1997 or, in the case of the "Celebration" knife sets, the following prices: CUTLERY PERCENTAGE OF BOOK VALUE Commercial 90% Grand Chef 70% Grand Chef White 100% Super Sharp 50% Never Needs Sharpening 50% Au Carbone 90% Sabatier Traditional 50% Precision 50% Shears 100% Knife Sharpener 80% Blocks 50% Miscellaneous/Aprons 70% 2 piece Celebration set 4,200 units $12 each 3 piece Celebration set 1,000 units $15 each PACKAGING Commercial 90% Grand Chef 70% Super Sharp/NNS 50% Shears 100% Miscellaneous Sleeves 50% Block Boxes 50% B. Payment of Purchase Price. $20,000 of the Purchase Price shall be paid at the Initial Closing by certified or bank check or by wire transfer. $15,000 shall be paid at the Booth Closing by certified or bank check or by wire transfer. The Inventory Purchase Price shall be paid by check or by wire transfer as Purchaser purchases the CDFL Inventory through October 31, 1997; provided that at least one-half of the Inventory Purchase Price shall paid by June 30, 1997 and all of the Inventory Purchase Price shall be paid by October 31, 1997. It is anticipated that Purchaser shall purchase the following percent of the Inventory in the following months: February 15% March 10% April 5% May 5% June 15% July 15% August 15% September 10% October 10% C. Allocation of Purchase Price. The Purchase Price described in Section 2(a) above will be allocated as set forth in Schedule 2(c) hereto. Purchaser and Seller represent, warrant, and covenant that such allocation was determined through arm's length negotiations and that each will adopt and utilize the amounts allocated to each asset or class of assets described in such schedule for purposes of all federal, state and other Tax returns filed by it and that it will not voluntarily take any position inconsistent therewith upon examination of any such tax return, in any claim, in any litigation or otherwise with respect to such Tax returns. Each party agrees to prepare and timely file Internal Revenue Service Form 8594 (Asset Acquisition Statement) and to cooperate with the other party in the preparation of such form. As used in this Agreement, the term "Tax" or "Taxes" means any federal, state, local, foreign and other income, gross receipt profits, franchise, license, transfer, sales, use, payroll, withholding, employment, occupation, property, social security, intangible, excise or other taxes, fees, duties, assessments, withholdings or governmental charges of any nature (including interest, penalties or additions to such taxes or charges). SECTION 3. Liabilities. A. Liabilities Assumed by Purchaser. Subject to the terms and conditions herein set forth, at the Closing, Purchaser shall assume and agree to pay, perform or otherwise discharge the liabilities and obligations of Seller (i) incurred on and after the Closing Date as a result of events occurring on or after the Closing Date under the Purchased Contracts and agrees to be bound by the obligations of Seller thereunder; and (ii) the liabilities of Seller under any product warranties relating to products sold by Seller regardless of when sold. B. Indemnification. (a)Seller hereby agrees to indemnify and hold harmless Purchaser and its officers, directors and employees and its and their successors and assigns from and against any and all liabilities, obligations, losses, damages, amounts paid in settlement, diminutions in value, penalties, claims, actions, suits, costs, expenses and disbursements, including reasonable legal fees and expenses of whatsoever kind and nature imposed on, incurred by, or asserted against any of them in any way relating to, or arising out of or resulting from (A) the conduct of Seller's business or the ownership, use or operation by Seller of the Purchased Assets at any time prior to the Closing Date, except with respect to liabilities and obligations expressly assumed by Purchaser under this Agreement; (B) any representation or warranty made by Seller in this Agreement or in any other certificate, document or other instrument delivered hereunder or in connection herewith which is incorrect or misleading; or (C) any failure on the part of Seller to carry out and fully perform any covenants or any agreements or other obligations contained herein. (b) Purchaser hereby agrees to indemnify and hold harmless Seller and its officers, directors and employees and its and their successors and assigns from and against any and all liabilities, obligations, losses, damages, amounts paid in settlement, diminutions in value, penalties, claims, actions, suits, costs, expenses and disbursements, including reasonable legal fees and expenses, of whatsoever kind and nature, imposed on, incurred by or asserted against any of them in any way relating to, arising out of or resulting from (A) the conduct of Purchaser's business or the ownership, use or operation of the Purchased Assets at any time from and after the Closing Date, and the liabilities and obligations which have been expressly assumed by Purchaser hereunder from and after the Closing Date; (B) any representation or warranty made by Purchaser in this Agreement or in any other certificate, document or other instrument delivered hereunder or in connection herewith which is incorrect or misleading; or (C) any failure on the part of the Purchaser to carry out and fully perform any covenants or any agreements or other obligations contained herein. All items covered by subsections (i) and (ii) of this Section 3(b) are referred to herein as "Indemnified Claims". (c)An indemnified party hereunder shall promptly notify the indemnifying party in writing of the assertion of any claim asserted against the indemnified party which might give rise to an Indemnified Claim against the indemnifying party stating the nature and basis of such claim and the amount thereof. Except as set forth herein, the indemnified party shall not pay or provide for the payment or settlement or discharge of any such claim, for a period of fifteen days after the date such written notice was given to the indemnifying party, but thereafter may do so together with all costs and expenses incident thereto, unless within such fifteen-day period the indemnifying party shall have provided the indemnified party with notice that the indemnifying party reasonably disputes such claim. (d) In the event that any action, suit or proceeding is brought against an indemnified party with respect to which an indemnifying party may have liability under the indemnity agreement contained in this Section 3(b), the action, suit or proceeding shall be defended (including all proceedings on appeal or for review, which counsel for defendant shall deem appropriate) by the indemnifying party by counsel of its choice. The indemnified party shall have the right to be represented by an advisory counsel and accountants, at its own expense, and the indemnified party shall be kept fully informed of such action, suit or proceeding at all stages thereof whether or not the indemnified party is so represented. The indemnifying party shall make available to the indemnified party, its attorneys and accountants all books and records of the indemnifying party relating to such proceedings or litigation and the parties hereto agree to render to each other such assistance as they may reasonably require of each other in order to ensure the proper and adequate defense of any such action, suit or proceeding. (e)An indemnifying party shall not make any settlement of any claims which might give rise to an Indemnified Claim under the indemnity agreement contained in this Section 3(b) without the written consent of the indemnified party, provided that such consent shall not be unreasonably withheld. (f)The rights of indemnification contained in this Section 3 shall not be deemed to be the exclusive remedy of the parties hereto and such rights shall be in addition to any other rights or remedies which any party hereto may have at law or equity with respect to a default or breach by any other party under this Agreement. SECTION 4. Closings. A. (a)The Initial Closing will take place at 10:00 A.M. (local time), January 31, 1997, at the offices of Seller, One Research Drive, Shelton, Connecticut. (b) The Booth Closing will take place at 10:00 a.m.(local time), March 31, 1997, at the offices of Seller, One Research Drive, Shelton, Connecticut. B. At each of the Initial Closing and Booth Closing, Seller shall deliver to Purchaser a bill of sale, endorsements, assignments and such other instruments of transfer and conveyance as shall be effective to vest in Purchaser (A) good and marketable title to the assets to be sold to Purchaser at such closing as provided herein and (B) all of Seller's rights in and under each contract and agreement to be assigned to Purchaser as provided herein. C. At each of the Initial Closing and Booth Closing, Purchaser shall: (a) cause the cash consideration to be paid to Seller as provided in Section 2 of this Agreement; and (b) with respect to the Initial Closing, execute and deliver to Seller such instruments of assumption or novation as shall be effective to transfer from Seller at and as of the Closing Date those liabilities and obligations to be assumed by Purchaser hereunder. SECTION 5. Royalty Payments. A. Purchaser shall pay to Seller an amount equal to 1.5% of any and all net sales ("Sales Royalty") up to net sales of $3,500,000 per annum for all sales from February 1, 1999 through January 31, 2003 and an amount equal to 1% of any and all net sales up to net sales of $3,500,000 from February 1, 2003 through January 31, 2004. For purposes of calculating the Sales Royalty, net sales shall mean the invoiced amount of all products bearing the names Cuisine de France or Sabatier sold by Purchaser or its affiliates less only returns and allowances evidenced by credit memoranda. In determining net sales, no deduction made be made for early payment discounts, bad debts, advertising allowances or special promotions of any kind or for costs incurred in manufacture, sale, advertising or promotion. A sale shall be deemed made when the products are invoiced, shipped or paid for whichever is first to occur. B. The Sales Royalty hereunder shall be due and paid semi-annually within sixty days after the last day of July and January and shall be accompanied by a statement certified by a duly authorized officer of Purchaser as accurate, indicating, by month, the number and invoice price of all products shipped during the period and a computation of the amount of Sales Royalty payable hereunder. C. Purchaser shall keep, maintain, and preserve in Purchaser's place of business until at least January 31, 2006, complete and accurate records of accounts including without limitation all invoices, foreign exchange information, correspondence, banking and financial and other records pertaining to the various items required to be shown on the reports to be submitted by Purchaser. Seller, or its representatives, shall have the right to examine and make extracts from all such records, including all invoices during business hours. Purchaser agrees not to cause or permit any interference with Seller or its nominees in the performance of their duties of inspection and/or audit. If any audit shows that the amount of royalties paid by Purchaser to Seller during the time period covered by the audit is less than the actual royalties that should have been paid by Purchaser by more than ten percent (10%) of the amount actually paid to Seller then the cost of such audit shall be paid for by Purchaser. The exercise by Seller in whole or in part, or at any time or times, of the right to inspect or audit records and accounts or of any other right herein granted, or the acceptance by Seller of any report or the receipt or deposit by Seller of any payment from Purchaser shall be without prejudice to any other rights or remedies of Seller and shall not stop or prevent Seller from thereafter disputing the accuracy of any such report or payment. SECTION 6. Representations, Warranties and Agreements of Seller. Seller hereby represents, warrants and agrees with Purchaser as follows: A. Corporate Existence. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the state of Delaware, with full corporate power and authority to carry on its business as presently conducted by it. B. Authority. Seller has full power and authority to execute, deliver and perform this Agreement, and this Agreement has been duly authorized by all necessary and proper corporate action of Seller and is the valid and legally binding obligation of Seller in accordance with its terms. C. Consents. Neither the execution and delivery of this Agreement by Seller nor the consummation of the transactions contemplated hereby will violate or conflict with, result in the breach of, accelerate the performance required by, or constitute a default under, any provision of any order of any court or other agency of government, the articles of incorporation or by-laws of Seller, or any indenture, mortgage, agreement or other instrument to which Seller is a party or by which it or any of its properties is bound or affected or will result in the creation of any lien, charge or encumbrance on any of the Purchased Assets. No governmental authorization, approval, order or consent is required in connection with the execution, delivery and performance of this Agreement by Seller. D. Title. Seller has good and marketable title to the Physical Assets, free and clear of all mortgages, liens, pledges, charges, claims, restrictions, defects of title or other encumbrances or rights of others of any kind whatsoever. SECTION 7. Limitation. No representations or warranties whatsoever, other than the express representations and warranties set forth in this Section 6 is made by Seller, and except to the extent of the foregoing, SELLER HEREBY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, AS TO THE PURCHASED ASSETS AND SPECIFICALLY DISCLAIMS (A) ANY REPRESENTATIONS OR WARRANTY OF MERCHANTABILITY, USAGE OR FITNESS FOR ANY PARTICULAR PURPOSE AND (B) ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THE TRADEMARKS CUISINE DE FRANCE AND SABATIER. SECTION 8. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller as follows: A. Existence. Purchaser is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Connecticut, with full power to carry out its business as presently being conducted by it. B. Authority. Purchaser has full power and authority to execute, deliver and perform this Agreement, and this Agreement has been duly authorized by all necessary and proper action of Purchaser and is the valid and legally binding obligation of Purchaser in accordance with its terms. C. Consents. Neither the execution and delivery of this Agreement by Purchaser nor the consummation of the transactions contemplated hereby will violate or conflict with, result in the breach of, accelerate the performance required by, or constitute a default under, any provision of any order of any court or other agency of government, the operating agreement of Purchaser, or any indenture, mortgage, agreement or other instrument to which Purchaser is a party or by which it or any of its properties is bound or affected. No governmental authorization, approval, order or consent is required in connection with the execution, delivery and performance of this Agreement by Purchaser. SECTION 9. Sales Taxes. Purchaser agrees to pay and be liable for all sales, use or other transfer taxes, if any, payable in connection with the sales, transfer and deliveries to be made pursuant to this Agreement. At the Closing, Purchaser shall pay all such taxes due or to become due or provide Seller with assurances satisfactory to Seller that the same has been provided for and agrees to indemnify and hold harmless Seller against and in respect of any and all claims, liabilities or expenses which may be incurred as a result of the nonpayment of any such sales or use taxes. SECTION 10. Guarantee. Messrs. Candler and Wolff hereby unconditionally, absolutely and irrevocably guarantee to Seller all of the obligations of Purchaser hereunder. This is a joint and several guarantee and shall remain in full force and effect and be binding upon Messrs. Candler and Wolff; provided, however, that except with respect to the obligation of Seller to pay royalties pursuant to Section 5 hereof and to purchase the Purchased Inventory hereunder, which the guarantee shall continue in full force and effect with respect to, this guarantee shall not apply to liabilities incurred and arising subsequent to three years from the Initial Closing. SECTION 11. Name Change. Promptly following the Closing Seller shall file with the Secretary of State of Delaware a Certificate of Amendment to Certificate of Incorporation changing its name from Cuisine de France Limited. SECTION 12. No Broker. Each of Buyer and Seller represent and warrant to the other that no agent or broker or other persons acting pursuant to authority given by either of them is entitled to any commission or finder's fee in connection with the transaction contemplated by this Agreement. SECTION 13. Costs Incident to Agreement. Each of the parties hereto will pay all the costs incurred by it incident to the preparation, execution and delivery of this Agreement or the performance of its obligations hereunder, including, without limitation, the fees and disbursements of its counsel, accountants and consultants. SECTION 14. Retention of Celebration Series Knives. Seller may continue to market and sell its present inventory and any present inventory not sold hereunder of "Celebration Series" knives, and any inventory not sold to Purchasers for any reason, under the trademarks presently being utilized in connection with such products. SECTION 15. Accounts Receivable. Seller hereby agrees that in the event it shall receive, for any reason, payment with respect to goods sold by Buyer it shall promptly remit to Buyer, in the form received by it, any such payment or proceeds. Buyer agrees that in the event it shall receive, for any reason, payment with respect to goods sold by Seller it shall promptly remit to Seller, in the form received by it, any such payment or proceeds. SECTION 16. Miscellaneous. A. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party. This Agreement will be binding upon, and inure to the benefit of, the parties hereto and their successors and permitted assigns. B. Notices. Any notices or other communications required or permitted hereunder must be in writing and will be deemed sufficiently given only if delivered in person or sent by certified or registered mail, return receipt requested, postage prepaid to the parties at the respective addressed set forth below: (a)If to Purchaser to: Sabatier USA, LLC 3368 Fairfield Avenue Bridgeport, Connecticut 06605 With a copy to: Kenneth R. Wolff, Esq. 3 Manhattanville Road Purchase, New York 10577 (b) If to Seller: Cuisine de France Limited c/o Swiss Army Brands, Inc. One Research Drive Shelton Connecticut 06484 (c) If to Robert Candler: 118 Dickinson Drive Shelton, Connecticut 06484 (d) If to Robert P. Wolff: 344 Main Street Mt. Kisko, New York 10546 Any Party by written notice to the other may change the address to which notices shall be directed. C. Entire Agreement. This Agreement constitutes the entire understanding of the parties relating to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether oral or written, relating to the subject matter hereof. The terms of this Agreement cannot be changed, released or discharged orally. D. Waiver. Any term or condition of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument executed by a duly authorized officer of such party. No delay or failure on the part of any party in exercising any rights hereunder, and no partial or single exercise thereof, will constitute a waiver of such rights or of any other rights hereunder. E. Third Party Rights. Nothing in this Agreement will be construed as giving any person, firm, corporation or other entity, other than the parties hereto, their successors and permitted assigns any right, remedy or claim under or in respect of this Agreement or any provision hereof. F. Governing Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Connecticut applicable to contracts made and to be performed entirely within such state. G. Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed will be deemed to be an original; such counterparts will together constitute but one agreement. H. Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. CUISINE DE FRANCE LIMITED By /s/ Robert Topazio SABATIER USA, INC. By /s/ Robert Candler /s/ Robert Candler Robert Candler, as guarantor /s/ Robert P. Wolff Robert P. Wolff, as guarantor Schedule 1(a) Inventory Schedule 1(b) Contracts 1. License Agreement dated January 1, 1993 between Coutel Inov and Cuisine de France Limited. 2. License Agreement dated July 1, 1993 between Coutel Inov and Cuisine de France Limited. 3. Agreement and Assignment dated March 7, 1994 between Marc Harrison and Cuisine de France Limited. Schedule 1(c) Tooling Rights [describe rights to tooling to be transferred] Schedule 2(c) Allocation of Purchase Price Trade Show Booth $ 15,000 Goodwill $ 20,000 Inventory Remainder of Purchase Price EX-21 6 SUBSIDIARIES OF SWISS ARMY BRANDS, INC. Subsidiaries of Swiss Army Brands, Inc. Swiss Army Brand Ltd. Forcan, Inc. The Forschner Group (Suisse) S.A. EX-23.1 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated February 4, 1997, included in Swiss Army Brands, Inc. Form 10-K for the year ended December 31, 1996, and to all references to our firm in this registration statement. ARTHUR ANDERSEN LLP Stamford, Connecticut, March 27, 1997 EX-27 8 FDS
5 0000731947 Swiss Army Brands, Inc. 1,000 US Dollars 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 2,067 0 34,024 1,032 29,657 70,933 9,928 5,959 98,643 18,786 0 0 0 882 78,974 98,643 130,030 130,030 89,194 46,241 (2,350) (57) (147) (7,608) (2,344) (5,265) 0 0 0 (5,265) (.64) (.64)
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