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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 2, 1995
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-OR-
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-13099
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)
(Zip Code)
(210) 402-2200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
On January 15, 1996, there were outstanding 16,635,064 shares of
Common Stock, $.01 par value, of the registrant.
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TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements (Unaudited)
Consolidated balance sheets--December 2, 1995 and August 31, 1995 3
Consolidated statements of operations--thirteen week and three month periods ended
December 2, 1995 and November 30, 1994, respectively 5
Consolidated statements of cash flows--thirteen week and three month periods ended
December 2, 1995 and November 30, 1994, respectively 6
Notes to consolidated financial statements--December 2, 1995 7
Independent Accountants' review report 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(unaudited)
December 2, August 31,
ASSETS 1995 1995 *
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<S> <C> <C>
Current assets:
Cash $ 939,000 $ 806,000
Accounts receivable, less allowance for doubtful accounts
of $590,000 and $419,000, respectively 11,031,000 6,038,000
Accounts receivable-related parties-net 599,000 662,000
Inventories 14,079,000 14,406,000
Prepaid expenses 392,000 253,000
Deferred income taxes 1,101,000 1,101,000
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Total current assets 28,141,000 23,266,000
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Property, plant and equipment, less accumulated depreciation
of $4,272,000 and $3,637,000, respectively 9,426,000 9,851,000
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Other assets:
Warrant valuation, less accumulated amortization
of $1,374,000 and $1,353,000, respectively 715,000 736,000
Other assets 178,000 195,000
Deferred income taxes 2,660,000 2,780,000
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Total other assets 3,553,000 3,711,000
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Total assets $ 41,120,000 $ 36,828,000
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</TABLE>
* Prepared from audited financial statements for the year ended August 31,
1995.
See notes to unaudited consolidated financial statements.
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TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
(unaudited)
December 2, August 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1995 *
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<S> <C> <C>
Current liabilities:
Short-term borrowings $ 8,871,000 $ 5,383,000
Accounts payable-trade 2,346,000 1,982,000
Accounts payable-related parties-net 623,000 536,000
Accrued bonuses 194,000 97,000
Accrued interest expense 804,000 603,000
Other accrued expenses 1,351,000 1,248,000
Taxes payable 390,000 508,000
Current portion of capital lease obligations 30,000 30,000
Current portion of long-term obligations 2,118,000 2,118,000
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Total current liabilities 16,727,000 12,505,000
Long-term debt, less current portion 2,887,000 3,044,000
Obligations under capital leases, less current portion 20,000 27,000
Subordinated long-term debt-related parties 11,166,000 11,166,000
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Total liabilities 30,800,000 26,742,000
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Commitments and contingencies
Shareholders' equity:
Preferred stock, $.05 par value; authorized 1,000,000 shares;
no shares issued --- ---
Common stock, $.01 par value; authorized 30,000,000 shares;
issued and outstanding 16,635,064 shares and 16,629,683
shares, respectivley 166,000 166,000
Additional paid-in-capital 10,311,000 10,281,000
Accumulated deficit (157,000) (361,000)
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Total shareholders' equity 10,320,000 10,086,000
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Total liabilities and shareholders' equity $ 41,120,000 $ 36,828,000
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</TABLE>
* Prepared from audited financial statements for the year ended August 31,
1995.
See notes to unaudited consolidated financial statements.
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TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Months
Ended Ended
December 2, November 30,
1995 1994
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<S> <C> <C>
Net sales $ 17,403,000 $ 15,075,000
Cost of sales 12,825,000 10,383,000
Gross profit 4,578,000 4,692,000
Selling, general and administrative expenses 3,399,000 2,924,000
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Income from operations 1,179,000 1,768,000
Other income (expense):
Interest expense (536,000) (408,000)
Other (expense) income (319,000) 14,000
Insurance reimbursement -- 1,250,000
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Income before provision for income taxes 324,000 2,624,000
Provision for income taxes 120,000 1,267,000
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Net income $ 204,000 $ 1,357,000
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Net income per common share $ .01 $ .08
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Weighted average shares outstanding 17,310,295 16,861,234
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</TABLE>
See notes to unaudited consolidated financial statements.
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TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Thirteen Three
Weeks Months
Ended Ended
December 2, November 30,
1995 1994
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<S> <C> <C>
Cash flows from (used in) operating activities
Net income $ 204,000 $ 1,357,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 642,000 313,000
Provision for losses on accounts receivable 171,000 (105,000)
Provision for inventory allowances 192,000 83,000
Deferred income tax expense 120,000 ---
Issuance of stock in connection with 401K plan 30,000 4,000
Amortization of warrant valuations 21,000 63,000
Change in operating assets and liabilities:
Accounts receivable (5,101,000) (1,881,000)
Accounts receivable-insurance reimbursement --- (1,250,000)
Inventories 135,000 238,000
Prepaid expense (139,000) (66,000)
Refundable income taxes --- 1,722,000
Income taxes payable (118,000) 310,000
Accounts payable 451,000 (976,000)
Accrued expenses 401,000 73,000
Other liabilities --- (38,000)
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Net cash used in operating activities (2,991,000) (153,000)
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Cash flows from (used in) investing activities:
Capital expenditures (211,000) (72,000)
Decrease (Increase) in other assets 11,000 (41,000)
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Net cash used in investing activities (200,000) (113,000)
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Cash flows from (used in) financing activities:
Net increase in short term borrowings 3,488,000 907,000
Payments on subordinated long-term debt --- (2,150,000)
Proceeds from long-term debt --- 519,000
Principal payments under debt obligations (157,000) (49,000)
Principal payments other long-term debt (7,000) (6,000)
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Net cash provided by (used in) financing activities 3,324,000 (779,000)
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Net increase (decrease) in cash 133,000 (1,045,000)
Cash at beginning of period 806,000 1,700,000
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Cash at end of period $ 939,000 $ 655,000
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</TABLE>
See notes to unaudited consolidated financial statements.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 2, 1995
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the thirteen week period ended December 2, 1995, are not
necessarily indicative of the results that may be expected for the year ending
August 31, 1996.
The Company changed its fiscal year end 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. In addition, the Company changed its fiscal quarters
such that each quarter consists of 13 weeks and ends on a Saturday.
NOTE 2: NET INCOME PER SHARE
Net income per share amounts were computed based upon the weighted average
number of common shares outstanding and common equivalents of dilutive stock
options and warrants.
NOTE 3: INVENTORIES
Inventory is stated at the lower of cost or market.
<TABLE>
<CAPTION>
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12/2/95 8/31/95
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<S> <C> <C>
Raw materials $ 6,283,000 $ 7,269,000
Work-in-process 831,000 426,000
Finished goods 8,975,000 8,608,000
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16,089,000 16,303,000
Inventory allowances (2,010,000) (1,897,000)
$ 14,079,000 $ 14,406,000
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</TABLE>
NOTE 4: SHORT-TERM BORROWING
The Company had at December 2, 1995, two revolving credit agreements, one to
finance domestic accounts receivables and finished goods inventories
("distribution related") and a second to finance raw materials inventories
("manufacturing related").
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The distribution related revolving credit agreement, amended as of July 7,
1995, provided for $10,000,000 of maximum borrowings at the prime rate (8.75%
at August 31, 1995) plus three percentage points per annum, with additional
fees approximating one percentage point per annum. The manufacturing related
revolving credit agreement provided for $1,500,000 of maximum borrowings
bearing interest at the prime rate (8.75% at August 31, 1995), plus 1.75% per
annum plus additional fees.
Remaining combined availability under the lines existing as of December 2,
1995, was $1,542,000, based on the borrowing formulas.
Effective January 1, 1996, the Company consolidated its two revolving lines of
credit into a single line of credit that provides for maximum borrowings of
$15,500,000 at prime rate (8.5%) plus 2.75 percentage points per annum, with
additional fees approximating a percentage point per annum. Borrowing
capability under this credit agreement is based on eligible domestic and
foreign accounts receivable,and on eligible finished goods and manufacturing
inventories, within limits established under the agreement.
The restated revolving line of credit expires July 1997. This credit facility
is secured by substantially all of the assets of the Company. The agreement
contains material adverse change provisions, as well as certain restrictions
and conditions among which are limitations on cash dividends, capital
expenditures, maximum levels of accounts receivable from related parties, and
repayments of a prior financing arrangement with a related party.
NOTE 5: LITIGATION AND CONTINGENCIES
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company,
as well as two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas
and Melissa Freitas. The complaint alleges causes of action by two plaintiffs
for libel and seeks indemnification in connection with the work of the Special
Committee of the Board of Directors that investigated, among other things, a
prior failure to disclose the Core Sheth Families' holdings of Company stock.
The complaint also alleges, on behalf of all four plaintiffs, that the
Company's disclosures relating to these and other matters were fraudulent or
negligently misrepresented. 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 January 1, 1995, the Company's personal fragrance products have not been
in compliance with regulations of the California Air Resources Board (the
"CARB") with respect to volatile organic compounds ("VOC's"). The Company has
reformulated a number of its products and is in the process of reformulating
its primary fragrance lines to achieve compliance with the VOC regulations.
The Company has filed with the CARB required registrations of its products and
an application for a temporary variance from VOC regulations until all products
not meeting the requirements can be reformulated. Following a hearing held in
January 1996 relating to its variance request, the staff of CARB recommended
that the Company be granted a variance to sell its non-complying products in
California until September 30, 1996. The Company believes that its products
will be reformulated and will comply with the VOC regulations by September 30,
1996. The CARB is considering the Company's variance request, and a decision is
expected shortly. Any interruption of the Company's sales in California would
have a material adverse effect on the Company's financial condition.
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.
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NOTE 6: RELATED PARTY TRANSACTIONS:
Certain suppliers of fragrance product components and the primary suppliers of
cosmetic products are related parties. Related party accounts payable result
from the purchase of products from those vendors. Related party accounts
receivable result from the sale of products to related parties. The payables
and receivables balances are offset for presentation purposes and the net
balance of accounts receivable or accounts payable is presented on the balance
sheet. Related party payables also 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. At August
31, 1995, these payable also included expenses incurred which related to the
Company's merger with a related party, Eurostar. The following summarizes the
presentations at December 2, 1995 and August 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 2, AUGUST 31,
1995 1995
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<S> <C> <C>
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties $ 890,000 1,070,000
Offset amount (291,000) (408,000)
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Net related parties receivables $ 599,000 662,000
===============================
ACCOUNTS PAYABLE:
Total accounts payable-related parties $ 914,000 944,000
Offset amount (291,000) (408,000)
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Net related parties payables $ 623,000 536,000
===============================
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</TABLE>
The Company purchases finished goods and fragrance product components from Core
Sheth Families affiliates. During the quarters ended December 2, 1995, and
November 30, 1994, the Company purchased approximately $1,450,000 and
$2,049,000, respectively.
During the quarters ended December 2, 1995, and November 30, 1994, the Company
sold products to Core Sheth Families affiliates in the amounts of approximately
$441,000 and $360,000, respectively.
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Independent Accountants' Review Report
The Board of Directors and Shareholders
Tristar Corporation:
We have reviewed the condensed consolidated balance sheet of Tristar
Corporation and subsidiaries as of December 2, 1995, and the related condensed
consolidated statements of income and cash flows for the thirteen week period
ended December 2, 1995 and the three month period ended November 30, 1994.
These condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Tristar Corporation and
subsidiaries as of August 31, 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated November 6, 1995, which referred to
other auditors, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of August 31, 1995, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 5, 1996
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE QUARTERS ENDED DECEMBER 2, 1995, AND NOVEMBER 30,
1994.
On August 31, 1995, the Company merged with Eurostar Perfumes, Inc., and its
subsidiaries, accordingly, all fiscal 1995 amounts have been restated to
reflect the merger.
For the thirteen week period ended December 2, 1995, the Company recorded net
income of $204,000 or $0.01 per share as compared to the previous year's net
income of $1,357,000 or $0.08 per share.
NET SALES
Net sales for the first quarter of fiscal 1996 were $17,403,000, an increase of
15.4%, compared to the net sales of $15,075,000 for the same period in fiscal
1995. The increase over the prior fiscal period can be primarily attributed to
growth in the U.S. chains, specialty chains, and mass merchandisers. Sales
outside the U.S. remained relatively constant in relation to the first quarter
of fiscal 1995.
NET SALES - CHANNELS OF DISTRIBUTION
The Company markets and distributes products to wholesalers, distributors,
chain stores, mass merchandisers, and independent retail channels in various
markets throughout North and South America.
For the quarter ended December 2, 1995, the Company experienced growth in the
U.S. market in chains, specialty chains, and mass merchandiser channels while
experiencing a decline in the wholesale channel. The growth was attributable
to new customers and to expanded distribution in existing customers. The
wholesale channel has been negatively affected by increased competition, a
maturation of that market, and a decrease in purchases by customers who
ultimately distributed the Company's product into Mexico, Central and South
America. This trend is anticipated to continue. The Company continues to
devote resources to all channels of distribution in the U.S. with programs
including, but not limited to, promotions and limited advertising.
Sales made directly to foreign-based customers in North and South America as a
group remained relatively constant when compared to the prior year's first
quarter. Economic and political conditions continue to restrict growth in
those markets. However, the Company continues to devote resources to these
channels of distribution with similar programs to those in the U.S.
NET SALES - RELATED PARTIES
In the first quarter of fiscal 1996, sales to affiliates of the Core Sheth
Families, the Company's major stockholder, were $441,000 as compared to the
prior year's $360,000.
NET SALES - PRODUCTS PURCHASED FROM RELATED PARTIES
Of the net sales in the first quarter of fiscal 1996, approximately 8%, or
$1,349,000, resulted from the sale of products purchased from related parties
as finished goods. For the same quarter in fiscal 1995, comparable numbers
were 10%, or $1,504,000. In addition, fragrance and other products
manufactured and sold by the Company included some components that were
purchased from related parties. The cost of those components approximated 7%
and 11% of cost of sales in the first quarters of fiscal 1996 and 1995,
respectively.
GROSS PROFIT
The Company's gross profit for the first quarter of fiscal 1996 was $4,578,000,
or 26.3% of sales compared to $4,692,000 or 31.1% of sales for the same period
in fiscal 1995. The decrease in gross profit was due to manufacturing
variances attributable to the extension of production efforts to meet market
demands and to costs associated with the introduction and manufacturing of a
new product line.
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Improved gross profit margins are anticipated for the remainder of the fiscal
year as production efficiencies are expected to improve.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") for the thirteen week
period of fiscal 1996 increased 16.2% to $3,399,000 from $2,924,000 for the
like fiscal 1995 period. SG&A expenses as a percentage of sales remained
approximately the same. The 16.2% increase over the prior fiscal period was
due primarily to growth in support of all sales channels and to improved
support and controls over other functions within the Company. SG&A expenses
are expected to continue at the current level for the remainder of the fiscal
year.
NON OPERATING INCOME OR EXPENSE
Interest expense increased over the previous year's first quarter to $536,000
from $408,000 as a result of increased borrowings under the Company's lines of
credit.
Foreign currency translation losses of $161,000, merger costs of $64,000, and
financing costs associated with Brazilian operations were the primary
contributors to increased other expenses in the first quarter of fiscal 1996.
The first quarter of fiscal 1995 included other income of $1,250,000 from
insurance proceeds under a company owned executive liability and indemnity
policy.
POTENTIAL ADVERSE AFFECTS ON RESULTS OF OPERATIONS FOR FUTURE PERIODS
The results for the remainder of fiscal 1996 could be adversely affected by
each or all of the following factors:
1. Mexican market. In December 1994, the Mexican government devalued the
Mexican Nuevo Peso by allowing the peso to float freely against the
U.S. dollar. This devaluation has resulted in a general increase of
100% or more in the cost of imported products to the Mexican consumer.
The increase and the resultant instability, including significant
business failures, higher interest rates, and high unemployment, have
caused a sharp decline in purchases of the Company's products by the
Mexican consumer. It is not known if and when the Peso will stabilize
at a level where somewhat normal purchasing will resume. Prior to the
above mentioned economic and political instability, sales directly and
indirectly into Mexico had accounted for a significant portion of
Tristar's total sales.
The Company believes that some of its customers based in the United
States sell the Company's products (as well as the products of other
companies) to purchasers who, in turn, may attempt to import goods
into Mexico without full payment of applicable Mexican taxes and
customs duties. Enhanced enforcement efforts by Mexican authorities
may have an adverse effect on the Company's sales to such customers.
The Company has been unable to determine the effect, if any, that the
implementation of the North America Free Trade Agreement ("NAFTA") has
had or subsequently will have on the Company's business.
2. Distribution channels. Although the Company is making extensive
efforts to market products into Latin America and the chain and mass
merchandising channels, the Company continues to remain dependent on
its original market, the wholesale channel. The maturation of this
market combined with competitive pressures have resulted in a slowing
of the general growth of this market. These factors are expected by
management to continue to negatively affect results for the remainder
of fiscal 1996.
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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 alternate sources could be found
and/or developed.
In addition, the Company is dependent on the supply of cosmetic
products, other than cosmetic pencils, from related parties. If such
affiliates were to cease or to 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 marketing
operations in Latin and South 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 or start up costs. In addition
certain countries impose strict import restrictions and high levels of
taxes on imports that could affect the success of sales and marketing
activities and also affect the profitability of such activities.
At this time, it is not known whether, or to what degree, the above
factors will have a material adverse impact on future results.
LIQUIDITY AND CAPITAL RESOURCES
The Company obtains working capital from two primary sources: a revolving line
of credit and cash generated by operations.
Operating Activities
Operations in the thirteen week period ended December 2, 1995, utilized
$2,991,000 in cash primarily due to increased trade accounts receivable
($5,101,000). Offsetting the usage was net income adjusted for non-cash items
($1,176,000).
Accounts receivable grew primarily as a result of a seasonal growth in sales
and due to varying extended seasonal financing terms given to customers.
Investing Activities
Capital expenditures during the thirteen week period were $211,000, consisting
primarily of investments in machinery and equipment, facilities related items,
and computer equipment. Capital expenditures for the remainder of the fiscal
year are expected to be primarily for manufacturing equipment, and computer
equipment and software with lesser amounts being invested in equipment for
distribution activities. These amounts are not expected to be material to the
cash flow of the Company.
Financing Activities
Effective January 1, 1996, the Company consolidated its two revolving lines of
credit into a single expanded line of credit that provides for maximum
borrowings of $15,500,000 at prime rate (8.5%) plus 2.75 percentage points per
annum, with additional fees approximating a percentage point per annum.
Borrowing capability under this credit agreement is based on eligible domestic
and foreign accounts receivable,and on eligible finished goods and
manufacturing inventories, within limits established under the agreement.
The restated revolving line of credit expires July 1997. This credit facility
is secured by substantially all of the assets of the Company. The agreement
contains material adverse change provisions, as well as certain restrictions
and conditions among which are limitations on cash dividends, capital
expenditures,
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maximum levels of accounts receivable from related parties, and repayments of a
prior financing arrangement with a related party.
During the thirteen week period ending December 2, 1995, short term borrowings
increased $3,488,000 to $8,871,000 under the revolving line of credit.
Remaining combined availability under the lines existing as of December 2,
1995, was $1,542,000, based on the borrowing formulas.
Management believes that the Company's revolving line of credit, together with
cash generated by operations should be sufficient to satisfy its anticipated
needs for the balance of fiscal 1996.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CALIFORNIA AIR RESOURCES BOARD
Since January 1, 1995, the Company's personal fragrance products have not been
in compliance with regulations of the California Air Resources Board (the
"CARB") with respect to volatile organic compounds ("VOC's"). The Company has
reformulated a number of its products and is in the process of reformulating
its primary fragrance lines to achieve compliance with the VOC regulations.
The Company has filed with the CARB required registrations of its products and
an application for a temporary variance from VOC regulations until all products
not meeting the requirements can be reformulated. Following a hearing held in
January 1996 relating to its variance request, the staff of CARB recommended
that the Company be granted a variance to sell its non-complying products in
California until September 30, 1996. The Company believes that its products
will be reformulated and will comply with the VOC regulations by September 30,
1996. The CARB is considering the Company's variance request, and a decision
is expected shortly. Any interruption of the Company's sales in California
would have a material adverse effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual meeting of Stockholders was held on January 11,
1996 at the Company's corporate offices in San Antonio, Texas.
(b) The following directors were elected to serve until the next
Annual Meeting of Stockholders or until their successors have
been elected and qualified:
Richard P. Rifenburgh Jay J. Sheth
Robert R. Sparacino Viren S. Sheth
Aaron Zutler
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<PAGE> 16
(c) (1) Of the 16,138,482 shares represented at the meeting, the
directors named in (b) above were elected by the following
votes:
<TABLE>
<CAPTION>
-------------------------------------------------------------
NAME NO. OF VOTES RECEIVED
---- ---------------------
-------------------------------------------------------------
<S> <C>
Richard P. Rifenburgh 16,080,282
Robert R. Sparacino 16,080,282
Aaron Zutler 16,080,282
Jay J. Sheth 16,079,882
Viren S. Sheth 16,079,822
-------------------------------------------------------------
</TABLE>
(2) Of the 16,138,482 shares voting at the meeting,
16,126,797 voted for the ratification of the appointment of
the accounting firm of KPMG Peat Marwick LLP as the Company's
independent public accountants for its 1996 fiscal year. The
number of shares that voted against the ratification was 1,310
and the holders of 10,375 shares abstained from voting
(d) None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS
10. Consolidated and Restated Loan and Security Agreement with
Fremont Financial Corporation, with Special Provisions Rider.
23. Awareness Letter of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
b) REPORTS ON FORM 8-K
1. The Company filed a Current Report on Form 8-K dated
November 16, 1995, reporting a change in fiscal year 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. In addition, the Company changed its fiscal quarters
such that each quarter consists of 13 weeks and ends on a
Saturday.
Page 16
<PAGE> 17
SIGNATURES
Pursuant to the requirements 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.
TRISTAR CORPORATION
(Registrant)
Date: January 16, 1996 /s/ Viren S. Sheth
---------------- --------------------------------------------
Viren S. Sheth
President and Chief Executive Officer
(Principal Executive Officer)
Date: January 16, 1996 /s/ Loren M. Eltiste
---------------- --------------------------------------------
Loren M. Eltiste
Vice-President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 17
<PAGE> 18
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10. Consolidated and Restated Loan and Security Agreement with Fremont
Financial Corporation, with Special Provisions Rider.
23. Awareness Letter of KPMG Peat Marwick LLP.
27. Financial Data Schedule.
</TABLE>
<PAGE> 1
CONSOLIDATED AND RESTATED
LOAN AND SECURITY AGREEMENT
This CONSOLIDATED AND RESTATED LOAN AND SECURITY AGREEMENT is entered into
as of December 29, 1995, but effective January 1, 1996, between FREMONT
FINANCIAL CORPORATION, a California corporation (Fremont), with a place of
business located at 300 Embassy Row, Suite 650, Atlanta, Georgia 30328 and
TRISTAR CORPORATION, a Delaware corporation (Borrower), with its chief
executive office located at 12500 San Pedro Avenue, Suite 500, San Antonio,
Texas 78216.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 TERMS. As used in this Agreement, the following terms
shall have the following definitions:
Accounts means all presently existing and hereafter
arising accounts receivable, contract rights, and all other forms of
obligations owing to Borrower arising out of the sale or lease of goods or the
rendition of services by Borrower, whether or not earned by performance, all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
Agreement means collectively this Consolidated and
Restated Loan and Security Agreement, any concurrent or subsequent rider to
this Consolidated and Restated Loan and Security Agreement, and any extensions,
supplements, amendments, addenda or modifications to or in connection with this
Consolidated and Restated Loan and Security Agreement or any such rider.
Authorized Officer means any officer of Borrower
authorized in writing to transact business with Fremont.
Borrower's Books means all of Borrower's books and records
including all of the following: ledgers; records indicating, summarizing, or
evidencing Borrower's assets or liabilities, or the Collateral; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information, and the equipment containing such information.
Business Day means any day which is not a Saturday,
Sunday, or other day on which banks in the State of Georgia are authorized or
required to close.
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<PAGE> 2
Code means the Georgia Uniform Commercial Code, as amended
from time to time.
Collateral means all of the following: the Accounts; the
Equipment; the General Intangibles; the Inventory; the Negotiable Collateral;
any money, deposit accounts or assets of Borrower which hereafter come into the
possession, custody, or control of Fremont; all proceeds and products, whether
tangible or intangible, of any of the foregoing, including proceeds of
insurance covering any or all of the Collateral, and any and all Accounts,
Equipment, General Intangibles, Inventory, Negotiable Collateral, money,
deposit accounts, or other tangible or intangible property resulting from the
sale or other disposition of the Collateral, or any portion thereof or interest
therein, and all proceeds thereof.
Conditions Precedent Rider means that certain Conditions
Precedent Rider dated as of the date hereof between Borrower and Fremont.
Daily Balance means the amount of the Obligations owed at
the end of a given day.
Eligible Accounts means those Accounts created by Borrower
in the ordinary course of business arising out of Borrower's sale of goods or
rendition of services, which are and at all times shall continue to be
acceptable to Fremont in all respects; PROVIDED, HOWEVER, that standards of
eligibility may be fixed and revised from time to time by Fremont in Fremont's
exclusive judgment. In determining such eligibility Fremont may, but need not,
rely on agings, reports and schedules of Accounts furnished by Borrower, but
reliance by Fremont thereon from time to time shall not be deemed to limit
Fremont's right to revise standards of eligibility at any time as to both
Borrower's present and future Accounts. In general, an Account shall not be
deemed eligible unless: (a) the account debtor on such Account is and at all
times continues to be acceptable to Fremont, and (b) such Account complies in
all respects with the representations, covenants and warranties hereinafter set
forth. Except in Fremont's sole discretion, Eligible Accounts shall not
include any of the following: (a) Accounts (other than Foreign Accounts) which
the account debtor has failed to pay within sixty (60) days of the due date,
and all Accounts (other than Foreign Accounts) owed by any account debtor that
has failed to pay twenty-five percent (25.0%) or more of its Accounts owed to
Borrower within sixty (60) days of the due date, not to exceed one hundred
twenty (120) days from the invoice date; (b) Accounts consisting of Foreign
Accounts which the account debtor has failed to pay within seventy-five (75)
days from the original invoice date, and all Accounts owed by any account
debtor that has failed to pay twenty-five percent (25.0%) or more of its
Accounts owed to Borrower within seventy-five (75) days from the original
invoice date; (c) Accounts with respect to which the account debtor is an
officer, employee or agent of Borrower; (d) Accounts with respect to which
goods are placed on consignment or for a guaranteed sale, or which contain
other terms by reason of which payment by the account debtor may be
conditional; (e) other than Foreign Accounts, Accounts with respect to which
the account debtor is not a resident of the United States; (f) Accounts with
respect to which the account debtor is the United States or any department,
agency or instrumentality of the United States, any State of the United States
or any
2
<PAGE> 3
city, town, municipality or division thereof; (g) Accounts with respect to
which the account debtor is a subsidiary of, related to, affiliated with or has
common shareholders, officers or directors with Borrower; (h) Accounts with
respect to which Borrower is or may become liable to the account debtor for
goods sold or services rendered by the account debtor to Borrower; (i) Accounts
with respect to an account debtor whose total obligations to Borrower exceed
fifteen percent (15%) of all Accounts, to the extent of such excess; or (j)
Accounts with respect to which the account debtor disputes liability or makes
any claim with respect thereto, or is subject to any insolvency proceeding, or
becomes insolvent, fails or goes out of business.
Eligible Inventory means Inventory consisting of first
quality finished goods held for sale in the ordinary course of Borrower's
business and raw materials for such finished goods which are located at
Borrower's premises and acceptable to Fremont in all respects; PROVIDED,
HOWEVER, that general criteria for Eligible Inventory may be established and
revised from time to time by Fremont in Fremont's exclusive judgment. In
determining such acceptability Fremont may, but need not, rely on reports and
schedules of Inventory furnished to Fremont by Borrower, but reliance thereon
by Fremont from time to time shall not be deemed to limit Fremont's right to
revise standards of eligibility at any time. In general, except in Fremont's
sole discretion, Eligible Inventory shall not include work in process,
components which are not part of finished goods, spare parts, packaging and
shipping materials, materials used or consumed in Borrower's business, goods
returned to, repossessed by, or stopped in transit by Borrower, Inventory at
the premises of third parties or subject to a security interest or lien in
favor of any third party, bill and hold goods, Inventory which is not subject
to Fremont's perfected security interest, returned and/or defective goods,
"seconds" and Inventory purchased on consignment. Eligible Inventory shall be
valued at the lower of average cost or wholesale market value; provided,
however, solely with respect to finished goods Inventory of Borrower
manufactured or produced at Borrower's manufacturing facility located in
Atascosa County, Texas, as more particularly described in the Texas Mortgage
(as defined in the Special Provisions Rider) (the "Atascosa Facility
Inventory"), such Atascosa Facility Inventory shall be valued at the lesser of
(x) the sum of (ii) the cost of such Atascosa Facility Inventory, plus (ii) the
amount of the corresponding mark-up with respect to such Atascosa Facility
Inventory, as such mark-up amount is set forth on the monthly report furnished
by Borrower to Fremont pursuant to Section 6.3 hereof, or (y) the wholesale
market value.
Equipment means all of Borrower's present and hereafter
acquired equipment, machinery, machine tools, motors, furniture, furnishings,
fixtures, motor vehicles, rolling stock, processors, tools, parts, dies, jigs,
goods (other than consumer goods or farm products), and any interest in any of
the foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located.
ERISA means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
3
<PAGE> 4
ERISA Affiliate means each trade or business (whether or
not incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a
single employer under ERISA Section 4001(b)(1), or IRC Section 414.
Event of Default means the events specified in Section 8,
below.
Foreign Account means an Account owed to Borrower by an
account debtor located in a country set forth on Exhibit C attached hereto,
which such Account is payable in United States of America dollars and is billed
directly by Borrower to such account debtor.
Fremont Expenses means all of the following: costs and
expenses (whether taxes, assessments, insurance premiums or otherwise) required
to be paid by Borrower under any of the Loan Documents which are paid or
advanced by Fremont; filing, recording, publication, appraisal and search fees
paid or incurred by Fremont in connection with Fremont's transactions with
Borrower; costs and expenses incurred by Fremont in the disbursement or
collection of funds to or from Borrower; charges resulting from the dishonor of
checks; costs and expenses incurred by Fremont to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale, or advertising to sell the Collateral, or any portion thereof,
irrespective of whether a sale is consummated; and costs and expenses incurred
by Fremont in enforcing or defending the Loan Documents, including, but not
limited to, costs and expenses incurred in connection with any proceeding,
suit, enforcement of judgment, or appeal; and Fremont's reasonable attorneys'
fees and expenses incurred in advising, structuring, drafting, reviewing,
administering, amending, terminating, enforcing, defending, or otherwise
representing Fremont concerning the Loan Documents or Borrower's Obligations to
Fremont.
General Intangibles means all of Borrower's present and
future general intangibles and other personal property (including choses or
things in action, goodwill, patents, trade names, trademarks, service marks,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, infringement claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims) other than goods and Accounts, and Borrower's Books relating to any of
the foregoing.
Insolvency Proceeding means any proceeding commenced by or
against any person or entity under any provision of the federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, or extensions generally with its creditors.
Inventory means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service, Borrower's present and future raw
materials, work in process, finished goods, tangible property, stock in trade,
wares, and materials used in or consumed in Borrower's business, goods which
4
<PAGE> 5
have been returned to, repossessed by, or stopped in transit by Borrower,
packing and shipping materials, wherever located, any documents of title
representing any of the above, and Borrower's Books relating to any of the
foregoing.
IRC means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
Loan Documents means, collectively, this Agreement, any
Note or Notes executed by Borrower to the order of Fremont, any security
agreements, pledge agreements, or other encumbrances or agreements which secure
Borrower's Obligations to Fremont, and any other agreement entered into between
Borrower and Fremont relating to or in connection with this Agreement.
Multiemployer Plan means a multiemployer plan as defined
in ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f).
Negotiable Collateral means all of Borrower's present and
future letters of credit, notes, drafts, instruments, documents, leases, and
chattel paper, and Borrower's Books relating to any of the foregoing.
Note means any promissory note heretofore or at any time
hereafter made by Borrower to the order of Fremont, as amended, renewed,
extended, restated and modified from time to time.
Obligations means all loans, advances, debts, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Fremont to charge Borrower's loan account), obligations,
lease payments, guaranties, covenants, and duties owing by Borrower to Fremont
of any kind and description (whether pursuant to or evidenced by the Loan
Documents or by any other agreement between Fremont and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, including any debt, liability or obligation owing from Borrower to
others which Fremont may obtain by assignment or otherwise, and all interest
thereon and all Fremont Expenses which Borrower is required to pay or reimburse
by the Loan Documents, by law, or otherwise.
Plan means any plan described in ERISA Section 3(2)
maintained for employees of Borrower or any ERISA Affiliate, other than a
Multiemployer Plan.
Reference Rate means the variable rate of interest, per
annum, announced by Bank of America NT&SA, San Francisco, California or any
successor thereto, from time to time as its Reference Rate. The Reference Rate
is nothing more nor less than the rate publicly announced as such by the named
bank, and an index for determining the interest rate payable under the terms of
this Agreement. The Reference Rate is not necessarily the best rate, or any
other definition of rates, offered to its customers by the named bank or by
Fremont. In the event
5
<PAGE> 6
the Reference Rate ceases to be available, Fremont may substitute any similar
index for the Reference Rate.
Special Provisions Rider means that certain Special
Provisions Rider dated as of the date hereof, between Fremont and Borrower.
Standby Letter of Credit Supplement means that certain
Standby Letter of Credit Agreement Supplement to Loan and Security Agreement
dated as of June 27 1995, between Fremont and Borrower, as amended and modified
from time to time.
1.2 CONSTRUCTION. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular, and
to the singular include the plural. The words hereof, herein, hereby,
hereunder, and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, clause and exhibit references are to this Agreement unless
otherwise specified.
1.3 ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles (GAAP) as in effect from time to time. When used herein,
the term financial statements shall include the notes and schedules thereto.
1.4 EXHIBITS. All of the exhibits, addenda or riders to this
Agreement (including without limitation the Conditions Precedent Rider and the
Special Provisions Rider, shall be deemed incorporated herein by reference).
1.5 CODE. Any terms used in this Agreement which are defined
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
2. ADVANCES AND TERMS OF PAYMENT
2.1 REVOLVING ADVANCES; ADVANCE LIMIT. Upon the request of
Borrower, made at any time or from time to time during the term hereof, and so
long as no Event of Default has occurred and is continuing, Fremont shall, in
its sole and absolute discretion, make advances to Borrower in an amount up to
(a) Seventy-Five percent (75%) of the aggregate outstanding amount of Eligible
Accounts other than Foreign Accounts, PLUS (b) the lesser of (1) Sixty percent
(60%) of the aggregate outstanding amount of Eligible Accounts consisting of
Foreign Accounts or (2) ONE MILLION DOLLARS ($1,000,000), PLUS (c) the lesser
of (1) Forty percent (40%) of the aggregate value of the Eligible Inventory
consisting of raw materials Inventory or (2) TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($2,500,000), PLUS (d) the lesser of (1) Fifty percent (50%) of the
aggregate value of the Eligible Inventory consisting of finished goods
Inventory or (2) FIVE MILLION DOLLARS ($5,000,000); PROVIDED, HOWEVER, that in
no event shall the aggregate amount of the outstanding advances made pursuant
to this Section 2.1 be greater than, at any time, the sum of FIFTEEN MILLION
FIVE HUNDRED THOUSAND DOLLARS ($15,500,000) (the Advance Limit).
Notwithstanding the foregoing
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<PAGE> 7
formula and the definitions of Eligible Accounts and Eligible Inventory,
Fremont may reduce its advance rates on Eligible Accounts or Eligible Inventory
or establish reserves with respect to borrowing availability if it determines,
in its sole discretion, that there has occurred, or is likely to occur, an
impairment of the prospect of repayment of all or any portion of the
Obligations or an impairment of the value or priority of Fremont's security
interests in the Collateral.
2.2 INITIAL ADVANCE. Fremont agrees that, upon satisfaction
on or before January 1, 1996 of each of the conditions precedent set forth in
the Conditions Precedent Rider between Borrower and Fremont dated the date
hereof and elsewhere in this Agreement, Fremont shall advance to Borrower, on
Borrower's request therefor, an amount not less than Two Hundred Fifty Thousand
Dollars ($250,000) as Fremont's Initial Advance under this Agreement, and all
future advances under this Agreement shall be for an amount not less than Three
Thousand Dollars ($3,000) each and shall be deemed to be and constitute,
together with the Initial Advance, one general obligation of Borrower's and a
single loan from Fremont to Borrower, and shall be secured by Fremont's
security interest in and lien upon all of the Collateral, and by all other
security interests and liens heretofore, now or at any time or times hereafter
granted by Borrower to Fremont.
2.3 OVERADVANCES. All advances and Term Loans (as defined in
the Special Provisions Rider) made hereunder shall be added to and deemed part
of the Obligations when made. If, at any time and for any reason, the
aggregate amount of the outstanding advances made pursuant to Section 2.1
exceeds the dollar or percentage limitations contained in Section 2.1 (an
Overadvance), then Borrower shall, upon demand by Fremont, immediately pay to
Fremont, in cash, the amount of such excess.
2.4 OVERADVANCE FEE. Without affecting Borrower's obligation
to immediately repay to Fremont the amount of each Overadvance in accordance
with the provisions of Section 2.3 of this Agreement, in the event Fremont
agrees to permit any Overadvance to exist and continue and in consideration for
permitting such Overadvance to exist and continue, Fremont shall be entitled,
in its sole discretion, to charge Borrower a fee (the Overadvance Fee) and
Borrower agrees to pay Fremont the Overadvance Fee immediately upon notice of
such Overadvance by Fremont to Borrower, in an amount equal to the lesser of
(a) interest at the Maximum Rate, or (b) twenty-five percent (25%) per annum on
the amount Overadvanced for each day any Overadvance exists. To the fullest
extent allowed by applicable law, if the Overadvance Fee is held to be interest
under applicable law, then it shall be deemed to be interest on the total
outstanding principal balance of the total credit facility and not merely
interest on the Overadvance. All such fees shall be computed on the basis of a
three hundred and sixty (360) day year for the actual number of days elapsed.
2.5 AUTHORIZATION TO MAKE ADVANCES. Fremont is hereby
authorized to make the advances provided for in this Agreement based upon
telephonic or other instructions received from anyone purporting to be an
Authorized Officer, or, at the discretion of Fremont, if such advances are
necessary to satisfy any Obligations. All requests for advances hereunder
shall specify the date on which the requested advance is to be made (which day
shall be a Business
7
<PAGE> 8
Day) and the amount of the requested advance. Requests received after 11:00
a.m. Eastern time on any day shall be deemed to have been made as of the
opening of business on the immediately following Business Day. All advances
made under this Agreement shall be conclusively presumed to have been made to,
at the request of, and for the benefit of Borrower when deposited to the credit
of Borrower or otherwise disbursed in accordance with the instructions of
Borrower or in accordance with the terms and conditions of this Agreement.
2.6 INTEREST.
A. Except where specified to the contrary in any
Loan Document, the outstanding principal balances of all of Borrower's
Obligations to Fremont shall accrue interest at lesser of (a) interest at the
Maximum Rate or (b) the rate of one and three-quarters of one percent (1.75%)
per annum above the Reference Rate. The outstanding principal balances of all
Obligations shall bear interest from and after written notice by Fremont to
Borrower of the occurrence of an Event of Default, and without constituting a
waiver of any such Event of Default, at the lesser of (a) interest at the
Maximum Rate or (b) the rate of four and three-quarters of one percent (4.75%)
per annum above the Reference Rate. All interest payable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed, on the aggregate outstanding
balances of the Obligations on each day. Interest shall continue to accrue
until all of the Obligations are paid in full.
B. The Reference Rate as of the date of the
execution of this Agreement is eight and one-half of one percent (8.5%) per
annum, and, therefore, the rate of interest in effect hereunder on the date of
this Agreement, expressed in simple interest terms, is ten and one-quarter of
one percent (10.25%) per annum. The interest rate payable by Borrower under
the terms of this Agreement shall be adjusted in accordance with any change in
the Reference Rate from time to time in the date of any such change. All
interest payable by Borrower shall be due and payable on the first day of each
calendar month during the term of this Agreement. Notwithstanding anything to
the contrary contained in the Loan Documents, the minimum interest payable by
Borrower on its Obligations to Fremont shall be the lesser of (a) interest at
the Maximum Rate or (b) Twenty Thousand Dollars ($20,000) per month.
2.7 VERIFICATION AND COLLECTION OF ACCOUNTS. Fremont or
Fremont's designee may, at any time, with or without notice to Borrower, (a)
notify customers or account debtors of Borrower that the Accounts have been
assigned to Fremont and that Fremont has a security interest in them, (b)
contact account debtors of Borrower, either in writing or by telephone, for the
purpose of verifying the validity amount or any other matter relating to any
Accounts and (c) collect the Accounts directly and add the collection costs and
expenses to Borrower's loan account. Unless and until Fremont begins direct
collection of the Accounts or gives Borrower other written instructions and
subject to the terms of any lockbox, blocked account or other similar agreement
entered into for the purpose of collection of the Accounts, Borrower shall
collect all Accounts and the proceeds of other Collateral for the benefit of
Fremont, receive in trust all payments thereon as Fremont's trustee and
immediately deliver said payments to Fremont in their original form as received
by Borrower.
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<PAGE> 9
2.8 CREDITING PAYMENTS. The receipt of any item of payment by
Fremont shall be applied to reduce Obligations, but the receipt of such an item
of payment shall be deemed to have been paid to Fremont three (3) Business Days
after the date Fremont actually receives receipt of such item of payment.
Notwithstanding anything to the contrary contained herein, payments received by
Fremont after 11:00 a.m. Eastern time shall be deemed to have been received by
Fremont as of the opening of business on the immediately following Business
Day.
2.9 ANNUAL FACILITY FEE. This Section Intentionally Omitted.
2.10 LOAN FEE. This Section Intentionally Omitted.
2.11 UNUSED LINE FEE. This Section Intentionally Omitted.
2.12 MAINTENANCE FEE. Borrower agrees to pay Fremont a fee
(Maintenance Fee) in an amount equal to .083% of the outstanding balance on or
before the first (1st) day of each calendar month, in respect of Fremont's
services for the preceding calendar month, during the term of this Agreement,
including all renewal terms, or so long as any of the Obligations are
outstanding.
2.13 AUDIT FEE. Borrower agrees to pay Fremont a fee (Audit
Fee) in an amount equal to Six Hundred Dollars ($600) per day per auditor, plus
out-of-pocket expenses for each audit or examination of Borrower performed by
Fremont.
2.14 LATE REPORTING FEE. Borrower agrees to pay to Fremont a
fee (Late Reporting Fee) in an amount equal to Fifty Dollars ($50.00) per
document per day for each Business Day any report, financial statement or
schedule required by this Agreement to be delivered to Fremont is past due.
2.15 MAXIMUM CHARGES. In no event shall interest on the
Obligations exceed the highest lawful rate in effect from time to time. It is
not the intention of the parties hereto to make an agreement which violates any
applicable state or federal usury laws. In no event shall Borrower pay or
Fremont accept or charge any interest which, together with any other charges
upon the principal or any portion thereof, exceeds the maximum lawful rate of
interest allowable under any applicable state or federal usury laws. Should
any provision of this Agreement or any existing or future Notes or Loan
Documents between the parties be construed to require the payment of interest
which, together with any other charges upon the principal or any portion
thereof, exceeds the maximum lawful rate of interest, then any such excess
shall be applied to the remaining principal balance, if any, and the remainder
refunded to Borrower.
2.16 MONTHLY STATEMENTS. Fremont shall render monthly
statements to Borrower of all Obligations, including statements of all
principal, interest and Fremont Expenses charged, and Borrower shall have fully
and irrevocably waived all objections to such statements and the contents
thereof unless, within thirty (30) days after receipt thereof by Borrower,
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<PAGE> 10
Borrower shall deliver to Fremont, by registered, certified or overnight mail,
at Fremont's address indicated in Section 12 hereof, written objection to
Fremont's statement specifying the error or errors, if any, contained in such
statement.
3. TERM
3.1 RENEWAL DATE. This Agreement shall become effective upon
acceptance by Fremont and shall continue in full force and effect for a term
ending July 7, 1997 (the Renewal Date) and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof. Either party may terminate
this Agreement on the Renewal Date or on the anniversary of the Renewal Date in
any year by giving the other party at least sixty (60) days prior written
notice by registered or certified mail, return receipt requested and, in
addition, Fremont shall have the right to terminate this Agreement immediately
at any time upon the occurrence of an Event of Default. No termination of this
Agreement, however, shall relieve or discharge Borrower of Borrower's duties,
Obligations and covenants hereunder until all Obligations have been paid in
full, and Fremont's continuing security interest in the Collateral shall remain
in effect until all of Borrower's Obligations to Fremont have been fully paid
and satisfied. Upon termination of this Agreement, all of the Obligations
shall be immediately due and payable in full.
3.2 EARLY TERMINATION FEE. If this Agreement is terminated by
Fremont upon the occurrence of an Event of Default, or is terminated at
Borrower's request other than pursuant to Section 3.1, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Fremont's
lost profits as a result thereof, Borrower shall pay to Fremont upon the
effective date of such termination a fee (Early Termination Fee) in an amount
equal to: (a) two percent (2.0%) of the Advance Limit if such termination
occurs on or prior to July 7, 1996; (b) one percent (1.0%) of the Advance
Limit if such termination occurs after July 7, 1996; provided, however, that no
Early Termination Fee shall be payable if (x) such termination occurs on the
Renewal Date or subsequent anniversary of the Renewal Date, (y) Borrower has
provided Fremont at least sixty (60) days prior written notice of termination
in accordance with the terms and conditions of Section 3.1, and (z) the
Obligations are indefeasibly paid in full on or before the termination date
specified in such notice of termination. The Early Termination Fee shall be
presumed to be the amount of damages sustained by Fremont as the result of the
early termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The Early Termination Fee provided for in
this Section 3.2 shall be deemed included in the Obligations. Notwithstanding
anything contained herein to the contrary, if and to the extent the Early
Termination Fee constitutes interest under applicable law, the Early
Termination Fee, when added to all other interest contracted for, charged or
received under this Agreement or any other Loan Documents, shall not exceed,
and shall be limited to an amount which constitutes, interest at the Maximum
Rate.
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4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower hereby grants to
Fremont a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each
and all of its covenants and Obligations under the Loan Documents. Fremont's
security interest in the Collateral shall attach to all Collateral without
further act on the part of Fremont or Borrower.
4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, upon the request of Fremont, immediately endorse and assign
such Negotiable Collateral to Fremont and deliver physical possession of such
Negotiable Collateral to Fremont.
4.3 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower
shall execute and deliver to Fremont, concurrently with Borrower's execution
and delivery of this Agreement and at any time thereafter at the request of
Fremont, all financing statements, continuation financing statements, fixture
filings, security agreements, chattel mortgages, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Fremont may reasonably request, in form satisfactory to Fremont,
to perfect and maintain perfected Fremont's security interests in the
Collateral and in order to fully consummate all of the transactions
contemplated under the Loan Documents.
4.4 POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes and appoints Fremont (and any of Fremont's officers, employees or
agents designated by Fremont) as Borrower's true and lawful attorney-in-fact
with power to sign the name of Borrower on any of the above described documents
or on any other similar documents to be executed, recorded or filed in order to
perfect or continue perfected Fremont's security interest in the Collateral.
In addition, Borrower hereby appoints Fremont (and any of Fremont's officers,
employees or agents designated by Fremont) as Borrower's attorney-in-fact with
power to: (a) sign Borrower's name on verifications of Accounts, and on notices
to account debtors; (b) send requests for verification of Accounts; (c) endorse
Borrower's name on any checks, notes, acceptances, money orders, drafts or
other forms of payment or security that may come into Fremont's possession; (d)
on or after the occurrence of an Event of Default, notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Fremont, to receive and open all mail addressed to Borrower, and
to retain all mail relating to the Collateral and forward all other mail to
Borrower; (e) make, settle and adjust all claims under Borrower's policies of
insurance, endorse the name of Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance; and (f)
make all determinations and decisions with respect to such policies of
insurance. The appointment of Fremont as Borrower's attorney-in-fact and each
and every one of Fremont's rights and powers, being coupled with an interest,
is irrevocable so long as any Accounts in which Fremont has a security interest
remain unpaid and until all of the Obligations have been fully repaid and
performed.
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4.5 RIGHT TO INSPECT. Fremont shall have the right at any
time or times hereafter during Borrower's usual business hours, or during the
usual business hours of any third party having control over the records of
Borrower, to inspect Borrower's Books in order to verify the amount or
condition of, or any other matter relating to, the Collateral or Borrower's
financial condition. Fremont also shall have the right at any time or times
hereafter during Borrower's usual business hours to inspect and examine the
Inventory and the Equipment and to check and test the same as to quality,
quantity, value and condition.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents, warrants and agrees as follows:
5.1 NO PRIOR ENCUMBRANCES; SECURITY INTERESTS. Borrower has
good and indefeasible title to the Collateral, free and clear of liens, claims,
security interests or encumbrances, except for the security interests granted
to Fremont by Borrower, those disclosed in the UCC searches obtained by
Fremont, and any security interest which Borrower has disclosed in writing to
Fremont and to which Fremont has given its prior written consent. Other than
those expressly permitted by this Agreement, Borrower will not create or permit
to be created any security interest, lien, pledge, mortgage or encumbrance on
any Collateral.
5.2 BONA FIDE ACCOUNTS. All Eligible Accounts represent bona
fide sales of goods and/or services for which Borrower has an unconditional
right to payment. None of the Eligible Accounts are subject to any rights of
offset, counterclaim, cancellation or contractual rights of return.
5.3 MERCHANTABLE INVENTORY. Except to the extent now or
hereafter specified in writing by Borrower, all Inventory is now and at all
times hereafter shall be of good and merchantable quality, free from defects.
5.4 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment is not now and shall not at any time or times hereafter be stored
with a bailee, warehouseman, processor, or similar party without Fremont's
prior written consent. Borrower shall keep the Inventory and Equipment only at
the following locations: See attached Exhibit A.
5.5 INVENTORY RECORDS. Borrower now keeps and hereafter at
all times shall keep materially correct and accurate records itemizing and
describing the kind, type and quantity of the Inventory and Borrower's cost
therefor.
5.6 RETAIL MERCHANT INVENTORY. Borrower's retail sales of
goods for personal, family or household purposes, for the twelve (12) months
preceding the date of filing of the financing statement perfecting the security
interest granted hereunder, did not exceed twenty-five percent (25.0%) in
dollar volume of Borrower's total sales of all goods during that period. At
all times during each month of the term of this Agreement, Borrower's retail
sales of goods for
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personal, family or household purposes shall not exceed twenty-five percent
(25.0%) in dollar volume of Borrower's total sales of all goods in each such
month.
5.7 RELOCATION OF CHIEF EXECUTIVE OFFICE. The chief executive
office of Borrower is at the address indicated in the first paragraph of this
Agreement and Borrower covenants and agrees that it will not, without thirty
(30) days' prior written notice to Fremont, relocate such chief executive
office.
5.8 DUE INCORPORATION AND QUALIFICATION. Borrower is and
shall at all times hereafter be a corporation duly organized and existing under
the laws of the state of its incorporation and is qualified and licensed to do
business and is in good standing in any state in which the conduct of its
business or its ownership of property requires that it be so qualified except
where the failure to do so would not have a material adverse effect on
Borrower.
5.9 FICTITIOUS NAME(S). Borrower is conducting its business
under the following trade or fictitious name(s): See attached Exhibit B.
Borrower has complied with the fictitious name laws of all jurisdictions in
which compliance is required in connection with its use of such name(s).
5.10 PERMITS AND LICENSES. Borrower holds all licenses,
permits, franchises, approvals and consents as are required in the conduct of
its business and the ownership and operation of its properties except where the
failure to do so would not have a material adverse effect on Borrower.
5.11 DUE AUTHORIZATION. Borrower has the right and power and
is duly authorized to enter into each of the Loan Documents to which it is a
party.
5.12 COMPLIANCE WITH ARTICLES; BYLAWS. The execution by
Borrower of each of the Loan Documents to which it is a party does not
constitute a breach of any provision contained in Borrower's Certificate or
Articles of Incorporation or its Corporate Bylaws, nor does it constitute an
event of default under any material agreement to which Borrower is now or may
hereafter become a party.
5.13 LITIGATION. Except as otherwise disclosed to Fremont in
writing, there are no actions or proceedings pending by or against Borrower
before any court or administrative agency and Borrower has no knowledge or
notice of any pending, threatened or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower, except for ongoing collection matters in which Borrower is the
plaintiff. If any of the foregoing arise during the term of this Agreement,
Borrower shall promptly notify Fremont in writing.
5.14 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Fremont have been prepared in accordance with GAAP and
fairly present Borrower's financial
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condition as of the date thereof and Borrower's results of operations for the
period then ended. There has been no material adverse change in the financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Fremont except as disclosed therein.
5.15 ACCOUNTING SYSTEM. Borrower at all times hereafter shall
maintain a standard and modern system of accounting in accordance with GAAP
with ledger and account cards or computer tapes, disks, printouts and records
pertaining to the Collateral which contain information as may from time to time
be requested by Fremont.
5.16 SOLVENCY. Borrower is now and shall be at all times
hereafter solvent and able to pay its debts (including trade debts) as they
mature.
5.17 ERISA. Neither Borrower or any ERISA Affiliate, nor any
Plan is or has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a), or any of the published
interpretations thereof. No lien upon the assets of Borrower has arisen with
respect to any Plan. No prohibited transaction within the meaning of ERISA
Section 406 or IRC Section 4975(c) has occurred with respect to any Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived.
5.18 ENVIRONMENTAL LAWS AND HAZARDOUS MATERIALS. Borrower has
complied, and at all times will comply in all material respects, with all
Environmental Laws. Borrower has not and will not cause or permit any
Hazardous Materials to be located, incorporated, generated, stored,
manufactured, transported to or from, released, disposed of, or used at, upon,
under, or within any premises at which Borrower conducts its business, or in
connection with Borrower's business, except as previously disclosed to Fremont
in writing. To the best of Borrower's knowledge, no prior owner or operator of
any premises at which Borrower conducts its business has caused or permitted
any of the above to occur at, upon, under, or within any of the premises.
Borrower will not permit any lien to be filed against the Collateral or any
part thereof under any Environmental Law, and will promptly notify Fremont of
any proceeding, inquiry or claim relating to any alleged violation of any
Environmental Law, or any alleged loss, damage or injury resulting from any
Hazardous Material. Borrower shall defend, indemnify and hold Fremont, its
directors, officers, agents, employees, participants and assigns, harmless
against any and all claims, suits, actions, causes of action, debts,
liabilities, damages, losses, obligations, charges, judgments and expenses,
including attorneys' fees and costs, of any nature whatsoever, in any way
relating to or arising from the breach of any warranty or covenant contained
herein, any alleged or actual violation of any Environmental Law, or any loss,
damage, or injury resulting from any Hazardous Material. Fremont shall have
the right to join and participate in, as a party if it so elects, any legal or
administrative proceeding initiated with respect to any Hazardous Material or
in connection with any Environmental Law. "Hazardous Material" includes
without limitation any substance, material, emission, or waste which is or
hereafter becomes regulated or classified as a hazardous substance, hazardous
material, toxic substance or
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solid waste under any Environmental Law, asbestos, petroleum products, urea
formaldehyde, polychlorinated biphenyls (PCBs), radon, and any other hazardous
or toxic substance, material, emission or waste. "Environmental Law" means the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, the Resource Conservation and Recovery Act of 1976, the Hazardous
Materials Transportation Act, the Toxic Substances Control Act, the regulations
pertaining to such statutes, and any other safety, health or environmental
statutes, laws, regulations or ordinances of the United States or of any state,
county or municipality in which Borrower conducts its business or the
Collateral is located.
5.19 RELIANCE BY FREMONT; CUMULATIVE. Each warranty,
representation and agreement contained in this Agreement shall be automatically
deemed repeated with each advance and shall be conclusively presumed to have
been relied on by Fremont regardless of any investigation made or information
possessed by Fremont. The warranties, representations and agreements set forth
herein shall be cumulative and in addition to any and all other warranties,
representations and agreements which Borrower shall now or hereafter give, or
cause to be given, to Fremont.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that during the term of this
Agreement and until payment in full of the Obligations, and unless Fremont
shall otherwise consent in writing, Borrower shall do all of the following:
6.1 COLLATERAL REPORTS. Borrower shall, from time to time
hereafter, but not less often than monthly, execute and deliver to Fremont, no
later than the fifteenth (15th) day of each month during the term of this
Agreement, a detailed aging of the Accounts, a reconciliation statement and a
summary aging, by vendor, of all accounts payable and any book overdraft.
Borrower shall deliver to Fremont, as Fremont may from time to time require,
collection reports, sales journals, invoices, original delivery receipts,
customers' purchase orders, shipping instructions, bills of lading and other
documentation respecting shipment arrangements. Absent such a request by
Fremont, copies of all such documentation shall be held by Borrower as
custodian for Fremont.
6.2 RETURNS. Returns and allowances, if any, as between
Borrower and its account debtors, shall be permitted by Borrower on the same
basis and in accordance with the usual customary practices of Borrower as they
exist at the time of the execution and delivery of this Agreement. If at any
time prior to the occurrence of an Event of Default any account debtor returns
any Inventory to Borrower, Borrower shall promptly determine the reason for
such return and, if Borrower accepts such return, issue a credit memorandum
(with a copy to be sent to Fremont) in the appropriate amount to such account
debtor. Borrower shall promptly notify Fremont of all returns and recoveries
and of all disputes and claims.
6.3 DESIGNATION OF INVENTORY. Borrower shall now and from
time to time hereafter, but not less frequently than weekly, execute and
deliver to Fremont a designation of
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Inventory specifying Borrower's average cost and the wholesale market value of
Borrower's raw materials, work in process and finished goods, and further
specifying such other information as Fremont may reasonably request.
Furthermore, Borrower shall now and from time to time hereafter, but not less
frequently than monthly, deliver to Fremont a listing of Inventory specifying
the amount of the mark-up corresponding to each item of Inventory consisting of
Atascosa Facility Inventory.
6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower
agrees to deliver to Fremont: (a) as soon as available, but in any event
within thirty (30) days after the end of each month during each of Borrower's
fiscal years, a company prepared balance sheet and profit and loss statement
covering Borrower's operations during such period; and (b) as soon as
available, but in any event within one hundred twenty (120) days after the end
of each of Borrower's fiscal years, financial statements of Borrower for each
such fiscal period, audited by independent certified public accountants
acceptable to Fremont (including Borrower's current independent certified
accountants). Such financial statements shall include a balance sheet and
profit and loss statement, and the accountants' letter to management. Together
with the above, Borrower shall also deliver Borrower's Form 10-Qs, 10-Ks or
8-Ks, if any, as soon as the same become available, and any other report
reasonably requested by Fremont relating to the Collateral and the financial
condition of Borrower and a certificate signed by the chief financial officer
of Borrower to the effect that all reports, statements or computer prepared
information of any kind or nature delivered or caused to be delivered to
Fremont under this Section 6.4 fairly present the financial condition of
Borrower and that there exists on the date of delivery of such certificate to
Fremont no condition or event which constitutes an Event of Default.
6.5 TAX RETURNS, RECEIPTS. Borrower agrees to deliver to
Fremont copies of each of Borrower's future federal income tax returns, and any
amendments thereto, within thirty (30) days of the filing thereof with the
Internal Revenue Service. Borrower further agrees to promptly deliver to
Fremont, upon request, satisfactory evidence of Borrower's payment of all
federal withholding taxes required to be paid by Borrower.
6.6 GUARANTOR REPORTS. Borrower agrees to cause any guarantor
of any of the Obligations to deliver its annual financial statements and copies
of all federal income tax returns as soon as the same are available and in any
event no later than thirty (30) days after the same are required to be filed by
law.
6.7 TITLE TO EQUIPMENT. Upon Fremont's request, Borrower
shall immediately deliver to Fremont, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 MAINTENANCE OF EQUIPMENT. Borrower shall keep and
maintain the Equipment in good operating condition and repair, and shall make
all necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved, normal wear and tear
excepted. Borrower shall not permit any item of Equipment to
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become a fixture to real estate or an accession to other property, and the
Equipment is now and shall at all times remain personal property.
6.9 TAXES. All assessments and taxes, whether real, personal
or otherwise, due or payable by, or imposed, levied or assessed against
Borrower or any of its property or in connection with Borrower's business have
been paid, and shall hereafter be paid in full, before delinquency or before
the expiration of any extension period. Borrower shall make due and timely
payment or deposit of all federal, state and local taxes, assessments or
contributions required of it by law, and will execute and deliver to Fremont,
on demand, appropriate certificates attesting to the payment or deposit
thereof. Borrower will make timely payment or deposit of all F.I.C.A. payments
and withholding taxes required of it by applicable laws and will, upon request,
furnish Fremont with proof satisfactory to Fremont indicating that Borrower has
made such payments or deposits.
6.10 INSURANCE. Borrower, at its expense, shall keep and
maintain the Collateral insured against all risk of loss or damage from fire,
theft, vandalism, malicious mischief, explosion, sprinklers, and all other
hazards and risks of physical damage included within the meaning of the term
"extended coverage" in such amounts, subject to such deductibles and loss
retention, as are ordinarily insured against by other owners in similar
businesses. Borrower shall also keep and maintain comprehensive general public
liability insurance and property damage insurance, and insurance against loss
from business interruption, insuring against all risks relating to or arising
from Borrower's ownership and use of the Collateral and Borrower's other assets
and the operation of Borrower's business. All such policies of insurance shall
be in such form, with such companies and in such amounts as may be satisfactory
to Fremont. Borrower shall deliver to Fremont certified copies of such
policies of insurance and evidence of the payments of all premiums therefor.
All such policies of insurance (except those of public liability and property
damage) shall contain a Lender's Loss Payable endorsement in a form
satisfactory to Fremont, naming Fremont as sole loss payee thereof, and
containing a waiver of warranties, and all proceeds payable thereunder shall be
payable to Fremont to be applied to the Obligations.
6.11 NO OFFSETS OR COUNTERCLAIMS. All payments hereunder and
under the other Loan Documents made by or on behalf of Borrower shall be made
without offset or counterclaim, and Borrower hereby waives any right to offset,
against the repayment of the Obligations, any claims it may have against
Fremont.
6.12 FREMONT EXPENSES. Borrower shall immediately and without
demand reimburse Fremont for all sums expended by Fremont which constitute
Fremont Expenses and Borrower hereby authorizes and approves all advances and
payments by Fremont for items constituting Fremont Expenses.
6.13 COMPLIANCE WITH LAW. Borrower shall comply, in all
material respects, with the requirements of all applicable laws, rules,
regulations and orders of governmental authorities relating to Borrower and the
conduct of the Borrower's business.
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6.14 TRADE CREDIT REPORTS. Borrower shall, from time to time
hereafter, but not less often than monthly, deliver to Fremont, no later than
the fifteenth (15th) day of each month during the term of this Agreement, a
detailed listing of all extensions of trade credit to any officer, director,
executive, employee or shareholder of Borrower, or any relative of any of the
foregoing, or to any entity which is a subsidiary of, related to, affiliated
with or has common shareholders that own or have a beneficial interest in at
least 3% of the outstanding capital stock of Borrower, officers or directors
with Borrower.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that during the term of this
Agreement and until payment in full of the Obligations, Borrower will not do
any of the following without Fremont's prior written consent:
7.1 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter
into any transaction not in the ordinary and usual course of Borrower's
business, including but not limited to, sell, lease or otherwise dispose of,
move, relocate or transfer, whether by sale or otherwise, any of Borrower's
assets (in excess of $10,000) other than sales of Inventory in the ordinary and
usual course of Borrower's business as presently conducted; incur any debts
outside the ordinary and usual course of Borrower's business (in excess of
$10,000) except for renewals or extensions of existing debts and purchase money
obligations arising from the purchase of Equipment not to exceed $10,000; or
make any advance or loan (in excess of $10,000) except in the ordinary course
of business as presently conducted.
7.2 CHANGE NAME. Change Borrower's name, business structure
or identity, or add any new fictitious name.
7.3 MERGE, ACQUIRE. Merge, acquire, or consolidate with or
into any other business organization.
7.4 GUARANTY. Guaranty or otherwise become in any way liable
with respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the account of Borrower for
negotiation and delivery to Fremont.
7.5 RESTRUCTURE. Make any change in Borrower's financial
structure or in any of its business operations.
7.6 PREPAYMENTS. Prepay any existing indebtedness owing to
any third party.
7.7 [INTENTIONALLY OMITTED]
7.8 COMPENSATION. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts, management fees or
other payments, whether directly or indirectly (excluding stock options),
during any fiscal year to all of Borrower's
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executives, officers, shareholders, affiliates, and directors (or any relatives
thereof) in an aggregate amount in excess of one hundred and fifteen percent
(115%) of those paid in the prior fiscal year.
7.9 LOANS AND ADVANCES. Make any loans, advances or
extensions of credit (other than trade credit up to an amount equal to
$550,000.00) to any officer, director, executive, employee or shareholder of
Borrower, or any relative of any of the foregoing, or to any entity which is a
subsidiary of, related to, affiliated with or has common shareholders that own
or have a beneficial interest in at least 3% of the outstanding capital stock
of Borrower, officers or directors with Borrower, which when aggregated with
all other loans, advances or extensions of credit (other than trade credit up
to an amount equal to $550,000.00) to any or all of the above persons or
entities during the term of this Agreement, exceeds Twenty Thousand Dollars
($20,000).
7.10 CAPITAL EXPENDITURES. Make any plant or fixed capital
expenditure, or any commitment therefor, or purchase or lease any real or
personal property or replacement equipment in excess of One Hundred Thousand
Dollars ($100,000) for any individual transaction or where the aggregate amount
of such transactions in any fiscal year is in excess of One Million One Hundred
Thousand Dollars ($1,100,000).
7.11 CONSIGNMENTS. Consign any Inventory.
7.12 DISTRIBUTIONS. Make any distribution or declare or pay
any dividends (other than in stock) on, or purchase, acquire, redeem or retire
any of Borrower's capital stock, of any class, whether now or hereafter
outstanding.
7.13 ACCOUNTING METHODS. Modify or change its method of
accounting or enter into, modify or terminate any agreement presently existing
or at any time hereafter entered into with any third party accounting firm or
service bureau for the preparation or storage of Borrower's accounting records
without said accounting firm or service bureau agreeing to provide Fremont
information regarding the Collateral or Borrower's financial condition.
Borrower waives the right to assert a confidential relationship, if any, it may
have with any accounting firm or service bureau in connection with any
information requested by Fremont pursuant to or in accordance with this
Agreement, and agrees that Fremont may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.14 SUSPENSION. Suspend or go out of business for a
continuous period of more than five (5) days.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an Event of Default by Borrower under this Agreement:
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8.1 FAILURE TO PAY. Borrower fails to pay when due and
payable, or when declared due and payable, any portion of the Obligations
(whether principal, interest, taxes, reimbursement of Fremont Expenses, or
otherwise);
8.2 FAILURE TO PERFORM. Borrower fails or neglects to
perform, keep or observe any term, provision, condition, representation,
warranty, covenant or agreement contained in this Agreement, in any of the Loan
Documents or in any other present or future agreement between Borrower and
Fremont;
8.3 MISREPRESENTATION. Any misstatement or misrepresentation
now or hereafter exists in any warranty, representation, statement or report
made to Fremont by Borrower or any officer, employee, agent or director of
Borrower, or if any such warranty or representation is withdrawn by any of
them;
8.4 MISREPRESENTATION OF COLLATERAL. Any writing, document,
aging, certificate or other evidence of the Eligible Accounts or Eligible
Inventory shall be incomplete, incorrect or misleading at the time the same is
furnished to Fremont; Borrower shall fail to comply with the terms of Section
6.2 of this Agreement; or Borrower shall fail to immediately remit each payment
on any Account, pursuant to the terms of Section 2.7 of this Agreement;
8.5 MATERIAL ADVERSE CHANGE. There is a material adverse
change in Borrower's business or financial condition;
8.6 MATERIAL IMPAIRMENT. There is a material impairment of
the prospect of repayment of any portion of the Obligations owing to Fremont or
a material impairment of the value or priority of Fremont's security interests
in the Collateral;
8.7 LEVY OR ATTACHMENT. Any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any judicial officer or assignee;
8.8 INSOLVENCY BY BORROWER. An Insolvency Proceeding is
commenced by Borrower;
8.9 INSOLVENCY AGAINST BORROWER. An Insolvency Proceeding is
commenced against Borrower and is not dismissed within 45 days;
8.10 INJUNCTION AGAINST BORROWER. Borrower is enjoined,
restrained or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs;
8.11 GOVERNMENT LIEN. A notice of lien, levy or assessment is
filed of record with respect to any of Borrower's assets by the United States
Government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental
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agency, or any taxes or debts owing at any time hereafter to any one or more of
such entities becomes a lien, whether choate or otherwise, upon any of
Borrower's assets and the same is not paid on the payment date thereof;
8.12 JUDGMENT. A judgment in excess of $50,000 is entered
against Borrower;
8.13 DEFAULT TO THIRD PARTY. There is a default in any
material agreement to which Borrower is a party or by which Borrower or
Borrower's property or assets are bound;
8.14 SUBORDINATED DEBT PAYMENTS. Borrower makes any payment on
account of indebtedness which has been subordinated to the Obligations except
to the extent such payment is allowed under any Subordination Agreement entered
into with Fremont;
8.15 LOSS OF GUARANTOR. Any guarantor of the Obligations dies,
terminates its guaranty or becomes the subject of an Insolvency Proceeding; or
8.16 ERISA VIOLATION. A prohibited transaction within the
meaning of ERISA Section 406 or IRC Section 4975(c) shall occur with respect to
a Plan which could have a material adverse effect on the financial condition of
Borrower; any lien upon the assets of Borrower in connection with any Plan
shall arise; Borrower or any ERISA Affiliate shall completely or partially
withdraw from a Multiemployer Plan and such withdrawal could, in the opinion of
Fremont, have a material adverse effect on the financial condition of Borrower;
Borrower or any of its ERISA Affiliates shall fail to make full payment when
due of all amounts which Borrower or any of its ERISA Affiliates may be
required to pay to any Plan or any Multiemployer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived; the voluntary or involuntary termination of any Plan which termination
could, in the opinion of Fremont, have a material adverse effect on the
financial condition of Borrower; or Borrower shall fail to notify Fremont
promptly and in any event within ten (10) days of the occurrence of any event
which constitutes an Event of Default under this clause or would constitute
such an Event of Default upon the exercise of Fremont's judgment;
Notwithstanding anything contained in this Section 8 to the
contrary, Fremont shall refrain from exercising its rights and remedies and an
Event of Default shall not be deemed to have occurred by reason of the
occurrence of any of the events set forth in Sections 8.7, 8.9, 8.11 or 8.12
of this Agreement if, within ten (10) days from the date thereof, the same is
released, discharged, dismissed, bonded against or satisfied; PROVIDED,
HOWEVER, Fremont shall not be obligated to make advances to Borrower during
such period.
9. FREMONT'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default Fremont may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrower:
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(a) Declare all Obligations, whether evidenced by the
Loan Documents or otherwise, immediately due and payable in full;
(b) Cease advancing money or extending credit to or
for the benefit of Borrower under the Loan Documents or under any other
agreement between Borrower and Fremont;
(c) Terminate this Agreement as to any future
liability or obligation of Fremont, but without affecting Fremont's rights and
security interest in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly
with account debtors for amounts and upon terms which Fremont considers
advisable and, in such cases, Fremont will credit Borrower's loan account with
only the net amounts received by Fremont in payment of such disputed Accounts,
after deducting all Fremont Expenses incurred or expended in connection
therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Fremont, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Fremont;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Fremont considers necessary
or reasonable to protect its security interest in the Collateral. Borrower
agrees to assemble the Collateral if Fremont so requires and to deliver or make
the Collateral available to Fremont at a place designated by Fremont. Borrower
authorizes Fremont to enter any premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest or compromise any encumbrance, charge or lien which in
Fremont's determination appears to be prior or superior to its security
interest and to pay all expenses incurred in connection therewith;
(g) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale and sell (in the manner provided
for herein) the Collateral. Fremont is hereby granted a license or other right
to use, without charge, Borrower's labels, patents, copyrights, rights of use
of any name, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale and selling any
Collateral. Borrower's rights under all licenses and all franchise agreements
shall inure to Fremont's benefit;
(h) Sell the Collateral at either a public or private
sale, or both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including Borrower's premises) as
Fremont determines is commercially reasonable. It is not necessary that the
Collateral be present at any such sale;
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(i) Fremont shall give notice of the disposition of
the Collateral as follows:
(1) Fremont shall give the Borrower and each
holder of a security interest in the Collateral
who has filed with Fremont a written request for
notice, a notice in writing of the time and place
of public sale or, if the sale is a private sale
or some other disposition other than a public
sale is to be made, then the time on or after
which the private sale or other disposition is to
be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as
provided in Section 12 of this Agreement, at
least five (5) calendar days before the date
fixed for the sale, or at least five (5) calendar
days before the date on or after which the
private sale or other disposition is to be made,
unless the Collateral is perishable or threatens
to decline speedily in value. Notice to persons
other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as
they have furnished to Fremont;
(j) Fremont may credit bid and purchase at any public
sale;
(k) Any deficiency which exists after disposition of
the Collateral as provided above shall be paid immediately by Borrower. Any
excess will be remitted without interest by Fremont to the party or parties
legally entitled to such excess; and
(l) In addition to the foregoing, Fremont shall have
all rights and remedies provided by law and any rights and remedies contained
in any other Loan Documents. All such rights and remedies shall be cumulative.
9.2 NO WAIVER. No delay on the part of Fremont in exercising
any right, power or privilege under this Agreement shall operate as a waiver,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement or otherwise, preclude other or further exercise of the right,
power or privilege or the exercise of any other right, power or privilege.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums or otherwise) due to third persons or entities, or fails to
make any deposits or furnish any required proof of payment or deposit, or fails
to perform any of Borrower's other covenants under the terms of this Agreement,
then in its discretion and without prior notice to Borrower, Fremont may do any
or all of the following: (a) make any payment which Borrower has failed to pay
or any part thereof; (b) set up such reserves in Borrower's loan account as
Fremont deems necessary to protect Fremont from the exposure created by such
failure; (c) obtain and maintain
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insurance policies of the type described in Section 6.10 of this Agreement and
take any action with respect to such policies as Fremont deems prudent; or (d)
take any other action deemed necessary by Fremont to preserve and protect its
interests and rights under this Agreement. Any payments made by Fremont shall
not constitute: (1) an agreement by Fremont to make similar payments in the
future or (2) a waiver by Fremont of any Event of Default under this Agreement.
Fremont need not inquire as to, or contest the validity of, any such expense,
tax, security interest, encumbrance or lien and the receipt of notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
11. WAIVERS
11.1 DEMAND, PROTEST. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, and notice of nonpayment at maturity, and agrees that
Fremont may compromise, settle or release without notice to Borrower any
accounts, documents, instruments, chattel paper and/or guaranties at any time
held by Fremont on which Borrower may in any way be liable. Borrower agrees to
any extensions of time of payment or partial payment at, before or after
termination of this Agreement. Borrower waives notice of intention to
accelerate and notice of acceleration, such that Fremont may exercise any and
all rights and remedies under this Agreement or any Loan Documents or as
otherwise provided in law or in equity, immediately upon the occurrence of any
Event of Default without any further notice, grace or opportunity to cure
whatsoever
11.2 NO MARSHALING. Borrower, on its own behalf and on behalf
of its successors and assigns hereby expressly waives all rights, if any, to
require a marshaling of assets by Fremont or to require that Fremont first
resort to some or any portion of the Collateral before foreclosing upon,
selling or otherwise realizing on any other portion thereof.
11.3 FREMONT'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long
as Fremont complies with its obligations, if any, under Section 9207 of the
Code, Fremont shall not in any way or manner be liable or responsible for: (a)
the safekeeping of the Inventory or Equipment; (b) any loss or damage thereto
occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency or other person whomsoever. All risk
of loss, damage or destruction of the Inventory or Equipment shall be borne by
Borrower.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement, the Loan Documents or any
other agreement entered into in connection herewith shall be in writing and
(except for financial statements and other informational documents which may be
sent by first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, or by receipted overnight delivery service to Borrower or to
Fremont, as the case may be, at their addresses set forth below:
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IF TO BORROWER: TRISTAR CORPORATION
12500 San Pedro Avenue, Suite 500
San Antonio, Texas 78216
Attn: President
IF TO FREMONT: FREMONT FINANCIAL CORPORATION
300 Embassy Row, Suite 650
Atlanta, Georgia 30328
Attn: Credit Manager
The parties hereto may change the address at which they are to
receive notices hereunder by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12
shall be deemed received on the earlier of the date of actual receipt or five
(5) calendar days after the deposit thereof in the mail.
13. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
____________
(Initial)
UPON ACCEPTANCE BY FREMONT IN ATLANTA, GEORGIA, THE VALIDITY OF
THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT AND THE
RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF GEORGIA, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT THE LAWS OF
THE STATE IN WHICH THE COLLATERAL IS LOCATED SHALL GOVERN WITH RESPECT TO (A)
THE CREATION OF LIENS ON COLLATERAL LOCATED IN SUCH STATE AND (B) THE METHOD,
MANNER AND PROCEDURE FOR FORECLOSURE OF FREMONT'S LIENS UPON ANY PORTION OF THE
COLLATERAL LOCATED IN SUCH STATE AND THE ENFORCEMENT IN SUCH STATE OF FREMONT'S
OTHER REMEDIES WITH RESPECT TO THE COLLATERAL LOCATED IN SUCH STATE. THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE COURTS LOCATED IN THE
COUNTY OF FULTON, STATE OF GEORGIA, THE FEDERAL COURTS WHOSE VENUE INCLUDES THE
COUNTY OF FULTON, STATE OF GEORGIA, OR, AT THE SOLE OPTION OF FREMONT, IN ANY
OTHER COURT IN WHICH FREMONT SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND
WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. BORROWER
AND FREMONT EACH WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, THE
RIGHT TO A TRIAL BY JURY AND ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF
"FORUM NON
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CONVENIENS" OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13.
14. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings or other papers
delivered to Fremont may be destroyed or otherwise disposed of by Fremont four
(4) months after they are delivered to or received by Fremont unless Borrower
requests, in writing, the return of the said documents, schedules, invoices or
other papers and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS
15.1 EFFECTIVENESS. This Agreement and all other Loan
Documents shall be binding and deemed effective when executed by Borrower and
accepted and executed by Fremont.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and assigns of each of the
parties; PROVIDED, HOWEVER, that Borrower may not assign this Agreement or any
rights hereunder without Fremont's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Fremont
shall release Borrower from its Obligations. Fremont may assign this Agreement
and its rights and duties hereunder. Fremont reserves the right to sell,
assign, transfer, negotiate or grant participations in all or any part of, or
any interest in Fremont's rights and benefits hereunder. In connection
therewith, Fremont may disclose all documents and information which Fremont now
or hereafter may have relating to Borrower or Borrower's business.
15.3 SECTION HEADINGS. Headings and numbers have been set
forth herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each paragraph applies equally to this entire
Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved against Fremont
or Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed by all parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed
or terminated orally. This Agreement is the entire agreement between the
parties with respect to the
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matters contained herein. This Agreement supersedes all prior agreements,
understandings and negotiations, if any, which are merged into this Agreement.
15.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts each
of which, when executed and delivered, shall be deemed to be an original and
all of which, when taken together, shall constitute but one and the same
Agreement.
15.8 FINANCE LENDER LICENSE. Fremont is licensed as a Finance
Lender by the California Department of Corporations, file number 603 2362.
15.9 INCORPORATION OF RIDERS. The Conditions Precedent Rider
and the Special Provisions Rider are by this reference incorporated herein and
made a part hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed at Atlanta, Georgia
BORROWER:
Attest: TRISTAR CORPORATION,
a Delaware corporation
Signed By:
- ---------------------------------- ---------------------------
Loren M. Eltiste
Secretary/Assistant Secretary Vice President and
[Corporate Seal] Chief Financial Officer
FREMONT FINANCIAL CORPORATION,
a California corporation
Signed By:
---------------------------
Print Name: Jerry Noles
Title/Capacity: Vice President
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EXHIBIT C
Costa Rica
Ecuador
Guatemala
Honduras
Nicaragua
Panama
Peru
El Salvador
Uruguay
Venezuela
Mexico
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<PAGE> 29
SPECIAL PROVISIONS RIDER
THIS SPECIAL PROVISIONS RIDER (hereinafter referred to as this "Rider")
dated December 29, 1995, but effective January 1, 1996, is hereby made a part
of and incorporated into that certain Consolidated and Restated Loan and
Security Agreement dated the date hereof, but effective January 1, 1996,
between FREMONT FINANCIAL CORPORATION (hereinafter referred to as "Fremont"), a
California corporation, and TRISTAR CORPORATION (hereinafter referred to as
"Borrower"), a Delaware corporation (hereinafter referred to, together with all
other supplements and riders thereto and amendments thereof, as the "Loan
Agreement").
l. All capitalized terms contained in this Rider, unless otherwise
defined herein, shall have the meanings ascribed to such terms in the Loan
Agreement. All references herein to any instrument, agreement or other document
shall include all amendments thereto and modifications, extensions and renewals
thereof, whether heretofore or hereafter entered into by the parties to such
documents. When used herein the following terms shall have the following
meanings:
"Affiliate" means any Person controlling, controlled by or
under common control with Borrower. For purposes of this definition,
:"control" means the possession, directly or indirectly, of the power to
direct or cause direction of the management and policies of any Person,
whether through ownership of common or preferred stock or other equity
interests, by contract or otherwise.
"Applicable Law" shall mean all laws, rules and
regulations applicable to the person, conduct, transaction, covenant or
Loan Documents in question, including, but not limited to, all applicable
common law and equitable principles; all provisions of all applicable state
and federal constitutions, statutes, rules, regulations and orders of
governmental bodies; and orders, judgments and decrees of all courts and
arbitrators.
"Appraised Equipment" shall have the meaning set forth in
Section 5 of this Rider.
"Conditions Precedent Rider" shall mean the Conditions
Precedent Rider of even date herewith between Borrower and Fremont.
"Confidential Information" shall mean any information of a
secret or proprietary nature concerning Borrower, its business, financial
condition or affairs, business prospects or properties that is confidential
in nature, and therefore not generally known by third parties and not
available to the public, and is not now, and does not hereafter come into,
Fremont's possession from a source other than Borrower.
"Core Sheth Families" shall mean Jamnadas Sheth, Kirit
Sheth, Shashikant Sheth and Mahendra Sheth, individuals currently residing
in Dubai, U.A.E.
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"Core Sheth Family Notes" shall mean the promissory notes
executed or to be executed by Borrower in favor of the Core Sheth Families
pursuant to the Financing Agreement.
"Eurostar" shall mean Eurostar Perfumes, Inc., a Texas
corporation.
"Financing Agreement" shall mean the Financing Agreement
dated as of August 31, 1993, by and between Borrower and the Core Sheth
Families.
"Forfeiture Law" shall mean any state or federal law, rule
or regulation under which any property of a person may be seized by a
governmental agency or title thereto forfeited by reason of such person's
commission of a civil violation or a crime, including, without limitation,
United States Customs Laws, The Controlled Substances Act, Motor Vehicle
Theft Law Enforcement Act of 1984, Money Laundering Control Act of 1986,
Racketeer Influenced and Corrupt Organizations Act, and Illegal Exportation
of War Materials Act.
"Maximum Rate" shall mean the maximum non-usurious rate of
interest permitted by Applicable Law that at any time, or from time to
time, may be contracted for, taken, reserved, charged or received on the
Obligations in question or, to the extent permitted by Applicable Law,
under such Applicable Laws that may hereafter be in effect and which allow
a higher maximum non-usurious interest rate than Applicable Laws now allow.
Notwithstanding any other provision in this Rider or the Loan Agreement,
the Maximum Rate shall be calculated on a daily basis (computed on the
actual number of days elapsed over a year of 365 or 366 days, as the case
may be).
"Merger" shall have the meaning set forth in Section 29
of this Rider.
"Mortgage" shall mean, collectively, the South Carolina
Mortgage, the Original Texas Mortgage and the New Texas Mortgage.
"New Texas Mortgage" shall mean that certain Deed of Trust
with Security Agreement, Financing Statement for Fixture Filing and
Assignment of Rents dated the date hereof from Borrower to Fremont,
pursuant to which Borrower shall grant and convey to Fremont, as security
for the Obligations, a second priority mortgage lien upon the real property
of Borrower located in Atascosa County, Texas, and all improvements
thereto.
"Original Eurostar Loan Agreement" shall have the meaning
set forth in Section 29 of this Rider.
"Original Texas Mortgage" shall mean that certain Deed of
Trust with Security Agreement, Financing Statement for Fixture Filing and
Assignment of Rents dated June 27, 1995, from Borrower to Fremont, pursuant
to which Borrower granted and conveyed to Collateral Services, Inc., as
trustee, for the benefit of Fremont, as security for the
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Obligations, a mortgage lien upon the real property of Borrower located in
Atascosa County, Texas, and all improvements thereto.
"Original Tristar Loan Agreement" shall have the meaning
set forth in Section 29 of this Rider.
"Performance Agreement" shall mean the Agreement effective
as of August 31, 1993, among Borrower, the Core Sheth Families, Virendra
Sheth and Starion pursuant to which, among other things, the Core Sheth
Families agreed to make or caused to be made certain loans to Borrower as
described in the Financing Agreement and Starion agreed to deposit
1,600,000 shares of Borrower's common stock pursuant to the Sheth Escrow
Agreement for the purpose of securing the obligation of the Core Sheth
Families to make or cause to be made loans to Borrower.
"Permitted Liens" shall mean (i) liens at any time in
favor of Fremont; (ii) miscellaneous purchase money liens that are confined
to specific items of equipment of Borrower and that secure purchase money
indebtedness which does not exceed, in the aggregate, $10,000; (iii)
inchoate liens for taxes, assessments and other governmental charges or
levies, or the claims or demands of landlords, carriers, warehousemen,
mechanics, laborers, materialmen and other like persons arising by
operation of law in the ordinary course of business, for sums which are not
yet due and payable and only if such inchoate liens are and remain
subordinate to Fremont's security interest in the Collateral; (iv)
Permitted Exceptions (as such term is defined in the New Texas Mortgage and
the Original Texas Mortgage); and (v) Permitted Liens (as such term is
defined in the South Carolina Mortgage).
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, government, or any agency or political division
thereof, or any other entity.
"S & J Perfume" shall mean S & J Perfume Co., Limited,
also known as Starion International Ltd., a corporation organized under the
laws of the United Kingdom.
"Sheth Escrow Agreement" shall mean the "Sheth Escrow
Agreement" as defined in the Performance Agreement.
"South Carolina Mortgage" shall mean that certain South
Carolina Mortgage and Security Agreement dated October 8, 1993, from
Borrower to Fremont, pursuant to which Borrower granted and conveyed to
Fremont, as security for the Obligations, a mortgage lien upon the real
property of Borrower located in Spartanburg County, South Carolina, and all
improvements thereto as amended by (i) that certain First Amendment to
South Carolina Mortgage and Security Agreement and Assignment of Leases and
Rents, dated December 17, 1993, executed by Borrower and Fremont and (ii)
that certain Second Amendment to South Carolina Mortgage and Security
Agreement and Assignment of Leases and Rents, dated July 7, 1995, executed
by Borrower and Fremont.
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"Standby Letter of Credit Supplement" shall mean the
Standby Letter of Credit Agreement Supplement to Loan and Security
Agreement, dated June 27, 1995, by and between Borrower and Fremont, as
amended, restated and modified from time to time.
"Starion" shall mean Starion International., Ltd., a
British Virgin Islands limited partnership which is owned by the Core Sheth
Families and which beneficially owns approximately 84% of the issued and
outstanding common stock of Borrower.
"Subordinated Debt" shall mean all indebtedness at any
time or times owing by Borrower to any Person that is expressly
subordinated to the payment of any of the Obligations, including, without
limitation, all indebtedness at any time or times owing by Borrower to (i)
Transvit and (ii) the Core Sheth Families under the Financing Agreement or
any of the Core Sheth Family Notes.
"Term Loan A" shall mean the term loan made by Fremont to
Borrower pursuant to Section 5 of this Rider.
"Term Loan B" shall mean the term loan made by Fremont to
Borrower pursuant to Section 6 of this Rider.
"Term Loans" shall mean the Term Loan A and the Term Loan
B.
"Term Note A" shall mean that certain Secured Promissory
Note, dated June 27, 1995, executed by Borrower and payable to Fremont in
the original principal amount of $3,500,000, as it may be amended or
modified from time to time, together with any renewals or extensions
thereof, in whole or in part.
"Term Note B" shall mean that certain Secured Promissory
Note, dated June 27, 1995, executed by Borrower and payable to Fremont in
the original principal amount of $200,000, as it may be amended or modified
from time to time, together with any renewals or extensions thereof, in
whole or in part.
"Transvit" shall mean Transvit Manufacturing Corporation,
a British Virgin Islands corporation.
"Warrant" shall mean the "Starion Warrant Purchase
Agreement" as defined in the Performance Agreement.
2. Borrower shall notify Fremont, promptly after Borrower's obtaining
notice thereof, of (a) any claimed default by any party under the Financing
Agreement, (b) any claim by Borrower of any default by Fremont under the Loan
Agreement, and (c) any exercise, or written notice of intent to exercise, any
rights held by Starion under the Warrant to purchase any shares of Borrower
pursuant thereto or to terminate the Warrant.
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3. In no event shall Borrower be obligated to pay the fees payable
under Sections 2.4, 2.12, 2.13 and 3.2 of the Loan Agreement to the extent that
the amount of such fees otherwise payable under such sections of the Loan
Agreement, when added to the amount of interest charged under Sections 2.6(A)
and 2.6(B) of the Loan Agreement or otherwise, would result in the assessment
or collection of interest in excess of the Maximum Rate (provided that it is
the express intent and understanding of the parties hereto that such fees not
constitute interest or a charge for the use or detention of money).
4. All of the Obligations consisting of advances made by Lender to
Borrower pursuant to Section 2.1 of the Loan Agreement and accrued interest
thereon (except as otherwise provided in Section 2.3 of the Loan Agreement)
shall be payable by Borrower to Fremont upon the earliest of (i) the receipt by
Fremont or Borrower of any collections of proceeds of any of the Collateral, to
the extent of said collections or proceeds, (ii) in the case of interest,
monthly, in arrears, on the first day of each month as provided in Section
2.6(B) of the Loan Agreement, (iii) the occurrence of an Event of Default in
consequence of which Fremont elects to accelerate the maturity and payment of
the Obligations, or (iv) termination of the Loan Agreement pursuant to Section
3.1 thereof. Notwithstanding the foregoing, each advance made by Fremont to
Borrower pursuant to Section 2.1 of the Loan Agreement shall be due and payable
no later than the last day of the thirty-fifth month following the month in
which such advance was made. The Term Note A and the Term Note B shall be due
and payable upon termination of the Loan Agreement.
5. Borrower acknowledges and agrees that pursuant to the Original
Eurostar Loan Agreement Fremont has previously made a single term loan advance
to Eurostar in the original principal amount of THREE MILLION FIVE HUNDRED
THOUSAND DOLLARS, ($3,500,000) which shall be repayable in accordance with the
terms of the Term Note A and shall be secured by the Collateral. The amount of
the Term Loan A outstanding at any time shall not exceed the sum of (i) 80% of
the liquidation value of the Equipment of Borrower, as said liquidation value
has been determined by an appraisal performed by M.E.L. Valuations, Inc., dated
March 17, 1995 (the "Appraised Equipment") plus (ii) 45% of the appraised value
of the real property of Borrower located in Atascosa County, Texas, as said
value has been determined by an appraisal performed by The Glen Company.
Borrower hereby represents and agrees that the unpaid principal balance of the
Term Loan A outstanding on the date hereof is $3,291,666.65 and that such
amount is unconditionally owed by Borrower to Fremont without offset, defense
or counterclaim of any kind, nature or description whatsoever.
6. Subject to the conditions set forth in the Conditions Precedent
Rider, Fremont shall make a single term loan advance to Borrower in the
original principal amount of TWO HUNDRED THOUSAND DOLLARS, ($200,000) which
shall be repayable in accordance with the terms of the Term Note B and shall be
secured by the Collateral. The amount of the Term Loan B outstanding at any
time shall not exceed 80% of the actual cost of the Equipment being purchased
by Borrower with the proceeds of such Term Loan B (exclusive of taxes,
transportation and shipping charges and installation or make-ready fees or
expenses). The Term Loan B shall be funded upon satisfaction of all terms and
conditions in Section 3 of the Conditions Precedent Rider.
5
<PAGE> 34
7. The proceeds of the Term Loans shall be used by Borrower solely
for the purposes for which the proceeds of the advances made by Fremont to
Borrower under Section 2.1 of the Loan Agreement are authorized to be used. If
Borrower sells any of the Equipment or real property covered by the Mortgage
(and nothing herein shall be construed to authorize Borrower's sale of any
Equipment or real property covered by the Mortgage) or if any of the Collateral
is taken by condemnation, Borrower shall pay to Fremont, unless otherwise
agreed by Fremont or provided herein, as and when received by Borrower and as a
mandatory prepayment of the Term Loans (or at Fremont's option, such of the
other Obligations as Fremont may elect), a sum equal to the proceeds received
by Borrower from such sale or condemnation.
8. If Starion and Transvit shall collectively cease to own and
control, beneficially of record, less than 51% of the outstanding voting stock
of Borrower, or if Borrower's board of directors shall cease for a period of 45
consecutive days to consist of at least one voting member who is an "outside
director" in the sense that such director is not (a) an officer, partner or
employee of Borrower, Starion, S & J Perfume, Emicos or any partnership or
corporation which is controlled directly or indirectly by the Core Sheth
Families, or a member of any of the Core Sheth Families, then, in either such
event, Fremont may, in its sole and absolute discretion, at any time thereafter
terminate the Loan Agreement (with the effects provided in Section 3 of the
Loan Agreement) upon sixty (60) days' prior written notice, at the end of which
sixty-day period all of the then outstanding Obligations shall be due and
payable in full.
9. Notwithstanding anything contained in Section 5.1 of the Loan
Agreement to the contrary, in no event shall an Event of Default be deemed to
exist as a result of a Permitted Lien on the Collateral.
10. The due and punctual payment and performance of the Obligations
shall also be secured by a lien upon all real property of Borrower described in
the Mortgage. The South Carolina Mortgage and the Original Texas Mortgage have
been duly recorded in the office where such recording is required to constitute
a valid, perfected lien upon and security title to the real property covered by
such South Carolina Mortgage and such Original Texas Mortgage. The New Texas
Mortgage shall be duly recorded in the office where such recording is required
to constitute a valid, perfected lien upon and security title to the real
property covered by such New Texas Mortgage.
11. At the request of and as an administrative convenience to Borrower
to ensure the timely payment of interest owing by Borrower each month and fees
owing by Borrower from time to time under the Loan Agreement, Borrower has
requested Fremont to advance for the account of Borrower an amount each month
sufficient to pay interest accrued on the Obligations during the immediately
preceding month and amounts from time to time sufficient to pay all fees owing
by Borrower under the Loan Agreement. Unless and until Borrower in writing
notifies Fremont to the contrary, Borrower authorizes Fremont, in Fremont's
sole discretion, to make an advance under the Loan Agreement for Borrower's
account of a sum sufficient each month to pay, on the due date thereof, all
interest accrued on the Obligations during the immediately preceding month and
sums from time to time sufficient to pay, on the due date thereof, all fees
owing by Borrower under the Loan Agreement, and Fremont may apply the proceeds
of each such advance to the
6
<PAGE> 35
payment of such interest and fees. Fremont, however, shall not be obligated to
make any such advance and Borrower acknowledges that Fremont will be
particularly disinclined to do so if an Event of Default or an Overadvance
exists at the time of, or would result from the making of, such advance.
12. In addition to the indemnification by Borrower of Fremont under
Section 5.18 of the Loan Agreement, Borrower hereby agrees to indemnify Fremont
and hold Fremont harmless from and against any liability, loss, damage, suit,
action or proceeding ever suffered or incurred by Fremont as the result of
Borrower's failure to observe, perform or discharge Borrower's duties
hereunder. Additionally, if by reason of any existing or hereafter enacted
federal, state, foreign or local statute, rule or regulation, any taxes
(excluding taxes imposed upon or measured by the net income of Fremont, but
including, without limitation, any intangibles tax, stamp tax, recording tax or
franchise tax) shall be payable by Fremont or Borrower on account of the
execution or delivery of the Loan Agreement or any of the other Loan Documents,
or the creation of any of the Obligations, Borrower shall pay (or shall
promptly repay Fremont for the payment of) all such taxes, including, but not
limited to, any interest and penalties thereon, and will indemnify and hold
Fremont harmless from and against liability in connection therewith.
Notwithstanding any provision of the Loan Agreement to the contrary, the
indemnity obligation of Borrower under Section 5.18 of the Loan Agreement, this
Section 12 and any other provision of the Loan Documents shall survive the
payment in full of the Obligations. THIS PARAGRAPH AND SECTION 5.18 OF THE LOAN
AGREEMENT INCLUDE INDEMNIFICATION AGAINST LIABILITIES, LOSSES, DAMAGES, SUITS,
ACTIONS OR PROCEEDINGS CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF FREMONT
OR ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES, PARTICIPANTS AND/OR ASSIGNS.
13. Regardless of any provision contained in this Rider or any of the
other Loan Documents, in no contingency or event whatsoever shall the aggregate
of all amounts that are contracted for, charged or collected pursuant to the
terms of this Rider, any of the Notes or any of the other Loan Documents and
that are deemed interest under Applicable Law exceed the highest rate
permissible under any Applicable Law. No agreements, conditions, provisions or
stipulations contained in this Rider or any of the other Loan Documents or the
exercise by Fremont of the right to accelerate the payment or the maturity of
all or any portion of the Obligations, or the exercise of any option whatsoever
contained in any of the Loan Documents, or the prepayment by Borrower of any of
the Obligations, or the occurrence of any contingency whatsoever, shall entitle
Fremont to charge or receive in any event, interest or any charges, amounts,
premiums or fees deemed interest by Applicable Law (such interest, charges,
amounts, premiums and fees referred to herein collectively as "Interest") in
excess of the Maximum Rate and in no event shall Borrower be obligated to pay
Interest exceeding such Maximum Rate, and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel Borrower to pay Interest exceeding the Maximum Rate
shall be without binding force or effect, at law or in equity, to the extent
only of the excess of Interest over such Maximum Rate. If any Interest is
charged or received in excess of the Maximum Rate ("Excess"), Borrower
acknowledges and stipulates that any such charge or receipt shall be the result
of an accident and bona fide error, and such Excess, to the extent
7
<PAGE> 36
received, shall be applied first to reduce the principal Obligations and the
balance, if any, returned to Borrower, it being the intent of the parties
hereto not to enter at and time into a usurious or otherwise illegal
relationship. The right to accelerate the maturity of any of the Obligations
does not include the right to accelerate any interest that has not otherwise
accrued on the date of such acceleration, and Fremont does not intend to
collect any unearned interest in the event of any such acceleration. Borrower
recognizes that, with fluctuations in the rates of interest set forth in
Section 2.6(A) of the Loan Agreement and the Maximum Rate, such an
unintentional result could inadvertently occur but for the agreements of the
parties to limit interest to the Maximum Rate and to apply, credit or return
any Excess as provided herein. All monies paid to Fremont hereunder or under
any of the other Loan Documents, whether at maturity or by prepayment, shall be
subject to any rebate of unearned interest as and to the extent required by
Applicable Law. By the execution of this Rider, Borrower covenants that (i) the
credit or return of any Excess shall constitute the acceptance by Borrower of
such Excess, and (ii) Borrower shall not seek or pursue any other remedy, legal
or equitable, against Fremont, based in whole or in part upon contracting for,
charging or receiving any Interest in excess of the Maximum Rate. For the
purpose of determining whether or not any Excess has been contracted for,
charged or received by Fremont, all interest at any time contracted for,
charged or received from Borrower in connection with this Rider shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and
spread in equal parts throughout the full term of the Obligations. Borrower
and Fremont shall, to the maximum extent permitted under Applicable Law, (i)
characterize any non-principal payment as an expense, fee or premium rather
than as Interest and (ii) exclude voluntary prepayments and the effects
thereof. The provisions of this Section shall be deemed to be incorporated into
every Loan Document (whether or not any provision of this Section is referred
to therein) . All such Loan Documents and communications relating to any
Interest owed by Borrower and all figures set forth therein shall, for the sole
purpose of computing the extent of Obligations, be automatically recomputed by
Borrower, and by any court considering the same, to give effect to the
adjustments or credits required by this Section. Notwithstanding any provisions
contained in this Agreement or any of the other Loan Documents providing that
interest is to be computed on the basis of a 360 day year, interest shall never
exceed the Maximum Rate computed on the basis of a 365 or 366 day year, as the
case may be.
14. Borrower shall not agree to amend any of the Financing Agreement
without the prior written consent of Fremont.
15. Notwithstanding Section 5.4 of the Loan Agreement, Borrower shall
be permitted to relocate the Appraised Equipment from time to time at locations
other than the Borrower's facilities at (i) One Eurostar Drive, Pleasanton,
Texas 78064, (ii) 12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78219,
and (iii) 3345 North Pan Am Expressway, San Antonio, Texas 78219; provided,
however, that the aggregate value of all such relocated Equipment shall not,
without the prior written consent of Fremont, at any time exceed an appraised
value equal to $200,000.
16. Borrower shall not enter into, or be a party to any transaction
with any Affiliate of Borrower except in the ordinary course of and pursuant to
the reasonable requirements of Borrower's business and upon fair and reasonable
terms which are fully disclosed to Fremont and
8
<PAGE> 37
are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate of Borrower.
17. In addition to and without limiting the powers of Fremont granted
by Borrower pursuant to Section 4.4 of the Loan Agreement, Borrower hereby
irrevocably designates, makes, constitutes and appoints Fremont (and any of
Fremont's officers, employees or agents designated by Fremont) as Borrower's
true and lawful attorney (and agent-in-fact) and Fremont, or Fremont's agent,
may, without notice to Borrower and in either Borrower's or Fremont's name, but
at the cost and expense of Borrower, at such time or times as Fremont or its
agent in its sole discretion may determine: (i) at any time upon or after the
occurrence of an Event of Default, demand payment of the Accounts from the
account debtors of Borrower, enforce payment of the Accounts by legal
proceedings or otherwise, and generally exercise all of Borrower's rights and
remedies with respect to the collection of the Accounts; (ii) at any time upon
or after the occurrence of an Event of Default, settle, adjust, compromise or
discharge any of the Accounts or other Collateral or any legal proceedings
brought to collect any of the Accounts or other Collateral and give releases
and acquittances in the name of Borrower in connection therewith; (iii) sell or
assign any of the Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Fremont deems advisable; (iv) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in
bankruptcy or similar document against any account debtor of Borrower or to any
notice of lien, assignment or satisfaction of lien or similar document in
connection with any of the Collateral; (vi) endorse the name of Borrower upon
any of the items of payment or proceeds relating to any Collateral and deposit
the same to the account of Fremont for application to the Obligations; (vii)
endorse the name of Borrower upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to the Accounts, Inventory and any other Collateral; (viii) use Borrower's
stationery and sign the name of Borrower to verifications of the Accounts and
notices thereof to account debtors of Borrower; (ix) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Equipment and any other
Collateral and which Borrower has access; and (x) do all other acts and things
necessary, in Fremont's determination, to fulfill Borrower's obligations under
the Loan Agreement or any of the other Loan Documents.
18. Notwithstanding the terms of Sections 7.2 and 7.5 of the Loan
Agreement, Borrower shall be permitted to restructure as a limited partnership,
provided that Fremont consents to all documents, instruments and other legal
matters incident to such merger and restructure, which consent will not be
unreasonably withheld.
19. In addition to the waivers set forth in Section 11.1 of the Loan
Agreement, Borrower hereby waives notice of intention to accelerate and notice
of acceleration, so that Fremont may exercise any and all rights and remedies
under the Loan Agreement or any other Loan Documents, or as otherwise provided
by law or in equity, immediately upon the occurrence of any Event of Default,
without any further notice, grace or opportunity to cure whatsoever.
9
<PAGE> 38
20. Without limiting the generality of the definition in the Loan
Agreement of "Eligible Accounts," in no event shall any Account be deemed an
Eligible Account if the Account is subject to offset or as to which there is a
contra account.
21. In addition to the Events of Default set forth in Section 8 of the
Loan Agreement, the occurrence of any one or more of the following events or
conditions shall constitute an Event of Default:
(a) Borrower shall default in the payment or performance of
any liability or obligation owing by it to any of the Core Sheth Families
under the Financing Agreement or under any of the Core Sheth Family Notes;
(b) The Core Sheth Families shall default in the observance or
performance of any material obligation or agreement on their part to be
performed under the Financing Agreement;
(c) Borrower shall pay any of the Subordinated Debt to any
holder or holders thereof after the occurrence of an Event of Default;
(d) Borrower shall default in the observance or performance of
any covenant on Borrower's part to be performed hereunder; or
(e) Borrower or any member of the Core Sheth Families shall be
convicted of a felony under the law of any state or country or shall be
criminally indicted or convicted under any law that could lead to a
forfeiture of any property of Borrower or such person, or Borrower or any
member of the Core Sheth Families shall suffer or be threatened with a
forfeiture of any of their property under any Forfeiture Law.
22. Fremont agrees to exercise reasonable, good faith efforts
(consistent with its customary procedures and practices for handling
confidential information generally) to keep any Confidential Information
delivered to it pursuant to the Loan Agreement confidential from any person
other than those employed or retained by Fremont who are reasonably expected to
become engaged in evaluating, approving, structuring, appraising,
administering, overseeing or collecting the loans or Collateral so long as
Fremont advises such persons that such information is to be held by them in
confidence; provided, however, that nothing herein shall prevent Fremont from
disclosing any Confidential Information so long as Fremont advises such persons
that such information is to be held by them in confidence (i) to any assignee,
transferee or participant (including prospective assignees, transferees or
participants) that have agreed to comply with this provision in connection with
the contemplated assignment or transfer of any loans or participations therein,
(ii) as required or requested by any governmental agency, department or bureau
or representative thereof, (iii) pursuant to subpoena or other legal process or
(iv) in connection with any litigation to which Fremont or Borrower is a party.
10
<PAGE> 39
23. This Rider may be executed in multiple counterparts, each of which
shall be deemed an original document and all of which taken together shall
constitute one and the same instrument.
24. THE LOAN AGREEMENT (INCLUDING THIS RIDER) HAS BEEN EXECUTED AND
DELIVERED BY BORROWER AND FREMONT IN ATLANTA, GEORGIA, AND SHALL BE DEEMED TO
BE A CONTRACT MADE IN GEORGIA. THIS RIDER SHALL BE GOVERNED IN ALL RESPECTS BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF GEORGIA.
THIS RIDER SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES HERETO
AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. BORROWER HEREBY WAIVES NOTICE OF
FREMONT'S ACCEPTANCE HEREOF.
25. Nonapplicability of Article 5069-15.01 et seq. Borrower and
Fremont hereby agree that, except for Section 15.10(b) thereof, the provisions
of Tex. Rev. Civ. Stat. Ann. art. 5069-15.01 et seq. (Vernon 1987) (regulating
certain revolving credit loans and revolving tri-party accounts) shall not
apply to this Rider, the Loan Agreement or any of the other Loan Documents.
26. BORROWER HEREBY WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE
PRACTICES - CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE ANN. Section 17.01
ET SEQ. (VERNON SUPP. 1987)), A LAW THAT GIVES CONSUMER SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION,
BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY WARRANTS AND
REPRESENTS THAT BORROWER (A) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION RELATIVE TO FREMONT, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE LOAN AGREEMENT.
27. THIS RIDER, THE LOAN AGREEMENT, THE CONDITIONS PRECEDENT RIDER,
THE STANDBY LETTER OF CREDIT SUPPLEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
28. Agreement by Fremont. Upon Fremont's satisfaction with the
conditions set forth in Section 28 of this Rider, Fremont consents to the sale
by Borrower (hereinafter the "Initial Sale") of approximately eight (8) acres
of Borrower's real property located at 1630 Duncan-Reidville Highway, City of
Duncan, Spartanburg County, South Carolina, including a 21,000 square foot
manufacturing facility, which is a portion of Map 5-30, parcel 203
(hereinafter, the "Original Premises"), and waives the existence of any Event
of Default under the Loan Agreement solely arising from the consummation of the
Initial Sale; provided that as a condition to Fremont's
11
<PAGE> 40
consent to the Initial Sale, (i) Fremont shall review and consent to all
documents, instruments and other legal matters incident to the Initial Sale and
(ii) Borrower shall use the net proceeds of the Initial Sale for its working
capital needs. Furthermore, upon Fremont's satisfaction with the conditions
set forth in Section 28 of this Rider, Fremont consents to the sale by Borrower
(hereinafter the "Subsequent Sale") of the remainder of Borrower's real
property located at 1630 Duncan-Reidville Highway, City of Duncan, Spartanburg
County, South Carolina consisting of approximately eight (8) acres
(hereinafter, the "Remaining Premises"), and waives the existence of any Event
of Default under the Loan Agreement solely arising from the consummation of the
Subsequent Sale; provided that as a condition to Fremont's consent to the
Subsequent Sale, (i) Fremont shall review and consent to all documents,
instruments and other legal matters incident to the Subsequent Sale and (ii)
the net proceeds of the Subsequent Sale shall be applied as a prepayment to the
Term Loans. Upon the consummation of the Initial Sale and Fremont's
satisfaction with the conditions set forth above in this Section 28, Fremont
agrees to execute and deliver such further instruments, agreements and
assurances as may be reasonably requested by Borrower to evidence and provide
for the release of any lien or security interest of Fremont in the Original
Premises. Upon the consummation of the Subsequent Sale and Fremont's
satisfaction with the conditions set forth above in this Section 28, Fremont
agrees to execute and deliver such further instruments, agreements and
assurances as may be reasonably requested by Borrower to evidence and provide
for the release of any lien or security interest of Fremont in the Remaining
Premises. The release provided for in this Section 28 (x) shall not constitute
a release, or request for release, of any Collateral other than the Original
Premises and the Remaining Premises and (y) shall not constitute any course of
dealing that would require Fremont to release any other Collateral. Except as
provided in this Section 28, nothing contained herein or any other Loan
Document shall be construed as a waiver by Fremont of any covenant or provision
of the Loan Agreement, the other Loan Documents, this Rider, or of any other
contract or instrument between Borrower and Fremont, and the failure of Fremont
at any time or times hereafter to require strict performance by Borrower of any
provision thereof shall not waive, affect or diminish any right of Fremont to
thereafter demand strict compliance therewith. Fremont hereby reserves all
rights granted under this Rider, the Loan Agreement, the other Loan Documents
and any other contract or instrument between Borrower and Fremont.
29. Reference is hereby made to (i) that certain Loan and Security
Agreement, dated June 27, 1995, between Eurostar and Fremont (the "Original
Eurostar Loan Agreement"), (ii) that certain Loan and Security Agreement, dated
October 8, 1993, between Tristar Corporation and Fremont (the "Original Tristar
Loan Agreement"). Pursuant to the terms of an Agreement and Plan of Merger
(the "Merger"), executed July 31, 1995, but to be effective August 31, 1995, by
and among Eurostar, Transvit and Borrower, Eurostar has agreed to merge, and
has been merged, with and into Borrower, with Borrower being the surviving
corporation. In connection with the consummation of the Merger, Borrower, as
the surviving corporation of the Merger, executed that certain Assumption
Agreement, dated August 31, 1995, in favor of Fremont, pursuant to which
Borrower, among other things, assumed and agreed to perform, observe and
confirm, all and singular, the covenants, agreements, terms, conditions,
obligations, appointments, duties and liabilities of Eurostar under the
Original Eurostar Loan Agreement and any other document or instrument executed
and delivered or furnished by Eurostar in connection therewith. The Loan
Agreement and the financing commitments set forth therein, constitute an
amendment,
12
<PAGE> 41
modification, restatement and consolidation, but not an extinguishment or
novation, of the Original Eurostar Loan Agreement, the Original Tristar Loan
Agreement and the financing commitments set forth therein. The Loan Agreement
and the other Loan Documents are not intended as, and shall not be construed
as, a release, impairment or novation of the indebtedness, liabilities and
obligations of the Borrower, as the as the surviving corporation of the Merger,
under the Original Eurostar Loan Agreement, the Original Tristar Loan Agreement
and the other documents contemplated thereby or the liens and security
interests granted therein, all of which liens and security interests are hereby
modified and affirmed. With respect to matters relating to the period of the
Loan Agreement prior to the date hereof, all of the provisions of the Original
Eurostar Loan Agreement and the Original Tristar Loan Agreement are hereby
ratified and confirmed, and the making, perfection and priority of such
security interests shall remain in full force and effect. The Original
Eurostar Loan Agreement and the Original Tristar Loan Agreement, as modified
and consolidated by the provisions of the Loan Agreement, shall be construed as
one agreement.
SIGNED, SEALED AND DELIVERED in Atlanta, Georgia, on the day and year first
above written, but effective January 1, 1996.
ATTEST: TRISTAR CORPORATION
("Borrower")
By:
- ----------------------------------- ---------------------------------
Secretary LOREN M. ELTISTE
[CORPORATE SEAL] Vice President and Chief
Financial Officer
Accepted and agreed to in Atlanta, Georgia, this 29th day of December, 1995.
FREMONT FINANCIAL CORPORATION
("Fremont")
By:
---------------------------------
Jerry Noles
Vice President
13
<PAGE> 1
AWARENESS LETTER OF KPMG PEAT MARWICK
Tristar Corporation
San Antonio, Texas
Ladies and Gentlemen:
RE: REGISTRATION STATEMENT NO. 33-45396
With respect to the subject registration statement, we acknowledge our
awareness of the use therein of our report dated January 5, 1996 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
San Antonio, Texas
January 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> DEC-02-1995
<CASH> 939,000
<SECURITIES> 0
<RECEIVABLES> 11,031,000
<ALLOWANCES> 590,000
<INVENTORY> 14,079,000
<CURRENT-ASSETS> 28,141,000
<PP&E> 9,426,000
<DEPRECIATION> 4,272,000
<TOTAL-ASSETS> 41,120,000
<CURRENT-LIABILITIES> 16,727,000
<BONDS> 0
<COMMON> 166,000
0
0
<OTHER-SE> 10,154,000
<TOTAL-LIABILITY-AND-EQUITY> 41,120,000
<SALES> 17,403,000
<TOTAL-REVENUES> 17,403,000
<CGS> 12,825,000
<TOTAL-COSTS> 16,224,000
<OTHER-EXPENSES> 855,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536,000
<INCOME-PRETAX> 324,000
<INCOME-TAX> 120,000
<INCOME-CONTINUING> 204,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204,000
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
