<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, 1996
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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
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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 21,
1996, as reported on the NASDAQ National Market System, was $18,958,000. As of
November 21, 1996, the Registrant had outstanding 16,710,176 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
<PAGE> 2
PART I
Certain statements contained in "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
including statements regarding the anticipated development and expansion of the
Company's business, expenditures, the intent, belief or current expectations of
the Company, its directors or its officers, primarily with respect to the
future operating performance of the Company and other statements contained
herein regarding matters that are not historical facts, are "forward-looking"
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995). Because such statements include risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, those discussed in other filings made by the
Company with the Securities and Exchange Commission.
ITEM 1. 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 value oriented designer
alternative fragrances, complementary products to those fragrances, and
cosmetic pencils in North and South America. The Company's fragrances are sold
under the Designer Classic Alternatives ("DCA"), Euro Collections ("Euro"),
Royal Selections, and Premiere Editions brands. They are designed for
consumers who desire a scent similar to an original designer fragrance, but are
unwilling or unable to pay the high prices of the originals. The Company also
markets and distributes value oriented cosmetics, including premium cosmetics
that are alternatives to major brands sold in department stores, again at
significantly lower prices than original designer brands. Cosmetics are
primarily marketed under the DCA and the Gina Cosmetics lines. The Company
conducts business utilizing its sales and distribution facilities in San
Antonio, Texas, Mexico City, Mexico, and Sao Paulo, Brazil, its state of the
art manufacturing facility in Pleasanton, Texas, and its corporate offices,
design studio, and laboratory in San Antonio.
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.
The Company's major shareholder, the Core Sheth Families ("Sheth Group"),
beneficially holds 78% of the Company's outstanding common stock. Through
their various worldwide vertically integrated companies, the Company believes
that the Sheth Group is the world's largest manufacturer (based on number of
units produced) of lower priced value oriented fragrances. They are also
significant manufacturers of lower priced, value oriented cosmetic products.
The Sheth Group is also a supplier of products and components to the Company's
sales, distribution and manufacturing operations, and a purchaser of the
Company's products.
The fragrance manufacturing capability of the Company was acquired in August
1995, as a result of a merger with Eurostar Perfumes, Inc., ("Eurostar"), an
affiliate of the Core Sheth Families and the manufacturer of substantially all
of the Company's products prior to the merger. The merger was accounted for in
a manner similar to a pooling of interests. Accordingly, for periods ending
August 31, 1995 or prior, the Company's financial statements have been restated
to include the results of Eurostar. 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.
<PAGE> 3
Products
The Company's principal product category is fragrances with the balance
consisting of cosmetics, cosmetic pencils and toiletry products. The following
table reflects the dominance of the fragrance category's contribution to the
Company's net sales for the last three fiscal years:
<TABLE>
<CAPTION>
==========================================================================================================
PRODUCT CATEGORY FISCAL 1996 FISCAL 1995 FISCAL 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FRAGRANCES 80% 78% 79%
- ----------------------------------------------------------------------------------------------------------
OTHER PRODUCTS 20% 22% 21%
==========================================================================================================
</TABLE>
Fragrance sales in fiscal 1996 grew both as percentage of total sales as well
as in dollars of sales when compared to fiscal 1995. In fiscal 1994, sales
were made predominantly to wholesalers, whereas by the end of fiscal 1996, the
Company expanded its distribution base to retail chains through the
distribution of its new premium quality, premium priced Designer Classic
Alternatives product line which was introduced in December 1995. The Company
has formalized the distribution of the Euro Collections line into the retail
market both in the United States as well as in Latin America, while
concurrently developing a new line (Royal Selections) primarily to serve the
needs of other trade classes. The Company intends to continue to transition to
a broader based distribution strategy, which the Company believes will result
in less dependence on a single trade class channel in fiscal 1997. The Company
implemented this strategy primarily as a result of increased opportunities in
the retail sector and in the wholesale, specialty store, and dollar store
channels both in the U.S. and Latin America, and the results achieved with the
DCA product line in the drug chains. The financial results for fiscal 1996,
while reflecting a growth in sales, were materially affected by the costs
associated with the implementation of the strategies to develop and introduce
the new DCA product, develop the retail sales channels, reposition the Euro
Collections line, and develop the Latin America channels of distribution. The
Company believes that some of the benefits of the costs incurred in fiscal 1996
will accrue to the Company in 1997.
Fragrances
The Company's marketing strategy for designer alternative fragrances addresses
four distinct segments of the fragrance market with four separate product
lines:
o The premium quality and premium priced "flagship" line, DCA, which was
developed and successfully introduced in fiscal 1996, enables the Company
to compete in retail chains including leading drug, food and mass
merchandisers, who look to promote higher price point and higher profit
brands. The Company focused significant resources in fiscal 1996 on the
development of this product line, the development of related distribution
channels and in developing programs to increase consumer awareness. (See
further discussion of investments in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.) DCA has a
suggested retail price to the consumer of $9.99 per bottle.
o The Euro Collections alternative designer fragrance line, which has lower
price points than the DCA line, is also marketed in the traditional retail
chain stores both in the United States and Latin America. The Euro line,
first introduced in 1989, is the predominant fragrance line of the Company
and until fiscal 1996 had been the Company's principal brand in the
wholesale market. To strengthen the Euro Collection's franchise in retail
stores, its packaging was redesigned in the latter part of fiscal 1996 in
order to enhance its image and position. Euro fragrances have suggested
retail prices of $3.99 to $4.99 per bottle.
o The Premiere Editions line is a budget price brand that is oriented toward
dollar stores and other budget-price retailers. This line of alternative
designer fragrances was newly re-staged at the end of fiscal 1996 by
increasing the bottle size and redesigning all packaging. Sales of the
redesigned product began in early fiscal 1997 at the same price point as
previously sold, providing increased value in comparison to competition.
The consumer can purchase fragrances in this line in a suggested retail
price range of $0.99 to $1.50 per bottle.
o In the fourth quarter of fiscal 1996, the Company developed a new designer
alternative fragrance line, Royal Selections, designed to recapture a
significant part of the wholesale trade class. Royal Selections carries a
price below that of major competition, with unsurpassed quality packaging,
bottles, and fragrances. This line was introduced at the beginning of
fiscal 1997 and sells to consumers at a suggested retail price of
approximately $2.99 to $3.99.
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In fiscal 1996, the Company sold the remaining inventory of two other fragrance
brands (Euro Elegance and Club Exclusif), which were subsequently discontinued.
The Company believes that to successfully market a fragrance product line, one
must identify a market niche and then fill that niche with a value-priced,
quality product presented in attractive bottles, cartons and displays. All of
the Company's fragrance lines feature quality glass bottles and caps designed
in various unique shapes and styles. The Company's fragrances are packaged in
colorful cartons designed with the latest technology to appear attractive to
the consumer. All fragrances are designed by the Company's and the Sheth
Group's expert perfumers as alternatives to some of the most popular,
nationally branded, designer fragrances. They are sold, however, at a fraction
of the original designer fragrance's retail price to satisfy the needs of the
consumers in specific niche markets.
Prior to the introduction of new or improved fragrances, market evaluation and
consumer testing is conducted by the Company with selective testing also done
by independent outside laboratories. The Company believes that the success of
these products is dependent on the Company correctly identifying the needs of a
particular market niche and then, ultimately, on the consumers' acceptance of
the product. Life cycles of products vary significantly, with some being
successfully marketed for more than five years, whereas other products may fail
to gain consumer acceptance and be discontinued within a shorter period of
time. The Company believes that the success of the Company's products in the
market place is largely dependent on the amount and quality of retail
advertising and promotion original designers give to their brands, the appeal
of the scent itself, and the merchandising and trial programs that the Company
develops to accelerate consumer awareness.
Each of the Company's four fragrance product lines has, or will have, companion
products, which are discussed below in "Other Products".
The Company anticipates revenue growth in all fragrance lines in fiscal 1997 as
the Company strengthens its marketing programs and targets specific products to
specific market niches. The streamlining and upgrading of the Euro Collections
and Premiere lines, and increased consumer acceptance of the DCA line are
expected to contribute to such revenue growth. Based on preliminary sales
demand in the first quarter of fiscal 1997, the newly introduced Royal
Selections fragrance line is also expected to favorably contribute to sales
growth.
Other Products
The Company markets numerous complementary products within each fragrance line
such as deodorant sticks, dusting powders, shaker talcs, trial/travel sizes and
gift sets. In most cases, these companion products are marketed as designer
alternatives and are value priced significantly below the prices of the
national brands. Certain of these toiletry products, or variations thereof,
also are marketed under the Company's Everscent and Simply You brand names.
The Company markets under the brand names of DCA and Gina Cosmetics,
proprietary lines of cosmetics including nail, lip color, eye products, and
other cosmetic items, all of which are manufactured by related parties.
Cosmetics sold under the DCA line are premium quality lip and nail products
designed as alternatives to original designer products. The DCA products are
sold primarily in chain stores at prices significantly less than the original
designer's price. Cosmetic products under the Gina Cosmetics line are geared
to price conscious consumers and are primarily marketed in the wholesale class
of trade and in dollar stores. During fiscal 1996, the Company discontinued
all Roxy and Apple cosmetics lines, except for the Apple lip and eye cosmetic
pencils, and as of August 31, 1996, had sold most of the non- pencil inventory.
The Apple line of lip and eye cosmetic pencils, which is manufactured by the
Company, is marketed and distributed in assorted colors and sizes. Private
label cosmetic pencils are also produced for selected customers, including an
affiliate of the Core Sheth Families.
New, redesigned, or replacement cosmetics, except for cosmetic pencils, are
developed by the Company's suppliers at the request of the Company. The
Company believes that like fragrances, selecting the right cosmetic products
for a particular market segment and acceptance by the consumer play a large
role in the success or failure of any particular product.
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The Company believes that revenues for both the complementary products to the
fragrance lines and cosmetics will increase in fiscal 1997. Such growth is
expected to result from increases in the existing lines and the addition of
new products
Customers
The Company distributes its products to more than 1,000 customers, including
wholesalers, distributors, drug and grocery chains, mass merchandising chains
and specialty chain stores located primarily in North and South America. These
customers represent over 35,000 outlets for the Company's products. The Company
markets its products through Company sales personnel located in various markets
and through a network of independent sales representatives.
The Company has invested heavily in developing the mature U.S. retail markets
and in starting to develop the emerging mass markets in Latin America. The
Company believes that the customer base in the mass Latin American markets,
which appear to fit the Company's target customer profile, presents an
excellent opportunity for future growth.
The Company has focused the expansion of the customer base in the U.S. on
creating and repositioning products to better meet the needs of its existing
channels of distribution and in gaining entrance into certain new channels. A
major focus of investment in fiscal 1996 has been on developing customer bases
in the most populous countries in Latin America - Mexico and Brazil. This
development was facilitated by establishing sales and distribution operations
in those countries in fiscal 1995 and 1996, respectively. The Company services
other countries in Latin America through regional and national distributors
within the various countries. An entity of the Core Sheth Families is the
national distributor in Argentina. These distributors are supplied by the
Company's Texas distribution center that also services the United States and
Canadian markets.
Sales to customers in the United States were $37.2, $28.5, and $38.1 million
for fiscal years 1996, 1995 and 1994, respectively. For the years ended August
31, 1996, 1995, and 1994, $14.5 million (28% of net sales), $16.2 million (36%
of net sales), and $13.1 million (25% of net sales), respectively, were
exported directly to foreign customers or sold through the Company's
subsidiaries in Mexico and Brazil. Certain of the sales to U.S. customers are
ultimately resold outside of the U.S. The amount of these indirect export
sales cannot be determined as the Company does not have access to its
customers' sales information. As a significant portion of the Company's
products is sold directly or indirectly into the Latin American market, there
are certain factors such as political and economic conditions that could have
an adverse effect on these sales. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations (Potential Adverse Effects on
Results of Operations for Future Periods)" for a specific discussion of those
risks.
The North and South America markets will continue to be the focus of the
Company's marketing strategy as other Core Sheth Families affiliates distribute
similar products throughout the rest of the world. The Company does anticipate
some increase in sales outside North and South America in fiscal 1997,
primarily in the newer Royal Selections and DCA product lines, and principally
to Core Sheth Families affiliates.
The Company is not dependent upon a single or a few customers, and the loss of
a single or a few customers would not have a material adverse effect on the
Company's business. In fiscal 1996, 1995, and 1994 no single customer
accounted for more than seven percent of the Company's total sales.
Suppliers
At present, the Company purchases the glass containers for its fragrances from
European glass manufacturers. If these products were unavailable 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 specially blended fragrance compounds
principally from a Core Sheth Families affiliate in France. In the event that
the supplier was unable to provide the compounds, the Company could suffer
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minor manufacturing delays until the primary suppliers could be replaced by
another Core Sheth Families affiliate or a secondary source.
The Company's ability to satisfy sales orders for its fragrance products is
directly dependent on its ability to manufacture these products. If the
Company were physically unable to manufacture its products, and inventory and
demand levels were normal, the effect on the Company would in general be
minimal as Core Sheth Families affiliates and others have similar manufacturing
facilities available to support the Company. However, in instances where
demand for fragrances was strong and the Company had inadequate inventory
levels, the Company would be adversely impacted. The inability to manufacture
cosmetic pencils at its Texas facility until a secondary source could be
located would have relatively minor adverse effect.
The Company is dependent on the supply of cosmetics, 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.
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 and cosmetic
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 not have a materially
adverse effect on the Company's business.
Backlog of Orders
The Company had no substantial backlog of orders at the end of fiscal years
1996, 1995 and 1994.
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 with minimal difficulties.
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 has reformulated certain of its products to meet the
requirements of the California Air Resources Board, See "Legal Proceedings".
Competition in the Fragrance and Cosmetics Industry
The fragrance and cosmetics industry is characterized by intense competition,
particularly in the U.S. While pricing and terms are the principal factors in
competition, product quality, presentation, merchandising and advertising
programs, and customer service (incorporating available inventories and prompt
delivery) are also very important additional competitive features in the
overall 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.
While the Company is a significant participant in the value oriented designer
alternative fragrance market and has had historically many of the resources of
the Core Sheth Families available to it, the Company is a relatively small
participant in the total fragrance and cosmetics industry. Many of the other
companies in the industry, including virtually all large mass-advertised brand
manufacturers such as Revlon, L'Oreal, Coty, and Proctor and Gamble are well
established and have been in existence for a significantly longer period of
time than the Company. Such
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companies have higher leverage and resources such as financial, marketing,
research, manufacturing, and personnel, substantially greater than the Company
will have available in the foreseeable future. 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 to meet the demands of its customers. 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. The
Company believes that with its range of products, distribution channels, and
promotional activity, it should over time be able to reduce some of the
differences between quarters, however, the nature of the fragrance market will
result in a continuation of the pattern.
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 300 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.
ITEM 2. PROPERTIES
The Company owns a manufacturing plant that 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 distribution center. The lease
has an annual rate of $207,000, subject to adjustments, and expires in February
1998.
The San Antonio corporate offices, design studio, and laboratory occupy
approximately 23,000 square feet of office space. The leases have a current
annual rate of $225,000, subject to adjustments, and expire in January 1998.
The Company also leases approximately 1,000 square feet of sales office space
in New York City and 26,000 square feet of office and distribution space in
Mexico and Brazil.
The Company currently has under lease approximately 1,900 square feet of
facilities that it is subletting.
ITEM 3. LEGAL PROCEEDINGS
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company,
and 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
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matters were fraudulent or negligently misrepresented. In April 1995, the
court dismissed the complaint 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, and in June 1996, amended their
complaint yet again, naming only the Company and one of its directors as
defendants. 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 business, financial condition or results of operations.
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, is being contested by two other claimants under the
policy. The Company believes that the ultimate disposition of the matter will
not have a material adverse effect on its business, financial condition or
results of operations.
CALIFORNIA AIR RESOURCES BOARD
Since the effective date (January 1, 1995) of regulations of the California
Air Resources Board ( the "CARB") with respect to volatile organic compounds
"(VOC's"), the Company has not been in compliance with those regulations. The
Company was granted a temporary variance from VOC regulations under which the
Company was allowed to continue to manufacture non-complying product until
September 30, 1996. The variance also allows the Company to continue to sell
its remaining inventory of non-complying products in California until June 30,
1997. The Company had as of September 30, 1996, reformulated all of its
fragrance products to achieve compliance with the VOC regulations.
EMPLOYMENT CLAIMS
In May 1995, a suit was filed in Texas state court against the Company by the
former 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 filed suit against the Company, making
certain allegations, including breach of contract, violations of various state
and federal laws, retaliatory termination and misrepresentations. An
out-of-court settlement with the plaintiff was reached in November 1996.
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 expenses
related to ongoing litigation involving the non-settling defendants from
previously settled stockholder class action litigation against the Company and
from a related lawsuit against the Company's former auditors. 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
None.
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 1996 FISCAL 1995
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HIGH LOW HIGH LOW
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<S> <C> <C> <C> <C>
FIRST QUARTER $7 1/8 $5 1/4 $5 7/8 $3 7/8
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SECOND QUARTER $7 3/4 $6 1/2 $5 5/8 $5 1/8
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THIRD QUARTER $8 $7 3/8 $6 $5
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FOURTH QUARTER $7 7/8 $7 1/4 $5 1/2 $5
========================================================================================
</TABLE>
On November 21, 1996, the closing bid price for the Company's Common Stock, as
reported by NASDAQ, was $7 1/32.
(b) HOLDERS
As of November 21, 1996, the approximate number of holders of the Company's
Common Stock was approximately 1,350.
(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. 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.
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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>
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YEARS ENDED AUGUST 31,
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1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES $51,720,000 $44,728,000 $51,244,000 $51,690,000 $47,735,000
- ---------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $(12,053,000) $(932,000) $1,390,000 $(4,724,000) $2,788,000
- ---------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME PER COMMON
SHARE: $(.72) $(.06) $.08 $(.28) $.22
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING: 16,635,888 16,625,341 16,851,644 16,601,048 12,893,233
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $33,767,000 $36,828,000 $40,902,000 $39,116,000 $27,771,000
- ---------------------------------------------------------------------------------------------------------------
SHORT TERM BORROWINGS $9,319,000 $5,383,000 $4,511,000 $2,505,000 $3,630,000
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LONG TERM DEBT $3,234,000 $3,719,000 $4,861,000 $8,168,000 $5,801,000
- ---------------------------------------------------------------------------------------------------------------
SUBORDINATED LONG TERM DEBT $12,666,000 $12,666,000 $11,216,000 $10,469,000 $1,409,000
- ---------------------------------------------------------------------------------------------------------------
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 $180,000, $269,000,
$208,000 and $2,758,000 in fiscal 1996, 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 18 of the Notes to the
Consolidated Financial Statements.
The Company recorded expense of $83,000, $986,000 and $367,000 in fiscal 1996,
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 $76,000 in fiscal 1996 and
$686,000 in fiscal 1995.
During the fourth quarter of fiscal 1996 the Company recorded deferred income
tax expense of $3,881,000 resulting from the establishment of a valuation
allowance for deferred tax assets. See Note 10 of the Notes to the
Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Within the following discussion and analysis, financial information relating to
fiscal years 1995 and 1994 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.
RESULTS OF OPERATIONS -- FISCAL 1996 COMPARED TO FISCAL 1995
Tristar markets and distributes products to wholesalers, distributors, chain
stores, specialty chains, mass merchandisers, and independent retail stores in
various markets throughout North and South America. Net sales for the fiscal
year ended August 31, 1996 were $51,720,000, an increase of 15.6%, compared to
net sales of $44,728,000 in the fiscal year ended August 31, 1995. The
increase is primarily attributable to the development of the drug and grocery
chain market utilizing the new DCA product line as well as increased sales in
Mexico, Brazil, and other U.S. chains, specialty chains, and mass
merchandisers. Somewhat offsetting these increases was a loss of sales in the
rest of Latin America and in the U.S. wholesale channel. The loss in the U.S.
wholesale channel was primarily due to increased competition, a maturation of
that market, a decrease in purchases by customers who ultimately distributed
the Company's products into Latin America, and as a result of repositioning the
Euro Collections fragrance line outside of the wholesale channel in the latter
part of fiscal 1996 in anticipation of the introduction of the new Royal
Selections fragrance line into that channel in early fiscal 1997.
The Company believes that sales will increase in all channels of distribution
in fiscal 1997 primarily as a result of (1) increased customer and consumer
acceptance of the DCA product line introduced in fiscal 1996, (2) the
repositioning of the Euro Collections fragrance line into the retail store
channel and out of the wholesale channel, (3) the successful introduction of
the new Royal Selections fragrance line into the wholesale channel in the first
quarter of fiscal 1997, and (4) the redesign and reintroduction of the budget
Premiere fragrance line. Sales in Latin America are expected to benefit from
the combined actions of repositioning of the Euro Collections fragrance line
and the introduction of the Royal Selections line.
Overall, the Company's direct exports decreased to $14,524,000, (28%) of net
sales, in fiscal 1996 compared to $16,152,000, (36%) of net sales, in fiscal
1995. The decrease in direct exports is largely due to political and economic
uncertainties in certain Latin America countries. In Brazil, the Company
initiated the development of formal channels of distribution after establishing
sales and warehouse facilities in early fiscal 1996. The Company believes that
the Brazilian market presents a strategic opportunity for growth in sales in
the future. During fiscal 1996, the Company experienced an increase in the
sales that were lost in Mexico after the economic and political effects of the
Nuevo Peso devaluation in fiscal 1995, which severely affected the purchasing
power of the Mexican population. After the devaluation, the Company embarked
on a strategy to formalize distribution of the Euro Collections line in Mexico
servicing retail outlets primarily through the Company's warehouse in Mexico
City. While sales growth was achieved under this distribution strategy, the
economic and political pressures continued in fiscal 1996 and limited such
growth. The Company believes that sales growth will continue in fiscal 1997.
Sales in the rest of Latin America were down in comparison to fiscal 1995,
primarily as a result of economic and political conditions in several of those
countries.
Included in export sales were sales of $1,997,000 in fiscal 1996 and $1,299,000
in fiscal 1995 to Core Sheth Families affiliates. See "Business (Suppliers)"
and Note 7 of the Notes to Consolidated Financial Statements.
Approximately two-thirds of the growth in sales resulted from increased sales
in the fragrance lines. The new DCA fragrance line along with higher sales in
the two discontinued fragrance lines, Club Exclusif and Euro Elegance,
contributed to the growth in sales. The discontinued lines were sold at prices
significantly below list, therefore generating additional sales, but at reduced
margins. The Euro Collections line and the Premiere line remained essentially
constant in comparison to fiscal 1995 levels.
Sales growth outside the fragrance lines was principally realized in increased
cosmetic pencil sales and in sales of the new DCA cosmetic line.
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Of the net sales in fiscal 1996, approximately 12%, or $6,165,000, resulted
from the sale of products purchased from related parties as finished goods.
For fiscal 1995, comparable numbers were 15%, or $6,808,000. In addition,
fragrance and other products manufactured and sold by the Company included
certain components that were purchased from related parties. The cost of those
components approximated 8% of cost of sales in fiscal years 1996 and 1995. See
Note 7 of the Notes to the Consolidated Financial Statements for additional
information.
Tristar's gross profit both in dollar terms and as a percentage of sales
declined in fiscal 1996 as compared to fiscal 1995. Comparable numbers were
$10,919,000, or 21.1%, in fiscal 1996 and $13,001,000, or 29.1%, in fiscal
1995. Several factors which contributed to this decline were the sale of
discontinued product and product lines at selling prices below normal,
manufacturing variances attributable to costs associated with the introduction
and manufacturing of a new product line, manufacturing variances associated
with the extension of production efforts to meet market demands, and the
write-down of certain inventories to market. The Company believes that gross
profit as a percentage of sales in fiscal 1997 will improve over the fiscal
1996 levels as manufacturing costs are expected to decrease and sales of
discontinued products are expected to be lower in fiscal 1997. The Company
believes that gross profit in fiscal 1997 will be negatively impacted by
manufacturing variances associated with the extension of production efforts to
meet market demands during the peak season (the first quarter).
Selling, general and administrative expenses ("SG&A") increased in fiscal 1996
to $16,285,000 from the fiscal 1995 level of $11,654,000. The increase can be
attributed to expenses associated with the introduction of the new DCA product
line, costs to develop new channels of distribution, costs to enter those
channels, growth in support of existing sales channels, and increased support
in other functions within the Company. As a percentage of sales, SG&A was 31.5%
in fiscal 1996 compared to 26.1% in fiscal 1995. 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 in South Carolina to their estimated net
realizable value.
Management believes that SG&A will decrease in dollar terms and as a percentage
of sales in fiscal 1997 as the Company builds on its investments in products
and markets developed in fiscal 1996, and limits significant expenditures on
new products and markets.
Interest expense increased by $718,000 in fiscal 1996 from the 1995 level of
$1,641,000. This increase is primarily attributable to increased average
short term borrowings. The Company believes that interest expense will be
higher in fiscal 1997 due to expected increased borrowing levels under the
revolving credit line as the Company strives to improve its market position in
the United States and Latin America.
Fiscal 1996 expenses included merger related expenses of $76,000, litigation
expenses arising from events related to the shareholder litigation of $189,000,
and $83,000 of expenses related to the amortization of the warrant valuation
asset. These respective expenses in fiscal 1995 were $686,000, $269,000, and
$986,000.
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 two other claimants under the policy. See "Legal Proceedings
(Insurance Policy Reimbursement)" at page 8.
The Company recorded income tax expense (net of income tax benefits of
$149,000) of $3,732,000 in fiscal 1996 which compared to an expense of $661,000
in fiscal 1995. The fiscal 1996 amount reflected the reduction of the deferred
tax assets ($3,881,000) to zero as a result of management's reassessment of the
realizability of the asset under the guidelines of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". While management believes
that the Company will ultimately realize the benefit of the asset, the
uncertainty of when those benefits will be realized, precludes reflecting the
asset on the financial statements as of August 31, 1996.
The Company recorded a net loss of $12,053,000 or $0.72 per share for fiscal
1996. In fiscal 1995, the Company recorded net loss of $932,000 or $0.06 per
share.
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Potential Adverse Effects on Results of Operations for Future Periods
The results for fiscal 1997 could be adversely affected by each or all of the
following factors:
1. Mexican Market. The market for the Company's products continues to be
negatively impacted as a result of the devaluation of the Mexican Nuevo
Peso in December 1994 and the subsequent economic and political
instability. These factors sharply reduced the purchasing power of the
Mexican consumer and therefore the demand for the Company's products was
adversely affected. Any future significant deterioration of the Peso's
value would be expected to further adversely affect the Company's sales in
Mexico and also the collectability of accounts receivable. 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.
2. Latin America Economies. Growth in sales, or even the maintenance of
existing sales levels, in certain Latin American countries depends to a
large extent on the economic health and political stability of those
countries. Any deterioration in the economic or political stability in
such countries could adversely affect sales.
3. 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 Core Sheth Families affiliates. If such
affiliates 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.
4. 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 from
time to time impose strict import restrictions and high levels of taxes on
imports, all of which could affect the success of sales and marketing
activities and also affect the profitability of such activities.
5. Limitations on Working Capital. The Company experienced a limitation of
working capital availability in the latter part of fiscal 1996 primarily as
a result of (1) investments in foreign markets with benefits of those
investments not projected to accrue to the Company in the immediate future,
(2) investments in the development and introduction of the new DCA product
line, (3) the cost of entry into the marketing channel where the new DCA
product line is currently being sold, and (4) losses incurred on operations
unrelated to the new DCA product line. The restricted availability
resulted in the maximization of borrowings under the Company's credit
facility and in delaying payments to certain vendors (primarily affiliates
of the Core Sheth families) beyond customary terms. While management does
not anticipate such an event, a severe recurrence in the future could
restrict the Company's ability to purchase components. The inability to
purchase certain components could reduce the Company's ability to
manufacture product with a resultant negative impact on sales and results
of operations.
At this time, it is not known whether, or to what degree, the above factors
will have a material adverse impact on the Company's fiscal 1997 results.
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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 was primarily attributable to the impact
of economic and political conditions on customers in Mexico.
Tristar marketed and distributed 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 matured. 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 continued to remain a
small part of the Company's sales.
Overall the Company's direct exports increased to $16,152,000 (36%) of net
sales in fiscal 1995 compared to $13,057,000 (25%) of net sales in fiscal 1994.
The increase in direct exports was largely due to the increase in activity in
Latin America, excluding Mexico, as the Company continued 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. Both
direct sales to customers in Mexico and indirect sales into Mexico (product
distributed into Mexico by U. S. based customers) declined substantially 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 "(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 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 was a decline in the wholesale market in the U.S., the growth in the
chain store and mass merchandising channels 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 selected toiletry products
introduced in fiscal 1995.
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,
fragrances and other products manufactured and sold by the Company included
components that were purchased from related parties. The cost of those
components approximated 8% of cost of sales in fiscal 1995 and 4% in fiscal
1994. See Note 7 of the Notes to the Consolidated Financial Statements for
additional information and "Business (Suppliers)".
For additional information on products, channels of distribution, customers,
and suppliers, see 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 increased cost of product. The
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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. The expenses involved in closing the South
Carolina distribution center and the costs of selective headcount reductions
increased fiscal 1994 SG&A 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.
Interest expense increased $108,000 in fiscal 1995 from the 1994 level of
$1,533,000. This increase was 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.
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 8.
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.
OTHER MATTERS
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
business, financial position or results of operations at the time of adoption.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." The Company is required to adopt Statement 123 in fiscal year
1997. Statement 123 requires fair value based method of accounting for
stock-based compensation. The Company has not completed all of the analyses
required to estimate the impact of the new statement; however, the adoption of
Statement 123 is not expected to have a material adverse impact on the
Company's business, financial position or results of operations at the time of
adoption.
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LIQUIDITY AND CAPITAL RESOURCES
The Company was experiencing a limitation on working capital availability as of
August 31, 1996 primarily as a result of (1) investments in foreign markets
with benefits from those investments not projected in the immediate future, (2)
investments in the development and introduction of the new DCA product line
noted above, (3) the cost of entry into the marketing channel where this new
DCA product line is currently being sold, and (4) losses incurred on operations
unrelated to the new DCA product line. The restricted availability resulted in
periodic maximization of borrowings under the Company's credit facility and in
the delaying of payments to certain vendors (primarily affiliates of the Core
Sheth Families) beyond customary terms. The Company established programs in
the last quarter of fiscal 1996 to improve liquidity through increased emphasis
on selling slow moving inventory, through improved management of other
inventories, tightened controls on the utilization of cash in other areas, and
reductions of SG&A expenses and personnel. The working capital limitations
eased in the first quarter of fiscal 1997 as a result of the above programs
combined with (1) higher sales allowing increased utilization of the credit
facility, (2) cash generated by operations, and (3) the continued ability to
maintain extended payment terms with certain vendors (primarily related
parties). See further discussion in Potential Adverse Effects on Results of
Operations for Future Periods (No. 5) above and Financing Activities below.
OPERATING ACTIVITIES
Operating activities in fiscal 1996 utilized $3,333,000 in cash. The cash
utilized was primarily the result of an increase in accounts receivable
($5,368,000), a net loss of $3,473,000 adjusted for non-cash items and a
decrease in income taxes payable ($423,000). Offsetting the uses of cash were
increases in accounts payable ($5,612,000) and accrued expenses ($275,000).
Accounts receivable grew primarily as a result of increased sales, entry into
new sales channels, varying extended financing terms given to customers, and
extended terms given to foreign customers in order to develop those markets.
The factors contributing to the loss are presented in management's discussion
and analysis of results of operations. Payment of income taxes for fiscal 1995
resulted in a decrease in income taxes payable.
Accounts payable increased as the Company delayed payments to certain vendors
(primarily affiliates of the Core Sheth Families who beneficially owned 78% of
the Company's outstanding common stock) and increased its purchases for the
newly developed product lines. An increase of $475,000 in accrued interest on
related party debt was the principal cause for the increase in accrued
expenses.
INVESTING ACTIVITIES
Capital expenditures during fiscal 1996 totaled $1,108,000, primarily for
manufacturing equipment, facilities related items, and computer equipment.
Capital expenditures in fiscal 1995 and 1994 were $787,000 and $1,896,000,
respectively. Offsetting the fiscal 1996 capital expenditures were the net
proceeds of $580,000 from the building and land in South Carolina that formerly
housed the cosmetic pencil manufacturing operations. Capital expenditures in
fiscal 1997 are expected to be below the fiscal 1996 level. Capital
expenditures in fiscal 1997 are expected to be primarily for manufacturing
equipment, and computer equipment and software, with lesser amounts being
invested in equipment for distribution activities.
FINANCING ACTIVITIES
The Company had at August 31, 1996, a revolving credit agreement, amended as of
October 1, 1996, which provided for $15,500,000 of maximum borrowings at the
prime rate (8.25% at August 31, 1996) plus two 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, 60% of eligible foreign accounts receivable, 100% of eligible
related party receivables secured by letters of credit, 50% of eligible
finished goods inventories, and 40% of eligible manufacturing inventories.
Eligibility is as defined in the credit agreement. In December 1996, the lender
agreed to extend the expiration date from March 1997 to July 1997 subject to
certain conditions which included a requirement that the Company meet its
budgeted operating results.
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During fiscal 1996, net short-term borrowings increased by $3,936,000 to
$9,319,000 at August 31, 1996. As of August 31, 1996, remaining availability
was $669,000, based on the borrowing formulas above. See Note 5 of the Notes to
Consolidated Financial Statements for additional information on the current
line of credit.
The term loan entered into in July 1995 with the same lender as the short term
revolving credit line, provided for borrowings of $3.9 million of which
$3,003,000 were outstanding as of August 31, 1996. This loan is subject to the
same interest rate, fees, and debt restrictions as listed above for the
revolving credit lines. The loan calls for monthly installments assuming a
maturity date in 2002, however, for financial statement presentation purposes,
the entire loan is considered as current reflecting the July 1997 expiration
date of the credit facility with the lender.
The credit lines 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 of the Notes to the Consolidated Financial
Statements).
Management believes that the Company's revolving line of credit and term loan
(with the same lender) will either be renewed or similar replacement lines of
credit will be put in place upon the expiration of the existing line. The
expiration date which was in March 1997 has been extended to July 1997 subject
to certain conditions which include the Company continuing to meet projected
results of operations for the year ended August 31, 1997. While there can be
no assurances, management believes that the Company will continue to meet
projected results of operations. The Company has initiated a search for a new
lender in the event that the existing line of credit is not renewed. The line
of credit, together with cash generated by operations and the continued ability
to delay payments to related party vendors as required should provide
sufficient cash to meet the cash requirements of the Company for fiscal 1997.
As of August 31, 1996, 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. In fiscal 1996, there were no borrowings, no debt repayments, nor
any interest payments made by the Company. 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 line of credit
with the commercial lender. On December 11, 1996, the $4.7 million of
subordinated debt was converted into the Company's convertible preferred stock
(See Note 19 of the Notes to the Consolidated Financial Statements).
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, 1996 had outstanding subordinated
long-term debt to a Core Sheth Families affiliate of $8 million related to that
settlement. Notes under this debt 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.
As of August 31, 1996, the Company's financial statements reflect accrued
interest of $1,174,000 due on the above related party debt. A payment waiver
has been obtained from the related party for delinquent interest payments
($265,000) under the $8 million debt as non-payment would be an event of
default under that debt. Additionally, the Company is delinquent in interest
payments of $491,000 under the $4.7 million portion which does not contain an
event of default clause.
The Company also purchases certain equipment, primarily office furniture,
computer equipment and software, under long- term purchase agreements. These
are not material to the Company's cash flow.
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.
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INFLATION
During fiscal year ended 1996, and consistent with the Company's 1995 and 1994
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 16 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.
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
fiscal years ended August 31, 1994 and 1993 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 fiscal years ended August 31, 1995 and 1994 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 1997 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 1997 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 1997 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 1997 Annual Meeting, which is incorporated herein by
reference.
Page 19
<PAGE> 20
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, 1996, 1995 and 1994, 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, 1996, 1995 and 1994,
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:
NONE.
(c) EXHIBITS
EXHIBIT INDEX
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.
Page 20
<PAGE> 21
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 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
Page 21
<PAGE> 22
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 Line of Credit Promissory Note dated August 1, 1993, between
the Company (original entered into with Eurostar) and Transvit
Manufacturing Corporation. Incorporated by reference to
Exhibit 10.26 of the Annual Report on Form 10-K for the year
ended August 31, 1995.
10.25 Loan and Security Agreement dated June 27, 1995, between the
Company (originally entered into with Eurostar) and Fremont
Financial Corporation with Special provisions Rider.
Incorporated by reference to Exhibit 10.27 of the Annual
Report on Form 10-K for the year ended August 31, 1995.
10.26 Employment Agreement between the Company (originally entered
into with Eurostar) and Ricardo Bunge dated January 1, 1993,
and as amended June 5, 1995. Incorporated by reference to
Exhibit 10.28 of the Annual Report on Form 10-K for the year
ended August 31, 1995.
10.27 Employment Agreement between the Company and Joseph DeKama
dated April 19, 1996. Incorporated by reference to Exhibit 10
of Quarterly Report on Form 10-Q for period ended June 1,
1996.
*10.28 Non-Qualified Stock Option Grant to Joseph DeKama dated April
19, 1996.
*10.29 Non-Qualified Stock Option Grant to Viren S. Sheth dated April
19, 1996.
*10.30 Letter Agreement with Transvit Manufacturing Corporation
Converting Line of Credit Promissory Note to 666,529 Shares of
Series A Convertible Preferred Stock dated December 11, 1996.
*10.31 Promissory Note between the Company and Joseph DeKama dated
October 1, 1996.
Page 22
<PAGE> 23
*10.32 Promissory Note between the Company and Joseph DeKama dated
October 15, 1996.
18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
Incorporated by reference to Exhibit 18 of the Annual Report
on Form 10-K for the year ended August 31, 1995.
*24.1 Consent by Coopers and Lybrand L.L.P. for Fiscal 1994.
*24.2 Consent by KPMG Peat Marwick LLP for Fiscal 1996 and Fiscal
1995.
-------------------------
* Attached as Exhibits hereto.
Page 23
<PAGE> 24
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, 1996 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, 1996 /s/Richard P. Rifenburgh
---------------------------------
RICHARD P. RIFENBURGH, Director
Date: December 11, 1996 /s/Robert R. Sparacino
---------------------------------
ROBERT R. SPARACINO, Director
Date: December 11, 1996 /s/Viren S. Sheth
---------------------------------
VIREN S. SHETH, Director
Date: December 11, 1996 /s/Aaron Zutler
---------------------------------
AARON ZUTLER, Director
Date: December 11, 1996 /s/Jay J. Sheth
---------------------------------
JAY J. SHETH, Director
<PAGE> 25
TRISTAR CORPORATION
San Antonio, Texas
ANNUAL REPORT ON FORM 10-K
Year Ended August 31, 1996
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
<PAGE> 26
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:
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors F1 AND F2
Consolidated Financial Statements:
Balance sheets as of August 31, 1996 and 1995 F3 AND F4
Statements of operations for each of the three years
in the period ended August 31, 1996 F5
Statements of shareholders' equity for each of the
three years in the period ended August 31, 1996 F6
Statements of cash flows for each of the three years in
the period ended August 31, 1996 F7
Notes to consolidated financial statements F8 TO F26
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of TRISTAR CORPORATION
and subsidiaries are included in Item 14(d):
Schedule II - Valuation and qualifying accounts F27
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> 27
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 of and for the year ended August 31, 1996 and 1995 as
listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule for each of the years in the two year period ended August 31, 1996 as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tristar Corporation
and subsidiaries as of August 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the two year period
ended August 31, 1996 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule for
each of the years in the two year period ended August 31, 1996, 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 statement of operations
and cash flows of Eurostar Perfumes, Inc. and subsidiaries for the year ended
September 30, 1994, 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 represented 9% of revenues after elimination of intercompany sales
of $26,725,000 in 1994. Separate financial statements of Tristar Corporation
included in the 1994 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 the year 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 year ended August 31, 1994,
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
December 11, 1996
F-1
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Tristar Corporation
We have audited the consolidated statements of income, shareholders' equity and
cash flows of Tristar Corporation and Subsidiaries for the year 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 results of operations and cash flows
of Tristar Corporation and Subsidiaries for the year 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> 29
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31,
-------------------------
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 233,000 806,000
Accounts receivable, less allowance for doubtful accounts
of $850,000 and $419,000, respectively 9,522,000 6,038,000
Accounts receivable - related parties - net 1,518,000 662,000
Inventories 12,691,000 14,406,000
Prepaid expenses 258,000 253,000
Deferred income taxes -- 1,101,000
----------- -----------
Total current assets 24,222,000 23,266,000
----------- -----------
Property, plant and equipment, less accumulated depreciation
of $5,391,000 and $3,637,000 8,532,000 9,851,000
----------- -----------
Other assets:
Warrant valuation, less accumulated amortization
of $1,436,000 and $1,353,000, respectively 653,000 736,000
Other assets 360,000 195,000
Deferred income taxes -- 2,780,000
----------- -----------
Total other assets 1,013,000 3,711,000
----------- -----------
Total assets $33,767,000 36,828,000
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE> 30
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------
August 31,
1996
----------------------------
Pro Forma
Shareholders'
Equity
(Note 19) August 31,
Historical (Unaudited) 1995
------------ ------------ ------------
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings $ 9,319,000 5,383,000
Accounts payable--trade 5,233,000 1,982,000
Accounts payable--related parties - net 2,900,000 536,000
Accrued bonuses 202,000 97,000
Accrued interest expense-subordinated debt 1,174,000 603,000
Other accrued expenses 847,000 1,248,000
Income taxes payable 85,000 508,000
Current portion of capital lease obligations 38,000 30,000
Current portion of long-term obligations 3,134,000 2,118,000
------------ ------------
Total current liabilities 22,932,000 12,505,000
Long-term debt, less current portion 3,000 3,044,000
Obligations under capital leases, less current portion 59,000 27,000
Subordinated long term debt - related parties, less current portion 12,666,000 8,000,000 11,166,000
------------ ------------ ------------
Total liabilities 35,660,000 8,000,000 26,742,000
------------ ------------ ------------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $.05 par value; authorized 1,000,000 shares;
666,529 shares issued and outstanding proforma -- 33,000 --
Common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 16,650,176 shares in 1996 and
16,629,683 shares in 1995 167,000 167,000 166,000
Additional paid-in-capital 10,354,000 14,987,000 10,281,000
Accumulated deficit (12,414,000) (12,414,000) (361,000)
------------ ------------ ------------
Total shareholders' equity (deficit) (1,893,000) 2,773,000 10,086,000
============ ============ ============
Total liabilities and shareholders' equity $ 33,767,000 36,828,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE> 31
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended August 31
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 51,720,000 $ 44,728,000 $ 51,244,000
Cost of sales 40,801,000 31,727,000 33,202,000
------------ ------------ ------------
Gross profit 10,919,000 13,001,000 18,042,000
Selling, general and administrative expenses 16,285,000 11,654,000 12,906,000
------------ ------------ ------------
(Loss) income from operations (5,366,000) 1,347,000 5,136,000
Other income (expense):
Interest expense (2,359,000) (1,641,000) (1,533,000)
Other expense (434,000) (1,773,000) (311,000)
Insurance reimbursement -- 2,065,000 --
Merger/litigation expenses (162,000) (269,000) (208,000)
------------ ------------ ------------
(Loss) income before income taxes (8,321,000) (271,000) 3,084,000
Income tax expense 3,732,000 661,000 1,694,000
------------ ------------ ------------
Net (loss) income $(12,053,000) $ (932,000) $ 1,390,000
============ ============ ============
(Loss) income per common share $ (0.72) (0.06) $ 0.08
============ ============ ============
Weighted average number of shares outstanding 16,635,888 16,625,341 16,851,644
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE> 32
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common stock
---------------------------- Additional Retained Receivables
Number paid-in earnings from
of shares Amount capital (deficit) shareholders
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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 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 500,000
------------ ------------ ------------ ------------ ------------
Balance, August 31, 1995 16,629,683 $ 166,000 $ 10,281,000 $ (361,000) $ --
Net loss (12,053,000)
Exercise of stock options 10,000 5,000
Contribution to 401(k) Plan 10,493 1,000 68,000
============ ============ ============ ============ ============
Balance, August 31, 1996 16,650,176 $ 167,000 $ 10,354,000 $(12,414,000) $ --
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements
F-6
<PAGE> 33
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended August 31
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(12,053,000) $ (932,000) $ 1,390,000
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,847,000 1,611,000 1,412,000
Provision for losses on accounts receivable 1,028,000 349,000 500,000
Provision for market valuation of inventory 1,468,000 469,000 600,000
Provision for LIFO valuation 198,000 995,000 281,000
Deferred income tax expense (benefit) 3,881,000 (537,000) 1,383,000
Loss on disposal of assets 6,000 50,000 71,000
Reserve for impairment of assets -- 187,000 --
Issuance of stock in connection with 401K plan 69,000 52,000 58,000
Amortization of warrant valuations 83,000 986,000 367,000
Change in operating assets and liabilities:
Accounts receivable (5,368,000) (522,000) (411,000)
Inventories 49,000 (3,111,000) (590,000)
Prepaid expense (5,000) 169,000 (18,000)
Refundable income taxes -- 1,774,000 (354,000)
Income taxes payable (423,000) (1,787,000) (220,000)
Accounts payable 5,612,000 (337,000) (2,271,000)
Accrued expenses 275,000 (163,000) 1,444,000
Other liabilities -- (8,000) 95,000
Shareholder litigation settlement liability -- (4,500,000) (3,500,000)
------------ ------------ ------------
Net cash (used in) provided by operating activities (3,333,000) (5,255,000) 237,000
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (1,108,000) (787,000) (1,896,000)
Proceeds from sale of investment -- 100,000
Proceeds from sale of fixed assets 580,000 64,000 26,000
(Increase) decrease in other assets (170,000) (120,000) (149,000)
------------ ------------ ------------
Net cash (used in) provided by investing activities (698,000) (843,000) (1,919,000)
------------ ------------ ------------
Cash flows from financing activities:
Net increase (decrease) in short term borrowings 3,936,000 872,000 2,006,000
Proceeds from long-term subordinated debt -- 6,500,000 3,500,000
Payments of subordinated long-term debt -- (5,050,000) (2,753,000)
Proceeds from long-term debt 274,000 3,570,000 --
Principal payments under debt obligations (25,000) (177,000) (30,000)
Principal payments other long-term debt (732,000) (23,000) --
Collection on receivable from stockholder -- 500,000 --
Proceeds from issuance of common stock 5,000 -- 3,000
------------ ------------ ------------
Net cash provided by (used in) financing activities 3,458,000 6,192,000 2,726,000
------------ ------------ ------------
Net increase (decrease) in cash (573,000) 94,000 1,044,000
Cash at beginning of year 806,000 1,700,000 656,000
Pooling adjustment to beginning of
year balance to conform fiscal years -- (988,000) --
============ ============ ============
Cash at end of year $ 233,000 $ 806,000 $ 1,700,000
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,786,000 $ 1,446,000 $ 933,000
Income taxes paid, net of refunds $ 293,000 $ 672,000 $ 958,000
</TABLE>
See accompanying notes to the consolidated financial statements
F-7
<PAGE> 34
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,
manufacturing, marketing and distribution of designer alternative fragrances,
complementary products to those fragrances, and cosmetic pencils and in the
marketing and distribution of other cosmetic products and selected toiletry
products.
FISCAL YEAR END:
The Company changed its fiscal year end in 1996 from one ending on August 31 to
a 52-53 week fiscal year ending on the Saturday nearest the last day of the
month of August in each year. There was no effect on the accompanying
financial statements because the 1996 fiscal year also ended on August 31.
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 100% and 96% of inventories were determined using the last-in,
first-out (LIFO) method in 1996 and 1995, 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
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.
1
<PAGE> 35
REVENUE RECOGNITION:
Revenue is recognized by the Company when goods are shipped and title passes to
the purchaser.
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.
USE OF ESTIMATES:
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
COMMITMENTS AND CONTINGENCIES:
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are only recorded when it is
probable that a liability has been incurred and the amount can reasonably be
estimated.
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,
1996, 1995 and 1994 have been provided based upon the currency exchange rates
in effect on August 31, 1996, 1995 and 1994. 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, 1996, 1995 and 1994 were approximately
($95,000), ($94,000), and $59,000, respectively.
PRO FORMA FINANCIAL DATA:
The unaudited pro forma information presented in the accompanying balance sheet
reflects the conversion of $4,666,000 of the subordinated debt into 666,529
shares of the Company's convertible preferred stock effective December 11,
1996, (See Note 19).
2. MERGER:
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. After the merger, the Core Sheth Families beneficially owned
approximately 84% of the outstanding shares of Tristar Common Stock (86%
assuming the exercise of all outstanding warrants).
2
<PAGE> 36
The merger qualified 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.
In connection with the merger, the Company recorded transaction costs of
$686,000 in fiscal 1995 and $76,000 in fiscal 1996. The transaction costs
include expenses for investment bankers and other professional fees.
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
August 31
1996 1995
--------------- ---------------
<S> <C> <C>
Land $ 33,000 $ 266,000
Building 3,762,000 4,442,000
Machinery and equipment 8,920,000 7,920,000
Transportation equipment 178,000 120,000
Fixtures and equipment 795,000 750,000
Leasehold improvements 235,000 177,000
--------------- ---------------
13, 923,000 13,675,000
Less accumulated depreciation (5,391,000) (3,637,000)
Less reserve to reduce assets held for sale to
estimated net realizable value -- (187,000)
--------------- ---------------
$ 8,532,000 $ 9,851,000
=============== ===============
- -----------------------------------------------------------------------------------------
</TABLE>
4. INVENTORIES:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
August 31
1996 1995
---------------- ---------------
<S> <C> <C>
Raw materials $ 6,598,000 $ 7,269,000
Work-in-process 469,000 426,000
Finished goods 7,710,000 8,608,000
---------------- ---------------
14,777,000 16,303,000
Reserves for market valuation (612,000) (621,000)
LIFO valuation allowance (1,474,000) (1,276,000)
---------------- ---------------
$ 12,691,000 $ 14,406,000
================ ===============
- -----------------------------------------------------------------------------------
</TABLE>
5. SHORT-TERM BORROWINGS:
The Company had at August 31, 1996, a revolving credit agreement, amended as of
October 1, 1996, which provided for $15,500,000 of maximum borrowings at the
prime rate (8.25% at August 31, 1996) plus two 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, 60% of eligible foreign accounts receivable, 100% of eligible
related party receivables secured by letters of credit, 50% of eligible
finished goods inventories and 40% of eligible manufacturing inventories.
Eligibility is as defined in the credit agreement. On December 11, 1996, the
lender advised the Company that the expiration date would be extended from
March 31, 1997, to July 7, 1997, subject to certain conditions which include
the Company continuing to meet projected results of operations for the year
ended August 31, 1997. While there can be no assurances, management believes
that the Company will continue to meet projected results of operations. In the
event that renewal or further
3
<PAGE> 37
extension does not occur, the Company has initiated an effort to locate an
alternative lender to replace the existing lender.
The credit facility is 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, 1996, remaining availability was $669,000, based on the
borrowing formulas above.
6. LONG-TERM DEBT:
Other long-term debt:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
August 31
---------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
Term loan $ 3,003,000 $ 3,417,000
Equipment purchase agreements 134,000 245,000
-------------- ---------------
Total 3,137,000 3,662,000
Current maturities of other long-term debt 3,134,000 618,000
-------------- ---------------
$ 3,000 $ 3,044,000
============== ===============
- -------------------------------------------------------------------------------------------
</TABLE>
The term loan entered into in July 1995 with the same lender as the short term
revolving credit lines, provides for borrowings of $3.9 million. 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 (8.25% at August 31,
1996), plus 2% per annum plus additional fees. The loan calls for monthly
installments assuming a maturity date in 2002. The expiration date of the loan
is tied to the revolving credit line and accordingly is classified as current
as of August 31, 1996.
The Company is a party to several long term purchase agreements for computer
and other equipment. Maturity dates range from 1997 to 2000 and interest rates
range from 10.25% to 25.9%. Such agreements provide for monthly payments.
Subordinated long-term debt:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
August 31
----------------------------------------
1996 1995
------------------- -----------------
<S> <C> <C>
Subordinated Debt-Nevell Investments, S.A., a related party $ 8,000,000 8,000,000
Subordinated Debt-Transvit Manufacturing Corporation, a related
party 4,666,000 4,666,000
------------------- -----------------
Total 12,666,000 12,666,000
Current portion of subordinated long-term debt -- 1,500,000
------------------- -----------------
$ 12,666,000 $ 11,166,000
=================== =================
- --------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 38
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 15).
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. During 1996, the Company
was in default with respect to the subordinated debt as a result of the failure
to make scheduled interest payments. A waiver was received from the lenders
for such event of default.
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% per
annum. The maturity date under the agreement was 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. On December 11, 1996, $4,666,000 of
subordinated debt was converted into the Company's convertible preferred stock,
(see Note 19).
5
<PAGE> 39
Aggregate maturities of long-term debt for each of the five years subsequent to
August 31, 1996 are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Year ending
August 31, Amount
-------------- --------------
<S> <C>
1997 $ 3,134,000
1998 --
1999 --
2000 --
2001 280,000
--------------
$ 3,414,000
==============
-----------------------------------------------------------
</TABLE>
The above schedule does not include payments on the subordinated long-term debt
to Transvit Manufacturing Corporation as there is no set payment schedule.
7. RELATED PARTY TRANSACTIONS:
As of August 31, 1996, 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. Effective October 22, 1996, the Core Sheth Families sold
1,000,000 shares of the Company's stock to a business associate. This reduced
the Core Sheth Families holdings to 78% of the Company's outstanding stock.
The Company purchases finished goods and components from Core Sheth Families
affiliates. During the fiscal years of 1996, 1995, and 1994 the Company
purchased approximately $7,037,000, $6,285,000, and $7,422,000, respectively,
of such products.
During the years ended August 31, 1996, 1995 and 1994, the Company sold
products to Core Sheth Families affiliates in the amounts of approximately
$1,997,000, $1,299,000, and $1,036,000, respectively.
For the years ended August 31, 1996, 1995 and 1994, the Company incurred fees
to directors of approximately $229,000, $248,000, and $235,000, respectively,
of which approximately $19,000, $23,000 and $12,000 were unpaid at August 31,
1996, 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. See Note 15 for further discussion.
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.
In connection with the settlement of the stockholder class action litigation,
common stock 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 15
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
6
<PAGE> 40
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 1996, 1995 and 1994, approximately $83,000, $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 18). 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:
Related parties are the primary suppliers of the Company's cosmetics and are
also suppliers of certain components. Related party accounts payable result
from the purchase of those items. Related party accounts receivable result
from the sale of the Company's products to related parties. The payables and
receivables balances for individual parties 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, 1996 and
August 31, 1995.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
AUGUST 31,
------------------------------------
1996 1995
------------- --------------
<S> <C> <C>
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties $ 1,679,000 1,070,000
Offset amount 161,000 408,000
------------- --------------
Net related parties receivables $ 1,518,000 662,000
============= ==============
ACCOUNTS PAYABLE:
Total accounts payable-related parties $ 3,061,000 944,000
Offset amount 161,000 408,000
------------- --------------
Net related parties payables $ 2,900,000 536,000
============= ==============
- -----------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 41
9. LEASES:
At August 31, 1996, 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>
1997 $ 507,000
1998 339,000
1999 87,000
2000 15,000
2001 --
------------
$ 948,000
============
---------------------------------------------
</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, 1996, 1995 and 1994, amounted to
approximately $423,000, $568,000, and $761,000, 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.
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Current Deferred Total
--------------- ---------------- -------------
<S> <C> <C> <C>
Year ended August 31, 1996
U.S. Federal $ (149,000) $ 3,566,000 $ 3,417,000
State -- 315,000 315,000
--------------- ---------------- -------------
$ (149,000) $ 3,881,000 $ 3,732,000
=============== ================ =============
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
=============== ================ =============
- --------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 42
Income tax expense for the years ended August 31, 1996, 1995, and 1994 differed
from the amounts computed by applying the U.S. federal income tax rate to
(loss) income before income taxes as a result of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Years ended August 31,
1996 1995 1994
-------------- ------------ ------------
<S> <C> <C> <C>
Computed expected tax expense (benefit): $ (2,829,000) $ (92,000) $ 1,048,000
Increase (decrease) in income taxes resulting from:
State income tax net operating loss carryforward (250,000) (220,000) --
Merger costs not deductible for income tax purposes 7,000 248,000 --
Warrant expenses not deductible for income tax purposes 28,000 335,000 125,000
Foreign subsidiary loss not deductible for income tax
purposes 475,000 189,000 --
State income taxes, net of federal income tax benefit -- 2,000 276,000
Foreign sales corporation commissions not subject to
income taxes -- (34,000) (36,000)
Deferred tax asset valuation allowance 6,609,000
Other, net (308,000) 233,000 281,000
-------------- ------------ ------------
Total income tax expense $ 3,732,000 $ 661,000 $ 1,694,000
============== ============ ============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax expense attributable to
income before income taxes for the year ended August 31, 1996, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years ended August 31,
1996 1995 1994
------------ ---------- --------------
<S> <C> <C> <C>
Deferred tax expense (benefit) (exclusive of the effects
of other components below) $ (2,728,000) $ (537,000) $ 1,383,000
Increase in beginning-of-the-year balance of the valuation
allowance for deferred tax assets 6,609,000 -- --
------------ ---------- --------------
$ 3,881,000 $ (537,000) $ 1,383,000
============ ========== ==============
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<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, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AUGUST 31,
1996 1995
------------------- ------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts
and sales returns 509,000 154,000
Inventories, principally due to allowance for obsolescence and difference
ain LIFO reserve, and certain costs capitalized for tax purposes 176,000 909,000
Start-up, organizational costs, and packaging design costs 264,000 235,000
Accrued expenses, principally due to accrual of related party interest 536,000 44,000
for financial reporting purposes
Net operating loss carryforward 4,946,000 3,099,000
Alternative minimum tax credit carryforwards 204,000 111,000
Investments in foreign subsidiaries, principally due to foreign
losses not recognized for tax purposes 648,000 --
------------------- ------------------
Total gross deferred tax assets 7,283,000 4,552,000
Less valuation allowance (6,609,000) --
------------------- ------------------
Net deferred tax assets 674,000 4,552,000
------------------- ------------------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation and
capitalized interest (674,000) (665,000)
Other -- (6,000)
------------------- ------------------
Total deferred tax liabilities (674,000) (671,000)
------------------- ------------------
Net deferred tax asset $ -- $ 3,881,000
=================== ==================
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as of September 1, 1995 was $0.
The net change in the total valuation allowance for the year ended August 31,
1996 was an increase of $6,609,000. In assessing the realizability of deferred
tax assets under the guidelines of Standards of Accounting Standards (SFAS) No.
9, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. While management anticipates ultimately realizing the
deferred tax assets as of August 31, 1996 by generating future taxable income,
in accordance with SFAS No. 9 management has established a valuation allowance
of $6,609,000 at August 31, 1996 to reduce the net deferred tax asset to zero
due to the uncertainty of realizing the benefits of these deductible
differences.
At August 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $11,917,000 which are available to
offset future federal taxable income, if any, through 2011. The Company also
has alternative minimum tax credit carryforwards of approximately $204,000
which are available to reduce future federal regular income taxes, if any, over
an indefinite period.
10
<PAGE> 44
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying amounts and estimated fair values of the Company's financial
instruments at August 31, 1996 and 1995 are as follows:
The carrying amounts of the financial assets of cash, accounts receivable -
net, and accounts receivable - related parties - net and the financial
liabilities of short-term borrowings, accounts payable - trade, and accounts
payable - related parties - net, approximate their respective fair value
because of the short term maturity of those instruments.
The carrying amount of long-term debt approximates fair value as the interest
rates approximate those currently offered to the Company for debt with similar
maturities.
The carrying amount of subordinated long-term debt consists of two components;
one of $8,000,000 and the other of $4,666,000. The $8,000,000 component's fair
value is estimated by discounting the future cash flows at a rate estimated to
be obtainable by the Company for similar debt instruments of comparable
maturities. The discounted future cash flows provide an estimated fair value
of $6,550,000 based on current market interest rates. The fair value of the
second component of $4,666,000 which bears interest at a rate of 4.5% per annum
could not be estimated as there is not a fixed maturity date nor is there a
fixed repayment schedule.
12. 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.
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.
11
<PAGE> 45
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Options Outstanding
Shares -------------------------------------------------------
Available To Number Price
Grant Of shares Ranges
- ---------------------------------------------------- ---------------------- --------------------
<S> <C> <C> <C>
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
Options Granted -- --
Options Exercised -- (10,000) $0.50
Options Canceled/Terminated -- --
----------- ---------------------- --------------------
Balance at August 31, 1996 277,780 190,420 **** $1.0625 to $8.125
=========== ====================== ====================
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* All options outstanding were exercisable at August 31, 1993.
** 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.
**** 157,280 shares of the outstanding balance were exercisable as of
August 31, 1996.
12
<PAGE> 46
The Company has three non-qualified stock option plans under which options were
granted to certain officers as shown in the following table. These options are
not part of the 1991 Plan.
<TABLE>
<CAPTION>
==================================================================================================
Quantity
Number of exercisable at
Date of Grant Price per Share Shares 8/31/96 Exercise Period
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
October 1992 $6.8750 66,206 66,206 3 Annual Increments
April 1996 $7.5625 50,000 50,000 Immediate
April 1996 $7.5625 480,000 -- 3 Annual Increments
==================================================================================================
</TABLE>
The officer who was granted the above 50,000 share non-qualified option has the
opportunity to obtain additional options for shares totaling 200,000 shares.
These additional options will be granted based on performance.
The Company has 1,064,406 common shares reserved for future issuance as stock
options (277,780 available to grant and 786,626 granted, but not exercised) and
2,400,000 shares reserved for warrants (Notes 7 and 15).
13. BENEFIT PLAN:
Substantially all of the Company's full time employees are eligible 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 based on the closing price at the end of each calendar quarter. During
fiscal 1996, 1995 and 1994, a total of 10,493, 10,335, and 11,635,
respectively, of such shares were issued to the Plan. Contributions including
the issuance of Common Stock to the Plan were $137,000 in 1996, $118,000 in
1995, and $108,000 in 1994.
14. COMMITMENTS AND CONTINGENCIES:
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company,
and 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
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, and in June 1996, amended their complaint yet again, naming
only the Company and one of its directors as defendants. 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.
CALIFORNIA AIR RESOURCES BOARD
Since the effective date (January 1, 1995) of regulations of the California
Air Resources Board ( the "CARB") with respect to volatile organic compounds
"(VOC's"), the Company has not been in compliance with those regulations. The
Company was granted a temporary variance from VOC regulations under which the
Company was allowed to continue to manufacture non-complying product until
September 30, 1996. The variance also allows the Company to continue to sell
its remaining inventory of non-complying products in California until June 30,
1997. The
13
<PAGE> 47
Company had as of September 30, 1996, reformulated all of its fragrance
products to achieve compliance with the VOC regulations.
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.
15. 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 obtained under a financing 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 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.
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 approximately $180,000, $269,000, and $208,000
in fiscal 1996, 1995, and 1994, respectively.
16. 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, 1996, 1995, and 1994, these sales were $14,524,000 (28% of net
14
<PAGE> 48
sales), $16,152,000 (36% of net sales), and $13,057,000 (25% of net sales),
respectively. These customers were primarily located in Latin America. In
addition, certain U.S. based customers ultimately distribute the Company's
products in foreign countries ("indirect exports"). The volume of the indirect
exports, which may be significant, could only be estimated as customers do not
provide that information to the Company.
17. 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 for the merger, which was treated in a
manner similar to a pooling of interests.
<TABLE>
<CAPTION>
============================================================================================================
1996
QUARTER ENDED
- ------------------------------------------------------------------------------------------------------------
Dec. 2 Mar. 2 Jun. 1 Aug. 31
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales $ 17,403,000 $ 10,112,000 $ 10,997,000 $ 13,208,000
Gross Profit 4,578,000 1,923,000 2,314,000 2,104,000
Net Income (loss) 204,000 (2,478,000) (3,133,000) (6,646,000)
Net Income (loss) Per Share
$ .01 $ (.15) $ (.19) $ (.40)
============================================================================================================
</TABLE>
<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)
============================================================================================================
</TABLE>
The fourth quarter of fiscal 1996 includes $3,881,000 of deferred income tax
expense (See Note 10) resulting from the establishment of a valuation allowance
for deferred tax assets.
The fourth quarter of fiscal 1995 included insurance proceeds of $815,000 (See
Note 18); 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 in existence between
Eurostar and Tristar prior to the Merger and the repayment of $1 million of the
subordinated debt.
The summation of the quarterly earnings per share may not be equal to the
annual earnings per share due to rounding.
15
<PAGE> 49
18. 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 has
been appealed by two other claimants under the policy.
19. LIQUIDITY AND SHAREHOLDERS' EQUITY (DEFICIT)
The Company experienced a limitation on working capital in the latter part of
fiscal 1996. During this period, the Company periodically maximized borrowings
under its credit facility and was required to extend payment terms to vendors,
primarily related parties, beyond customary terms. The Company, on December
11, 1996, was notified by the lender of the existing short term credit
facilities that the lender would extend the expiration date of the facilities
from March 31, 1997 to July 7, 1997, subject to the Company meeting certain
conditions which include meeting projected results of operations for the year
ended August 31, 1997. While there can be no assurances, management believes
that the Company will continue to meet projected results of operations.
Management expects that the existing agreement will be further extended or
renewed, however, in the event that a renewal or extension does not occur, the
Company has initiated an effort to locate an alternative lender to replace the
existing lender.
To strengthen the financial position of the Company, effective December 11,
1996, Transvit Manufacturing Corporation, a related party and principal
stockholder, agreed to convert a $4,666,000 subordinated note payable
outstanding at August 31, 1996, into 666,529 shares of the Company's preferred
stock. The conversion is reflected in the accompanying balance sheet on a pro
forma basis. The preferred stock has cumulative preferred dividends of $0.315
per share and a preferred distribution of $7.00 per share plus accrued and
unpaid dividends. The stock is convertible, at the option of Transvit, into
the Company's common stock, at a conversion price of $7.00 per share. The
Company can redeem the shares at the same price per share.
16
<PAGE> 50
SCHEDULE II
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, 1996 $419,000 $1,028,000 $597,000 $850,000
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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Uncollectible accounts written off, net of recoveries.
<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> <C>
Inventory reserves:
Year ended August 31, 1996 $621,000 $1,666,000 ($198,000) $1,477,000 $612,000
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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
** Transfer to LIFO Valuation
*** Lower of cost or market adjustment.
F-27
<PAGE> 51
EXHIBIT INDEX
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.
<PAGE> 52
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
<PAGE> 53
10.21 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.
10.22 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.
10.23 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.
10.24 Line of Credit Promissory Note dated August 1, 1993, between
the Company (original entered into with Eurostar) and Transvit
Manufacturing Corporation. Incorporated by reference to
Exhibit 10.26 of the Annual Report on Form 10-K for the year
ended August 31, 1995.
10.25 Loan and Security Agreement dated June 27, 1995, between the
Company (originally entered into with Eurostar) and Fremont
Financial Corporation with Special provisions Rider.
Incorporated by reference to Exhibit 10.27 of the Annual
Report on Form 10-K for the year ended August 31, 1995.
10.26 Employment Agreement between the Company (originally entered
into with Eurostar) and Ricardo Bunge dated January 1, 1993,
and as amended June 5, 1995. Incorporated by reference to
Exhibit 10.28 of the Annual Report on Form 10-K for the year
ended August 31, 1995.
10.27 Employment Agreement between the Company and Joseph DeKama
dated April 19, 1996. Incorporated by reference to Exhibit 10
of Quarterly Report on Form 10-Q for period ended June 1,
1996.
*10.28 Non-Qualified Stock Option Grant to Joseph DeKama dated April
19, 1996.
*10.29 Non-Qualified Stock Option Grant to Viren S. Sheth dated April
19, 1996.
*10.30 Letter Agreement with Transvit Manufacturing Corporation
Converting Line of Credit Promissory Note to 666,529 Shares of
Series A Convertible Preferred Stock dated December 11, 1996.
*10.31 Promissory Note between the Company and Joseph DeKama dated
October 1, 1996.
*10.32 Promissory Note between the Company and Joseph DeKama dated
October 15, 1996.
18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
Incorporated by reference to Exhibit 18 of the Annual Report
on Form 10-K for the year ended August 31, 1995.
*24.1 Consent by Coopers and Lybrand L.L.P. for Fiscal 1994.
*24.2 Consent by KPMG Peat Marwick LLP for Fiscal 1996 and 1995.
27.4 Financial Data Schedule
- -----------------------
* Attached as Exhibits hereto.
<PAGE> 1
STOCK OPTION AGREEMENT
OF
TRISTAR CORPORATION
Name of Optionee: Joseph DeKama
Number of Option Shares: 50,000
Option Price per Share: $7.5625
Date of Grant: April 19, 1996
Expiration Date: The business day next preceding the 7th anniversary
of the Date of Grant
THIS OPTION is granted on the above date (the "Date of Grant") by
TRISTAR CORPORATION, a Delaware corporation (the "Company"), to the person
named above (the "Optionee"), upon the following terms and conditions:
1. Grant of Option. The Company grants to the Optionee an option to
purchase, on the terms and conditions hereinafter set forth, the number of
shares specified above (the "Option Shares") of the Common Stock, $.01 par
value per share, of the Company, at the option price per share specified above.
2. Period of Option. This Option will expire at the close of
business on the Expiration Date, except that: (a) if the Optionee dies on or
before the Expiration Date, this Option may be exercised by the legal
representative of Optionee within three months after the death of the optionee,
but in no event later than the Expiration Date; (b) if the Optionee ceases on
or before the Expiration Date to be an Employee (as defined below) because his
employment is terminated without cause or because of his disability, this
Option may be exercised within three months after such termination, but in no
event later than the Expiration Date, and (c) if the Optionee ceases on or
before the Expiration Date, for any reason other than those stated in (a) and
(b) of this paragraph, to be an Employee, this Option may be exercised within
three months after such termination, but in no event later than the Expiration
Date, unless the Optionee's employment is terminated for Cause (as such term is
defined in Optionee's Employment Agreement with the Company dated April 19,
1996) in which event this Option shall expire at the time Optionee receives
notice that his employment is or will be terminated. The term "Employee", as
used in this Option, means an executive or key salaried employee (whether or
not an officer) of the Company and/or one or more of its subsidiary
corporations as defined in Section 424 of the Internal Revenue Code of 1986
("Code") and regulations thereunder, and corresponding provisions of subsequent
laws and regulations.
Subject to the other provisions of this Option, the Optionee's right to
exercise this Option shall take effect immediately upon execution. Once the
right to purchase the number of shares has accrued, such shares may be
purchased at any time, or in part from time to time, until the Expiration Date.
<PAGE> 2
3. Certain Limitations on Exercise. No fractional shares may be
purchased hereunder.
4. Employee Status Required. Except as elsewhere herein expressly
provided otherwise in Section 2 above, none of the Option Shares may be
purchased hereunder unless the Optionee, at the time of the exercise of this
Option, is an Employee and has continuously been an Employee since the date
hereof. Absence on leave, if approved in writing by an officer of the Company,
shall not be considered an interruption or termination of employment for any
purpose of this Option to the extent that such absence does not constitute an
interruption or termination of the status of the Optionee as an "employee"
under the Code and the regulations promulgated thereunder.
5. Method of Exercise of Option. This Option shall be exercised in
and only in the following manner: The Optionee shall on any business day of the
Company give written notice to the Company in a form satisfactory to the
Company, specifying the number of Option Shares which the Optionee then elects
to purchase, accompanied by payment of the full option price of the shares
being purchased by check to the order of the Company.
6. Non-Transferability of Option. This Option shall not be subject
to transfer, sale, assignment or pledge by the Optionee otherwise than by will
or the laws of descent and distribution, and it shall be exercisable, during
the lifetime of the Optionee, only by Optionee.
7. Termination of Employment. The Optionee has entered into a
written employment agreement with the Company. This Option confers no right
upon the Optionee with respect to the continuation of the Optionee's employment
with the Company or any of its subsidiaries, and shall not alter the rights of
the Optionee or the Company with respect to the matters covered in the
employment agreement.
8. Adjustment Upon the Occurrence of Certain Events.
(a) In case the Company shall hereafter declare or pay to the
holders of its Common Stock one or more dividends in stock of the Company, the
Optionee, upon any exercise of this Option, shall be entitled to receive (in
addition to the Option Shares purchased upon such exercise and without any
payment other than the option price for such shares) such additional share or
shares of stock as the Optionee would have received as such dividend or
dividends if, from the date of the granting of this Option, he had been the
holder of record of the Option Shares so purchased and had not, prior to the
date of such exercise, disposed of any of such Option Shares or any shares
which he would have received as a stock dividend or dividends stemming from
such holding of such Option Shares.
(b) In case of any reorganization or recapitalization of the
Company (by reclassification of its outstanding Common Stock or otherwise), or
its consolidation or merger with or into another corporation or the sale,
conveyance, lease or other transfer by the Company of all or substantially all
of its property, pursuant to which shares of the Company's Common Stock are
split up or combined, or changed into or become exchangeable for other shares
of stock, the Optionee, upon any exercise of this Option shall be entitled to
receive, in lieu of the Option Shares which he would otherwise be entitled to
receive upon such exercise and without any payment in addition to the option
price therefor, the shares of stock which the Optionee would have received upon
such
2
<PAGE> 3
reorganization, recapitalization, consolidation, merger, sale or other
transfer, if immediately prior thereto he had owned the Option Shares to which
such exercise of the Option relates and had exchanged such Option Shares in
accordance with the terms of such reorganization, recapitalization,
consolidation, merger, sale or other transfer.
(c) The above provisions of this Section 8 shall similarly
apply to successive stock dividends, reorganizations, recapitalizations,
consolidations and mergers, and to successive sales, conveyances, leases or
other transfers by the Company of all of its property.
(d) Notwithstanding the foregoing provisions of this Section
8, no adjustment provided for in this Section 8 shall require the Company to
sell a fractional share under this Option.
9. Delivery of Stock Certificates. Upon each exercise of this
Option, the Company, as promptly as practicable, shall mail or deliver to the
Optionee a stock certificate or certificates representing the shares then
purchased, and will pay all stamp taxes payable in connection therewith. The
issuance of such shares and delivery of the certificate or certificates
therefor shall, however, be subject to any delay necessary to complete (a) the
listing of such shares on any stock exchange upon which shares of the same
class are then listed, and (b) such registration or other qualification of such
shares under any state or federal law, rule or regulation, or the obtaining of
such other approval of any governmental authority, as the Company or its legal
counsel may determine to be necessary or advisable.
10. Restrictive Legend. Unless, in the opinion of legal counsel to
the Company, such restrictive legend is no longer required, the following
legend shall be printed on each certificate representing any Option Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES STATUES, HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF, AND
MAY NOT BE SOLD, PLEDGED OR TRANSFERRED UNLESS THE SALE, PLEDGE
OR TRANSFER IS REGISTERED UNDER SUCH ACT OR UNLESS THERE IS
FURNISHED AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE BY THE COMPANY THAT THE REGISTRATION OF SUCH SHARES
UNDER SUCH ACT IS NOT REQUIRED.
11. Notices, Etc. Any notice hereunder by the Optionee shall be
given to the Company in writing and such notice and any payment by the Optionee
hereunder shall be deemed duly given or made only upon receipt thereof at the
Company's principal office in San Antonio, Texas, or at such other address as
the Company may designate by notice to the Optionee. Any notice or other
communication to the Optionee hereunder shall be in writing and any
communication and any delivery to the Optionee hereunder shall be deemed duly
given or made if mailed, delivered or made to the Optionee at such address as
the Optionee may have on file with the Company or in care of the Company at its
principal office in San Antonio, Texas.
3
<PAGE> 4
12. Effective Date. This Option shall be deemed granted and
effective on the Date of Grant.
13. Consideration. The consideration for the granting of this Option
is the past and future performance of services by the Optionee. This Option,
due to the fluctuating value of the Option Shares and its nontransferability,
does not have a readily ascertainable fair market value.
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its proper corporate officers thereunto duly authorized.
TRISTAR CORPORATION
By:
------------------------------------
Title:
---------------------------------
ACCEPTED AND AGREED TO:
- ------------------------------
Optionee
4
<PAGE> 1
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of April 19, 1996, is entered into between
Tristar Corporation, a Delaware corporation, (the "Company") and Viren Sheth
(the "Optionee").
Recitals
A. The Optionee is an executive of the Company and the Company
desires to have Optionee remain in its employ, encourage the stock ownership of
Optionee and increase the Optionee's proprietary interest in the Company.
B. The Company desires to grant to Optionee an option to purchase up
to 480,000 shares of Common Stock, $.01 par value ("Common Stock") of the
Company.
Agreements
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
in this Agreement, the Company hereby grants to Optionee the option to
purchase, during the period commencing on the date of this Agreement and ending
April 19, 2006, at an exercise price equal to $7.5625 per share (the "Option
Price"), up to, but not exceeding the aggregate of 480,000 shares of Common
Stock, $.01 par value, the ("Common Stock") of the Company (such option being
hereinafter referred to as the "Option").
2. Non-Qualified Status. The Option is intended to be a non-
qualified stock option which does not satisfy the requirements of Section 422A
of the Internal Revenue Code of 1986, as amended. The Option is granted
outside of and therefore shall not be subject to the terms and provisions of
the Company's 1991 Amended and Restated Stock Option Plan, as amended.
3. Vesting of Option. The Option evidenced hereby may be exercised
from time to time as to the following numbers of shares, on a cumulative basis
(as to options to purchase shares not previously exercised), on each of the
following dates if the Optionee is employed by the Company on such date:
(a) 160,000 shares on April 19, 1997;
(b) 160,000 shares on April 19, 1998; and
(c) 160,000 shares on April 19, 1999.
<PAGE> 2
4. Exercise of Option. The Option shall be deemed exercised when
the Optionee (a) shall indicate the decision to do so in writing delivered to
the Company and (b) shall at the same time tender to the Company payment in
full of the Option Price for the shares for which the Option is exercised. The
Option may be exercised for any lesser number of shares than the full amount
for which it could be exercised. Such a partial exercise of an Option shall
not affect the right to exercise the Option from time to time in accordance
with the provisions contained herein for the remaining shares subject to the
Option. Upon compliance with the foregoing, the Company shall cause
certificates for the shares so purchased to be delivered to Optionee, his legal
representative or such other person who is entitled to exercise his Option (in
accordance with the provisions of paragraph 6) at its principal business
office.
In no event may the Option be exercised after April 19, 2006.
5. Non-Transferability of Options. The Option granted to Optionee
shall not be transferable by Optionee except by will or under the laws of
descent and distribution, and shall be exercisable, during his lifetime, only
by him. Any assignment or transfer of the Option except by will or under the
laws of descent and distribution, whether voluntarily or involuntarily, by
operation of law or otherwise, shall not vest in the assignee or transferee any
interest or rights whatsoever, but immediately upon such assignment or transfer
the Option shall terminate and become of no further effect.
6. Early Forfeiture of Option. The Option shall terminate on the
date Optionee ceases to be an employee of the Company, unless the Optionee
shall (a) die while an employee of the Company, in which case his legatees
under his last will or his personal representatives or representatives may
exercise the previously unexercised portion of the Option at any time within
one (1) year after his death to the extent the Optionee could have exercised it
immediately prior to his death, (b) be permanently or totally disabled within
the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), in which case he or his personal representative may
exercise the previously unexercised portion of the Option at any time within
one (1) year after termination of his employment to the extent the Optionee
could have exercised it immediately prior to such terminations, or (c) resign
or retire with the consent of the Company, in which case he may exercise the
previously unexercised portion of the Option at any time within three (3)
months after his resignation or retirement, to the extent the Optionee could
have exercised it immediately prior to such termination.
In the event an Option granted under this Agreement shall be
exercised by the legal representative of the deceased Optionee, or by a person
who acquired an Option granted hereunder by bequest or inheritance or by reason
of the death of the deceased Optionee, written notice of such exercise shall be
accompanied by certified copy of letters testamentary or equivalent proof of
the right of such legal representative or other person to exercise such option.
-2-
<PAGE> 3
7. Adjustment of Shares. Notwithstanding any other provision
contained herein, in the event of any change in the outstanding Common Stock by
reason of a stock dividend, stock split, reorganization, recapitalization,
merger, split-up or other change in capital structure, an adjustment may be
made by the Company, in its sole and absolute discretion, to prevent dilution
or enlargement of Optionee's rights hereunder, and the determination of the
Company as to these matters shall be conclusive.
8. Right to Terminate Employment. This Agreement shall not impose
any obligation on the Company to continue the employment of Optionee; it shall
not impose any obligation on the part of Optionee to remain in the employ of
the Company.
9. Issuance of Stock Certificates; Legends and Payment of Expenses.
Upon any exercise of an Option which may be granted hereunder and the payment
of the exercise price, a certificate or certificates for the shares as to which
the Option has been exercised shall be issued by the Company in the name of the
Optionee and shall be delivered to or upon the order of Optionee.
The Company may, in its discretion, endorse an appropriate legend
upon the certificate or certificates representing any shares issued or
transferred pursuant to the exercise of any Option granted hereunder and may
issue "stock transfer" instructions to its transfer agent in respect of such
shares to (a) prevent a violation of, or to perfect an exemption from, the
registration requirements of the Securities Act or (b) implement the provisions
of any agreement between the Company and the Optionee with respect to such
shares.
The Company shall pay all issue or transfer taxes with respect to
the issuance or transfer of shares, as well as all fees and expenses
necessarily incurred by the Company in connection with such issuance or
transfer, except fees and expenses which may be necessitated by the filing or
amending of a Registration Statement under the Securities Act, which fees and
expenses shall be borne by Optionee unless such Registration Statement has been
filed by the Company for its own corporate purposes (and the Company so states)
in which event the recipient of the shares shall bear only such fees and
expenses as are attributable solely to the inclusion of such shares in the
Registration Statement. All the shares issued as provided herein shall be
fully paid and nonassessable to the extent permitted by law.
10. No Rights as Stockholder. Optionee shall not have rights as a
stockholder with respect to shares covered by the Option until the date of
issuance of a stock certificate for such shares; and, except as otherwise
provided in paragraph 7 hereof, no adjustment for dividends or otherwise shall
be made if the record date therefor is prior to the date of issuance of such
certificate.
11. Requirements of Law. The Company shall not be required to be
sell or issue any shares under the Option if the issuance of such shares shall
constitute or
-3-
<PAGE> 4
result in a violation by Optionee or the Company of any provision of any law,
statute or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of the Option, the Company shall not
be required to issue such shares unless the Company has received evidence
satisfactory to it to the effect that Optionee will not transfer such shares
except in accordance with applicable law, including the receipt of an opinion
of counsel satisfactory to the Company to the effect that any proposed transfer
complies with applicable law. The Company may, but shall in no event be
obligated to, register any shares covered hereby pursuant to applicable
securities laws of any country or political subdivision thereof. In the event
the shares issuable on exercise of the Option are not so registered, the
Company may imprint on the certificate evidencing such shares any legend
counsel for the Company considers necessary or advisable to comply with
applicable law. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of the Option or the issuance
of shares pursuant to the Option to Comply with any law or regulation of any
governmental authority.
12. Notices. Every notice or other communication relating to this
Agreement shall be in writing, and shall be mailed or delivered to the party
for whom it is intended at such address as may from time to time be designated
by such party in a notice mailed or delivered to the other party as provided
herein, provided that, unless and until some other address be so designated,
all notices or communications by Optionee to the Company shall be mailed or
delivered to the Company at:
Tristar Corporation
12500 San Pedro, Suite 500
San Antonio, Texas 78216
and all notices or communications by the Company to Optionee be given to
Optionee personally or may be mailed to him at:
Viren Sheth
-----------------------------
-----------------------------
[signatures on next page]
-4-
<PAGE> 5
This Agreement is effective as of the date first written above.
COMPANY: TRISTAR CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
OPTIONEE:
---------------------------------------
VIREN SHETH
-5-
<PAGE> 1
EXHIBIT 10.30
TRANSVIT MANUFACTURING CORPORATION
P. O. Box 7707
Dubai, United Arab Emirates
RE: Line of Credit Promissory Note dated August 1, 1993, of Tristar
Corporation (formerly Eurostar Perfumes, Inc.) payable to Transvit
Manufacturing Corporation in the original principal amount of
$9,000,000 (the "Note")
Gentlemen:
Tristar Corporation ("Tristar") hereby proposes that on December 11, 1996,
Transvit Manufacturing Corporation ("Transvit") purchase 666,529 shares of
Series A Convertible Preferred Stock, $.05 par value ("Preferred Stock"), of
Tristar in consideration for cancellation of all the outstanding principal
under the Note in the amount of $4,665,701.30 at December 11, 1996.
The Preferred Stock shall have the following rights and preferences:
1. PREFERENCE. Preferred distribution in the event of liquidation in the
amount of $7.00 per share plus accrued and unpaid dividends.
2. DIVIDENDS. Cumulative preferred dividends in the amount of $0.315 per
share (4.5%) per annum.
3. CONVERTIBILITY. Convertible at the option of Transvit, at any time,
into Common Stock of Tristar at a conversion price of $7.00 per share
with normal anti-dilution provisions and registration rights if
converted.
4. REDEMPTION. Redeemable at the option of Tristar at any time, in whole
or in part, for cash in the amount of the liquidation preference
thereof upon 30 days written notice by Tristar to Transvit at which
time Transvit must either present the stock for redemption or convert
it into common stock at the $7.00 conversion price.
Please signify your agreement to the foregoing by executing the enclosed copy
of this letter in the space provided below and returning such copy to the
undersigned.
Very truly yours,
- --------------------------------------------
AGREED to this 11th day of December, 1996.
TRANSVIT MANUFACTURING CORPORATION
BY:
---------------------------------------
<PAGE> 1
EXHIBIT 10.31
Promissory Note
$45,000.00 October 1, 1996
FOR VALUE RECEIVED, Northside Development and Joseph DeKama, (jointly
the "Maker") promises to pay to the order of TRISTAR CORPORATION at 12500 San
Pedro, Suite 500, San Antonio, Texas 78216, or at such other place as may be
designated in writing by the Holder of this Note, the Principal sum of
FORTY-FIVE THOUSAND and NO/100 DOLLARS ($45,000.00), with interest thereon at
the Stated Rate (as defined herein) and interest on all past due amounts, both
Principal and accrued interest, at the Past Due rate (as defined herein);
provided, that for the full term of this Note the interest rate produced by the
aggregate of all sums paid or agreed to be paid to the Holder of this Note for
the use, forbearance or detention of the debt evidenced hereby shall not exceed
the Highest Lawful Rate (as defined herein). Twenty Five Thousand Dollars
($25,000.00) of the principal amount of this Note was overpayment of commission
to Northside Development and Joseph DeKama, jointly and severally, and Twenty
Thousand Dollars ($20,000.00) of the principal amount of the Note was loaned to
Joseph DeKama. Joseph DeKama shall be liable for the repayment of all
principal and accrued interest under this Note and, in addition, Northside
Development and Joseph DeKama shall be and remain jointly and severally liable
for $25,000.00 of the principal amount of this Note and accrued interest
related thereto.
"Stated Rate" means, on any day, a rate per annum equal the rate
charged to TRISTAR CORPORATION by its primary lender which rate is currently
Twelve and one-half percent (12.5%). Without notice to the Maker the Stated
Rate shall change automatically from time to time as such rate is changed by
TRISTAR CORPORATION's primary lender and each such change shall be effective as
of the date of each change in such Stated Rate, provided, that if on any day
the Stated Rate shall exceed the Highest Lawful Rate for that day, then the
Stated Rate shall be fixed at the Highest Lawful Rate on that day and on each
day thereafter until the total amount of interest accrued at the Stated Rate on
the unpaid balance of this Note equals the total amount of interest which would
have accrued if there were no Highest Lawful Rate. However, neither the
maturity of this Note nor Maker's privilege to prepay it shall be affected by
this paragraph.
"Past Due Rate" means the Highest Lawful Rate, or if applicable law
shall not provide for a maximum nonusurious rate, a rate per annum equal to the
Stated Rate plus seven percent (7%).
"Highest Lawful Rate" means the maximum nonusurious rate of interest
permitted to be charged by applicable federal or Texas law (whichever shall
permit the higher lawful rate) from time-to-time in effect. At all times, if
any, as Chapter 1 of the Texas Credit Code, as in effect on the date of this
Note, shall establish the Highest lawful Rate, the Highest Lawful Rate shall be
the "Indicated Rate Ceiling" (as defined in Chapter 1 of the Texas Credit Code)
from time-to-time in effect. If the obligation is an open-ended account, Payee
may from time to time, as to then-current and future balances, implement any
other ceiling under Chapter 1 of the Texas Credit Code and/or revise the index,
formula or provision of law used to compute the rate on such obligation, if and
to the extent permitted by, and in the manner provided in, Chapter 1 of the
Texas Credit Code.
The Principal of this Note shall be due and payable in twenty-four
(24) equal monthly installments of One Thousand Eight Hundred and Seventy-Five
Dollars ($1,875.00) each on or before the first day of every month beginning
January 1, 1997 and continuing regularly and monthly thereafter until the
outstanding Principal has been paid. Interest computed on the unpaid principal
balance of this Note shall be payable monthly as it accrues on the same dates
as and in addition to the installments of principal. The Maker may prepay this
Note in whole or in part at any time without penalty or premium. All
prepayments shall be applied first against accrued interest under this Note and
then to the last maturity payments of principal due under this Note.
<PAGE> 2
Maker is an employee of TRISTAR CORPORATION and hereby authorizes the
payments to be made hereunder to be made by payroll deductions from his salary
and bonuses to be paid by TRISTAR CORPORATION. Maker agrees to execute any and
all documents legally necessary to perfect such payroll deductions.
During the term of this Note Maker agrees that one-half (1/2) of any
bonuses paid to him by TRISTAR CORPORATION shall be applied against the
outstanding principal balance and accrued interest under this Note and any such
payment shall be deemed to be a prepayment pursuant to the terms on this Note
and applied as a prepayment on this Note as herein provided.
Interest on the amount of each advance against this Note shall be
computed on the amount of that advance and from the date it is made. Such
interest shall be computed for the actual number of days elapsed in a year
consisting of three hundred sixty (360) days, unless the Highest Lawful Rate
would thereby be exceeded, in which event, to the extent necessary to avoid
exceeding the Highest Lawful Rate, interest shall be computed on the basis of
the actual number of days elapsed in the applicable calendar year in which it
accrued.
On the failure to pay any installment on this Note when due, or on the
breach of or default under any other provision of any of this Note including
the Covenants herein set forth, at the option of the Holder, the entire
indebtedness evidenced by the Notes will become due, payable and collectible
then or thereafter as the Holder may elect, regardless of the date of maturity
hereof. Notice of the exercise of such option is hereby expressly waived.
Failure by the Holder to exercise such option shall not constitute a waiver of
the right to exercise the same in the event of any subsequent default.
COVENANTS. The Maker Covenants and agrees as follows:
i. Maker is an employee of TRISTAR CORPORATION
and has an Employment Agreement with TRISTAR CORPORATION,
which Employment Agreement is incorporated herein by reference
for all relevant purposes (the "Employment Agreement"). Maker
agrees that a default under the terms of the Employment
Agreement shall be a default under the terms of this Note and
the Holder hereof shall be entitled to all rights and remedies
provided for hereunder including the right to accelerate the
maturity of all payments of principal and interest due
hereunder.
ii. This Note shall become due and payable
immediately upon the termination of Maker's employment by
TRISTAR CORPORATION for any reason.
iii. Maker shall comply with all rules, regulations,
procedures, policies and codes of conduct from time to time
established in writing by TRISTAR CORPORATION and to be
responsible that all employees of TRISTAR CORPORATION that
report to Maker shall also comply with such rules,
regulations, procedures, policies and codes of conduct.
TRISTAR CORPORATION's policies and procedures that Maker is to
comply with shall include, but not be limited to, all
procedures in connection with placement of orders to the
manufacturing division with respect to advanced period of time
to manufacture such orders. A violation by Maker of the
provision herein set forth in this Covenant iii shall be a
default under the terms and provisions of this Note.
iv. Maker, as an employee of TRISTAR CORPORATION
has agreed to certain budgets in connection with business
expenses, travel, and entertainment as set forth in the
Employment Agreement. A violation of any of such budgets for
business expenses, travel and entertainment set forth in the
Employment Agreement shall be a default under the terms of
this Note, provided that it shall not be a default of this
Note if such violation in such budgets for business expenses,
travel and entertainment are previously approved in writing by
Tristar Corporation and are not within the control of Maker.
Maker acknowledges that all such expenses related to business
expenses, travel and entertainment for which he seeks
reimbursement are strictly related to the business of TRISTAR
CORPORATION and if Maker seeks reimbursement for any expense
that is
<PAGE> 3
not strictly related to the business of TRISTAR CORPORATION
shall be a default under the terms of this Note.
The acceptance by the Holder of any payment which is less than the
total of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to exercise any remedies or options at that
time or any subsequent time, or nullify any prior exercise of such remedy or
option, without the express consent of the Holder.
After maturity and at any time while any default exists in the making
of any of the payments herein, whether Principal or interest, or both, or in
the performance or observance of any other Covenants, agreements or conditions
of any of this Note or of any agreement now or hereafter securing the
indebtedness evidenced thereby, the Maker promises to pay interest on the
principal balance of this Note then outstanding from the date of maturity or
the date of such default until paid at the annual rate equal to the sum of
seven percent (7%) plus the Stated Rate from time to time in effect (but not
less than the rate in effect at such maturity or on default and not greater
than eighteen percent [18%] per annum). During the existence of any default,
the Holder of this Note may apply payments received on any amounts due
hereunder, or under any instrument now or hereafter evidencing or securing such
indebtedness, as the Holder may determine. Any additional interest or
Principal which has accrued shall be payable at the time of, and as a condition
precedent to, the curing of any default.
The Maker agrees that if this Note is placed in the hands of an
attorney for collection, or to defend or enforce any of the Holder's rights
hereunder, the Maker will pay to the Holder hereof reasonable attorney's fees,
to the extent allowed by law, together with all court cost sand other expenses
incurred in connection therewith, whether or not an action shall be instituted
to enforce this Note.
If, for any reason whatsoever, the interest paid or received on this
Note during its full term produces a rate which exceeds the Highest Lawful
Rate, the Holder of this Note shall refund to the payor or, at the Holder's
option, credit against the unpaid Principal of this Note such portion of said
interest as shall be necessary to cause the interest paid on this Note to
produce a rate equal to the Highest Lawful Rate. All sums paid or agreed to be
paid to the Holder of this Note for the use, forbearance or detention of the
indebtedness evidenced hereby shall, to the extent permitted by applicable law,
be amortized, prorated, allocated and spread in equal parts throughout the full
term of this Note, so that the interest rate is uniform throughout the full
term of this Note. It is the intention of the parties hereto to conform
strictly to the usury laws of the State of Texas and to the laws, rule and
regulations of other applicable governmental authorities to the extent that
such laws, rules and regulations preempt Texas law.
The Maker and the endorsers, sureties, guarantors, and all other
persons who may become liable for all or any part of this obligation severally
waive presentment for payment, protest and notice of nonpayment. Such parties
consent to any extension of time of payment hereof, whether one or more, any
renewal hereof, whether one or more, release of all or any part of the security
for the payment hereof and any release of any party liable for payment of this
obligation. Any such extension, renewal or release may be made at any time and
from time to time without notice to any such party and without discharging such
party's liability hereunder.
This Note shall be governed by, and construed in accordance with, the
internal laws of the State of Texas. This Note is given for an actual loan of
money for business purposes and not for personal, residential, household or
agricultural purposes.
IN WITNESS WHEREOF, the Maker has executed this Note.
-------------------------------------
Joseph DeKama
NORTHSIDE DEVELOPMENT
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
<PAGE> 1
EXHIBIT 10.32
Promissory Note
$100,000.00 October 15, 1996
FOR VALUE RECEIVED, Joseph DeKama, (the "Maker") promises to pay to
the order of TRISTAR CORPORATION at 12500 San Pedro, Suite 500, San Antonio,
Texas 78216, or at such other place as may be designated in writing by the
holder of this Note, the Principal sum of ONE HUNDRED THOUSAND and NO/100
DOLLARS ($100,000.00), with interest thereon at the Stated Rate (as defined
herein) and interest on all past due amounts, both Principal and accrued
interest, at the Past Due rate (as defined herein); provided, that for the full
term of this Note the interest rate produced by the aggregate of all sums paid
or agreed to be paid to the holder of this Note for the use, forbearance or
detention of the debt evidenced hereby shall not exceed the Highest Lawful Rate
(as defined herein). Seventy Five Thousand Dollars ($75,000.00) will be funded
on October 22, 1996 and Twenty Five Thousand Dollars ($25,000.00) will be
funded on November 15, 1996 and interest will accrue on such amounts from the
date of funding.
"Stated Rate" means, on any day, a rate per annum equal the rate
charged to TRISTAR CORPORATION by its primary lender which rate is currently
Twelve and one-half percent (12.5%). Without notice to the Maker the Stated
Rate shall change automatically from time to time as such rate is changed by
TRISTAR CORPORATION's primary lender and each such change shall be effective as
of the date of each change in such Stated Rate, provided, that if on any day
the Stated Rate shall exceed the Highest Lawful Rate for that day, then the
Stated Rate shall be fixed at the Highest Lawful Rate on that day and on each
day thereafter until the total amount of interest accrued at the Stated Rate on
the unpaid balance of this Note equals the total amount of interest which would
have accrued if there were no Highest Lawful Rate. However, neither the
maturity of this Note nor Maker's privilege to prepay it shall be affected by
this paragraph.
"Past Due Rate" means the Highest Lawful Rate, or if applicable law
shall not provide for a maximum nonusurious rate, a rate per annum equal to the
Stated Rate plus seven percent (7%).
"Highest Lawful Rate" means the maximum nonusurious rate of interest
permitted to be charged by applicable federal or Texas law (whichever shall
permit the higher lawful rate) from time-to-time in effect. At all times, if
any, as Chapter 1 of the Texas Credit Code, as in effect on the date of this
Note, shall establish the Highest lawful Rate, the Highest Lawful Rate shall be
the "Indicated Rate Ceiling" (as defined in Chapter 1 of the Texas Credit Code)
from time-to-time in effect. If the obligation is an open-ended account, Payee
may from time to time, as to then-current and future balances, implement any
other ceiling under Chapter 1 of the Texas Credit Code and/or revise the index,
formula or provision of law used to compute the rate on such obligation, if and
to the extent permitted by, and in the manner provided in, Chapter 1 of the
Texas Credit Code.
The Principal of this Note shall be due and payable in thirty-six (36)
equal Principal payments of Two Thousand Seven Hundred Seventy-Seven Dollars
and Seventy-Eight Cents ($2,777.78) each commencing on or before the first day
of every month beginning January 1, 1997 and continuing regularly and monthly
thereafter until the Principal has been paid. Interest computed on the unpaid
principal balance of this Note shall be payable monthly as it accrues on the
same dates as and in addition to the installments of principal. The Maker may
prepay this Note in whole or in part at any time without penalty or premium.
All prepayments shall be applied first against accrued interest under this Note
and then to the last maturity payments of principal due under this Note.
Maker is an employee of TRISTAR CORPORATION and hereby authorizes the
payments to be made hereunder to be made by payroll deductions from his salary
and bonuses paid by TRISTAR CORPORATION. Maker agrees to execute any and all
documents legally necessary to perfect such payroll deductions.
<PAGE> 2
During the term of this Note Maker agrees that one-half (1/2) of any
bonuses paid to him by TRISTAR CORPORATION shall be applied against the
outstanding principal balance and accrued interest under this Note and any such
payment shall be deemed to be a prepayment pursuant to the terms on this Note
and applied as a prepayment on this Note as herein provided.
Interest on the amount of each advance against this Note shall be
computed on the amount of that advance and from the date it is made. Such
interest shall be computed for the actual number of days elapsed in a year
consisting of three hundred sixty (360) days, unless the Highest Lawful Rate
would thereby be exceeded, in which event, to the extent necessary to avoid
exceeding the Highest Lawful Rate, interest shall be computed on the basis of
the actual number of days elapsed in the applicable calendar year in which it
accrued.
On the failure to pay any installment on this Note when due, or on the
breach of or default under any other provision of any of this Note including
the Covenants herein set forth, at the option of the Holder, the entire
indebtedness evidenced by the Notes will become due, payable and collectible
then or thereafter as the Holder may elect, regardless of the date of maturity
hereof. Notice of the exercise of such option is hereby expressly waived.
Failure by the Holder to exercise such option shall not constitute a waiver of
the right to exercise the same in the event of any subsequent default.
COVENANTS. The Maker Covenants and agrees as follows:
i. Maker is an employee of TRISTAR CORPORATION
and has an Employment Agreement with TRISTAR CORPORATION,
which Employment Agreement is incorporated herein by reference
for all relevant purposes (the "Employment Agreement"). Maker
agrees that a default under the terms of the Employment
Agreement shall be a default under the terms of this Note and
the Holder hereof shall be entitled to all rights and remedies
provided for hereunder including the right to accelerate the
maturity of all payments of Principal or interest due
hereunder.
ii. This Note shall become due and payable
immediately upon the termination of Maker's employment by
TRISTAR CORPORATION for any reason.
iii. Maker shall comply with all rules, regulations,
procedures, policies and codes of conduct from time to time
established in writing by TRISTAR CORPORATION and to be
responsible that all employees of TRISTAR CORPORATION that
report to Maker shall also comply with such rules,
regulations, procedures, policies and codes of conduct.
TRISTAR CORPORATION's policies and procedures that Maker is to
comply with shall include, but not be limited to, all
procedures in connection with placement of orders to the
manufacturing division with respect to advanced period of time
to manufacture such orders. A violation by Maker of the
provision herein set forth in this Covenant iii shall be a
default under the terms and provisions of this Note.
iv. Maker, as an employee of TRISTAR CORPORATION
has agreed to certain budgets in connection with business
expenses, travel, and entertainment as set forth in the
Employment Agreement. A violation of any of such budgets for
business expenses, travel and entertainment set forth in the
Employment Agreement shall be a default under the terms of
this Note, provided that it shall not be a default of this
Note if such violation in such budgets for business expenses,
travel and entertainment are previously approved in writing by
Tristar and are not within the control of Maker. Maker
acknowledges that all such expenses related to business
expenses, travel and entertainment for which he seeks
reimbursement are strictly related to the business of TRISTAR
CORPORATION and if Maker seeks reimbursement for any expense
that is not strictly related to the business of TRISTAR
CORPORATION shall be a default under the terms of this Note.
<PAGE> 3
The acceptance by the Holder of any payment which is less than the
total of all amounts due and payable at the time of such payment shall not
constitute a waiver of the right to exercise any remedies or options at that
time or any subsequent time, or nullify any prior exercise of such remedy or
option, without the express consent of the Holder.
After maturity and at any time while any default exists in the making
of any of the payments herein, whether Principal or interest, or both, or in
the performance or observance of any other Covenants, agreements or conditions
of any of this Note or of any agreement now or hereafter securing the
indebtedness evidenced thereby, the Maker promises to pay interest on the
principal balance of this Note then outstanding from the date of maturity or
the date of such default until paid at the annual rate equal to the sum of
seven percent (7%) plus the Stated Rate from time to time in effect (but not
less than the rate in effect at such maturity or on default and not greater
than eighteen percent [18%] per annum). During the existence of any default,
the Holder of this Note may apply payments received on any amounts due
hereunder, or under any instrument now or hereafter evidencing or securing such
indebtedness, as the Holder may determine. Any additional interest or
Principal which has accrued shall be payable at the time of, and as a condition
precedent to, the curing of any default.
The Maker agrees that if this Note is placed in the hands of an
attorney for collection, or to defend or enforce any of the Holder's rights
hereunder, the Maker will pay to the Holder hereof reasonable attorney's fees,
to the extent allowed by law, together with all court cost sand other expenses
incurred in connection therewith, whether or not an action shall be instituted
to enforce this Note.
If, for any reason whatsoever, the interest paid or received on this
Note during its full term produces a rate which exceeds the Highest Lawful
Rate, the Holder of this Note shall refund to the payor or, at the Holder's
option, credit against the unpaid Principal of this Note such portion of said
interest as shall be necessary to cause the interest paid on this Note to
produce a rate equal to the Highest Lawful Rate. All sums paid or agreed to be
paid to the Holder of this Note for the use, forbearance or detention of the
indebtedness evidenced hereby shall, to the extent permitted by applicable law,
be amortized, prorated, allocated and spread in equal parts throughout the full
term of this Note, so that the interest rate is uniform throughout the full
term of this Note. It is the intention of the parties hereto to conform
strictly to the usury laws of the State of Texas and to the laws, rule and
regulations of other applicable governmental authorities to the extent that
such laws, rules and regulations preempt Texas law.
The Maker and the endorsers, sureties, guarantors, and all other
persons who may become liable for all or any part of this obligation severally
waive presentment for payment, protest and notice of nonpayment. Such parties
consent to any extension of time of payment hereof, whether one or more, any
renewal hereof, whether one or more, release of all or any part of the security
for the payment hereof and any release of any party liable for payment of this
obligation. Any such extension, renewal or release may be made at any time and
from time to time without notice to any such party and without discharging such
party's liability hereunder.
This Note shall be governed by, and construed in accordance with, the
internal laws of the State of Texas. This Note is given for an actual loan of
money for business purposes and not for personal, residential, household or
agricultural purposes.
IN WITNESS WHEREOF, the Maker has executed this Note.
-----------------------------------
Joseph DeKama
<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 audit of the consolidated financial
statements of Tristar Corporation and Subsidiaries for the year 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 13, 1996
<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 December 6, 1996, relating to the consolidated balance sheets of
Tristar Corporation and subsidiaries as of August 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the two-year period ended August 31, 1996, and
the related schedule, which report appears in the August 31, 1996, annual
report on Form 10-K of Tristar Corporation.
Our report refers to a change to the LIFO method of valuing inventory.
San Antonio, Texas
December 11, 1996
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 233,000
<SECURITIES> 0
<RECEIVABLES> 11,040,000
<ALLOWANCES> 850,000
<INVENTORY> 12,691,000
<CURRENT-ASSETS> 24,222,000
<PP&E> 8,532,000
<DEPRECIATION> 5,391,000
<TOTAL-ASSETS> 33,767,000
<CURRENT-LIABILITIES> 22,932,000
<BONDS> 0
0
0
<COMMON> 167,000
<OTHER-SE> (2,060,000)
<TOTAL-LIABILITY-AND-EQUITY> 33,767,000
<SALES> 51,720,000
<TOTAL-REVENUES> 51,720,000
<CGS> 40,801,000
<TOTAL-COSTS> 57,086,000
<OTHER-EXPENSES> 2,955,000
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<INTEREST-EXPENSE> 2,359,000
<INCOME-PRETAX> (8,321,000)
<INCOME-TAX> 3,732,000
<INCOME-CONTINUING> (12,053,000)
<DISCONTINUED> 0
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