<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-13099
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TRISTAR CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3129318
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12500 SAN PEDRO AVENUE, SUITE 500, SAN ANTONIO, TEXAS 78216
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(Address of principal executive offices)
Registrant's telephone number, including area code 210-402-2200
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Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
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(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 amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on November 10,
1995, as reported on the NASDAQ National Market System, was $17,461,000. As of
November 10, 1995, the Registrant had outstanding 16,632,601 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of Stockholders
to be held January 11, 1996 are incorporated by reference into Part III of this
Report.
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
TRISTAR CORPORATION ("Tristar" or the "Company") is a Delaware corporation
headquartered in San Antonio, Texas. The Company is principally engaged in
developing, manufacturing, marketing and distributing designer alternative
fragrances, original fragrances, and cosmetic pencils. The Company also
markets and distributes cosmetics and selected toiletry products. The Company
currently operates through its distribution facility in San Antonio, Texas, and
its manufacturing facility in Pleasanton, Texas.
The Company was incorporated in New York in 1982 and made an initial public
offering of its common stock in 1984. In 1987, the Company was reincorporated
in Delaware. The Company changed its name from Ross Cosmetics Distribution
Centers, Inc., to Tristar Corporation in 1993.
On August 31, 1995, Eurostar Perfumes, Inc., ("Eurostar"), an affiliate of the
Core Sheth Families and the manufacturer of substantially all of the Company's
products, was merged into the Company, and under the terms of the agreement,
the sole stockholder of Eurostar, Transvit Manufacturing Corporation
("Transvit"), a Core Sheth Families affiliate, received an aggregate of
9,977,810 shares of the Company's Common Stock. In addition, the exercise
price of existing warrants to purchase 2,000,000 shares of the Company's Common
Stock held by the Core Sheth Families may be reduced under certain
circumstances related to the performance of the Company's Common Stock price in
the public market during the period of August 31, 1995 through August 31, 1996.
After the merger, the Core Sheth Families beneficially own approximately 84% of
the outstanding shares of the Company's Common Stock (86% assuming the exercise
of all outstanding warrants).
The merger was accounted for in a manner similar to a pooling of interests.
Accordingly, the Company's financial statements have been restated to include
the results of Eurostar for all periods presented. Additionally, all
subsequent discussions and disclosures in this document are as though Eurostar
has been a part of Tristar since the inception of Eurostar in 1992.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
During the three fiscal years ended August 31, 1995, the Company has been, and
expects to continue to be, engaged in a single line of business and/or industry
segment, i.e., the development, manufacture, marketing and distribution of
designer alternative fragrances, original fragrances, and cosmetic pencils and
in the marketing and distribution of other cosmetic products and selected
toiletry products. See "Financial Statements" submitted in response to Item 8
of this Report.
(C) NARRATIVE DESCRIPTION OF BUSINESS
The Company is engaged in the business of the development, manufacture,
marketing and distribution of designer alternative fragrances, original
fragrances and cosmetic pencils and in the marketing and distribution of other
cosmetic products and selected toiletry products. See "Financial Information
about Foreign and Domestic Operations and Export Sales" at page 6.
Products
The Company's principal product categories are fragrances and other selected
cosmetic products, including cosmetic pencils and toiletry products. The
following table reflects the approximate contributions to net sales for the
last three fiscal years for the major product categories sold by the Company:
<TABLE>
<CAPTION>
================================================================================
PRODUCT CATEGORY FISCAL 1995 FISCAL 1994 FISCAL 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FRAGRANCES 78% 79% 82%
- --------------------------------------------------------------------------------
OTHER PRODUCTS 22% 21% 18%
================================================================================
</TABLE>
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The above table reflects a decline in fragrance sales from fiscal 1994 to
fiscal 1995 as it did in fiscal 1993 to 1994. The growth of other products
reflects a market acceptance of new product lines introduced in fiscal 1995,
1994 and 1993 and the expansion of sales of other lines.
The Company conducts all market testing and develops all new and replacement
fragrance and cosmetic pencil products for introduction into the marketplace.
The success of these products is dependent on the Company's identifying the
best market niche and then, ultimately, on the customers' acceptance of the
product. Life cycles of products vary significantly, with some products
successfully marketed for more than five years, whereas other products may fail
to gain consumer acceptance and be discontinued within a short period of time.
The Company must accurately gauge acceptance for the products it manufactures.
While the Company is in a position to request the development of new or
redesigned cosmetic products, it is almost completely dependent on its
suppliers to develop these and other new and replacement cosmetic products,
other than cosmetic pencils, for introduction into the marketplace. As noted
above, market acceptance also plays a large role in the success or failure of
cosmetic products, and life cycles vary significantly. Designing fragrance and
cosmetic products to fit into specific market niches and gaining customer
acceptance is a very important part of product development and marketing.
Fragrances
Within the fragrances product category, in fiscal 1995 as in fiscal 1994, the
Company primarily marketed three product lines: "Euro Collections", "Club
Exclusif Fragrances", and "Premiere Fragrances" and in fiscal 1995 it added a
new fragrance line, "Euro Elegance". All lines feature a wide variety of
premium-look bottle shapes and packages containing fragrances which provide an
alternative to some of the most popular, nationally branded, designer
fragrances at a fraction of the designer fragrance's retail price.
The Euro Collections line, which was first introduced in 1989, is the primary
product line in the Company's fragrance category and is the major revenue
contributor. Included in this line, as well as in the Company's other fragrance
lines, are companion products, which are discussed further under "Other
Products" below.
The fragrance product lines other than the Euro Collections line constitute a
smaller portion of the Company's revenue with the revenue contribution of the
Club Exclusif line expected to continue to increase in 1996 as a result of
increased marketing efforts and consumer recognition and acceptance.
Other Products
The Company markets, under the brand names of "Gina Cosmetics, "Roxy Cosmetics"
and "Apple Cosmetics", proprietary lines of nail, lip and eye products and
other cosmetic accessories manufactured by others.
The Company manufactures, markets and distributes under the Apple Cosmetics,
Gina Cosmetics, and Roxy Cosmetics brand names, a proprietary line of cosmetic
pencils in assorted colors and sizes. It also produces private label cosmetic
pencils for selected customers, including an affiliate of the Core Sheth
Families.
In addition, the Company produces or purchases from affiliates, and markets
companion products to its Euro Collections, Club Exclusif and Premiere lines
such as eau de parfum sprays, body sprays, body oils, deodorant sticks, and
other bath products such as dusting powders and gift sets. Such companion
products are also marketed as designer alternatives and priced at a fraction of
the price of the original designer products.
New Products
As noted previously, the Company designs and develops new fragrance products to
meet consumer needs. During the fiscal year ended August 31, 1995, the Company
continued to strive for improvement of existing products and worked towards
development of additional product lines and complementary products to existing
lines. In fiscal 1995, the Company introduced a new fragrance line, Euro
Elegance, and a new deodorant stick line, Everscent. Additionally, the Company
selectively added new products to existing fragrance and cosmetic lines.
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The Company anticipates the introduction of additional new products and a new
product line during fiscal 1996.
Manufacturing
The Company owns and operates a manufacturing facility in Pleasanton, Texas.
The manufacturing facility, located on 14-acres, produces virtually all of the
fragrances and cosmetic pencils sold by the Company.
Distribution
The Company distributes its products in North and South America from its Texas,
Mexico and Brazil warehouse facilities. The Company has approximately 1,600
customers, including wholesalers, distributors, mass merchandising chains and
specialty chain stores. These customers represent over 28,000 outlets for the
Company's products. See "Narrative Description of Business (Customers)," and
"Narrative Description of Business (Suppliers)" below. The Company markets its
products through Company sales personnel located in various markets and through
a network of independent sales representatives.
Customers
The Company's customers are located primarily in North and South America.
Sales to customers in the United States were $27,563,000, $38,187,000 and
$40,329,000, for fiscal years 1995, 1994 and 1993, respectively. Total direct
export sales outside of the United States, for the years ended August 31, 1995,
1994 and 1993 were approximately $17,165,000, $13,057,000, and $11,361,000,
respectively, amounting to 38, 25, and 22 percent of total net sales for those
years. It is anticipated that the Company will continue to limit distribution
of its products to North and South America as other Core Sheth Families
affiliates distribute similar products in the rest of the world.
The Company is not dependent upon a single or a few customers, and the loss of
any single or a few customers would not have a material adverse effect on the
Company's business. In fiscal 1995, 1994, and 1993 no single customer
accounted for more than seven percent of the Company's total sales.
Suppliers
At present, the Company purchases a significant amount of glass products for
its fragrance products from European glass manufacturers. If the Company were
unable to purchase these products from one of these suppliers, the Company
believes that it could purchase such products from other suppliers without any
significant delays.
In addition, the Company purchases its fragrance supplies principally from one
company, which is a Core Sheth Families affiliate. In the event that the
Company were unable to purchase these supplies, the Company could suffer minor
manufacturing delays in producing its products until the primary suppliers
could be replaced by a Core Sheth Families affiliate or a secondary source.
The Company's ability to satisfy sales orders of its fragrance products is
directly dependent on its ability to manufacture these products. If the
Company were physically unable to manufacture its product, the effect on the
Company would be minimal as Core Sheth Families affiliates and others have
similar manufacturing facilities available to support the Company.
In addition to fragrance manufacturing at the Pleasanton, Texas facility, the
Company, at the same location, also manufactures cosmetic pencils. If the
Company were physically unable to manufacture cosmetic pencils, the lack of
these products could have an adverse effect on the Company until a secondary
supplier could be located.
The Company is dependent on the supply of cosmetic products, other than
cosmetic pencils, from Core Sheth Families affiliates. If any of these
companies were to cease or be unable to supply these cosmetic products, the
lack of such products could have an adverse effect on the Company until
secondary suppliers could be located.
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Patents and Trademarks
The Company and a Core Sheth Families affiliate own or have applied for,
substantially all of the product name trademarks for the fragrance products
sold by the Company. The Company is dependent on the continued use of these
trademarks; however, the cessation of the Company's right to use such
trademarks of the Core Sheth Families affiliate would only have a minor effect
on the Company.
Backlog of Orders
The Company had no substantial backlog of orders at the end of fiscal years
1995, 1994 and 1993.
Raw Materials
The Company's raw material inventories support the fragrance and cosmetic
pencil manufacturing operations. The principal components of that inventory
are currently purchased from limited or single sources of supply. Management
believes the cessation of supply for the fragrance components from any of the
primary suppliers could be replaced by a Core Sheth Families affiliate or a
secondary source.
Environmental Laws
In the opinion of management, compliance by the Company with federal, state and
local laws relating to the protection of the environment has had no material
effect upon the Company's capital expenditures, earnings or competitive
condition. The Company is currently reformulating certain of its products to
meet the requirements of the California Air Resources Board, See "Legal
Proceedings (Other)".
Competition in the Fragrance and Cosmetics Industry
The fragrance and cosmetics industry is characterized by intense competition.
While pricing and terms are the principal methods of competition, product
quality and customer service (incorporating prompt delivery through the
maintenance of sufficient inventory) are ancillary competitive considerations
in the overall cosmetics industry.
Principal competitors in designer alternative fragrances include Jean Philippe
Fragrances, Inc., Paris Designs, Inc., and Parfums de Coeur, and in budget
cosmetics, Artmatic USA Cosmetics, Wet-N-Wild, and Jordana Cosmetics
Corporation.
When viewing the fragrance and cosmetics industry as a whole, the Company is
relatively small and, consequently, is not a significant factor in the
industry. Many of the other companies in the industry, including virtually all
large product manufacturers such as Revlon and Proctor and Gamble are well
established and have been in existence for a significantly longer period of
time than the Company. Each of such companies has product inventory,
financial, marketing, research, and personnel, as well as other resources,
substantially greater than the Company, and has more extensive facilities than
those which in the foreseeable future will become available to the Company.
Historically, however, these large manufacturers have not sought to compete in
the same value-oriented markets in which the Company participates.
Inventory
The Company maintains finished goods inventory at its Texas, Mexico and Brazil
warehouse facilities. Raw material and work-in-process inventories related to
manufacturing of fragrances and cosmetic pencils are located at the Pleasanton,
Texas manufacturing facility.
Seasonality
The Company's business has historically been subject to seasonal factors
relating to calendar year-end holidays, which has resulted in increased net
sales in the first and fourth quarters of the Company's fiscal year.
Management expects this trend to continue.
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Employees
The Company employs approximately 300 people as regular employees.
Additionally, during peak production periods the Company utilizes temporary or
seasonal employees to augment its workforce. During the past two fiscal peak
production periods the Company has utilized up to 220 seasonal employees. None
of the Company's employees are covered by a collective bargaining agreement and
management believes that the Company's relationship with its employees is
satisfactory.
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
Other than sales offices and distribution facilities in Mexico and Brazil, the
Company has no significant operations outside the continental United States.
The Company exports a significant portion of its sales directly to foreign
customers. For the years ended August 31, 1995, 1994, and 1993, $17,165,000
(38% of net sales), $13,057,000 (25% of net sales), and $11,361,000 (22% of net
sales), respectively, were exported directly to foreign customers or sold
through the Company's Mexico subsidiary. While management believes that some
products are sold to United States customers for ultimate resale outside the
United States, the amount of these indirect export sales cannot be determined
as the Company does not have access to its customers' sales information. See
"Narrative Description of Business (Customers)". A significant portion of the
Company's products are sold directly or indirectly into the Latin American
market. There are certain factors which could have an adverse effect on these
sales. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations (Mexican Market)" for a specific discussion of the
risks in Mexico.
ITEM 2. PROPERTIES
The Company owns a manufacturing plant which consists of a 132,000 square-foot
facility on a 14-acre site in Pleasanton, Texas. That facility has
approximately 12,000 square feet of office space.
The Company is currently leasing approximately 72,000 square feet of storage,
shipping, and office space for its San Antonio warehouse facility. The lease
has an annual rate of $207,000, subject to adjustments, and expires in February
1998.
The San Antonio offices occupy approximately 22,000 square feet of office
space. The leases have a current annual rate of $208,000, subject to
adjustments, and expires in January 1998.
In May 1990, the Company completed construction of a 21,000 square foot
manufacturing plant in Duncan, South Carolina, which prior to the relocation of
the cosmetic pencil manufacturing operations, was devoted exclusively to the
manufacture of cosmetic pencils. This facility, currently unoccupied, is
located on 16 acres of land. The Company is currently attempting to sell this
facility and land.
The Company leases approximately 7,000 square feet of office and distribution
space in Latin America.
The Company currently has under lease approximately 18,000 square feet of
facilities which it is subletting.
ITEM 3. LEGAL PROCEEDINGS
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company,
as well as two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas
and Melissa Freitas. The complaint alleges causes of action by two plaintiffs
for libel and seeks indemnification in connection with the work of the Special
Committee of the Board of Directors that investigated, among other things, a
prior failure to disclose the Core Sheth Families' holdings of Company stock.
The complaint also alleges, on behalf of all four plaintiffs, that the
Company's disclosures relating to these and other matters were fraudulent or
negligently misrepresented. In April 1995, the court dismissed the complaint
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without prejudice, in part due to the plaintiffs' failure to state a claim for
relief. In May 1995 the plaintiffs refiled the complaint, asserting many of
the same claims. The Company intends to dispute these allegations vigorously
and believes that ultimate disposition of the case will not have a material
adverse effect on its financial condition.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In June 1992, the Company was advised that it was the subject of an
investigation by the staff of the United States Securities and Exchange
Commission regarding the non-disclosure of the shareholdings of the Core Sheth
Families, as well as potential accounting irregularities and other matters. In
September 1995, the Company, without admitting or denying the allegations of
the Securities and Exchange Commission, consented to the entry of an
administrative cease and desist order relating to future violations of the
federal securities laws.
INSURANCE POLICY REIMBURSEMENT
During 1995, the Company received a court approved distribution of $2,000,000
from the proceeds of an executive liability and indemnification policy owned by
the Company. The distribution of $750,000 of the total, plus interest of
approximately $65,000, has been contested by other claimants under the policy.
The Company believes that the ultimate disposition of the matter will not have
a material adverse effect on its financial condition.
CALIFORNIA AIR RESOURCES BOARD
Since January 1, 1995, the Company's personal fragrance products have not been
in compliance with regulations of the California Air Resources Board (the
"CARB") with respect to volatile organic compounds ("VOC's"). The Company has
reformulated a number of its products and is in the process of reformulating
its primary fragrance lines to achieve compliance with the VOC regulations.
The Company has filed with the CARB required registrations of its products and
an application for a temporary variance from VOC regulations until all products
not meeting the requirements can be reformulated. Based on preliminary
discussions with representatives of the CARB, the Company anticipates that it
will be allowed to continue to sell its products in California during
consideration of its variance application and that its variance will be
granted. Any interruption of the Company's sales in California would have a
material adverse effect on the Company's financial condition.
EMPLOYMENT CLAIMS
In May 1995, a suit was filed in Texas state court against the Company by John
Genung, formerly in-house counsel for Eurostar, who was terminated
approximately 45 days after his employment commenced and within the
probationary period of his employment arrangement. Plaintiff has filed suit
against the Company, making certain allegations, including breach of contract,
violations of various state and federal laws, retaliatory termination and
misrepresentations. The Company has filed counterclaims for actions that the
plaintiff took during the course of his limited employment with the Company.
It is expected that the ultimate disposition of this action will not have a
material adverse effect on the Company's financial condition.
OTHER
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
these proceedings will not have a material adverse effect on the Company's
financial condition. The Company anticipates that it may incur litigation
expenses related to ongoing litigation involving the non-settling defendants
from previously settled stockholder class action litigation against the Company
and a lawsuit against the Company's auditors prior to fiscal year-end 1993
related to such litigation. Any expenses incurred are not expected to be
material to the Company's financial results.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A special meeting of the Stockholders was held on August 30,
1995 at the Company's corporate offices in San Antonio Texas.
(b) The following two matters, as described in the Company's Proxy
Statement dated August 4, 1995, were submitted to the stockholders, voted upon
and approved:
(1) A proposal to approve and adopt an Agreement and Plan
of Merger dated as of July 1, 1995 among the Company, Eurostar, and Transvit,
pursuant to which (i) Eurostar would be merged into Tristar, following which
Tristar would be the surviving corporation, and (ii) all the issued and
outstanding shares of Eurostar Common Stock would be converted into the right
to receive an aggregate of 9,977,810 shares of the Company's Common Stock. Of
the 5,064,944 shares represented at the meeting, this matter was approved with
4,878,217 of the votes received voting for the proposal, 143,770 against, 4,625
abstentions and 38,332 broker-non votes.
(2) In connection with the merger, a proposal to amend
Tristar's Certificate of Incorporation to increase the number of shares of
Tristar Common Stock from 10,000,000 to 30,000,000. Of the 5,064,944 shares
represented at the meeting, this matter was approved with 4,863,342 of the
votes received voting for the proposal, 182,294 against, 19,308 abstentions and
0 broker-non votes.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company has a single class of equity securities outstanding, its Common
Stock, $.01 par value ("Common Stock"). The Common Stock is traded
over-the-counter on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market under the symbol "TSAR". The following
table presents for the periods indicated the quarterly high and low bid
quotations in the over-the-counter market, as quoted by NASDAQ. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
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FISCAL 1995 FISCAL 1994
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HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
FIRST QUARTER $5 7/8 $3 7/8 $7 7/8 $4 1/8
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SECOND QUARTER $5 5/8 $5 1/8 $7 7/8 $5 3/8
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THIRD QUARTER $6 $5 $6 1/4 $3 7/8
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FOURTH QUARTER $5 1/2 $5 $4 1/8 $3 7/8
===========================================================================
</TABLE>
On November 10, 1995, the closing bid price for the Company's Common Stock, as
reported by NASDAQ, was $6 5/8.
(B) HOLDERS
As of November 10, 1995, the approximate number of holders of record of the
Company's Common Stock, as reported by the Company's transfer agent, was 212.
(C) DIVIDENDS
The Company has paid no cash dividends on the Common Stock since its inception.
The payment by the Company of cash dividends, if any, in the future rests
within the discretion of the Board and will depend, among other things, upon
the Company's earnings, its capital requirements and its financial condition,
as well as other relevant factors.
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In addition, the Company's ability to pay cash dividends is subject to
restrictions imposed by the Company's principal lender. See Note 5 of the Notes
to Consolidated Financial Statements. The Company has no plans to pay any cash
dividends on the Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data for the Company and its
subsidiaries for each of the last five fiscal years:
<TABLE>
<CAPTION>
================================================================================================================
YEARS ENDED AUGUST 31,
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1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $44,728,000 $51,244,000 $51,690,000 $47,735,000 $30,865,000
- ----------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $(932,000) $1,390,000 $(4,724,000) $2,788,000 $1,977,000
- ----------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME PER COMMON
SHARE:
PRIMARY $(.06) $.08 $(.28) $.22 $.30
FULLY DILUTED $(.06) $.08 $(.28) $.22 $.28
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
PRIMARY 16,625,341 16,851,644 16,601,048 12,893,233 6,664,530
FULLY DILUTED 16,625,341 16,851,644 16,601,048 12,893,233 6,954,144
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $36,828,000 $40,902,000 $39,116,000 $27,771,000 $13,745,000
- ----------------------------------------------------------------------------------------------------------------
SHORT TERM BORROWINGS $5,383,000 $4,511,000 $2,505,000 $3,630,000 $1,706,000
- ----------------------------------------------------------------------------------------------------------------
LONG TERM DEBT $3,719,000 $4,861,000 $8,168,000 $5,801,000 $1,282,000
- ----------------------------------------------------------------------------------------------------------------
SUBORDINATED LONG TERM DEBT $12,666,000 $11,216,000 $10,469,000 $1,409,000 $-0-
- ----------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER
COMMON SHARE $ -0- $ -0- $ -0- $-0- $ -0-
================================================================================================================
</TABLE>
The Company has significant related party transactions. See Note 7 of the
Notes to Consolidated Financial Statements.
In fiscal 1993, the Company recorded a $9.5 million (pretax) charge in
connection with settlement of the class action litigation.
The Company has recorded legal and professional expenses of $269,000, $208,000
and $2,758,000 in fiscal 1995, 1994 and 1993, respectively, associated with the
stockholder litigation and other events that were the subject of an internal
investigation by the Special Committee of the Board. See Note 14 of the Notes
to the Consolidated Financial Statements.
The Company recorded other income of $2,065,000 in connection with receipt of
insurance proceeds in fiscal 1995. See Note 17 of the Notes to the
Consolidated Financial Statements.
The Company recorded expense of $986,000 and $367,000 in fiscal 1995 and 1994,
respectively, associated with the value assigned to the granting of new common
stock purchase warrants related to the settlement of the prior stockholder
class action litigation and to the extension of the exercise date on existing
warrants.
The Company recorded merger related expenses of $686,000 in fiscal 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis included in this section reflects the financial
results of the combined entities of Tristar and Eurostar, which were merged on
August 31, 1995. See Note 2 of the Notes to Consolidated Financial Statements.
The combination was treated in a manner similar to a pooling of interests.
Accordingly, the results include both the activities of Tristar as a
distributor in the NAFTA countries as well as all of the sales activities of
Eurostar in Central and South America and Eurostar's development and
manufacturing activities.
RESULTS OF OPERATIONS -- FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for the fiscal year ended August 31, 1995 were $44,728,000, a
decrease of 12.7%, compared to net sales of $51,244,000 in the fiscal year
ended August 31, 1994. This decrease is primarily attributable to the impact
of economic and political conditions on customers in Mexico.
Tristar markets and distributes products to wholesalers, distributors, chain
stores, mass merchandisers, and independent retail channels in various markets
throughout North and South America. The Company experienced a loss of sales in
fiscal 1995 in the wholesale channel, primarily because of the decrease in
sales in Mexico, and, to a much lesser extent, from a general decrease in the
market demand in that channel as it matures. The other channels grew in fiscal
1995 compared to fiscal 1994 primarily in Latin America (excluding Mexico) as
the Company appointed additional distributors and in the U.S. as the Company
continued to expand its marketing efforts in the chain store and mass
merchandising channels. The independent retail channel continues to remain a
small part of the Company's sales.
Overall the Company's direct exports increased to $17,165,000 (38%) of net
sales in fiscal 1995 compared to $13,057,000 (25%) of net sales in fiscal 1994.
The increase in direct exports is largely due to the increase in activity in
Latin America as the Company continues to expand in those markets. In fiscal
1995, the market for the Company's products in Mexico decreased substantially
as a result of economic and political conditions. Those conditions, which
included the devaluation of the Nuevo Peso in December 1994, severely affected
the purchasing power of the Mexican population. Direct exports to Mexico in
fiscal 1995 decreased from fiscal 1994, $1,492,000 compared to $6,639,000. The
economic and political conditions are believed to have caused indirect sales
into Mexico (product distributed into Mexico by U. S. based customers) to also
decline in fiscal 1995 as compared to fiscal 1994, although the precise volume
of indirect sales cannot be determined as customers do not provide such
information to the Company.
Export sales of cosmetic pencils to a Core Sheth Families affiliate increased
in fiscal 1995 to $514,000 from $374,000 in fiscal 1994. See "Narrative
Description of Business (Suppliers)" and Note 7 of the Notes to Consolidated
Financial Statements.
Distribution in the U. S. markets is believed to have remained relatively
constant between fiscal 1995 and fiscal 1994. As sales to U. S. customers
include product that is ultimately destined for countries outside of the U. S.,
as noted above, it is not possible to determine precisely the amount of sales
that ultimately remain in the U. S. marketplace. However, it is believed that
while there has been a decline in the wholesale market in the U.S., the growth
in the chain store and mass merchandising channels has compensated for such
decreases.
In fiscal 1995, the Euro Collections Fragrance line, the Company's largest
revenue producer, was adversely affected (1) by the decline of direct sales
into Mexico, as this was the primary product line purchased by Mexican
customers, (2) by the general decline in the wholesale channel, and (3) by the
maturation of this product line. Offsetting a significant portion of the
decline was a growth in the sales of this product line into the balance of
Latin America. In addition, in fiscal 1995, lower sales were realized in the
(1) cosmetics lines, (2) cosmetic pencil line, and (3) Premiere Fragrance line.
Partially offsetting these decreases was a growth in recently introduced
selected toiletry products.
Of the net sales in fiscal 1995, approximately 15%, or $6,808,000, resulted
from the sale of products purchased from related parties as finished goods.
For fiscal 1994, comparable numbers were 12%, or $6,236,000. In addition,
fragrance and other products manufactured and sold by the Company included some
components that were purchased from related parties. The cost of those
components approximated 8% of cost of sales in fiscal 1995
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and 4% in fiscal 1994. See Note 7 of the Notes to the Consolidated Financial
Statements for additional information and "Narrative Description of Business
(Suppliers)".
For additional information on products, channels of distribution, customers,
and suppliers, see Narrative Description of Business under Item 1.
Tristar's gross profit both in dollar terms and as a percentage of sales
declined in fiscal 1995 as compared to fiscal 1994. Comparable numbers were
$13,001,000, or 29.1%, in fiscal 1995 and $18,042,000, or 35.2%, in fiscal
1994. Gross profit in dollar terms decreased as a result of lower sales in
fiscal 1995 and of increased cost of product. The major cause of this decrease
in gross profit as a percentage of sales can be attributed to the decreased
purchasing power of the U.S. dollar in certain foreign markets where components
are purchased and to increased packaging costs. In addition, the margin
percentages were affected by the mix of product manufactured and sold in fiscal
1995 compared to fiscal 1994.
Selling, general and administrative expenses ("SG&A") decreased in fiscal 1995
to $11,654,000 from the fiscal 1994 level of $12,906,000. The decrease can be
attributed to restructuring and reduced marketing promotions and advertising
production costs in fiscal 1995. In fiscal 1994, the expenses involved in
closing the South Carolina distribution center and the costs of selective
headcount reductions increased fiscal 1994 expenses. Offsetting the decreases
in fiscal 1995 were continued expansion of marketing activities and selective
hiring of new personnel, especially in support of the expansion of Latin
America markets. As a percentage of sales, SG&A was 26.1% on a lower sales
amount in fiscal 1995 compared to 25.2% in fiscal 1994. Fiscal 1995 SG&A
included expenses incurred in the relocation of the pencil manufacturing
operations from South Carolina to Texas and an expense of $187,000 to reduce
the book value of the plant and surrounding land to their estimated net
realizable value.
Management expects that SG&A will increase in dollar terms in fiscal 1996 as
the Company continues to expand its marketing efforts in the U.S. and Latin
America, while as a percentage of sales, SG&A is expected to decrease.
Interest expense increased $108,000 in fiscal 1995 from the 1994 level of
$1,533,000. This increase is attributable to several factors including an
increased prime rate in fiscal 1995, increased average short term borrowings,
and a change in the mix of long term debt such that interest rates increased.
The Company anticipates that interest expense will be higher in fiscal 1996 due
to expected increased borrowing levels under the revolving credit lines as the
Company attempts to expand its market position in the United States and Latin
America.
Fiscal 1995 expenses included merger related expenses of $686,000, litigation
expenses arising from events related to the shareholder litigation of $269,000,
and $986,000 of expenses related to the amortization of the warrant valuation
asset. These expenses in fiscal 1994 were $0, $208,000, and $367,000,
respectively.
In fiscal 1995, the Company received a court approved distribution of
$2,000,000 from the proceeds of an executive liability and indemnification
policy owned by the Company. In addition, a distribution of $65,000 of
interest earned was received. The distribution of $750,000 of the total has
been contested by other claimants under the policy. See "Legal Proceedings
(Insurance Policy Reimbursement)" at page 7.
The Company recorded income tax expense, net of benefits, of $661,000 in fiscal
1995 and $1,694,000 in fiscal 1994.
The Company recorded a net loss of $932,000 or $0.06 per share for fiscal 1995.
In fiscal 1994, the Company recorded net income of $1,390,000 or $0.08 per
share.
Potential Adverse Effects on Results of Operations for Future Periods
The results for fiscal 1996 could be adversely affected by each or all of the
following factors:
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1. Mexican Market. In December 1994, the Mexican government devalued the
Mexican Nuevo Peso by allowing the Peso to float freely against the
U.S. dollar. This devaluation has resulted in a general increase of
100% or more in the cost of imported products to the Mexican consumer.
The increase and the resultant instability, including significant
business failures, higher interest rates, and high unemployment, has
caused a sharp decline in purchases of the Company's products by the
Mexican consumer. It is not known if and when the Peso will stabilize
at a level where somewhat normal purchasing will resume. Prior to the
above mentioned economic and political instability, sales directly and
indirectly into Mexico accounted for a significant portion of
Tristar's total sales.
The Company believes that some of its customers based in the United
States sell the Company's products (as well as the products of other
companies) to purchasers who, in turn, may attempt to import goods
into Mexico without full payment of applicable Mexican taxes and
customs duties. Enhanced enforcement efforts by Mexican authorities
may have an adverse effect on the Company's sales to such customers.
The Company has been unable to determine the effect, if any, that the
implementation of the North American Free Trade Agreement ("NAFTA")
has had or subsequently will have on the Company's business.
2. Economy. Weak economic conditions in Mexico combined with the
devaluation of the Mexican currency, noted above, are expected to
continue to restrict the growth of sales in Mexico.
3. Distribution Channels. Although the Company is making extensive
efforts to market products into Latin America and the chain and mass
merchandising channels, the Company remains heavily dependent on its
original market, the wholesale channel. The maturation of this market
combined with competitive pressures have resulted in a slowing of the
general growth of the market. These factors are expected by
management to negatively affect fiscal 1996 results.
4. Supply of Products. The Company's ability to manufacture and to
satisfy consumer demand for fragrances is dependent on the supply of
certain components from single sources. Any inability of these
vendors to meet the Company's requirements could have an adverse
effect on the Company's results until an alternative source could be
found and/or developed.
In addition, the Company is dependent on the supply of cosmetic
products, other than cosmetic pencils, from a Core Sheth Families
affiliate. See "Narrative Description of Business (Suppliers)". If
such affiliate were to cease or be unable to supply these cosmetic
products, the lack of these products would have an adverse effect on
the Company until a secondary supplier could be located.
5. New Markets. The Company continues to develop and expand sales and
marketing operations in Latin America. In the process the Company
incurs significant expenses in order to establish a marketing presence
and an economically viable amount of sales. There is no assurance
that the Company will be successful in those endeavors nor that it
will recover its initial expenses and start up costs. In addition,
certain countries impose strict import restrictions and high levels of
taxes on imports which could affect the success of sales and marketing
activities and also affect the profitability of such activities.
At this time, it is not known whether, or to what degree, the above factors
will have a material adverse impact on fiscal 1996 results.
RESULTS OF OPERATIONS -- FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for fiscal 1994 were $51,244,000, relatively flat compared to net
sales of $51,690,000 for fiscal 1993.
Sales declines were incurred in the wholesale channel primarily as a result of
lower cosmetic pencil sales and lower sales into Canada in fiscal 1994 as
compared to fiscal 1993. The wholesale channel is also the most mature channel
of distribution for the type of products sold by the Company and, therefore,
has the most competitive pressures. Steady growth in sales in fiscal 1994 in
Latin America and in the chain and mass merchandising
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channel, including specialty chains, were the primary factors which offset the
sales declines in the wholesale channel.
Direct sales to foreign customers of $13,057,000 (25% of net sales) reflected
an increase in fiscal 1994 when compared to such sales of $11,361,000 (22% of
net sales) in fiscal 1993. The growth experienced was in the Latin American
markets including Mexico. The growth was partially offset by lower sales to
countries outside North and South America.
Certain of the Company's U.S. based customers sold the Company's products into
foreign countries ("indirect foreign sales") both in North and South America as
well as into other parts of the world. While the Company does not have access
to its customers records, these indirect foreign sales existed both in fiscal
1993 and fiscal 1994, but by the end of fiscal 1994 there were indications
that such sales were declining. The amount of any sales lost due to the
cessation of indirect shipments cannot be determined as the Company does not
have access to such customer information.
In fiscal 1994, the Mexico market continued to be a key market for the Company
in spite of the economic and political conditions that affected the purchasing
power of the Mexican population, and disruptions in the passage of products
through the United States-Mexico border. Direct exports to Mexico in fiscal
1994 increased over fiscal 1993, $6,639,000 compared to $4,269,000. Management
believes that indirect sales (product distributed into Mexico by U.S. based
customers) decreased in fiscal 1994 when compared to fiscal 1993 as a result of
the factors noted above. Although the precise volume of such a decrease in
indirect sales cannot be determined because customers do not provide such
information to the Company, management believes that any decrease in indirect
sales could possibly have offset any increase in direct sales in Mexico.
Export sales of cosmetic pencils to a Core Sheth Families affiliate decreased
from $1,359,000 in fiscal 1993 to $374,000 in fiscal 1994, contributing to the
decrease in foreign sales outside of North and South America noted above. See
"Narrative Description of Business (Suppliers)" and Note 7 of the Notes to
Consolidated Financial Statements. Of the total sales of cosmetic pencils for
fiscal years 1994 and 1993, approximately 8% and 25%, respectively, were sold
to the Core Sheth Families affiliate. This sharp decline in pencil sales can
be attributed to increased competitive activity in the affiliate's markets.
Distribution in the U. S. markets is believed to have remained relatively
constant between fiscal 1994 and fiscal 1993. As sales to U. S. customers
include product that is ultimately destined for countries outside of the U. S.
(indirect foreign sales), as noted above, it is not possible to determine
precisely the amount of sales that ultimately remain in the U. S. marketplace.
On a product line basis, in fiscal 1994 sales of the Euro Collections
Fragrances were adversely affected by the economy and by competition.
Partially offsetting these adverse effects was an increase in foreign sales. In
addition, in fiscal 1994, lower sales were realized in the (1) cosmetic pencil
line primarily due to a decrease in sales to a related party (see discussion
above), (2) Premiere Fragrance line and (3) Euro Luxury Fragrance line which
was discontinued in fiscal 1993. Partially offsetting these decreases was
growth in the Club Exclusif Fragrances, Gina Cosmetics, dusting powders, and in
the bath and body products introduced in fiscal 1994 .
Of the net sales in fiscal 1994, approximately 12%, or $6,236,000, resulted
from the sale of products purchased from related parties as finished goods.
For fiscal 1993, comparable numbers were 8%, or $3,921,000. In addition,
fragrance and other products manufactured and sold by the Company included some
components that were purchased from related parties. The cost of those
components approximated 4% of cost of sales in fiscal 1994 and 1% in fiscal
1993. See Note 7 to the Consolidated Financial Statements for additional
information and "Narrative Description of Business (Suppliers)".
For additional information on products, channels of distribution, customers,
and suppliers, see Narrative Description of Business under Item 1.
The Company's gross profit for fiscal 1994 was $18,042,000, or 35.2% of net
sales, compared to $17,153,000, or 33.2% of net sales, in fiscal 1993. The
improvement in the gross profit percentage is related to the mix of product
manufactured by the Company (a higher gross margin) and product purchased from
an outside party. In fiscal
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1994, all of the fragrance products were manufactured by the Company, whereas
in early fiscal 1993, approximately $6,631,000 was purchased from a Core Sheth
Families affiliate. Partially offsetting the benefit of in-house manufacturing
in fiscal 1994 was a higher level of sales promotions than in fiscal 1993,
dependence on sales in the competitive lower margin wholesale channel, and the
sale of discontinued or slow moving products at minimal gross profit or at a
loss.
The Company's selling, general, and administrative ("SG&A") expenses increased
10.4% to $12,906,000 for fiscal year 1994 from $11,691,000 in the prior fiscal
year. As a percentage of net sales, the Company's SG&A increased to 25.2% in
fiscal year 1994 from 22.6% in fiscal year 1993. The additional expenses were
primarily the result of advertising, new marketing promotions, costs associated
with closure of the South Carolina Distribution Center, and increased business
taxes and insurance expense.
Interest expense increased in fiscal year 1994 to $1,533,000, compared to
$590,000 in fiscal year 1993 as a result of (1) interest expense associated
with the stockholder litigation settlement, (2) higher average borrowings under
the revolving line of credit, and (3) a higher rate of interest (prime plus
five percentage points per annum, with additional fees approximating a
percentage point per annum) under the $10,000,000 revolving credit facility
established in fiscal 1994.
Fiscal year 1994 "Other income (expense)" includes $367,000 of amortization of
the $2,089,000 value assigned to the extension of the expiration date of
existing warrants to purchase 400,000 shares of the Company's common stock and
the granting of new warrants to purchase 2,000,000 shares of the Company's
common stock in connection with the stockholder litigation settlement. In
addition, the Company recorded litigation expenses of $208,000 in fiscal 1994
and $2,758,000 in fiscal 1993 consisting of legal and professional expenses
related to the stockholder litigation settlement and to other events that were
the subject of the internal investigation by a Special Committee of the
Company's Board of Directors. In fiscal 1993, the Company also recorded a
$9,500,000 charge related to the settlement of stockholder litigation.
The Company recorded an income tax expense of $1,694,000 in fiscal 1994 and an
income tax benefit of $2,629,000 in fiscal 1993. The income tax benefit in
fiscal 1993 was based on anticipated current and deferred benefits to be
received from the recording of the stockholder litigation settlement,
litigation expenses, and the net loss incurred.
The Company recorded a net income of $1,390,000, or $0.08 per share, in fiscal
1994, as compared to a net loss of $4,724,000, or $0.28 per share, in fiscal
1993.
OTHER MATTERS
Realization of the net deferred tax assets that are recorded is dependent upon
the Company earning approximately $11.4 million of taxable income in future
years. Management believes that future levels of pretax earnings will be
sufficient to generate this level of income.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for long-lived Assets to be Disposed of." The Company is
required to adopt Statement 121 in fiscal year 1997. Statement 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has not completed all of the analyses required to
estimate the impact of the new statement; however, the adoption of Statement
121 is not expected to have a material adverse impact on the Company's
financial position or the results of its operations at the time of adoption.
LIQUIDITY AND CAPITAL RESOURCES
The Company obtains working capital from two primary sources: revolving lines
of credit and cash generated by operations.
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OPERATING ACTIVITIES
Operating activities in fiscal 1995 utilized $5,255,000 in cash. The cash
utilized was primarily the result of the final payment under the stockholder
litigation settlement ($4,500,000), an increase in inventories ($3,111,000),a
decrease in income taxes payable ($1,787,000), an increase in accounts
receivable ($522,000), a decrease in accounts payable ($337,000), and a
decrease in accrued expenses ($163,000). Offsetting the uses of cash were net
income of $3,230,000 adjusted for non-cash items, and decreases in refundable
income taxes ($1,774,000) and in prepaid expenses ($169,000).
The final payment under the stockholder litigation settlement agreement of
$4,500,000 was made in December 1994. This payment was financed by the
incurrence of long-term subordinated debt ($4,000,000) with a related party as
further discussed below and from the proceeds of the sale of warrants
($500,000) to a related party.
The major component of the usage of cash for inventories ($3.1 million) in
fiscal 1995 was in raw materials inventory ($2.4 million) with the balance
being in finished goods. Tax payments net of refunds were $672,000. It is
anticipated that federal tax payments in fiscal 1996 will be minimal as a
material portion of taxable profits, if any, generated in fiscal 1996 will be
offset by net operating loss carryforwards available from prior years.
Accounts receivable increased by $522,000, primarily as a result of competitive
pressures and to meet customer requirements. A decrease of $337,000 in
accounts payable was attributable to increased borrowings under the revolving
line of credit and the term loan described below. Generally, vendor accounts
are being kept within customary terms with some variations due to seasonal
requirements.
INVESTING ACTIVITIES
Capital expenditures during fiscal 1995 totaled $787,000, primarily for
manufacturing equipment, distribution equipment, computer equipment and
software, and furniture and office equipment. Capital expenditures in fiscal
1994 and 1993 were $1,896,000 and $3,816,000, respectively. Offsetting the
fiscal 1995 capital expenditures were the proceeds of $64,000 from the sale of
capital assets. Capital expenditures in fiscal 1996 are expected to be
primarily for manufacturing equipment, and computer equipment and software with
lesser amounts being invested in equipment for distribution activities. Capital
expenditures are expected to increase in fiscal 1996 from the fiscal 1995
level.
FINANCING ACTIVITIES
The Company currently has two revolving credit agreements, one to finance
domestic accounts receivables and finished goods inventories ("distribution
related") and a second to finance raw materials inventories ("manufacturing
related"). The distribution related revolving credit agreement, amended as of
July 7, 1995, provides for maximum borrowings of $10,000,000 at the prime rate
(8.75% at August 31, 1995) plus three percentage points per annum, with
additional fees approximating a percentage point per annum. Borrowings under
this credit agreement are limited to 75% of eligible domestic accounts
receivable and 50% of eligible finished goods inventories. The manufacturing
related revolving credit agreement provides for $1,500,000 of maximum
borrowings bearing interest at the prime rate plus 1.75% per annum plus
additional fees. Borrowings are limited to 40% of eligible manufacturing
inventories. Both revolving lines of credit expire in July 1997.
These credit facilities, both with the same commercial lender, are secured by
substantially all of the assets of the Company. The agreements contain
material adverse change provisions, as well as certain restrictions and
conditions among which are limitations on cash dividends, capital expenditures
and repayments of a prior financing arrangement with a related party. During
fiscal 1995, net short-term borrowings increased by $872,000 to $5,383,000 at
August 31, 1995 under the two revolving lines of credit. Additional borrowings
of $2,440,000 were available as of August 31, 1995 based on the formulas used
to determine availability. See Note 5 of the Notes to Consolidated Financial
Statements for additional information on the current lines of credit.
In June 1995, the Company also entered into a term loan agreement for $3.7
million with the same commercial lender. The Company has borrowed $3.5 million
with the remainder expected to be utilized in the second quarter of fiscal 1996
for the purchase of manufacturing equipment. Borrowings under this loan were
utilized to repay existing accounts payable of $1.7 million and to repay $1.8
million of the note payable to a Core Sheth Families
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affiliate as described in the following paragraph. Payments under the term
loan are monthly over a seven year period with an acceleration clause in the
event the loan agreement is not renewed after the initial term of two years.
The loan bears interest at the prime rate plus 1.75% per annum plus additional
fees and is subject to similar conditions as described above under the
revolving lines of credit.
As of August 31, 1995, the Company was indebted in the amount of $4.7 million
to a Core Sheth Families affiliate under a loan agreement entered into in
August 1993. Under this loan agreement, in fiscal 1995 the Company borrowed
$2.5 million and repaid $4.1 million. The note, which is subordinated to the
commercial lender, bears interest at the rate of 4.5% per annum with repayment
governed by the terms and conditions of the revolving lines of credit. Based
on those terms and conditions and the anticipated cash flow of the Company
during fiscal 1996, $1.5 million has been classified as current and is expected
to be repaid in fiscal 1996. As prescribed by the terms and conditions,
repayment amounts could exceed or be less than the $1.5 million depending on
the Company's actual cash flows.
The settlement of the stockholder class action litigation recorded in May 1993
($9.5 million) resulted in a material change to the Company's long-term debt to
equity ratio. The Company at August 31, 1995 had outstanding subordinated
long-term debt to a Core Sheth Families affiliate of $8 million related to that
settlement. Four million dollars of the balance was incurred in December 1994
to meet the final payment of that settlement. These borrowings bear interest at
rates of 6.36% to 8.23% per annum. The $8 million is net of a repayment of $1
million made in December 1994 from the proceeds of an executive liability and
indemnification policy owned by the Company (See "Legal Proceedings (Insurance
Policy Reimbursement)"). Repayments of the remaining debt will begin in the
year 2001. Due to the subordination of the debt to senior lenders and the
long-term nature of the debt, the Company does not believe that the increase in
the ratio of long-term debt to equity has an adverse effect on the Company.
The Company also purchases certain equipment, primarily computer equipment and
software, under long-term purchase agreements. These are not material to the
Company's cash flow.
Management believes that the Company's revolving lines of credit, together with
cash generated by operations should be sufficient to meet the cash requirements
of the Company for fiscal 1996.
The Company does not have any plans to pay any cash dividends on the Common
Stock in the foreseeable future. Further, payments of such dividends are
subject to restrictions imposed by the Company's commercial lender in
connection with the existing revolving lines of credit.
INFLATION
During fiscal year ended 1995, and consistent with the Company's 1994 and 1993
fiscal years, inflation did not have a material adverse impact either on the
Company's net sales or income from continuing operations. However, the
devaluation of the Mexican Nuevo Peso in December 1994 had an impact on the
Company's sales with lower direct exports into Mexico. See Note 15 of the
Notes to the Consolidated Financial Statements for further discussion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement schedules listed
in Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.
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ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
DISMISSAL OF INDEPENDENT ACCOUNTANT
On September 5, 1995, the Company advised Coopers & Lybrand, L.L.P. ("Coopers")
that the Company intended to retain a different independent accounting firm for
the audit of its financial statements for the year ending August 31, 1995.
Coopers had been engaged as the principal accountant to audit the Company's
consolidated financial statements.
Coopers' reports on the Company's consolidated financial statements for the
past two years contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles, except that a report filed in connection with the Company's
consolidated financial statements for the year ended August 31, 1993, contained
an explanatory paragraph relating to a federal grand jury investigation being
conducted on the Company. The explanatory paragraph indicated that because the
ultimate outcome of the investigation could not be determined, no provision for
any liability that may result from the investigation had been made by the
Company in the financial statements.
The Audit Committee of the Company's Board of Directors recommended the action
taken with respect to Coopers.
There have been no disagreements with Coopers on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure during the Company's two most recent fiscal years or in the period
since the end of the most recent fiscal year which disagreements, if not
resolved to Coopers' satisfaction, would have caused Coopers to make reference
to the subject matter of the disagreement(s) in connection with its report.
ENGAGEMENT OF NEW INDEPENDENT ACCOUNTANT
KPMG Peat Marwick LLP ("Peat Marwick") has been engaged by the Company as its
new independent principal accountant to audit the Company's consolidated
financial statements. This engagement was effective as of September 5, 1995.
Peat Marwick was the principal accountant for Eurostar Perfumes, Inc.
("Eurostar") prior to the merger of Eurostar with and into Tristar on August
31, 1995.
Prior to engaging Peat Marwick, Tristar had not consulted with Peat Marwick
during the Company's two most recent fiscal years or in the period since the
end of the most recent fiscal year.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's Proxy
Statement for its 1996 Annual Meeting, which is incorporated herein by
reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(A) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS: Consolidated Financial Statements as
detailed in the Index to Financial Statements and Schedules
for the years ended August 31, 1995, 1994 and 1993, required
in response to Item 8 of Part II of this report are annexed to
this report as a separate section.
2. FINANCIAL STATEMENT SCHEDULES: Any financial statement
schedules for the years ended August 31, 1995, 1994 and 1993,
required in Item 8 of Part II of this report are annexed to
this report as a separate section.
(B) REPORTS ON FORM 8-K:
1. The Company filed a report on Form 8-K dated August 31,
1995 reporting the merger of Eurostar into the Company. Such
report included the financial statements of Eurostar and
certain pro forma financial information.
2. The Company filed a report on Form 8-K dated September 5,
1995 reporting the change of the Company's accountants for
fiscal 1995 to KPMG Peat Marwick LLP, who had been the
auditors of Eurostar prior to the Merger.
(C) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
3.1 Certificate of Incorporation of the Registrant, as amended.
Incorporated by reference to Exhibit 3.1 of the Report on Form
8-K dated August 31, 1995.
3.2 By-Laws of the Registrant (Amended as of August 14, 1992).
Incorporated by reference to Exhibit 3.2 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
4 Form of Registrant Common Stock certificate. Incorporated by
reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 1993.
10.1 1991 Amended and Restated Stock Option Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
10.2 Loan and Security Agreement dated October 8, 1993 between
Registrant and Fremont Financial Corporation with Special
Provisions Rider. Incorporated by reference to Exhibit 10.11
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.3 First Amendment to Loan and Security Agreement dated July 7,
1995 between the Company and Fremont Financial Corporation,
amending Loan and Security agreement dated October 8, 1993.
Incorporated by reference to Exhibit 10 to the Quarterly
Report on Form 10-Q for the quarterly period ended May 31,
1995.
</TABLE>
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<TABLE>
<S> <C>
10.4 Lease Agreement Re: South Carolina Facility. Incorporated by
reference to Exhibit 10(q) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.5 Lease Agreement Re: San Antonio Facility. Incorporated by
reference to Exhibit 10(r) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.6 Lease Agreement Re: San Antonio Facility Extension.
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1991.
10.7 Lease Agreement Re: San Antonio Facility Extension dated July
7, 1992. Incorporated by reference to Exhibit 10.3.4 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.8 Lease Agreement Re: San Antonio Facility Extension dated July
31, 1992. Incorporated by reference to Exhibit 10.3.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.9 Lease Agreement Re: Corporate Headquarters in San Antonio
dated January 13, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.17 of the Annual Report on Form 10-K for the year
ended August 31, 1993.
10.10 1990 Employment Agreement with Eugene H. Karam (unsigned).
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1992.
10.11 Employment Agreement with Loren M. Eltiste dated October 6,
1992. Incorporated by reference to Exhibit 10.4.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.12 Non-Qualified Stock Option Grant to Loren M. Eltiste dated
October 20,1992. Incorporated by reference to Exhibit 10.26
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.13 Distribution Agreement (the "Distribution Agreement") with
Eurostar Perfumes, Inc. and S&J Perfume, Ltd. Dated October
28, 1992. Incorporated by reference to Exhibit 10.5 of the
annual Report on Form 10-K for the year ended August 31, 1992.
10.14 Letter Agreement Amendment dated August 30, 1993 to the
Distribution Agreement. Incorporated by reference to Exhibit
10.28 of the Annual Report on Form 10-K for the year ended
August 31, 1993.
10.15 Agreement and First Amendment to Distribution Agreement dated
October 8, 1993 with Eurostar Perfumes, Inc. and S&J Perfume,
Ltd. Incorporated by reference to Exhibit 10.29 of the Annual
Report on Form 10-K for the year ended August 31, 1993.
10.16 Agreement dated August 31, 1995, among the Company, Eurostar
Perfumes, Inc. and Starion International, Ltd., terminating
the Distribution Agreement. Incorporated by reference to
Exhibit 10.3 of the Report on Form 8-K dated August 31, 1995.
</TABLE>
Page 20
<PAGE> 21
<TABLE>
<S> <C>
10.17 Agreement dated August 31, 1993 between the Core Sheth
Families, Viren Sheth, Starion International, Ltd. and the
Registrant. Incorporated by reference to Exhibit 10.31 of the
Annual Report on Form 10-K for the year ended August 31, 1993.
10.18 Financing Agreement dated August 31, 1993 between the Core
Sheth Families and the Registrant. Incorporated by reference
to Exhibit 10.32 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.19 Design Agreement dated October 28, 1993 between Eurostar
Perfumes Inc. and the Registrant. Incorporated by reference
to Exhibit 10.33 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.20 Lease Agreement Re: Bulk Warehouse Facility in San Antonio
dated December 8, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.1 of Quarterly Report on Form 10-Q for period ended
November 30, 1993.
10.21 Employment Agreement between the Company and Eugene H. Karam
dated January 14, 1994. Incorporated by reference to Exhibit
10.1 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
10.22 Incentive Stock Option between the Company and Eugene H. Karam
dated February 14, 1994. Incorporated by reference to Exhibit
10.2 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
10.23 Sub-Lease Agreement Re: former San Antonio Distribution
Facility, dated August 31, 1994, between DHI Enterprises, Inc.
d/b/a Service Tech. Supply and Registrant. Incorporated by
reference to Exhibit 10.37 of the Annual Report on Form 10-K
for the year ended August 31, 1994.
10.24 Agreement and Plan of Merger dated as of July 1, 1995, among
the Company, Eurostar Perfumes, Inc. and Transvit
Manufacturing Corporation. Incorporated by reference to
Exhibit 10.1 of the report on Form 8-K dated August 31, 1995.
10.25 Amendment to Common Stock Purchase Warrant dated August 31,
1995, between the Company and Starion International, Ltd.
Incorporated by reference to Exhibit 10.2 of the Report on
Form 8-K dated August 31, 1995.
*10.26 Line of Credit Promissory Note dated August 1, 1993, between
the Company (original entered into with Eurostar) and Transvit
Manufacturing Corporation.
*10.27 Loan and Security Agreement dated June 27, 1995, between the
Company (originally entered into with Eurostar) and Fremont
Financial Corporation with Special Provisions Rider.
*10.28 Employment Agreement between the Company (originally entered
into with Eurostar) and Ricardo Bunge dated January 1, 1993,
and as amended June 5, 1995.
*11 Statement Re: Computation of Per Share Earnings.
*18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
*24.1 Consent by Coopers and Lybrand L.L.P. for Fiscal 1994 and
Fiscal 1993.
</TABLE>
Page 21
<PAGE> 22
<TABLE>
<S> <C>
*24.2 Consent by KPMG Peat Marwick LLP for Fiscal 1995.
</TABLE>
___________________________
* Attached as Exhibits hereto.
Page 22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: December 11, 1995 TRISTAR CORPORATION
By: /s/ Viren S. Sheth
-------------------
VIREN S. SHETH,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/Loren M. Eltiste
-------------------
LOREN M. ELTISTE,
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: December 11, 1995 /s/Richard P. Rifenburgh
------------------------
RICHARD P. RIFENBURGH, Director
Date: December 11, 1995 /s/Robert R. Sparacino
----------------------
ROBERT R. SPARACINO, Director
Date: December 11, 1995 /s/Viren S. Sheth
-----------------
VIREN S. SHETH, Director
Date: December 11, 1995 /s/Aaron Zutler
---------------
AARON ZUTLER, Director
Date: December 11, 1995 Shashikant S. Sheth
-------------------
SHASHIKANT S. SHETH, Director
Page 23
<PAGE> 24
TRISTAR CORPORATION
SAN ANTONIO, TEXAS
ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 31, 1995
Item 14(a)(1) and (2), (c), and (d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
ITEM 14(A)(1) AND (2)
The following consolidated financial statements of TRISTAR CORPORATION and
subsidiaries are included in Item 8:
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors F1 AND F2
Consolidated Financial Statements:
Balance sheets as of August 31, 1995 and 1994 F3 AND F4
Statements of operations for each of the three
years in the period ended August 31, 1995 F5
Statements of shareholders' equity for each of the
three years in the period ended August 31, 1995 F6
Statements of cash flows for each of the three years in
the period ended August 31, 1995 F7
Notes to consolidated financial statements F8 TO F24
</TABLE>
<PAGE> 25
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of TRISTAR CORPORATION
and subsidiaries are included in Item 14(d):
Schedule VIII -- Valuation and qualifying accounts F25
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Tristar Corporation:
We have audited the consolidated financial statements of Tristar Corporation
and subsidiaries as listed in the accompanying index as of and for the year
ended August 31, 1995. In connection with our audit of the consolidated
financial statements, we also have audited the financial statement schedule as
of and for the year ended August 31, 1995 as listed in the accompanying index.
These consolidated financial statements and the financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and the financial
statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tristar Corporation
and subsidiaries as of August 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule as of and for the year ended August 31, 1995, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We previously audited and reported on the consolidated balance sheet as of
September 30, 1994 of Eurostar Perfumes, Inc. and subsidiaries and the related
consolidated statements of operations and cash flows for the years ended
September 30, 1994 and 1993, prior to Tristar Corporation's pooling of
interests with Eurostar Perfumes, Inc. As described in Note 2 to the
consolidated financial statements, Tristar Corporation's financial statements
were restated for the August 31, 1995 combination. The contribution of
Eurostar Perfumes, Inc. and subsidiaries to total assets represented 45% of the
restated totals after elimination of intercompany balances in 1994, and
represented 9% and 1% of revenues after elimination of intercompany sales of
$26,725,000 and $27,864,000 in 1994 and 1993, respectively. Separate financial
statements of Tristar Corporation included in the 1994 and 1993 restated
consolidated financial statements were audited and reported on separately by
other auditors. We also audited the combination of the consolidated financial
statements as of and for each of the years in the two year period ended
August 31, 1994 as listed in the accompanying index, after restatement for the
August 31, 1995 pooling of interests; in our opinion, such consolidated
statements have been properly combined on the basis described in Note 2 to the
consolidated financial statements. We also audited the combination of the
financial statement schedule as of and for the years ended August 31, 1994 and
1993, after restatement for the August 31, 1995 pooling of interests; in our
opinion, the schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, has been properly combined on the basis
described in Note 2 to the consolidated financial statements.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for inventories in 1994.
KPMG PEAT MARWICK LLP
San Antonio, Texas
November 6, 1995
F-1
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tristar Corporation
We have audited the consolidated balance sheet of Tristar Corporation and
Subsidiaries as of August 31, 1994, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the two years in the
period ended August 31, 1994 (not presented herein). In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules as of and for the years then ended (not presented herein).
These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedules
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 consolidated financial position of Tristar
Corporation and Subsidiaries as of August 31, 1994, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended August 31, 1994 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
November 11, 1994, except for Note 16
as to which the date is November 22, 1994
F-2
<PAGE> 28
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31
---------------------------------
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 806,000 $ 1,700,000
Accounts receivable, less allowance for doubtful accounts
of $419,000 and $589,000, respectively 6,038,000 7,025,000
Accounts receivable - related parties - net (Note 8) 662,000 445,000
Inventories (Note 4) 14,406,000 13,585,000
Prepaid expenses 253,000 345,000
Refundable income taxes (Note 10) -- 1,774,000
Deferred income taxes (Note 10) 1,101,000 2,812,000
----------- ------------
Total current assets 23,266,000 27,686,000
----------- ------------
Property, plant and equipment, less accumulated depreciation
of $3,637,000 and $2,669,000 (Note 3) 9,851,000 10,812,000
----------- ------------
Other assets:
Warrant valuation, less accumulated amortization
of $1,353,000 and $367,000, respectively (Notes 7 and 14) 736,000 1,722,000
Other assets 195,000 150,000
Deferred income taxes (Note 10) 2,780,000 532,000
----------- ------------
Total other assets 3,711,000 2,404,000
----------- ------------
Total assets $36,828,000 $ 40,902,000
=========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 29
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31
-----------------------------------
1995 1994
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 5) $ 5,383,000 $ 4,511,000
Accounts payable-trade 1,982,000 2,471,000
Accounts payable-related parties - net (Note 8) 536,000 1,750,000
Accrued bonuses 97,000 302,000
Accrued litigation expense 2,000 175,000
Accrued interest expense 603,000 434,000
Accrued promotion expense 62,000 455,000
Other accrued expenses 1,184,000 1,403,000
Income taxes payable (Note 10) 508,000 2,028,000
Current portion of capital lease obligations 30,000 38,000
Current portion of long-term obligations (Note 6) 2,118,000 2,134,000
------------- -------------
Total current liabilities 12,505,000 15,701,000
Shareholder litigation settlement (Note 14) -- 4,500,000
Long-term debt, less current portion (Note 6) 3,044,000 185,000
Obligations under capital leases, less current portion 27,000 54,000
Subordinated long term debt - related parties (Notes 6 and 7) 11,166,000 9,166,000
------------- -------------
Total liabilities 26,742,000 29,606,000
------------- -------------
Commitments and contingencies (Notes 9, 13 and 14)
Shareholders' equity (Notes 7 and 11):
Preferred Stock, $.05 par value; authorized
1,000,000 shares;
no shares issued -- --
Common Stock, $.01 par value; authorized
30,000,000 shares;
issued and outstanding 16,629,683 shares in 1995 and
16,619,348 shares in 1994 166,000 166,000
Additional paid-in-capital 10,281,000 10,229,000
Receivable from shareholders - related parties -- (500,000)
Accumulated deficit (361,000) 1,401,000
------------- -------------
Total shareholders' equity 10,086,000 11,296,000
------------- -------------
Total liabilities and shareholders' equity $ 36,828,000 $ 40,902,000
============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 30
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31
--------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $44,728,000 $51,244,000 $51,690,000
Cost of sales (Note 7) 31,727,000 33,202,000 34,537,000
----------- ----------- -----------
Gross profit 13,001,000 18,042,000 17,153,000
Selling, general and administrative expenses (Note 7) 11,654,000 12,906,000 11,691,000
----------- ----------- -----------
Income from operations 1,347,000 5,136,000 5,462,000
Other income (expense):
Interest expense (1,641,000) (1,533,000) (590,000)
Other (expense) income (Note 7) (1,773,000) (311,000) 33,000
Insurance reimbursement (Note 17) 2,065,000 -- --
Litigation expenses (Note 14) (269,000) (208,000) (2,758,000)
Shareholders litigation settlement (Note 14) -- -- (9,500,000)
----------- ----------- -----------
(Loss) income before income taxes (271,000) 3,084,000 (7,353,000)
(Benefit) expense for income taxes (Note 10) 661,000 1,694,000 (2,629,000)
----------- ----------- -----------
Net (loss) income $ (932,000) $ 1,390,000 $(4,724,000)
=========== =========== ===========
(Loss) income per common share (Note 11) $ (0.06) $ 0.08 $ (0.28)
=========== =========== ===========
Weighted average number of shares outstanding 16,625,341 16,851,644 16,601,048
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 31
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL RETAINED RECEIVABLES
NUMBER PAID-IN (DEFICIT) FROM
OF SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDERS
---------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, August 31, 1992, as previously reported 6,618,641 $ 66,000 $ 7,527,000 $ 5,234,000 $
---------- --------- ------------ ----------- ----------
Adjustments for Eurostar
Perfumes, Inc., pooling of interests 9,977,810 100,000 (499,000)
---------- --------- ------------ ----------- ----------
Balance, August 31, 1992, as restated 16,596,451 $ 166,000 $ 7,527,000 $ 4,735,000 $ --
Net loss (4,724,000)
Contribution to 401(k) Plan 7,262 49,000
Exercise of stock options 2,000 3,000
Stock warrants (Notes 7 and 11) 500,000 (500,000)
---------- --------- ------------ ----------- ----------
Balance, August 31, 1993 16,605,713 $ 166,000 $ 8,079,000 $ 11,000 $ (500,000)
Net income 1,390,000
Contribution to 401(k) Plan 11,635 58,000
Exercise of stock options 2,000 3,000
Stock warrants (Notes 7 and 11) 2,089,000
---------- --------- ------------ ----------- ----------
Balance, August 31, 1994 16,619,348 $ 166,000 $ 10,229,000 $ 1,401,000 $ (500,000)
Adjustment to conform fiscal year of Eurostar
Perfumes, Inc. (830,000)
Net loss (932,000)
Contribution to 401(k) Plan 10,335 52,000
Repayment of receivable from
shareholders (Notes 7 and 11) 500,000
---------- --------- ------------ ----------- ----------
Balance, August 31, 1995 16,629,683 $ 166,000 $ 10,281,000 $ (361,000) $ --
========== ========= ============ =========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 32
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31
-----------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (loss) income $ (932,000) $ 1,390,000 $(4,724,000)
Adjustments to reconcile net (loss)
income to net cash (used in) provided by
operating activities:
Shareholder litigation settlement -- -- 9,500,000
Depreciation and amortization 1,611,000 1,412,000 1,004,000
Provision for losses on accounts receivable 349,000 500,000 255,000
Provision for market valuation of inventory 469,000 600,000 254,000
Provision for LIFO valuation 995,000 281,000 --
Deferred income tax expense (benefit) (537,000) 1,383,000 (4,094,000)
Loss on disposal of assets 50,000 71,000 99,000
Reserve for impairment of assets 187,000 -- --
Issuance of stock in connection with 401K plan 52,000 58,000 49,000
Amortization of warrant valuations 986,000 367,000 --
Change in operating assets and liabilities:
Accounts receivable (522,000) (411,000) (3,495,000)
Inventories (3,111,000) (590,000) (1,462,000)
Prepaid expense 169,000 (18,000) (57,000)
Refundable income taxes 1,774,000 (354,000) 1,019,000
Income taxes payable (1,787,000) (220,000) --
Accounts payable (337,000) (2,271,000) 3,506,000
Accrued expenses (163,000) 1,444,000 341,000
Other liabilities (8,000) 95,000 123,000
Shareholder litigation settlement liability (4,500,000) (3,500,000) (1,500,000)
----------- ----------- -----------
Net cash (used in) provided by operating activities (5,255,000) 237,000 818,000
----------- ----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures (787,000) (1,896,000) (3,816,000)
Proceeds from sale of investment -- 100,000 --
Proceeds from sale of fixed assets 64,000 26,000 18,000
(Increase) decrease in other assets (120,000) (149,000) 77,000
----------- ----------- -----------
Net cash (used in) provided by investing activities (843,000) (1,919,000) (3,721,000)
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net increase (decrease) in short term borrowings 872,000 2,006,000 (1,125,000)
Proceeds from long-term subordinated debt 6,500,000 3,500,000 9,159,000
Payments of subordinated long-term debt (5,050,000) (2,753,000) --
Proceeds from long-term debt 3,570,000 -- 2,015,000
Principal payments under debt obligations (177,000) (30,000) (6,697,000)
Principal payments other long-term debt (23,000) -- (1,088,000)
Collection on receivable from stockholder 500,000 -- --
Proceeds from issuance of common stock -- 3,000 3,000
----------- ----------- -----------
Net cash provided by (used in) financing activities 6,192,000 2,726,000 2,267,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 94,000 1,044,000 (636,000)
CASH AT BEGINNING OF YEAR 1,700,000 656,000 1,292,000
POOLING ADJUSTMENT TO BEGINNING OF
YEAR BALANCE TO CONFORM FISCAL YEARS (988,000) -- --
----------- ----------- -----------
CASH AT END OF YEAR $ 806,000 $ 1,700,000 $ 656,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,446,000 $933,000 $501,000
Income taxes paid net of refunds $672,000 $958,000 $560,000
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE> 33
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AFFILIATION:
The Company, which is primarily owned by companies under the control of the
Core Sheth Families (Starion International, Ltd., a British Virgin Islands
Limited Partnership ("Starion B.V.I.")and Transvit Manufacturing Corporation
("Transvit")), merged with its primary fragrance supplier and manufacturer,
Eurostar Perfumes, Inc., on August 31, 1995. The merger has been accounted for
in a manner similar to a pooling of interests, as the companies were considered
entities under common control. See Note 2 for further discussion of the merger
transaction. The Company operates in one industry segment, the development,
manufacture, marketing and distribution of designer alternative fragrances,
original fragrances and cosmetic pencils and in the marketing and distribution
of other cosmetic products and selected toiletry products.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Tristar
Corporation and all subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
INVENTORY:
Inventories are stated at the lower of cost or market.
Approximately 96% and 46% of inventories were determined using the last-in,
first-out (LIFO) method in 1995 and 1994, respectively. Non-LIFO inventories
were valued using either the first-in, first-out (FIFO) or weighted average
cost methods. Effective September 1, 1993, the Company changed its method of
accounting for certain inventories from the FIFO method to the LIFO method.
Management believes that the LIFO method has the effect of minimizing the
impact of price level changes on inventory valuations and generally matches
current costs against current revenues in the consolidated statement of
operations. The pro forma effect of retroactive application is not
determinable, and, therefore, no cumulative effect on beginning retained
earnings is presented. The effect of the change on net (loss) income was not
material.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation is determined
by the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to operations.
REVENUE RECOGNITION:
Revenue is recognized by the Company when goods are shipped and title passes to
the purchaser.
F-8
<PAGE> 34
NET (LOSS) INCOME PER SHARE:
Net (loss) income per share is computed based on the weighted average number of
common shares outstanding during each year and common equivalent shares of
dilutive stock options and warrants.
WARRANT VALUATION:
Common stock purchase warrants related to the Stockholder Class Action
Litigation Settlement were valued using the Black Scholes Method. Amortization
of the value will be straight line into fiscal 2006.
RECLASSIFICATIONS:
Certain data within the financial statements has been reclassified for prior
years to conform to the current year's presentation.
FOREIGN CURRENCY TRANSACTIONS:
The Company purchases a significant portion of its inventory for its
manufacturing operations from foreign suppliers. Such inventory is recorded
using currency exchange rates in effect on the date of purchase. Gains and
losses on the settlement of accounts payable for such purchases are recorded
based upon the currency exchange rates in effect on the date of settlement.
Gains and losses on accounts payable to be settled subsequent to August 31,
1995, 1994 and 1993 have been provided based upon the currency exchange rates
in effect on August 31, 1995, 1994 and 1993. Financial statements from foreign
subsidiaries have been translated based on the U.S. dollar being the functional
currency of the subsidiaries. Assets, with the exception of inventories, fixed
assets, and liabilities are translated at the appropriate period ending
exchange rates. Inventories and fixed assets are translated at historical
exchange rates. Results of operations, with the exception of cost of sales,
are translated using the average exchange rates prevailing throughout the year.
Cost of sales is translated at the historic rates of the inventory sold.
Translation gains or losses and exchange gains or losses are reflected in the
Statements of Operations.
The net gain (loss) on transactions in foreign currencies and translation gains
(losses) for the years ended August 31, 1995, 1994 and 1993 were ($94,000),
$59,058 and ($5,205), respectively.
2. MERGER:
Merger with Eurostar Perfumes, Inc. and Subsidiaries.
On August 30, 1995 the stockholders of Tristar Corporation ("Tristar"),
approved the merger of Eurostar Perfumes, Inc., ("Eurostar"), with and into
Tristar where Tristar is the surviving corporation. The merger was effective
August 31, 1995. Under the terms of the agreement the sole stockholder of
Eurostar, Transvit Manufacturing Corporation ("Transvit"), a Core Sheth
Families affiliate, received an aggregate of 9,977,810 shares of Tristar Common
Stock in exchange for all the issued and outstanding shares of Eurostar Common
Stock. In addition, the exercise price of certain warrants held by an
affiliate of the Core Sheth Families may be reduced in connection with the
Merger in fiscal 1996 under certain conditions related to the performance of
the Company's Common Stock price in the public market. The repricing feature
did not have a significant effect to the financial statements of the Company.
F-9
<PAGE> 35
Tristar has, over a period of several years, engaged in numerous transactions
with Eurostar. Prior to the merger, a majority of Tristar's outstanding stock
(approximately 60.5%, disregarding outstanding warrants) was controlled by the
Core Sheth Families, principally through their ownership and control of
("Starion B.V.I."). The Core Sheth Families also own and control Emicos
International Ltd., ("Emicos"), Tristar's primary supplier of cosmetic products
other than cosmetic pencils. After the merger, the Core Sheth Families
beneficially own approximately 84% of the outstanding shares of Tristar Common
Stock (86% assuming the exercise of all outstanding warrants).
In order to facilitate the issuance of the merger-related shares to the Core
Sheth Families, Tristar's stockholders also approved an amendment of the
Certificate of Incorporation of Tristar to increase the authorized number of
shares of Tristar Common Stock from 10,000,000 shares to 30,000,000 shares.
The merger qualifies as a tax-free reorganization and was accounted for in a
manner similar to a pooling of interests. Accordingly, the Company's financial
statements have been restated to include the results of Eurostar for all
periods presented. All significant intercompany transactions have been
eliminated.
Separate results of Tristar and Eurostar during the periods preceding the
merger were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Fiscal year ended: Tristar
(in thousands) as Combined
previously and
reported Eurostar Adjusted
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUGUST 31, 1995
---------------
Net sales $ 32,923 $ 34,651 $44,728
Net income (loss) $ (3,831) $ 2,631 $ (932)
AUGUST 31, 1994
---------------
Net sales $ 46,488 $ 31,481 $ 51,244
Net income (loss) $ (4,291) $ 3,163 $ 1,390
AUGUST 31, 1993
---------------
Net sales $ 51,409 $ 28,145 $ 51,690
Net income (loss) $ (8,159) $ 3,839 $(4,724)
- -------------------------------------------------------------------------------------
</TABLE>
Eurostar adopted LIFO in fiscal 1994. In order to conform the accounting
policies of the two companies, Tristar's inventories were converted to LIFO in
fiscal 1995.
Prior to the merger, Eurostar's fiscal year end was September 30. The restated
fiscal 1995 financial statements combine financial statements of the Company
with the financial statements of Eurostar for the twelve month period ended
August 31. Accordingly, to conform Eurostar's fiscal year 1995 to Tristar's
fiscal year, the financial results of Eurostar for September 1994 are included
in both fiscal 1994 and 1995. Net sales and net income of Eurostar for the one
month of September 1994, are $4,395,000 and $830,000 respectively, with the net
income reflected as an adjustment to retained earnings in fiscal 1995.
F-10
<PAGE> 36
In connection with the merger, the Company recorded one-time transaction costs
of $686,000 in the fourth quarter of fiscal 1995. The transaction costs
include expenses for investment bankers and other professional fees.
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AUGUST 31
1995 1994
------------ -------------
<S> <C> <C>
Land $ 266,000 $ 266,000
Building 4,442,000 4,389,000
Machinery and equipment 7,920,000 7,751,000
Transportation equipment 120,000 121,000
Fixtures and equipment 750,000 754,000
Leasehold improvements 177,000 200,000
------------ -------------
13,675,000 13,481,000
Less accumulated depreciation (3,637,000) (2,669,000)
Less reserve to reduce assets held for
sale to estimated net realizable value (187,000) --
------------ -------------
$ 9,851,000 $ 10,812,000
============ =============
- --------------------------------------------------------------------------------------
</TABLE>
4. INVENTORIES:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AUGUST 31
1995 1994
------------ -------------
<S> <C> <C>
Raw materials $ 7,269,000 $ 6,041,000
Work-in-process 426,000 810,000
Finished goods 8,608,000 7,765,000
------------ -------------
16,303,000 14,616,000
Reserves for market valuation (621,000) (750,000)
LIFO valuation allowance (1,276,000) (281,000)
------------ -------------
$ 14,406,000 $ 13,585,000
============ =============
- --------------------------------------------------------------------------------------
</TABLE>
5. SHORT-TERM BORROWINGS:
The Company had at August 31, 1995, two revolving credit agreements, one to
finance domestic accounts receivables and finished goods inventories
("distribution related")and a second to finance raw materials inventories
("manufacturing related").
The distribution related revolving credit agreement, amended as of July 7,
1995, provides for $10,000,000 of maximum borrowings at the prime rate (8.75%
at August 31, 1995) plus three percentage points per annum, with additional
fees approximating one percentage point per annum. Borrowings under this
credit agreement are limited to 75% of eligible domestic accounts receivable
and 50% of eligible finished goods inventories as defined in the related
agreement. This agreement expires July 1997.
The manufacturing related revolving credit agreement provides for $1,500,000 of
maximum borrowings bearing interest at the prime rate (8.75% at August 31,
1995), plus 1.75% per annum plus additional fees. Borrowings are limited to
F-11
<PAGE> 37
40% of eligible manufacturing inventories as defined in the agreement. This
revolving line of credit expires in July 1997.
The credit facilities are secured by substantially all of the assets of the
Company. The agreements contain material adverse change provisions, as well as
certain restrictions and conditions among which are limitations on cash
dividends, capital expenditures and repayments of a prior financing arrangement
with a related party (See Note 6).
As of August 31, 1995, remaining combined availability was $2,440,000, based on
the borrowing formulas above.
The Company is in the process of negotiations for combining the two separate
credit agreements into a single revolving credit line with similar terms and
conditions.
6. LONG-TERM DEBT:
Other long-term debt
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AUGUST 31
---------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Term loan $ 3,417,000 $ --
Equipment purchase agreements 245,000 269,000
------------ -------------
Total $ 3,662,000 $ 269,000
Current maturities of other long-term debt 618,000 84,000
------------ -------------
$ 3,044,000 $ 185,000
============ =============
- --------------------------------------------------------------------------------------
</TABLE>
The term loan entered into in July 1995 with the same lender as the short term
revolving credit lines, provides for borrowings of $3.7 million, $0.2 million
of which is still available. This loan is subject to the same debt
restrictions listed above for the revolving credit lines. The interest rate on
this debt is the prime rate (8.75% at August 31, 1995), plus 1.75 percent per
annum plus additional fees. The loan calls for monthly installments and the
loan matures in 2002.
The Company is a party to several long term purchase agreements for computer
and other equipment. Maturity dates range from 1996 to 2000 and interest rates
range from 10.5% to 25.9%. Such agreements provide for monthly payments.
F-12
<PAGE> 38
Subordinated long-term debt
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AUGUST 31
---------------------------------
1995 1994
------------ -------------
<S> <C> <C>
Subordinated Debt-Nevell Investments, S.A.,
a related party $ 8,000,000 5,000,000
Subordinated Debt-Transvit Manufacturing
Corporation, a related party 4,666,000 6,216,000
------------ -------------
Total 12,666,000 11,216,000
Current portion of subordinated long-term debt 1,500,000 2,050,000
------------ -------------
$ 11,166,000 $ 9,166,000
============ =============
- --------------------------------------------------------------------------------------
</TABLE>
Subordinated Debt-Nevell Investments represents loans made by the Core Sheth
Families through their affiliate Nevell Investments, S.A., to finance the
Company's payments under the stockholder litigation settlement (See Note 14).
The debt bears interest at 6.36% to 8.23% per annum and has a term of ten years
with principal payable 20% at the end of the eighth and ninth years and the
remaining 60% payable at the end of the tenth year.
The agreement with Transvit, a related party, was entered into in August 1993
with maximum borrowings available of $9 million at an interest rate of 4.5
percent per annum. The maturity date under the agreement is July 31, 1996.
However, under the short-term revolving credit agreement (See Note 5) with the
Company's commercial lender, this debt was subordinated to the commercial
lender's debt and repayments were restricted by formula. Based on management's
projections and the utilization of the aforementioned formula, the Company
anticipates that approximately $1.5 million of this debt will be repaid in
fiscal 1996, which has been classified as current maturities of long-term debt
on the accompanying financial statements of the Company.
Aggregate maturities of long-term debt for each of the five years subsequent to
August 31, 1995 are as follows:
<TABLE>
<CAPTION>
----------------------------------
Year ending
August 31, Amount
-------------- ------------
<S> <C>
1996 $618,000
1997 599,000
1998 523,000
1999 500,000
2000 500,000
------------
$ 2,740,000
============
----------------------------------
</TABLE>
The above schedule does not include anticipated payments on the subordinated
long-term debt to Transvit Manufacturing Corporation as there is no set
payment schedule.
F-13
<PAGE> 39
7. RELATED PARTY TRANSACTIONS:
As of August 31, 1995, a majority of the Company's outstanding stock (84%) is
owned by companies under control of the Core Sheth Families. The acquisition
of this ownership occurred in several stages beginning in February 1986 and
ending in August 1995 as a result of the merger of Tristar and Eurostar
discussed in Note 2.
The Company purchases finished goods and fragrance product components from Core
Sheth Families affiliates. During the fiscal years of 1995, 1994, and 1993 the
Company purchased approximately $6,285,000, $7,422,000 and $7,219,000,
respectively, of such products.
During the years ended August 31, 1995, 1994 and 1993, the Company sold
products to Core Sheth Families affiliates in the amounts of approximately
$1,299,000, $1,036,000, and $1,359,000, respectively.
Prior to establishing the Company's manufacturing operations in September 1992
in Pleasanton, Texas, another Core Sheth Families affiliate, S&J Perfumes (now
known as Starion U.K.), supplied fragrances to the Company. The fragrances
supplied by Starion U.K. were purchased through Amuli Export Company ("Amuli"),
an entity which assumed the credit risk involved in Starion U.K.'s sales to the
Company. Purchases through Amuli for the year ended August 31, 1993 were
$6,631,000. No purchases have been made through Amuli in subsequent fiscal
years.
Mr. Eugene Derry, a director, Chairman of the Board and President of the
Company for the period July 1989 through July 1992, acted as a representative
of Amuli in connection with Amuli's dealings with the Company. A business
associate of Mr. Derry's is the owner of Amuli. Final purchases through Amuli
were made in December 1992. The Company had no outstanding liabilities to
Amuli as of August 31, 1995 or 1994.
For the years ended August 31, 1995, 1994 and 1993, the Company incurred fees
to directors of $248,000, $235,000, and $402,000, respectively, of which
$23,000 and $12,000 were unpaid at August 31, 1995 and 1994, respectively.
Such fees related to the Board of Directors meetings, other committee meetings
and events associated with the investigation performed by the Special Committee
of the Board of Directors, formed in October 1992 to conduct a review of
matters associated with the Stockholder Class Action Litigation and the
Securities Commission Investigation. See Note 14 for further discussion.
Selling, general and administrative expenses for the year ended August 31,
1993, included management fees of $979,000 paid to Eurostar Corporation
("EuroCorp."), a wholly-owned subsidiary of Transvit, which employed certain
executives of the Company and provided management services to the Company.
Management fees were equal to the costs incurred by EuroCorp. which included
primarily payroll and related items. Effective with the beginning of fiscal
1994, the employees of EuroCorp. were transferred to the Company.
As part of a sale of Common Stock to the Core Sheth Families in 1990, the
Company for $50,000 issued common stock purchase warrants to the Core Sheth
Families to purchase 400,000 shares of the Company's common stock at a per
share price of $2.75. In connection with the settlement of the shareholder
litigation, the expiration date of these warrants was extended to 2003.
F-14
<PAGE> 40
In connection with the settlement of the stockholder class action litigation,
common stock purchase warrants to purchase 2,000,000 shares of the Company's
common stock at a per share price of $5.34 were granted to the Core Sheth
Families. The warrants are exercisable for a period of ten years from their
issuance. A non-interest bearing receivable in the amount of $500,000 (the
cost of the warrants), was recorded in Shareholder's equity in the fiscal 1993
financial statements. This receivable was paid in full in December 1994. See
Note 14 for a description of the litigation settlement.
In recognition that value was received by the Company in return for extending
the expiration date of the warrants to purchase 400,000 shares and the granting
of the new warrants to purchase 2,000,000 shares as described above, the
Company utilized the Black Scholes Method to compute the value. The
computation resulted in the assignment of a value of $2,089,000 (net of the
purchase price of the warrants of $500,000). This net value has been recorded
as part of "Other assets" and as an addition to "Additional paid-in capital".
In fiscal 1995 and 1994, $986,000 and $367,000, respectively, of the $2,089,000
was charged to Other income (expense). The fiscal 1995 amortization expense of
$986,000 included additional warrant amortization expense of approximately
$743,000 which resulted from (1) the write-off of the portion of the warrant
valuation associated with the distribution agreement between Eurostar and
Tristar, which was no longer applicable after the Merger, and (2) the repayment
of $1 million of the subordinated debt with a portion of the proceeds received
from the insurance policy reimbursement (See Note 17). The remainder of the
balance, which is attributable to the favorable terms of the subordinated
long-term financing of the shareholder litigation settlement provided by the
Core Sheth Families, will be amortized to expense through fiscal 2006 when the
final payment is made on the related subordinated debt.
8. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - RELATED PARTIES:
The Company's primary suppliers of fragrance product components and cosmetic
products are related parties. Related party accounts payable result from the
purchase of products from those vendors. Related party accounts receivable
result from the sale of cosmetic pencils to related parties located outside
North and South American countries. The payables and receivables balances are
offset for presentation purposes and the net balance of accounts receivable or
accounts payable is presented on the balance sheet. Related party payables
include payables due members of the Company's Board of Directors which result,
in the normal course of business, from expenses associated with Board and
related committee meetings. However, during the fourth fiscal quarter ended
August 31, 1995, additional expenses were incurred which related to the
Company's merger with a related party, Eurostar. See Note 2 for further
discussion of the merger transaction. The following summarizes the
presentations at August 31, 1995 and August 31, 1994.
F-15
<PAGE> 41
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
AUGUST 31
---------------------------------
1995 1994
------------ -------------
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties $ 1,070,000 608,000
Offset amount 408,000 163,000
------------ -------------
Net related parties receivables $ 662,000 445,000
============ =============
ACCOUNTS PAYABLE:
Total accounts payable-related parties $ 944,000 1,913,000
Offset amount 408,000 163,000
------------ -------------
Net related parties payables $ 536,000 1,750,000
============ =============
- --------------------------------------------------------------------------------------
</TABLE>
9. LEASES:
At August 31, 1995, the approximate aggregate minimum annual rental payments
under non-cancelable operating leases for facilities, excluding renewals, are
as follows:
<TABLE>
<CAPTION>
----------------------------------
Year ending
August 31, Amount
-------------- ------------
<S> <C>
1996 $ 505,000
1997 417,000
1998 182,000
1999 --
2000 --
------------
$ 1,104,000
============
----------------------------------
</TABLE>
Certain of the above leases include escalation charges based on increases in
real estate taxes, utilities and common maintenance charges.
Rental expense for the years ended August 31, 1995, 1994 and 1993, amounted to
approximately $568,000, $761,000, and $594,000, respectively.
10. INCOME TAXES:
Under the Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109")
the asset and liability method is used in accounting for income taxes.
Deferred tax balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted marginal tax rates and laws that will be in effect when the differences
are expected to reverse.
F-16
<PAGE> 42
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Current Deferred Total
----------------------------------------------------------
<S> <C> <C> <C>
Year ended August 31, 1995
U.S. Federal $ 1,128,000 $ (493,000) $ 635,000
State 70,000 (44,000) 26,000
------------ ----------- ------------
$ 1,198,000 $ (537,000) $ 661,000
============ ============ ============
Year ended August 31, 1994
U.S. Federal $ 62,000 $ 1,271,000 $ 1,333,000
State 249,000 112,000 361,000
------------ ----------- ------------
$ 311,000 $ 1,383,000 $ 1,694,000
============ ============ ============
Year ended August 31, 1993
U.S. Federal $ 1,205,000 $(3,762,000) $(2,557,000)
State 260,000 (332,000) (72,000)
------------ ------------ ------------
$ 1,465,000 $(4,094,000) $(2,629,000)
============ ============ ============
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense for the years ended August 31, 1995, 1994, and 1993 differed
from the amounts computed by applying the U.S. federal income tax rate to
income before income taxes as a result of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Years ended August 31,
------------------------------------------------------
1995 1994 1993
---------- ---------- ------------
<S> <C> <C> <C>
Computed expected tax expense (benefit): $ (92,000) $1,048,000 $(2,500,000)
Increase (decrease) in income taxes resulting from:
State income tax net operating loss carryforward (220,000) -- --
Merger costs not deductible for income tax purposes 248,000 -- --
Warrant expenses not deductible for income tax purposes 335,000 125,000 --
Foreign subsidiary loss not deductible for income tax
purposes 189,000 -- --
State income taxes, net of federal income tax benefit 2,000 276,000 (160,000)
Foreign sales corporation commissions not subject to
income taxes (34,000) (36,000) --
Other, net 233,000 281,000 31,000
---------- ---------- ------------
Total income tax expense $ 661,000 $1,694,000 $(2,629,000)
========== ========== ============
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 43
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at August 31, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
AUGUST 31
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts $ 154,000 $ 169,000
Inventories, principally due to allowance for obsolescence
and difference in LIFO reserve 909,000 777,000
Start-up, organizational costs, and packaging design costs 235,000 164,000
Accrued litigation expenses -- 1,665,000
Compensated absences, principally due to accrual for
financial reporting purposes 44,000 63,000
Net operating loss carryforward 3,099,000 760,000
Alternative minimum tax credit carryforwards 111,000 108,000
Other -- 137,000
---------- ----------
Total deferred tax assets $4,552,000 $3,843,000
---------- ----------
Deferred tax liabilities:
Plant and equipment, principally due to differences in
depreciation and capitalized interest (665,000) (499,000)
Other (6,000) --
---------- ----------
Total deferred tax liabilities (671,000) (499,000)
---------- ----------
Net deferred tax asset $3,881,000 $3,444,000
========== ==========
- --------------------------------------------------------------------------------------------------------
</TABLE>
Based upon the level of historical taxable income and projections for future
taxable income, including the reversal of existing taxable temporary
differences, over the periods which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will realize
the benefits of these deductible differences.
At August 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $7,405,000 which are available to
offset future federal taxable income, if any, through 2010. The Company also
has alternative minimum tax credit carryforwards of approximately $111,000
which are available to reduce future federal regular income taxes, if any, over
an indefinite period.
11. SHAREHOLDERS' EQUITY:
The Company has a stock option plan, the Amended and Restated Option Plan (the
"1991 Plan"), which allows for granting both incentive and non-incentive
options, totaling 800,000 shares to key employees.
F-18
<PAGE> 44
Options under the 1991 Plan expire ten years from the date of grant. No shares
acquired upon exercise of an option may be sold within six months from the date
of grant of such option. The option price, determined by the Board of
Directors, shall not be less than fair market value of the common stock at the
time of grant, and not less than 110% of such fair market value if granted to
an individual owning more than 10% of the then issued and outstanding shares of
the Company's common stock. To the extent that the aggregate fair market value
(determined as of the date an option is granted) of shares with respect to
which incentive stock options are exercisable for the first time by an optionee
in any calendar year exceeds $100,000, such options shall be treated as
non-incentive options.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Options Outstanding
Shares -----------------------------------------
Available Number Price
To Grant Of shares Ranges
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at August 31, 1992 353,200 129,000 * $0.50 to $15.875
Options Granted -- --
Options Exercised -- (2,000) $1.4375
Options Canceled/Terminated 24,000 (24,000) $0.50 to $15.875
--------------------- ------------------
Balance at August 31, 1993 377,200 103,000 * $0.50 to $8.125
Options Granted (99,420) 99,420 $5.3750
Options Exercised -- (2,000) $1.4375
Options Canceled/Terminated -- --
--------------------- ------------------
Balance at August 31, 1994 277,780 200,420 ** $0.50 to $8.125
Options Granted -- --
Options Exercised -- --
Options Canceled/Terminated -- --
- ----------------------------------------------------------------- ------------------
Balance at August 31, 1995 277,780 200,420 *** $0.50 to $8.125
===================== ==================
- ------------------------------------------------------------------------------------------------
</TABLE>
* All options outstanding were exercisable at the respective date.
** 101,000 shares of the outstanding balance were exercisable as of
August 31, 1994.
*** 134,000 shares of the outstanding balance were exercisable as of
August 31, 1995.
During 1992, a non-qualified stock option for 66,206 shares at $6.875 per share
was granted pursuant to an employment contract with an officer. The option is
exercisable in three annual increments. This option is not part of the 1991
Plan.
The Company has 544,406 common shares reserved for future issuance as stock
options (277,780 available to grant and 266,626 granted, but not exercised) and
2,400,000 shares reserved for warrants (Notes 7 and 14).
As part of the agreement of merger between Tristar and Eurostar, the
stockholders of Tristar voted to increase the authorized number of shares from
F-19
<PAGE> 45
10,000,000 to 30,000,000. The increase in the number of authorized shares was
necessary in part to issue the 9,977,810 shares to Transvit for all of the
outstanding common shares of Eurostar. See Note 2 for further discussion of
the merger transaction.
12. BENEFIT PLAN:
Substantially all of the Company's full time employees are eligible or will be
eligible on January 1, 1996 to participate in the Company's 401(k) Plan. The
Plan specifies that one-half of the Company's matching contribution is to be
paid by the issuance of common stock at the closing price at the end of each
calendar quarter. During fiscal 1995, 1994 and 1993, a total of 10,335,
11,635, and 7,262, respectively, of such shares were issued to the Plan.
Contributions including the issuance of Common Stock to the Plan were $118,000
in 1995, $108,000 in 1994, and $88,000 in 1993.
13. COMMITMENTS AND CONTINGENCIES:
FREITAS AND KENNER
The Company brought an action in the United States District Court for the
Eastern District of New York seeking to recover from Ross Freitas and Carolyn
Kenner short-swing profits resulting from the purchase and subsequent sale of
Company stock in 1989 while both were officers and directors of the Company.
On November 9, 1994, the Court awarded the Company partial summary judgment
with respect to these claims for approximately $101,000 against Mr. Freitas and
$80,000 against Ms. Kenner, plus interest running from May 1989. Mr. Freitas
and Ms. Kenner have appealed this judgment.
On October 20, 1994, a suit was filed in Florida state court against the
Company, as well as two of its directors, Richard P. Rifenburgh and Robert R.
Sparacino. The plaintiffs in the action are Ross Freitas and Carolyn Kenner,
along with two other individuals, Rose Freitas and Melissa Freitas. The
complaint alleges causes of action by Mr. Freitas and Ms. Kenner for libel and
seeks indemnification in connection with the work of the Special Committee of
the Board of Directors that investigated, among other things, the failure to
disclose the Core Sheth Families' holdings of Company stock. The complaint
also alleges, on behalf of all four plaintiffs, that the Company's disclosures
relating to these and other matters were fraudulent or negligently
misrepresented. The Company intends to dispute these allegations vigorously
and believes that its ultimate disposition will not have a material adverse
effect on its financial condition.
CALIFORNIA AIR RESOURCES BOARD
Since January 1, 1995, the Company's personal fragrance products have not been
in compliance with regulations of the California Air Resources Board ( the
"CARB") with respect to volatile organic compounds "(VOC's"). The Company has
reformulated a number of its products and is in the process of reformulating
its primary fragrance lines to achieve compliance with the VOC regulations.
The Company has filed with the CARB required registrations of its products and
an application for a temporary variance from VOC regulations until all products
not meeting the requirements can be reformulated. Based on preliminary
discussions with representatives of the CARB, the Company
F-20
<PAGE> 46
anticipates that it will be allowed to continue to sell its products in
California during consideration of its variance application and that its
variance will be granted. Any interruption of the Company's sales in
California would have a material adverse effect on the Company's financial
condition.
OTHER
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
any of these proceedings will not have a material adverse effect on the
Company's financial condition.
14. CLASS ACTION LITIGATION:
In December 1993, the Company reached an agreement to settle stockholder class
action litigation regarding alleged violations of the federal securities laws,
as well as common law fraud and negligence in connection with, among other
things, the nondisclosure of the ownership interest of the Core Sheth Families
prior to 1992, for a cash payment of $9.5 million. The settlement resulted in
a release of claims by the plaintiff class against the Company and certain
other defendants. Utilizing $9 million in proceeds from notes payable entered
into under an agreement with the Core Sheth Families, (See Note 7), the Company
paid the total settlement in four installments ($1.5 million in August 1993,
$900,000 in January 1994, $2.6 million in May 1994, and $4.5 million in
December 1994).
In connection with the settlement, common stock purchase warrants to purchase
2,000,000 shares of the Company's common stock at a per share price of $5.34
were granted to the Core Sheth Families. The warrants are exercisable for a
period of ten years from their issuance. A non-interest bearing receivable in
the amount of $500,000 (the cost of the warrants), recorded in Shareholder's
Equity in the fiscal 1993 financial statements was paid in December 1994. The
per share price of the common stock under the warrants will increase by ten
percent per year after the first seven years. As part of the merger agreement
with the Core Sheth Families described in Note 2, the $5.34 purchase price may
be reduced in fiscal 1996 under certain conditions related to the performance
of the Company's stock price in the public market. As part of the settlement,
the Company also extended to August 31, 2003, the exercise date of warrants
held by a Core Sheth Families affiliate, to purchase 400,000 shares of the
Company's common stock.
In recognition that value was received by the Company in return for extending
the expiration date of the warrants to purchase 400,000 shares and the granting
of the new warrants to purchase 2,000,000 shares as described above, the
Company utilized the Black Scholes Method to compute the value. The
computation resulted in the assignment of a value of $2,089,000 (net of the
purchase price of the warrants of $500,000). This net value was recorded as
part of "Other assets" and as an addition to "Additional paid-in capital" in
fiscal 1994.
The class action settlement included a provision that protects the Company and
other settling defendants against further liability to the class for damages in
connection with related ongoing litigation.
F-21
<PAGE> 47
The Company anticipates that it will continue to incur litigation expenses
related to ongoing litigation involving the defendants not covered under the
class action litigation settlement and related to a lawsuit against the
Company's former auditors separate from, but related to, the stockholder class
action against the Company. Any expenses incurred are not expected to be
material to the Company's financial results.
The Company has recorded legal and professional expenses associated with the
stockholder litigation settlement and other related events that were the
subject of an internal investigation by a Special Committee of the Board of
Directors. These expenses were $269,000, $208,000, and $2,758,000 in fiscal
1995, 1994, and 1993, respectively.
15. FOREIGN SALES
The Company exports a significant portion of its sales directly or through its
Mexican and Brazilian subsidiaries to foreign customers. For the years ended
August 31, 1995, 1994, and 1993, these sales were $17,165,000 (38% of net
sales), $13,057,000 (25% of net sales), and $11,361,000 (22% of net sales),
respectively. In fiscal 1995 and 1994 these customers were primarily located
in Latin America. In addition, certain U.S. based customers ultimately
distribute the Company's products in foreign countries. The volume of the
indirect exports, which may be significant, can only be estimated as customers
do not provide that information to the Company.
16. QUARTERLY RESULTS (UNAUDITED):
As discussed in Note 2, Tristar merged with its primary fragrance supplier
Eurostar at August 31, 1995. The following tables reflect the restatement of
the first three quarters of fiscal 1995 and fiscal year 1994 for the merger,
which was treated in a manner similar to a pooling of interests.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1995
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Sales $ 15,075,000 $ 8,410,000 $ 8,935,000 $ 12,308,000
Gross Profit 4,692,000 2,570,000 2,403,000 3,336,000
Net Income (loss) 1,357,000 (465,000) (450,000) (1,374,000)
Net Income (loss) Per Share $ .08 $ (.03) $ (.03) $ (.08)
- ---------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1994
QUARTER ENDED
- ---------------------------------------------------------------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net Sales $ 15,866,000 $ 11,937,000 $ 10,727,000 $12,714,000
Gross Profit 6,376,000 4,627,000 3,422,000 3,617,000
Net Income (loss) 1,212,000 503,000 (55,000) (270,000)
Net Income (loss) Per Share $ .07 $ .03 $ (.00) $ (.02)
- ---------------------------------------------------------------------------------------------------
</TABLE>
The fourth quarter of fiscal 1995 includes merger related expenses of $686,000
and warrant amortization of $743,000 related to the write-off of the portion of
the warrant valuation associated with the distribution agreement that was
F-22
<PAGE> 48
in existence between Eurostar and Tristar, which was no longer applicable after
the Merger, and to the repayment of $1 million of the subordinated debt with a
portion of the proceeds received from the insurance policy disbursement.
The second quarter of fiscal 1994 and the fourth quarter of fiscal 1995 include
insurance proceeds (See Note 17), of $1,250,000 and $815,000, respectively.
The fourth quarter of fiscal 1994 includes inventory and allowances for
doubtful account reserve estimation revisions approximating $500,000.
The summation of the quarterly earnings per share may not be equal to the
annual earnings per share due to rounding.
17. PROCEEDS OF AN EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY
In November 1994, the United States District Court for the District of South
Carolina approved the disbursement of $1.25 million to the Company from the
proceeds of an executive liability and indemnification policy owned by the
Company, which is recorded under other income in the accompanying financial
statements. In December 1994, $1,000,000 of the proceeds were utilized to
repay a portion of the existing long term subordinated debt in accordance with
the financing agreement with the Core Sheth Families, a related party.
In June 1995, the Company received the balance ($750,000) of the proceeds of
the policy as well as approximately $65,000 of interest earned during the
period the court held the proceeds, all of which is recorded under other income
in the accompanying financial statements. This court approved distribution is
subject to appeal by other claimants under the policy.
F-23
<PAGE> 49
SCHEDULE VIII
TRISTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
---------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END
OF PERIOD EXPENSES DESCRIBE DESCRIBE * OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended August 31, 1995 $589,000 $349,000 $519,000 $419,000
Year ended August 31, 1994 $314,000 $500,000 $225,000 $589,000
Year ended August 31, 1993 $358,000 $255,000 $299,000 $314,000
* Uncollectible accounts written off, net of recoveries.
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
(1) (2)
BALANCE AT CHARGED TO COSTS CHARGED TO
BEGINNING AND OTHER ACCOUNTS- DEDUCTIONS- BALANCE AT END
OF PERIOD EXPENSES DESCRIBE** DESCRIBE *** OF PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inventory reserves:
Year ended August 31, 1995 $750,000 $1,229,000 ($995,000) $363,000 $621,000
Year ended August 31, 1994 $422,000 $600,000 $272,000 $750,000
Year ended August 31, 1993 $168,000 $254,000 $0 $422,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Transfer to LIFO Valuation
*** Lower of cost or market adjustment.
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Registrant, as amended.
Incorporated by reference to Exhibit 3.1 of the Report on Form
8-K dated August 31, 1995.
3.2 By-Laws of the Registrant (Amended as of August 14, 1992).
Incorporated by reference to Exhibit 3.2 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
4 Form of Registrant Common Stock certificate. Incorporated by
reference to Exhibit 4.2 of the Quarterly Report on Form 10-Q
for the quarterly period ended February 28, 1993.
10.1 1991 Amended and Restated Stock Option Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 of the Annual Report
on Form 10-K for the year ended August 31, 1992.
10.2 Loan and Security Agreement dated October 8, 1993 between
Registrant and Fremont Financial Corporation with Special
Provisions Rider. Incorporated by reference to Exhibit 10.11
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.3 First Amendment to Loan and Security Agreement dated July 7,
1995 between the Company and Fremont Financial Corporation,
amending Loan and Security agreement dated October 8, 1993.
Incorporated by reference to Exhibit 10 to the Quarterly
Report on form 10-Q for the quarterly period ended May 31,
1995.
10.4 Lease Agreement Re: South Carolina Facility. Incorporated by
reference to Exhibit 10(q) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.5 Lease Agreement Re: San Antonio Facility. Incorporated by
reference to Exhibit 10(r) of the Annual Report on Form 10-K
for the year ended August 31, 1988.
10.6 Lease Agreement Re: San Antonio Facility Extension.
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1991.
10.7 Lease Agreement Re: San Antonio Facility Extension dated July
7, 1992. Incorporated by reference to Exhibit 10.3.4 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.8 Lease Agreement Re: San Antonio Facility Extension dated July
31, 1992. Incorporated by reference to Exhibit 10.3.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.9 Lease Agreement Re: Corporate Headquarters in San Antonio
dated January 13, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.17 of the Annual Report on Form 10-K for the year
ended August 31, 1993.
</TABLE>
<PAGE> 51
<TABLE>
<S> <C>
10.10 1990 Employment Agreement with Eugene H. Karam (unsigned).
Incorporated by reference to Exhibit 10.4.2 of the Annual
Report on Form 10-K for the year ended August 31, 1992.
10.11 Employment Agreement with Loren M. Eltiste dated October 6,
1992. Incorporated by reference to Exhibit 10.4.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.12 Non-Qualified Stock Option Grant to Loren M. Eltiste dated
October 20,1992. Incorporated by reference to Exhibit 10.26
of the Annual Report on Form 10-K for the year ended August
31, 1993.
10.13 Distribution Agreement ("Distribution Agreement") with
Eurostar Perfumes, Inc. and S&J Perfume, Ltd. Dated October
28, 1992. Incorporated by reference to Exhibit 10.5 of the
Annual Report on Form 10-K for the year ended August 31, 1992.
10.14 Letter Agreement Amendment dated August 30, 1993 to the
Distribution Agreement. Incorporated by reference to Exhibit
10.28 of the Annual Report on Form 10-K for the year ended
August 31, 1993.
10.15 Agreement and First Amendment to Distribution Agreement dated
October 8, 1993 with Eurostar Perfumes, Inc. and S&J Perfume,
Ltd. Incorporated by reference to Exhibit 10.29 of the Annual
Report on Form 10- K for the year ended August 31, 1993.
10.16 Agreement dated August 31, 1995, among the Company, Eurostar
Perfumes, Inc. and Starion International, Ltd., terminating
the Distribution Agreement. Incorporated by reference to
Exhibit 10.3 of the Report on Form 8-K dated August 31, 1995.
10.17 Agreement dated August 31, 1993 between the Core Sheth
Families, Viren Sheth, Starion International, Ltd. and the
Registrant. Incorporated by reference to Exhibit 10.31 of the
Annual Report on Form 10-K for the year ended August 31, 1993.
10.18 Financing Agreement dated August 31, 1993 between the Core
Sheth Families and the Registrant. Incorporated by reference
to Exhibit 10.32 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.19 Design Agreement dated October 28, 1993 between Eurostar
Perfumes Inc. and the Registrant. Incorporated by reference
to Exhibit 10.33 of the Annual Report on Form 10-K for the
year ended August 31, 1993.
10.20 Lease Agreement Re: Bulk Warehouse Facility in San Antonio
dated December 8, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.1 of Quarterly Report on Form 10-Q for period ended
November 30, 1993.
10.21 Employment Agreement between the Company and Eugene H. Karam
dated January 14, 1994. Incorporated by reference to Exhibit
10.1 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
10.22 Incentive Stock Option between the Company and Eugene H. Karam
dated February 14, 1994. Incorporated by reference to Exhibit
10.2 of Quarterly Report on Form 10-Q for period ended
February 28, 1994.
10.23 Sub-Lease Agreement Re: former San Antonio Distribution
Facility, dated August 31, 1994, between DHI Enterprises, Inc.
d/b/a Service Tech. Supply and Registrant. Incorporated by
reference to Exhibit 10.37 of the Annual Report on Form 10-K
for the year ended August 31, 1994.
10.24 Agreement and Plan of Merger dated as of July 1, 1995, among
the Company, Eurostar Perfumes, Inc. and Transvit
Manufacturing Corporation. Incorporated by reference to
Exhibit 10.1 of the report on Form 8- K dated August 31, 1995.
10.25 Amendment to Common Stock Purchase Warrant dated August 31,
1995, between the Company and Starion International, Ltd.
Incorporated by reference to Exhibit 10.2 of the Report on
Form 8-K dated August 31, 1995.
*10.26 Line of Credit Promissory Note dated August 1, 1993, between
the Company (original entered into with Eurostar) and Transvit
Manufacturing Corporation.
*10.27 Loan and Security Agreement dated June 27, 1995, between the
Company (originally entered into with Eurostar) and Fremont
Financial Corporation with Special Provisions Rider.
*10.28 Employment Agreement between the Company (originally entered
into with Eurostar) and Ricardo Bunge dated January 1, 1993,
and as amended June 5, 1995.
*11 Statement Re: Computation of Per Share Earnings.
*18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
*24.1 Consent by Coopers and Lybrand L.L.P. for Fiscal 1994 and
Fiscal 1993.
*24.2 Consent by KPMG Peat Marwick LLP for Fiscal 1995.
*27 Financial Data Schedule.
</TABLE>
___________________________
* Attached as Exhibits hereto.
<PAGE> 1
EXHIBIT 10.26
LINE OF CREDIT
PROMISSORY NOTE
$9,000,000.00 San Antonio, Texas ___________________
1. FOR VALUE RECEIVED, the undersigned, EUROSTAR PERFUMES, INC.,
a Texas corporation (hereinafter "MAKER"), hereby promises to pay to TRANSVIT
MANUFACTURING CORPORATION, a Panamanian corporation (hereinafter "LENDER"
including subsequent holder(s) hereof), at its offices at P. O. Box 246, 1211
Geneva 12, Switzerland, or at such other place as the Lender may from time to
time designate in writing in lawful money of the United States of America, the
principal sum of Nine Million and No/100 Dollars ($9,000,000.00) or, if less,
the aggregate unpaid principal amount of all advances made by the Lender to the
undersigned from the date hereof, together with interest on the unpaid
principal balance from time to time outstanding until maturity (by acceleration
or otherwise) at the rate calculated on the basis of actual days elapsed, but
computed as if each calendar year consisted of 365 days. All advances and
repayments under this Note, shall be noted on a grid sheet, either attached to
or associated with this Note, and made a part hereof.
2. Interest on this Note shall accrue at the rate of four and
one-half percent (4.5%) per annum (the "Note Rate"). Interest on payments past
due shall accrue at the rate of five percent (5%) per annum above the Note Rate
established herein.
3. Payments of this Note shall be as follows:
a. Maker shall make annual payments of interest only on
August 1st of each year prior to maturity of this
Note.
b. This Note shall be due and payable in full on July
31, 1996 and on such date Maker shall be required to
pay Lender the entire outstanding principal balance
of the Note plus all accrued unpaid interest.
4. Regardless of any provision contained in this Note or any
other instrument executed in connection herewith, the Lender shall never be
entitled to receive, collect, or apply, as interest on this Note, any amount in
excess of the maximum rate of interest permitted to be charged from time to
time by applicable law (the "Maximum Rate"); and, in the event Lender ever
receives, collects, or applies as interest, any such excess, such amount which
would be excessive interest shall be deemed a partial prepayment of principal
and treated hereunder as such, and if this Note is paid in full, any remaining
excess shall forthwith be paid to Maker. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Maximum
Rate. Maker and Lender shall to the maximum extent permitted under applicable
law: (a) characterize any non-principal payment as an expense, fee, or premium,
rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, and (c) amortize, prorate, allocate, and spread, in equal parts, the
total amount of interest through the entire contemplated term of this Note so
that the interest rate is uniform throughout the entire contemplated term of
this Note provided, that if this Note is paid and performed in full prior to
the full contemplated
<PAGE> 2
term hereof, and if the interest received for the actual period of existence
hereof exceeds the Maximum Rate, Lender shall refund to Maker the amount of
such excess, and in such event Lender shall not be subject to any penalties
provided by any laws for contracting for, charging, or receiving interest in
excess of the Maximum Rate. The parties hereto intend to conform strictly to
the applicable usury laws. In no event, whether by reason of acceleration of
the maturity hereof or otherwise, shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of money hereunder, or otherwise,
exceed the maximum amount permissible under applicable law. If a form of any
provision hereof, or of any mortgage, loan agreement, or other document now or
hereafter evidencing, securing or pertaining to the indebtedness evidenced
hereby at the time of performance of such provision shall be due, would involve
transcending the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced automatically to the limit of such validity.
5. This Note is prepayable in part or in full at any time or from
time to time at the option of Maker. This Note may be prepaid without notice
of prepayment or the imposition of any prepayment penalty.
6. If an event of default shall occur hereunder, or if this Note
is placed in the hands of an attorney for collection, or if it is collected
through any legal proceedings, Maker agrees to pay the court costs, reasonable
attorneys' fees, and all other costs of collection of Lender.
7. Maker waives presentment and demand for payment, protest,
notice of protest and nonpayment, and notice of the intention to accelerate and
the acceleration of all indebtedness, and agrees that its liability under this
Note shall not be affected by any renewal or extension in the time of payment
hereof, by any indulgences or by any release or change in any security for the
payment of this Note, regardless of the number of such renewals, extensions,
indulgences, releases or changes.
Executed to be effective the date, month and year first above stated.
MAKER:
-----
EUROSTAR PERFUMES, INC.
A TEXAS CORPORATION
By:
-----------------------------------
Name: Viren Sheth
Title: President
<PAGE> 1
EXHIBIT 10.27
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of June 27, 1995
between FREMONT FINANCIAL CORPORATION, a California corporation ("Fremont"),
with a place of business located at 300 Embassy Row, Suite 650, Atlanta,
Georgia 30328 and EUROSTAR PERFUMES, INC., a Texas corporation ("Borrower"),
with its chief executive office located at One Eurostar Drive, Pleasanton,
Texas 78064.
The parties agree as follows:
1. Definitions and Construction.
1.1 Terms. As used in this Agreement, the following terms shall
have the following definitions:
Accounts means all presently existing and hereafter arising
accounts receivable, contract rights, and all other forms of obligations owing
to Borrower arising out of the sale or lease of goods or the rendition of
services by Borrower, whether or not earned by performance, all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of
the foregoing.
Agreement means collectively this Loan and Security
Agreement, any concurrent or subsequent rider to this Loan and Security
Agreement, and any extensions, supplements, amendments, addenda or
modifications to or in connection with this Loan and Security Agreement or any
such rider.
Authorized Officer means any officer of Borrower authorized
in writing to transact business with Fremont.
Borrower's Books means all of Borrower's books and records
including all of the following: ledgers; records indicating, summarizing, or
evidencing Borrower's assets or liabilities, or the Collateral; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information, and the equipment containing such information.
Business Day means any day which is not a Saturday, Sunday,
or other day on which banks in the State of Georgia are authorized or required
to close.
Code means the Georgia Uniform Commercial Code, as amended
from time to time.
Collateral means all of the following: the Accounts; the
Equipment; the General Intangibles; the Inventory; the Negotiable Collateral;
any money, deposit accounts or assets of Borrower which hereafter come into the
possession, custody, or control of Fremont; all proceeds and products, whether
tangible or intangible, of any of the foregoing, including proceeds of
insurance covering any or all of the Collateral, and any and all Accounts,
Equipment, General Intangibles, Negotiable Collateral, money, deposit accounts,
or other tangible or intangible property resulting from the sale or other
disposition of the Collateral, or any portion thereof or interest therein, and
all proceeds thereof.
<PAGE> 2
Daily Balance means the amount of the Obligations owed at the
end of a given day.
Eligible Inventory means Inventory consisting of first
quality finished goods held for sale in the ordinary course of Borrower's
business and raw materials and work in process for such finished goods which
are located at Borrower's premises and acceptable to Fremont in all respects;
provided, however, that general criteria for Eligible Inventory may be
established and revised from time to time by Fremont in Fremont's exclusive
judgment. In determining such acceptability Fremont may, but need not, rely on
reports and schedules of Inventory furnished to Fremont by Borrower, but
reliance thereon by Fremont from time to time shall not be deemed to limit
Fremont's right to revise standards of eligibility at any time. In general,
except in Fremont's sole discretion, Eligible Inventory shall not include
components or supplies which are not being held for conversion into finished
goods, spare parts, goods returned to or repossessed by Borrower that are not
in marketable condition, ** in transit, Inventory at the premises of third
parties (other than Inventory in the United States or at Tristar Corporation's
distribution center for which Borrower has obtained a landlord's consent or
warehousemen's letter, as the case may be, in form and substance satisfactory
to Fremont; provided that in order for Inventory at any such location to
constitute Eligible Inventory, there must be no less than $100,000 of Eligible
Inventory located on such premises) or subject to a security interest or lien
in favor of any third party, bill and hold goods, Inventory which is not
subject to Fremont's perfected security interest, damaged and/or defective
goods, "seconds" and Inventory purchased on consignment. Eligible Inventory
shall be valued approximately on a FIFO basis at the lower of cost or wholesale
market value.
Equipment means all of Borrower's present and hereafter
acquired equipment, machinery, machine tools, motors, furniture, furnishings,
fixtures, motor vehicles, rolling stock, processors, tools, parts, dies, jigs,
goods (other than consumer goods or farm products), and any interest in any of
the foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located.
ERISA means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
ERISA Affiliate means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a
single employer under ERISA Section 4001(b)(1), or IRC Section 414.
Event of Default means the events specified in Section 8,
below.
Fremont Expenses means all of the following: costs and
expenses (whether taxes, assessments, insurance premiums or otherwise) required
to be paid by Borrower under any of the Loan Documents which are paid or
advanced by Fremont; filing, recording, publication, appraisal and search fees
paid or incurred by Fremont in connection with Fremont's transactions with
Borrower; costs and expenses incurred by Fremont in the disbursement or
collection of funds to or from Borrower; charges resulting from the dishonor of
checks; costs and expenses incurred by Fremont to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; and costs and expenses incurred
by Fremont in enforcing or defending the Loan Documents, including, but not
limited to, costs and expenses incurred in connection with any proceeding,
suit, enforcement of
-2-
<PAGE> 3
judgment, or appeal; and Fremont's reasonable attorneys' fees and expenses
incurred in advising, structuring, drafting, reviewing, administering,
amending, terminating, enforcing, defending, or otherwise representing Fremont
concerning the Loan Documents or Borrower's Obligations to Fremont.
General Intangibles means all of Borrower's present and
future general intangibles and other personal property (including choses or
things in action, goodwill, patents, trade names, trademarks, service marks,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, infringement claims, computer
programs, computer disks, computer tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims) other than goods and Accounts, and Borrower's Books relating to any of
the foregoing.
Insolvency Proceeding means any proceeding commenced by or
against any person or entity under any provision of the federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with its creditors.
Inventory means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service, Borrower's present and future raw
materials, work in process, finished goods, tangible property, stock in trade,
wares, and materials used in or consumed in Borrower's business, goods which
have been returned to, repossessed by, or stopped in transit by Borrower,
packing and shipping materials, wherever located, any documents of title
representing any of the above, and Borrower's Books relating to any of the
foregoing.
IRC means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
Loan Documents means, collectively, this Agreement, any Note
or Notes executed by Borrower to the order of Fremont, any security agreements,
pledge agreements, or other encumbrances or agreements which secure Borrower's
Obligations to Fremont, and any other agreement entered into between Borrower
and Fremont relating to or in connection with this Agreement.
Multi-employer Plan means a multi-employer plan as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f).
Negotiable Collateral means all of Borrower's present and
future letters of credit, notes, drafts, instruments, documents, leases, and
chattel paper, and Borrower's Books relating to any of the foregoing.
Note means any promissory note made by Borrower to the order
of Fremont concurrently herewith or at any time hereafter.
Obligations means all loans, advances, debts, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Fremont to charge Borrower's loan account), obligations,
lease payments, guaranties, covenants, and duties owing by Borrower to Fremont
(other than amounts owing by Tristar Corporation to Fremont pursuant to that
certain Loan and Security Agreement, dated October 3, 1993, between Tristar
Corporation and Fremont, as the same may be amended, modified or supplemented
from time to time) of any kind and description (whether pursuant to or
evidenced by the Loan Documents or by any other agreement between Fremont and
Borrower,
-3-
<PAGE> 4
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, including any debt, liability or obligation owing from
Borrower to others which Fremont may obtain by assignment or otherwise, and all
interest thereon and all Fremont Expenses which Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.
Plan means any plan described in ERISA Section 3(2)
maintained for employees of Borrower or any ERISA Affiliate, other than a
Multi-employer Plan.
Reference Rate means the variable rate of interest, per
annum, announced by Bank of America NT&SA, San Francisco, California or any
successor thereto, from time to time as its Reference Rate. The Reference Rate
is nothing more nor less than the rate publicly announced as such by the named
bank, and an index for determining the interest rate payable under the terms of
this Agreement. The Reference Rate is not necessarily the best rate, or any
other definition of rates, offered to its customers by the named bank or by
Fremont. In the event the Reference Rate ceases to be available, Fremont may
substitute any similar index for the Reference Rate.
Special Provisions Rider means that certain Special
Provisions Rider dated as of the date hereof between Fremont and Borrower.
Standby Letter of Credit Supplement means that certain
Standby Letter of Credit Agreement Supplement to Loan and Security Agreement
dated as of the date hereof between Fremont and Borrower.
1.2 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, and to the
singular include the plural. The words hereof, herein, hereby, hereunder, and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection, clause and
exhibit references are to this Agreement unless otherwise specified.
1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles ("GAAP") as in effect from time to time. When used
herein, the term financial statements shall include the notes and schedules
thereto.
1.4 Exhibits. All of the exhibits, addenda or riders to this
Agreement shall be deemed incorporated herein by reference.
1.5 Code. Any terms used in this Agreement which are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
2. Advances and Terms of Payment.
2.1 Revolving Advances; Advance Limit. Upon the request of
Borrower, made at any time or from time to time during the term hereof, and so
long as no Event of Default has occurred and is continuing, Fremont shall, in
its sole and absolute discretion, make advances to Borrower in an amount up to
the lesser of (1) Forty percent (40%) of the aggregate value of the Eligible
Inventory or (2) One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) (the "Advance Limit").
2.2 Initial Advance. Fremont agrees that, upon satisfaction on
or before July 14, 1995 of each of the conditions precedent set forth in the
Conditions Precedent Rider
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between Borrower and Fremont dated the date hereof and elsewhere in this
Agreement, Fremont shall advance to Borrower, on Borrower's request therefor,
an aggregate amount not less than Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) as Fremont's Initial Advance under this Agreement, and all future
advances under this Agreement shall be deemed to be and constitute, together
with the Initial Advance, one general obligation of Borrower's and a single
loan from Fremont to Borrower, and shall be secured by Fremont's security
interest in and lien upon all of the Collateral, and by all other security
interests and liens heretofore, now or at any time or times hereafter granted
by Borrower to Fremont.
2.3 Overadvances. All advances and Term Loans (as defined in the
Special Provisions Rider) made hereunder shall be added to and deemed part of
the Obligations when made. If, at any time and for any reason, the aggregate
amount of the outstanding advances made pursuant to Section 2.1 exceeds the
dollar or percentage limitations contained in Section 2.1 (an "Overadvance"),
then Borrower shall, upon demand by Fremont, immediately pay to Fremont, in
cash, the amount of such excess.
2.4 Overadvance Fee. Without affecting Borrower's obligation to
immediately repay to Fremont the amount of each Overadvance in accordance with
the provisions of Section 2.3 of this Agreement, Borrower agrees to pay Fremont
a fee (the "Overadvance Fee") in an amount equal to twenty-five percent (25%)
per annum on the amount Overadvanced for each day any Overadvance exists. All
such fees shall be computed on the basis of a three hundred and sixty (360) day
year for the actual number of days elapsed.
2.5 Authorization to Make Advances. Fremont is hereby authorized
to make the advances provided for in this Agreement based upon telephonic or
other instructions received from anyone purporting to be an Authorized Officer,
or, at the discretion of Fremont, if such advances are necessary to satisfy any
Obligations. All requests for advances hereunder shall specify the date on
which the requested advance is to be made (which day shall be a Business Day)
and the amount of the requested advance. Requests received after 11:00 a.m.
Eastern time on any day shall be deemed to have been made as of the opening of
business on the immediately following Business Day. All advances made under
this Agreement shall be conclusively presumed to have been made to, at the
request of, and for the benefit of Borrower when deposited to the credit of
Borrower or otherwise disbursed in accordance with the instructions of Borrower
or in accordance with the terms and conditions of this Agreement.
2.6 Interest.
A. Except where specified to the contrary in any Loan
Document, the aggregate outstanding balances of all of Borrower's Obligations
to Fremont shall accrue interest at the lesser of (i) interest at the Maximum
Rate, or (ii) the rate of one and three quarters percent (1.75%) per annum
above the Reference Rate. The aggregate outstanding balances of all
Obligations shall bear interest from and after written notice by Fremont to
Borrower of the occurrence of an Event of Default, and without constituting a
waiver of any such Event of Default, at the lesser of (i) interest at the
Maximum Rate, or (ii) the rate of four and three quarters of one percent
(4.75%) per annum above the Reference Rate. All interest payable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360)
day year for the actual number of days elapsed, on the aggregate outstanding
balances of the Obligations on each day. Interest shall continue to accrue
until all of the Obligations are paid in full.
B. The Reference Rate as of the date of the execution of
this Agreement is nine percent (9%) per annum. The interest rate payable by
Borrower under the terms of this Agreement shall be adjusted in accordance with
any change in the Reference Rate
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from time to time on the date of any such change. All interest payable by
Borrower shall be due and payable on the first day of each calendar month
during the term of this Agreement. Fremont may, at its option, add such
interest and all Fremont Expenses to Borrower's loan account with Fremont,
which amounts shall thereafter accrue interest at the rate then applicable
under this Agreement. Notwithstanding anything to the contrary contained in
the Loan Documents, the minimum interest payable by Borrower on its Obligations
to Fremont shall be Ten Thousand and No/100 Dollars ($10,000.00) per month.
2.7 Collection of Accounts. Upon the occurrence and during the
continuance of an Event of Default, Fremont or Fremont's designee may, at any
time, with or without notice to Borrower, notify customers or account debtors
of Borrower that the Accounts have been assigned to Fremont, and that Fremont
has a security interest in them; collect the Accounts directly, and add the
collection costs and expenses to Borrower's loan account, but, unless and until
Fremont does so or gives Borrower other written instructions, Borrower shall
collect all Accounts for Fremont, receive in trust all payments thereon as
Fremont's trustee and immediately deliver said payments to Fremont in their
original form as received from the account debtor.
2.8 Crediting Payments. The receipt of any item of payment by
Fremont shall be applied to reduce Obligations, but the receipt of such an item
of payment shall be deemed to have been paid to Fremont (i) one (1) Business
Day after the date Fremont actually receives receipt of such item of payment,
if such item of payment is received from a Person (as defined in the Special
Provisions Rider) other than an Affiliate (as defined in the Special Provisions
Rider), and (ii) zero (0) Business Days after the date Fremont actually
receives receipt of such item of payment if such item of payment is received
from an Affiliate of Borrower. Notwithstanding anything to the contrary
contained herein, payments received by Fremont after 11:00 a.m. Eastern time
shall be deemed to have been received by Fremont as of the opening of business
on the immediately following Business Day.
2.9 Deleted.
2.10 Loan Fee. In consideration of Fremont's agreement to extend
financial accommodations (including, without limitation, the Term Loans, as
defined in the Special Provisions Rider) to Borrower hereunder, Borrower agrees
to pay Fremont a fee ("Loan Fee") in the amount of Twenty-Six Thousand and
No/100 Dollars ($26,000.00), which shall be fully earned, due and payable upon
the execution and delivery of this Agreement.
2.11 Deleted.
2.12 Deleted.
2.13 Audit Fee. Borrower agrees to pay Fremont a fee ("Audit
Fee") in an amount equal to Five Hundred and No/100 Dollars ($500.00) per day
per auditor, plus out-of-pocket expenses for each audit or examination of
Borrower performed by Fremont.
2.14 Late Reporting Fee. Borrower agrees to pay Fremont a fee
("Late Reporting Fee") in an amount equal to Fifty Dollars ($50.00) per
document per day for each Business Day any report, financial statement or
schedule required by this Agreement to be delivered to Fremont is more than two
(2) days past due.
2.15 Maximum Charges. In no event shall interest on the
Obligations exceed the highest lawful rate in effect from time to time. It is
not the intention of the parties hereto to make an agreement which violates any
applicable state or federal usury laws. In no event
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shall Borrower pay to Fremont accept or charge any interest which, together
with any other charges upon the principal or any portion thereof, exceeds the
maximum lawful rate of interest allowable under any applicable state or federal
usury laws. Should any provision of this Agreement or any existing or future
Notes or Loan Documents between the parties be construed to require the payment
of interest which, together with any other charges upon the principal or any
portion thereof, exceeds the maximum lawful rate of interest, then any such
excess shall be applied to the remaining principal balance, if any, and the
remainder refunded to Borrower.
2.16 Monthly Statements. Fremont shall render monthly statements
to Borrower, including statements of all principal, interest and Fremont
Expenses charged, and Borrower shall have fully and irrevocably waived all
objections to such statements and the contents thereof unless within thirty
(30) days after receipt thereof by Borrower, Borrower shall deliver to Fremont,
by registered, certified or overnight mail, at Fremont's address indicated in
Section 12 hereof, written objection to Fremont's statement specifying the
error or errors, if any, contained in such statement.
3. Term.
3.1 Renewal Date. This Agreement shall become effective upon
acceptance by Fremont and shall continue in full force and effect for a term
ending two (2) years from the date hereof (the "Renewal Date") and from year to
year thereafter, unless sooner terminated pursuant to the terms hereof. Either
party may terminate this Agreement on the Renewal Date or on the anniversary of
the Renewal Date in any year by giving the other party at least sixty (60)
days' prior written notice by registered or certified mail, return receipt
requested and, in addition, Fremont shall have the right to terminate this
Agreement immediately at any time upon the occurrence of an Event of Default.
No termination of this Agreement, however, shall relieve or discharge Borrower
of Borrower's duties, Obligations and covenants hereunder until all Obligations
have been paid in full, and fremont's continuing security interest in the
Collateral shall remain in effect until all of Borrower's Obligations to
Fremont have been fully paid and satisfied. Upon termination of this
Agreement, all of the Obligations shall be immediately due and payable in full.
3.2 Early Termination Fee. If this Agreement is terminated by
Fremont upon the occurrence of an Event of Default, or is terminated at
Borrower's request other than pursuant to Section 3.1, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Fremont's
lost profits as a result thereof, Borrower shall pay to Fremont upon the
effective date of such termination a fee ("Early Termination Fee") in an amount
equal to: (a) two percent (2%) of the Advance Limit if such termination occurs
on or prior to the first (1st) anniversary of this Agreement; or (b) one
percent (1%) of the Advance Limit if such termination occurs after the first
(1st) anniversary of this Agreement; provided, however, that no Early
Termination Fee shall be payable if (x) termination occurs on the Renewal Date
or subsequent anniversary of the Renewal Date, (y) Borrower has provided
Fremont at least sixty (60) days' prior written notice of termination in
accordance with the terms and conditions of Section 3.1 and (z) the Obligations
are indefeasibly paid in full on or before the termination date specified in
such notice of termination. The Early Termination Fee shall be presumed to be
the amount of damages sustained by Fremont as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Fee provided for in this Section 3.2
shall be deemed included in the Obligations. Notwithstanding anything
contained herein to the contrary, if and to the extent the Early Termination
Fee constitutes interest under applicable law, the Early Termination Fee, when
added to all other interest contracted for, charged or received under this
Agreement or any
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other Loan Documents, shall not exceed, and shall be limited to an amount which
constitutes, interest at the Maximum Rate.
4. Creation of Security Interest.
4.1 Grant of Security Interest. Borrower hereby grants to
Fremont a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
and all of its covenants and Obligations under the Loan Documents and
otherwise. Fremont's security interest in the Collateral shall attach to all
Collateral without further act on the part of Fremont or Borrower.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, upon the request of Fremont, immediately endorse and assign
such Negotiable Collateral to Fremont and deliver physical possession of such
Negotiable Collateral to Fremont.
4.3 Delivery of Additional Documentation Required. Borrower
shall execute and deliver to Fremont, concurrently with Borrower's execution
and delivery of this Agreement and at any time thereafter at the request of
Fremont, all financing statements, continuation financing statements, fixture
filings, security agreements, chattel mortgages, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Fremont may reasonably request, in form satisfactory to Fremont,
to perfect and maintain perfected Fremont's security interest in the Collateral
and in order to fully consummate all of the transactions contemplated under the
Loan Documents.
4.4 Power of Attorney. Borrower hereby irrevocably makes,
constitutes and appoints Fremont (and any of Fremont's officers, employees or
agents designated by Fremont) as Borrower's true and lawful attorney-in-fact
with power to sign the name of Borrower on any of the above described documents
or on any other similar documents to be executed, recorded or filed in order to
perfect or continue perfected Fremont's security interest in the Collateral.
In addition, Borrower hereby appoints Fremont (and any of Fremont's officers,
employees or agents designated by Fremont) as Borrower's attorney-in-fact with
power to: (a) sign Borrower's name on verifications of Accounts, and on notices
to account debtors; (b) send requests for verification of Accounts; (c) endorse
Borrower's name on any checks, notes, acceptances, money orders, drafts or
other forms of payment or security that may come into Fremont's possession; (d)
after an Event of Default, notify the post office authorities to change the
address for delivery of Borrower's mail to an address designated by Fremont, to
receive and open all mail addressed to Borrower, and to retain all mail
relating to the Collateral and forward all other mail to Borrower; (e) after an
Event of Default, make, settle and adjust all claims under Borrower's policies
of insurance, endorse the name of Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance; and (f)
after an Event of Default, make all determinations and decisions with respect
to such policies of insurance. The appointment of Fremont as Borrower's
attorney-in-fact and each and every one of Fremont's rights and powers, being
coupled with an interest, is irrevocable so long as any Accounts in which
Fremont has a security interest remain unpaid and until all of the Obligations
have been fully repaid and performed.
4.5 Right To Inspect. Fremont shall have the right at any time
or times hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of Borrower,
to inspect Borrower's Books in order to verify the amount or condition of, or
any other matter relating to, the Collateral or
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Borrower's financial condition. Fremont also shall have the right at any time
or times hereafter during Borrower's usual business hours to inspect and
examine the Inventory and the Equipment and to check and test the same as to
quality, quantity, value and condition. Fremont shall have reasonable notice
to Borrower of Fremont's intent to perform such inspections, unless Fremont in
its sole discretion, deems such notice is inappropriate.
5. Representations and Warranties.
Borrower represents, warrants and agrees as follows:
5.1 No Prior Encumbrances; Security Interests. Borrower has good
and marketable title to the Collateral, free and clear of liens, claims,
security interests or encumbrances, except for the security interests granted
to Fremont by Borrower, those disclosed in the UCC searches obtained by Fremont
and any security interest which Borrower has disclosed in writing to Fremont
and to which Fremont has given its prior written consent. Other than those
expressly permitted by this Agreement, Borrower will not create or permit to be
created any security interest, lien, pledge, mortgage or encumbrance on any
Collateral.
5.2 Bona Fide Accounts. All Accounts represent bona fide sales
of goods and/or services for which Borrower has an unconditional right to
payment. None of the accounts are subject to any rights of offset,
counterclaim, cancellation or contractual rights of return.
5.3 Merchantable Inventory. All Inventory is now and at all
times hereafter shall be of good and merchantable quality, free from defects.
5.4 Location of Inventory and Equipment. The Inventory and
Equipment is not now and shall not at any time or times hereafter be stored
with a bailee, warehouseman, processor, or similar party without Fremont's
prior written consent. Borrower shall keep the Inventory and Equipment only at
the following locations: One Eurostar Drive, Pleasanton, Texas 78064 and all
other locations listed on Exhibit A attached hereto.
5.5 Inventory Records. Borrower now keeps and hereafter at all
times shall keep correct and accurate records itemizing and describing the
kind, type, quality and quantity of the Inventory and Borrower's cost therefor.
5.6 Retail Merchant Inventory. Borrower's retail sales of goods
for personal, family or household purposes, for the twelve (12) months
preceding the date of filing of the financing statement perfecting the security
interest granted hereunder, did not exceed twenty-five percent (25.0%) in
dollar volume of Borrower's total sales of all gods during that period. At all
times during each month of the term of this Agreement, Borrower's retail sales
of goods for personal, family or household purposes shall not exceed
twenty-five percent (25.0%) in dollar volume of Borrower's total sales of all
goods in each such month.
5.7 Relocation of Chief Executive Office. The chief executive
office of Borrower is at the address indicated in the first paragraph of this
Agreement and Borrower covenants and agrees that it will not, without thirty
(30) days' prior written notice to Fremont, relocate such chief executive
office.
5.8 Due Incorporation and Qualification. Borrower is and shall
at all times hereafter be a corporation duly organized and existing under the
laws of the state of its incorporation and is qualified and licensed to do
business and is in good standing in any state
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in which the conduct of its business or its ownership of property requires that
it be so qualified.
5.9 Fictitious Name(s). Borrower is conducting its business
under the following trade or fictitious name(s): See attached Exhibit B.
5.10 Permits and Licenses. Borrower holds all licenses, permits,
franchises, approvals and consents as are required in the conduct of its
business and the ownership and operation of its properties.
5.11 Due Authorization. Borrower has the right and power and is
duly authorized to enter into each of the Loan Documents to which it is a
party.
5.12 Compliance with Articles; Bylaws. The execution by Borrower
of each of the Loan Documents to which it is a party does not constitute a
breach of any provision contained in Borrower's Certificate or Articles of
Incorporation or its Corporate Bylaws, nor does it constitute an event of
default under any material agreement to which Borrower is now or may hereafter
become a party.
5.13 Litigation. Except as previously disclosed by Borrower to
Fremont in writing, there are no actions or proceedings pending by or against
Borrower before any court or administrative agency and Borrower has no
knowledge or notice of any pending, threatened or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff. If any of the foregoing arise during the term of this
Agreement, Borrower shall promptly notify Fremont in writing.
5.14 No Material Adverse Change in Financial Statements. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Fremont have been prepared in accordance with GAAP and
fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has been no
material adverse change in the financial condition of Borrower since the date
of the most recent such financial statement submitted to Fremont.
5.15 Accounting System. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP
with ledger and account cards or computer tapes, disks, printouts and records
pertaining to the Collateral which contain information as may from time to time
be requested by Fremont.
5.16 Solvency. Borrower is now and shall be at all times
hereafter solvent and able to pay its debts (including trade debts) as they
mature.
5.17 ERISA. Neither Borrower or any ERISA Affiliate, nor any Plan
is or has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a), or any of the published
interpretations thereof. No lien upon the assets of Borrower has arisen with
respect to any Plan. No prohibited transaction within the meaning of ERISA
Section 406 or IRC Section 4975(c) has occurred with respect to any Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multi-employer Plan. Borrower and each ERISA Affiliate
have made all contributions required to be made by them to any Plan or
Multi-employer Plan when due. There is no accumulated funding deficiency in
any Plan, whether or not waived.
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5.18 Environmental Laws and Hazardous Materials. Borrower has
complied, and at all times will comply, with all Environmental Laws. Borrower
has not and will not cause or permit any Hazardous Materials to be located,
incorporated, generated, stored, manufactured, transported to or from,
released, disposed of, or used at, upon, under, or within any premises at which
Borrower conducts its business, or in connection with Borrower's business,
except as previously disclosed to Fremont in writing. To the best of
Borrower's knowledge, no prior owner or operator of any premises at which
Borrower conducts its business has caused or permitted any of the above to
occur at, upon, under, or within any of the premises. Borrower will not permit
any lien to be filed against the Collateral or any part thereof under any
Environmental Law, and will promptly notify Fremont of any proceeding, inquiry
or claim relating to any alleged violation of any Environmental Law, or any
alleged loss, damage or injury resulting from any Hazardous Material. Borrower
shall defend, indemnify and hold Fremont, its directors, officers, agents,
employees, participants and assigns, harmless against any and all claims,
suits, actions, causes of action, debts, liabilities, damages, losses,
obligations, charges, judgments and expenses, including attorneys' fees and
costs, of any nature whatsoever, in any way relating to or arising from the
breach of any warranty or covenant contained herein, any alleged or actual
violation of any Environmental Law, or any loss, damage, or injury resulting
from any Hazardous Material. Fremont shall have the right to join and
participate in, as a party if it so elects, any legal or administrative
proceeding initiated with respect to any Hazardous Material or in connection
with any Environmental Law. "Hazardous Material" includes without limitation
any substance, material, emission, or waste which is or hereafter becomes
regulated or classified as a hazardous substance, hazardous material, toxic
substance or solid waste under any Environmental Law, asbestos, petroleum
products, urea formaldehyde, polychlorinated biphenyls (PCBs), radon, and any
other hazardous or toxic substance, material, emission or waste.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act of 1976, the Hazardous Materials Transportation Act, the Toxic
Substances Control Act, the regulations pertaining to such statutes, and any
other safety, health or environmental statutes, laws, regulations or ordinances
of the United States or of any state, county or municipality in which Borrower
conducts its business or the Collateral is located.
5.19 Reliance by Fremont: Cumulative. Each warranty,
representation and agreement contained in this Agreement shall be automatically
deemed repeated with each advance and shall be conclusively presumed to have
been relied on by Fremont regardless of any investigation made or information
possessed by Fremont. The warranties, representations and agreements set forth
herein shall be cumulative and in addition to any and all other warranties,
representations and agreements which Borrower shall now or hereafter give, or
cause to be given, to Fremont.
6. Affirmative Covenants.
Borrower covenants and agrees that during the term of this
Agreement and until payment in full of the Obligations, and unless Fremont
shall otherwise consent in writing, Borrower shall do all of the following:
6.1 Collateral Reports. Borrower shall, from time to time
hereafter, but not less often than monthly, execute and deliver to Fremont, no
later than the fifteenth (15th) day of each month during the term of this
Agreement, a listing of the Accounts, a reconciliation statement and a summary
aging, by vendor, of all accounts payable and any cash account book overdraft.
Borrower shall deliver to Fremont, as Fremont may from time to time require,
collection reports, sales journals, invoices, original delivery receipts,
customers' purchase orders, shipping instructions, bills of lading and other
documentation respecting shipment
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arrangements. Absent such a request by Fremont, copies of all such
documentation shall be held by Borrower as custodian for Fremont.
6.2 Returns. Returns and allowances, if any, as between Borrower
and its account debtors, shall be permitted by Borrower on the same basis and
in accordance with the usual customary practices of Borrower as they exist at
the time of the execution and delivery of this Agreement.
6.3 Designation of Inventory. Borrower shall now and from time
to time hereafter, but not less frequently than weekly, execute and deliver to
Fremont a designation of Inventory specifying Borrower's cost and the wholesale
market value of Borrower's raw materials, work in process and finished goods,
and further specifying such other information as Fremont may reasonably
request.
6.4 Financial Statements, Reports, Certificates. Borrower agrees
to deliver to Fremont: (a) as soon as available, but in any event within
thirty (30) days after the end of each month during each of Borrower's fiscal
years, a company prepared balance sheet and profit and loss statement covering
Borrower's operations during such period; and (b) as soon as available, but in
any event within ninety (90) days after the end of each of Borrower's fiscal
years, financial statements of Borrower for each such fiscal period, audited by
independent certified public accountants acceptable to Fremont. Such financial
statements shall include a balance sheet and profit and loss statement, and the
accountants' letter to management. Together with the above, Borrower shall
also deliver Borrower's Form 10-Qs, 10-Ks or 8-Ks, if any, as soon as the same
become available, and any other report reasonably requested by Fremont relating
to the Collateral and the financial condition of Borrower and a certificate
signed by the chief financial officer of Borrower to the effect that all
reports, statements or computer prepared information of any kind or nature
delivered or caused to be delivered to Fremont under this Section 6.4 fairly
present the financial condition of Borrower and that there exists on the date
of delivery of such certificate to Fremont no condition or event which
constitutes an Event of Default.
6.5 Tax Returns, Receipts. Borrower agrees to deliver to Fremont
copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service. Borrower further agrees to promptly deliver to
Fremont, upon request, satisfactory evidence of Borrower's payment of all
federal withholding taxes required to be paid by Borrower.
6.6 Guarantor Reports. Borrower agrees to cause any guarantor of
any of the Obligations to deliver it annual financial statements and copies of
all federal income tax returns as soon as the same are available and in any
event no later than thirty (30) days after the same are required to be filed by
law.
6.7 Title to Equipment. Upon Fremont's request, Borrower shall
immediately deliver to Fremont, properly endorsed, any and all evidences of
ownership of, certificates of title, or applications for title to any items of
Equipment.
6.8 Maintenance of Equipment. Borrower shall keep and maintain
the Equipment in good operating condition and repair, and shall make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and the Equipment is now and shall at all times remain
personal property.
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<PAGE> 13
6.9 Taxes. All assessments and taxes, whether real, personal or
otherwise, due or payable by, or imposed, levied or assessed against Borrower
or any of its property or in connection with Borrower's business have been
paid, and shall hereafter be paid in full, before delinquency or before the
expiration of any extension period. Borrower shall make due and timely payment
or deposit of all federal, state and local taxes, assessments or contributions
required of it by law, and will execute and deliver to Fremont, on demand,
appropriate certificates attesting to the payment or deposit thereof. Borrower
will make timely payment or deposit of all F.I.C.A. payments and withholding
taxes required of it by applicable laws and will, upon request, furnish Fremont
with proof satisfactory to Fremont indicating that Borrower has made such
payments or deposits.
6.10 Insurance. Borrower, at its expense, shall keep and maintain
the Collateral insured against all risk of loss or damage from fire, theft,
vandalism, malicious mischief, explosion, sprinklers, and all other hazards and
risks of physical damage included within the meaning of the term "extended
coverage" in such amounts as are ordinarily insured against by other owners in
similar businesses. Borrower shall also keep and maintain comprehensive
general public liability insurance and property damage insurance, and insurance
against loss from business interruption, insuring against all risks relating to
or arising from Borrower's ownership and use of the Collateral and Borrower's
other assets and the operation of Borrower's business. All such policies of
insurance shall be in such form, with such companies and in such amounts as may
be satisfactory to Fremont. Borrower shall deliver to Fremont certified copies
of such policies of insurance and evidence of the payments of all premium
therefor. All such policies of insurance (except those of public liability and
property damage) shall contain a Lender's Loss Payable indorsement in a form
satisfactory to Fremont, naming Fremont as sole loss payee thereof, and
containing a waiver of warranties, and all proceeds payable thereunder shall be
payable to Fremont to be applied to the Obligations.
6.11 No Offsets or Counterclaims. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without offset or counterclaim, and Borrower hereby waives any right to offset
against the repayment of the Obligations, any claims it may have against
Fremont.
6.12 Fremont Expenses. Borrower shall immediately and without
demand reimburse Fremont for all sums expended by Fremont which constitute
Fremont Expenses and Borrower hereby authorizes and approves all advances and
payments by Fremont for items constituting Fremont Expenses.
6.13 Compliance with Law. Borrower shall comply, in all material
respects, with the requirements of all applicable laws, rules, regulations and
orders of governmental authorities relating to Borrower and the conduct of the
Borrower's business.
7. Negative Covenants.
Borrower covenants and agrees that during the term of this
Agreement and until payment in full of the Obligations, Borrower will not do
any of the following without Fremont's prior written consent:
7.1 Extraordinary Transactions and Disposal of Assets. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including but not limited to, sell, lease or otherwise dispose of,
move, relocate or transfer, whether by sale or otherwise, any of Borrower's
assets other than sales of Inventory in the ordinary and usual course of
Borrower's business as presently conducted; incur any debts outside the
ordinary and
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<PAGE> 14
usual course of Borrower's business except for renewals or extension of
existing debts; or make any advance or loan except in the ordinary course of
business as presently conducted.
7.2 Change Name. Change Borrower's name, business structure or
identity, or add any new fictitious name.
7.3 Merge, Acquire. Merge, acquire, or consolidate with or into
any other business organization.
7.4 Guaranty. Guaranty or otherwise become in any way liable
with respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the account of Borrower for
negotiation and delivery to Fremont; provided, however, Fremont agrees that
Borrower shall have the right to guarantee a loan to be made to Tristar
Corporation by a third party lender for the purchase of personal computers for
the sales staff of Tristar Corporation, provided that Borrower's total
liability under such guaranty shall not exceed an amount equal to $175,000.00.
7.5 Restructure. Make any change in Borrower's financial
structure or in any of its business operations.
7.6 Prepayments. Prepay any existing indebtedness owing to any
third party.
7.7 Change of Ownership. Cause, permit or suffer any change,
direct or indirect, in Borrower's capital ownership in excess of ten percent
(10%).
7.8 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts, management fees or
other payments, whether directly or indirectly, in money or otherwise, during
any fiscal year to all of Borrower's executives, officers, shareholders,
affiliates, and directors (or any relatives thereof) in an aggregate amount in
excess of One Hundred Twenty percent (120%) of those paid in the prior fiscal
year.
7.9 Loans and Advances. Make any loans, advances or extensions
of credit to any officer, director, executive, employee or shareholder of
Borrower, or any relative of any of the foregoing, or to any entity which is a
subsidiary of, related to, affiliated with or has common shareholders, officers
or directors with Borrower, which when aggregated with all other loans,
advances or extensions of credit to any or all of the above persons or entities
during the term of this Agreement, exceeds FOUR HUNDRED THOUSAND AND NO/100
Dollars ($400,000.00); provided, however, Borrower may make such loans,
advances and extensions of credit to the extent permitted under paragraph 12 of
the Special Provisions Rider.
7.10 Capital Expenditures. Make any plant or fixed capital
expenditure, or any commitment therefor, or purchase or lease any real or
personal property or replacement equipment in excess of (x) TWO HUNDRED FIFTY
THOUSAND AN NO/100 Dollars ($250,000.00) in the calendar year ending December
31, 1995 and (y) in any period thereafter, ONE HUNDRED THOUSAND AND NO/100
Dollars ($100,000.00) for any individual transaction or where the aggregate
amount of such transaction (i) in the fiscal year ending September 30, 1995, is
in excess of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 Dollars
($1,750,000.00) and (ii) in any fiscal year thereafter is in excess of SIX
HUNDRED THOUSAND AND NO/100 Dollars ($600,000.00).
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<PAGE> 15
7.11 Consignments Without Prior Written Notice to Fremont.
Consign any Inventory, provided that notwithstanding any such notice to
Fremont, such consigned Inventory shall at no time exceed an aggregate amount
equal to $250,000.
7.12 Distributions. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem or retire any
of Borrower's capital stock, of any class, whether now or hereafter
outstanding.
7.13 Accounting Methods. Modify or change its method of
accounting or enter into, modify or terminate any agreement presently existing
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Fremont
information regarding the Collateral or Borrower's financial condition.
Borrower waives the right to assert a confidential relationship, if any, it may
have with any accounting firm or service bureau in connection with any
information requested by Fremont pursuant to or in accordance with this
Agreement, and agrees that Fremont may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.14 Suspension. Suspend or go out of business.
8. Events of Default.
The occurrence of any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
8.1 Failure to Pay. Borrower fails to pay when due and payable,
or when declared due and payable, any portion of the Obligations (whether
principal, interest, taxes, reimbursement of Fremont Expenses, or otherwise);
8.2 Failure to Perform. Borrower fails or neglects to perform,
keep or observe any term, provision, condition, representation, warranty,
covenant or agreement contained in this Agreement, in any of the Loan Documents
or in any other present or future agreement between Borrower and Fremont;
8.3 Misrepresentation. Any misstatement or misrepresentation now
or hereafter exists in any warranty, representation, statement or report made
to Fremont by Borrower or any officer, employee, agent or director of Borrower,
or if any such warranty or representation is withdrawn by any of them;
8.4 Misrepresentation of Collateral. Any writing, document,
aging, certificate or other evidence of the Eligible Inventory shall be
incomplete, incorrect or misleading at the time the same is furnished to
Fremont, Borrower shall fail to comply with the terms of Section 6.2 of this
Agreement, or Borrower shall fail to immediately remit each payment on any
Account, pursuant to terms of Section 2.7 of this Agreement;
8.5 Material Adverse Change. There is a material adverse change
in Borrower's business or financial condition;
8.6 Material Impairment. There is a material impairment of the
prospect of repayment of any portion of the Obligations owing to Fremont or a
material impairment of the value or priority of Fremont's security interests in
the Collateral;
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<PAGE> 16
8.7 Levy or Attachment. Any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any judicial officer or assignee;
8.8 Insolvency by Borrower. An Insolvency Proceeding is
commenced by Borrower;
8.9 Insolvency Against Borrower. an Insolvency Proceeding is
commenced against Borrower;
8.10 Injunction Against Borrower. Borrower is enjoined,
restrained or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;
8.11 Government Lien. A notice of lien, levy or assessment is
filed of record with respect to any of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency, or any taxes or debts
owing at any time hereafter to any one or more of such entities be comes a
lien, whether choate or otherwise, upon any of Borrower's assets and the same
is not paid on the payment date there;
8.12 Judgment. A judgment is entered against Borrower in excess
of an aggregate amount equal to $100,000.
8.13 Default to Third Party. There is a default in any material
agreement to which Borrower is a party or by which Borrower or Borrower's
property or assets are bound where the occurrence or existence of such default
would have a material adverse effect on the business or operations of the
Borrower.
8.14 Subordinated Debt Payments. Borrower makes any payment on
account of indebtedness which has been subordinated to the Obligations except
to the extent such payment is allowed under any Subordination Agreement entered
into with Fremont;
8.15 Loss of Guarantor. Any guarantor of the obligations dies,
terminates its guaranty or becomes the subject of an Insolvency Proceeding; or
8.16 ERISA Violation. A ("prohibited transaction") within the
meaning of ERISA Section 406 or IRC Section 4975(c) shall occur with respect to
a Plan which could have a material adverse effect on the financial condition of
Borrower; any lien upon the assets of Borrower in connection with any Plan
shall arise; Borrower or any ERISA Affiliate shall completely or partially
withdraw from a Multi-employer Plan and such withdrawal could, in the opinion
of Fremont, have a material adverse effect on the financial condition of
Borrower; Borrower or any of its ERISA Affiliates shall fail to make full
payment when due of all amounts which Borrower or any of its ERISA Affiliates
may be required to pay to any Plan or any Multi-employer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived; the voluntary or involuntary termination of any Plan which termination
could, in the opinion of Fremont, have a material adverse effect on the
financial condition of Borrower; or Borrower shall fail to notify Fremont
promptly and in any event within ten (10) days of the occurrence of any event
which constitutes an Event of Default under this clause or would constitute
such an Event of Default upon the exercise of Fremont's judgment;
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<PAGE> 17
Notwithstanding anything contained in this Section 8 to the
contrary, Fremont shall refrain from exercising its rights and remedies and an
Event of Default shall not be deemed to have occurred by reason of the
occurrence of any of the events set forth in Sections 8.7, 8.9, 8.11 or 8.12 of
this Agreement if, within ten (10) days from the date thereof, the same is
released, discharged, dismissed, bonded against or satisfied; provided,
however, Fremont shall not be obligated to make advances to Borrower during
such period.
9. Fremont's Rights and Remedies.
9.1 Rights and Remedies. Upon the occurrence of an Event of
Default Fremont may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by the Loan
Documents or otherwise, immediately due and payable in full;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under the Loan Documents or under any other
agreement between Borrower and Fremont;
(c) Terminate this Agreement as to any future liability or
obligations of Fremont, but without affecting Fremont's rights and
security interest in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which Fremont considers
advisable and, in such cases, Fremont will credit Borrower's loan
account with only the net amounts received by Fremont in payment of
such disputed Accounts, after deducting all Fremont Expenses
incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for Fremont, segregate all returned Inventory from all other
property of Borrower or in Borrower's possession and conspicuously
label said returned Inventory as the property of Fremont;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Fremont considers
necessary or reasonable to protect its security interest in the
Collateral. Borrower agrees to assemble the Collateral if Fremont
so requires and to deliver or make the Collateral available to
Fremont at a place designated by Fremont. Borrower authorizes
Fremont to enter any premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it,
and to pay, purchase, contest or compromise any encumbrance, charge
or lien which in Fremont's determination appears to be prior or
superior to its security interest and to pay all expenses incurred
in connection therewith;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the
manner provided for herein) the Collateral. Fremont is hereby
granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Collateral, in completing
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<PAGE> 18
production of, advertising for sale and selling any Collateral.
Borrower's rights under all licenses and all franchise agreements
shall inure to Fremont's benefit;
(h) Sell the Collateral at either a public or private sale,
or both, by why of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including
Borrower's premises) as Fremont determines is commercially
reasonable. It is not necessary that the Collateral be present at
any such sale;
(i) Fremont shall give notice of the disposition of the
Collateral as follows:
(1) Fremont shall give the Borrower and each holder
of a security interest in the Collateral who has filed with
Fremont a written request for notice, a notice in writing of
the time and place of public sale or, if the sale is a
private sale or some other disposition other than a public
sale is to be made, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section
12 of this Agreement, at least five (5) calendar days before
the date fixed for the sale, or at least five (5) calendar
days before the date on or after which the private sale or
other disposition is to be made, unless the Collateral is
perishable or threatens to decline speedily in value.
Notice to persons other than Borrower claiming an interest in
the Collateral shall be sent to such addresses as they have
furnished to Fremont;
(j) Fremont may credit bid and purchase at any public sale;
(k) Any deficiency which exists after disposition of the
Collateral as provided above shall be paid immediately by Borrower.
Any excess will be remitted without interest by Fremont to the
party or parties legally entitled to such excess; and
(l) In addition to the foregoing, Fremont shall have all
rights and remedies provided by law and any rights and remedies
contained in any other Loan Documents. All such rights and
remedies shall be cumulative.
9.2 No Waiver. No delay on the part of Fremont in exercising nay
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege under
this Agreement or otherwise, preclude other or further exercise of the right,
power or privilege or the exercise of any other rights, power or privilege.
10. Taxes and Expenses Regarding the Collateral.
If the Borrower fails to pay any monies (whether taxes, assessments,
insurance premises or otherwise) due to third persons or entities, or fails to
make any deposits or furnish any required proof of payment or deposit, or fails
to perform any of Borrower's other covenants under the terms of this Agreement,
then in its discretion and without prior notice to Borrower, Fremont may do any
or all of the following: (a) make any payment which Borrower has failed to pay
or any part thereof; (b) set up such reserves in Borrower's loan account as
Fremont
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deems necessary to protect Fremont from the exposure created by such failure;
(c) obtain and maintain insurance policies of the type described in Section
6.10 of this Agreement and take any action with respect to such policies as
Fremont deems prudent; or (d) take any other action deemed necessary by Fremont
to preserve and protect its interests and rights under this Agreement. Any
payments made by Fremont shall not constitute: (1) an agreement by Fremont to
make similar payments in the future or (2) a waiver by Fremont of any Event of
Default under this Agreement. Fremont need not inquire as to, or contest the
validity of, any such expense, tax, security interest, encumbrance or lien and
the receipt of notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
11. Waivers.
11.1 Demand; Protest. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, and notice of nonpayment at maturity, and agrees that
Fremont may compromise, settle or release without notice to Borrower any
accounts, documents, instruments, chattel paper and/or guaranties at any time
held by Fremont on which Borrower may in any way be liable. Borrower agrees to
any extension of time of payment or partial payment at, before or after
termination of this Agreement. Borrower waives notice of intention to
accelerate and notice of acceleration, such that Fremont may exercise any and
all rights and remedies under this Agreement or any Loan Documents or as
otherwise provided in law or in equity, immediately upon the occurrence of any
Event of Default without any further notice, grace or opportunity to cure
whatsoever.
11.2 No Marshaling. Borrower, on its own behalf and on behalf of
its successors and assigns hereby expressly waives all rights, if any, to
require a marshaling of assets by Fremont or to require that Fremont first
resort to some or any portion of the Collateral before foreclosing upon,
selling or otherwise realizing on any other portion thereof.
11.3 Fremont's Liability for Inventory or Equipment. So long as
Fremont complies with its obligations, if any, under Section 9207 of the Code,
Fremont shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Inventory or Equipment; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All risk
of loss, damage or destruction of the Inventory or Equipment shall be borne by
Borrower.
12. Notices.
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement, the Loan Documents or any other
agreement entered into in connection herewith shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
receipted overnight delivery service to Borrower or to Fremont, as the case may
be, at their addresses set forth below:
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<PAGE> 20
If to Borrower: EUROSTAR PERFUMES, INC.
One Eurostar Drive
Pleasanton, Texas 78064
Attn: Chief Financial Officer
If to Fremont: FREMONT FINANCIAL CORPORATION
300 Embassy Row, Suite 650
Atlanta, Georgia 30328
Attn: Credit Manager
The parties hereto may change the address at which they are to
receive notices hereunder by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12
shall be deemed received on the earlier of the date of actual receipt or five
(5) calendar days after the deposit thereof in the mail.
13. Choice of Law, Venue and Jury Trial Waiver.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
GEORGIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, HOWEVER,
THAT THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED SHALL GOVERN WITH
RESPECT TO (A) THE CREATION OF LIENS ON COLLATERAL LOCATED IN SUCH STATE AND
(B) THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF FREMONT'S LIEN UPON ANY
PORTION OF THE COLLATERAL LOCATED IN SUCH STATE AND THE ENFORCEMENT IN SUCH
STATE OF FREMONT'S OTHER REMEDIES WITH RESPECT TO THE COLLATERAL LOCATED IN
SUCH STATE. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
COURTS LOCATED IN THE COUNTY OF FULTON, STATE OF GEORGIA, THE FEDERAL COURTS
WHOSE VENUE INCLUDES THE COUNTY OF FULTON, STATE OF GEORGIA, OR, AT THE SOLE
OPTION OF FREMONT, IN ANY OTHER COURT IN WHICH THE FREMONT SHALL INITIATE LEGAL
OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE
MATTER IN CONTROVERSY, BORROWER AND FREMONT EACH WAIVES, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, THE RIGHT TO A TRIAL BY JURY AND ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE
TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13.
14. Destruction of Borrower's Documents.
All documents, schedules, invoices, agings or other papers delivered to
Fremont may be destroyed or otherwise disposed of by Fremont four (4) months
after they are delivered to or received by Fremont unless Borrower requests, in
writing, the return of the said documents, schedules, invoices or other papers
and makes arrangements, at Borrower's expense, for their return.
15. General Provisions.
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and accepted and executed by Fremont.
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15.2 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights
hereunder without Fremont's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by Fremont shall release
Borrower from its Obligations. Fremont may assign this Agreement and its
rights and duties hereunder. Fremont reserves the right to sell, assign,
transfer, negotiate or grant participations in all or any part of, or any
interest in Fremont's rights and benefits hereunder. In connection therewith,
Fremont may disclose all documents and information which Fremont now or
hereafter may have relating to Borrower or Borrower's business.
15.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire
Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Fremont or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement cannot be changed or
terminated orally. This Agreement is the entire agreement between the parties
with respect to the matters contained herein. This Agreement supersedes all
prior agreements, understandings and negotiations, if any, which are merged
into this Agreement.
15.7 Counterparts. This Agreement may be executed in any number
of counterparts and by different parties on separate counterparts each of
which, when executed and delivered, shall be deemed to be an original and all
of which, when taken together, shall constitute but one and the same Agreement.
15.8 CMF License. Fremont is licensed as a commercial finance
lender by the California Department of Corporations, license number 943 1051.
15.9 Incorporation of Riders. The Conditions Precedent Rider, the
Special Provisions Rider and the Standby Letter of Credit Supplement are by
this reference incorporated herein and made a part hereof.
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Borrower and Fremont have executed this Agreement at Fremont's
place of business in Atlanta, Georgia.
ATTEST: BORROWER:
EUROSTAR PERFUMES, INC.
- -----------------------------------
Secretary a Texas corporation
[Corporate Seal] Signed By:
---------------------------
Print Name:
Title/Capacity:
----------------------
FREMONT FINANCIAL CORPORATION,
a California corporation
Signed By:
---------------------------
Print Name:
Title/Capacity:
----------------------
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<PAGE> 23
SPECIAL PROVISIONS RIDER
THIS SPECIAL PROVISIONS RIDER (hereinafter referred to as this
"Rider") dated June 27, 1995, is hereby made a part of and incorporated into
that certain Loan and Security Agreement dated the date hereof between FREMONT
FINANCIAL CORPORATION (hereinafter referred to as "Fremont"), a California
corporation, and EUROSTAR PERFUMES, INC. (hereinafter referred to as
"Borrower"), a Texas corporation (hereinafter referred to, together with all
other supplements and riders thereto and amendments thereof, as the "Loan
Agreement")
l. All capitalized terms contained in this Rider, unless
otherwise defined herein, shall have the meanings ascribed to such terms in the
Loan Agreement. All references herein to any instrument, agreement or other
document shall include all amendments thereto and modifications, extensions and
renewals thereof, whether heretofore or hereafter entered into by the parties
to such documents. When used herein the following terms shall have the
following meanings:
"Affiliate" means any Person controlling, controlled by or
under common control with Borrower. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power
to direct or cause direction of the management and policies of any
Person, whether through ownership of common or preferred stock or
other equity interests, by contract or otherwise.
"Applicable Law" shall mean all laws, rules and regulations
applicable to the person, conduct, transaction, covenant or Loan
Documents in question, including, but not limited to, all applicable
common law and equitable principles; all provisions of all applicable
state and federal constitutions, statutes, rules, regulations and
orders of governmental bodies; and orders, judgments and decrees of
all courts and arbitrators.
"Conditions Precedent Rider" shall mean the Conditions
Precedent Rider of even date herewith between Borrower and Fremont.
"Deed of Trust " shall mean that certain Deed of Trust with
Security Agreement, Financing Statement for Fixture Filing and
Assignment of Rents dated the date hereof from Borrower to Fremont,
pursuant to which Borrower shall grant and convey to Fremont, as
security for the Obligations, a mortgage lien upon the real property
of Borrower located in Atascosa County, Texas, and all improvements
thereto.
"Maximum Rate" shall mean the maximum non-usurious rate of
interest permitted by Applicable Law that at any time, or from time to
time, may be contracted for, taken, reserved, charged or received on
the Obligations in question or, to the extent permitted by Applicable
Law, under such Applicable Laws that may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than
Applicable Laws now allow. Notwithstanding any other provision in this
Rider or the Loan Agreement, the Maximum Rate shall be calculated on a
daily basis (computed on the actual number of days elapsed over a year
of 365 or 366 days, as the case may be).
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<PAGE> 24
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political
division thereof, or any other entity.
"Standby Letter of Credit Supplement" shall mean the Standby
Letter of Credit Agreement Supplement to Loan and Security Agreement
dated of even date herewith by and between Borrower and Fremont.
"Subordinated Debt" shall mean all indebtedness at any time or
times owing by Borrower to any person that is expressly subordinated
to the payment of any of the Obligations.
"Term Loan A" shall mean the term loan to be made by Fremont
to Borrower pursuant to Paragraph 4 of this Rider.
"Term Loan B" shall mean the term loan to be made by Fremont
to Borrower pursuant to Paragraph 5 of this Rider.
"Term Loans" shall mean the Term Loan A and the Term Loan B.
"Term Note A" shall mean that certain Secured Promissory Note
dated as of the date hereof, executed by Borrower and payable to
Fremont in the original principal amount of $3,500,000, as it may be
amended or modified from time to time, together with any renewals or
extensions thereof, in whole or in part.
"Term Note B" shall mean that certain Secured Promissory Note
dated as of the date hereof, executed by Borrower and payable to
Fremont in the original principal amount of $200,000, as it may be
amended or modified from time to time, together with any renewals or
extensions thereof, in whole or in part.
2. In no event shall Borrower be obligated to pay the fees
payable under Sections 2.4, 2.10, 2.13 and 3.2 of the Loan Agreement to the
extent that the amount of such fees otherwise payable under such sections of
the Loan Agreement, when added to the amount of interest charged under Sections
2.6(A) and 2.6(B) of the Loan Agreement or otherwise, would result in the
assessment or collection of interest in excess of the Maximum Rate (provided
that it is the express intent and understanding of the parties hereto that such
fees not constitute interest or a charge for the use or detention of money).
3. All of the Obligations consisting of advances made by Lender
to Borrower pursuant to Section 2.1 of the Loan Agreement and accrued interest
thereon (except as otherwise provided in Section 2.3 of the Loan Agreement)
shall be payable by Borrower to Fremont upon the earliest of (i) the receipt by
Fremont or Borrower of any collections of proceeds of any of the Collateral, to
the extent of said collections or proceeds, (ii) in the case of interest,
monthly, in arrears, on the first day of each month as provided in Section
2.6(B) of the Loan Agreement, (iii) the occurrence of an Event of Default in
consequence of which Fremont elects to accelerate the maturity and payment of
the Obligations, or (iv) termination of the Loan Agreement pursuant to Section
3.1 thereof. Notwithstanding the foregoing, each advance made by Fremont to
Borrower pursuant
2
<PAGE> 25
to Section 2.1 of the Loan Agreement shall be due and payable no later than the
last day of the thirty-fifth month following the month in which such advance
was made. The Term Note A and the Term Note B shall be due and payable upon
termination of the Loan Agreement.
4. Subject to the conditions set forth in the Conditions
Precedent Rider, Fremont shall make a single term loan advance to Borrower in
the original principal amount of THREE MILLION FIVE HUNDRED THOUSAND DOLLARS,
($3,500,000) which shall be repayable in accordance with the terms of the Term
Note A and shall be secured by the Collateral. The amount of the Term Loan A
outstanding at any time shall not exceed the sum of (i) 80% of the liquidation
value of the Equipment of Borrower, as said liquidation value has been
determined by an appraisal performed by M.E.L. Valuations, Inc., dated March
17, 1995 (the "Appraised Equipment") plus (ii) 30% of the appraised value of
the real property of Borrower, as said value has been determined by an
appraisal performed by The Glen Company. The Term Loan A shall be funded
concurrently with Fremont's initial advance under the Loan Agreement
5. Subject to the conditions set forth in the Conditions
Precedent Rider, Fremont shall make a single term loan advance to Borrower in
the original principal amount of TWO HUNDRED THOUSAND DOLLARS, ($200,000) which
shall be repayable in accordance with the terms of the Term Note B and shall be
secured by the Collateral. The amount of the Term Loan B outstanding at any
time shall not exceed 80% of the actual cost of the Equipment being purchased
by Borrower with the proceeds of such Term Loan B (exclusive of taxes,
transportation and shipping charges and installation or make- ready fees or
expenses). The Term Loan B shall be funded upon satisfaction of all terms and
conditions in Section 3 of the Conditions Precedent Rider
6. The proceeds of the Term Loans shall be used by Borrower
solely for the purposes for which the proceeds of the advances made by Fremont
to Borrower under Section 2.1 of the Loan Agreement are authorized to be used.
If Borrower sells any of the Equipment or real property covered by the Deed of
Trust (and nothing herein shall be construed to authorize Borrower's sale of
any Equipment or real property covered by the Deed of Trust) or if any of the
Collateral is taken by condemnation, Borrower shall pay to Fremont, unless
otherwise agreed by Fremont or provided herein, as and when received by
Borrower and as a mandatory prepayment of the Term Loans (or at Fremont's
option, such of the other Obligations as Fremont may elect), a sum equal to the
proceeds received by Borrower from such sale or condemnation
7. The due and punctual payment and performance of the
Obligations shall also be secured by a lien upon all real property of Borrower
described in the Deed of Trust. The Deed of Trust shall be duly recorded in the
office where such recording is required to constitute a valid, perfected lien
upon and security title to the real property covered by such Deed of Trust.
8. At the request of and as an administrative convenience to
Borrower to ensure the timely payment of interest owing by Borrower each month,
and Fremont Expenses and other fees owing by Borrower from time to time under
the Loan Agreement, Borrower has requested Fremont to advance for the account
of Borrower an amount each month sufficient to pay interest accrued on the
Obligations during the immediately preceding month and amounts from time to
time sufficient to pay all fees owing by Borrower under the Loan Agreement.
Unless and
3
<PAGE> 26
until Borrower in writing notifies Fremont to the contrary, Borrower authorizes
Fremont, in Fremont's sole discretion, to make an advance under the Loan
Agreement for Borrower's account of a sum sufficient each month to pay, on the
due date thereof, all interest accrued on the Obligations during the
immediately preceding month and sums from time to time sufficient to pay, on
the due date thereof, all Fremont Expenses and other fees owing by Borrower
under the Loan Agreement, and Fremont may apply the proceeds of each such
advance to the payment of such interest, Fremont Expenses and other fees.
Fremont, however, shall not be obligated to make any such advance and Borrower
acknowledges that Fremont will be particularly disinclined to do so if an Event
of Default or an Overadvance exists at the time of, or would result from the
making of, such advance.
9. In addition to the indemnification by Borrower of Fremont
under Section 5.18 of the Loan Agreement, Borrower hereby agrees to indemnify
Fremont and hold Fremont harmless from and against any liability, loss, damage,
suit, action or proceeding ever suffered or incurred by Fremont as the result
of Borrower's failure to observe, perform or discharge Borrower's duties
hereunder. Additionally, if by reason of any existing or hereafter enacted
federal, state, foreign or local statute, rule or regulation, any taxes
(excluding taxes imposed upon or measured by the net income of Fremont, but
including, without limitation, any intangibles tax, stamp tax, recording tax or
franchise tax) shall be payable by Fremont or Borrower on account of the
execution or delivery of the Loan Agreement or any of the other Loan Documents,
or the creation of any of the Obligations, Borrower shall pay (or shall
promptly repay Fremont for the payment of) all such taxes, including, but not
limited to, any interest and penalties thereon, and will indemnify and hold
Fremont harmless from and against liability in connection therewith.
Notwithstanding any provision of the Loan Agreement to the contrary, the
indemnity obligation of Borrower under Section 5.18 of the Loan Agreement, this
Paragraph 9 and any other provision of the Loan Documents shall survive the
payment in full of the Obligations. THIS PARAGRAPH AND SECTION 5.18 OF THE LOAN
AGREEMENT INCLUDE INDEMNIFICATION AGAINST LIABILITIES, LOSSES, DAMAGES, SUITS,
ACTIONS OR PROCEEDINGS CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF FREMONT
OR ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, PARTICIPANTS AND/OR ASSIGNS.
10. Regardless of any provision contained in this Rider or any of
the other Loan Documents, in no contingency or event whatsoever shall the
aggregate of all amounts that are contracted for, charged or collected pursuant
to the terms of this Rider, any of the Notes or any of the other Loan Documents
and that are deemed interest under Applicable Law exceed the highest rate
permissible under any Applicable Law. No agreements, conditions, provisions or
stipulations contained in this Rider or any of the other Loan Documents or the
exercise by Fremont of the right to accelerate the payment or the maturity of
all or any portion of the Obligations, or the exercise of any option whatsoever
contained in any of the Loan Documents, or the prepayment by Borrower of any of
the Obligations, or the occurrence of any contingency whatsoever, shall entitle
Fremont to charge or receive in any event, interest or any charges, amounts,
premiums or fees deemed interest by Applicable Law (such interest, charges,
amounts, premiums and fees referred to herein collectively as "Interest") in
excess of the Maximum Rate and in no event shall Borrower be obligated to pay
Interest exceeding such Maximum Rate, and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel Borrower to pay Interest exceeding the Maximum Rate
shall be without binding force or effect, at law or in equity, to the extent
only
4
<PAGE> 27
of the excess of Interest over such Maximum Rate. If any Interest is charged or
received in excess of the Maximum Rate ("Excess"), Borrower acknowledges and
stipulates that any such charge or receipt shall be the result of an accident
and bona fide error, and such Excess, to the extent received, shall be applied
first to reduce the principal Obligations and the balance, if any, returned to
Borrower, it being the intent of the parties hereto not to enter at and time
into a usurious or otherwise illegal relationship. The right to accelerate the
maturity of any of the Obligations does not include the right to accelerate any
interest that has not otherwise accrued on the date of such acceleration, and
Fremont does not intend to collect any unearned interest in the event of any
such acceleration. Borrower recognizes that, with fluctuations in the rates of
interest set forth in Section 2.6(A) of the Loan Agreement and the Maximum
Rate, such an unintentional result could inadvertently occur but for the
agreements of the parties to limit interest to the Maximum Rate and to apply,
credit or return any Excess as provided herein. All monies paid to Fremont
hereunder or under any of the other Loan Documents, whether at maturity or by
prepayment, shall be subject to any rebate of unearned interest as and to the
extent required by Applicable Law. By the execution of this Rider, Borrower
covenants that (i) the credit or return of any Excess shall constitute the
acceptance by Borrower of such Excess, and (ii) Borrower shall not seek or
pursue any other remedy, legal or equitable, against Fremont, based in whole or
in part upon contracting for, charging or receiving any Interest in excess of
the Maximum Rate. For the purpose of determining whether or not any Excess has
been contracted for, charged or received by Fremont, all interest at any time
contracted for, charged or received from Borrower in connection with this Rider
shall, to the extent permitted by Applicable Law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of the
Obligations. Borrower and Fremont shall, to the maximum extent permitted under
Applicable Law, (i) characterize any non-principal payment as an expense, fee
or premium rather than as Interest and (ii) exclude voluntary prepayments and
the effects thereof. The provisions of this Section shall be deemed to be
incorporated into every Loan Document (whether or not any provision of this
Section is referred to therein) . All such Loan Documents and communications
relating to any Interest owed by Borrower and all figures set forth therein
shall, for the sole purpose of computing the extent of Obligations, be
automatically recomputed by Borrower, and by any court considering the same, to
give effect to the adjustments or credits required by this Section.
Notwithstanding any provisions contained in this Agreement or any of the other
Loan Documents providing that interest is to be computed on the basis of a 360
day year, interest shall never exceed the Maximum Rate computed on the basis of
a 365 or 366 day year, as the case may be.
11. Notwithstanding Section 5.4 of the Loan Agreement, Borrower
shall be permitted to relocate the Appraised Equipment from time to time at
locations other than the Borrower's facilities at (i) One Eurostar Drive,
Pleasanton, Texas 78064 and (ii) 12001 Network Blvd., Suites 100 and 110, San
Antonio, Texas 78249; provided, however, that the aggregate value of all such
relocated Equipment shall not, without the prior written consent of Fremont, at
any time exceed an appraised value equal to $200,000.
12. Borrower shall not enter into, or be a party to any
transaction with any Affiliate of Borrower except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair
and reasonable terms which are fully disclosed to Fremont and are no less
favorable to Borrower than
5
<PAGE> 28
would obtain in a comparable arm's length transaction with a Person not an
Affiliate of Borrower.
13. In addition to and without limiting the powers of Fremont
granted by Borrower pursuant to Section 4.4 of the Loan Agreement, Borrower
hereby irrevocably designates, makes, constitutes and appoints Fremont (and any
of Fremont's officers, employees or agents designated by Fremont) as Borrower's
true and lawful attorney (and agent-in- fact) and Fremont, or Fremont's agent,
may, without notice to Borrower and in either Borrower's or Fremont's name, but
at the cost and expense of Borrower, at such time or times as Fremont or its
agent in its sole discretion may determine: (i) at any time upon or after the
occurrence of an Event of Default, demand payment of the Accounts from the
account debtors of Borrower, enforce payment of the Accounts by legal
proceedings or otherwise, and generally exercise all of Borrower's rights and
remedies with respect to the collection of the Accounts; (ii) at any time upon
or after the occurrence of an Event of Default, settle, adjust, compromise or
discharge any of the Accounts or other Collateral or any legal proceedings
brought to collect any of the Accounts or other Collateral and give releases
and acquittances in the name of Borrower in connection therewith; (iii) sell or
assign any of the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Fremont deems advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in
bankruptcy or similar document against any account debtor of Borrower or to any
notice of lien, assignment or satisfaction of lien or similar document in
connection with any of the Collateral; (vi) at any time upon or after the
occurrence of an Event of Default, receive, open and dispose of all mail
addressed to Borrower and notify postal authorities to change the address for
delivery thereof to such address as Fremont may designate; (vii) endorse the
name of Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Fremont for application to
the Obligations; (viii) endorse the name of Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts, Inventory and any other Collateral; (ix)
use Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to account debtors of Borrower; (x) use the
information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral and which Borrower has access; (xi) at any time upon
or after the occurrence of an Event of Default, make and adjust claims under
policies of insurance; and (xii) do all other acts and things necessary, in
Fremont's determination, to fulfill Borrower's obligations under the Loan
Agreement or any of the other Loan Documents.
14. Notwithstanding the terms of Sections 7.2, 7.5 and 7.7 of the
Loan Agreement, (i) Borrower shall be permitted to merge with and into Tristar
Corporation with Tristar Corporation as the surviving corporation (the
"Surviving Borrower") and (ii) Surviving Borrower shall be permitted to
restructure as a limited partnership, provided that Fremont consents to all
documents, instruments and other legal matters incident to such merger and
restructure, which consent will not be unreasonably withheld.
15. In addition to the waivers set forth in Section 11.1 of the
Loan Agreement, Borrower hereby waives notice of intention to accelerate and
notice of acceleration, so that Fremont may exercise any and all rights and
remedies under
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<PAGE> 29
the Loan Agreement or any other Loan Documents, or as otherwise provided by law
or in equity, immediately upon the occurrence of any Event of Default, without
any further notice, grace or opportunity to cure whatsoever.
16. In addition to the Events of Default set forth in Section 8 of
the Loan Agreement, the occurrence of any one or more of the following events
or conditions shall constitute an Event of Default:
(a) Borrower shall pay any of the Subordinated Debt to
any holder or holders thereof after the occurrence of an Event of
Default;
(b) Borrower shall default in the observance or
performance of any covenant on Borrower's part to be performed
hereunder; and
(c) An Event of Default (as defined in the Deed of Trust)
shall occur under the Deed of Trust
17. This Rider may be executed in multiple counterparts, each of
which shall be deemed an original document and all of which taken together
shall constitute one and the same instrument.
18. The Loan Agreement (including this Rider) has been executed
and delivered by Borrower and Fremont in Atlanta, Georgia, and shall be deemed
to be a contract made in Georgia. This Rider shall be governed in all respects
by and construed in accordance with the internal laws of the State of Georgia.
This Rider shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Borrower hereby waives notice of
Fremont's acceptance hereof.
19. Nonapplicability of Article 5069-15.01 et seq. Borrower and
Fremont hereby agree that, except for Section 15.10(b) thereof, the provisions
of Tex. Rev. Civ. Stat. An. art. 5069-15.01 et seq. (Vernon 1987) (regulating
certain revolving credit loans and revolving tri-party accounts) shall not
apply to this Rider, the Loan Agreement or any of the other Loan Documents.
20. DTPA WAIVER. BORROWER HEREBY WAIVES ALL PROVISIONS OF THE
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE ANN.
Section 17.01 ET SEQ. (VERNON SUPP. 1987)), OTHER THAN SECTION 17.555 THEREOF
PERTAINING TO CONTRIBUTION AND INDEMNITY, AND EXPRESSLY WARRANTS AND REPRESENTS
THAT BORROWER (A) HAS ASSETS OF $5,000,000 OR MORE, (B) HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE BORROWER TO EVALUATE
THE MERITS AND RISKS OF THIS TRANSACTION, (C) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (D) HAS BEEN REPRESENTED
BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
21. ORAL AGREEMENTS INEFFECTIVE. THIS RIDER, THE LOAN AGREEMENT,
THE CONDITIONS PRECEDENT RIDER, THE STANDBY LETTER OF CREDIT SUPPLEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE
SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SIGNED, SEALED AND DELIVERED in Atlanta, Georgia, on the day and year
first above written.
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<PAGE> 30
ATTEST: EUROSTAR PERFUMES, INC.
("Borrower")
By:
- ----------------------------------- -----------------------------------
Secretary Viren S. Sheth
[CORPORATE SEAL] President and Chief
Executive Officer
Accepted and agreed to in Atlanta, Georgia, this 27th day of June, 1995.
FREMONT FINANCIAL CORPORATION
("Fremont")
By:
-----------------------------------
Title:
--------------------------------
The undersigned, legal counsel to Borrower, executes this Rider solely to
acknowledge the waiver of the Texas Deceptive Trade Practices - Consumer
Protection Act contained in Paragraph 19 of the foregoing Rider.
Borrower's Counsel:
Akin, Gump, Straus, Hauer & Feld, L.L.P.
By:
-----------------------------------
Name:
---------------------------------
8
<PAGE> 1
EXHIBIT 10.28
EUROSTAR PERFUMES, INC.
-----------------------
American Star Division
----------------------
INTER-OFFICE MEMORANDUM
-----------------------
TO: Mr. Paul Kimmel DATE: June 5, 1995
c/c Mr. Viren Sheth
FROM: Ricardo A. Bunge REF: Contract
Renewal
- --------------------------------------------------------------------------------
Dear Paul,
Please be advised that Viren S. has offered, and I have accepted, to extend my
contract with Eurostar Perfumes, Inc. for one year, i.e. to December 31, 1996.
The following terms/conditions have been modified:
1. Remuneration: US$ 120,000.00 (one hundred twenty thousand dollars
US) per year ((i.e. from January 1, 1996 through
December 31, 1996).
2. Vacation: a total of three weeks.
3. Travel: air travel on long flights (5 hours or more) will be
in business class.
All other terms/conditions of the employment contract remain as originally
agreed.
- --------------------------------------------------------------------------------
12001 Network-San Antonio, TX 78249-Phone: (210) 699-0054; Fax (210) 699-9718
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into to be effective the first day
of January, 1992, by and between EUROSTAR PERFUMES, INC., a Texas corporation
("Eurostar"), and RICARDO BUNGE ("Bunge").
WHEREAS, Eurostar desires to employee Bunge as the Vice President
responsible for International Sales and Bunge is willing to accept such
employment in accordance with the terms set forth below;
NOW, THEREFORE, for and in consideration of the promises hereof and
the mutual covenants contained herein, the parties hereto hereby covenant and
agree as follows:
1. EMPLOYMENT. Eurostar hereby employs Bunge and Bunge hereby
accepts employment from Eurostar upon the terms and conditions set
forth herein.
2. DUTIES. During the Employment Term (as defined hereinafter),
Bunge shall hold the position of Vice President, International Sales.
Bunge shall have and perform all of the duties and responsibilities
customarily associated with that position and any additional duties
and responsibilities as may be assigned or delegated to him from time
to time by Eurostar's President or Board of Directors. Such duties
referred to in the preceding sentence shall include, but shall not be
limited to, the following: responsibility and accountability for all
marketing and sales efforts in Central and South America; hire,
supervise and fire all sales and related administrative personnel
assigned to sales effort in Central and South America; participate in
the formulation of budget numbers relating to sales in Central and
South America. Bunge shall perform his duties and obligations during
Eurostar's normal business hours and at all other times reasonably
necessary to comply with the spirit and purpose of this Agreement. In
carrying out his duties and responsibilities hereunder, Bunge shall
abide in all material respects by the policies of Eurostar and shall
devote his full time, attention, energies, skills and best efforts
exclusively to the performance of his duties and responsibilities for
and on behalf of Eurostar.
3. EMPLOYMENT TERM AND TERMINATION.
3.1 Employment Term. Subject to the provisions of
subparagraph 3.2 of this Agreement, Bunge's employment
hereunder shall be for a term ("Employment Term") commencing
on the effective date hereof and expiring on December 31, 1995
("Termination Date"). Thereafter, the Employment Term may be
renewed only upon the mutual consent and agreement of Eurostar
and Bunge.
3.2 Termination During Employment Term. The Employment
Term, and thus Bunge's employment hereunder, may be terminated
prior to the Termination Date by Eurostar for "Reasonable
Cause" (as hereinafter defined) effective immediately upon
giving Bunge written notice of termination. Termination for
Reasonable Cause shall immediately terminate any and all of
Eurostar's obligations under this Agreement. As used in this
Agreement, "Reasonable Cause" shall mean: the commission by
Bunge of a felony or any act of fraud, dishonesty, theft or
embezzlement against Eurostar; Bunge's failure to perform in a
material way any of his responsibilities or duties hereunder,
and Bunge does not cure such failure within ten (10 ) days
after receipt of written notice of such failure from Eurostar:
Bunge's death or permanent and total disability (i.e. a
disability which prevents Bunge from performing the essential
functions of his position).
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<PAGE> 3
4. COMPENSATION AND OTHER BENEFITS. For the services to be
rendered during the Employment Term by Bunge hereunder, Bunge shall
be entitled to receive from Eurostar the following:
4.1 Annual Base Salary. During the Employment Term,
Bunge shall receive the following annual base salary ("Annual
Base Salary") in equal periodic installments in accordance
with Eurostar's customary practices: (I) Ninety Thousand and
No/100 Dollars ($90,000.00) for year one of the Employment
Term; (ii) One Hundred Thousand and No/100 Dollars
($100,000.00) for year two of the Employment Term; and (iii)
One Hundred Ten Thousand and No/100 Dollars ($110,000.00) for
year three of the Employment Term.
4.2 Annual Performance Bonus. During he Employment Term,
Bunge shall be entitled to receive, in addition to the Annual
Base Salary, an annual performance bonus ("Annual Performance
Bonus") in the amount equal to but only payable according to
the following terms: The maximum amount of Annual Performance
Bonus which Bunge may receive in any calendar year is a sum
equal to twenty percent (20%) of his relevant Annual Base
Salary. The actual amount which Bunge shall receive shall be
calculated as follows: (i) one-half of the Annual Performance
Bonus (i.e. an amount up to ten percent (10%) of his Annual
Base Salary) shall be determined by Eurostar, in their sole
discretion, based on Bunge's overall performance; (ii) the
remaining one-half of the Annual Performance Bonus (i.e. an
amount up to ten percent (10%) of his Annual Base Salary)
shall be an amount calculated as follows: a sum equal to ten
percent (10%) of Bunge's relevant Annual Base Salary
multiplied by a fraction the numerator of which is equal to
the actual annual gross sales in Central and South America in
the relevant year and the denominator of which is equal to the
budgeted annual gross sales for Central and South America for
the relevant year.
4.3 Annual Incentive Bonus. During the Employment Term,
Bunge shall be entitled to receive, in addition to the Annual
Base Salary and any Annual Performance Bonus, an annual
incentive bonus ("Annual Incentive Bonus") in the amount equal
to but only payable according to the following terms: In any
calendar year in which the gross sales in Central and South
America exceed the gross sales budgeted for that year in
Central and South America, Bunge shall be entitled to receive
a sum equal to one-half of one percent (.5%) of the gross
sales which are in excess of the budgeted sales amount.
Eurostar shall pay this Annual Incentive Bonus within sixty
(60) days after the end of the calendar year. As used in this
Agreement, the term "gross sales" shall mean actual sales for
which payment has been received by Eurostar less any
applicable returns and allowances.
4.4 Other Eurostar Employment Benefits. During the
Employment Term, Bunge shall be eligible to receive and
participate in all other employment benefits (such as employee
insurance plans, retirement plans, vacations, etc.) which
Eurostar provides its employees in substantially equivalent
positions. Nothing in this subparagraph shall prohibit or
limit the right of Eurostar to discontinue, modify or amend
any plan or benefit in its absolute discretion at any time
provided such discontinuation, modification or amendment is
applied generally to all such employees of Eurostar and not
solely to Bunge.
2
<PAGE> 4
4.5 Moving and Relocation Expenses. Eurostar shall
reimburse Bunge for reasonable actual third party expenses
incurred in the moving of the household goods and personal
effects of Bunge, his spouse and children. Eurostar shall also
reimburse Bunge for reasonable closing costs incident to the
sale of Bunge's former residence and purchase of a new
residence. Reasonable closing costs shall include such items
as appraisal fees, broker commissions, legal fees and similar
other closing expenses but does not include any expenses
related to the financing of the new or the current residence,
the pro ration of taxes and/or insurance or other similar fees
related to actual ownership or financing for the residences.
Eurostar shall also reimburse Bunge for the actual third party
rent expense incurred in the rental of a furnished one bedroom
apartment for a period from the date of this Contract until
Bunge moves his household to San Antonio, Texas or until July
1, 1993, whichever occurs earlier.
4.6 Business expense Reimbursement. Eurostar shall
reimburse Bunge for reasonable and necessary expenses incurred
by him on behalf of Eurostar in the performance of his duties
during the Employment Term. Bunge shall furnish Eurostar with
the appropriate documentation of such expenses as required
under Eurostar's policy in connection with such expenses.
5. RESTRICTIVE COVENANTS
5.1 Proprietary Property. Eurostar believes and Bunge
agrees that during his employment, he will be provided with or
given access to confidential or trade secret information of
Eurostar or others with whom Eurostar does business and the
maintenance of the confidentiality and proprietary character
of such information is important to Eurostar. Bunge agrees
that he will not disclose to any person or use, except as
required by the duties of his employment, any confidential
information for so long as it shall remain confidential or
otherwise totally or partially protectable or proprietary.
Either upon termination of Bunge's employment or at any other
time at Eurostar's request, Bunge shall promptly deliver to
Eurostar without retaining any copies, any and all documents
and other materials in his possession that relates directly or
indirectly to any confidential or proprietary information of
Eurostar.
5.2 Non-Solicitation of Employees. Bunge agrees that
during his employment and for a period of thirty-six (36)
months following the termination of employment for any reason
whatsoever, neither he nor any person or enterprise controlled
by Bunge will solicit for employment any person employed by
Eurostar or any of its affiliates, successors or assigns at
any time within one year prior to the time of the act of
solicitation.
5.3 Non-Competition. Bunge hereby covenants and agrees
that during the term of this Agreement and for a period of
thirty-six (36) months following the date of any termination
of employment of Bunge with Eurostar, he shall not, directly
or indirectly, whether as an officer, director, stockholder
(5% ownership or more), partner, owner, employee,
3
<PAGE> 5
creditor, or otherwise, except through Eurostar or with prior
written consent of Eurostar, engage or participate or have any
financial interest in any business or activity similar to, or
competitive with the business of Eurostar in the geographic
area which encompasses North America, Central America and
South America.
If at the time of the enforcement of this section 5, a court
shall hold that the all or any part of this section 5 is unenforceable
due to its general scope, duration or geographic scope, then in such
event the parties agree that the scope, duration and geographic scope
shall be automatically reduced to the greatest scope, longest period
of time and the largest geographical area enforceable under the
applicable law.
5.4 Equitable Relief. Bunge hereby acknowledges that it
would be impossible to measure the monetary damages to
Eurostar by reason of a breach of any of the provisions of
this section 5 by Bunge. Therefore, in the event of a breach
by Bunge of any of the provisions of this section 5, Eurostar
shall be entitled to equitable relief, from any court of
competent jurisdiction, including the right to enjoin any
party in violation of this Agreement. Bunge hereby waives any
claim or defense that there is an adequate remedy at law. The
remedy provided to Eurostar in this paragraph is cumulative
and in addition to any other remedies under applicable law or
equity.
5.5 Bunge's Acknowledgment. Bunge hereby expressly
acknowledges that: (i) the restrictions and obligations set
forth in and imposed under this section 5 will not prevent him
from obtaining gainful employment in his field of expertise or
cause him undue hardship in that there are numerous other
employment and business opportunities available to him that
are not affected by the restrictions and other obligations
imposed hereunder; and (ii) the restrictions and obligations
imposed on him under this section 5 are reasonable and
necessary to protect the legitimate business interests of
Eurostar and that any violation thereof would result in
irreparable damage to Eurostar.
6. GENERAL PROVISIONS.
6.1 This Agreement may be amended by mutual agreement of
the parties hereto in a writing to be attached to and
incorporated into this Agreement.
6.2 This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties
hereto with respect to the subject matter hereof and no other
agreement relating to the subject of this Agreement shall be
binding.
6.3 Neither this Agreement nor any duties or obligations
hereunder shall be assignable by Bunge without the prior
written consent of Eurostar.
6.4 Any notice given pursuant to this Agreement shall be
deemed given on the earlier of either (i) the date of actual
delivery of the notice, (ii) the date of transmission of a
telegram or telefax so long as such transmittal is confirmed
and followed by a copy in certified mail; or (iii) when
deposited in the mail by certified mail, return receipt
requested addressed to the other party at the address given
below or any other address which it shall have notified the
person giving such notice in writing.
4
<PAGE> 6
To Eurostar:
---------------------
---------------------
---------------------
---------------------
To Bunge:
---------------------
---------------------
---------------------
---------------------
6.5 This Agreement shall be exclusively governed by and
construed in accordance with the laws of the State of Texas.
If any provision in this Agreement is held by a court of
competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall remain in full force and
effect, as if this Agreement had been executed without any
such invalid provisions having been included.
6.6 The headings contained herein are for convenience
only and shall not be considered to affect the meaning or
interpretation of any provision of this Agreement.
EXECUTED TO BE EFFECTIVE the 1st day of January, 1993.
EUROSTAR PERFUMES, INC.,
A Texas corporation
By:
----------------------------------------
Its:
---------------------------------------
--------------------------------------------
Ricardo Bunge
5
<PAGE> 7
Terms of Offer for Employment of Ricardo Bunge by EUROSTAR PERFUMES, INC.
1. Position: Vice President, International Sales
2. Contract Period: 3 years
3. Salary: $ 90,000 1st year
100,000 2nd year
110,000 3rd year
4. Opportunity for Bonus:
20% each year, comprising of
10% towards achieving budget
10% towards overall performance
Some additional incentive for going over budget
5. Medical Insurance Program: As per company's family medical coverage plan.
6. Temporary Living: Company-provided, furnished one bedroom flat
up to July, 1993.
7. Relocation: All reasonable moving costs, real estate
agents' fees and legal costs for sale of
current home. Legal fees towards new home (no
financial or mortgage costs).
8. Retirement Benefit: After 1-2 years a company sponsored 401-k plan.
<PAGE> 1
EXHIBIT 11
TRISTAR CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
AUGUST 31,
------------------------------------------------------
1995 1994 1993
------------ ----------- ------------
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 16,625,341 16,609,758 16,601,048
Net effect of dilutive stock options and warrant-based on the
treasury stock method -- 241,886 --
----------- ----------- ------------
Total 16,625,341 16,851,644 16,601,048
=========== =========== ============
Net (loss) income $ (932,000) $ 1,390,000 $(4,724,000)
=========== =========== ============
Net (loss) income per common share $ (0.06) $ 0.08 $ (0.28)
=========== =========== ============
FULLY DILUTED
Average shares outstanding 16,625,341 16,609,758 16,601,048
Net effect of dilutive stock options and warrant-based on the
treasury stock method -- 241,886 --
----------- ----------- ------------
Total 16,625,341 16,851,644 16,601,048
=========== =========== ============
Net (loss) income $ (932,000) $ 1,390,000 $(4,724,000)
=========== =========== ============
Net (loss) income per common share $ (0.06) $ 0.08 $ (0.28)
=========== =========== ============
</TABLE>
Earnings per share were computed based upon the weighted average number of
common and common equivalent shares outstanding. Common Equivalent shares
are represented by shares under option and warrant.
<PAGE> 1
EXHIBIT 18
November 6, 1995
Tristar Corporation
12500 San Pedro, Suite 500
San Antonio, Texas 78216
Ladies and Gentlemen:
We have audited the consolidated balance sheet of Tristar Corporation and
subsidiaries as of August 31, 1995, and the related consolidated statements of
operations, cash flows, and shareholders' equity for the year then ended and
have reported thereon under date of November 6, 1995. The aforementioned
consolidated financial statements and our audit report thereon are included in
the Company's annual report on Form 10-K for the year ended August 31, 1995.
As stated in Note 1 to those financial statements, the Company changed its
method of accounting for inventories from the FIFO method to the LIFO method
and states that the newly adopted accounting principle is preferable in the
circumstances because the LIFO method of valuing inventories more closely
matches current costs and revenues in periods when prices of goods and services
are increasing significantly. In accordance with your request, we have
reviewed and discussed with Company officials the circumstances and business
judgment and planning upon which the decision to make this change in the method
of accounting was based.
With regard to the aforementioned accounting change, authoritative criteria
have not been established for evaluating the preferability of one acceptable
method of accounting over another acceptable method. However, for purposes of
Tristar Corporation's compliance with the requirements of the Securities and
Exchange Commission, we are furnishing this letter.
Based on our review and discussion, with reliance on management's business
judgment and planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.
Very truly yours,
KPMG PEAT MARWICK LLP
San Antonio, Texas
<PAGE> 1
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the registration statement
listed below of our report dated November 11, 1994, except for Note 16 as to
which the date is November 22, 1994, on our audits of the consolidated
financial statements of Tristar Corporation and Subsidiaries as of August 31,
1994 and for each of the two years in the period ended August 31, 1994.
Registration No.
On form S-8 for:
400,000 Shares of Common Stock of Ross
Cosmetics Distribution Centers, Inc. 33-45396
COOPERS & LYBRAND L.L.P.
Dallas, Texas
December 5, 1995
<PAGE> 1
EXHIBIT 24.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Tristar Corporation:
We consent to incorporation by reference in the registration statement (No.
33-45396) on Form S-8 of Ross Cosmetics Distribution Centers, Inc. of our
report dated November 6, 1995, relating to the consolidated balance sheet of
Tristar Corporation and subsidiaries as of August 31, 1995 and the related
consolidated statement of operations, shareholders' equity, and cash flows for
the year then ended, and the related schedule, which report appears in the
August 31, 1995, Annual Report on Form 10-K of Tristar Corporation.
Our report refers to a change to the LIFO method of valuing inventory.
KPMG PEAT MARWICK LLP
San Antonio, Texas
December 5, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-END> AUG-31-1995
<CASH> 806,000
<SECURITIES> 0
<RECEIVABLES> 6,700,000
<ALLOWANCES> 419,000
<INVENTORY> 14,406,00
<CURRENT-ASSETS> 23,266,000
<PP&E> 9,851,000
<DEPRECIATION> 3,637,000
<TOTAL-ASSETS> 36,828,000
<CURRENT-LIABILITIES> 12,505,000
<BONDS> 0
<COMMON> 166,000
0
0
<OTHER-SE> 9,920,000
<TOTAL-LIABILITY-AND-EQUITY> 36,828,000
<SALES> 44,728,000
<TOTAL-REVENUES> 44,728,000
<CGS> 31,727,000
<TOTAL-COSTS> 31,727,000
<OTHER-EXPENSES> 11,654,000
<LOSS-PROVISION> 349,000
<INTEREST-EXPENSE> 1,641,000
<INCOME-PRETAX> (271,000)
<INCOME-TAX> 661,000
<INCOME-CONTINUING> (932,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (932,000)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
