FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED AUGUST 29, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-13099
TRISTAR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3129318
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12500 SAN PEDRO AVENUE, SUITE 500, SAN ANTONIO, TEXAS 78216
(Address of principal executive offices)
Registrant's telephone number, including area code 210-402-2200
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on November 23,
1998, as reported on the NASDAQ National Market System, was $6 5/8. As of
November 23, 1998, the Registrant had outstanding 16,761,493 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Report.
<PAGE>
PART I
This document contains certain statements that are "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements other than statements of
historical facts included in this document, including without limitation
statements that use terminology such as "anticipate", "believe", "continue",
"estimate", "expect", "intend", "may", "plan", "predict", "should", "will", and
similar expression, are forward-looking statements. These forward-looking
statements include, among other things, the Company's business strategy and
expectations concerning the Company's market position, future operations,
margins, profitability, liquidity and capital resources, expenditures for
capital projects and attempts to reduce costs. Although the Company believes
that the basis for the assumptions upon which the forward-looking statements
contained in this document are reasonable, any of the assumptions could prove to
be inaccurate and, as a result, the forward-looking statements based on those
assumptions also could be incorrect. All phases of the operations of the Company
involve risks and uncertainties, many of which are outside the control of the
Company and any one of which, or a combination of which, could materially affect
the results of the Company's operations and whether the forward-looking
statements ultimately prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations are set
forth under the captions "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this document. Actual
results and trends in the future may differ materially depending on a variety of
factors including, but not limited to, the timing and extent of changes in
fragrance components, fragrance and cosmetic prices and underlying demand and
availability of fragrance components; changes in the cost or availability of
means of transporting products; execution of planned capital projects; adverse
changes in the credit ratings assigned to the Company's trade credit; the extent
of the Company's success in developing and marketing new product lines; state
and federal environmental, economic, safety and other policies and regulations,
and changes therein, and any legal or regulatory delays or other factors beyond
the Company's control; adverse rulings, judgments, or settlements in litigation
or other legal matters; actions of customers and competitors; economic
conditions affecting the areas in which the Company's products are marketed;
political developments in foreign countries; the conditions of the capital
markets and equity markets during the periods covered by the forward-looking
statements; and other factors described in greater detail in other of the
Company's filings with the Commission. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf are expressly qualified in their entirety by the foregoing. The Company
undertakes no obligation to publicly release the results of any revisions to any
such forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 1. BUSINESS
TRISTAR CORPORATION ("Tristar" or the "Company") is a Delaware corporation
headquartered in San Antonio, Texas. The Company is principally engaged in
developing, manufacturing, marketing and distributing value oriented designer
alternative fragrances, complementary products to those fragrances, and cosmetic
pencils in North and South America. The Company's fragrances are sold under the
Designer Classic Alternatives ("DCA"), Euro Collections ("Euro"), Royal
Selections ("Royal"), Regal Collections ("Regal"), Club Exclusif ("Club"), and
Premiere Editions ("Premiere") brands. They are designed for consumers who
desire a scent similar to an original designer fragrance but are unwilling or
unable to pay the high prices of originals. The Company also markets eye and lip
liner cosmetic pencils and distributes value oriented complementary cosmetic
products, including high quality lipsticks that are alternatives to major brands
sold in department stores, again at significantly lower prices than original
designer brands. Cosmetics are primarily marketed under the DCA, Gina Cosmetics
and Apple pencil lines. The Company currently conducts business utilizing its
sales and distribution facilities in San Antonio, Texas and Mexico City, Mexico,
its state of the art manufacturing facility in Pleasanton, Texas, and its
corporate offices, design studio, and laboratory in San Antonio, Texas.
The Company was incorporated in New York in 1982 and made an initial public
offering of its common stock in 1984. In 1987, the Company was reincorporated in
Delaware. The Company changed its name from Ross Cosmetics Distribution Centers,
Inc. to Tristar Corporation in 1993.
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The Company's major shareholder, the Core Sheth Families ("Sheth Group"),
beneficially holds 73% of the Company's outstanding common stock. The Company
believes that through their various worldwide vertically integrated companies,
the Sheth Group is the world's largest manufacturer (based on number of units
produced) of value priced oriented fragrances. It is also a significant
manufacturer of lower priced, value oriented cosmetic products. The Sheth Group
is also a supplier of products and components to the Company's sales,
distribution and manufacturing operations and a purchaser of the Company's
products.
The fragrance manufacturing capability of the Company was acquired in August
1995, as a result of a merger with Eurostar Perfumes, Inc., ("Eurostar"), an
affiliate of the Sheth Group and the manufacturer of substantially all of the
Company's products prior to the merger. The merger was accounted for in a manner
similar to a pooling of interests.
PRODUCTS
The Company's principal product category is fragrances with the balance
consisting of cosmetics, cosmetic pencils and toiletry products. The following
table reflects the dominance of the fragrance category's contribution to the
Company's net sales for the last three fiscal years:
PRODUCT CATEGORY FISCAL 1998 FISCAL 1997 FISCAL 1996
- --------------------------------------------------------------------------------
FRAGRANCES 88% 83% 80%
- --------------------------------------------------------------------------------
OTHER PRODUCTS 12% 17% 20%
- --------------------------------------------------------------------------------
Fragrance sales grew in fiscal 1998 as a percentage of total sales but declined
slightly in dollars when compared to fiscal 1997. During fiscal 1998, the
Company continued the expansion of its distribution base to retail chains by
focusing on a new value priced fragrance line introduced in August 1997, Regal,
while aggressively placing renewed focus on expanding distribution of the
restaged Euro fragrance line into the retail market in the United States, Canada
and Latin America. Concurrently, the Company expanded the market leading Royal
brand (introduced in September 1996) to serve the needs of other trade classes.
The Company also expanded its distribution of the budget priced Premiere
fragrance and toiletry line and introduced (in July 1998) a new brand
exclusively for the Latin America market called Club Exclusif. The Company
intends to continue to transition to a broader based distribution strategy. The
Company implemented this strategy primarily as a result of increased
opportunities in the retail sector and in the wholesale, specialty store, and
dollar store channels in the U.S., Canada and Latin America. The Company is also
building brand equity by devoting increased resources to strengthen marketing
support programs and value added services.
Due to the minimal growth rate exhibited in the total fragrance category during
fiscal 1998, continued consolidation of customers in the retail and wholesale
trade classes, the disposition of its Brazilian subsidiary and difficult
economic conditions in certain international markets, the Company experienced a
decrease in its revenue base by 2% over the previous year. The Company believes,
however, that opportunities exist to enhance its market share in the key areas
in which it competes.
FRAGRANCES
The Company's marketing strategy for designer alternative fragrances addresses
six distinct segments of the fragrance market with six separate product lines
uniquely positioned to enable the Company to pursue customized marketing
programs tailored to meet the specific needs of the different classes of trade:
o The Euro line is marketed in traditional mass, retail, and specialty retail
chain stores both in the United States and Canada as well as Latin America.
Euro, first introduced in 1989, is the second largest fragrance brand of
the Company and until fiscal 1996 had been the Company's principal product
line in the wholesale market. (The Company's Royal brand, as discussed
below, is now targeted to the wholesale market replacing Euro).
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A major re-stage of Euro was introduced to the market place in April 1998
featuring new state-of-the-art bottle design, increased size and value for
the consumer, new alternative designer fragrances, line extensions
including the new Euro Garden (botanical) fragrances, exciting contemporary
packaging and enhanced merchandising support.
o In the fourth quarter of fiscal 1996, the Company developed a new line
called Royal Selections, designed to recapture a significant part of the
wholesale trade class. Within one year of introduction, Royal became the
largest brand in the Company and is today the overall market leader. This
line set new standards in packaging and product innovation for the
industry. In August 1997 a significant line extension, Royal Nature, was
introduced with seven new original fragrances emulating "mother nature."
Fragrances such as Peach, Pear, and Very Berry attract a younger teen
audience, a new market segment for the Company. Generally these younger
consumers find nature-type fragrances more appealing than traditional
designer alternative fragrances. Royal is competitively priced and couples
that with quality packaging and merchandising support.
o In the fourth quarter of fiscal 1997, the Company developed a new fragrance
brand called Regal Collections, focusing on new opportunities in retail
channels of distribution. Shipments commenced August 1997. Regal has a
limited number of designer alternative fragrance "best sellers". In 1998 a
line extension called Regal Country Scents was introduced offering
botanical fragrances to the youth market. Distribution has continued to
expand. The Regal brand is aimed at mass volume retailers including food
accounts.
o The Premiere line is a budget price brand that is oriented toward dollar
stores and other budget-price retailers. This line of designer alternative
fragrances was newly re-staged at the end of fiscal 1996 by increasing the
bottle size and redesigning all packaging. Sales of the redesigned product
together with companion body sprays and deodorant sticks began in early
fiscal 1997 at the same price points as they were previously sold,
providing increased value in comparison to competition.
o The premium DCA line, which was developed and introduced in fiscal 1996,
enables the Company to compete in mass market retail chains and specialty
accounts which look to promote higher price point and higher profit brands.
o In late July 1998, the Company introduced a new line of contemporary
alternative designer fragrances called Club Exclusif. It is positioned as a
value oriented, quality brand for the Latin American market, where
opportunities exist to take advantage of local preferences for certain
types of fragrances.
The Company believes that to successfully market a fragrance product line, one
must identify a market niche and then fill that niche with a value-priced,
quality product presented in attractive bottles, cartons and displays. All of
the Company's fragrance lines feature quality glass bottles, caps and collars
designed in various unique shapes and styles. The Company's fragrances are
packaged in colorful cartons designed with the latest technology to appear
attractive to the consumer. All fragrances are developed by the Company's expert
perfumers as alternatives to the most popular, nationally branded, designer
fragrances. They are sold, however, at a fraction of the original designer
fragrance's retail price to satisfy the needs of the consumers in specific niche
markets. The Company also develops, markets and distributes a limited number of
its own original fragrances (non-designer alternative fragrances) in the U.S.
and Latin America. The majority of these are botanical fragrances, a growth
niche targeted to a younger demographic consumer.
Prior to the introduction of new or improved fragrances, market evaluation and
consumer testing is conducted by the Company with selective testing also done by
independent outside laboratories. The Company believes that the success of these
products is dependent on the Company correctly identifying the needs of a
particular market niche and then, ultimately, on the consumers' acceptance of
the product. Life cycles of products vary significantly, with some being
successfully marketed for more than five years, whereas other products may fail
to gain consumer acceptance and be discontinued within a shorter period of time.
The Company believes that the success of the Company's products in the market
place is largely dependent on the amount and quality of retail advertising and
promotion original designers provide for their brands, the appeal of the scent
itself and the merchandising and trial programs that the Company develops to
accelerate consumer awareness.
Many of the Company's fragrance product lines have currently, or will have in
the future, companion products which are discussed below in "Other Products".
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During fiscal 1999 the Company plans to distribute other fragrance lines
manufactured outside the U.S. by Sheth Group affiliates into Latin America,
primarily to the retail sector. These entries are anticipated to expand the
Company's market share by offering distinctive original (non-designer
alternative) brands into those markets with value benefits not presently offered
by leading competitors.
OTHER PRODUCTS
The Company markets numerous complementary products within each fragrance line
such as deodorant sticks, body sprays, dusting powders, shaker talcs,
trial/travel sizes, roll-on perfumes, body glitter and gift sets. In most cases,
these companion products are marketed as designer alternatives and are value
priced below the prices of the national brands.
The Company markets, under the brand names of DCA and Gina Cosmetics,
proprietary lines of cosmetics including nail, lip color, eye products, and
other cosmetic items, all of which are manufactured by related parties.
Cosmetics sold under the DCA brand are premium quality lipstick products
designed as alternatives to original designer lipsticks. The DCA products are
sold primarily in mass retail chain stores at prices significantly less than the
original designer's price in department stores. Cosmetic products under the Gina
Cosmetics line are geared to price conscious consumers and are primarily
marketed in the wholesale class of trade.
The Apple line of lip and eye liner cosmetic pencils that the Company
manufactures is marketed and distributed in assorted colors and sizes. Private
label cosmetic eye and lip liner pencils are also produced for selected
customers, including an affiliate of the Sheth Group.
With the exception of cosmetic eye and lip liner pencils, new, redesigned, or
replacement cosmetics or specialty toiletries are developed by the Company's
suppliers at the request of the Company. The Company believes that similar to
fragrances, selecting the right cosmetic or toiletry products for a particular
market segment and their acceptance by the consumer play a large role in the
success or failure of any particular product.
The Company believes that revenues from the complementary products to both the
fragrance lines and cosmetics will increase in fiscal 1999. Such growth is
expected to result from increases within the existing lines, the addition of new
products, consumer promotions, and further strengthening of our distribution
network.
CUSTOMERS
The Company distributes its products to more than 1,000 customers, including
wholesalers, distributors, drug and grocery chains, mass merchandisers and
specialty chain stores located primarily in North and South America. These
customers provide approximately 38,000 outlets for the Company's products. The
Company markets its products through Company sales personnel located in various
markets and through a network of independent sales representatives.
The Company has invested heavily in developing the mature U.S. retail markets
and in starting to develop the emerging mass markets in Latin America. The
Company believes that the customer base in the mass Latin America markets fits
the Company's target customer profile and presents an opportunity for future
growth.
The Company has focused the expansion of the customer base in the U.S. on
creating and repositioning products to better meet the needs of its existing
channels of distribution and in gaining entrance into certain new channels. A
major focus of investment in fiscal 1998 has been on developing customer bases
in Mexico and other most populous countries in Latin America. The Company
services Latin America through regional and national distributors within the
various countries. Two affiliates of the Sheth Group are the national
distributors in Argentina and Brazil. These distributors are primarily supplied
by the Company's Texas distribution center which also services the United States
and Canadian markets.
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Sales to customers in the United States were $37,993,000, $41,905,000, and
$37,196,000 for fiscal years 1998, 1997 and 1996, respectively. For those same
fiscal years, $29,690,000 (44% of net sales) $27,054,000 (39% of net sales) and
$14,524,000 (28% of net sales) respectively, were exported directly to foreign
customers or sold through the Company's subsidiaries in Mexico and Brazil (prior
to the disposition of the Company's Brazilian subsidiary- discussed more fully
in Note 6 of the Notes to Consolidated Financial Statements). Certain of the
sales to U.S. customers are ultimately resold outside of the U.S. The amount of
these indirect export sales cannot be determined as the Company does not have
access to its customers' sales information. As a significant portion of the
Company's products are sold directly or indirectly into the Latin American
market, there are certain factors such as local political and economic
conditions that could have an adverse effect on these sales. SEE "Management's
Discussion and Analysis of Financial Condition and Results of Operations
(Potential Adverse Effects on Results of Operations for Future Periods)" for a
specific discussion of those risks.
The North and South America markets will continue to be the focus of the
Company's marketing strategy as other Sheth Group affiliates distribute similar
products throughout the rest of the world. The Company anticipates a minor
increase in sales outside North and South America in fiscal 1999, primarily in
the newer Royal and Euro product lines, and principally to Sheth Group
affiliates.
The Company is not dependent upon a single or a few customers and the loss of a
single or a few customers would not have a material adverse effect on the
Company's business. In fiscal 1998, one customer accounted for slightly more
than ten percent of the Company's net sales while in 1997 and 1996, no single
customer accounted for more than ten percent.
SUPPLIERS
At present, the Company purchases the glass containers for its fragrances from
European glass manufacturers. If these products were unavailable from one of
these suppliers, the Company believes that it could purchase such products from
other suppliers without any significant delays.
In addition, the Company purchases specially blended fragrance compounds
principally from a Sheth Group affiliate in France. In the event such supplier
was unable to provide such compounds, the Company could suffer minor
manufacturing delays until such supplier could be replaced.
The Company's ability to satisfy sales orders for its fragrance products is
directly dependent on its ability to manufacture these products. If the Company
were physically unable to manufacture its products, and inventory and demand
levels were normal, the effect on the Company would in general be minimal as
Sheth Group affiliates and others have similar manufacturing facilities
available to support the Company. However, in instances where demand for
fragrances was strong and the Company had inadequate inventory levels, the
Company would be adversely impacted. The inability to manufacture cosmetic
pencils at its Texas facility until a secondary source is located could have an
adverse effect on the Company.
The Company is dependent on the supply of cosmetics, other than cosmetic
pencils, from Sheth Group affiliates. If any of these companies were to cease or
be unable to supply these cosmetic products, the lack of such products could
have an adverse effect on the Company until secondary suppliers could be
located.
PATENTS AND TRADEMARKS
The Company and a Sheth Group affiliate own or have applied for substantially
all of the product name trademarks for the fragrance and cosmetic products sold
by the Company. The Company is dependent on the continued use of these
trademarks; however, the cessation of the Company's right to use such trademarks
of the Sheth Group affiliate would not have a materially adverse effect on the
Company's business.
BACKLOG OF ORDERS
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The Company had no substantial backlog of orders at the end of each of fiscal
years 1998, 1997 and 1996.
RAW MATERIALS
The Company's raw material inventories support the fragrance and cosmetic pencil
manufacturing operations. The principal components of that inventory are
currently purchased from limited or single sources of supply. Management
believes the cessation of supply for the fragrance components from any of the
primary suppliers could be replaced by a Sheth Group affiliate or a secondary
source with minimal difficulties.
ENVIRONMENTAL LAWS
In the opinion of management, compliance by the Company with federal, state and
local laws relating to the protection of the environment has had no material
effect upon the Company's capital expenditures, earnings or competitive
condition. The Company has reformulated certain of its products to meet the
requirements of the California Air Resources Board. See "Legal Proceedings" for
additional details.
COMPETITION IN THE FRAGRANCE AND COSMETICS INDUSTRY
The fragrance and cosmetics industry is characterized by intense competition,
particularly in the U.S. While pricing and terms are the principal factors in
competition, product quality, presentation, merchandising and advertising
programs and customer service (incorporating available inventories and prompt
delivery) are also very important additional competitive features in the overall
industry.
Principal competitors in designer alternative fragrances include Jean Philippe
Fragrances, Inc., YAZ Enterprises Inc., Paris Designs, Inc., and Parfums de
Coeur, and in budget cosmetics, Artmatic USA Cosmetics, Wet-N-Wild, and Jordana
Cosmetics Corporation.
While the Company is a significant participant in the value oriented designer
alternative fragrance market and has had historically many of the resources of
the Sheth Group available to it, the Company is a relatively small participant
in the total fragrance and cosmetics industry. Many of the other companies in
the industry, including virtually all large mass-advertised brand manufacturers
such as Unilever, Revlon, L'Oreal, Benckiser, and Renaissance Cosmetics, Inc.
are well established and have been in existence for a significantly longer
period of time than the Company. Such companies have higher leverage and
resources including financial, marketing, research, manufacturing and personnel,
substantially greater than the Company has or will have available in the
foreseeable future. Historically, however, these large manufacturers have not
sought to compete in the same value-oriented markets in which the Company
participates.
INVENTORY
The Company maintains finished goods inventory at its Texas and Mexico warehouse
facilities to meet the demands of its customers. Raw material and
work-in-process inventories related to manufacturing of fragrances and cosmetic
pencils are located at the Pleasanton, Texas manufacturing facility.
SEASONALITY
The Company's business has historically been subject to seasonal factors
relating to calendar year-end holidays, which has resulted in increased net
sales in the first and fourth quarters of the Company's fiscal year. The Company
believes that with its range of products, distribution channels, and promotional
activity, it should over time be able to reduce some of the differences between
quarters, however, the nature of the fragrance market will result in a
continuation of the pattern.
EMPLOYEES
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The Company employs approximately 390 full-time employees and during peak
production periods the Company utilizes temporary or seasonal employees to
augment its workforce. During the past two peak production periods the Company
has utilized up to 400 seasonal employees. None of the Company's employees are
covered by a collective bargaining agreement and management believes that the
Company's relationship with its employees is satisfactory.
ITEM 2. PROPERTIES
The Company owns a manufacturing plant that consists of a 132,000 square-foot
facility on a 14-acre site in Pleasanton, Texas. That facility has approximately
12,000 square feet of office space.
The Company is currently subleasing approximately 30,000 square feet of storage
space in Pleasanton, Texas. The sublease has an annual rate of approximately
$50,400 and expires July 1999.
The Company is currently leasing approximately 72,000 square feet of storage,
shipping and office space for its San Antonio distribution center. The lease has
an annual rate of $269,000, subject to adjustments, and expires in February
2001.
The San Antonio corporate offices, design studio and laboratory occupy
approximately 23,000 square feet of office space. The leases have a current
annual rate of $315,000, subject to adjustments and expire in January 1999.
The Company also leases approximately 4,100 square feet of office and
distribution space in Mexico City, Mexico.
ITEM 3. LEGAL PROCEEDINGS
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company and
two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas and Melissa
Freitas. The complaint alleged causes of action by two plaintiffs for libel and
seeks indemnification of legal costs allegedly incurred by those plaintiffs in
suits and proceedings arising from the facts which were the subject of the
investigation conducted by the Special Committee of the Board of Directors in
1992. The complaint also alleged, on behalf of all four plaintiffs, that the
Company's disclosures relating to the Sheth Group's holding of Company stock and
other matters were fraudulent or negligently misrepresented. In April 1995, the
court dismissed the complaint without prejudice, in part due to the plaintiffs'
failure to state a claim for relief. In May 1995 the plaintiffs refiled the
complaint, asserting many of the same claims, and in June 1996, amended their
complaint yet again, naming only the Company and one of its directors as
defendants. In October 1998, the Court dismissed the claim against the one
director. The Company intends to dispute these allegations vigorously and
believes that ultimate disposition of the case will not have a material adverse
effect on its business, financial condition or results of operations.
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INSURANCE POLICY REIMBURSEMENT
In November 1994 and June 1995, the United States District Court for the
District of South Carolina approved the disbursement of $1,250,000 and $750,000
, respectively, to the Company from the proceeds of an executive liability and
indemnification policy owned by the Company. Two other claimants under the
policy, Ross Freitas ("Freitas") and Carolyn Kenner ("Kenner"), have sought
reconsideration of the latter court-approved disbursement. Pursuant to a
settlement agreement approved by the Court on December 18, 1997, Freitas and
Kenner withdrew their motion for reconsideration. As part of the settlement, the
Company was required to make payments totaling $175,000 to Freitas and Kenner.
The proceedings regarding the policy before the United States District Court for
the District of South Carolina have been dismissed.
CALIFORNIA AIR RESOURCES BOARD
After not being in compliance with the regulations of the California Air
Resources Board (the "CARB") with respect to volatile organic compounds
("VOC's), since January 1, 1995 the Company achieved compliance by September 30,
1996. Under a temporary variance granted by the State of California, the Company
was allowed to sell until September 30, 1997, non-complying product manufactured
prior to September 30, 1996.
OTHER
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
these proceedings will not have a material adverse effect on the Company's
financial condition. The Company anticipates that it may incur expenses related
to ongoing litigation involving the non-settling defendants from previously
settled stockholder class action litigation against the Company and from a
related lawsuit against the Company's former auditors. Any expenses incurred are
not expected to be material to the Company's financial results.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(A) MARKET INFORMATION
The Company has a single class of common equity securities outstanding, its
Common Stock, $.01 par value ("Common Stock"). The Common Stock is traded
over-the-counter on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") Small Cap National Market under the symbol "TSAR". The
following table presents for the periods indicated the quarterly high and low
bid quotations in the over-the-counter market, as quoted by NASDAQ. These
quotations reflect the inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
FISCAL 1998 FISCAL 1997
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
FIRST QUARTER ...................... $ 10 7/8 $ 10 3/8 $ 7 3/8 $ 7
-------- -------- -------- --------
SECOND QUARTER ..................... $ 10 7/8 $ 10 $9 11/16 $ 6 7/8
-------- -------- -------- --------
THIRD QUARTER ...................... $ 10 3/4 $ 10 1/4 $ 9 5/8 $9 11/32
-------- -------- -------- --------
FOURTH QUARTER ..................... $ 10 3/4 $ 9 $ 10 7/8 $ 9 3/8
-------- -------- -------- --------
On November 23, 1998 the closing bid price for the Company's Common Stock, as
reported by NASDAQ, was $6 5/8.
(B) HOLDERS
As of November 23, 1998, the number of holders of the Company's Common Stock was
approximately 1,000.
(C) DIVIDENDS
The Company has paid no cash dividends on the Common Stock since its inception.
The payment by the Company of cash dividends, if any, in the future rests within
the discretion of the Board and will depend, among other things, upon the
Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors. In addition, the Company's ability to pay cash
dividends is subject to restrictions imposed by the Company's principal lender.
SEE Note 5 of the Notes to Consolidated Financial Statements. The Company has no
plans to pay any cash dividends on the Common Stock in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of selected financial data for the Company and its
subsidiaries for each of the last five fiscal years:
<TABLE>
<CAPTION>
YEARS ENDED ,
---------------------------------------------------------------------------
AUGUST 29, AUGUST 30, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
REVENUES ......................... $ 67,683,000 $ 68,959,000 $ 51,720,000 $ 44,728,000 $51,244,000
------------ ------------ ------------ ------------ -----------
NET (LOSS) INCOME ................ $ (1,491,000) $ 1,083,000 $(12,053,000) $ (932,000) $ 1,390,000
------------ ------------ ------------ ------------ -----------
NET (LOSS) INCOME APPLICABLE TO
COMMON STOCK ..................... $ (1,944,000) $ (454,000) $(12,053,000) $ (932,000) $ 1,390,000
------------ ------------ ------------ ------------ -----------
NET (LOSS) INCOME PER COMMON SHARE:
BASIC ............................ $ (.12) $ (.03) $ (.72) $ (.06) $ .08
------------ ------------ ------------ ------------ -----------
DILUTED .......................... $ (.12) $ (.03) $ (.72) $ (.06) $ .08
------------ ------------ ------------ ------------ -----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING:
BASIC ............................ 16,748,798 16,709,690 16,641,218 16,625,315 16,609,764
------------ ------------ ------------ ------------ -----------
DILUTED .......................... -- -- -- -- 16,847,455
------------ ------------ ------------ ------------ -----------
TOTAL ASSETS ..................... $ 38,708,000 $ 41,084,000 $ 33,767,000 $ 36,828,000 $40,902,000
------------ ------------ ------------ ------------ -----------
REVOLVING CREDIT AGREEMENT
BORROWINGS ..................... $ 7,612,000 $ 10,205,000 $ 9,319,000 $ 5,383,000 $ 4,511,000
------------ ------------ ------------ ------------ -----------
LONG TERM DEBT & CAPITAL LEASES .. $ 3,877,000 $ 2,581,000 $ 3,234,000 $ 3,719,000 $ 4,861,000
------------ ------------ ------------ ------------ -----------
SUBORDINATED LONG TERM DEBT ...... $ 1,700,000 $ 4,500,000 $ 12,666,000 $ 12,666,000 $11,216,000
------------ ------------ ------------ ------------ -----------
CASH DIVIDENDS DECLARED PER COMMON
SHARE .......................... $ -0- $ -0- $ -0- $ -0- $ -0-
------------ ------------ ------------ ------------ -----------
</TABLE>
The Company has significant related party transactions. SEE Note 8 of the Notes
to Consolidated Financial Statements.
The Company has recorded legal and professional expenses of $230,000, $72,000,
$162,000, $269,000 and $208,000 in fiscal 1998, 1997, 1996, 1995 and 1994,
respectively, associated with the stockholder litigation and other events that
were the subject of an internal investigation by the Special Committee of the
Board. SEE Note 18 of the Notes to the Consolidated Financial Statements.
The Company recorded other income of $2,065,000 in connection with receipt of
insurance proceeds in fiscal 1995. See Note 21 of the Notes to the Consolidated
Financial Statements.
The Company recorded amortization expense of $36,000, $63,000, $83,000, $986,000
and $367,000 in fiscal 1998, 1997, 1996, 1995 and 1994, respectively, associated
with the value assigned to the granting of new common stock purchase warrants
related to the settlement of the prior stockholder class action litigation and
to the extension of the exercise date on existing warrants.
The Company recorded merger related expenses of $76,000 in fiscal 1996 and
$686,000 in fiscal 1995.
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<PAGE>
During the third quarter of fiscal 1998, the Company sold all of the capital
stock and distribution rights of its Brazilian subsidiary to a wholly owned
affiliate of the Sheth Group for $2,800,000. SEE Note 6 of the Notes to the
Consolidated Financial Statements.
During the fourth quarter of fiscal 1996 the Company recorded deferred income
tax expense of $3,881,000 resulting from the establishment of a valuation
allowance for deferred tax assets. SEE Note 11 of the Notes to the Consolidated
Financial Statements.
During the first and second quarters of fiscal 1997 affiliates of the Company's
primary shareholder, the Sheth Group, converted $8,166,000 of their subordinated
debt into shares of Series A and Series B Preferred Stock. SEE Note 12 of the
Notes to the Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997
Tristar markets and distributes products to wholesalers, distributors, chain
stores, specialty stores, mass merchandisers and independent retail stores in
various markets throughout North and South America. Net sales for the fiscal
year ended August 29, 1998 were $67,683,000, a decrease of 2% compared to net
sales of $68,959,000 in fiscal year ended August 30, 1997. The decrease is
primarily attributable to a reduced level of sales of Euro caused by the delayed
relaunch of the restaged brand (until April 1998) and reduced DCA sales to the
U.S. retail channel. Offsetting these reductions somewhat were significant sales
growth of Royal Selections coupled with volume increases in the Premiere
fragrance and Apple pencil lines in the U.S. wholesale and Latin America
channels and Regal in the U.S. retail channel. While not quantifiable, the
Company also experienced lost sales opportunity during the first half of fiscal
1998 due to its inability to increase fragrance production capacity in order to
meet market demand during that period, brought about by the surge in demand for
Royal.
Overall, the Company's direct exports increased to $29,690,000 (44% of net
sales) in fiscal 1998 compared to $27,054,000 (39% of net sales) in fiscal 1997.
The increase in direct exports is largely due to the success of the Royal
fragrance line, the continued sales expansion of Apple pencils in this channel
and sales to affiliate companies. While the Company continues to aggressively
pursue the strategically important Latin America channel, it was determined that
the Brazilian market would continue to grow at a slower than desired rate and as
a result, the Company sold its Brazilian subsidiary to an affiliate of the Sheth
Group in May 1998 (described more fully in Note 6 of the Notes to the
Consolidated Financial Statements). The Company's strategy to formalize the
distribution of the Euro line in Mexico, by servicing retail outlets through the
Company's warehouse in Mexico City resulted in lower sales than anticipated in
this important market, due to the delayed relaunch of the Euro line in April,
1998.
Included in export sales were sales of $6,557,000 in fiscal 1998 and $3,866,000
in fiscal 1997 to Sheth Group affiliates. See "Business (Suppliers)" and Note 8
of the Notes to Consolidated Financial Statements.
The overall volume decline was largely attributable to a decrease in fragrance
sales. Increased sales volume for Royal, Regal and Premiere were entirely offset
by a decline in Euro relating to the delayed relaunch of the restaged line. The
Company experienced sales growth outside the fragrance lines relating
principally to increased cosmetic pencil sales.
Of the net sales in fiscal 1998, approximately 4%, or $2,833,000, resulted from
the sale of products purchased from related parties as finished goods. For
fiscal 1997, comparable numbers were 6%, or $4,427,000. In addition, fragrance
and other products manufactured and sold by the Company included certain
components that were purchased from related parties. The cost of those
components approximated 6% of cost of sales in fiscal 1998 and 7% of cost of
sales in fiscal 1997. See Note 8 of the Notes to the Consolidated Financial
Statements for additional information.
12
<PAGE>
Gross profit decreased from $20,518,000 (30% of net sales) in fiscal 1997 to
$17,251,000 (25% of net sales) in fiscal 1998. The decline related primarily to
an inventory reduction program that the Company implemented which was designed
to sell slower rotating finished goods at reduced margins as well as excess raw
materials at prices slightly above cost.
Selling, general and administrative expenses ("SG&A") decreased by 4% from
$17,093,000 (25% of net sales) in fiscal 1997 to $16,424,000 (24% of net sales)
in fiscal 1998. The decline was mainly attributable to overall lower marketing
costs and cost reductions related to the disposition of the Brazilian subsidiary
in May 1998, partially offset by higher bank fees in fiscal 1998 and increased
compensation expense relating to extending the term of certain stock options to
a former employee.
Interest expense decreased by 8% in fiscal 1998 from $1,940,000 in fiscal 1997
to $1,786,000 in fiscal 1998. This reduction related primarily to the conversion
of certain subordinated debt into preferred stock and to a lesser degree, by
lower interest costs relating to revolving credit line borrowings.
Fiscal 1998 other expenses included $60,000 of costs related to the amortization
of a warrant valuation asset arising from issuance of warrants to an investment
banker and previously recorded warrant valuation assets relating to the
subordinated debt and $230,000 of litigation expenses arising from events
related to the shareholder litigation. These respective expenses in fiscal 1997
were $63,000 and $72,000.
The Company recorded a net loss of $1,491,000 for fiscal 1998. After giving
effect to preferred stock dividends, the Company recorded a fiscal 1998 net loss
applicable to common stock of $1,944,000 or $.12 per share. In fiscal 1997, the
Company recorded a net loss of $454,000 or $0.03 per share, after giving effect
to the beneficial conversion feature of a preferred stock issue, the related
warrant valuation adjustment and preferred stock dividends described in the
following paragraph.
In a transaction effective February 21, 1997, Nevell Investments S.A.
("Nevell"), the holder of a subordinated long-term promissory note in the
principal amount of $4,000,000, converted $3,500,000 of that note into 120,690
shares of the Company's Series B convertible nonvoting preferred stock, $.05 par
value ("Series B Preferred Stock"). The Series B Preferred Stock has cumulative
preferred dividends of $2.03 per share and a preferred liquidation distribution
of $29.00 per share plus accrued and unpaid dividends. Each share of the Series
B Preferred Stock is convertible at the option of Nevell, into four shares of
the Company's Common Stock. The Company can redeem the shares of Series B
Preferred Stock at any time for cash of $29.00 per share ($7.25 per common
share), plus all accrued and unpaid dividends.
On February 21, 1997 the closing bid price of the Company's Common Stock as
reported by the NASDAQ was $9 11/32. At that date, the Series B preferred stock
carried a beneficial conversion feature of $2 3/32, the difference between the
conversion price and the closing bid price per share of Common Stock. The value
of the beneficial conversion feature has been reflected in the financial
statements of the Company in a manner similar to that for a dividend to the
preferred shareholder. Accordingly, the Company has recorded a charge to
retained earnings and an increase in the value of the Series B Preferred Stock
in the amount of $1,011,000. Additionally, as a result of the conversion, the
Company wrote off $270,000 of warrant valuation costs attributable to the
converted debt. This charge has also been recorded to retained earnings in a
manner consistent with that for the beneficial conversion feature described
above.
13
<PAGE>
RESULTS OF OPERATIONS -- FISCAL 1997 COMPARED TO FISCAL 1996
Net sales for the fiscal year ended August 30, 1997 were $68,959,000, an
increase of 33% compared to net sales of $51,720,000 in the fiscal year ended
August 31, 1996. The increase is primarily attributable to the success of the
Royal line of fragrances which was introduced in early fiscal 1997. The Royal
line was developed for the wholesale market and reversed the prior years' trend
in that market channel, achieving success in both the U.S. and Latin America.
Somewhat offsetting this increase was a loss of sales in the Euro line and the
DCA line.
Overall, the Company's direct exports increased to $27,054,000 (39% of net
sales) in fiscal 1997 compared to $14,524,000 (28% of net sales) in fiscal 1996.
The increase in direct exports was largely due to the success of the Royal
fragrance line. In Brazil, the Company continued the development of formal
channels of distribution after establishing sales and warehouse facilities in
early fiscal 1996. While the growth of the Brazilian market continues to be
slower than anticipated, the Company believes that the market presents a
strategic opportunity for sales growth in the future. During fiscal 1997, sales
in Mexico returned to levels that were in existence prior to the Nuevo Peso
devaluation in fiscal 1995. The success of the Royal fragrance line combined
with the Company's strategy to formalize distribution of the Euro line in Mexico
by servicing retail outlets through the Company's warehouse in Mexico City
resulted in the improved sales.
Included in export sales were sales of $3,866,000 in fiscal 1997 and $1,997,000
in fiscal 1996 to Sheth Group affiliates. See "Business (Suppliers)" and Note 8
of the Notes to Consolidated Financial Statements.
Approximately 92% of the growth in sales resulted from increased sales in the
fragrance lines. The new Royal fragrance line along with higher sales in the
redesigned Premiere line and the newly introduced Regal line accounted for this
growth. Sales growth outside the fragrance lines was principally realized in
increased cosmetic pencil sales.
Of the net sales in fiscal 1997, approximately 6%, or $4,427,000, resulted from
the sale of products purchased from related parties as finished goods. For
fiscal 1996, comparable numbers were 12%, or $6,165,000. In addition, fragrance
and other products manufactured and sold by the Company included certain
components that were purchased from related parties. The cost of those
components approximated 7% of cost of sales in fiscal 1997 and 8% of cost of
sales in fiscal 1996. See Note 8 of the Notes to the Consolidated Financial
Statements for additional information.
Tristar's gross profit both in dollar terms and as a percentage of sales
increased in fiscal 1997 as compared to fiscal 1996. Comparable numbers were
$20,518,000, or 29.8%, in fiscal 1997 and $10,919,000, or 21.1%, in fiscal 1996.
Factors which contributed to this improvement were the increased sales, lower
level of low margin sales of discontinued product and product lines in fiscal
1997, a change in the product mix [moving to higher margin products] and lower
costs associated with the introduction and manufacturing of a new product line.
Selling, general and administrative expenses ("SG&A") increased in fiscal 1997
to $17,093,000 from the fiscal 1996 level of $16,285,000. The increase was
primarily attributed to expenses associated with the development of the chain
market in the United States and the introduction and marketing of the Royal
product line. As a percentage of sales, SG&A was 24.8% in fiscal 1997 compared
to 31.5% in fiscal 1996.
Interest expense decreased by $419,000 in fiscal 1997 from the fiscal 1996 level
of $2,359,000. This decrease was primarily attributable to the conversion of
certain subordinated debt into preferred stock. The decrease was partially
offset by increased average revolving credit agreement borrowings.
Fiscal 1997 other expenses included $63,000 of expenses related to the
amortization of the warrant valuation asset and $72,000 of litigation expenses
arising from events related to the shareholder litigation. These respective
expenses in fiscal 1996 were $83,000 and $162,000.
14
<PAGE>
The Company recorded income tax expense of $78,000 in fiscal 1997 which compared
to an expense of $3,732,000 in fiscal 1996. The fiscal 1996 amount includes
$3,881,000 of deferred tax expense as a result of management's reassessment of
the realizability of its deferred tax assets under the guidelines of Statement
Financial Accounting Standards No. 109, "Accounting for Income Taxes". A
valuation allowance has been recorded to reduce the net deferred tax asset to
zero due to the uncertainty of realizing the benefits of these deductible
differences.
The Company recorded net income of $1,083,000 for fiscal 1997. After giving
effect to the beneficial conversion feature of a preferred stock issue, the
related warrant valuation adjustment and preferred stock dividends described in
the following paragraph, the Company recorded a fiscal 1997 net loss applicable
to common stock of $454,000 or $0.03 per share. In fiscal 1996, the Company
recorded net loss of $12,053,000 or $0.72 per share.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Operating activities in fiscal 1998 provided $3,216,000 in cash. The cash
provided was primarily the result of earnings adjusted for non-cash items, an
increase in accounts payable offset by an increase in accounts receivable, and a
reduction in inventory during fiscal 1998.
Accounts receivable grew primarily as a result of increased sales to related
parties. Inventory decreased primarily due to an inventory reduction program
implemented by the Company to sell slower rotating finished goods as well as
excess raw materials at prices slightly above cost. Accounts payable increased
as the Company delayed payments to certain vendors and increased its purchases
of inventory and expanded manufacturing capability.
INVESTING ACTIVITIES
Capital expenditures during fiscal 1998 amounted to $1,599,000, relating mainly
to production related machinery and equipment, facilities related items and
computer equipment. Capital expenditures in fiscal 1997 and 1996 were $1,274,000
and $1,108,000, respectively.
FINANCING ACTIVITIES
During Fiscal 1998, the Company refinanced its former credit facility. Net cash
used in financing activities during this period was primarily a result of
related deferred loan costs. Remaining availability based on the borrowing
formulas as of August 29, 1998 approximated $236,000.
On December 19, 1997, the Company entered into a $22,000,000 credit agreement
with a new lender (the "Credit Agreement"). The Credit Agreement includes a
revolving credit facility (the "Revolving Credit") which provides for
$15,100,000 of maximum borrowings bearing interest, at the Company's election,
at the Alternate Base Rate (the higher of the prime rate or the Federal Funds
Rate plus .50%) plus 1.50% or the London Interbank Offered Rate (LIBOR) plus
3.50%. At August 29, 1998, the Revolving Credit bore interest at a rate of
10.0%. Borrowings under the Revolving Credit are limited by a formula based on
Eligible Accounts Receivable and Inventory, as defined. Additionally, borrowings
based on LIBOR can not exceed 60% of the total outstanding borrowings under the
Revolving Credit. Commitment fees equal to .50% per annum on the unused portion
of the Revolving Credit are payable monthly. All outstanding amounts under the
Revolving Credit Agreement are due in December 2001.
The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan")
and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term
Loan bears interest, payable monthly, at the Alternate Base Rate (8.5% at August
29, 1998) plus 2.00%. Principal payments on the Term Loan consist of equal
monthly principal payments in the amount of $56,667 for 35 months beginning in
January 1998 with a $1,416,655 balloon
15
<PAGE>
payment due in December 2001. Additionally, 50% of annual excess cash flow, as
defined, must be applied to the Term Loan installments in the inverse order of
maturity.
Borrowings under the Cap Ex Facility are limited to 80% of the cost of new
machinery and equipment, limited to annual utilization of $1,500,000. These
borrowings also bear interest, payable monthly, at the Alternate Base Rate plus
2.00%. Principal payments on the Cap Ex Facility commence one month after the
take down in an amount based on a three year amortization. However, a balloon
payment in an amount equal to all outstanding borrowings under the Cap Ex
Facility is also due in December 2001. As of August 29, 1998 the Company had
outstanding borrowings under the Cap Ex Facility totalling $643,000 in capital
expenditures. Principal payments are due at the rate of $11,800 per month.
Borrowings under the Credit Agreement are collateralized by all of the Company's
present and future assets. Additional collateral in the form of a $1,500,000
standby letter of credit has been provided by the Sheth Group for the benefit of
the new lender. The Credit Agreement contains restrictive financial covenants
including Minimum Tangible Net Worth, Minimum EBITDA, Maximum Loss, Minimum
Fixed Charge Coverage, Maximum Leverage and Maximum Capital Expenditures.
Additional covenants limit borrowings, asset sales and dividends. On October 4,
1998, the Company negotiated an amendment of all restrictive financial
covenants. The company was in violation of certain covenants as of May 30, 1998
and August 29, 1998 and was extended waivers to such covenants by the lender.
The new Credit Agreement, together with cash generated by operations and the
continued ability to delay payments to vendors as necessary should provide
sufficient cash to meet the cash requirements of the Company for the foreseeable
future.
As of August 31, 1996, the Company was indebted in the amount of $4.7 million to
a Sheth Group affiliate under a loan agreement entered into in August 1993. The
note, which was subordinated to the commercial lender, bore interest at the rate
of 4.5% per annum. On December 11, 1996, the $4.7 million of subordinated debt
was converted into the Company's Series A convertible preferred stock (SEE Note
12 of the Notes to the Consolidated Financial Statements). The Company remains
indebted to the affiliate for delinquent interest payments $567,000 on the
converted debt.
The settlement of the stockholder class action litigation recorded in May 1993
($9.5 million) resulted in a material change to the Company's long-term debt to
equity ratio. The Company at August 31, 1996 had outstanding subordinated
long-term debt to Sheth Group affiliate of $8.0 million related to that
settlement. On February 21, 1997, $3.5 million of this debt was converted into
the Company's Series B convertible preferred stock (See Note 12 of the Notes to
the Consolidated Financial Statements).
Effective May 30, 1998, the Company sold all of the capital stock and
distribution rights of its Brazilian subsidiary to Transvit Distribution Corp.
("TDC"), a wholly owned affiliate of the Sheth Group, for $2,800,000. The
agreement provides for a non-compete restriction and a supply arrangement
whereby the Company agreed to continue selling product to the Brazilian unit
through May 31, 2001. The Company also received an option to repurchase the
stock and distribution rights from TDC at anytime prior to May 31, 2003. The
Company currently has no plans to repurchase the stock and distribution rights
under this option.
The Company received payment from TDC in the form of a $2,800,000 reduction of
the subordinated debt to Nevell Investments, S.A., ("Nevell") another affiliated
company within the Sheth Group (described more fully in Note 6.) The
subordinated debt reduction, net of the related write-down of warrant valuation
costs attributable to such debt, exceeded the carrying value of the Company's
Brazilian investment by $1,506,000 and was recorded as an increase in additional
paid-in-capital.
Repayments on the remaining $1,700,000 debt will begin in the year 2001. As of
August 29, 1998, the Company's financial statements reflect accrued interest of
$1,164,000 due on this related party debt including the delinquent
16
<PAGE>
amounts due on debt converted to preferred stock. In March 1998, the Company
negotiated an agreement with Nevell Investments, S.A., ("Nevell") to eliminate
any future accrual of interest on the outstanding debt to Nevell.
The Company also purchases certain equipment, primarily manufacturing equipment,
office furniture, computer equipment and software, under long-term purchase
agreements. These purchases are not material to the Company's cash flow.
The Company does not have any plans to pay any cash dividends on the Common
Stock or the Preferred Series A and B Stock in the foreseeable future. Further,
payments of such dividends are subject to restrictions imposed by the Company's
commercial lender in connection with the existing revolving lines of credit.
Effective September 3, 1998, the Company sold 78,333 shares of Series C Senior
Convertible Preferred Stock ("Series C Preferred Stock") to a private investor
for $60 per share. Each share of Series C Preferred Stock is convertible into
common shares at a conversion price of $5.44 per share. In addition, the Company
issued 125,000 warrants which are convertible into common shares at a conversion
price of between $4.00 to $6.28 per share. The Company received proceeds of
approximately $4,700,000 and expects to receive an additional $1,300,000 in
fiscal 1999 upon issuance of an additional 21,667 shares of Series C Senior
Convertible Preferred Stock.
The Series C Preferred Stock holders are entitled to receive a cummulative cash
dividend of $4.80 per share annually. The dividend is payable quarterly in
arrears ($1.20 per quarter). See Note 23 of the Notes to the Consolidated
Financial Statements for further discussion.
17
<PAGE>
IMPACT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
REPORTING COMPREHENSIVE INCOME (SFAS 130)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components. The Company plans to adopt
SFAS No. 130 in fiscal 1999.
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," effective
for fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public companies report information about segments in
annual and interim financial statements. The Company plans to adopt SFAS No. 131
in fiscal 1999.
The adoption of these recently issued financial accounting standards is not
expected to have a significant effect on the Company's consolidated financial
statements.
INFLATION
During fiscal year ended 1998, and consistent with the Company's 1997 and 1996
fiscal years, inflation did not have a material adverse impact either on the
Company's net sales or income from continuing operations. However, the
devaluation of the Mexican Nuevo Peso in December 1994 had an impact on the
Company's sales with lower direct exports into Mexico. See Note 19 of the Notes
to the Consolidated Financial Statements for further discussion.
POTENTIAL ADVERSE EFFECTS ON RESULTS OF OPERATIONS FOR FUTURE PERIODS
The results for fiscal 1999 could be adversely affected by each or all of the
following factors:
1. LATIN AMERICA ECONOMIES. Growth in sales, or even the maintenance of
existing sales levels, as well as the collection of accounts receivable in
certain Latin American countries (including Mexico) depend to a large
extent on the economic health and political stability of those countries.
Any deterioration in the economic or political stability in such countries
could adversely affect sales and the collectability of accounts receivable.
2. NEW MARKETS. The Company continues to develop and expand sales and
marketing operations in Latin America. In the process, the Company incurs
significant expenses in order to establish a marketing presence and an
economically viable amount of sales. There is no assurance that the Company
will be successful in those endeavors nor that it will recover its initial
expenses and start up costs. In addition, certain countries from time to
time impose strict import restrictions and high levels of taxes on imports,
all of which could affect the success of sales and marketing activities and
also affect the profitability of such activities.
3. MEXICAN MARKET. 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.
18
<PAGE>
4. SUPPLY OF PRODUCTS. The Company's ability to manufacture and to satisfy
consumer demand for fragrances is dependent on the supply of certain
components from single sources which include related parties. Any inability
of these vendors to meet the Company's requirements could have an adverse
effect on the Company's results until an alternative source could be found
and/or developed. In addition, the Company is dependent on the supply of
cosmetic products, other than cosmetic pencils, from Sheth Group
affiliates. If such affiliates were to cease or be unable to supply these
cosmetic products, the lack of these products would have an adverse effect
on the Company until a secondary supplier could be located.
5. INTERNAL REVENUE SERVICE. In February 1997, the Internal Revenue Service
("the IRS") concluded its examination of the Company's tax returns
submitted for fiscal years 1993, 1994 and 1995. The IRS proposed
adjustments disallowing the deductions of payments made in the settlement
of the class action litigation and certain related legal and professional
fees. The Company is in discussions with the IRS on these issues and will
appeal the proposed adjustments if necessary. If the Company is
unsuccessful in its discussions or ultimately in an appeal, it could be
required to pay taxes from prior years and related interest thereon
exceeding $1,800,000, and it could lose a significant amount of its
existing net operating loss carry-forward benefits. No accrual for the
impact of the proposed IRS adjustment has been recorded in the accompanying
financial statements as the Company does not believe it is probable that
the IRS will prevail in this matter.
YEAR 2000 COMPLIANCE
As a result of certain computer programs being written using two digits rather
than four digits to define the applicable year, any of the Company's computer
programs that have a date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions and engage in normal
business activities.
As part of the Company's Year 2000 readiness program ("Y2K Plan"), management
has evaluated its Programs and Systems. The Company's Y2K Plan's focus is on
assessing and assuring compliancy in the following areas: hardware, operating
systems, legacy applications and data, external linkages and non-information
systems areas.
o Tristar's operating systems are centered around Hewlett Packard Unix,
Microsoft NT and Windows 95. The Company operates these systems under
licenses and maintenance agreements which provide for service upgrades in
early 1999 to remedy the Year 2000 compliance issues. The principal legacy
applications consist of Manufacturing Total Management Sytem ("MTMS") which
is licensed from LK Global (United Kingdom) who has informed Tristar that
they plan to have upgraded software to their customers by Spring 1999.
o With respect to hardware, compliancy testing has been completed. Certain
computers and equipment with non-compliant code and real-time clocks have
been identified and will be upgraded or replaced during the first six
months of 1999 or manually reset on January 1, 2000. Phone switches and
voice mail systems will be certified by vendors by June 1999.
o The non-information systems areas include such equipment as air
conditioning/heating units, security systems, laboratory equipment and time
and attendance clocks. The Company is in process of assessing these items
and plans to complete its prognosis and implement solutions by the end of
the third calendar quarter of 1999. Additionally, Tristar is reviewing
electronic communications with its trading partners such as customers,
vendors, financial institutions and other external relationships, each of
whom will be asked to certify Year 2000 compliancy and/or recommend
upgrades or solutions by July 1999.
o The Company has allocated human resources as appropriate within its
Information Systems group to coordinate the activities required to obtain
compliance. Although the ultimate cost of attaining Year 2000 compliance is
not fully known at this time, management anticipates that its external
costs will not exceed $200,000. These costs will be funded from operations
or additional borrowings under the revolving credit facility.
The costs of Year 2000 compliance and the expected completion dates are the best
estimates of Company management and are believed to be reasonably accurate. In
the event the Company's Y2K Plan is not successfully
19
<PAGE>
or timely implemented, the Company may need to devote more resources to the
process and additional costs may be incurred, which could have a material
adverse effect on the Company's financial condition and results of operations.
Problems encountered by the Company's vendors, customers and other third parties
also may have a materal adverse effect on the Company's financial condition and
results of operations.
In summary, if the Company does not successfully obtain a Year 2000 compliant
software product from LK Global in a timely manner, the Company could be
adversely affected. However, the Company believes that it will successfully
handle the Year 2000 date change and that the problem will not have a material
effect on consolidated financial position, results of operations or cash flows,
but no assurances can be given in this regard.
In the event the Company determines following the Year 2000 date change that its
Programs and Systems are not Year 2000 complaint, the Company will likely
experience considerable delays in processing and compiling data, processing
customer orders and invoices, compiling information required for financial
reporting and performing various administrative functions. In the event of such
occurrence, the Company's contingency plans call for it to switch vendors to
obtain hardware and/or software that is Year 2000 complaint, and until such
hardware and/or software can be obtained, the Company will plan to use
non-computer systems for its business, including data compilation, information
management services and financial reporting, as well as its various
administrative functions.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness Disclosure" as
defined in the Year 2000 Information and Readiness Disclosure Act (the "Act"),
which was signed into law on October 19, 1998. The Act provides added protection
from liability for certain public and private statements concerning a company's
Year 2000 readiness. The Act also potentially provides added protection from
liability for certain types of Year 2000 disclosures made after January 1, 1996
and before October 19, 1998. As such, to the extent permitted by applicable law,
previously disclosed statements of or by the Company and its management
concerning the Company's Year 2000 readiness are intended to constitute "Year
2000 Readiness Disclosures," as defined in the Act.
At this time, it is not known whether, or to what degree, the above factors will
have a material adverse impact on the Company's fiscal 1999 results.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk represents the risk of loss that may occur due to adverse changes in
financial market prices, including interest rate risk and foreign currency
exchange risk, and the effect they may have on the financial position, results
of operation or cashflow of the Company.
The Company's short term and long term debt at August 29, 1998 bears interest at
variable rates (SEE Note 5 of the Notes to the consolidated Financial
Statements). A one percentage point increase in the effective interest rate on
the debt would result in an approximate $114,000 reduction in annual pretax
earnings. This estimate assumes no change in the volume or composition of the
short term and long term debt as of August 29, 1998.
As discussed in Note 19 of the Notes to the Consolidated Financial Statements,
the Company's direct exports comprise approximately 44% of net sales for the
fiscal year ended August 29, 1998. In addition, certain U.S. based customers
ultimately distribute the company's products into foreign countries. As a
result, the Company has exposure to risk associated with the decrease in value
of foreign currencies. Although the risk cannot be quantified, any significant
decrease in value of the currency of foreign countries where the Company's
products are distributed could have a material adverse effect on the Company's
sales and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and financial statement schedules listed
in Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.
20
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item will be contained in the Company's Proxy
Statement for its 1999 Annual Meeting, which is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's Proxy
Statement for its 1999 Annual Meeting, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item will be contained in the Company's Proxy
Statement for its 1999 Annual Meeting, which is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's Proxy
Statement for its 1999 Annual Meeting, which is incorporated herein by
reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS: Consolidated Financial Statements as
detailed in the Index to Financial Statements and Schedules
for the years ended August 29, 1998, August 30, 1997, and
August 31, 1996 required in response to Item 8 of Part II of
this report are annexed to this report as a separate section.
2. FINANCIAL STATEMENT SCHEDULES: Any financial statement
schedules for the years ended August 29, 1998, August 30,
1997, and August 31, 1996, required in Item 8 of Part II of
this report are annexed to this report as a separate section.
(B) REPORTS ON FORM 8-K:
1. The Company filed a report on form 8-K dated July 22, 1997
reporting the change of the Company's accountants for
fiscal 1998 to Coopers & Lybrand L.L.P., who had been the
Company's auditors prior to fiscal 1995.
2. The Company filed a report on July 29, 1998 reporting the
sale of its Brazilian subsidiary for $2,800,000 to a Sheth
Group affiliate, Transvit Distribution Corporation.
(C) EXHIBITS
EXHIBIT INDEX
*3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant (Amended as of August 14, 1992).
Incorporated by reference to Exhibit 3.2 of the Company's
Annual Report on Form 10-K for the year ended August 31, 1992.
4 Form of Registrant Common Stock certificate. Incorporated by
reference to Exhibit 4.2 of the Company's Quarterly Report on
Form 10-Q for the quarterly period ended February 28, 1993.
10.1 1991 Amended and Restated Stock Option Plan of the Registrant.
Incorporated by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K for the year ended August 31, 1992.
10.9 Lease Agreement Re: Corporate Headquarters in San Antonio
dated January 13, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-K for
the year ended August 31, 1993.
10.12 Distribution Agreement (the "Distribution Agreement") with
Eurostar Perfumes, Inc. and S&J Perfume, Ltd. dated October
28, 1992. Incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K for the year ended August
31, 1992.
23
<PAGE>
10.13 Letter Agreement Amendment dated August 30, 1993 to the
Distribution Agreement. Incorporated by reference to Exhibit
10.28 of the Company's Annual Report on Form 10-K for the year
ended August 31, 1993.
10.14 Agreement and First Amendment to Distribution Agreement dated
October 8, 1993 with Eurostar Perfumes, Inc. and S&J Perfume,
Ltd. Incorporated by reference to Exhibit 10.29 of the
Company's Annual Report on Form 10-K for the year ended August
31, 1993.
10.15 Agreement dated August 31, 1995, among the Company, Eurostar
Perfumes, Inc. and Starion International, Ltd., terminating
the Distribution Agreement. Incorporated by reference to
Exhibit 10.3 of the Company's Report on Form 8-K dated August
31, 1995.
10.16 Agreement dated August 31, 1993 between the Core Sheth
Families, Viren Sheth, Starion International, Ltd. and the
Registrant. Incorporated by reference to Exhibit 10.31 of the
Company's Annual Report on Form 10-K for the year ended August
31, 1993.
10.17 Financing Agreement dated August 31, 1993 between the Core
Sheth Families and the Registrant. Incorporated by reference
to Exhibit 10.32 of the Company's Annual Report on Form 10-K
for the year ended August 31, 1993.
10.18 Lease Agreement Re: Bulk Warehouse Facility in San Antonio
dated December 8, 1993, between Northwestern Mutual Life
Insurance Co. and Registrant. Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for period ended November 30, 1993.
10.23 Amendment to Common Stock Purchase Warrant dated August 31,
1995, between the Company and Starion International, Ltd.
Incorporated by reference to Exhibit 10.2 of the Company's
Report on Form 8-K dated August 31, 1995.
10.29 Non-Qualified Stock Option Grant to Viren S. Sheth dated April
19, 1996. Incorporated by reference to Exhibit 10.29 of the
Company's Annual Report on Form 10-K for the year ended August
31, 1996.
10.30 Letter Agreement with Transvit Manufacturing Corporation
Converting Line of Credit Promissory Note to 666,529 Shares of
Series A Convertible Preferred Stock dated December 11, 1996.
Incorporated by reference to Exhibit 10.30 of the Company's
Annual Report on Form 10-K for the year ended August 31, 1996.
10.33 Incentive Stock Option between the Company and Peter C. Liman
dated January 27, 1997. Incorporated by reference to Exhibit
10.32 of the Company's Quarterly Report on Form 10-Q for the
period ended March 1, 1997.
10.35 Letter Agreement with Nevell Investments S.A. converting
Subordinated Debt Promissory Note to 120,690 shares of Series
B Convertible Preferred Stock dated February 21, 1997.
Incorporated by reference to Exhibit 10.34 of the Company's
Quarterly Report on Form 10-Q for the period ended March 1,
1997.
24
<PAGE>
10.38 Employment Agreement between the Company and Richard Howard
dated November 26, 1997, incorporated by reference to Exhibit
10.38 of the Company's Annual Report on Form 10-K for the year
ended August 30, 1997.
10.39 Revolving Credit Term Loan and Security Agreement dated
December 19, 1997, between the Company and BNY Financial
Corporation, incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the period ended
November 29, 1997.
*10.40 Stock purchase agreement between the Company and Transvit
Distribution Corporation dated May 30, 1998.
*10.41 Letter agreement between the Company and Nevell Investments,
S.A. ("Nevell")dated March 1, 1998.
*10.42 Investment agreement between the Company and Pioneer Ventures
Associates Limited Partnership, dated September 3, 1998.
*10.43 Warrant to purchase shares of common stock of the Company
granted to Pioneer Ventures Associates Limited Partnership,
dated September 3, 1998.
*10.44 Trademark agreement between the Company and S&J Perfume
Company, dated September 3, 1998.
*10.45 Voting and shareholders agreement, dated September 3, 1998.
16 Letter from KPMG Peat Marwick LLP to the Securities and
Exchange Commission pursuant to Item 304(a)(3) of Regulation
S-K. Incorporated by reference to Exhibit 16 of the Current
Report on Form 8-K dated July 22, 1997.
18 Preferability letter from KPMG Peat Marwick LLP regarding
change in accounting principles dated November 6, 1995.
Incorporated by reference to Exhibit 18 of the Annual Report
on Form 10-K for the year ended August 31, 1995.
*24.1 Consent by PricewaterhouseCoopers LLP.
*24.2 Consent by KPMG Peat Marwick LLP.
*27 Financial Data Schedule.
---------------------------
* Filed herewith.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: _________________ TRISTAR CORPORATION
By: /s/ VIREN S. SHETH
VIREN S. SHETH,
Chief Executive Officer
(Principal Executive Officer)
By/s/ RICHARD R. HOWARD
RICHARD R. HOWARD
President and Chief Operations Officer
By: /s/ROBERT M. VIOLA
ROBERT M. VIOLA
Executive Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: ________________ /s/RICHARD P. RIFENBURGH
RICHARD P. RIFENBURGH, Director
Date: ________________ /s/ROBERT R. SPARACINO
ROBERT R. SPARACINO, Director
Date: ________________ /s/VIREN S. SHETH
VIREN S. SHETH, Director
Date: ________________ /s/AARON ZUTLER
AARON ZUTLER, Director
Date: ________________ /s/JAY J. SHETH
JAY J. SHETH, Director
Date: ________________ /s/B. J. HARID
B. J. Harid, Director
Date: ________________ /s/ROBERT A. LERMAN
Robert Lerman, Director
26
<PAGE>
TRISTAR CORPORATION
SAN ANTONIO, TEXAS
ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 29, 1998
ITEM 14(A)(1) AND (2), (C), AND (D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
ITEM 14(A)(1) AND (2)
The following consolidated financial statements of TRISTAR CORPORATION and
subsidiaries are included in Item 8:
<TABLE>
<CAPTION>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports F1 and F2
Consolidated Financial Statements:
Balance sheets as of August 29, 1998 and August 30, 1997 F3 and F4
Statements of operations for each of the three years in the period ended August 29, 1998 F5
Statements of shareholders' equity for each of the three years in the
period ended August 29, 1998 F6
Statements of cash flows for each of the three years in the period ended August 29, 1998 F7 - F8
Notes to consolidated financial statements F9 to F23
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statement schedule of TRISTAR CORPORATION
and subsidiaries is included in Item 14(d):
Schedule II - Valuation and qualifying accounts F24
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
December 4, 1998
To the Board of Directors and Shareholders of Tristar Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cashflows
present fairly, in all material respects, the financial position of Tristar
Corporation and its subsidiaries as of August 29, 1998 and August 30, 1997, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. In addition, in our
opinion the financial statement schedule listed in the index appearing under
item 14(a)(1) and (2), presents fairly, in all material respects, the
information as of August 29, 1998 and August 30, 1997 and for the years then
ended, set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material mistatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Tristar Corporation:
We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Tristar Corporation and Subsidiaries for the year ended August
31, 1996. In connection with our audit of the consolidated financial statements,
we also have audited the financial statement schedule for the year ended August
31, 1996. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Tristar Corporation and subsidiaries for the year ended August 31, 1996 in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule for the year ended August 31, 1996,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
San Antonio, Texas
December 11, 1996
F-2
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 29, August 30,
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash .................................................... $ 66,000 $ 492,000
Accounts receivable, less allowance for doubtful accounts
of $895,000 and $1,052,000, respectively .............. 14,206,000 15,930,000
Accounts receivable - related parties - net ............. 3,607,000 1,820,000
Inventories ............................................. 11,375,000 13,560,000
Prepaid expenses ........................................ 186,000 632,000
Other current assets .................................... 141,000 --
----------- -----------
Total current assets ............................... 29,581,000 32,434,000
Property, plant and equipment, less accumulated depreciation
of $8,805,000 and $7,101,000 ............................ 8,199,000 8,094,000
----------- -----------
Other assets:
Warrant valuation, less accumulated amortization
of $1,805,000 and $1,769,000, respectively ............ 103,000 320,000
Other assets ............................................ 825,000 236,000
----------- -----------
Total other assets ................................. 928,000 556,000
----------- -----------
Total assets .................................... $38,708,000 $41,084,000
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND August 29, August 30,
SHAREHOLDERS' EQUITY 1998 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Book overdraft ....................................................... $ 334,000 $ --
Revolving credit agreement borrowings, current ....................... 7,612,000 9,732,000
Accounts payable - trade ............................................. 9,289,000 8,139,000
Accounts payable - related parties - net ............................. 5,185,000 4,463,000
Accrued bonuses ...................................................... 164,000 257,000
Accrued interest expense - subordinated debt ......................... 1,731,000 1,582,000
Other accrued expenses ............................................... 1,467,000 2,047,000
Income taxes payable ................................................. -- 11,000
Current portion of capital lease obligations ......................... 144,000 42,000
Current portion of long-term debt .................................... 822,000 28,000
------------ ------------
Total current liabilities ....................................... 26,748,000 26,301,000
Revolving credit agreement borrowings, noncurrent ......................... -- 473,000
Long-term debt, less current portion ...................................... 2,781,000 2,474,000
Obligations under capital leases, less current portion .................... 130,000 37,000
Subordinated long-term debt - related parties ............................. 1,700,000 4,500,000
------------ ------------
Total liabilities ............................................... 31,359,000 33,785,000
------------ ------------
Commitments and contingencies (Note 17)
Shareholders' equity:
Preferred stock, $.05 par value; authorized 1,000,000 shares:
Series A, 666,529 shares issued and outstanding .................... 4,666,000 4,666,000
Series B, 120,690 shares issued and outstanding .................... 4,511,000 4,511,000
Common stock, $.01 par value; authorized 30,000,000 shares; issued and
outstanding 16,761,493 shares in 1998 and 16,729,074 shares in 1997 168,000 168,000
Additional paid-in capital ........................................... 12,483,000 10,566,000
Foreign currency translation adjustment .............................. (376,000) --
Accumulated deficit .................................................. (14,103,000) (12,612,000)
------------ ------------
Total shareholders' equity ...................................... 7,349,000 7,299,000
------------ ------------
Total liabilities and shareholders' equity ................... $ 38,708,000 $ 41,084,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended
--------------------------------------------
August 29, August 30, August 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .......................................... $ 67,683,000 $ 68,959,000 $ 51,720,000
Cost of sales ...................................... 50,432,000 48,441,000 40,801,000
------------ ------------ ------------
Gross profit ....................................... 17,251,000 20,518,000 10,919,000
Selling, general and administrative expenses ....... 16,424,000 17,093,000 16,285,000
------------ ------------ ------------
Income (loss) from operations ...................... 827,000 3,425,000 (5,366,000)
Other income (expense):
Interest expense .............................. (1,786,000) (1,940,000) (2,359,000)
Other expense ................................. (240,000) (252,000) (434,000)
Litigation expenses ........................... (230,000) (72,000) (162,000)
------------ ------------ ------------
Income (loss) before income taxes .................. (1,429,000) 1,161,000 (8,321,000)
Income tax expense ................................. 62,000 78,000 3,732,000
------------ ------------ ------------
Net income (loss) .................................. (1,491,000) 1,083,000 (12,053,000)
Less:
Cumulative preferred stock dividends in arrears (453,000) (256,000) --
Beneficial conversion feature ................. -- (1,011,000) --
Warrant valuation adjustment .................. -- (270,000) --
------------ ------------ ------------
Net loss applicable to common stock ................ $ (1,944,000) $ (454,000) $(12,053,000)
============ ============ ============
Loss per Common Share:
Basic .............................................. $ (.12) $ (.03) $ (.72)
============ ============ ============
Diluted ............................................ $ (.12) $ (.03) $ (.72)
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED AUGUST 29, 1998, AUGUST 30, 1997 AND AUGUST 31, 1996
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------
COMMON STOCK SERIES A SERIES B
----------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- -------- ------- ---------- ------- ----------
<S> <C> <C>
Balance, August 31, 1995 .............. 16,629,683 $166,000 -- -- -- --
Net loss ..............................
Exercise of stock options ............. 10,000 -- -- -- -- --
Contribution to 401(k) Plan ........... 10,493 1,000 -- -- -- --
----------- -------- ------- ---------- ------- ----------
Balance, August 31, 1996 .............. 16,650,176 167,000 -- -- -- --
Net income ............................
Exercise of stock options ............. 73,500 1,000 -- -- -- --
Contribution to 401(k) Plan ........... 5,398 -- -- -- -- --
Issuance of Series A Preferred
Stock ............................ -- -- 666,529 $4,666,000 -- --
Issuance of Series B Preferred
Stock ............................ -- -- -- -- 120,690 $4,511,000
Beneficial conversion feature (Note 12) -- -- -- -- -- --
Warrant valuation adjustment (Note 12) -- -- -- -- -- --
----------- -------- ------- ---------- ------- ----------
Balance, August 30, 1997 .............. 16,729,074 168,000 666,529 4,666,000 120,690 4,511,000
Net loss ..............................
Exercise of stock options ............. 27,495 -- -- -- -- --
Contribution to 401(k) Plan ........... 4,924 -- -- -- -- --
Capital contribution on sale of
subsidiary ....................... -- -- -- -- -- --
Issuance of warrants .................. -- -- -- -- -- --
Foreign currency translation
adjustment ....................... -- -- -- -- -- --
=========== ======== ======= ========== ======= ==========
Balance, August 29, 1998 .............. 16,761,493 $168,000 666,529 $4,666,000 120,690 $4,511,000
=========== ======== ======= ========== ======= ==========
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
PAID-IN TRANSLATION ACCUMULATED
CAPITAL ADJUSTMENT DEFICIT
----------- ----------- ------------
<S> <C> <C> <C>
Balance, August 31, 1995 .............. $10,281,000 -- $ (361,000)
Net loss .............................. (12,053,000)
Exercise of stock options ............. 5,000 -- --
Contribution to 401(k) Plan ........... 68,000 -- --
----------- ----------- ------------
Balance, August 31, 1996 .............. 10,354,000 -- (12,414,000)
Net income ............................ 1,083,000
Exercise of stock options ............. 180,000 -- --
Contribution to 401(k) Plan ........... 32,000 -- --
Issuance of Series A Preferred
Stock ............................ -- -- --
Issuance of Series B Preferred
Stock ............................ -- -- --
Beneficial conversion feature (Note 12) -- -- (1,011,000)
Warrant valuation adjustment (Note 12) -- -- (270,000)
----------- ----------- ------------
Balance, August 30, 1997 .............. 10,566,000 -- (12,612,000)
Net loss .............................. (1,491,000)
Exercise of stock options ............. 264,000 -- --
Contribution to 401(k) Plan ........... 51,000 -- --
Capital contribution on sale of
subsidiary ....................... 1,506,000 -- --
Issuance of warrants .................. 96,000 -- --
Foreign currency translation
adjustment ....................... -- $ (376,000) --
=========== =========== ============
Balance, August 29, 1998 .............. $12,483,000 $ (376,000) $(14,103,000)
=========== =========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
--------------------------------------------
August 29, August 30, August 31,
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................... $ (1,491,000) $ 1,083,000 $(12,053,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ......................... 1,775,000 1,710,000 1,847,000
Provision for losses on accounts receivable ........... 998,000 729,000 1,028,000
Provision for market valuation of inventory ........... 720,000 1,005,000 1,468,000
Provision for (reduction in) LIFO reserve ............ (685,000) (525,000) 198,000
Foreign currency translation adjustment ............... (376,000) -- --
Deferred income tax expense ........................... -- -- 3,881,000
Loss on disposal of assets ............................ -- 2,000 6,000
Compensation expense related to extension of stock
options ............................................. 217,000
Issuance of stock in connection with 401K plan ........ 51,000 32,000 69,000
Amortization of deferred loan costs ................... 188,000
Amortization of warrant valuation ..................... 60,000 63,000 83,000
Change in operating assets and liabilities:
Accounts receivable ................................ (1,642,000) (7,439,000) (5,368,000)
Inventories ........................................ 1,414,000 (1,348,000) 49,000
Prepaid expense .................................... 333,000 (374,000) (5,000)
Other current assets ............................... (69,000) -- --
Accounts payable ................................... 1,973,000 4,469,000 5,612,000
Accrued expenses ................................... (239,000) 1,663,000 275,000
Income taxes payable ............................... (11,000) (74,000) (423,000)
------------ ----------- ------------
Net cash provided by (used in) operating activities 3,216,000 996,000 (3,333,000)
------------ ----------- ------------
Cash flows from investing activities:
Capital expenditures .................................... (1,599,000) (1,274,000) (1,108,000)
Proceeds from sale of fixed assets ...................... -- -- 580,000
Decrease (increase) in other assets ..................... (20,000) 124,000 (170,000)
------------ ----------- ------------
Net cash used in investing activities .............. (1,619,000) (1,150,000) (698,000)
------------ ----------- ------------
Cash flows from financing activities:
Book overdraft .......................................... 334,000 -- --
Borrowings under new revolving credit facility .......... 53,948,000 -- --
Repayments under new revolving credit facility .......... (46,336,000) -- --
Net borrowings (repayment) under former revolving
credit facility ....................................... (10,205,000) 886,000 3,936,000
Proceeds from long-term debt ............................ 4,258,000 -- 274,000
Principal payments on capital leases .................... (132,000) (18,000) (25,000)
Principal payments on long-term debt .................... (3,157,000) (635,000) (732,000)
Deferred loan costs relating to revolving credit facility (780,000) -- --
</TABLE>
F-7
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Proceeds from issuance of common stock ................. 47,000 180,000 5,000
----------- ---------- -----------
Net cash provided by (used in) financing activities (2,023,000) 413,000 3,458,000
----------- ---------- -----------
Net increase (decrease) in cash ............................. (426,000) 259,000 (573,000)
Cash at beginning of year ................................... 492,000 233,000 806,000
----------- ---------- -----------
Cash at end of year ......................................... $ 66,000 $ 492,000 $ 233,000
=========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................................. $ 1,637,000 $1,527,000 $ 1,786,000
Income taxes paid, net of refunds .................... $ 131,000 $ 144,000 $ 293,000
</TABLE>
Supplemental disclosure of noncash financing and investing activities:
1998
o A non-cash increase in property and equipment and obligations under
capital leases of $327,000.
o Sale of Brazilian subsidiary to an affiliated company. The result was
a non-cash decrease of subordinated debt to Nevell Investments, S.A.
of $2,800,000 (See Note 6 for further discussion.)
o Warrants issued to an investment banker resulted in a non-cash
increase in additional paid-in-capital and other assets of $96,000.
1997
o During fiscal year 1997, Nevell Investments, S.A. and Transvit
Manufacturing Corporation converted $4,511,000 and $4,666,000,
respectively, of subordinated debt into preferred stock. The
beneficial conversion feature associated with the conversion of the
Nevell Investments, S.A. subordinated debt totaled $1,011,000.
Additionally, as a result of this conversion, the Company wrote off
$270,000 of warrant valuation costs. Refer to Note 8 for additional
discussion.
See accompanying notes to the consolidated financial statements.
F-8
<PAGE>
TRISTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
AFFILIATION
The Company, which is primarily owned by companies under the control of the
Sheth Group (Starion International, Ltd., a British Virgin Islands Limited
Partnership ("Starion B.V.I.") and Transvit Manufacturing Corporation
("Transvit")), operates in one industry segment; the development, manufacturing,
marketing and distribution of designer alternative fragrances, complimentary
products to those fragrances and cosmetic pencils, and in the marketing and
distribution of other cosmetic products and selected toiletry products. The
Company distributes its products to more than 1,000 customers, including
wholesalers, distributors, drug and grocery chains, mass merchandisers and
specialty chain stores located primarily in North and South America. One
customer accounted for slightly more than ten percent of the Company's net sales
in fiscal 1998, while no single customer accounted for more than ten percent of
the Company's net sales in fiscal years 1997 and 1996.
FISCAL YEAR END
The Company changed its fiscal year end in 1996 from one ending on August 31 to
a 52-53 week fiscal year ending on the Saturday nearest the last day of the
month of August in each year. There was no effect on the accompanying financial
statements because the 1996 fiscal year also ended on August 31. The 1998 and
1997 fiscal years ended on August 29 and August 30, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tristar
Corporation and all subsidiaries (the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation. Effective May 30, 1998, the
company sold its Brazilian subsidiary. See Note 6 for further discussion.
INVENTORY
Inventories are stated at the lower of last-in-first-out (LIFO) cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is determined by
the straight-line method over the estimated useful lives of the assets.
Maintenance and repairs are charged to operations.
The estimated useful lives are as follows:
Buildings 32 years
Leasehold improvements Term of the lease or estimated useful
life, whichever is less
Furniture and equipment 7 to 10 years
Manufacturing equipment 7 years
Vehicles 5 years
Gains and losses from disposals of property and equipment are reflected in the
Statement of Operations in the period of disposal.
EQUIPMENT UNDER CAPITAL LEASES
Equipment under capital leases is amortized over the term of the lease or the
estimated useful life of the equipment, whichever is less.
REVENUE RECOGNITION
Revenue is recognized by the Company when goods are shipped and title passes to
the purchaser.
NET INCOME (LOSS) PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings per Share," in fiscal, 1998.
Accordingly, basic EPS is computed
F-9
<PAGE>
by dividing income (loss) applicable to common shareholders by the
weighted-average number of common shares outstanding during each period. Diluted
EPS is computed by dividing net income (loss) applicable to common shareholders,
as adjusted for the assumed conversion of preferred stock, if applicable, by the
sum of the weighted-average number of common shares outstanding, and the number
of additional common shares that would have been outstanding if dilutive
options, warrants and convertible preferred stock had been exercised or
converted. All prior-period EPS amounts presented have been restated to conform
to the provisions of SFAS No. 128.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSACTIONS
The Company purchases a significant portion of its inventory for its
manufacturing operations from foreign suppliers. Such inventory is recorded
using currency exchange rates in effect on the date of purchase. Gains and
losses on the settlement of accounts payable for such purchases are recorded
based upon the currency exchange rates in effect on the date of settlement.
Foreign currency denominated accounts payable balances outstanding at August 29,
1998 and August 30, 1997 have been translated to U.S. dollars utilizing exchange
rates in effect at the respective balance sheet dates.
Financial statements of foreign subsidiaries have been translated based on the
U.S. dollar being the functional currency of the subsidiaries. Monetary assets
and liabilities are translated utilizing the appropriate period ending exchange
rates. Non-monetary assets are translated utilizing historical exchange rates.
Results of operations, with the exception of cost of sales and depreciation, are
translated using the average exchange rates prevailing throughout the year. Cost
of sales and depreciation are translated at the historic rates of the inventory
sold and underlying property, plant and equipment, respectively. Except as
discussed below, foreign currency translation gains and losses are reflected in
the Statements of Operations.
Effective June 1, 1998, the Company classified approximately $3.8 million of
intercompany receivable from its Mexican subsidiary as a permanent investment.
Accordingly, effective June 1, 1998 all translation gains and losses related to
this intercompany balance have been recorded directly to Shareholders' Equity as
Foreign Currency Translation Adjustment. The Company believes this
classification is appropriate as there is no intent for these amounts to be
repaid, there are no repayment terms, and the amounts outstanding are
non-interest bearing.
The net foreign currency transaction and translation losses reflected in the
Statement of Operations for the years ended August 29, 1998, August 30, 1997 and
August 31, 1996 were approximately $111,000, $156,000 and $95,000 respectively.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising costs were approximately
$1,860,000, $4,124,000, and $2,859,000 for the year ended August 29, 1998,
August 30, 1997 and August 31, 1996, respectively.
RECLASSIFICATION OF PRIOR PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform to the current
year presentation.
2. LOSS PER COMMON SHARE
A reconciliation of the numerators and denominators of the basic and diluted
loss per share computations, as required by SFAS No. 128, is presented below:
F-10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
AUGUST 29, AUGUST 30, AUGUST 31,
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Basic EPS:
Net loss applicable to common stock ................ $ (1,944,000) $ (454,000) $ (12,053,000)
Weighted-average number of common shares outstanding 16,748,798 16,709,690 16,641,218
-------------- -------------- --------------
Basic EPS .......................................... $ (.12) $ (.03) $ (.72)
============== ============== ==============
Diluted EPS ........................................ $ (.12) $ (.03) $ (.72)
============== ============== ==============
</TABLE>
Dilutive EPS equals basic EPS for the years ended August 29, 1998, August 30,
1997 and August 31, 1996 as the assumed conversion of convertible preferred
stock and the assumed exercise of outstanding options and warrants would have an
anti-dilutive effect.
3. INVENTORIES:
August 29, August 30,
1998 1997
------------ ------------
Raw materials .......................... $ 4,728,000 $ 6,105,000
Work-in-process ........................ 1,209,000 2,101,000
Finished goods ......................... 6,342,000 7,684,000
------------ ------------
12,279,000 15,890,000
Reserves for market valuation .......... (640,000) (1,381,000)
LIFO valuation allowance ............... (264,000) (949,000)
------------ ------------
$ 11,375,000 $ 13,560,000
============ ============
During 1998, cost of sales was reduced by approximately $572,000 as a result of
a LIFO inventory decrement.
4. PROPERTY, PLANT AND EQUIPMENT:
August 29, August 30,
1998 1997
------------ ------------
Land ................................... $ 43,000 $ 43,000
Building ............................... 3,767,000 3,767,000
Leasehold improvements ................. 221,000 235,000
Machinery and equipment ................ 9,602,000 7,802,000
Computer equipment ..................... 2,676,000 2,403,000
Furniture and equipment ................ 695,000 945,000
------------ ------------
17,004,000 15,195,000
Less accumulated depreciation .......... (8,805,000) (7,101,000)
------------ ------------
$ 8,199,000 $ 8,094,000
============ ============
F-11
<PAGE>
During the fiscal years ended August 29, 1998, August 30, 1997 and August 31,
1996, the Company recorded depreciation expense of $1,775,000, $1,710,000 and
$1,847,000.
5. REVOLVING CREDIT AGREEMENT BORROWINGS AND LONG-TERM DEBT:
August 29, August 30,
1998 1997
------------ ------------
Revolving credit agreement borrowings, current .. $ 7,612,000 $ 9,732,000
Revolving credit agreement borrowings, noncurrent -- 473,000
------------ ------------
$ 7,612,000 $ 10,205,000
============ ============
Term loan ....................................... $ 2,960,000 $ 2,474,000
Capital expenditure loan ........................ 643,000 --
Other ........................................... -- 28,000
------------ ------------
3,603,000 2,502,000
Less current portion ............................ (822,000) (28,000)
------------ ------------
Long-term debt, less current portion ............ $ 2,781,000 $ 2,474,000
============ ============
On December 19, 1997, the Company entered into a $22,000,000 credit agreement
with a new lender (the "Credit Agreement"). The Credit Agreement includes a
revolving credit facility (the "Revolving Credit") which provides for
$15,100,000 of maximum borrowings bearing interest, at the Company's election,
at the Alternate Base Rate (the higher of the prime rate or the Federal Funds
Rate plus .50%) plus 1.50% or the London Interbank Offered Rate (LIBOR) plus
3.50% (although, borrowings based on LIBOR cannot exceed 60% of the total
oustanding borrowings under the Revolving Credit). At August 29, 1998, the
Revolving Credit bore interest at a rate of 10.0%. Borrowings under the
Revolving Credit are limited by a formula based on Eligible Accounts Receivable
and Inventory, as defined. Remaining availability under the line as of August
29, 1998 approximated $236,000 based on the borrowing formula. Commitment fees
equal to .50% per annum on the unused portion of the Revolving Credit are
payable monthly. The credit agreement contains certain provisions giving the
lender the right to accelerate payment of all outstanding amounts in the event
of a "material adverse clause", as defined. Accordingly, all Revolving Credit
amounts are classified as current in the accompanying consolidated balance
sheets. All outstanding amounts under the Revolving Credit Agreement are due in
December 2001.
The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan")
and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term
Loan bears interest, payable monthly, at the Alternate Base Rate (8.5% at August
29, 1998) plus 2.00%. Principal payments on the Term Loan consist of equal
monthly principal payments in the amount of $56,667 for 35 months beginning in
January, 1998 with a $1,416,655 balloon payment due in December 2001.
Additionally, 50% of annual excess cash flow, as defined, must be applied to the
Term Loan installments in the inverse order of maturity.
Borrowings under the Cap Ex Facility are limited to 80% of the cost of new
machinery and equipment, limited to annual utilization of $1,500,000. These
borrowings also bear interest, payable monthly, at the Alternate Base Rate plus
2.00%. Principal payments on the Cap Ex Facility commence one month after the
take down in an amount based on a three year amortization. However, a balloon
payment in an amount equal to all outstanding borrowings under the Cap Ex
Facility is also due in December 2001. As of August 29, 1998 the Company had
outstanding borrowings under the Cap Ex Facility totalling $643,000 in capital
expenditures. Principal payments are due at the rate of $11,800 per month.
F-12
<PAGE>
Aggregate maturities of amounts outstanding under the Term Loan and Cap Ex
Facility are as follows as of August 29, 1998:
Fiscal Year Amount
- --------------------------- --------------
1999 $ 822,000
2000 822,000
2001 822,000
2002 1,137,000
--------------
$ 3,603,000
==============
Borrowings under the Credit Agreement are collateralized by all of the Company's
present and future assets. The Credit Agreement contains restrictive financial
covenants including Minimum Tangible Net Worth, Minimum EBITDA, Maximum Loss,
Minimum Fixed Charge Coverage, Maximum Leverage and Maximum Capital
Expenditures. Additional covenants limit borrowings, asset sales and dividends.
The Company was in violation of certain financial covenants as of May 30, 1998
and August 29, 1998 and was granted waivers to such covenants by the lender.
6. SALE OF WHOLLY-OWNED BRAZILIAN SUBSIDIARY
Effective May 30, 1998, the Company sold all of the capital stock and
distribution rights of its Brazilian subsidiary to Transvit Distribution Corp.
("TDC"), a wholly owned affiliate of the Sheth Group, for $2,800,000. The
agreement provides for a non-compete restriction and a supply arrangement
whereby the Company agreed to continue selling product to the Brazilian unit
through May 31, 2001. The Company also received an option to repurchase the
stock and distribution rights from TDC at anytime prior to May 31, 2003. The
Company currently has no plans to repurchase the stock and distribution rights
under this option.
The Company received payment in the form of a reduction of the subordinated debt
to Nevell Investments, S.A., ("Nevell") another affiliated company within the
Sheth Group (See Note 7.) The subordinated debt reduction, net of the related
write-down of warrant valuation costs attributable to such debt, exceeded the
carrying value of the Company's Brazilian investment by $1,506,000 and was
recorded as an increase in additional paid-in-capital.
7. SUBORDINATED LONG-TERM DEBT:
Subordinated long-term debt totaling $1,700,000 and $4,500,000 as of August 29,
1998 and August 30, 1997, respectively, represents a loan made by the Sheth
Group through their affiliate Nevell Investments, S.A., ("Nevell") to finance
the Company's payments under the stockholder class action litigation settlement
(see Note 18.) The debt has a term of ten years with principal payable 20% at
the end of the eighth and ninth years (fiscal 2001 and fiscal 2002,
respectively) and the remaining 60% payable at the end of the tenth year (fiscal
2003). In March 1998, the Company negotiated an agreement with Nevell to
eliminate any future accrual of interest on the outstanding debt to Nevell.
Aggregate maturities of subordinated long-term debt at August 29, 1998 are as
follows:
Fiscal Year Amount
- --------------------------- --------------
2001 $ 900,000
2002 800,000
--------------
$ 1,700,000
==============
F-13
<PAGE>
8. RELATED PARTY TRANSACTIONS:
As of August 29, 1998, a majority of the Company's outstanding stock (73%) is
owned by companies under control of the Sheth Group. The acquisition of this
ownership occurred in several stages beginning in February 1986 and ending in
August 1995. Effective April 22, 1998, the Sheth Group sold 700,000 shares of
the Company's stock to a business associate. The purchase price was
substantially lower than the price reported by NASDAQ, reflecting a discount
from the market price due to the magnitude of the transaction and the relatively
low trading volume of the Company's stock. This transaction reduced the Sheth
Group holdings to 73% of the Company's outstanding stock.
The Company purchases finished goods and components from Sheth Group affiliates.
During fiscal 1998, 1997 and 1996 the Company purchased approximately
$4,227,000, $6,503,000, and $7,037,000, respectively, of such products.
The Company sold products to Sheth Group affiliates during fiscal 1998, 1997 and
1996 of approximately $6,557,000, $3,866,000, and $1,997,000, respectively.
Gross margins on these sales during fiscal 1998, 1997, and 1996 were 16%, 27%,
and 31%, respectively. The fiscal 1998 net sales include approximately
$1,535,000 in slow moving finished goods and raw materials inventory which was
sold at a gross margin of approximately 6%.
In fiscal 1998, 1997 and 1996, the Company incurred fees to directors of
approximately $279,000, $260,000, and $229,000, respectively, of which
approximately $27,000 and $30,000 were unpaid at August 29, 1998 and August 30,
1997, respectively. Such fees related to the Board of Directors' meetings, other
committee meetings and events associated with the investigation performed by the
Special Committee of the Board of Directors, formed in October 1992 to conduct a
review of matters associated with the Stockholder Class Action Litigation. See
Note 18 for further discussion.
At August 29, 1998 warrants to purchase 400,000 and 2,000,000 of the Company's
common stock at an exercise price of $2.75 and $5.34 per share, respectively,
were owned by the Sheth Group. The warrants are exercisable through 2003. An
extension of the expiration date of the 400,000 warrants to 2003 and the grant
of the 2,000,000 warrants were made in connection with the settlement of the
stockholder class action litigation (see Note 18 for further discussion).
In recognition that value was received by the Company in return for the grant of
new warrants and the extension of the expiration date for previously issued
warrants, the Company utilized the Black Scholes Method to compute the value.
The computation resulted in the assignment of a value of $2,089,000 (net of the
purchase price of the warrants of $500,000). This net value was recorded as part
of "Other assets" and as an addition to "Additional paid-in capital."
In fiscal 1998, 1997 and 1996, approximately $36,000, $63,000, and $83,000,
respectively, of the $2,089,000 was charged to Other income (expense).
Additionally, during 1998 in connection with the sale of the Company's Brazilian
subsidiary (See Note 6), approximately $181,000 in warrant valuation costs were
written off. In fiscal 1997, $270,000 of warrant valuation costs were charged
directly to retained earnings in connection with the conversion of subordinated
long-term debt to preferred stock (see Note 12). The remainder of the balance,
which is attributable to the favorable terms of the subordinated long-term
financing of the shareholder litigation settlement provided by the Sheth Group,
will be amortized to expense through fiscal 2003 when the final payment is made
on the related subordinated debt.
9. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - RELATED PARTIES:
Related parties are the primary suppliers of the Company's cosmetics and are
also suppliers of certain components. Related party accounts payable result from
the purchase of those items. Related party accounts receivable result from the
sale of the Company's products to related parties. The payables and receivables
balances for individual parties are offset for presentation purposes and the net
balance of accounts receivable or accounts payable is presented on the balance
sheet. Related party payables include payables due members of the Company's
Board of Directors which result in the normal course of business from expenses
associated with Board and related committee meetings. The following summarizes
the presentations at August 29, 1998 and August 30, 1997.
F-14
<PAGE>
August 29, August 30,
1998 1997
----------- -----------
ACCOUNTS RECEIVABLE:
Total accounts receivable-related parties ... $ 4,153,000 $ 2,267,000
Offset amount ............................... (546,000) (447,000)
----------- -----------
Net related parties receivables ............. $ 3,607,000 $ 1,820,000
=========== ===========
ACCOUNTS PAYABLE:
Total accounts payable-related parties ...... $ 5,731,000 $ 4,910,000
Offset amount ............................... (546,000) (447,000)
----------- -----------
Net related parties payables ................ $ 5,185,000 $ 4,463,000
=========== ===========
10. LEASES:
The future minimum lease payments required under capital leases (together with
the present value of minimum lease payments) and future minimum lease payments
required under operating leases that have an initial or remaining lease term in
excess of one year as of August 29, 1998 are as follows:
Operating Capital
Fiscal Year Leases Leases
- -------------------------------------------------- -------- ---------
1999 ............................. $447,000 $ 153,000
2000 ............................. 270,000 133,000
2001 ............................. 136,000 4,000
2002 ............................. -- 4,000
2003 ............................. -- 2,000
-------- ---------
Total minimum lease payments ..................... $853,000 296,000
========
Less imputed interest ............................ (22,000)
---------
Present value of minimum lease payments .......... 274,000
Less current portion ............................. (144,000)
=========
Long term portion ................................ $ 130,000
=========
Certain of the above leases include escalation charges based on increases in
real estate taxes, utilities and common maintenance charges.
Rental expense for fiscal 1998, 1997 and 1996 amounted to approximately
$745,000, $614,000, and $423,000, respectively.
11. INCOME TAXES:
The components of income (loss) before income taxes are as follows:
Years Ended
--------------------------------------------------
August 29, August 30, August 31,
1998 1997 1996
----------- ----------- -----------
Domestic .............. $ (557,000) $ 3,055,000 $(6,088,000)
Foreign ............... (934,000) (1,894,000) (2,233,000)
----------- ----------- -----------
$(1,429,000) $ 1,161,000 $(8,321,000)
=========== =========== ===========
F-15
<PAGE>
Under the Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the asset and
liability method is used in accounting for income taxes. Deferred tax balances
are determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted marginal tax rates and
laws that will be in effect when the differences are expected to reverse.
Income tax expense (benefit) consists of the following:
Current Deferred Total
----------- ---------- ----------
Year ended August 29, 1998
U.S. Federal ............... $ 62,000 $ -- $ 62,000
State ...................... -- --
----------- ---------- ----------
$ 62,000 $ -- $ 62,000
=========== ========== ==========
Year ended August 30, 1997
U.S. Federal ............... $ 76,000 $ -- $ 76,000
State ...................... 2,000 -- 2,000
----------- ---------- ----------
$ 78,000 $ -- $ 78,000
=========== ========== ==========
Year ended August 31, 1996
U.S. Federal ............... $ (149,000) $3,566,000 $3,417,000
State ...................... -- 315,000 315,000
----------- ---------- ----------
$ (149,000) $3,881,000 $3,732,000
=========== ========== ==========
Income tax expense in fiscal 1998, 1997 and 1996 differed from the amounts
computed by applying the U.S. federal income tax rate to income (loss) before
income taxes as a result of the following:
<TABLE>
<CAPTION>
Years ended
---------------------------------------
August 29, August 30, August 31
1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Computed expected tax expense (benefit) .................. $(522,000) $ 406,000 $(2,829,000)
Increase (decrease) in income taxes resulting from:
State income tax net operating loss carryforward
(generated) utilized ............................ -- -- (250,000)
Merger costs not deductible for income tax purposes . -- -- 7,000
Warrant expenses not deductible for income tax
purposes ........................................ 22,000 22,000 28,000
Foreign subsidiary loss not deductible for income tax
purposes ........................................ 327,000 663,000 475,000
U.S. loss providing no current year benefit ......... 558,000 655,000 --
State income taxes, net of federal income tax benefit -- 2,000 --
Deferred tax asset valuation allowance .............. (287,000) (1,888,000) 6,609,000
Alternative minimum tax ............................. -- 76,000 --
Prior year return to provision adjustments .......... 62,000 -- --
Other, net .......................................... 98,000 142,000 (308,000)
--------- ----------- -----------
Total income tax expense ................................. $ 62,000 $ 78,000 $ 3,732,000
========= =========== ===========
</TABLE>
F-16
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at August 29, 1998 and
August 30, 1997 are presented below:
<TABLE>
<CAPTION>
August 29, August 30,
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts
and sales returns ................................................. $ 417,000 $ 623,000
Inventories, principally due to allowance for obsolescence and
difference in certain costs capitalized for tax purposes ............ 251,000 401,000
Start-up, organizational costs, and packaging design costs ............ 435,000 375,000
Accrued expenses, principally due to accrual of related party interest
expense for financial reporting purposes .......................... 773,000 746,000
Net operating loss carryforward ....................................... 3,228,000 3,111,000
Alternative minimum tax credit carryforwards .......................... 300,000 280,000
Other ................................................................. -- 65,000
----------- -----------
Total deferred tax assets .................................................. 5,404,000 5,601,000
Less valuation allowance ................................................... (4,434,000) (4,721,000)
----------- -----------
970,000 880,000
----------- -----------
Deferred tax liabilities:
LIFO reserve .......................................................... (218,000) (176,000)
Plant and equipment, principally due to differences in depreciation ... (725,000) (704,000)
Other ................................................................. (27,000) --
----------- -----------
Total deferred tax liabilities ............................................. (970,000) (880,000)
----------- -----------
Net deferred tax asset ..................................................... $ -- $ --
=========== ===========
</TABLE>
The valuation allowance for deferred taxes decreased during fiscal 1998 and 1997
by $287,000 and $1,888,000, respectively. There was an increase in the valuation
allowance during fiscal 1996 of $6,609,000. In assessing the realizability of
deferred tax assets under the guidelines of SFAS No. 109, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. While management
anticipates generating future taxable income, a valuation allowance of
$4,434,000 has been recorded at August 29, 1998 in accordance with SFAS No. 109
to reduce the net deferred tax asset to zero due to the uncertainty of realizing
the benefits of these deductible differences.
At August 29, 1998, the Company has net operating loss carryforwards for federal
income tax purposes of approximately $8,725,000 which are available to offset
future federal taxable income, if any, through 2012. The Company also has
alternative minimum tax credit carryforwards of approximately $300,000 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period.
12. PREFERRED STOCK:
To strengthen the financial position of the Company, effective December 11,
1996, Transvit Manufacturing Corporation ("Transvit"), a related party and
principal stockholder, agreed to convert a $4,666,000 subordinated note payable
into 666,529 shares of the Company's Series A convertible nonvoting preferred
stock. The preferred stock has cumulative preferred dividends of $0.315 per
share and a preferred distribution of $7.00 per share plus
F-17
<PAGE>
accrued and unpaid dividends. Each share of the Series A preferred stock is
convertible, at the option of Transvit, into one share of the Company's common
stock. The Company can redeem the shares of Series A preferred stock at any time
for cash of $7 per share, plus all accrued and unpaid dividends. The conversion
price approximated the closing bid price of the Company's common stock as
reported by the NASDAQ on the date of this transaction. At August 29, 1998,
cumulative dividends in arrears on the Series A preferred stock approximated
$343,000.
In a subsequent transaction effective February 21, 1997, Nevell Investments,
S.A. ("Nevell"), the holder of a subordinated long-term promissory note in the
principal amount of $4,000,000, converted $3,500,000 of that note into 120,690
shares of the Company's Series B convertible nonvoting preferred stock. The
Series B preferred stock has cumulative preferred dividends of $2.03 per share
and a preferred distribution of $29.00 per share plus accrued and unpaid
dividends. Each share of the Series B preferred stock is convertible, at the
option of Nevell, into four shares of the Company's common stock. The Company
can redeem the shares of Series B preferred stock at any time for cash of $29.00
per share ($7.25 per common share), plus all accrued and unpaid dividends. At
August 29, 1998, cumulative dividends in arrears on the Series B preferred stock
approximated $366,000.
On February 21, 1997, the closing bid price of the Company's common stock as
reported by the NASDAQ was $9 11/32. At that date, the Series B preferred stock
carried a beneficial conversion feature of $2 3/32, the difference between the
conversion price and the closing bid price. The value of the beneficial
conversion feature has been reflected in the financial statements of the Company
in a manner similar to that for a dividend to the preferred shareholder.
Accordingly, the Company has recorded a charge to retained earnings and an
increase in the value of the Series B preferred stock in the amount of
$1,011,000. Additionally, as a result of the conversion, the Company wrote off
$270,000 of warrant valuation costs attributable to the converted debt. This
charge has also been recorded to retained earnings in a manner consistent with
that for the beneficial conversion feature described above. Additionally, the
charge applicable to the beneficial conversion feature and the warrant valuation
adjustment have been deducted in computing net loss applicable to common stock
in the accompanying consolidated statement of operations.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The carrying value of cash, accounts receivable - net, and accounts receivable -
related parties - net, accounts payable - trade, and accounts payable - related
parties - net, approximate their respective fair value because of the short-term
maturity of those instruments.
The carrying value of amounts outstanding under the Credit Agreement
approximates fair value as the interest rates approximate those currently
offered to the Company for debt with similar maturities.
The fair value of the subordinated long-term debt could not be determined
without incurring excessive cost given the related party nature of the lending
arrangement.
14. STOCK OPTION PLANS:
The Company has granted stock options under the Amended and Restated Option Plan
(the "1991 Plan"), 1997 Long Term Incentive Plan and other plans (collectively
the "Plans"). The Company applies APB Opinion 25 and related interpretations in
accounting for the Plans. In 1995, the FASB issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which, if fully adopted
by the Company, would change the methods the Company applies in recognizing the
cost of the Plans. Adoption of the cost recognition provisions of SFAS 123 is
optional and the Company has decided not to elect these provisions of SFAS 123.
However, pro forma disclosures as if the Company adopted the cost recognition
provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below.
Under the Plans, the Company is authorized to issue up to 1,800,000 shares of
Common Stock pursuant to "Awards" granted in various forms, including incentive
stock options (intended to qualify under Section 422 of the
F-18
<PAGE>
Internal Revenue Code of 1986, as amended), nonqualified stock options, and
other similar stock-based awards.
The stock options granted in fiscal 1998, 1997 and 1996 have contractual terms
of 10 years and an exercise price equal to the fair market value of the stock at
grant date. The options vest over various vesting schedules. Most vest ratably
at the rate of 20% per year beginning on the date of grant or the first
anniversary of the date of grant. Others vest according to shorter schedules.
A summary of the status of the Company's stock options as of August 29, 1998,
August 30, 1997 and August 31, 1996 and the changes during the years then ended
are presented below:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- --------------------
Weighted Weighted Weighted
Number Average Average Number Average
of Exercise Number Exercise of Exercise
Shares Price of Shares Price Shares Price
---------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year 1,213,706 $ 8.20 786,626 $ 6.73 266,626 $ 4.84
Granted ............................ 557,500 $ 10.37 670,000 $ 8.82 530,000 $ 7.56
Exercised .......................... (65,706) $ 6.88 (73,500) $ 2.45 (10,000) $ 0.50
Forfeited .......................... (280,500) $ 8.77 (169,420) $ 6.35 -- --
---------- -------- ---------- -------- -------- --------
Outstanding at end of year ......... 1,425,000 $ 8.99 1,213,706 $ 8.20 786,626 $ 6.73
========== ======== ========== ======== ======== ========
Exercisable at end of year ......... 588,500 $ 8.35 312,238 $ 7.45 273,486 $ 5.44
========== ======== ========== ======== ======== ========
Weighted average fair value of options
granted......................... $5.14 $4.38 $3.67
====================== ====================== ====================
</TABLE>
The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in fiscal 1998, 1997 and 1996: dividend yield of 0%;
risk-free interest rates ranging from 5.81% to 6.56%; an expected life of
options of 5 or 6 years; and a volatility ranging from 41.8% to 45.9% for all
grants.
The following table summarizes information about stock options oustanding at
August 29, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted Weighted
Average Average Weighted
Number Remaining Exercise Number Average
Range of Exercise Price Outstanding Contractual Life Price Exercisable Exercise Price
- ---------------------------- ------------- ------------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$1.4375 5,000 2.08 $ 1.4375 5,000 $ 1.4375
$6.875 to $7.5625 555,000 7.48 $ 7.47 370,000 $ 7.47
$9.375 to $10.50 865,000 9.01 $ 10.01 213,500 $ 10.04
- ---------------------------- ------------- ------------------ -------------- ------------- ---------------
$1.4375 to $10.50 1,425,000 6.23 $ 8.99 588,500 $ 8.35
============================ ============= ================== ============== ============= ===============
</TABLE>
SFAS 123 establishes a fair value of accounting for stock-based compensation
plans. Had the compensation cost
F-19
<PAGE>
for the Company's stock-based compensation plans been determined consistent with
SFAS 123, the Company's net income (loss), net loss applicable to common stock
and net loss per common share would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
August 29, 1998 August 30, 1997
-------------------------- --------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SFAS 123 Charge ................... -- $ 2,002,000 -- $ 1,188,000
APB 25 Charge ..................... -- -- -- $ --
Net income (loss) ................. $(1,491,000) $(3,493,000) $ 1,083,000 $ (105,000)
Net loss applicable to common stock $(1,944,000) $(3,946,000) $ (454,000) $(1,642,000)
Net loss per common share ......... $ (.12) $ (.24) $ (.03) $ (.10)
</TABLE>
The effects of applying SFAS 123 as disclosed above are not indicative of future
amounts. SFAS 123 does not apply to awards granted prior to the 1995 fiscal
year.
On November 17, 1998, the Board of Directors approved a plan to offer a
repricing alternative to all holders of outstanding options as of a date
expected to occur in late November or early December 1998.
15. WARRANTS
The Company issued warrants to an investment banker in June 1998 to purchase
50,000 shares of the Company's common stock at $10.47 per share as compensation
for various due diligence and investment banking services. The warrants have
been valued at $96,000 using the Black Scholes method and have been credited to
additional paid-in capital and recorded as prepaid consulting costs. The
warrants expire on September 1, 2003. The prepaid consulting costs will be
amortized on a straight-line basis over twelve months.
16. BENEFIT PLAN:
Substantially all of the Company's full time employees are eligible to
participate in the Company's 401(k) Plan. The Plan specifies that one-half of
the Company's matching contribution is to be paid by the issuance of common
stock based on the closing price at the end of each calendar quarter. During
fiscal 1998, 1997 and 1996, a total of 4,924, 5,398, and 10,493, respectively,
of such shares were issued to the Plan. Contributions including the issuance of
Common Stock to the Plan were $106,000 in 1998, $80,000 in 1997, and $137,000 in
1996.
17. COMMITMENTS AND CONTINGENCIES:
FREITAS AND KENNER
In October 1994, a suit was filed in Florida state court against the Company and
two of its directors by Ross Freitas, Carolyn Kenner, Rose Freitas and Melissa
Freitas. The complaint alleged causes of action by two plaintiffs for libel and
seeks indemnification of legal costs allegedly incurred by those plaintiffs in
suits and proceedings arising from the facts which were the subject of the
investigation conducted by the Special Committee of the Board of Directors in
1992. The complaint also alleged, on behalf of all four plaintiffs, that the
Company's disclosures relating to the Sheth Group's holding of Company stock and
other matters were fraudulent or negligently misrepresented. In April 1995, the
court dismissed the complaint without prejudice, in part due to the plaintiffs'
failure to state a claim for relief. In May 1995 the plaintiffs refiled the
complaint, asserting many of the same claims and in June 1996, amended their
complaint yet again, naming only the Company and one of its directors as
defendants. In October 1998, the Court dismissed the claim against the one
director. The Company intends to dispute these allegations vigorously and
believes that ultimate disposition of the case will not have a material adverse
effect on its financial condition.
CALIFORNIA AIR RESOURCES BOARD
Since the effective date (January 1, 1995) of regulations of the California Air
Resources Board ( the "CARB") with respect to volatile organic compounds
"(VOC's"), the Company has not been in compliance with those regulations. The
Company was granted a temporary variance from VOC regulations under which the
Company
F-20
<PAGE>
was allowed to continue to manufacture noncomplying product until September 30,
1996. The variance also allowed the Company to continue to sell its remaining
inventory of noncomplying products in California until June 30, 1997. The
Company had as of September 30, 1996, reformulated all of its fragrance products
to achieve compliance with the VOC regulations.
INTERNAL REVENUE SERVICE
In February, 1997, the Internal Revenue Service ("the IRS") concluded their
examination of the Company's tax returns submitted for fiscal years 1993, 1994
and 1995. The IRS proposed adjustments disallowing the deductions of payments
made in the settlement of the class action litigation and certain related legal
and professional fees. In April 1998, the Company filed a protest letter with
the IRS. In a letter dated August 17, 1998, the IRS rejected the Company's
response. The Company will now raise this issue to the Appeals Court. If the
Company is unsuccessful in its discussions or ultimately in an appeal, it could
be required to pay taxes from prior years and related interest thereon exceeding
$1,800,000, and it could lose a significant amount of its existing net operating
loss carryforward benefits. No accrual for the impact of the proposed IRS
adjustments has been recorded in the accompanying financial statements as the
Company does not believe it is probable that the IRS will prevail in this
matter.
OTHER
The Company is subject to ordinary and routine litigation arising out of the
conduct of its business. Management believes that the ultimate disposition of
any of these proceedings will not have a material adverse effect on the
Company's financial condition.
YEAR 2000 COMPLIANCE
As a result of certain computer programs being written using two digits rather
than four digits to define the applicable year, any of the Company's computer
programs that have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions and engage in normal
business activities.
As part of the Company's Year 2000 readiness program, management has evaluated
its infrastructure including hardware, operating systems, legacy applications
and data, and other non-financial systems and determined the steps that need to
be taken to ensure these systems are Year 2000 compliant. While the Company
believes that remediation of its infrastructure will be complete in all material
respects during 1999, if some or all of the Company's remediated or replaced
internal computer systems fail to correctly distinguish between years before and
after Year 2000, or if any software applications critical to the Company's
operations are overlooked in the Company's assessment of its Year 2000
compliance, there could be a material adverse effect on the Company's business,
financial condition, results of operations and liquidity of a magnitude which
the Company presently is unable to predict.
18. CLASS ACTION LITIGATION:
In December 1993, the Company reached an agreement to settle stockholder class
action litigation regarding alleged violations of the federal securities laws,
as well as common law fraud and negligence in connection with, among other
things, the nondisclosure of the ownership interest of the Sheth Group prior to
1992, for a cash payment of $9.5 million. The settlement resulted in a release
of claims by the plaintiff class against the Company and certain other
defendants.
In connection with the settlement, common stock purchase warrants to purchase
2,000,000 shares of the Company's common stock at a per share price of $5.34
were granted to the Sheth Group. The warrants are exercisable for a period of
ten years from their issuance. The per share price of the common stock under the
warrants will increase by ten percent per year after the first seven years. As
part of the settlement, the Company also extended to August 31, 2003, the
exercise date of warrants held by a Sheth Group affiliate to purchase 400,000
shares of the Company's common stock.
F-21
<PAGE>
In recognition that value was received by the Company in return for extending
the expiration date of the warrants to purchase 400,000 shares and the granting
of the new warrants to purchase 2,000,000 shares as described above, the Company
utilized the Black Scholes Method to compute the value. The computation resulted
in the assignment of a value of $2,089,000 (net of the purchase price of the
warrants of $500,000). This net value was recorded as part of "Other assets" and
as an addition to "Additional paid-in capital" in fiscal 1994.
The class action settlement included a provision that protects the Company and
other settling defendants against further liability to the class for damages in
connection with related ongoing litigation.
The Company anticipates that it will continue to incur litigation expenses
related to ongoing litigation involving the defendants not covered under the
class action litigation settlement and related to a lawsuit against the
Company's former auditors separate from, but related to, the stockholder class
action against the Company. Any expenses incurred are not expected to be
material to the Company's financial results.
The Company has recorded legal and professional expenses associated with the
stockholder litigation settlement and other related events that were the subject
of an internal investigation by a Special Committee of the Board of Directors.
These expenses were approximately $230,000, $72,000, and $162,000 in fiscal
1998, 1997, and 1996, respectively.
19. FOREIGN SALES:
The Company exports a significant portion of its sales directly or through its
Mexican and Brazilian subsidiaries (prior to the Company's disposition of its
Brazilian subsidiary in May 1998. See Note 6 for additional details). For the
years ended August 29, 1998, August 30, 1997 and August 31, 1996, these sales
were $29,690,000 (44% of net sales), $27,054,000 (39% of net sales), and
$14,524,000 (28% of net sales), respectively. These customers are primarily
located in Latin America. In addition, certain U.S. based customers ultimately
distribute the Company's products into foreign countries ("indirect exports").
The volume of the indirect exports, which may be significant, could only be
estimated as customers do not provide that information to the Company.
20. QUARTERLY RESULTS (UNAUDITED):
Summarized quarterly results for 1998 and 1997(in thousands except for per share
amounts) are as follows:
<TABLE>
<CAPTION>
1998 Quarter Ended
----------------------------------------------------------
Nov 29 Feb. 28 May. 30 Aug. 29
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ........................ $20,865,000 $ 14,843,000 $ 17,185,000 $ 14,790,000
Gross Profit ..................... 5,938,000 4,878,000 3,935,000 2,500,000
Net Income (Loss) ................ 1,355,000 (37,000) (812,000) (1,997,000)
Net Income (Loss) Applicable to
Common Stock ............... 1,242,000 (150,000) (925,000) (2,111,000)
Net Income (Loss) Per Common Share
Basic ...................... .07 (.01) (.06) (.13)
Diluted .................... .07 (.01) (.06) (.13)
<CAPTION>
1997 Quarter Ended
----------------------------------------------------------
Nov. 30 Mar. 1 May 31 Aug 30
----------- ------------ ------------ ------------
Net Sales ........................ $17,489,000 $ 15,577,000 $ 18,117,000 $ 17,776,000
Gross Profit ..................... 5,227,000 4,348,000 5,328,000 5,615,000
Net Income (Loss) ................ 786,000 (344,000) 288,000 353,000
Net Income (Loss) Applicable to
Common Stock ............... 786,000 (1,654,000) 174,000 240,000
Net Income (Loss) Per Common Share
Basic ...................... $ .05 $ (.10) $ .01 $ .01
Diluted .................... $ .05 $ (.10) $ .01 $ .01
</TABLE>
F-22
<PAGE>
The second quarter of fiscal 1997 includes $1,011,000 and $270,000,
respectively, of charges to retained earnings for the beneficial conversion
feature and warrant valuation adjustment attributable to the Company's
conversion of subordinated long-term debt to Series B convertible preferred
stock. These charges reduced net income applicable to common stock in this
period. The $270,000 warrant valuation adjustment was previously reflected as a
charge to other expense in the Company's Form 10-Q for the period ended March 1,
1997.
21. PROCEEDS OF AN EXECUTIVE LIABILITY AND INDEMNIFICATION POLICY:
In November 1994, the United States District Court for the District of South
Carolina approved the disbursement of $1,250,000 to the Company from the
original proceeds of an executive liability and indemnification policy for
$2,000,000 owed by the Company. In June 1995, the Company received the balance
($750,000) of the proceeds of the policy as well as approximately $65,000 of
interest earned during the period the court held the proceeds. This court
approved distribution was appealed by two other claimants under the policy.
Pursuant to a settlement agreement approved by the Court on December 18, 1997,
the Company made payments totalling $175,000 to the two claimants who withdrew
their motion.
22. IMPACT OF RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS:
REPORTING COMPREHENSIVE INCOME (SFAS 130)
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components. The Company plans to adopt
SFAS No. 130 in fiscal 1999.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information," effective
for fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public companies report information about segments in
annual and interim financial statements. The Company plans to adopt SFAS No. 131
in fiscal 1999.
The adoption of these recently issued financial accounting standards is not
expected to have a significant effect on the Company's consolidated financial
statements.
23. SUBSEQUENT EVENTS (UNAUDITED):
Effective September 3, 1998, the Company sold 78,333 shares of Series C Senior
Convertible Preferred Stock ("Series C Preferred Stock") to a private investor
for $60 per share. Each share of Series C Preferred Stock is convertible into
common shares at a conversion price of $5.44 per share. In addition, the Company
issued 125,000 warrants which are convertible into common shares at a conversion
price of between $4.00 to $6.28 per share. The Company received proceeds of
approximately $4,700,000 and expects to receive an additional $1,300,000 in
fiscal 1999 upon issuance of an additional 21,667 shares of Series C Senior
Covertible Preferred Stock, in accordance with the stated closing schedule.
The Series C Preferred Stock holders are entitled to receive a cummulative cash
dividend of $4.80 per share annually. The dividend is payable quarterly in
arrears ($1.20 per quarter). The dividends may be paid by issuance of additional
shares of Series C Preferred Stock except such shares bear a cummulative cash
dividend of $7.80 per share annually. The Series C Preferred Stock holders are
entitled to receive a liquidation preference equal to $60.00 per share plus
interest thereon from the date of issue until redemption or conversion at a
compound rate of 20% per year. The Series C Preferred Stock has full voting
rights based on the number of common shares into which it is convertible and is
voted together with the Common Stock as one class.
F-23
<PAGE>
SCHEDULE II
TRISTAR CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------- ---------- --------------------------- ---------- ----------
ADDITIONS
---------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END
OF PERIOD EXPENSES DESCRIBE DESCRIBE * OF PERIOD
- -------------------------------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended August 31, 1998 .... $1,052,000 $ 998,000 -- $1,155,000 $ 895,000
Year ended August 31, 1997 .... 850,000 729,000 -- 527,000 1,052,000
Year ended August 31, 1996 .... 419,000 1,028,000 -- 597,000 850,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Uncollectible accounts written off, net of recoveries.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------- -------------- ------------------------------- -------------- --------------
ADDITIONS
-------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END
OF PERIOD EXPENSES DESCRIBE** DESCRIBE *** OF PERIOD
- --------------------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Inventory reserves:
Year ended August 31, 1998 $ 1,381,000 $ 720,000 $ 0 $ 1,611,000 $ 490,000
Year ended August 31, 1997 612,000 1,005,000 0 236,000 1,381,000
Year ended August 31, 1996 621,000 1,666,000 (198,000) 1,477,000 612,000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
** Transfer to LIFO Valuation
*** Write-offs against the reserve
F-24
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ROSS COSMETICS DISTRIBUTION CENTERS, INC.
ARTICLE I
NAME
The name of the corporation is Ross Cosmetics Distribution Centers, Inc.
ARTICLE II
REGISTERED OFFICE AND AGENT
The registered office of the Corporation in the State of Delaware is
located at 410 South State Street in the City of Dover, County of Kent. The name
of its registered agent at that address is Corporate Filing Services, Inc.
ARTICLE III
PURPOSE
The conduct, carry on and engage in the wholesale distribution of
cosmetic products, perfumes, colognes, beauty aids and health care
products; and in connection therewith to manufacture, buy, sell, job,
import, export and otherwise deal in and with cosmetics, chemicals and
pharmaceutical products, lipsticks, rouges, powders, soaps, colognes,
perfumes, toilet waters, hair bleaches, henna, hair rinses and washes,
hair dressings, lotions, fresheners, shadow and eyebrow pencils, massage
creams, cold cream, vanishing cream, balms, ointments, drugs, medicines,
pharmaceutical and chemical products, preparations and compounds, sanitary
and hygienic goods and products nail polishes, bleaches, cuticle removers,
baby oils, deodorants, depilatories, witch hazel, rubbing alcohol,
astringents, dentifrices, mouth washes, gargles, shaving creams, shaving
stocks, shaving soaps, mineral oils, smelling salts, tooth brushes, combs,
brushes, vanities, nail files, cuticle scissors, paper towels and tissues,
jars, bottles, tubes, perfume bases, oils, extracts, flavors and other
cosmetics, perfumes, toilet preparations, beauty preparations, chemicals
and pharmaceuticals of every kind and description; and all products,
by-products, materials, supplies, machinery, tools, packaging materials,
applicators and devices used or useful in connection with or resulting
from the manufacture, sale, marketing, distribution or use thereof.
<PAGE>
To purchase, lease, copyright, produce, construct and otherwise
acquire, and to use, operate, repair, maintain, develop and improve and to
sell, trade, exchange, rent, lease, create security interests in and
otherwise dispose of any and all materials, facilities, appliances,
articles, products, equipment or supplies proper for or adapted to be used
in connection with or incidental to the business and affairs of the
corporation as the same pertain to the conduct and operation of the
corporation's principal or ancillary business activities and to do any and
all things incidental thereto, or necessary to expedient or proper to be
done in connection with the matters set out herein.
To take, buy, sell, exchange, rent, lease, sublease or otherwise
acquire, and to erect, construct, maintain, improve, rebuild, enlarge,
alter, manage, control, develop, assign, transfer, convey, pledge,
alienate or otherwise dispose and to mortgage or otherwise encumber, and
to generally deal in real and personal property wherever situated, either
directly or through ownership of shares in any corporation, and to
acquire, buy, hold, sell, assign, transfer, mortgage, pledge, exchange or
otherwise encumber of dispose of the securities of any corporation,
domestic or foreign, including but not limited to shares, scrip, bonds,
notes, evidences of indebtedness, debentures, commercial paper, whether
such corporation be public or private, and to do any other lawful acts
necessary, incidental or proper thereto, not prohibited by law, and while
the holder of any securities, to exercise all rights and privileges of
ownership, and to collect all dividends, and interest payable thereon, and
to do all things not prohibited by law, to protest, conserve, or increase
the value of all property and of all securities held by it.
To have as part of the corporate purposes, all of the powers
conferred upon corporations organized under the General Corporation Law
subject to any limitations thereof contained in the Certificates of
Incorporation or in the laws of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
SECTION 1. CLASSES AND SHARES AUTHORIZED. The authorized capital stock of
the Corporation shall consist of 10,000,000 shares of Common Stock, $.01 par
value per share (hereinafter referred to as either the "Common Shares" or
"Common Stock") and 1,000,000 shares of Preferred Stock, $.05 par value per
share (hereinafter referred to as either the "Preferred Shares" or "Preferred
Stock").
SECTION 2. PREFERRED STOCK. The shares of Preferred Stock shall be
issuable from time to time in one or more series, with respect to each of which
series the Board of Directors shall be authorized, without further approval from
the shareholders of the Corporation, to fix:
(a) the designation of the series;
-2-
<PAGE>
(b) the number of shares of each series, which number the Board of
Directors may increase or decrease (but not below the number of shares
thereof then outstanding);
(c) the annual dividend rate of the series;
(d) the dates at which dividends, if declared, shall be payable, and
the dates from which the dividends shall be cumulative;
(e) the redemption rights, if any, for shares of the series;
(f) the terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(g) the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(h) whether the shares of the series shall be convertible into
Common Stock or other securities, and, if so, the conversion price or
prices, any adjustments thereof, and all other terms and conditions upon
which such conversion may be made;
(i) restrictions on the issuance of the shares of the same series or
of any other class or series; and
(j) the voting rights, if any, exercisable by the holders of the
shares of such series. Shareholders shall have no pre-emptive rights.
ARTICLE V
PRE-EMPTIVE RIGHTS
Stockholders of the Corporation shall not have pre-emptive rights to
acquire unissued or treasury shares of the Corporation or securities convertible
into such shares of carrying a right to subscribe to or acquire such shares.
ARTICLE VI
PLACE OF BUSINESS
Part or all of the business of the Corporation may be conducted in the
City of Dover, County of Kent, or any place in the State of Delaware or outside
of the State of Delaware, in other states or territories of the United States
and in foreign countries.
-3-
<PAGE>
ARTICLE VII
BOARD OF DIRECTORS
SECTION 1. BOARD OF DIRECTORS: NUMBER. The governing board of the
Corporation shall be known as the Board of Directors, shall consist of a minimum
of three and a maximum of nine members, subject, however, to the number being
from time to time increased or decreased in such manner as shall be provided in
the By-laws of the Corporation, provided that the number of directors shall not
be reduced to less than three except that there need be only as many directors
as there are stockholders in the event that the outstanding shares are held of
record by fewer than three stockholders.
SECTION 2. CLASSIFICATION OF DIRECTORS. The Board of Directors may, but
need not be divided into three classes, Class 1, Class 2 and Class 3, each class
to be as nearly equal in number as possible. In the event the Corporation elects
to adopt a "staggered" Board, the term of office of Class 1 directors shall
expire at the first annual meeting of stockholders after their election, that of
Class 2 directors shall expire at the second annual meeting after their
election, and that of Class 3 directors shall expire at the third annual meeting
after their election. At each annual meeting after such classification, the
number of directors equal to the number of the class whose term expires at the
time of such meeting shall be elected to hold office until the third succeeding
annual meeting. No classification of directors shall be effective prior to the
first annual meeting of stockholders or at any time when the Board of Directors
consists of less than six members. Notwithstanding the foregoing, and except as
otherwise required by law, whenever the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the terms of the director or directors
elected by such holders shall expire at the next succeeding annual meeting of
stockholders.
SECTION 3. NOMINATION OF DIRECTORS. (a) Nominations for the election of
directors may be made by the Board of Directors, by a committee of the Board of
Directors or by any stockholder entitled to vote for the election of directors.
Nominatings by stockholders shall be made by notice, in writing, delivered or
mailed by first class United States mail, postage prepaid, to the Secretary of
the Corporation not less than 14 days nor more than 50 days prior to any meeting
of the stockholders called for the election of directors; PROVIDED, HOWEVER,
that if less than 21 days notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the seventh day following the day on
which notice of the meeting was mailed to stockholders.
(b) Each notice under subsection (a) shall set forth: (i) the name, age,
business address and, if known, residence address after each nominee proposed in
such notice; (ii) the principal occupation or employment of each such nominee,
and (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee.
(c) The chairman of the stockholders' meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure,
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<PAGE>
and if he should so determine, he shall so declare to the meeting and the
defective nomination shall be disregarded.
SECTION 4. CERTAIN POWERS OF THE BOARD OF DIRECTORS. In furtherance and
not in limitation of the powers conferred by statute, and subject to the rights
of the holders of the Corporation's Preferred Stock as specified in Section 5
of Article IV, the Board of Directors is expressly authorized:
(a) to manage and govern the Corporation by majority vote of members
present at any regular or special meeting at which a quorum shall be present, to
make, alter, or amend the By-laws of the Corporation at any regular or special
meeting, to fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgages and liens
upon the real and personal property of this Corporation, and to designate one or
more of committees, each committee to consist of two or more of the directors of
the Corporation, which, to the extent provided in the resolution or in the
By-laws of the Corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation
(such committee or committees shall have such name or names as may be stated in
the By-laws of the Corporation or as may be determined from time to time by
resolution adopted by the Board of Directors);
(b) to sell, lease, exchange, or otherwise dispose of all of or
substantially all of the property and assets of the Corporation in the ordinary
course of its business upon such terms and conditions as the Board of Directors
may determine without vote or consent of the stockholders;
(c) to sell, pledge, lease, exchange, liquidate, or otherwise dispose of
all or substantially all the property or assets of the Corporation, including
its goodwill, if not in the ordinary course of its business, upon such terms and
conditions as the Board of Directors may determine; PROVIDED, HOWEVER, that such
transaction is authorized or ratified by the affirmative vote of the holders of
at least a majority to the shares entitled to vote thereon at a stockholders'
meeting duly called for such purpose, or is authorized or ratified by the
written consent of the holders of all of the shares entitled to vote thereon;
and PROVIDED, FURTHER, that any such transaction with any substantial
stockholder or affiliate of the corporation shall be authorized or ratified by
the affirmative vote of the holders of at least two-thirds of shares entitled to
vote thereon at a stockholders' meeting duly called for that purpose, unless
such transaction is with any subsidiary of the Corporation or is approved by the
affirmative vote of a majority of the continuing directors of the Corporation,
or is authorized or ratified by the written consent of the holders of all the
shares entitled to vote thereon;
(d) to merge, consolidate, or exchange all of the issued and outstanding
shares of one or more classes of the Corporation upon such terms and conditions
as the Board of Directors may authorize; PROVIDED, HOWEVER, that such merger,
consolidation, or exchange is approved or ratified by the affirmative vote of
the holders of at least a majority of the shares entitled to vote thereon at a
stockholders' meeting duly called for that purpose, or is authorized or ratified
by the written consent of the holders of all of the shares entitled to vote
thereon; and PROVIDED, FURTHER, that any such merger, consolidation or exchange
with any substantial stockholder or affiliate of the Corporation shall be
authorized or ratified by the vote of the holders of at least two-thirds of the
shares entitled to vote thereon at a stockholders' meeting duly called for that
purpose, unless such merger,
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<PAGE>
consolidation or exchange is with any subsidiary of the Corporation or is
approved by the affirmative vote of a majority of the continuing directors of
the Corporation, or is authorized or ratified by the written consent of the
holders of all the shares entitled to vote thereon; and
(e) to distribute to the stockholders of the Corporation, without the
approval of the stockholders, in partial liquidation, out of stated capital or
capital surplus of the Corporation, a portion of its assets, in cash or in
property, so long as the partial liquidation is in compliance with the Delaware
General Corporation Law.
(f) as used in this Section 5, the following terms shall have the
following meanings:
(i) an "affiliate" shall mean any person or entity which is an
affiliate within the meaning of Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended;
(ii) a "continuing director" shall mean a director who was elected
before the substantial stockholder or affiliate of the Corporation which is to
be a party to a proposed transaction within the scope of subsections (c) and (d)
of this Section 5 became such a substantial stockholder or affiliate of the
Corporation, as the case may be, or is designated at or prior to his first
election or appointment to the Board of Directors by the affirmative vote of a
majority of the Board of Directors who are continuing directors;
(iii) a "subsidiary" shall mean any corporation in which the
Corporation owns the majority of each class of equity security; and
(iv) a "subsidiary stockholder" shall mean any person or entity
which is the beneficial owner, within the meaning of Rule 1 3d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, of
10% or more of the outstanding capital stock of the Corporation.
ARTICLE VIII
CONFLICTS OF INTEREST
SECTION 1. RELATED PARTY TRANSACTIONS. No contract or other transaction of
the Corporation with any other person, firm or corporation, or in which the
corporation is interested, shall be affected or invalidated by (a) the fact that
any one or more of the directors or officers of this Corporation is interested
in or is a director or officer of such other firm or corporation; or (b) the
fact that any director or officer of this Corporation, individually or jointly
with others, may be a party to or may be interested in any such contract or
transaction, so long as the contract or transaction is authorized, approved or
ratified at a meeting of the Board of Directors by sufficient vote thereon by
directors not interested therein, to which such fact of relationship or interest
has been disclosed, or the contract or transaction has been approved or ratified
by vote or written consent of the stockholders entitled to vote, to whom such
fact of relationship or interest has been disclosed, or so long as the contract
or transaction is fair and reasonable to the Corporation. Each person who may
become a director or
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<PAGE>
officer of the Corporation is hereby relieved from any liability that might
otherwise arise by reason of his contracting with the Corporation for the
benefit of himself or any firm or corporation in which he may be in any way
interested.
SECTION 2. CORPORATE OPPORTUNITIES. The officers, directors and other
members of management of the Corporation shall be subject to the doctrine of
corporate opportunities only insofar as it applies to business opportunities in
which the Corporation has expressed an interested as determined from time to
time by resolution of the Board of Directors. When such areas of interest are
delineated, all such business opportunities within such areas of interest which
come to the attention of the officers, directors and other members of management
of the Corporation shall be disclosed promptly to the Corporation and made
available to it. The Board of Directors may reject any business opportunity
presented to it, and thereafter any officer, director, or other member of
management may avail himself of such opportunity. Until such time as the
Corporation, through its Board of Directors, has designated an area of interest,
the officers, directors, and other members of management of the Corporation
shall be free to engage in such areas of interest on their own and the
provisions hereof shall not limit the rights of any officer, director, or other
member of management of the Corporation to continue a business existing prior to
the time that such area of interest is designated by the Corporation. This
provision shall not be construed to release any employee of the Corporation
(other than an officer, director or member of management) from any duties which
such employee may have to the Corporation.
ARTICLE IX
INDEMNIFICATION
SECTION 1. LIABILITY OF DIRECTORS. No Director shall be personally liable
to the Corporation or any stockholder for monetary damages for breach of
fiduciary duty as a director, except for any matter is respect of which such
director shall be liable under Section 174 of Title 8 of the Delaware Code
(relating to the Delaware General Corporation Law) or any amendment thereto or
successor provision thereto as shall be liable for reason that, in addition to
any and all other requirements for such liability, he: (i) shall have breached
his duty of loyalty to the Corporation or its stockholders; (ii) shall not have
acted in good faith, or in failing to act, shall not have acted in good faith;
(iii) shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law; or (iv) shall have derived
an improper personal benefit. Neither the amendment nor repeal of this Article
IX, nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect to any matter occurring, or any cause of action, suit or
claim that, but for this Article IX would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
SECTION 2. INSURANCE. The Board of Directors may exercise the
Corporation's power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee, fiduciary or agent of the
Corporation, or is or was serving at the request of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted
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<PAGE>
against such person and incurred by such person in any such capacity, or arising
out of such person's status as such, whether or not the Corporation would have
the power to indemnify such person against such liability under this Article X.
SECTION 3 MISCELLANEOUS. The indemnification provided by this Article X
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under these Articles of Incorporation, the
By-laws, agreements, vote of the stockholders or disinterested directors, or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, fiduciary or agent and shall
inure to the benefit of the heirs and personal representatives of such person.
ARTICLE X
ARRANGEMENTS WITH CREDITORS
Whenever a compromise or arrangement is proposed by the Corporation
between it and its creditors or any class of them, and/or between the
Corporation and its stockholders or any class of the, any court of equitable
jurisdiction may, on summary application by the Corporation, or by a majority of
its stockholders, or on the application of any receiver or receivers appointed
for the Corporation, or on the application of trustees in dissolution, order a
meeting of the creditors or class of creditors and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be notified in
such manner as the court decides. If a majority in number representing at least
three-fourths in amount of the creditors or class or creditors, and/or the
holders of the majority of the stock or class of stock of the Corporation, as
the case may be, agree to any compromise or arrangement and/or to any
reorganization of the Corporation, as a consequence of such compromise or
arrangement and/or said reorganization shall, if sanctioned by the court to
which the application has been made, be binding upon all the creditors or class
of creditors and/or on all the stockholders or class of stockholders of the
Corporation, as the case may be, and also on the Corporation.
ARTICLE XII
SHAREHOLDERS' MEETINGS
Stockholders' meetings may be held at such time and place as may be stated
or fixed in accordance with the By-laws. At all stockholders' meetings one-third
of all shares entitled to vote shall constitute a quorum.
ARTICLE XII
AMENDMENT
These Articles of Incorporation may be amended by resolution of the Board
of Directors if no shares have been issued, and if shares have been issued, by
the affirmative vote of the holders of
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<PAGE>
at least a majority of the shares entitled to vote thereon at a meeting duly
called for that purpose, or, when authorized, when such action is ratified by
the written consent of all the stockholders entitled to vote thereon.
ARTICLE XIII
SHAREHOLDER VOTE
Whenever the laws of the State of Delaware require the vote or concurrence
of the holders of two-thirds of the outstanding shares entitled to vote thereon,
with respect to any action to be taken by the stockholders of the Corporation,
such action may be taken by the vote or concurrence of the holders of at least a
majority of the shares entitled to vote thereon.
ARTICLE XIV
DISSOLUTION
SECTION 1. PROCEDURE. The Corporation shall be dissolved upon the
affirmative vote of the holders of at least a majority of the shares entitled to
vote thereon at a meeting duly called for that purpose, or when authorized or
ratified by the written consent of the holders of all of the shares entitled to
vote thereon.
SECTION 2. REVOCATION. The corporation shall revoke voluntary dissolution
proceedings upon the affirmative vote of the holders of at least a majority of
the shares entitled to vote at a meeting duly called for that purpose, or when
authorized or ratified by the written consent of the holders of all of the
shares entitled to vote thereon.
ARTICLE XV
The names and addresses of each Incorporator are:
Ross A. Freitas
135 Canal Street
Staten Island, New York 10305
Carolyn Safer Kenner
135 Canal Street
Staten Island, New York 10305
IN WITNESS WHEREOF, the undersigned officers for and on behalf of the
Corporation have signed this Certificate of Incorporation this 22nd day of May,
1987.
ROSS COSMETICS DISTRIBUTION CENTERS, INC.
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<PAGE>
By:_______________________________________
Ross Freitas, Incorporator
By:_______________________________________
Carolyn Safer Kenner, Incorporator
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<PAGE>
CERTIFICATE OF MERGER
OF
ROSS COSMETICS DISTRIBUTION CENTERS, INC.
(a New York Corporation)
INTO
ROSS COSMETICS DISTRIBUTION CENTERS, INC.
(a Delaware Corporation)
UNDER SECTION 252 OF THE BUSINESS CORPORATION LAW
OF THE STATE OF DELAWARE
The undersigned, Ross Freitas, being the President of Ross Cosmetics
Distribution Centers, Inc., a domestic corporation duly organized and existing
under and by virtue of the laws of the State of Delaware and being, the
President of Ross Cosmetics Distribution Centers, Inc., a foreign corporation
duly organized and existing by virtue of the laws of the State of New York, do
hereby certiy that:
1. The name of each constituent corporation is as follows: (i) Ross
Cosmetics Distribution Centers, Inc. (hereinafter "RCDC"), (a New York
corporation); and (ii) Ross Cosmetics Distribution Centers, Inc. (the "Surviving
Corporation"), (a Delaware corporation).
2. The Agreement of Merger has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with
Section 252.
3. The name of the surviving corporation is Ross Cosmetics Distribution
Centers, Inc., a Delaware corporation.
<PAGE>
4. An Agreement of Merger has been adopted by the Board of Directors of
the Surviving Corporation and thereafter was duly ratified by shareholders of
the Surviving Corporation in accordance with Section 252 of the Delaware
Corporation Law.
5. The authorized capital stock of RCDC is 10,000,000 shares of Common
Stock.
6. The designation and number of outstanding shares of RCDC entitled to
vote on the merger is 2,144,231 shares of Common Stock, $.01 par value per
share.
7. The merger of RCDC and the Surviving Corporation into the Surviving
Corporation was authorized by RCDC at a meeting of shareholders by a vote of the
holders of a minimum of sixty-seven (67%) per cent of all outstanding shares of
RCDC entitled to vote thereon pursuant to New York Business Corporation Law and
Delaware Corporation Law.
8. An executed copy of the Agreement of Merger is on file at the principal
place of business of the Surviving Corporation at 135 Canal Street, Staten
Island, New York 10304, and shall be furnished to any stockholder of a
constituent corporation requesting such without cost.
9. The Certificate of Incorporation of the constituent Delaware
corporation shall be the Certificate of Incorporation of the Surviving
Corporation and shall not be amended or changed.
IN WITNESS WHEREOF, I have executed and subscribed this Certificate of
Merger and do affirm the foregoing statements made herein are true under the
penalties of perjury this 17th day of September, 1987
ROSS COSMETICS DISTRIBUTION
CENTERS, INC., (a New York
Corporation)
ATTEST:
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<PAGE>
By:__________________________ By____________________________
CAROLYN SAFER KENNER, ROSS FREITAS, President
Secretary
ROSS COSMETICS DISTRIBUTION
CENTERS, INC., (a Delaware
Corporation)
ATTEST:
By:_________________________ By:__________________________
CAROLYN SAFER KENNER, ROSS FREITAS, President
Secretary
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<PAGE>
Certificate
for Renewal and Revival of Charter
Ross Cosmetics Distribution Centers, Inc., a corporation organized under the
laws of Delaware, the charter of which was voided for non-payment of taxes, now
desires to procure a restoration, renewal and revival of its charter, and hereby
certifies as follow:
1. The name of this corporation is Ross Cosmetics Distribution Centers,
Inc.
2. Its registered office in the State of Delaware is located at 229 South
State Street, City of Dover, Zip Code 19901, County of Dover, the name and
address of its registered agent is Corporate Filing Services, Inc.
(#9007630).
3. The date of filing of the original Certificate of Incorporation in
Delaware was June 5, 1987.
4. The date when restoration, renewal, and revival of the charter of this
company is to commence is the 28th day of February, same being prior to the date
of the expiration of the charter. This renewal and revival of the charter of
this corporation is to be perpetual.
5. This corporation was duly organized and carried on the business
authorized by its charter until the 1st day of March, 1989 A.D. 19__ at which
time its charter became inoperative and void for non-payment of taxes and this
certificate for renewal and revival is filed by authority of the duly elected
directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312
of the General Corporation Law of the State of Delaware, as amended, providing
for the renewal, extension and restoration of charters, Ross A. Freitas the last
and acting President, and Carolyn S. Kenner, the last and acting Secretary
of Ross Cosmetics Distribution Centers, Inc., have hereunto set their hands to
this certificate this 28th day of May, 1989.
______________________________
Last and Acting President
ATTEST:
______________________________
Last and Acting Secretary
<PAGE>
Certificate of Restoration and Revival of
Certificate of Incorporation
of
Ross Cosmetics Distribution Centers, Inc.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is Ross
Cosmetic Distribution Centers, Inc.
2. The corporation was organized under the provisions of the General
Corporation Law of the State of Delaware. The date of filing of its
original certificate of incorporation with the Secretary of State of the
State of Delaware is June 5, 1987.
3. The address, including the street, city, and county, of the registered
office of the corporation in the State of Delaware and the name of the
registered agent at such address as follows: The Prentice-Hall Corporation
System, Inc., 32 Loockerman Square, Suite L-l00, Dover, Delaware 19901,
County of Kent.
4. The corporation hereby procures a restoration and revival of its
certificate of incorporation, which became inoperative by law on March 1,
1991 for failure to file annual reports and non-payment of taxes payable
to the State of Delaware.
5. The certificate of incorporation of the corporation, which provides for
and will continue to provide for, perpetual duration, shall, upon the
filing of this Certificate of Restoration and Revival of the Certificate
of Incorporation in the Department of State of the State of Delaware, be
restored and revived and shall become fully operative on February 28,
1991.
6. This Certificate of Restoration and Revival of the Certificate of
Incorporation is filed by authority of the duly elected directors and
prescribed by Section 312 of the General Corporation Law of the State of
Delaware.
Signed and attested to on April 8, 1991.
______________________________
Vice President
Attest:
______________________________
Assistant Secretary
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
(ARTICLES OF MERGER)
MERGING
ROSS COSMETICS DISTRIBUTION CENTER S.W., INC.,
A TEXAS CORPORATION
INTO
ROSS COSMETICS DISTRIBUTION CENTERS, INC.
A DELAWARE CORPORATION
Pursuant to Section 253 of the General Corporation Law of the State of Delaware
and Article 5.16 of the Texas Business Corporation Act.
Ross Cosmetics Distribution Centers, Inc. (hereinafter referred to as the
"Corporation"), a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Delaware GCL"), does hereby
certify that:
1. The Corporation was incorporated on June 5, 1987, pursuant to the
Delaware GCL and is existing under such Law. The address of the Corporation's
registered office in Delaware is 32 Loockerman Square, Suite L- 100, Dover,
Delaware 19901.
2. Ross Cosmetics Distribution Center S.W., Inc. ("RCDCSW') was
incorporated on May 10, 1985, pursuant to the Texas Business Corporation Act and
is existing under such Law.
3. RCDCSW has only one class of shares outstanding (Common Stock $ .001
par value per share) and the number of outstanding shares of RCDCSW Common Stock
is 1,000, all of which is owned by the Corporation.
4. The Corporation, by the following resolutions of its Board of
Directors, duly adopted on the 25th day of January 1993, determined to merge
into itself RCDCSW on the conditions set forth in such resolutions
WHEREAS the Corporation lawfully owns all the outstanding stock
of RCDCSW, a corporation organized and existing under the laws of Texas;
and
WHEREAS the Corporation desires to merge into itself RCDCSW, and
to be processed of all the estate, property, rights, privileges and
franchises of said corporation.
NOW, THEREFORE, BE IT RESOLVED, that the Corporation merge into
itself, and it does hereby merge into itself RCDCSW and assumes all of its
liabilities and obligations, and
<PAGE>
FURTHER RESOLVED, that the president or a vice-president, and the
secretary or treasurer of the Corporation be and they hereby are directed
to make and execute, under the corporate seal of the Corporation, a
certificate of ownership setting forth a copy of the resolution, to merge
RCDCSW and assume its liabilities and obligations, and the date of
adoption thereof, and to file the same in the offices of the Secretary of
the State of Delaware and Texas, and a certified copy thereof in the
office ofthe Recorder ofDeeds in Kent County, Delaware, and in such other
places as may be proper; and
FURTHER RESOLVED, that the officers of the Corporation be and they
hereby are authorized and directed to do all acts and things whatsoever,
whether within or without the State of Delaware and Texas, which may be in
any way necessary or proper to effect said merge.
IN WITNESS WHEREOF, the authorized officers of the below named
corporations have herewith set their hands and seals this 25th day of January
1993.
ROSS COSMETICS DISTRIBUTION CENTERS, INC.
ATTEST:
_______________________ By:______________________________________
Secretary
Title:___________________________________
ROSS COSMETICS DISTRIBUTION CENTER S.W., INC.
ATTEST:
_______________________ By:______________________________________
Secretary
Title:___________________________________
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Ross Cosmetics Distribution Centers, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware.
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting duly
held, adopted the following resolution proposing and declaring advisable an
amendment to the certificate of Incorporation of said corporation:
RESOLVED, that the Board recommends to the shareholders of the
Company that, at the Annual Meeting of the Company, they approve the
amendment to the Company's Certificate of Incorporation changing the
Company's corporate name to TRISTAR CORPORATION;
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Sections 242 of the General Corporation Law
of Delaware.
THIRD: Accordingly, Article I of the Company's Certificate of
Incorporation is hereby amended to read as follows:
"The name of the corporation is TRISTAR CORPORATION."
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by Richard P. Rifenburgh, its Chairman of the Board of Directors, and
attested by James M. Shoemaker, Jr., its Secretary, this 16th day of March,
1993.
Ross Cosmetics Distribution Centers, Inc.
By__________________________
Richard P. Rifenburgh
Chairman of the Board of Directors
ATTEST:
By__________________________________
James M. Shoemaker, Jr. Secretary
<PAGE>
CERTIFICATE OF MERGER
OF
EUROSTAR PERFUMES, INC.
(a Texas corporation)
INTO
TRISTAR CORPORATION
(a Delaware corporation)
Pursuant to Section 252(c) of the
State of Delaware General Corporation Law
TRISTAR CORPORATION, a Delaware corporation, hereby certifies as follows:
FIRST: The names of the constituent corporations to the merger are
TRISTAR CORPORATION, whose State of incorporation is Delaware, and Eurostar
Perfumes, Inc., whose State of incorporation is Texas.
SECOND: An Agreement and Plan of Merger has been approved,
adopted, certified, executed and acknowledged by each constituent corporation in
accordance with Section 252 of the General Corporation Law of the State of
Delaware.
THIRD: TRISTAR CORPORATION shall be the surviving corporation.
FOURTH: The Certificate of Incorporation of the surviving
corporation shall be its Certificate of Incorporation, except that paragraph IV
of the Certificate of Incorporation of TRISTAR CORPORATION, as the surviving
corporation, which sets forth the authorized capital stock of TRISTAR
CORPORATION, is hereby amended to read in its entirety as follows:
"ARTICLE IV
CAPITAL STOCK
SECTION 1. CLASSES AND SHARES AUTHORIZED. The authorized capital
stock of the Corporation shall consist of 30,000,000 shares of Common
Stock, $.01 par value per share (hereinafter referred to as either the
"Common Shares" or "Common Stock") and 1,000,000 shares of Preferred
Stock, $.05 par value per share (hereinafter referred to as either the
"Preferred Shares" or "Preferred Stock").
SECTION 2. PREFERRED STOCK. The shares of Preferred Stock shall be
issuable from time to time in one or more series, with respect to each of
which series the Board of Directors shall be authorized, without further
approval from the shareholders of the Corporation, to fix:
<PAGE>
(a) the designation of the series;
(b) the number of shares of each series, which number the Board of
Directors may increase or decrease (but not below the number of shares
thereof then outstanding);
(c) the annual dividend rate of the series;
(d) the dates at which dividends, if declared, shall be payable,
and the dates from which the dividends shall be cumulative;
(e) the redemption rights, if any, for shares of the series;
(f) the terms and amount of any sinklng fimd provided for the
purchase or redemption of shares of the series;
(g) the amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation;
(h) whether the shares of the series shall be convertible into
Common Stock or other securities, and, if so, the conversion price or
prices, any adjustments thereof, and all other terms and conditions upon
which such conversion may be made;
(i) restrictions on the issuance of the shares of the same series
or of any other class or series; and
0)the voting rights, if any, exercisable by the holders of the
shares of such series. Shareholders shall have no preemptive rights."
FIFTH: The executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving corporation; the address of said
principal place of business is as follows:
TRISTAR CORPORATION
12500 San Pedro Avenue, Suite 500
San Antonio, Texas 78216
Attn: Secretary
SIXTH: A copy of the Agreement and Plan of Merger will be
furnished by the surviving corporation, TRISTAR CORPORATION, on request and
without cost, to any stockholder of any constituent corporation.
SEVENTH: The authorized capital stock of the non-surviving
corporation, which is incorporated under the laws of the State of Texas, is
1,000,000 shares of Common Stock, $.001 par value.
EIGHTH: This Certificate of Merger shall become effective at
11:59 P.M Central Daylight Savings Time on August 31, 1995.
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<PAGE>
IN WITNESS WHEREOF, this certificate is hereby executed _____ day
of ___________________ 1995.
TRISTAR CORPORATION
By:
Viren S. Sheth,
President and Chief Executive Officer
ATTEST
________________________
Loren M. Eltiste,
Assistant Secretary
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<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK
OF
TRISTAR CORPORATION
TRISTAR CORPORATION (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the "Law"),
does hereby certify:
A. The Certificate of Incorporation of the Corporation fixes the total
number of shares of all classes of capital stock which the Corporation shall
have the authority to issue at 31,000,000 shares, of which 1,000,000 shares
shall be shares of Preferred Stock, par value $.05 per share ("Preferred
Stock"), and 30,000,000 shares shall be shares of Common Stock, par value $.01
per share ("Common Stock").
B. Pursuant to authority expressly conferred upon the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation, said
Board of Directors (the "Board") has duly authorized and adopted the following
resolution providing for an issue of a series of the Preferred Stock to be
designated "Series A Convertible Preferred Stock":
RESOLVED, that an issue of a series of the Preferred Stock of the
Corporation is hereby provided for, the designation of which shall be "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"). The number of
shares of Series A Preferred Stock shall be 666,529.
FURTHER RESOLVED, that the preferences and relative participating,
optional and other special rights, and qualifications, limitations and
restrictions thereof of the Series A Preferred Stock are hereby fixed as
follows:
SECTION 1. DIVIDENDS
1.1 The holders of shares of outstanding Series A Preferred Stock shall be
entitled to receive in any fiscal year, when and as declared by the Board, out
of assets of the Corporation legally available therefor, distributions (as
defined below) on a pro rata basis in cash at the annual rate of $0.315 per
share (subject to appropriate adjustment for stock splits, stock combinations,
stock dividends, reclassifications and similar other events affecting the Series
A Preferred Stock). Such distributions shall accrue from day to day, whether or
not earned or declared, and shall be cumulative from December 11, 1996, and
shall be payable quarterly or otherwise as the Board may from time to time
determine. Distributions may be declared and paid upon Common Stock and other
shares of the Corporation ranking junior to the Series A Preferred Stock as to
distributions in any fiscal year of the Corporation, only if full cumulative
distributions shall have been paid to or declared upon and set apart for all
shares of Series A Preferred Stock at such annual rate through the date of
distribution. With respect to distributions declared and paid upon Common Stock,
the Series A Preferred Stock shall also be entitled to participate in and
receive
<PAGE>
distributions on an "as-if-converted" basis. For purposes of the distributions
provided for by this SECTION 1, the Corporation's Series B Convertible Preferred
Stock, $.05 par value per share (the "Series B Preferred Stock") shall be
considered equal to, and not senior or junior to, the Series A Preferred Stock
and shall be entitled to distributions with the Series A Preferred Stock in
proportion to the relative amounts of dividends accrued on the Series B
Preferred Stock. Any holder of shares of Series A Preferred Stock whose shares
of Series A Preferred Stock are converted pursuant to SECTION 3 hereof shall,
upon such conversion, forfeit and cease to have any claim to any accrued but
unpaid dividends under this SECTION 1 with respect to such converted shares.
1.2 For purposes of this SECTION 1, unless the context otherwise requires,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock on Common Stock, or the purchase or redemption of shares of the
Corporation (other than redemptions, retirements, repurchases or acquisitions of
capital stock pursuant to terms approved by the Board from employees, advisors,
officers, directors and consultants of, and persons performing services for, the
Corporation or its subsidiaries upon termination of employment or association)
for cash or property, including any such transfer, purchase or redemption by a
subsidiary of the Corporation. Notwithstanding the foregoing, the term
"distribution" shall not be deemed to include any distribution made in
connection with any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
SECTION 2. LIQUIDATION PREFERENCE
2.1 LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of each share of
Series A Preferred Stock and Series B Preferred Stock, which, for purposes of
this SECTION 2, such Series B Preferred Stock shall be considered equal to, and
not senior or junior to the Series A Preferred Stock, shall be entitled, before
any distribution or payment is made upon any share of Common Stock or any other
class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series A Preferred Stock (but after preferential
distributions or payments required to be made on any other securities of the
Corporation senior to the Series A Preferred Stock), to be paid with respect to
each share of Series A Preferred Stock outstanding, an amount per share equal to
the sum of $7.00 per share (subject to appropriate adjustment for stock splits,
stock combinations, stock dividends, reclassifications and similar other events
affecting the Series A Preferred Stock) PLUS any dividends on a share of Series
A Preferred Stock provided for by SECTION 1.1 hereof that are accrued but are
unpaid through the date of distribution to the holders of the outstanding shares
of Series A Preferred Stock in connection with such liquidation, dissolution or
winding up (the sum of such amounts payable with respect to one share of Series
A Preferred Stock being sometimes referred to as the "Series A Liquidation
Preference"). If upon a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Preferred Stock (and all holders of Series B
Preferred Stock and
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<PAGE>
any other preferred stock of the Corporation ranking on parity with the Series A
Preferred Stock in the event of a liquidation, dissolution or winding up of the
Corporation) shall be insufficient to permit payments in full to the holders of
Series A Preferred Stock of the Series A Liquidation Preference, then all assets
of the Corporation available for distribution to stockholders after the
Corporation has made preferential distributions or payments required to be made
on any other securities of the Corporation senior to the Series A Preferred
Stock shall be distributed ratably, in accordance with the liquidation
preference rights of the Series A Preferred Stock and the Series B Preferred
Stock, among the holders of Series A Preferred Stock (and all holders of Series
B Preferred Stock and any other preferred stock of the Corporation ranking on
parity with the Series A Preferred Stock in the event of a liquidation,
dissolution or winding up of the Corporation).
2.2 OTHER DISTRIBUTIONS. Upon any liquidation, dissolution or winding up
of the Corporation, immediately after the holders of Series A Preferred Stock
and any other series of Preferred Stock shall have been paid in full, any
preferred stock liquidation preferences (including the Series A Liquidation
Preference and the liquidation preference for the Series B Preferred Stock) that
they are respectively entitled to, the remaining assets of the Corporation
available for distribution shall be distributed to the holders of Common Stock,
the holders of the Series A Preferred Stock and the Series B Preferred Stock in
proportion to the number of shares of Common Stock deemed to be held on an
"as-if-converted" basis.
2.3 TERMINATION OF SERIES A PREFERRED STOCK. In the event the
distributions provided for by this SECTION 2 are made to the holders of Series A
Preferred Stock upon any liquidation, dissolution or winding up of the
Corporation, the Series A Preferred Stock shall be retired and canceled and the
holders thereof shall cease to have any continuing interest in the Corporation
in their capacity as holders of Series A Preferred Stock.
2.4 NOTICE. Written notice of any liquidation, dissolution or winding up
and any related distribution, stating the payment date and the place where said
payments shall be made, shall be given by mail, postage prepaid, or by telecopy
to non-U.S. residents, not less than 20 days prior to the payment date stated
therein, to the holders of Series A Preferred Stock, such notice to be addressed
to each such holder at its address as shown on the records of the Corporation.
SECTION 3. CONVERSION
The holders of Series A Preferred Stock shall have the following conversion
rights (the "Series A Conversion Rights"):
3.1 RIGHT TO CONVERT, AUTOMATIC CONVERSION
A. Subject to SECTION 3.3 each share of Series A Preferred Stock shall be
convertible at any time before a liquidating or redemption payment is made to
the holder of such Series A
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<PAGE>
Preferred Stock pursuant to SECTION 2 or SECTION 5 hereof, at the option of the
holder thereof, at the office of the Corporation or any transfer agent for such
shares, into the number of fully paid and nonassessable shares of Common Stock
provided for below.
B. Each share of Series A Preferred Stock shall be convertible into one
fully paid and nonassessable share of Common Stock. The Series A Conversion
Price shall be $7.00 per share.
3.2 MECHANICS OF CONVERSION. Before any holder of shares of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificates for the shares of Series A
Preferred Stock, duly endorsed, at the office of the Corporation or of any
transfer agent for such shares (or the holder shall notify the Corporation or
its transfer agent that such certificate has been lost, stolen or destroyed and
execute an agreement in form and substance reasonably satisfactory to the
Corporation to indemnify the Corporation for any loss incurred by the
Corporation in connection therewith), and shall give written notice to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. (A holder of Series A
Preferred Stock may not effect a transfer of shares pursuant to conversion
unless all applicable restrictions on transfer are complied with.) The
Corporation shall, as soon as practicab]e, issue and deliver at such office to
such holder of shares of Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as provided above. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate or certificates (or the
indemnification agreement referred to above) representing the shares of Series A
Preferred Stock being converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. In case the number of shares of Series A Preferred Stock
represented by the certificate or certificates surrendered exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series A Preferred Stock represented by
the certificate or certificates surrendered which are not to be converted.
3.3 CONVERSION PRICE ADJUSTMENTS. The Series A Conversion Price shall be
subject to adjustment from time to time as follows:
A. "Effective Date" with respect to the Series A Preferred Stock means the
date on which the Certificate of Designation establishing the Series A Preferred
Stock (the "Certificate of Designation") is filed in the office of the Secretary
of State of Delaware.
B. In the event the Corporation should at any time or from time to time
after the Effective Date fix a record date for the effectuation of a split or
subdivision of the outstanding
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<PAGE>
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend, distribution, split or subdivision, if no record date
is fixed), the Series A Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
shall be increased in proportion to such increase of outstanding shares of
Common Stock.
C. If the number of shares of Common Stock outstanding at any time after
the Effective Date is decreased by a combination of the outstanding shares of
Common Stock, then, as of the record date of such combination, the Series A
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each such share shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
3.4 OTHER DISTRIBUTIONS. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in SECTION 3.3.B, then, in each such case for
the purpose of this SECTION 3.4, the holders of the Series A Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Series A Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
3.5 RECAPITALIZATION. If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this SECTION 3),
provision shall be made so that the holders of the Series A Preferred Stock
shall thereafter be entitled to receive, upon conversion of the Series A
Preferred Stock, such shares or other securities or property of the Corporation
or otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
with respect to the rights of the holders of the Series A Preferred Stock after
the recapitalization to the end that the provisions of this Section (including
adjustments of the Series A Conversion Price then in effect and the number of
shares issuable upon conversion of shares of Series A Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
-5-
<PAGE>
3.6 NO IMPAIRMENT. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section and in the taking of all such action as may
be necessary or appropriate in order to protect the Series A Conversion Rights
of the holders of the Series A Preferred Stock against impairment; provided that
in any event, any provisions of this Section may be amended with the approval of
holders representing not less than 66-2/3% of the outstanding shares of Series A
Preferred Stock (in addition to all other approvals required by law).
3.7 FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
A. In lieu of issuing fractional shares upon a conversion of Series A
Preferred Stock, the Corporation may (but unless otherwise required by
applicable law shall not be obligated to) pay cash equal to the fraction
multiplied by the then fair market value of a share of Common Stock, as
determined by the Board. Whether or not fractional shares would be issuable upon
such conversion shall be determined on the basis of the total number of shares
of Series A Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
B. Upon the occurrence of each adjustment of the Series A Conversion Price
pursuant to this Section, the Corporation, at its expense, shall promptly
compute such adjustment in accordance with the terms hereof and prepare and
furnish to each holder of shares of Series A Preferred Stock a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based.
3.8 NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of its stockholders for the purpose of determining stockholders who
are entitled to approve or disapprove of any consolidation or merger to which
the Corporation is a party or who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of any class or any other securities or property,
or to receive any other right, the Corporation shall mail to each holder of
shares of Series A Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, right, merger or consolidation
and the amount, character and terms of such dividend, distribution, right,
merger or consolidation.
3.9 RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock; and if at any time the
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<PAGE>
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Series A Preferred
Stock, the Corporation shall take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
Before taking any action which would cause an adjustment reducing the Series A
Conversion Price below the par value (if any) of the shares of Common Stock
deliverable upon conversion of the shares of Series A Preferred Stock, the
Corporation shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of Common Stock at such adjusted
Series A Conversion Price.
3.10 TRANSFER TAXES, ETC. The Corporation shall pay any and all
documentary stamp, issue or transfer taxes, and any similar taxes payable in
respect of the issue or delivery of shares of Common Stock upon conversions of
shares of Series A Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock in a
name other than that of the holder of the shares of Series A Preferred Stock to
be converted and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
3.11 NOTICES. Any notice required by the provisions of this Section to be
given to the holders of shares of Series A Preferred Stock shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, registered
or certified, and addressed to each holder of record at the address of such
holder appearing on the stock transfer books of the Corporation.
3.12 TREASURY SHARES. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Corporation, and the disposition by the Corporation of any such shares shall
be considered an issue or sale of Common Stock for purposes of this SECTION 3
and SECTION 4.
SECTION 4. VOTING RIGHTS
4.1 GENERAL. Except as provided in SECTION 4.2 and elsewhere in this
Certificate of Designation, in the Certificate of Incorporation of the
Corporation, or in one or more other Certificates of Designations of the
Corporation, and except as otherwise required by law, the holders of the Series
A Preferred Stock shall have no voting rights.
4.2. PROTECTIVE PROVISIONS. Beginning as of the date shares of Series A
Preferred Stock are first issued and outstanding, for so long as there remain
issued and outstanding any shares of Series A Preferred Stock, the Corporation
shall not, without the affirmative vote or
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<PAGE>
consent of holders representing at least 66-2/3% of the outstanding shares of
Series A Preferred Stock voting together as a single class, and in addition to
any vote otherwise required by the Law:
A. Amend, alter or repeal the rights, preferences, privileges, or
restrictions of such Series A Preferred Stock or effect any reclassification of
the Series A Preferred Stock.
B. Amend, alter or repeal any provision of, or add any provision to, the
Certificate of Incorporation or By-laws of the Corporation if such change could
reasonably be expected to adversely affect the holders of the Series A Preferred
Stock in any respect, provided the immediately foregoing shall not prohibit the
adoption and filing of one or more additional Certificates of Designations for
Preferred Stock not otherwise prohibited by SECTION 4.2.C.
C. Create, authorize, issue or sell (including but not limited to by way
of reclassification or in connection with the creation of any convertible
indebtedness) any shares of any other class or series of shares (other than the
Series B Preferred Stock) providing for (i) dividends or other distributions on
a preferred basis to the Series A Preferred Stock, (ii) redemption rights or
(iii) liquidation privileges senior to, or on a parity with, the Series A
Preferred Stock, or senior to the Common Stock in excess of the sum of the
original purchase price thereof plus accrued dividends.
SECTION 5. REDEMPTION
5.1 On or after the Effective Date, the Corporation, at the option of the
Board, may redeem all or any of the shares of Series A Preferred Stock then
outstanding, upon notice duly given as hereinafter provided, by paying in cash
for each share of Series A Preferred Stock so redeemed an amount equal to the
Series A Liquidation Preference.
5.2 Notice of each redemption of shares of Series A Preferred Stock shall
be given by mailing such notice not less than 30 nor more than 50 days before
the date fixed for such redemption to each holder of record of shares of Series
A Preferred Stock to be so redeemed, and shall be deemed sufficiently given if
the Corporation shall cause a copy thereof to be mailed to such holders of
record at their respective addresses, as the same shall appear on the books of
the Corporation, by mail, postage prepaid, registered or certified; provided,
however, that neither the failure to mail such notice nor the existence of any
defect in the notice to one or more of such holders shall affect the validity of
such redemption as to the holders to whom proper notice was mailed.
If any such notice of redemption shall have been duly given and it, on or
before the redemption date specified therein, all funds necessary for such
redemption shall be irrevocably deposited or set aside and continue to be
available for payment on or after the redemption date upon surrender of the
certificates for the shares of the Series A Preferred Stock so called for
redemption, then, notwithstanding that any certificate for shares so called for
redemption shall not
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<PAGE>
have been surrendered to the Corporation for cancellation, from and after the
redemption date, all shares so called for redemption shall no longer be deemed
to be outstanding, and all rights with respect to such shares shall forthwith
cease and terminate, except only for the right for the holders of the
certificates therefore, upon surrender thereof, to receive the Series A
Liquidation Preference out of the funds so deposited, without interest. Any
interest accrued on such funds shall be paid to the Corporation from time to
time.
5.3 On or before the date set for redemption in the notice sent to the
holders of the Series A Preferred Stock pursuant to SECTION 5.2 above, the
holder of such Series A Preferred Stock may, at such holder's option, exercise
the conversion rights contained in SECTION 3 herein. The written notice of
conversion required in SECTION 3.2 must be received in the office of the
Corporation prior to the redemption date set in the redemption notice mailed by
the Corporation pursuant to SECTION 5.2, in order to prevent the shares from
being redeemed pursuant to this SECTION 5.
SECTION 6. REISSUANCES
6.1 NO REISSUANCE OF SERIES A PREFERRED STOCK. No shares of Series A
Preferred Stock which have been converted into Common Stock or otherwise cease
to be outstanding shall be reissued by the Corporation; provided, however, that
each such share, after being retired and canceled, shall be restored to the
status of an authorized but unissued share of Preferred Stock without
designation as to series and may thereafter be issued as a share of Preferred
Stock not designated as Series A Preferred Stock.
IN WITNESS WHEREOF I have hereto set my hand this 1st day of April, 1997.
TRISTAR CORPORATION
By:___________________________________
Loren Eltiste
Vice President, Chief Financial Officer
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CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES B
CONVERTIBLE PREFERRED STOCK
OF
TRISTAR CORPORATION
TRISTAR CORPORATION (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the "Law"),
does hereby certify:
A. The Certificate of Incorporation of the Corporation fixes the total
number of shares of all classes of capital stock which the Corporation shall
have the authority to issue at 31,000,000 shares, of which 1,000,000 shares
shall be shares of Preferred Stock, par value $.05 per share ("Preferred
Stock"), and 30,000,000 shares shall be shares of Common Stock, par value $.01
per share ("Common Stock").
B. Pursuant to authority expressly conferred upon the Board of Directors
of the Corporation by the Certificate of Incorporation of the Corporation, said
Board of Directors (the "Board") has duly authorized and adopted the following
resolution providing for an issue of a series of the Preferred Stock to be
designated "Series B Convertible Preferred Stock":
RESOLVED, that an issue of a series of the Preferred Stock of the
Corporation is hereby provided for, the designation of which shall be "Series B
Convertible Preferred Stock" (the "Series B Preferred Stock"). The number of
shares of Series B Preferred Stock shall be 120,690.
FURTHER RESOLVED, that the preferences and relative participating,
optional and other special rights, and qualifications, limitations and
restrictions thereof, of the Series B Preferred Stock are hereby fixed as
follows:
SECTION 1. DIVIDENDS
1.1 The holders of shares of outstanding Series B Preferred Stock shall be
entitled to receive in any fiscal year, when and as declared by the Board, out
of assets of the Corporation legally available therefor, distributions (as
defined below) on a pro rata basis in cash at the annual rate of $2.03 per share
(subject to appropriate adjustment for stock splits, stock combinations, stock
dividends, reclassifications and similar other events affecting the Series B
Preferred Stock). Such distributions shall accrue from day to day, whether or
not earned or declared, and shall be cumulative from February 21, 1997, and
shall be payable quarterly or otherwise as the Board may from time to time
determine. Distributions may be declared and paid upon Common Stock and other
shares of the Corporation ranking junior to the Series B Preferred Stock as to
distributions in any fiscal year of the Corporation, bnly if full cumulative
distributions shall have been paid to or declared upon and set apart for all
shares of Series B Preferred Stock at such annual rate through the date of
distribution. With respect to distributions declared and paid upon Common Stock,
the Series B Preferred Stock shall also be entitled to participate in and
receive distributions on an "as-
<PAGE>
if-converted" basis. For purposes of the distributions provided for by this
Section 1, the Corporation's Series A Convertible Preferred Stock, $.05 par
value per share (the "Series A Preferred Stock") shall be considered equal to,
and not senior or junior to, the Series B Preferred Stock and shall be entitled
to distributions with the Series B Preferred Stock in proportion to the relative
amounts of dividends accrued on the Series A Preferred Stock. Any holder of
shares of Series B Preferred Stock whose shares of Series B Preferred Stock are
converted pursuant to Section 3 hereof shall, upon such conversion, forfeit and
cease to have any claim to any accrued but unpaid dividends under this Section 1
with respect to such converted shares.
1.2 For purposes of this Section 1, unless the context otherwise requires,
"distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock on Common Stock, or the purchase or redemption of shares of the
Corporation (other than redemptions, retirements, repurchases or acquisitions of
capital stock pursuant to terms approved by the Board from employees, advisors,
officers, directors and consultants of; and persons performing services for, the
Corporation or its subsidiaries upon termination of employment or association)
for cash or property, including any such transfer, purchase or redemption by a
subsidiary of the Corporation. Notwithstanding the foregoing, the term
"distribution" shall not be deemed to include any distribution made in
connection with any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
SECTION 2. LIQUIDATION PREFERENCE
2.1 LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of each share of
Series B Preferred Stock and Series A Preferred Stock, which, for purposes of
this SECTION 2, such Series A Preferred Stock shall be considered equal to, and
not senior or junior to the Series B Preferred Stock, shall be entitled, before
any distribution or payment is made upon any share of Common Stock or any other
class or series of the Corporation's capital stock ranking junior as to
liquidation rights to the Series B Preferred Stock (but after preferential
distributions or payments required to be made on any other securities of the
Corporation senior to the Series B Preferred Stock), to be paid with respect to
each share of Series B Preferred Stock outstanding, an amount per share equal to
the sum of $29.00 per share (subject to appropriate adjustment for stock splits,
stock combinations, stock dividends, reclassifications and similar other events
affecting the Series B Preferred Stock) Plus any dividends on a share of Series
B Preferred Stock provided for by Section 1.1 hereof that are accrued but are
unpaid through the date of distribution to the holders of the outstanding shares
of Series B Preferred Stock in connection with such liquidation, dissolution or
winding up (the sum of such amounts payable with respect to one share of Series
B Preferred Stock being sometimes referred to as the "Series B Liquidation
Preference"). If upon a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series B Preferred Stock (and all holders of Series A
Preferred Stock and any other preferred stock of the Corporation ranking on
parity with the Series B Preferred Stock
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<PAGE>
in the event of a liquidation, dissolution or winding up of the Corporation)
shall be insufficient to permit payments in full to the holders of Series B
Preferred Stock of the Series B Liquidation Preference, then all assets of the
Corporation available for distribution to stockholders after the Corporation has
made preferential distributions or payments required to be made on any other
securities of the Corporation senior to the Series B Preferred Stock shall be
distributed ratably, in accordance with the liquidation preference rights of the
Series B Preferred Stock and the Series A Preferred Stock, among the holders of
Series B Preferred Stock (and all holders of Series A Preferred Stock and any
other preferred stock of the Corporation ranking on parity with the Series B
Preferred Stock in the event of a liquidation, dissolution or winding up of the
Corporation).
2.2 OTHER DISTRIBUTIONS. Upon any liquidation, dissolution or winding up
of the Corporation, immediately after the holders of Series B Preferred Stock
and any other series of Preferred Stock shall have been paid in full, any
preferred stock liquidation preferences (including the Series B Liquidation
Preference and the liquidation preference for the Series A Preferred Stock) that
they are respectively entitled to, the remaining assets of the Corporation
available for distribution shall be distributed to the holders of Common Stock,
the holders of the Series B Preferred Stock and the Series A Preferred Stock in
proportion to the number of shares of Common Stock deemed to be held on an
"as-if-converted" basis.
2.3 TERMINATION OF SERIES B PREFERRED STOCK. In the event the
distributions provided for by this Section 2 are made to the holders of Series B
Preferred Stock upon any liquidation, dissolution or winding up of the
Corporation, the Series B Preferred Stock shall be retired and canceled and the
holders thereof shall cease to have any continuing interest in the Corporation
in their capacity as holders of Series B Preferred Stock.
2.4 NOTICE. Written notice of any liquidation, dissolution or winding up
and any related distribution, stating the payment date and the place where said
payments shall be made, shall be given by mail, postage prepaid, or by telecopy
to non-U.S. residents, not less than 20 days prior to the payment date stated
therein, to the holders of Series B Preferred Stock, such notice to be addressed
to each such holder at its address as shown on the records of the Corporation.
SECTION 3. CONVERSION
The holders of Series B Preferred Stock shall have the following conversion
rights (the "Series B Conversion Rights"):
3.1 RIGHT TO CONVERT; AUTOMATIC CONVERSION
A. Subject to Section 3.3, each share of Series B Preferred Stock shall be
convertible at any time before a liquidating or redemption payment is made to
the holder of such Series B Preferred Stock pursuant to Section 2 or Section 5
hereof; at the option of the holder thereof; at
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the office of the Corporation or any transfer agent for such shares, into the
number of fully paid and nonassessable shares of Common Stock provided for
below.
B. Each share of Series B Preferred Stock shall be convertible into four
fully paid and nonassessable shares of Common Stock. The Series B Conversion
Price shall be $7.25 per share of Common Stock.
3.2 MECHANICS OF CONVERSION. Before any holder of shares of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificates for the shares of Series B
Preferred Stock, duly endorsed, at the office of the Corporation or of any
transfer agent for such shares (or the holder shall notify the Corporation or
its transfer agent that such certificate has been lost, stolen or destroyed and
execute an agreement in form and substance reasonably satisfactory to the
Corporation to indemnify the Corporation for any loss incurred by the
Corporation in connection therewith), and shall give written notice to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. (A holder of Series B
Preferred Stock may not effect a transfer of shares pursuant to conversion
unless all applicable restrictions on transfer are complied with.) The
Corporation shall, as soon as practicable, issue and deliver at such office to
such holder of shares of Series B Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as provided above. Such conversion
shall be deemed to have been made immediately prior to the close of business on
the date of such surrender of the certificate or certificates (or the
indemnification agreement referred to above) representing the shares of Series B
Preferred Stock being converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date. In case the number of shares of Series B Preferred Stock
represented by the certificate or certificates surrendered exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series B Preferred Stock represented by
the certificate or certificates surrendered which are not to be converted.
3.3 CONVERSION PRICE ADJUSTMENTS. The Series B Conversion Price shall be
subject to adjustment from time to time as follows:
A. "Effective Date" with respect to the Series B Preferred Stock means the
date on which the Certificate of Designation establishing the Series B Preferred
Stock (the "Certificate of Designation") is filed in the office of the Secretary
of State of Delaware.
B. In the event the Corporation should at any time or from time to time
after the Effective Date fix a record date for the effectuation of a split or
subdivision of the outstanding
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shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive, directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend, distribution, split or subdivision, if no record date
is fixed), the Series B Conversion Price shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
shall be increased in proportion to such increase of outstanding shares of
Common Stock.
C. If the number of shares of Common Stock outstanding at any time after
the Effective Date is decreased by a combination of the outstanding shares of
Common Stock, then, as of the record date of such combination, the Series B
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each such share shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
3.4 OTHER DISTRIBUTIONS. In the event the Corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends) or
options or rights not referred to in SECTION 3.3.B, then, in each such case for
the purpose of this Section 3.4, the holders of the Series B Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the Corporation
into which their shares of Series B Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of the
Corporation entitled to receive such distribution.
3.5 RECAPITALIZATION. If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this SECTION 3),
provision shall be made so that the holders of the Series B Preferred Stock
shall thereafter be entitled to receive, upon conversion of the Series B
Preferred Stock, such shares or other securities or property of the Corporation
or otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
with respect to the rights of the holders of the Series B Preferred Stock after
the recapitalization to the end that the provisions of this Section (including
adjustments of the Series B Conversion Price then in effect and the number of
shares issuable upon conversion of shares of Series B Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
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<PAGE>
3.6 NO IMPAIRMENT. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section and in the taking of all such action as may
be necessary or appropriate in order to protect the Series B Conversion Rights
of the holders of the Series B Preferred Stock against impairment; provided that
in any event, any provisions of this Section may be amended with the approval of
holders representing not less than 66-2/3% of the outstanding shares of Series B
Preferred Stock (in addition to all other approvals required by law).
3.7 FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
A. In lieu of issuing fractional shares upon a conversion of Series B
Preferred Stock, the Corporation may (but unless otherwise required by
applicable law shall not be obligated to) pay cash equal to the fraction
multiplied by the then fair market value of a share of Common Stock, as
determined by the Board. Whether or not fractional shares would be issuable upon
such conversion shall be determined on the basis of the total number of shares
of Series B Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
B. Upon the occurrence of each adjustment of the Series B Conversion Price
pursuant to this Section, the Corporation, at its expense, shall promptly
compute such adjustment in accordance with the terms hereof and prepare and
furnish to each holder of shares of Series B Preferred Stock a certificate
setting forth such adjustment and showing in detail the facts upon which such
adjustment is based.
3.8 NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of its stockholders for the purpose of determining stockholders who
are entitled to approve or disapprove of any consolidation or merger to which
the Corporation is a party or who are entitled to receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of any class or any other securities or property,
or to receive any other right, the Corporation shall mail to each holder of
shares of Series B Preferred Stock, at least 20 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution, right, merger or consolidation
and the amount, character and terms of such dividend, distribution, right,
merger or consolidation.
3.9 RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of Series B Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock; and if at any time the
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number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of Series B Preferred
Stock, the Corporation shall take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
Before taking any action which would cause an adjustment reducing the Series B
Conversion Price below the par value (if any) of the shares of Common Stock
deliverable upon conversion of the shares of Series B Preferred Stock, the
Corporation shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of Common Stock at such adjusted
Series B Conversion Price.
3.10 TRANSFER TAXES, ETC. The Corporation shall pay any and all
documentary stamp, issue or transfer taxes, and any similar taxes payable in
respect of the issue or delivery of shares of Common Stock upon conversions of
shares of Series B Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock in a
name other than that of the holder of the shares of Series B Preferred Stock to
be converted and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
3.11 NOTICES. Any notice required by the provisions of this Section to be
given to the holders of shares of Series B Preferred Stock shall be deemed to be
delivered when deposited in the United States mail, postage prepaid, registered
or certified, and addressed to each holder of record at the address of such
holder appearing on the stock transfer books of the Corporation.
3.12 TREASURY SHARES. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Corporation, and the disposition by the Corporation of any such shares shall
be considered an issue or sale of Common Stock for purposes of this Section 3
and Section 4.
SECTION 4. VOTING RIGHTS
4.1 GENERAL. Except as provided in SECTION 4.2 and elsewhere in this
Certificate of Designation, in the Certificate of Incorporation of the
Corporation, or in one or more other Certificates of Designations of the
Corporation, and except as otherwise required by law, the holders of the Series
B Preferred Stock shall have no voting rights.
4.2. PROTECTIVE PROVISIONS. Beginning as of the date shares of Series B
Preferred Stock are first issued and outstanding, for so long as there remain
issued and outstanding any shares of Series B Preferred Stock, the Corporation
shall not, without the affirmative vote or consent of
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holders representing at least 66-2/3% of the outstanding shares of Series B
Preferred Stock voting together as a single class, and in addition to any vote
otherwise required by the Law:
A. Amend, alter or repeal the rights, preferences, privileges, or
restrictions of such Series B Preferred Stock or effect any reclassification of
the Series B Preferred Stock.
B. Amend, alter or repeal any provision of; or add any provision to, the
Certificate of Incorporation or By-laws of the Corporation if such change could
reasonably be expected to adversely affect the holders of the Series B Preferred
Stock in any respect, provided the immediately foregoing shall not prohibit the
adoption and filing of one or more additional Certificates of Designations for
Preferred Stock not otherwise prohibited by Section 4.2.C.
C. Create, authorize, issue or sell (including but not limited to by way
of reclassification or in connection with the creation of any convertible
indebtedness) any shares of any other class or series of shares (other than the
Series A Preferred Stock) providing for (i) dividends or other distributions on
a preferred basis to the Series B Preferred Stock, (ii) redemption rights or
(iii) liquidation privileges senior to, or on a parity with, the Series B
Preferred Stock, or senior to the Common Stock in excess of the sum of the
original purchase price thereof plus accrued dividends.
SECTION 5. REDEMPTION
5.1 On or after the Effective Date, the Corporation, at the option of the
Board, may redeem all or any of the shares of Series B Preferred Stock then
outstanding, upon notice duly given as hereinafter provided, by paying in cash
for each share of Series B Preferred Stock so redeemed an amount equal to the
Series B Liquidation Preference.
5.2 Notice of each redemption of shares of Series B Preferred Stock shall
be given by mailing such notice not less than 30 nor more than 50 days before
the date fixed for such redemption to each holder of record of shares of Series
B Preferred Stock to be so redeemed, and shall be deemed sufficiently given if
the Corporation shall cause a copy thereof to be mailed to such holders of
record at their respective addresses, as the same shall appear on the books of
the Corporation, by mail, postage prepaid, registered or certified; provided,
however, that neither the failure to mail such notice nor the existence of any
defect in the notice to one or more of such holders shall affect the validity of
such redemption as to the holders to whom proper notice was mailed.
If any such notice of redemption shall have been duly given and if; on or
before the redemption date specified therein, all funds necessary for such
redemption shall be irrevocably deposited or set aside and continue to be
available for payment on or after the redemption date upon surrender of the
certificates for the shares of the Series B Preferred Stock so called for
redemption, then, notwithstanding that any certificate for shares so called for
redemption shall not
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<PAGE>
have been surrendered to the Corporation for cancellation, from and after the
redemption date, all shares so called for redemption shall no longer be deemed
to be outstanding, and all rights with respect to such shares shall forthwith
cease and terminate, except only for the right for the holders of the
certificates therefore, upon surrender thereof, to receive the Series B
Liquidation Preference out of the funds so deposited, without interest. Any
interest accrued on such funds shall be paid to the Corporation from time to
time.
5.3 On or before the date set for redemption in the notice sent to the
holders of the Series B Preferred Stock pursuant to Section 5.2 above, the
holder of such Series B Preferred Stock may, at such holder's option, exercise
the conversion rights contained in Section 3 herein. The written notice of
conversion required in Section 3.2 must be received in the office of the
Corporation prior to the redemption date set in the redemption notice mailed by
the Corporation pursuant to Section 5.2, in order to prevent the shares from
being redeemed pursuant to this Section 5.
SECTION 6. REISSUANCES
6.1 NO REISSUANCE OF SERIES B PREFERRED STOCK. No shares of Series B
Preferred Stock which have been converted into Common Stock or otherwise cease
to be outstanding shall be reissued by the Corporation; provided, however, that
each such share, after being retired and canceled, shall be restored to the
status of an authorized but unissued share of Preferred Stock without
designation as to series and may thereafter be issued as a share of Preferred
Stock not designated as Series B Preferred Stock.
IN WITNESS WHEREOF, I have hereto set my hand this 1st day of April, 1997.
TRISTAR CORPORATION
By:______________________________
Loren Eltiste
Vice President, Chief Financial
Officer
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TRISTAR CORPORATION
Certificate of Designation of
Series C Senior Convertible Preferred Stock
Setting Forth the Powers, Preferences,
Rights, Qualifications, Limitations And
Restrictions of Such Series of Preferred Stock
Pursuant to Section 151 of the Delaware General Corporation Law, Tristar
Corporation, a Delaware corporation (the "Company"), does hereby certify that:
Pursuant to the authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation of the Company, the Board of Directors of
the Company on the 25th and 26th of August, 1998, adopted the following
resolution creating a series of preferred stock designated as Series C Senior
Convertible Preferred Stock, and such resolution has not been modified and is in
full force and effect on the date hereof:
RESOLVED that, (pursuant to the affirmative vote of a majority of stockholders,
and) pursuant to the authority vested in the Board of Directors of the Company
in accordance with the provisions of the Certificate of Incorporation, a series
of the class of authorized preferred stock, par value $0.05 per share, of the
Company is hereby created and that the designation and number of shares thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are as follows:
SECTION 1. DESIGNATION. NUMBER AND RANK.
(a) The shares of the series shall be designated as "Series C Senior Convertible
Preferred Stock" (the "SERIES C PREFERRED STOCK"). The number of shares
initially constituting the Series C Preferred Stock shall be *two hundred
thousand* (*200,000*).
(b) The Series C Preferred Stock shall, with respect to dividends and
distributions and with respect to rights on liquidation, dissolution and winding
up, rank (i) higher and prior to the Junior Stock, (ii) on a parity with all
shares of Parity Stock and (iii) shall not be junior, lower or subsequent to any
shares or class of stock of the Company.
<PAGE>
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
(a) In preference to the holders of shares of Common Stock and of any shares of
other capital stock of the Company other than Parity Stock and Senior Stock, the
holders of shares of Series C Preferred Stock shall automatically and
immediately be entitled to receive, Out of the assets of the Company legally
available therefor, cumulative cash dividends equal to $4.80 per share annually.
Such dividends shall accrue and be payable in immediately available funds in
four (4) equal quarterly installments of $1.20 per share on the first (1st)
Business Day of April, July, October and January in each year (each such date
being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE") commencing on
the first Quarterly Dividend Payment Date occurring after the Issue Date,
PROVIDED HOWEVER that with respect to the first Quarterly Dividend Payment Date
to occur with respect to any shares of Series C Preferred Stock, the holders of
such shares of Series C Preferred Stock shall be entitled to receive the
dividend payable upon such shares on A PER DIEM basis, out of the assets of the
Company legally available therefor, a cumulative cash dividend in respect of
each such share of Series C Preferred Stock.
(b) If as of any Quarterly Dividend Payment Date there is a Dividend Arrearage
(as hereinafter defined), an additional dividend (the "ADDITIONAL DIVIDEND")
shall accrue on each share of the Series C Preferred Stock for the period from
such Quarterly Dividend Payment Date through the earlier of (i) the date on
which such Dividend Arrearage is paid in full and (ii) the next succeeding
Quarterly Dividend Payment Date, in an amount equal to the product of (x) the
Dividend Rate (calculated for such period in accordance with Section 2(a)) and
(y) the amount of such Dividend Arrearage as of such Quarterly Dividend Payment
Date. For purposes of this Section 2(b), "DIVIDEND ARREARAGE" shall mean, with
respect to each share of Series C Preferred Stock, as of any Quarterly Dividend
Payment Date, the excess, if any of(x) the sum of all dividends theretofore
accrued on such share in accordance with Section 2(a) hereof (including those
accrued as of and including such Quarterly Dividend Payment Date) plus all
Additional Dividends, if any, theretofore accrued on such share in accordance
with this Section 2(b) (including those accrued as of and including such
Quarterly Dividend Payment Date), over (y) all dividends actually paid with
respect to such share on or before such Quarterly Dividend Payment Date
(including stock dividends paid pursuant to Section 2(c), valuing each share of
Series C Preferred Stock paid as a dividend on the Series C Preferred Stock as
set forth in section 2(c).
(c) I. At the Company's option, but with notice to the holders of the
issued and outstanding shares of Series C Preferred Stock, the cumulative
dividends payable pursuant to Sections 2(a) and (b) may be paid, in whole or in
part, by the issuance of additional shares of Series C Preferred Stock upon the
same terms as cash dividends payable pursuant to
<PAGE>
Sections 2(a) and (b); PROVIDED that, such dividends shall (i) equal $7.80 per
share annually, (ii) dividends, if paid in shares of Series C Preferred Stock,
shall be paid at a valuation rate equal to the closing price of the Common Stock
as published in the WALL STREET JOURNAL for such class of stock on the Quarterly
Dividend Payment Date for which the dividend is due (the "WSJ PRICE/COMMON
STOCK") and the number of shares of Preferred Stock to be issued shall be
calculated by the following formula: (A) 100,000 shares of Series C Preferred
Stock divided by the aggregate number of shares of (B) Common Stock that shall
be issued upon conversion of each share of Preferred Stock, which fraction shall
then be multiplied by the fraction of (C) the quarterly amount of the
Alternative Dividend divided by (D) the WSJ Price/Common Share; and (iii) accrue
and be payable by the immediate delivery at the address of each such holder as
shown in the stock books of the Company of (x) a certificate or certificates
representing the shares of Series C Preferred Stock to which such holder is
entitled and (y) a check made payable to such holder for an amount corresponding
to any fractional interest in a share of Series C Preferred Stock as provided in
this Section 2(c).
(c) II. With respect to the first Quarterly Dividend Payment Date to occur
with respect to any shares of Series C Preferred Stock upon which a stock
dividend shall be paid pursuant to this Section 2(c), the holders of such shares
of Series C Preferred Stock shall be entitled to receive as the dividend payable
upon such shares, out of the assets of the Company legally available therefor, a
cumulative stock dividend in accordance with this Section 2(c) in respect of
each such share of Series C Preferred Stock equal to the number of shares as
determined by Section 2(c) multiplied by a fraction (not to exceed one), the
numerator of which is the number of days from (and including) the Issue Date
with respect to such shares to (but excluding) such Quarterly Dividend Payment
Date, and the denominator of which is ninety (90).
(d) The Company shall pay all
documentary, stamp, transfer or other transactional taxes attributable to the
issuance or delivery of shares of Series C Preferred Stock pursuant to this
Section 2. All shares of Series C Preferred Stock issued and delivered pursuant
to this Section 2 will upon issuance by the Company and delivery be duly
authorized and issued and fully paid and non-assessable and not subject to any
purchase option or right of first refusal or preemptive, subscription or similar
rights.
(e) Dividends payable pursuant to Sections 2(a), (b) and (c) above with
respect to any shares shall begin to accrue and be cumulative from the Issue
Date, and shall accrue on a daily basis, in each case whether or not declared.
If the Company makes a dividend payment on the shares of Series C Preferred
Stock in an amount that is less than the total amount of accrued and payable
dividends on such shares at such time, then the dividends paid shall be
allocated PRO RATA among all such shares of Series C Preferred Stock at the time
outstanding on a share-by-share basis.
(f) Accumulated but unpaid dividends for any past quarterly dividend
<PAGE>
periods may be declared and paid at any time, without reference to any regular
Quarterly Dividend Payment Date. The Board of Directors may fix a record date
for the determination of holders of shares of Series C Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon pursuant to
this Section 2, which record date shall be not more than 20 days nor less than 5
days prior to the date fixed herein for the payment thereof.
(g) No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on the shares of the Series A or
Series B Preferred Stock or any other preferred stock, unless the dividends due
under the Series C Preferred Stock have been paid and are current.
SECTION 3. VOTING RIGHTS.
(a) In addition to any voting rights provided by law, each share of Series C
Preferred Stock shall be entitled to the number of votes as if such shares of
Series C Preferred Stock had been converted into shares of Common Stock on the
appropriate record date.
(b) The shares of Senior Preferred Stock and the shares of Common Stock (and any
other shares of capital stock of the Company at the time entitled thereto) shall
vote together as one class on all matters submitted to a vote of stockholders of
the Company.
SECTION 4. CONVERSION.
The conversion shall be $5.4375 per Share of Common Stock (the "CONVERSION
PRICE"). Each share of Preferred Stock shall be convertible at the option of the
holder into eleven and 34483/1,000,000ths (11.034483) shares of the Common Stock
of the Company, $.01 par value (the "COMMON STOCK") at any time and from
time-to-time. The Conversion Price and number of shares of Common Stock issuable
upon conversion of the Preferred Stock will be subject to adjustment as set
forth in more detail in Section 4 hereof.
Shares of Series C Preferred Stock may, at the option of the holder thereof, be
converted into shares of Common Stock, on the terms and conditions set forth in
this Section 4, at any time and from time to time.
Subject to the provisions for adjustment hereinafter set forth, each share of
Series C Preferred Stock shall be convertible in the manner hereinafter set
forth into eleven and 34483/l,000,000ths (11.034483) fully paid and
nonassessable shares of Common Stock.
(a) ADJUSTMENTS. The number of shares of Common Stock into which each share of
Series C Preferred Stock is convertible, and the number of
<PAGE>
votes to which the holder of a share of Series C Preferred Stock is entitled
pursuant to Section 3, shall be subject to adjustment from time to time as
follows:
(i) DIVIDENDS AND DISTRIBUTIONS. In case the Company shall at any time or
from time to time declare a dividend, or make a distribution, on the
outstanding shares of Common Stock in shares of Common Stock or subdivide
or reclassify the outstanding shares of Common Stock into a larger number
of shares or combine or reclassify the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then, and in each such
case:
(A) the number of shares of Common Stock into which each share of Series C
Preferred Stock is convertible shall be adjusted so that the holder of
each share thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock which the holder of a share
of Series C Preferred Stock would have been entitled to receive after the
happening of any of the events described above had such share been
converted immediately prior to the happening of such event or the record
date therefor, whichever is earlier;
(B) the number of votes to which a holder of a share of Series C Preferred
Stock is entitled pursuant to Section 3 shall be adjusted so that, after
the happening of any of the events described above, such holder shall be
entitled to a number of votes equal to (I) the number of votes to which
such holder was entitled pursuant to Section 3 immediately PRIOR to such
happening multiplied by (II) a fraction, the numerator of which is the
number of shares of Common Stock into which one share of Series C
Preferred Stock was convertible immediately AFTER such happening and the
denominator of which is the number of shares of Common Stock into which
one share of Series C Preferred Stock was convertible immediately prior to
such happening; and
(C) an adjustment made pursuant to this clause (i) shall become effective
(I) in the case of any such dividend or distribution, (1) immediately
after the close of business on the record date for the determination of
holders of shares of Common Stock entitled to receive such dividend or
distribution, for purposes of subclause (A), and (2) immediately after the
close of business on the date of payment of such dividend or distribution,
for purposes of subclause (B), or (II) in the case of any such
subdivision, reclassification or combination, at the close of business on
the day upon which such corporate action becomes effective, for purposes
of both subclause (A) and subclause (B).
<PAGE>
(ii) ISSUANCE BELOW FAIR VALUE. In case the Company shall issue shares of
Common Stock (or rights, options or warrants or other securities
convertible into or exchangeable for shares of Common Stock) at a price
per share (or having an exercise or conversion price per share, together
with any consideration paid to the Company to purchase such option,
warrant or other convertible or exchangeable security) less than the Fair
Value as of the date of issuance of such shares (or of such rights,
options, warrants or other convertible securities), then, and in each such
case:
(A) the number of shares of Common Stock into which each share of Series C
Preferred Stock is convertible shall be adjusted so that the holder of
each share thereof shall be entitled to receive, upon the conversion
thereof, the number of shares of Common Stock determined by multiplying
the number of shares of Common Stock into which such share was convertible
on the day immediately prior to such date of issuance by a fraction, (I)
the numerator of which is the sum of (1) the number of shares of Common
Stock outstanding on such date and (2) the number of additional shares of
Common Stock issued (or into which the convertible securities may
convert), and (II) the denominator of which is the sum of (1) the number
of shares of Common Stock outstanding on such date and (2) the number of
shares of Common Stock which the aggregate consideration receivable by the
Company for the total number of shares of Common Stock so issued (or into
which the convertible securities may convert) would purchase at the Fair
Value of the Common Stock on such date. For purposes of this subparagraph,
the aggregate consideration receivable by the Company in connection with
the issuance of shares of Common Stock or of securities convertible into
shares of Common Stock shall be deemed to be equal to the sum of the net
offering price (which is the amount the Company received from the sale of
such securities after deduction of underwriting discounts or commissions
and expenses payable to third parties) of all such securities plus the
minimum aggregate amount, if any, payable upon conversion of any such
convertible securities into shares of Common Stock;
(B) the number of votes to which a holder of a share of Series C Preferred
Stock is entitled pursuant to Section 3 shall be adjusted so that, after
the happening of any of the events described above, such holder shall be
entitled to a number of votes equal to (I) the number of votes to which
such holder was entitled pursuant to Section 3 immediately prior to such
happening multiplied by (II) a fraction, the numerator of which is the
number of shares of Common Stock into which one share of Series C
Preferred Stock was convertible immediately after such happening and the
<PAGE>
denominator of which is the number of shares of Common Stock into
which one share of Series C Preferred Stock was convertible
immediately prior to such happening; and
(C) such adjustment shall become effective immediately after the
date of such issuance for purposes of subclauses (A) and (B).
For purposes hereof, "FAIR VALUE" of any capital stock shall be the higher of
(x) the price to be paid by the purchaser of such capital stock and (y) the
lowest value in the range of values of the capital stock as determined by the
appraisal process, if any, described below. If a holder or holders of Series C
Preferred Stock asserting rights under Section 4(a)(ii) (the "OPPOSING
STOCKHOLDERS"), on the one hand, and the Company, on the other hand, cannot
agree on the Fair Value of the Common Stock, the following appraisal process
shall be used to determine the Fair Value. The Company and the Opposing
Stockholders shall attempt to agree on one investment banker and if an agreement
is reached, the determination shall be conducted by such banker. If the Opposing
Stockholders, on the one hand, and the Company, on the other hand, do not so
agree, the Opposing Stockholders, on the one hand, and the Company, on the other
hand, shall each select one independent investment banker and the two investment
bankers so selected shall select a third investment banker. The investment
banker or bankers making the determination shall determine a range of values for
such capital stock, basing their majority determination on what they believe a
willing purchaser would pay for such capital stock in a transaction negotiated
on commercial terms at arms'-length. Any determination of such a range of values
agreed to by the investment banker (in the case of only one such banker) or two
of the three investment bankers (in the case of three such bankers) shall be
binding on the Opposing Stockholders and the Company. If two of the three
investment bankers are unable to agree on a range of values for such capital
stock as provided above, the range of values shall be the middle of the three
ranges. If the price to be paid by the purchaser of such stock is within or
exceeds the range of values of the capital stock as determined by the appraisal
process, the fees and expenses of the investment bankers shall be paid fifty
(50%) percent by the Opposing Stockholders and fifty (50%) percent by the
Company. If the lowest value in the range of values of the capital stock as
determined by the appraisal process constitutes the Fair Value, the fees and
expenses of the investment bankers shall be paid by the Company. This Section
4(a)(ii) shall not apply to (I) the issuance of shares of Common Stock upon the
conversion of any Parity Stock, (2) the issuance of shares of Common Stock to
officers, directors, employees or other agents of the Company of shares of
Common Stock (or options, warrants or other rights to acquire any shares of
Common Stock) pursuant to the terms of any warrant, stock option, stock purchase
or similar plan or arrangement, which issuance or grant is approved by a
majority of the directors of the Company nominated by the Investor, (3) the
issuance of Series C Preferred Stock as a stock dividend pursuant to Section 2
hereof, or (4) the warrants issued to the Investor pursuant to the Investment
Agreement.
<PAGE>
(iii) MERGER; CONSOLIDATION. In case at any time the Company
shall be a party to any transaction (including, without
limitation, a merger, consolidation, sale of all or
substantially all of the Company's assets, liquidation or
recapitalization of the Common Stock and excluding any
transaction to which clause (i) or (ii) of this paragraph
(a) applies) in which the previously outstanding Common
Stock shall be changed into or, pursuant to the operation of
law or the terms of the transaction to which the Company is
a party, exchanged for different securities of the Company
or common stock or other securities of another corporation
or interests in a noncorporate entity or other property
(including cash) or any combination of any of the foregoing,
then, as a condition of the consummation of such
transaction, lawful and adequate provision shall be made so
that each holder of shares of Series C Preferred Stock shall
be entitled, upon conversion, to an amount per share equal
to (A) the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is
changed or exchanged times (B) the number of shares of
Common Stock into which a share of Series C Preferred Stock
is convertible immediately prior to the consummation of such
transaction.
(b) ANTI-DILUTION RIGHTS.
In order to allow the holders of the Series C Preferred Stock to maintain their
PRO RATA share of the Company's capital stock on a fully diluted basis, except
as set forth in the next sentence of this section. 4(b) and solely with respect
to this section. 4(b), the holders of the Series C Preferred Stock shall be
entitled, as of right, to purchase or subscribe for PRO RATA any stock of the
Company to be issued by reason of an increase of the issued stock of the Company
or the creation a new class of securities, and the issuance of such securities
(collectively referred to as "NEW SECURITIES"). The anti-dilution rights set
forth hereinabove shall not be applicable to and the definition of "New
Securities" shall not include the following securities (the "EXEMPT
SECURITIES"): (i) securities issued to employees, consultants or directors of
the Company pursuant to any stock option plan or stock purchase or stock bonus
arrangement approved by the Board of Directors, up to a maximum amount of 13.52%
of the outstanding Common Stock on a fully diluted basis, (ii) securities
offered to the public pursuant to a registration statement filed pursuant to the
Securities Act, and (iii) securities issued pursuant to an acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets or other reorganization whereby the Company owns not less than
fifty-one (51%) percent of the voting stock of such corporation.
(i) NOTICE AND EXERCISE OF A ANTI-DILUTION RIGHTS. In the event the
Company proposes to issue New Securities, it shall give the
holders of the Series C Preferred Stock written notice of its
intention, describing the type of New Securities, the price and
general terms upon which the Company proposes to issue the same.
In exercising such anti-dilutive rights, the holders of the
Series C Preferred Stock shall be given thirty
<PAGE>
(30) days from the receipt of such notice to agree to purchase or subscribe
for such New Securities, at the same price and on the same terms, in the
proportion that the number of shares of Common Stock that underlies the
Series C Preferred Stock, if converted, bears to the sum of(l) the total
number of shares of Common Stock issued and outstanding and (2) the number
of such underlying shares.
(ii)OVER-ALLOTMENT. The holders of the Series C Preferred Stock shall have the
right of over-allotment such that, in the event other holders having
anti-dilutive rights fail to exercise such right to purchase all of the New
Securities, the remaining holders of the Series C Preferred Stock may
purchase the non-purchasing holders' New Securities not so purchased, on a
PRO RATA basis, based upon the respective fully diluted Common Stock
ownership in the Company of each such remaining holder of Series C Preferred
Stock, within fifteen (15) days from the date the non-purchasing holders
fail to exercise their rights hereunder. The holders of the Series C
Preferred Stock shall be required to commit in writing, at the time they
exercise their anti-dilution rights, the maximum amount of over-allotment
shares they agree to purchase, if any become available.
(c) METHOD OF CONVERSION. (i) The holder of any shares of Series C Preferred
Stock may exercise its right to convert such shares into shares of Common Stock
by surrendering for such purpose to the Company, at its principal office or at
the principal office of the transfer agent or at such other office or agency
maintained by the Company for that purpose, a certificate or certificates
representing the shares of Series C Preferred Stock to be converted accompanied
by a written notice stating that such holder elects to convert all or a
specified whole number of such shares in accordance with the provisions of this
Section 4 and specifying the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. In case
such notice shall specifying a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes payable upon
the issuance of shares of Common Stock in such name or names.
(ii) Promptly after such notification, such notifying holder of Series C
Preferred Stock shall surrender for purposes of conversion to the
Company, at its principal office or at such other office or agency
maintained by the Company for that purpose, the certificate or
certificates representing all shares of Series C Preferred Stock held by
such holder.
(iii) Such conversion shall be deemed to have been made at the close of
business on the date of giving of such notice and of such surrender of
the certificate or certificates representing the shares of Series C
Preferred Stock to be converted so that the rights of the
<PAGE>
holder thereof as to the shares being converted shall cease, except for
the right to receive shares of Common Stock and any Dividend Arrearage in
accordance herewith, and the person entitled to receive the shares of
Common Stock shall be treated for all purposes as having become the
record holder of such shares of Common Stock at such time.
(d) ISSUANCE OF COMMON STOCK. Other than taxes payable by the holder of any
Series C Preferred Stock in accordance with paragraph (b) of this Section 4, the
Company will pay any and all issuance, documentary or stamp taxes and other
taxes (other than taxes based on income) that may be payable in respect of any
issuance or delivery of shares of Common Stock on conversion of Series C
Preferred Stock pursuant hereto. As promptly as practicable, and in any event
within five (5) Business Days after the surrender of the certificate or
certificates representing such shares of Series C Preferred Stock being
converted and, in the case of a conversion by the holder pursuant to paragraph
(b), the receipt by the Company of such notice relating thereto and, if
applicable, payment of all transfer taxes (or the demonstration to the
satisfaction of the Company that such taxes have been paid), the Company shall
deliver or cause to be delivered (i) certificates representing the number of
validly issued, hilly paid and nonassessable full shares of Common Stock to
which the holder of shares of Series C Preferred Stock so converted shall be
entitled and (ii) in the case of a conversion at the election of the holder of
Series C Preferred Stock, if less than the full number of shares of Series C
Preferred Stock evidenced by the surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares of Series C Preferred Stock evidenced by such surrendered
certificate or certificates less the number of shares converted.
(e) RIGHT TO DIVIDENDS. Upon conversion of any shares of Series C Preferred
Stock, the holder thereof shall be immediately entitled to receive its Dividend
Arrearage (if any) from (i) legally available funds in respect of the shares so
converted to the date of conversion, or (ii) in additional shares of Series C
Preferred Stock in accordance with the provisions of Section 2.
(f) NO FRACTIONAL SHARES. In connection with the conversion of any shares of
Series C Preferred Stock, no fractions of shares of Common Stock shall be
issued, but in lieu thereof the Company shall adjust such fractional interest by
rounding up to the next whole share of Common Stock.
(g) RESERVATION OF SHARES. The Company shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Series C Preferred Stock, such number
of shares of Common Stock as shall from time to time
<PAGE>
be sufficient to effect the conversion of all then outstanding shares of Series
C Preferred Stock. The Company shall immediately reserve one million (1,000,000)
shares of its Common Stock to be available upon conversion of the Series C
Preferred Stock. The Company shall from time to time, subject to and in
accordance with the Delaware General Corporation Law, increase the authorized
amount of Common Stock if at any time the number of authorized shares of Common
Stock remaining unissued shall not be sufficient to permit the conversion at
such time of all then outstanding shares of Series C Preferred Stock. The
Company shall at all times reserve and keep available out of its authorized and
unissued Series C Preferred Stock, solely for the purpose of payment of stock
dividends upon shares of Series C Preferred Stock pursuant to Section 2(c), such
number of shares of Series C Preferred Stock as shall from time to time be
sufficient to effect the payment of such stock dividends upon all then
outstanding shares of Series C Preferred Stock.
(h) WAIVER OF ADJUSTMENT. Notwithstanding anything to the contrary set forth
herein, the operation of; and any adjustment in the number of shares of Common
Stock issuable upon conversion of the Series C Preferred Stock pursuant to, this
Section 4, may be waived with respect to any specific share or shares of Series
C Preferred Stock, either prospectively or retroactively and either generally or
in a particular instance, by a writing executed by the registered holder of such
share or shares of Series C Preferred Stock Any such waiver shall bind all
future holders of such share or shares of Series C Preferred Stock for which
such rights have been waived.
SECTION 5. REPORTS AS TO ADJUSTMENTS.
Whenever the number of shares of Common Stock into which each share of Series C
Preferred Stock is convertible (or the number of votes to which each share of
Series C Preferred Stock is entitled) is adjusted as provided in Section 4, the
Company shall promptly mail by either first class mail (or bulk mail if the
number of holders exceeds 500) to the holders of record of the outstanding
shares of Series C Preferred Stock at their respective addresses as the same
shall appear in the Company's stock records a notice stating that the number of
shares of Common Stock into which the shares of Series C Preferred Stock are
convertible has been adjusted and setting forth the new number of shares of
Common Stock (or describing the new stock, securities, cash or other property)
into which each share of Series C Preferred Stock is convertible (and the new
number of votes to which each share of Series C Preferred Stock is entitled), as
a result of such adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof; and when such adjustment became
effective.
SECTION 6. REDEMPTION.
(a) The Company and/or the Core Sheth Families shall have the right to
<PAGE>
compel each holder of the Series C Preferred Stock to redeem any or all of
the shares of Series C Preferred Stock held by such holder on any Quarterly
Dividend Payment Date (for purposes of this section. 1.17 such date shall be
the "REDEMPTION DATE"), provided written demand as set forth below is given.
The redemption price for each share to be redeemed shall be paid by the
Company and/or the Core Sheth Families in cash in an amount equal to (i) the
price in the first (1st) year following the date of this Agreement to be the
higher of the closing market price of the Common Stock on the Date of
Redemption or $12 per share of Common Stock, on a post-conversion basis;
(ii) the price in the second (2nd) year following the date of this Agreement
to be the higher of the closing market price of the Common Stock on the Date
of Redemption or $14 per share of Common Stock, on a post-conversion basis;
(iii) the price in the third (3rd) year following the date of this Agreement
to be the higher of the closing market price of the Common Stock on the Date
of Redemption or $16 per share of Common Stock, on a post-conversion basis;
(iv) the price in the fourth (4th) year following the date of this Agreement
to be the higher of the closing market price of the Common Stock on the Date
of Redemption or $18 per share of Common Stock, on a post-conversion basis;
and (v) the price in the fifth (5th) year following the date of this
Agreement to be the higher of the closing market price of the Common Stock
on the Date of Redemption or $20 per share of Common Stock, on a
post-conversion basis; (all subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) (the "REDEMPTION PRICE").
(b) Thirty (30) days prior to the Redemption Date, the Company and/or the Core
Sheth Families, as applicable, shall provide each holder of Series C
Preferred Stock with a written demand ("REDEMPTION NOTICE") (addressed to
the holder at its address as it appears on the stock transfer books of the
Company) to redeem shares of Series C Preferred Stock as provided above,
which notice shall specify the Redemption Price and the number of shares to
be redeemed. All Redemption Notices hereunder shall be sent by certified
mail, returned receipt requested, and shall be deemed to have been provided
when received.
(c) On or prior to the Redemption Date, each holder of Series C Preferred Stock
shall surrender his or its certificate or certificates representing the
shares to be redeemed, in the manner and at the place designated in the
Redemption Notice. If less than all shares represented by such certificate
or certificates are redeemed, the Company shall issue a new certificate for
the unredeemed shares. From and after the Redemption Date, unless there
shall be a default in payment of the Redemption Price, all rights of each
holder with
<PAGE>
respect to shares of Series C Preferred Stock redeemed on the Redemption
Date shall cease (except the right to receive the Redemption Price and
interest at the rate of 13% in the event payment is not made within 20 days
after the Redemption Date), and such shares shall not be deemed to be
outstanding for any purpose whatsoever. Such shares of Series C Preferred
Stock shall not be reissued.
SECTION 7. RESTRICTIVE COVENANTS.
Unless approved in writing by a majority-in-interest of the holders of the
Series C Preferred Stock, the Company shall not:
(a) (i) Authorize, adopt or approve an amendment to the Certificate of
Incorporation that would increase or decrease the par value of the shares of
Series C Preferred Stock, or alter or change the powers, preferences or special
rights of the shares of Series C Preferred Stock, or alter or change the powers,
preferences or special rights of the shares of Series C Preferred Stock or any
other capital stock of the Company, (ii) amend, alter or repeal the Certificate
of Incorporation so as to adversely affect the shares of Series C Preferred
Stock including, without limitation, by granting any voting right to any holder
of notes, bonds, debentures or other debt obligations of the Company, (iii)
reclassify any shares of the Company's capital stock into Senior Stock or Parity
Stock, (iv) issue any Senior Stock or Parity Stock, (v) effect a voluntary
redemption of any Parity Stock, Junior Stock or Common Stock, or (vi) agree to
take any of the foregoing actions; PROVIDED, HOWEVER,; that nothing set forth in
this clause 7(a) shall prohibit the Company from repurchasing shares of Common
Stock held by an employee of the Company upon the termination of the Company's
employment of such employee pursuant to an agreement providing the terms of such
repurchase that has been approved by Company's Board of Directors (an "APPROVED
REPURCHASE");
(b) Upon the occurrence, and during the continuation, of a Noncompliance Event
(as defined below), (i) declare or pay dividends, or make any other
distributions, on any shares of Common Stock or other Junior Stock; or (ii)
declare or pay dividends, or make any other distributions, on any shares of
Parity Stock, except, with respect to clause (ii) of this subparagraph (b),
dividends or distributions paid ratably on the Series C Preferred Stock and all
Parity Stock on which dividends are payable or in arrears, in proportion to the
total amounts to which the holders of all shares of the Series C Preferred Stock
and such Parity Stock are then entitled. A "NONCOMPLIANCE EVENT'" shall be
deemed to have occurred and be continuing whenever quarterly dividends payable
on shares of Series C Preferred Stock as provided in Section 2 are not paid in
full (whether such failure is a result of the Company not having sufficient
legally available funds or for any other reason) at such time and thereafter
until all unpaid dividends payable, whether or not declared, on the outstanding
shares of Series C Preferred Stock shall have been paid in full; and
<PAGE>
(c) Either on its own or through any Subsidiary, purchase or otherwise acquire
for consideration any outstanding shares of capital stock of the Company,
provided, however that nothing set forth in this Section 7(c) shall prohibit an
Approved Repurchase.
SECTION 8. LIQUIDATION. DISSOLUTION OR WINDING UP.
(a) If the Company shall commence a voluntary case under the United States
Bankruptcy Code or any applicable bankruptcy, insolvency or similar law of any
other country, or consent to the entry of an order for relief in an involuntary
case under any such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Company or of any substantial part of its property, or make an assignment for
the benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Company shall be entered by a court having jurisdiction in an involuntary
case under the United States Bankruptcy Code or any applicable bankruptcy,
insolvency or similar law of any other country, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and on account of any such event
the Company shall liquidate, dissolve or wind up, or if the Company shall
otherwise liquidate, dissolve or wind up, no distribution shall be made to (i)
the holders of shares of Junior Stock unless, prior thereto, the holders of
shares of Series C Preferred Stock shall have received the Liquidation
Preference, plus all accrued and unpaid dividends, whether or not declared or
currently payable, to the date of distribution, with respect to each share, or
(ii) the holders of shares of Parity Stock, except distributions made ratably on
the Series C Preferred Stock and all other Parity Stock in proportion to the
total amounts to which the holders of all shares of Series C Preferred Stock and
other Parity Stock are entitled upon such liquidation, dissolution or winding
up.
(b) Neither the consolidation or merger of the Company with or into any other
Person nor the sale or other distribution to another Person of all or
substantially all the assets, property or business of the Company shall be
deemed to be a liquidation, dissolution or winding up of the Company for
purposes of this Section 8.
SECTION 9. CERTAIN REMEDIES.
To the extent permitted by applicable law, the holders of twenty (20%) percent
or more of the outstanding shares of Series C Preferred Stock shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Certificate of Designation and to enforce specifically the terms and provisions
of this Certificate of Designation in the United States District Court for
either the District of Connecticut or the District of Delaware or any court
within the States of Connecticut or Delaware, this being in addition to any
other remedy to which such holder may be entitled at law or equity.
SECTION 10. REACQUIRED SHARES.
<PAGE>
Any shares of Series C Preferred Stock exchanged, redeemed, purchased or
otherwise acquired by the Company or any of its Subsidiaries in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares of Series C Preferred Stock shall upon their cancellation become
authorized but unissued shares of preferred stock, $.01 par value, of the
Company and, upon the filing of an appropriate certificate with the Secretary of
State of the State of Delaware, may be reissued as part of another series of
preferred stock, par value $.01 per share, of the Company subject to the
conditions or restrictions on issuance set forth herein, but in any event may
not be reissued as shares of Series C Preferred Stock unless all of the shares
of Series C Preferred Stock shall have already been redeemed.
Section 11. DEFINITIONS.
For the purposes of this Certificate of Designation of Series C Preferred
Stock, the following terms shall have the meanings indicated:
o "Additional Dividends" shall have the meaning assigned to such term in
Section 2(b).
o "Affiliate" shall have the meaning assigned to such term in the Securities
Exchange Act of 1934, as amended.
o "Alternative Dividend" shall be $7.80 per share annually.
o "Approved Repurchase" shall have the meaning assigned to such term in
Section 7.
o "Business Day" shall mean any day other than a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law
or executive order to close.
o "Certificate of Incorporation" shall mean the Certificate of Incorporation
of the Company, as amended from time to time.
o "Common Stock" shall mean the Common Stock, par value $.01 per share, of the
Company.
o "Core Sheth Families" shall mean, collectively, Manhendra Sheth,
Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth, Jay J. Sheth, and Viren
Sheth.
o "Company" shall have the meaning ascribed to such term in the Preamble.
o "Current Market Price" per share shall mean, on any date specified herein
for
<PAGE>
the determination thereof; (a) if the Common Stock is then listed on a
national securities exchange, designated for quotation on the National
Market System or the Small Cap Market of the Nasdaq Stock Market, quoted in
the over-the-counter-market by a member firm of the NYSE, or the NASD OTC
Bulletin Board, the average daily Market Price of the Common Stock for those
days during the period of fifteen (15) days, ending on such date, on which
the national securities exchanges were open for trading, and (b) if the
Common Stock is not then so listed, designated or quoted, the Market Price
on such date.
o "Dividend Rate" shall mean a rate of interest equal to 8% per annum.
o "Dividend Arrearage" shall have the meaning assigned to such term in Section
2(b).
o "Fair Value" shall have the meaning assigned to such term in Section 4.
o "Investor" shall mean Pioneer Ventures Associates Limited Partnership, a
Connecticut limited partnership and any one or more parallel limited
partnerships which have been or shall be organized by Ventures Management
Partners LLC as the general partner to invest in parallel with Pioneer
Ventures Associates Limited Partnership on the same economic terms and PRO
RATA based upon their aggregate subscriptions.
o "Investment Agreement" shall mean the Investment Agreement, dated as of a
date in September, 1998, by and between the Company and the Investor.
o "Issue Date", with respect to any shares of Series C Preferred Stock shall
mean the first date on which such shares of Series C Preferred Stock are
deemed to have been issued or were actually issued, whichever is earlier.
o "Junior Preferred Stock" shall mean any series of preferred stock of the
Company issued subsequent and in conformity with the filing of this
Certificate of Designation.
o "Junior Stock" shall mean any capital stock of the Company ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series C Preferred Stock, including, without limitation, the Common
Stock, the Series A Preferred Stock, and the Series B Preferred Stock.
o "Liquidation Preference" with respect to each share of Series C Preferred
Stock shall mean US $60 per share plus interest thereon from the Issue Date
until redemption or conversion at the compounded rate of 20% per annum, but
in no event more than an aggregate of $175.00 per share.
o "Noncompliance Event" shall have the meaning assigned to such term in
<PAGE>
Section 7(b).
o "Parity Stock" shall mean any capital stock of the Company ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series C Preferred Stock.
o "Person" means an individual, a limited liability company, a limited
liability partnership, a corporation, a partnership, an association, a joint
stock company, a trust, joint venture, an unincorporated organization or any
other entity or organization, domestic or foreign.
o "Quarterly Dividend Payment Date" shall have the meaning assigned to such
term in Section 2(a).
o "Senior Preferred Stock" shall mean all shares of Series C Preferred Stock.
o "Senior Stock" shall mean any capital stock of the Company ranking senior
(either as to dividends or upon liquidation, dissolution or winding up) to
the Series C Preferred Stock. There shall be no stock senior to the Series C
Preferred Stock.
o "Series A Preferred Stock" shall mean the Series A Convertible Preferred
Stock, $0.05 par value per share, of the Company.
o "Series B Preferred Stock" shall mean the Series B Convertible Preferred
Stock, $0.05 par value per share, of the Company.
o "Series C Preferred Stock" shall have the meaning assigned to such term in
Section 1(a).
o "Subsidiary" of any Person shall mean with respect to any Person, a
corporation or other entity of which fifty (50%) percent or more of the
voting power of the voting equity securities or equity interest, is owned,
directly or indirectly, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" herein shall refer to a
Subsidiary or Subsidiaries of the Company.
SECTION 12. SECTION REFERENCES.
All references herein to sections or subsections shall be to
sections or subsections of this Certificate of Designation unless
otherwise expressly provided.
IN WITNESS WHEREOF, Tristar Corporation through its designated
officer has caused this Certificate to be duly executed in its
corporate name on September 3, 1998.
<PAGE>
TRISTAR CORPORATION
BY:_____________________
Richard Howard, President
SCRAP
[IF REQUIRED: Pursuant to the affirmative vote of a majority of the
stockholders of the Company at a meeting on June 1998 duly called, with a
quorum present in person or by proxy and duly qualified, the stockholders of the
Company adopted the following resolution creating a class and series of
preferred stock designated as Series C Senior Convertible Preferred Stock, and
on June 1998 the Board of Directors of the Company adopted the same
resolution, and such resolution has not been modified and is in full force and
effect on the date hereof:]
EXHIBIT 10.40
STOCK PURCHASE AGREEMENT
DATED MAY 30, 1998
BY AND AMONG
TRISTAR CORPORATION
AND
TRANSVIT DISTRIBUTION CORPORATION
COVERING THE PURCHASE
OF ALL OF THE CORPORATE CAPITAL OF
TRISTAR DO BRASIL COSMETICOS, LTDA.
<PAGE>
TABLE OF CONTENTS
1. General Definitions.................................................. 1
1.1 Affiliate...................................................... 1
1.2 Governmental Authority......................................... 2
1.3 Governmental Requirement....................................... 2
1.4 Person......................................................... 2
1.5 Section........................................................ 2
1.6 Taxes.......................................................... 2
2. Purchase and Sale of the Stock; Closing Date......................... 2
2.1 Purchase and Sale.............................................. 2
2.2 Delivery and Endorsement of Certificates....................... 2
2.3 Closing Date................................................... 2
4. Representations and Warranties of Seller. .......................... 3
4.1 Incorporation.................................................. 3
4.2 Share Capital.................................................. 3
4.3 Subsidiaries................................................... 3
4.4 Effect of Agreement............................................ 3
4.5 Authorization.................................................. 3
4.6 Brokers and Finders............................................ 3
4.7 Debt of Target................................................. 3
5. Representations and Warranties of Purchaser.......................... 3
5.1 Incorporation.................................................. 4
5.2 Authorization.................................................. 4
5.3 Brokers and Finders............................................ 4
6. Conditions to Obligations of Purchaser............................... 4
6.1 Accuracy of Representations and Warranties and Fulfillment
of Covenants................................................... 4
6.2 No Governmental Actions........................................ 4
6.3 Approval of Counsel............................................ 4
6.4 Transfer and Assignment Documents.............................. 4
7. Conditions Precedent to Obligations of Seller........................ 4
7.1 Accuracy of Representations and Warranties and Fulfillment
of Covenants................................................... 4
7.2 Delivery of Purchase Price..................................... 5
7.3 Approval of Counsel............................................ 5
8. Expenses............................................................. 5
9. Further Actions...................................................... 5
10. Arbitration.......................................................... 5
11. Option to Repurchase; Exercise Price; Repurchase Closing Date........ 5
12. Notices.............................................................. 5
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13. General Provisions................................................... 6
13.1 Governing Law; Interpretation; Section Headings................ 6
13.2 Severability................................................... 6
13.3 Entire Agreement............................................... 7
13.4 Binding Effect................................................. 7
13.5 Assignment..................................................... 7
13.6 Amendment; Waiver.............................................. 7
13.7 Counterparts................................................... 7
13.8 Telecopy Execution and Delivery................................ 7
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 30th day of May, 1998, by and among TRISTAR CORPORATION, a Delaware
corporation ("SELLER") and TRANSVIT DISTRIBUTION CORPORATION, a Panamanian
corporation ("PURCHASER").
W I T N E S S E T H :
WHEREAS, Seller holds all of the corporate capital of Tristar do Brasil
Cosmeticos, Ltda., a limited liability quota company organized under the laws of
the Federative Republic of Brazil ("TARGET"), being 163,636 quotas (the
"STOCK"), and desires to sell the Stock to Purchaser pursuant to this Agreement
as hereinafter provided; and
WHEREAS, Purchaser desires to acquire the Stock from Seller pursuant to
this Agreement as hereinafter provided; and
WHEREAS, in addition to the Stock, Seller (a) owns certain distribution
rights with respect to its products to Chile, Argentina, Brazil, Paraguay and
Uruguay (collectively, the "MERCOSUR") and (b) desires to assign such
distribution rights to Purchaser as provided in this Agreement; and
WHEREAS, in addition to the Stock, Purchaser desires to acquire from
Seller Seller's distribution rights with respect to Seller's products in the
Mercosur (the "DISTRIBUTION RIGHTS") as provided in this Agreement; and
WHEREAS, Purchaser desires to grant to Seller an option to repurchase the
Stock and Seller's Distribution Rights in accordance with the terms and
provisions set forth herein; and
WHEREAS, Seller wishes to obtain from Purchaser an option to repurchase
the Stock and Seller's Distribution Rights in accordance with the terms and
provisions set forth herein; and
WHEREAS, Purchaser desires to obtain Seller's agreement (a) not to
distribute any products in the Mercosur (the "NON-COMPETITION AGREEMENTS") and
(b) to continue to sell its products to Target until May 31, 2001, under the
same pricing structure as is in effect immediately prior to the date of this
Agreement (the "SUPPLY AGREEMENTS"); and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
execution and delivery of this Agreement, and to set forth certain additional
agreements related to the transactions contemplated hereby.
NOW, THEREFORE, for and in consideration of the premises, the mutual
representations, warranties and covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
2. General Definitions. For purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
2.1. AFFILIATE. "AFFILIATE" of any Person shall mean any Person
Controlling, Controlled by or under common Control with such Person.
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2.2. GOVERNMENTAL AUTHORITY. "GOVERNMENTAL AUTHORITY" shall mean any and
all foreign, federal, state or local governments, governmental institutions,
public authorities and governmental entities of any nature whatsoever, and any
subdivisions or instrumentalities thereof, including, but not limited to,
departments, boards, bureaus, commissions, agencies, courts, administrations and
panels, and any divisions or instrumentalities thereof, whether permanent or ad
hoc and whether now or hereafter constituted or existing.
2.3. GOVERNMENTAL REQUIREMENT. "GOVERNMENTAL REQUIREMENT" shall mean any
and all laws (including, but not limited to, applicable common law principles),
statutes, ordinances, codes, rules, regulations, interpretations, guidelines,
directions, orders, judgments, writs, injunctions, decrees, decisions or similar
items or pronouncements, promulgated, issued, passed or set forth by any
Governmental Authority.
2.4. PERSON. "PERSON" shall mean any natural person, any Governmental
Authority and any entity the separate existence of which is recognized by any
Governmental Authority or Governmental Requirement, including, but not limited
to, corporations, partnerships, joint ventures, joint stock companies, trusts,
estates, companies and associations, whether organized for profit or otherwise.
2.5 SECTION. "SECTION" shall mean the section of this Agreement referred
to by number.
2.6. TAX. "TAX" and "TAXES" shall mean any and all income, excise,
franchise or other taxes and all other charges or fees imposed or collected by
any Governmental Authority or pursuant to any Governmental Requirement, and
shall also include any and all penalties, interest, deficiencies, assessments
and other charges with respect thereto.
3. PURCHASE AND SALE OF THE STOCK; CLOSING DATE
3.1 "PURCHASE AND SALE". Subject to the terms and conditions herein
contained, Seller agrees (a) to sell, assign, transfer and deliver to Purchaser
at the Closing (as hereinafter defined) all right, title and interest in and to
the Stock, the Stock being all of the issued and outstanding capital stock of
Target and the Distribution Rights and (b) to be subject to the Supply Agreement
and the Non-Competition Agreements. Subject to the terms and conditions herein
contained, Purchaser agrees to purchase from Seller the Stock and the
Distribution Rights to pay at the Closing the Purchase Price (as hereinafter
defined) pursuant to the provisions of SECTION 3 below.
3.2 "DELIVERY AND ENDORSEMENT OF CERTIFICATES". At the Closing, Seller
shall deliver to Purchaser certificates representing the Stock, duly endorsed in
blank by Seller, or accompanied by stock powers duly executed in blank by
Seller, and with all necessary transfer tax and other revenue stamps, acquired
at Seller's expense, affixed and canceled. Seller agrees to cure any
deficiencies with respect to the endorsements of the certificates representing
the Stock or with respect to the stock powers accompanying any such
certificates.
3.3 "Closing Date". Subject to the terms and conditions contained herein,
the consummation of transactions referred to above shall take place (the
"Closing") on or before May 30, 1998, at the offices of Fulbright & Jaworski,
L.L.P. in San in San Antonio, Texas, or at such other time, date and place as
Purchaser and Seller shall in writing designate (the "CLOSING DATE").
4. PURCHASE PRICE AND PAYMENT. The aggregate consideration for the Stock,
the Distribution Rights, the Non-Competition Agreements and the Supply
Agreements (the "PURCHASE PRICE") an aggregate reduction of $2,800,000 to the
principal amounts owed by Seller to Purchaser pursuant to the
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<PAGE>
terms of (a) that one certain promissory note dated August 31, 1993 in the
original principal amount of $1,500,000 executed by Seller and payable to the
order of Nevell Investment S.A. ("NEVELL"), (b) that one certain promissory note
dated April 25, 1994 in the original principal amount of $2,600,000 executed by
Seller and payable to the order of Nevell and (c) that one certain promissory
note dated December 13, 1994 in the original principal amount of $4,000,000
executed by Seller and payable to the order of Nevell (said promissory notes,
collectively, the "TRISTAR INDEBTEDNESS").
5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Purchaser as follows:
5.1 INCORPORATION. Target is a limited liability quota company organized
under the laws of the Federative Republic of Brazil.
5.2 SHARE CAPITAL. The corporate capital of Target consists of 163,636
quotas. There are no outstanding subscriptions, options, warrants, calls,
commitments, obligations or agreements relating to any of the corporate capital
of Target. Seller owns all of the Stock free and clear of all liabilities,
liens, encumbrances, pledges, trusts, voting trusts or stockholders' agreements,
equities, charges, options, conditional sale or title retention agreements,
covenants, restrictions, reservations, commitments, obligations or other burdens
or encumbrances of any nature whatsoever, and the consummation of the purchase
and sale contemplated by this Agreement will transfer to Purchaser title to the
Stock free and clear of any such items.
5.3 SUBSIDIARIES. Target does not, directly or indirectly, own or control
any capital stock, bonds or other securities of, or have any proprietary
interest in, any corporation, association, partnership, firm or business
organization or enterprise, nor does it directly or indirectly control the
management of any such entities, nor does it have any obligation to acquire any
such interest in the future.
5.4 EFFECT OF AGREEMENT. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not (a) result in
any breach of any of the terms or conditions of the organizational documents of
Target or (b) conflict with, or result in a breach of or default under, the
terms of any agreement, contract, indenture or other instrument to which the
Target is a party or to which any of its property is subject.
5.5 AUTHORIZATION. Seller has full legal right, power and authority to
enter into and deliver this Agreement and to consummate the transactions set
forth herein and to perform all the terms and conditions hereof to be performed
by Seller. This Agreement has been duly executed and delivered by Seller and is
a legal, valid and binding obligation of Seller enforceable in accordance with
its terms, except as limited by applicable bankruptcy, moratorium, insolvency or
other laws affecting generally the rights of creditors or by principles of
equity.
5.6 BROKERS AND FINDERS. No broker or finder has acted for Target or
Seller in connection with this Agreement or the transactions contemplated by
this Agreement and no broker or finder is entitled to any brokerage or finder's
fee or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of Seller or Target.
5.7 DEBT OF TARGET. To Seller's knowledge, Target has no material debt or
obligations of any kind, fixed or contingent, matured or unmatured, other than
those obligations that have ben previously disclosed to Purchase by Seller.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller as follows:
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<PAGE>
6.1 INCORPORATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the British Virgin Islands.
6.2 AUTHORIZATION. Purchaser has full legal right and corporate power to
enter into and deliver this Agreement and to consummate the transactions set
forth herein and to perform all the terms and conditions hereof to be performed
by it. This Agreement has been duly executed and delivered by Purchaser and is a
legal, valid and binding obligation of Purchaser enforceable in accordance with
its terms, except as limited by applicable bankruptcy, moratorium, insolvency or
other laws affecting generally the rights of creditors or by principles of
equity.
6.3 BROKERS AND FINDERS. No broker or finder has acted for Purchaser in
connection with this Agreement or the transactions contemplated by this
Agreement and no broker or finder is entitled to any brokerage or finder's fee
or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of Purchaser.
7. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser
hereunder to proceed to closing are, at the option of Purchaser, subject to the
satisfaction, on or prior to the Closing Date, of the following conditions (any
of which may be waived by Purchaser in its sole discretion):
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND FULFILLMENT OF
COVENANTS. The representations and warranties of Seller contained in this
Agreement shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date. Each and all of the agreements and covenants of Seller to be
performed on or before the Closing Date pursuant to the terms hereof shall have
been performed.
7.2 GOVERNMENTAL ACTIONS. No action or proceeding before a Governmental
Authority shall have been instituted or threatened to restrain or prohibit the
transactions contemplated by this Agreement. No Governmental Authority shall
have taken any other action as a result of which the management of Purchaser
reasonably deems it inadvisable to proceed with the transactions contemplated by
this Agreement.
7.3 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required or incidental to carrying out this Agreement and all other
related legal matters shall have been approved by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., counsel to Purchaser.
7.4 TRANSFER AND ASSIGNMENT DOCUMENTS. Seller shall have delivered to
Purchaser all documents reasonably necessary or required to effectively transfer
and assign the Stock and the Distribution Rights to Purchaser, such transfers
and assignments to convey title to the Stock to Purchaser, free and clear of all
liens and encumbrances whatsoever, and to be in form and substance reasonably
satisfactory to Purchaser and its counsel.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller hereunder are, at its option, subject to the satisfaction, on or prior to
the Closing Date, of the following conditions (any of which may be waived by
Seller, in its sole discretion):
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES AND FULFILLMENT OF
COVENANTS. The representations and warranties of Purchaser contained in this
Agreement shall be true and correct on and as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date. Each of the agreements and covenants of Purchaser to be performed on
or before the Closing Date shall have been performed.
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<PAGE>
8.2 DELIVERY OF PURCHASE PRICE. Purchaser shall delivered to Seller all
documents, in form and substance reasonably acceptable to Seller's counsel,
necessary to evidence the aggregate reduction of $2,800,000 in the principal
amounts owed by Seller pursuant to the terms of the Tristar Indebtedness.
8.3 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required or incidental to carrying out this Agreement and all other
related legal matters shall have been approved by Fulbright & Jaworski, L.L.P.,
counsel to Seller.
9. EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the parties will pay all costs and expenses of its
performance of and compliance with this Agreement.
10. FURTHER ACTIONS. From time to time, at the request of any party
hereto, the other parties hereto shall execute and deliver such instruments and
take such action as may be reasonably requested to evidence the transactions
contemplated hereby.
11. ARBITRATION. The parties agree that any dispute or controversy arising
out of or in connection with this Agreement or any alleged breach hereof shall
be settled by arbitration in San Antonio, Texas pursuant to the rules of the
State of Texas. If Purchaser, on the one hand, and Seller, on the other hand,
cannot jointly select a single arbitrator to determine the matter, one
arbitrator shall be chosen by Purchaser, on the one hand, and Seller, on the
other hand (or, if either fails to make a choice, by a court of competent
jurisdiction on behalf of such party), and the two arbitrators so chosen will
select a third. The decisions of the single arbitrator jointly selected by the
parties, or, if three arbitrators are selected, the decision of any two of them,
will be final and binding upon the parties and the judgment of a court of
competent jurisdiction may be entered thereon. Each party shall pay the fees and
expenses of its chosen arbitrator, and the fees and expenses of the third
arbitrator shall be shared equally by the parties.
12. OPTION TO REPURCHASE EXCERSISE PRICE; REPURCHASE CLOSING DATE.
Purchaser hereby grants to Seller the option to repurchase the Stock and the
Distribution Rights and to terminate the Non-Competition Agreements (the
"REPURCHASE OPTION") on the same terms and conditions as Purchaser purchased the
same from Seller hereunder; PROVIDED, HOWEVER, the purchase price for the Stock
and the Distribution Rights and the termination of the Non-Competition
Agreements (the "REPURCHASE PRICE") shall be an amount equal to the sum of (a)
the difference between (i) $2,800,000 MINUS (ii) the net book value of Target as
of the Closing Date, PLUS (b) interest at the rate of ten percent (10%) per
annum on (i) such difference from the Closing Date until the closing of the
repurchase of the Stock and Distribution Rights and the termination of the
Non-Competition Agreements (the "REPURCHASE CLOSING") and (ii) any additional
investment(s) made by Purchaser to Target after the Closing Date from the from
date of such investment(s) until the Repurchase Closing PLUS (c) the net book
value of Target as of the Repurchase Closing. The Repurchase Option shall be
exercisable at any time prior to the fifth anniversary of this Closing Date by
written notice from Seller to Purchaser. If Seller exercises the Repurchase
Option, the Repurchase Closing shall take place at the offices of Fulbright &
Jaworski, L.L.P., 300 Convent, Suite 2200, San Antonio, Texas commencing at
10:00 a.m. local time not later than 60 days following Seller's exercise of the
Option (the "REPURCHASE CLOSING DATE").
13. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, given by prepaid telex
or telegram or by facsimile or other similar instantaneous electronic
transmission device or mailed first class, postage prepaid, certified United
States mail, return receipt requested, as follows:
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(a) If to Purchaser, at:
Transvit Distribution Corporation
P.O. Box 7707
Dubai, U.A.E.
Attention: B.J. Harid
Facsimile No. (011) 9714 556885
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
300 Convent, Suite 1500
San Antonio, Texas 78205
Attention: Cecil Schenker
Facsimile No. (210) 224-035
(b) If to Seller, at:
Tristar Corporation
12500 San Pedro Avenue, Suite 500
San Antonio, TX 78216
Attention: President
Facsimile No. (210) 402-2216
With a copy to:
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Attention: Phillip M. Renfro
Facsimile No. (210) 270-7205
provided that any party may change its address for notice by giving to the other
party written notice of such change. Any notice given under this SECTION 15
shall be effective (i) if delivered personally, when delivered, if sent by telex
or telegram or by facsimile or other similar instantaneous electronic
transmission device, 24 hours after sending and (ii) if mailed, 48 hours after
mailing.
14. GENERAL PROVISIONS
14.1 GOVERNING LAW; INTERPRETATION; SECTION. This Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Texas. The section headings contained herein are for purposes of convenience
only, and shall not be deemed to constitute a part of this Agreement or to
affect the meaning or interpretation of this Agreement in any way.
14.2 SEVERABILITY. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States of America or the
State of Texas, or under any other applicable laws of any other jurisdiction,
then the parties hereto agree that such provision shall be deemed modified for
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<PAGE>
purposes of performance of this Agreement in such jurisdiction to the extent
necessary to render it lawful and enforceable, or if such a modification is not
possible without materially altering the intentions of the parties hereto, then
such provision shall be severed herefrom for purposes of performance of this
Agreement in such jurisdiction. The validity of the remaining provisions of this
Agreement shall not be affected by any such modification or severance, except
that if any severance materially alters the intentions of the parties hereto as
expressed herein (a modification being permitted only if there is no material
alteration), then the parties hereto shall use commercially reasonable effort to
agree to appropriate equitable amendments to this Agreement in light of such
severance, and if no such agreement can be reached within a reasonable time, any
party hereto may initiate arbitration as provided in SECTION 13 above.
14.3 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No representation, promise,
inducement or statement of intention has been made by any party hereto which is
not embodied in this Agreement, and no party hereto shall be bound by or liable
for any alleged representation, promise, inducement or statement of intention
not so set forth.
14.4 SURVIVABILITY; BINDING EFFECT. The representations and warranties set
forth herein shall survive the consummation of this Agreement. All the terms,
provisions, covenants and conditions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.
14.5 ASSIGMENT. Except as specifically permitted herein, this Agreement
and the rights and obligations of the parties hereto shall not be assigned or
delegated by either party hereto without the prior written consent of the other
party hereto.
14.6 AMMENDMENT; WAIVER. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, provisions, representations,
warranties, covenants or conditions hereof may be waived, only by a written
instrument executed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition contained in this
Agreement, or of the breach of any term, provision, representation, warranty or
covenant contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach, or as a waiver of any other condition or of the breach of
any other term, provision, representation, warranty or covenant.
14.7 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall be
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as signatories.
14.8 TELECOPY EXECUTION AND DELIVERY. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of either party hereto, all parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereof.
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[signatures on next page]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PURCHASER:
TRANSVIT DISTRIBUTION CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
SELLER:
TRISTAR CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
<PAGE>
ACCEPTED AND AGREED TO:
NEVELL INVESTMENTS, S.A.
By:____________________________
Name:__________________________
Title:_________________________
EXHIBIT 10.41
March 1, 1998
Tristar Corporation
12500 San Pedro Avenue, Suite 500
San Antonio, Texas 78216
Re: Promissory Note dated August 31, 1993, of Tristar Corporation,
payable to Nevell Investment S. A. in the original amount of
$1,500,000
Promissory Note dated April 25, 1994, of Tristar Corporation,
payable to Nevell Investment S. A. in the original principal
amount of $2,500,000
Promissory Note dated December 18, 1994, of Tristar Corporation,
payable to Nevell Investment S. A. in the original principal
amount of $4,000,000
Gentlemen:
This is to verify our agreement, in consideration for $10 and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and conferred, that the interest rates on the refinanced Promissory
Notes shall be and have been reduced to the extent that an aggregate of
$1,163,708 of interest shall be due upon payment in full of such Promissory
Notes.
Please verify your agreement to the foregoing by executing this letter in
the space provided below.
NEVELL INVESTMENT S.A.
By: ____________________________
AGREED TO this _____ day
of July, 1998
TRISTAR CORPORATION
By: _____________________________
EXHIBIT 10.42
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
INVESTMENT AGREEMENT
by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
and
TRISTAR CORPORATION
September 3, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. Sale and Transfer of Stock....................................1
1.1 Series C Senior Convertible Preferred Stock............................1
1.2 Purchase Price, and Payment............................................3
1.3 Convertible into Common................................................3
1.4 Cumulative Dividend....................................................4
1.5 Liquidation............................................................5
1.6 Reservation of Shares; Shares to be Fully Paid.........................5
1.7 Anti-Dilution Rights...................................................5
1.8 Percentage of Fully Diluted Shares.....................................7
1.9 Voting Rights and Prohibitive Covenants................................7
1.10 Voting Agreements Concerning Directors...............................8
1.11 Transfer Agent......................................................10
1.12 Use of Proceeds.....................................................10
1.13 Right of First Refusal..............................................12
1.14 Terms of Co-Investment..............................................12
1.15 Terms of Financing..................................................12
1.16 Notice of Intended Acquisitions.....................................13
1.17 Redemption..........................................................13
ARTICLE II. Registration Rights.........................................15
2.1 Demand Registration...................................................15
2.2 Piggyback Registration................................................15
2.3 Registration Covenants................................................16
2.4 Blue Sky Registration.................................................18
2.5 Deregistration........................................................18
2.6 Post-Effective Amendments.............................................18
2.7 Right to Delay........................................................18
2.8 Selection of Underwriters.............................................19
2.9 Principal Shareholders................................................19
2.10 Intentionally Omitted...............................................19
2.11 Indemnification by Company re Registration Rights...................19
2.12 Indemnification by Holder...........................................20
2.13 Notice of Indemnity and Defense.....................................21
ARTICLE III. Co-Sale Provisions..........................................21
3.1 Third-Party Offer and Notice..........................................21
3.2 Co-Sale Right of Participation........................................22
3.4 Notice of Intent to Participate in Co-Sale............................22
ARTICLE IV. Representations and Warranties of the Company...............23
4.1 Organization, Qualification and Corporate Power.......................23
4.2 Subsidiaries..........................................................23
4.3 Authorization of Agreement............................................24
4.4 Validity..............................................................25
4.5 Government Approval...................................................25
4.6 Capitalization........................................................25
<PAGE>
Investment Agreement
Page ii
4.7 Annual Report and the Financial Statements............................26
4.8 Patents, Trademarks, Etc..............................................27
4.9 Taxes.................................................................28
4.10 Approvals...........................................................28
4.11 Litigation..........................................................29
4.12 Schedule of Documents...............................................29
4.13 No Defaults.........................................................30
4.14 Lack of Felonies....................................................30
4.15 No Judgments........................................................31
4.16 Insurance...........................................................31
4.17 No Brokers..........................................................31
4.18 Loans and Liens.....................................................31
4.19 Solvency............................................................32
4.20 Registration Rights.................................................32
4.21 Compliance with Securities Laws.....................................32
4.22 Transfer Restrictions...............................................32
4.23 Related Party Transactions..........................................33
4.24 Miscellaneous.......................................................33
4.25 Additional Representations..........................................33
4.26 Use of Proceeds.....................................................35
4.27 Industry Specific Regulations.......................................35
4.28 Wages and Salary....................................................36
4.29 ERISA...............................................................36
4.30 Core Sheth Letter of Credit.........................................36
4.31 Protest IRS Claim for Disallowance..................................36
4.32 No Restrictions on Dividends........................................37
4.33 Complete Disclosure.................................................37
ARTICLE V. Representations and Warranties of the Pioneer Partnership....37
5.1 Organization..........................................................37
5.2 No Breach.............................................................37
5.3 Authority for and Binding Nature of Agreement.........................38
5.4 Brokers...............................................................38
5.5 Securities Laws Matters...............................................38
5.6 Additional Matters....................................................41
ARTICLE VI. Covenants...................................................41
6.1 Financial.............................................................41
6.2 Access................................................................42
6.3 Books of Record and Account...........................................42
6.4 Membership on Board...................................................43
6.5 Stock Option Plan.....................................................44
6.6 Rule 144 Compliance...................................................44
6.7 Undertaking to Register its Securities................................45
6.8 Undertaking to File 34 Act Filings and to be Listed on NASDAQ.........45
6.9 Dividend Restriction Waiver...........................................45
6.10 Core Sheth Letter of Credit.........................................45
6.11 Signing Obligations.................................................46
<PAGE>
Investment Agreement
Page iii
6.12 No Cost Licenses....................................................46
6.13 SEC Filings.........................................................46
6.14 Blue Sky............................................................46
6.15 No Breach...........................................................47
ARTICLE VII. Conditions Precedent to the Obligations of...................47
the Pioneer Partnership to Close............................................47
7.1 Representations and Warranties........................................47
7.2 Covenants.............................................................47
7.3 No Actions............................................................48
7.4 Consents, Licenses and Permits........................................48
7.5 Certificate...........................................................48
7.6 Legal Opinion.........................................................48
7.7 No Material Adverse Change............................................49
7.8 Agreements with Principals............................................49
7.9 Key Person Insurance..................................................49
7.10 Patents.............................................................49
7.11 Approval of Counsel.................................................50
7.12 Consents, Licenses and Permits......................................50
7.13 Additional Documents................................................50
ARTICLE VIII. Conditions Precedent to the Obligations of....................50
the Company to Close........................................................50
8.1 Representations and Warranties........................................50
8.2 Covenants.............................................................51
8.3 No Actions............................................................51
8.4 Additional Documents..................................................51
8.5 Approval of Counsel...................................................51
ARTICLE IX. Closing.....................................................52
9.1 Location..............................................................52
9.2 Items to be Delivered by the Company..................................52
9.3 Items to be Delivered by the Pioneer Partnership......................53
9.4 Items to be Delivered by the Company at Subsequent Closings...........53
9.5 Items to be Delivered by the Pioneer Partnership at Subsequent
Closings.............................................................54
ARTICLE X. Survival of Representations; Indemnification; Fees...........54
10.1 Survival............................................................54
10.2 Indemnification.....................................................54
10.3 Defense of Claims...................................................55
10.4 Rights without Prejudice............................................55
ARTICLE XI. Fees...........................................................55
11.1 Investment Banking Fees.............................................55
11.2 Expenses............................................................56
11.3 Legal Fees..........................................................56
11.4 Accounting Fees.....................................................56
11.4 Break-Up Fee........................................................56
ARTICLE XII. Termination and Waiver.....................................56
12.1 Termination.........................................................56
12.2 Waiver..............................................................57
<PAGE>
Investment Agreement
Page iv
ARTICLE XIII. Miscellaneous Provisions..................................58
13.1 Expenses............................................................58
13.2 Modification, Termination or Waiver.................................58
13.3 Notices.............................................................58
13.4 Binding Effect and Assignment.......................................59
13.5 Entire Agreement....................................................59
13.6 Calendar Days.......................................................59
13.7 Exhibits............................................................59
13.8 Governing Law.......................................................60
13.9 Consent to Jurisdiction.............................................60
13.10 Counterparts........................................................60
13.11 Section Headings....................................................60
13.12 Gender..............................................................60
13.13 Controlling Document................................................60
13.14 Use of Term "Pioneer Partnership"...................................60
<PAGE>
LIST OF EXHIBITS
EXHIBIT* TITLE SECTION
---------- ------- ---------
Exhibit 1.1 Series C Senior Convertible Preferred Stock...........1.1
Exhibit 4.7A Annual Report and the Financial Statements............4.7
Exhibit 4.7B Annual Report and the Financial Statements............4.7
Exhibit 4.8 Patents, Trademarks, Etc..............................4.8
Exhibit 4.9 Taxes.................................................4.9
Exhibit 4.11 Litigation...........................................4.11
Exhibit 4.12 Schedule of Documents................................4.12
Exhibit 4.18 Loans and Liens......................................4.18
Exhibit 4.23 Related Party Transactions...........................4.23
Exhibit 4.28 Wages and Salary.....................................4.28
Exhibit 7.7 No Material Adverse Change............................7.7
* Please note that the exhibits referenced within this Agreement utilize
the title "Schedule" rather than "Exhibit", but are intended to
correspond to the matching reference within the Agreement.
<PAGE>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT dated September 3, 1998 ("AGREEMENT") by and between
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited
partnership with offices at 651 Day Hill Road, Windsor, Connecticut 06095 (the
"PIONEER PARTNERSHIP"), AND TRISTAR CORPORATION, a Delaware corporation with
offices at 12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216 (the
"COMPANY").
WHEREAS, the Company desires to obtain funds to finance its operations,
expand its marketing activities, purchase and install lip and eye pencil and
other manufacturing equipment, make payments to vendors, acquire and/or initiate
new product brands, acquire other companies which are accretive to its existing
business and for, working capital purposes.
WHEREAS, the Pioneer Partnership desires to provide funds to the Company
for such purposes on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the investment to be made, mutual
benefits to be derived hereby and the representations, warranties, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and the
Pioneer Partnership agree as follows:
ARTICLE I. SALE AND TRANSFER OF STOCK
1.1 SERIES C SENIOR CONVERTIBLE PREFERRED STOCK.
(a1) Upon the terms and subject to the conditions hereinafter set forth,
at the various closings (as hereinafter defined and set forth), the
Company shall issue, sell, transfer and deliver to the Pioneer
Partnership an aggregate of one hundred thousand (*100,000*) shares
of the Company's Series C Senior Convertible Preferred Stock, $.01
par value (the "PREFERRED STOCK") at the Purchase Price set forth in
Section 1.2 hereof; the Preferred Stock shall have the terms and be
issued subject to the conditions as set forth herein and in the
Series C Certificate of Designation to be filed and recorded with
the Secretary of State of the State of Delaware upon the occurrence
of the First Closing as set forth below.
<PAGE>
Investment Agreement
Page 2
(b1) At the first closing ("FIRST CLOSING") on September 3, 1998, the
Company shall issue, sell, transfer and deliver to the Pioneer
Partnership seventy-eight thousand three hundred thirty-three
(*78,333*) shares of Preferred Stock upon payment of the Purchase
Price therefor and satisfaction of the conditions contemplated
herein.
(b2) At one or more subsequent closings ("SUBSEQUENT CLOSINGS"), the
Company shall issue, sell, transfer and deliver to the Pioneer
Partnership up to an additional twenty-one thousand six hundred
sixty-seven (*21,667*) shares of Preferred Stock upon payment of the
Purchase Price therefor and satisfaction of the conditions
contemplated herein and upon the conditions to be determined in
accordance herewith.
(b2) At the First Closing, the Company shall issue one hundred
twenty-five thousand (125,000) warrants each to purchase one (1)
share of Common Stock, as defined in ss.1.3 hereof, at a price four
($4.00) dollars per share, subject to adjustment as stated therein.
The warrants shall be immediately detachable and transferable; the
warrants shall be exercisable during the sixty (60) month period
commencing on the date of the First Closing.
(c) At the First Closing, the Company shall reserve twenty-one thousand
six hundred sixty-seven (*21,667*) shares to be delivered in whole
or in part at the Second Closing.
(d) Upon sale and issuance to the Pioneer Partnership each share of
Preferred Stock shall be free and clear of all manner of liens,
pledges, encumbrances, charges and claims thereon.
(e) Certificates evidencing the Preferred Stock shall be delivered by
the Company to the Pioneer Partnership at each Closing. Such
certificates shall also be accompanied by evidence satisfactory
to the Pioneer Partnership of the Company's payment of any
applicable transfer and franchise taxes. Said stock will not be
issued in a transaction registered with the U.S. Securities and
Exchange Commission ("COMMISSION") and shall, therefore, be
restricted from resale to the public. The Preferred Stock
Certificate shall be in the form annexed hereto as EXHIBIT 1.1.
<PAGE>
Investment Agreement
Page 3
1.2 PURCHASE PRICE, AND PAYMENT.
The Purchase Price for the Preferred Stock to be sold to the Pioneer
Partnership pursuant to this Investment Agreement shall be sixty ($60) dollars
per share, aggregating $6,000,000. Upon the occurrence and consummation of the
First Closing, and in consideration therefor, the Pioneer Partnership shall pay
the Company at that Closings, by wire transfer or by check, the sum of four
million six hundred ninety-nine thousand nine hundred eighty ($4,699,980.00)
dollars as full consideration for its subscription therefor; upon the occurrence
and consummation of all of the Subsequent Closings, if so consummated, and in
consideration therefor, the Pioneer Partnership shall pay the Company at the
Subsequent Closings, by wire transfer or by check, the aggregate sum of one
million three hundred thousand ($1,300,020.00) dollars as full consideration for
its subscription therefor. Each Subsequent Closing shall be in minimum
investment amounts of five hundred thousand ($500,000) dollars. The Subsequent
Closings shall all occur no later than one year from the date hereof and upon
forty-five (45) days of notice by the Company; such notice period may be
decreased with the consent of the Pioneer Partnership. No Subsequent Closing
shall occur unless the Company has satisfied each and every term of this
Agreement. Failure of the Pioneer Partnership to close each Subsequent Closing
within such forty-five (45) days shall entitle the Company to bring an action to
enforce the remedy of specific performance; the Pioneer Partnership shall have
the right to cure without penalty of any kind by completing the Subsequent
Closing on or before the date an answer is due in litigation. See also Article
VII for the requirements of each Closing.
<PAGE>
Investment Agreement
Page 4
1.3 CONVERTIBLE INTO COMMON.
Each share of Preferred Stock shall be convertible at the option of the
holder at any time and from time to time. The number of shares of the Company's
common stock, $.01 par value (the "COMMON STOCK"), that shall be issued upon
conversion of each share of Preferred Stock shall equal $60 divided by the
Conversion Price (as defined below). The Conversion Price shall be $5.4375 per
share (the "CONVERSION PRICE"). The Conversion Price and number of shares of
Common Stock issuable upon conversion of the Preferred Stock will be subject to
adjustment in certain circumstances upon any recapitalizations, including but
not limited to stock splits, readjustments or reclassifications, to protect
against dilution, as set forth in more detail in Sections 1.7 hereof.
1.4 CUMULATIVE DIVIDEND. Holders of the Preferred Stock shall also be
entitled to a cumulative cash dividend of $4.80 per share annually; the dividend
shall be payable quarterly in arrears ($1.20 per share) calculated on a 360-day
year consisting of twelve 30-day months, and payable immediately out of the
assets of the Company legally available therefor. The Preferred Stock dividend
shall be paid before any dividend shall be set apart or paid on the Common Stock
for such quarter or for any other class of capital stock which has a preference
junior to this Preferred Stock. The Series C Preferred Stock shall be senior to
all other classes of preferred stock. If less than the full preferential
dividend is paid (as a partial payment or if no dividend is paid) to the holders
of the Preferred Stock in any quarter, the unpaid amount shall accumulate and be
added to the preferential dividends due in any subsequent quarter, in which case
such unpaid amounts shall be paid first and the newly accrued dividends of the
then current quarter, to the extent are unpaid, shall accumulate until paid. No
dividends shall be paid to the holders of the Common Stock if any dividends are
unpaid on the Preferred Stock. No class of capital stock shall be paid any
dividend unless and until all dividends accrued and unpaid are paid on the
Preferred Stock are paid in full. The dividends may be paid, in whole or in
part, by the issuance of additional shares of Series C Preferred Stock upon the
same terms as cash dividends payable hereunder except such shares shall bear a
cumulative cash dividend of $7.80 per share annually. In addition, if there is a
Dividend Arrearage (as defined in the Certificate of Designation, as hereinafter
defined) an Additional Dividend (as defined in the Certificate of Designation,
as hereinafter defined) shall be paid as set forth Company's Certificate of
Designation creating the Preferred Stock (the "CERTIFICATE OF DESIGNATION").
<PAGE>
Investment Agreement
Page 5
1.5 LIQUIDATION.
In cases of the voluntary or involuntary liquidation, bankruptcy,
receivership, dissolution or winding up of the Company, holders of shares of the
Preferred Stock shall be entitled to receive a liquidation preference equal to
sixty ($60.00) dollars per share plus interest thereon from the date of date of
issue until redemption or conversion at the compounded rate of 20% per annum,
but in no event more than an aggregate of $175.00 per share (the "LIQUIDATION
PREFERENCE") plus an amount equal to any accrued and unpaid dividends to the
payment date, before any payment or distribution is made to the holders of
Common Stock or any other securities of the Company. Neither a consolidation or
merger of the Company with another corporation nor a sale or transfer of all or
part of the Company's assets for cash, securities or other property will be
considered a liquidation, dissolution or winding up of the Company, provided
that all accrued but unpaid dividends on the Preferred Stock will be due and
paid upon the occurrence of such event or upon the closing of a public offering
of the Company's securities.
1.6 RESERVATION OF SHARES; SHARES TO BE FULLY PAID. As of the date hereof,
the Company has reserved, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, or out of shares of Common Stock held in its
treasury, sufficient shares to provide for the conversion of the Preferred
Stock. Before taking any action which would cause an adjustment reducing the
conversion value below the then par value, if any, of the shares of Common Stock
issuable upon conversion of the Preferred Stock, the Company shall promptly take
all corporate action which may be necessary in order that the Company may
validly and legally issue shares of such Common Stock at such adjusted
conversion price. The Company covenants that all shares of Common Stock which
may be issued upon conversion of the Preferred Stock will upon issue be fully
paid and nonassessable.
<PAGE>
Investment Agreement
Page 6
1.7 ANTI-DILUTION RIGHTS. In order to allow the holders of the Preferred
Stock to maintain their PRO RATA share of the Company's capital stock on a fully
diluted basis, except as set forth in the next sentence of this ss.1.7 and
solely with respect to this ss.1.7, the holders of the Preferred Stock shall be
entitled, as of right, to purchase or subscribe for PRO RATA any stock of the
Company to be issued by reason of an increase of the issued stock of the
Company, or the creation a new class of securities, and the issuance of such
securities (collectively referred to as "NEW SECURITIES"). The anti-dilution
rights set forth hereinabove shall not be applicable to, and the definition of
"New Securities" shall not include, the following securities (the "EXEMPT
SECURITIES") (i) securities issued to employees, consultants or directors of the
Company pursuant to any stock option plan or stock purchase or stock bonus
arrangement approved by the Board of Directors, up to a maximum amount as
provided in Section 6.5, (ii) securities offered to the public pursuant to a
registration statement filed pursuant to the Securities Act, and (iii)
securities issued pursuant to an acquisition of another corporation by the
Company by merger, purchase of all or substantially all of the assets or other
reorganization whereby the Company owns not less than fifty-one (51%) percent of
the voting stock of such corporation.
(a) NOTICE AND EXERCISE OF ANTI-DILUTION RIGHTS. In the event the Company
proposes to issue New Securities, it shall give the holders of the
Preferred Stock written notice of its intention, describing the type of
New Securities, the price and general terms upon which the Company
proposes to issue the same. In exercising such anti-dilutive rights, the
holders of the Preferred Stock shall be given thirty (30) days from the
receipt of such notice to agree to purchase or subscribe for such New
Securities, at the same price and on the same terms, in the proportion
that the number of shares of Common Stock that underlies the Preferred
Stock, if converted, bears to the sum of (1) the total number of shares of
Common Stock issued and outstanding and (2) the number of such underlying
shares.
<PAGE>
Investment Agreement
Page 7
(b) OVER-ALLOTMENT. The holders of the Preferred Stock shall have the
right of over-allotment such that, in the event other holders having
anti-dilutive rights fail to exercise such right to purchase all of the
New Securities, the remaining holders of the Preferred Stock may purchase
the non-purchasing holders' New Securities not so purchased, on a PRO RATA
basis, based upon the respective fully diluted Common Stock ownership in
the Company of each such remaining holder of Preferred Stock, within
fifteen (15) days from the date the non-purchasing holders fail to
exercise their rights hereunder. The holders of the Preferred Stock shall
be required to commit in writing, at the time they exercise their
anti-dilution rights, the maximum amount of over-allotment shares they
agree to purchase, if any become available.
1.8 PERCENTAGE OF FULLY DILUTED SHARES. The 100,000 shares of Preferred
Stock to be delivered by the Company to the Pioneer Partnership as set forth
above shall, if converted, constitute three and eight-tenths (3.8%) of one
percent of the fully diluted issued and outstanding Common Stock of the Company
as of the Closing Date, as hereinafter defined, with such percentage including
conversion of all of the Preferred Stock issuable hereunder into Common Stock.
The term "FULLY DILUTED" as used in this Agreement shall mean the number of
shares of the Common Stock of the Company to be outstanding upon the exercise or
conversion of all warrants, options or other securities convertible into the
Common Stock of the Company.
1.9 VOTING RIGHTS AND PROHIBITIVE COVENANTS. The Preferred Stock shall
have full voting rights and shall be voted together with the Common Stock as one
class, and the shares of Preferred Stock shall entitle the holder thereof to the
number of votes as if the Preferred Stock had been converted into shares of
Common Stock on the appropriate record date. So long as an aggregate of 75,000
shares or more of the Common Stock, directly or through the possible conversion
of Preferred Stock, all on a fully diluted basis, are owned by the Pioneer
Partnership or its limited partners, collectively, the Company shall not without
the prior written consent of the Pioneer Partnership or its limited partners (in
the event of a distribution of such securities to such limited partners) which
consent shall not be unreasonably withheld or unduly delayed (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the bylaws of the
Company so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Preferred Stock, (ii) except
for the Exempt Securities, authorize or issue any additional equity securities
of the Company or any subsidiaries, (iii) other than the acquisition of
Fragrance Impressions, Ltd., approve any merger, consolidation, compulsory share
exchange or sale of assets to which the Company is a party, (iv) repurchase or
redeem any equity securities or pay dividends or other distributions on any
equity securities, except as provided for the Preferred Stock, (v) liquidate,
dissolve, recapitalize or reorganize the Company, (vi) guarantee indebtedness,
of other persons, directly or indirectly except with respect to any wholly owned
subsidiaries, (vii) effect any fundamental changes in the nature of the
Company's business, including but not limited to acquiring or investing in
another business entity, and (viii) approve the sale or transfer of any material
intangible or intellectual property, other than the issuance of licenses in the
ordinary course of business.
<PAGE>
Investment Agreement
Page 8
1.10 VOTING AGREEMENTS CONCERNING DIRECTORS.
(a) GENERALLY. Effective immediately prior to or concurrently with the
First Closing, one (1) nominee of the Pioneer Partnership, Robert A.
Lerman or its designee, shall be elected a director of the Company for
successive one-year terms. So long as the Pioneer Partnership shall own
any Preferred Stock or Common Stock, the Board of Directors of the Company
shall nominate and include in the list of candidates for directors
recommended by the Board of Directors, and use its best efforts to have
elected one nominee of the Pioneer Partnership. The nominee of the Pioneer
Partnership shall be reasonably acceptable to the board of directors of
the Company to serve as a director. Grounds for rejecting such nominee
shall be any matter of record of the nominee which would cause the Company
to be in violation of any order issued by the Commission or such nominee
is disqualified as a result of Rule 262(b) promulgated under the 1933 Act
provided, however, no such nominee shall be an affiliate of any competitor
of the Company. Should the Pioneer Partnership nominee decline to be
nominated or elected, another of the Pioneer Partnership's designees shall
have the right to attend any and all meetings of the board of directors of
the Company, and the Company shall be required to deliver notice to such
designee as if such designee were a director. In furtherance of the
foregoing, the Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth, Mahendra
Sheth, Viren S. Sheth, Jay J. Sheth, Transvit Manufacturing Corporation,
Starion International Limited, Starion B.V.I., Aron Zutler, Peter Liman,
Richard Howard, Robert Viola, Richard P. Rifenburgh, Robert R. Sparacino,
Nevell Investments, S.A., or any trusts, or other entities or affiliates
(collectively "PRINCIPAL SHAREHOLDERS") holding the voting rights to their
shares, shall simultaneously execute and deliver to the Pioneer
Partnership a Voting and Shareholders Agreement confirming the terms of
Sections 1.10 and 6.4 hereof.
<PAGE>
Investment Agreement
Page 9
(b) ADDITIONAL NOMINEES OF THE PIONEER PARTNERSHIP ON DEFAULT. In the
event that the Company shall default in the due and punctual payment of
any installment of the cumulative dividends on the Preferred Stock when
and as the same shall become due and payable and such default shall
continue for 30 days and provided the Pioneer Partnership and/or its
limited partners (if such limited partners are holding such shares
directly) shall be the holder(s) of an aggregate of 75,000 shares or more
of the Common Stock, directly or through the possible conversion of
Preferred Stock, all on a fully diluted basis, in addition to the other
remedies available to the Pioneer Partnership, the Pioneer Partnership
shall nominate, and the Board of Directors of Company shall use its best
efforts to have promptly elected or appointed one (1) additional
individual to such directorship; the board of directors shall then be
comprised of members constituting at least a simple majority of directors
who are independent of the Core Sheth Families and the Company, and of
which two directors shall be the Pioneer Partnerships' nominees; such
election or appointment shall be effective no later than 30 days after and
during the continuation of any such defaults. The two directors selected
by the Pioneer Partnership together with the other independent outside
directors shall form and constitute the Company's Post-Default Executive
Committee which shall be granted full executive and operational control
over the Company's operations. To facilitate the foregoing, the Company
has, concurrently with the execution hereof, amended its by-laws in a
manner satisfactory to the Pioneer Partnership. The Company hereby
covenants it shall not change such amended provision of its by-laws
without the Pioneer Partnership's prior written consent. Failure to obtain
such prior written consent to any such change shall constitute an
additional Event of Default under the Preferred Stock.
<PAGE>
Investment Agreement
Page 10
1.11 TRANSFER AGENT. The Company shall act as transfer agreement for the
Preferred Stock.
1.12 USE OF PROCEEDS. (A) The net proceeds to be received by the Company,
after deduction of all applicable expenses of the Closings will be approximately
$4,200,000, and the gross proceeds shall be used and applied only as follows:
AMOUNT WHICH MAY BE
USED FROM
CLOSING FUNDS:
-----------------------
FIRST SUBSEQUENT
USE OF PROCEEDS CLOSING CLOSINGS
---------- ----------
(a) Capital Equipment:
lip and eye pencil
manufacturing
equipment, other major
equipment purchases. $ 450,000 $ 300,000
(b) Costs of Closings:
i. Finder's Fee $ 200,000 0
ii. Investment Banking Fee $ 100,000 0
iii. Audit, Legal, Other $ 115,000 0
(c) Payments to Vendors:
a. Affiliated Companies $ 400,000 0
b. Unaffiliated $ 600,000 0
(d) Working Capital: $ 850,000 $1,000,000
(e) Marketing: $ 500,000 0
(f) Brands/Competitor Acquisition: $1,500,000 0
---------- ----------
$4,700,000 $1,300,000
========== ==========
<PAGE>
Investment Agreement
Page 11
The Company shall expend these funds for the purposes indicated. No
portion of the gross proceeds will be paid to the principal stockholders,
officers, directors, or their affiliates or associates except as provided below.
No portion of the net proceeds of any Closing may be paid to those persons,
directly or indirectly, as consultant fees, advisor fees, officer salaries or
director fees or for the purchase of shares or other payments, or to make loans.
However, funds allocated generally to working capital may be used for salaries
and wages of the general employee population, and for board approved salaries of
its executive officers and board approved consulting, directors and advisors
fees. Without the prior approval of the Compensation Committee of the board of
directors of the Company, the Company and its officers and directors shall not
authorize or implement any material increases in compensation for salaries,
wages or fees as compared to those disclosed in either the offering document
issued and delivered to the Pioneer Partnership, if any, or in the annual report
on Form 10-K or 10-KSB most recently filed with the SEC and delivered to the
Pioneer Partnership, whichever is most recent. Material increases for purposes
of this section 1.12 shall mean a ten (10%) percent or greater increase. No
portion of the proceeds of any Closing will be used to pay cash finder's fees
nor will the Company issue securities in payment of finder's fees to the
principal stockholders, officers, directors, or their affiliates or associates.
(B) No proceeds of any Closing shall be paid to or used for Nevell
Investments S.A. or any of its shareholders, officers, directors, subsidiaries
or affiliates to pay, directly or indirectly, principal or interest on any loans
or advances made by such party to the Company or its Subsidiaries.
(C) No proceeds of any Closing shall be paid to or used for the Core Sheth
Families, Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth, Mahendra Sheth,
Viren S. Sheth, Jay J. Sheth, Transvit Manufacturing Corporation, Starion
International Limited, Starion B.V.I., Ibrahhim Ahmed Al-Musbahi, Aron Zutler,
Peter Liman, Robert Viola, Richard Howard, or Nevell Investments S.A. or any of
their subsidiaries or affiliates to pay, directly or indirectly, principal or
interest on any loans or advances made by such party to the Company or its
Subsidiaries, unless specifically allocated in this ss.1.12.
<PAGE>
Investment Agreement
Page 12
(D) No proceeds of any Closing shall be paid to or used for Transvit
Manufacturing Corporation or any of its shareholders, officers, directors,
subsidiaries or affiliates to pay, directly or indirectly, principal or interest
on any loans or advances made by such party to the Company or its Subsidiaries.
(E) Notwithstanding anything herein to the contrary, proceeds from any
Closing may be used to purchase merchandise and other goods from the operating
affiliates of the Core Sheth Families in the ordinary course of business.
1.13 RIGHT OF FIRST REFUSAL. For so long as an aggregate of 75,000 shares
or more of Common Stock, directly or through the possible conversion of
Preferred Stock, all on a fully diluted basis, are owned by the Pioneer
Partnership, the Pioneer Partnership, shall have the right to co-invest along
with the Company (a) as an equity participant in any acquisitions on mutually
acceptable terms, or (b) the right of first refusal to provide financing subject
to ss.1.15. for any potential acquisition. All acquisitions which are
synergistic with current activities of the Company shall be excluded from the
right to co-invest and the right of first refusal.
1.14 TERMS OF CO-INVESTMENT. In the event the Pioneer Partnership
co-invests along with the Company as an equity participant in an acquisition,
the co-investment shall be on mutually acceptable terms.
1.15 TERMS OF FINANCING. In the event the Company has secured a commitment
for the financing of an acquisition, the Pioneer Partnership shall have the
right of first refusal to match such financing terms and thereafter to finance
the acquisition, to the extent that such acquisition is not funded by BNY
Financial Corporation, for so long as an aggregate of 75,000 shares or more of
Common Stock, directly or through the possible conversion of Preferred Stock,
all on a fully diluted basis, are owned by the Pioneer Partnership or its
limited partners. The Pioneer Partnership shall be required to commit to fund
either its co-investment right or its right of first refusal, as set forth
herein, within thirty (30) days of its receipt of notice given under ss.1.16.
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Investment Agreement
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1.16 NOTICE OF INTENDED ACQUISITIONS. The Company shall forward to the
Pioneer Partnership notice at least 30 days prior to the closing of all
acquisitions, for so long as an aggregate of 75,000 shares or more of Common
Stock, directly or through the possible conversion of Preferred Stock, all on a
fully diluted basis, are owned by the Pioneer Partnership.
1.17 REDEMPTION.
(A) The Company, and Manhendra Sheth, Shashikant S. Sheth, Jammadas
Sheth, Kirit Sheth, Jay J. Sheth, and Viren S. Sheth (such individuals are
herein referred to as collectively the "CORE SHETH FAMILIES") shall have the
right to compel each holder of the Series C Preferred Stock to redeem any or all
of the shares of Series C Preferred Stock held by such holder on any Quarterly
Dividend Payment Date (for purposes of this ss.1.17 such date shall be the
"REDEMPTION DATE"), provided written demand as set forth below is given. The
redemption price for each share to be redeemed shall be paid by the Company
and/or the Core Sheth Families in cash in an amount equal to (i) the price in
the first (1st) year following the date of this Agreement to be the higher of
the closing market price of the Common Stock on the Date of Redemption or $12
per share of Common Stock, on a post-conversion basis; (ii) the price in the
second (2nd) year following the date of this Agreement to be the higher of the
closing market price of the Common Stock on the Date of Redemption or $14 per
share of Common Stock, on a post-conversion basis; (iii) the price in the third
(3rd) year following the date of this Agreement to be the higher of the closing
market price of the Common Stock on the Date of Redemption or $16 per share of
Common Stock, on a post-conversion basis; (iv) the price in the fourth (4th)
year following the date of this Agreement to be the higher of the closing market
price of the Common Stock on the Date of Redemption or $18 per share of Common
Stock, on a post-conversion basis; (v) the price in the fifth (5th) year
following the date of this Agreement to be the higher of the closing market
price of the Common Stock on the Date of Redemption or $20 per share of Common
Stock, on a post-conversion basis; (all subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) (the "REDEMPTION PRICE").
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Investment Agreement
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(B) Thirty (30) days prior to the Redemption Date, the Company and/or the
Core Sheth Families, as applicable, shall provide each holder of Series C
Preferred Stock with a written demand ("REDEMPTION NOTICE") (addressed to the
holder at its address as it appears on the stock transfer books of the Company)
to redeem shares of Series C Preferred Stock as provided above, which notice
shall specify the Redemption Price and the number of shares to be redeemed. All
Redemption Notices hereunder shall be sent by certified mail, returned receipt
requested, and shall be deemed to have been provided when received.
(C) On or prior to the Redemption Date, each holder of Series C Preferred
Stock shall surrender his or its certificate or certificates representing the
shares to be redeemed, in the manner and at the place designated in the
Redemption Notice. If less than all shares represented by such certificate or
certificates are redeemed, the Company shall issue a new certificate for the
unredeemed shares. From and after the Redemption Date, unless there shall be a
default in payment of the Redemption Price, all rights of each holder with
respect to shares of Series C Preferred Stock redeemed on the Redemption Date
shall cease (except the right to receive the Redemption Price and interest at
the rate of 13% in the event payment is not made within 20 days after the
Redemption Date), and such shares shall not be deemed to be outstanding for any
purpose whatsoever. Such shares of Series C Preferred Stock shall not be
reissued.
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Investment Agreement
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ARTICLE II. REGISTRATION RIGHTS
2.1 DEMAND REGISTRATION. The Company agrees that after January 31, 1999 it
shall promptly upon the request of the Pioneer Partnership or its limited
partners (each such holder of such securities a "HOLDER" and collectively
"HOLDERS") for so long as such Holders in the aggregate, are holders of 75,000
shares or more of the Company's Common Stock, directly or through the possible
conversion of Preferred Stock, all on a fully diluted basis, on one (1)
occasion, shall, at the Company's sole cost and expense, use its best efforts to
cause any or all of the Preferred Stock and/or the underlying securities
issuable upon conversion of the Preferred Stock (collectively the "REGISTRABLE
SECURITIES"), to be the subject of an appropriate Registration Statement, so as
to enable the requesting Holders ("INITIATING HOLDERS") to publicly offer
without restriction such securities. Upon receipt of a written request by the
Initiating Holders, the Company will promptly give written notice of the
proposed registration to all other Holders and as soon as practicable, use its
diligent best efforts to effect such registration with the Commission
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification filings under applicable
state securities (blue sky) laws and appropriate compliance with applicable
regulations issued under the 1933 Act). The Company shall file such registration
statement pursuant to the Securities Act of 1933, as amended (the "1933 ACT") to
register the Registrable Securities for resale. The Company shall use its best
efforts to cause such registration statement to become and remain effective
(including the taking of such steps as are reasonably necessary to obtain the
removal of any stop order) on a timely basis.
2.2 PIGGYBACK REGISTRATION. (A) So long as the Pioneer Partnership or its
limited partners are the holders of 75,000 shares or more of the Company's
Common Stock, directly or through the possible conversion of Preferred Stock,
all on a fully diluted basis, if the Company shall register any of its
securities for sale pursuant to any appropriate Registration Statement under the
1933 Act, the Company shall be required to offer the Holders the opportunity to
register any or all the Registrable Securities, without
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Investment Agreement
Page 16
cost to the Holders thereof. In connection with these piggy-back registration
rights, the Company shall give all of the Holders notice by certified mail at
least thirty (30) business days prior to the filing of such Registration
Statement under the Act. The Holders shall then have twenty-five (25) days to
elect to include all or a portion of its Registrable Securities for sale in the
Registration Statement. (B) The registration requirement shall not apply to a
Registration Statement filed by the Company pursuant to Form S-8 or S-4 with the
sole and express purpose of registering shares for employees or for stock
incentive plans, or any other inappropriate form. (C) If the registration of
which the Company gives notice is for a registered public offering involving an
underwriting, the Company will so advise the Holders. In such event, these
registration rights shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter selected by the
Company. In the event that the lead or managing underwriter in its good faith
judgment determines that material adverse market factors require a limitation on
the number of shares to be underwritten, the underwriter may limit the number of
Registrable Securities. In such event, the Company shall so advise all holders
of securities requesting registration, and the number of shares of securities
that are entitled to be included in the registration and underwriting shall be
allocated PRO RATA among all Holders and other participants other than the
Company in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and other securities which they had requested to be
included in such registration statement at the time of filing the registration
statement. If any Holder disapproves of the terms of any such underwriting, he
may elect to withdraw therefrom by written notice to the Company and the
underwriter, provided such notice is delivered within 60 days of full disclosure
of such terms to such Holder, without thereby affecting the right of such Holder
to participate in subsequent offerings hereunder.
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Investment Agreement
Page 17
2.3 REGISTRATION COVENANTS. In the case of each registration effected by
the Company pursuant to this Article II, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will:
(i) Keep such registration effective for a minimum period of 270
days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever
first occurs; PROVIDED, HOWEVER, that in the case of any
registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 270
day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities
Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment, permit,
in lieu of filing a post-effective amendment which (1) includes any
prospectus required by Section 10(a)(3) of the Securities Act, or
(2) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement,
the incorporation by reference of information required to be
included in (1) and (2) above to be contained in periodic reports
filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(ii) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably
request; and
(iii) In connection with any underwritten offering, the Company and
the Holders will enter into any underwriting agreement reasonably
necessary to effect the offer and sale of Registrable Securities,
provided such agreement contains customary underwriting provisions.
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Investment Agreement
Page 18
2.4 BLUE SKY REGISTRATION. The Company will use its best efforts to
register or qualify the Registrable Securities covered by any registration
statement under the 1933 Act and under such securities or blue sky laws in such
jurisdictions within the United States as the Pioneer Partnership may reasonably
request; PROVIDED, HOWEVER, that the Company reserves the right, in its sole
discretion, not to register or qualify such shares of Common Stock in any
jurisdiction in which such shares of Common Stock do not satisfy the
requirements of such jurisdiction or in which the Company would be required to
qualify as a foreign corporation to do business in such jurisdiction and is not
so qualified therein. The Company covenants that notwithstanding the above, that
it shall use its best efforts, at a minimum, to register or qualify the
Registrable Securities in the States of Connecticut and New York.
2.5 DEREGISTRATION. In the event the Pioneer Partnership has not sold all
of the Registrable Securities included in the registration statement or prior to
the expiration of the 270 day registration period under section 2.3, the Pioneer
Partnership hereby agrees that the Company may deregister by post-effective
amendment any Registrable Securities of the Pioneer Partnership covered by the
registration statement but not sold on or prior to such date.
2.6 POST-EFFECTIVE AMENDMENTS. The Company agrees that it will notify the
Pioneer Partnership of the filing and effective date of each such post-effective
amendment.
2.7 RIGHT TO DELAY. The Company shall have the one-time right, after it
shall have received written notice pursuant to section 2.1, to elect not to file
or to delay any such proposed registration statement by not more than 60 days,
or to withdraw the same after the filing but prior to the effective date
thereof; such withdrawal shall renew the demand registration rights under
section 2.1. In addition, the Company may delay the filing of any registration
statement requested pursuant to section 2.1 hereof by not more than 60 days if
the Company, prior to the time it would otherwise have been required to file
such registration statement, determines in good faith that the filing of the
registration statement would require the disclosure of non-public material
information that, in its judgment, would be detrimental to the Company if so
disclosed or would otherwise adversely affect a financing, acquisition,
disposition, merger or other material transaction.
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Investment Agreement
Page 19
2.8 SELECTION OF UNDERWRITERS. If a Demand registration pursuant to
section 2.1 hereof involves an underwritten offering, either the Pioneer
Partnership or the Company shall have the right to select the investment banker
or investment bankers and manager or managers that will serve as the underwriter
with respect to the underwritten offering; however the party not selecting such
underwriter shall have the right to approve the underwriter and such approval
shall not be unreasonably withheld or delayed without a material reason stated
in writing.
2.9 PRINCIPAL SHAREHOLDERS. The Company will not file a registration
statement on behalf of any Principal Shareholder (as that term is defined in the
Voting and Shareholders Agreement between the Pioneer Partnership and certain
shareholders of the Company, dated on or about the date hereof) as selling
shareholders without the prior written approval of the Pioneer Partnership.
2.10 INTENTIONALLY OMITTED.
2.11 INDEMNIFICATION BY COMPANY RE REGISTRATION RIGHTS. The Company will
indemnify each Holder, each of its officers, directors and partners, and each
person controlling such Holder, with respect to which registration,
qualification or compliance has been effected pursuant to this Article II, and
each underwriter, if any, and each person who controls any underwriter against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any prospectus, offering statement, notification or
the like incident to any such registration, qualification or compliance, or
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Investment Agreement
Page 20
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each such Holder, each of its
officers, directors and partners, and each person controlling such Holder, each
such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
PROVIDED THAT the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein.
2.12 INDEMNIFICATION BY HOLDER. Each Holder will, if Registrable
Securities or other securities held by him are included in the securities as to
which such registration, qualification, or compliance is being effected,
indemnify the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each person who controls the Company or such underwriter within the meaning of
the Securities Act and the rules and regulations thereunder, each other such
Holder and each of their officers, directors, and partners, and each person
controlling such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein provided, however, that the obligations of such Holders hereunder shall
be limited to an amount equal to the proceeds to each such Holder of securities
sold pursuant to this Article II.
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Investment Agreement
Page 21
2.13 NOTICE OF INDEMNITY AND DEFENSE. Each party entitled to
indemnification under this Section (the "INDEMNIFIED PARTY") shall give notice
to the party requiring to provide indemnification (the "INDEMNIFYING PARTY")
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of such
claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnified Party of its obligations under
this Article II. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
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Investment Agreement
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ARTICLE III. CO-SALE PROVISIONS
3.1 THIRD-PARTY OFFER AND NOTICE. Any sale of the capital stock of the
Company by any Principal Shareholder will be subject to a participation right of
co-sale by the Pioneer Partnership or its limited partners on a PRO RATA fully
diluted basis. If any one or more of the Principal Shareholders obtains from a
third party ("THIRD PARTY PURCHASER") an offer to purchase any amount of their
shares, such Principal Shareholders shall submit a written notice (the "CO-SALE
NOTICE") to the Pioneer Partnership disclosing the amount of shares proposed to
be sold, the offered purchase price, the proposed closing date, and the total
number of shares owned by the Principal Shareholders.
3.2 CO-SALE RIGHT OF PARTICIPATION. Upon receipt of a Co-Sale Notice from
any Principal Shareholder, the Pioneer Partnership or its limited partners may
elect to participate in such transaction and shall have the right to offer its
securities, at the same price and on the same terms. Each participating selling
party who elects to participate in such sale shall be entitled to sell his Pro
Rata Share (as herein defined) of the number of shares the purchaser is willing
to purchase. "PRO RATA SHARE" as used in the preceding sentence means the
product of the number of shares owned by such party and a fraction, the
numerator of which is the number of fully diluted shares held by such party and
the denominator of which is the total number of fully diluted shares held by all
shareholders participating in a subject sale. Each participating selling party
shall in turn be entitled to receive at the applicable closing the net proceeds
of the sale allocable to the securities sold on behalf of each selling
shareholder, after deduction of such selling shareholder's proportionate share
of the reasonable expenses of the sale.
3.3 EXCLUDED SALES. These co-sale provisions will not apply to any sale of
securities pursuant to a distribution to the public, whether pursuant to a
registered public offering, Rule 144 or otherwise.
3.4 NOTICE OF INTENT TO PARTICIPATE IN CO-SALE. If the Pioneer Partnership
wishes to participate in any sale under this Article III, then the Pioneer
Partnership shall notify the selling Principal Shareholders in writing of such
intention as soon as practicable after such the Pioneer Partnership's receipt of
the Co-Sale Notice made pursuant to Section 3.1, and in any event within fifteen
(15) days after the date of such Co-Sale Notice has been received. Such
notification shall be delivered in person or by facsimile to the Principal
Shareholders at the Company's offices.
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Investment Agreement
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to the
Pioneer Partnership each of which shall be deemed material, and the Pioneer
Partnership, in executing, delivering and consummating this Agreement, have
relied and will rely upon the correctness and completeness of each of such
representations and warranties:
4.1 ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Delaware; is duly qualified to transact business as a
foreign corporation and in good standing in the state(s) of Texas, New York, and
California, being all states in which its activities require qualification and
the failure to be so qualified would have a material adverse effect on the
business and operations of the Company; and has all corporate power necessary to
engage in the business in which it is presently engaged.
4.2 SUBSIDIARIES. The Company has no subsidiaries nor is it the subsidiary
of any other corporation or business entity EXCEPT for (a) Tristar de Mexico
S.A. de C.V. ("SUBSIDIARY" or "SUBSIDIARIES"). The Subsidiaries are all wholly
owned by the Company. The Subsidiary is an entity duly organized and validly
existing under the laws of the country of Mexico being all states or
jurisdictions in which its activities require qualification and the failure to
be so qualified would have a material adverse effect on the business and
operations of the Company or Subsidiary and have all corporate power necessary
to engage in the business in which it is presently engaged. The Subsidiary is
controlled by the Company, as such term is governed by section 20(a) of the 1933
Act. For purposes of this section, the term "SUBSIDIARY" is defined to mean any
corporation or other business entity, a majority of whose outstanding voting
stock or ownership interests entitled to vote for the election of directors or
such other governing body is, at the time, owned by the Company and/or one or
more other subsidiaries.
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Investment Agreement
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4.3 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance by
the Company of this Investment Agreement and all other documents and instruments
contemplated hereby have been duly authorized by all requisite corporate action.
A true, correct and valid copy of the Company's Board of Director's
resolution(s) authorizing the transactions and securities to be issued hereunder
has been delivered to the Pioneer Partnership. Neither the execution and
delivery of this Agreement nor compliance by the Company with any of the
provisions hereof nor the consummation of the transactions contemplated hereby,
will:
(a) violate or conflict with any provision of the Certificate of
Incorporation or bylaws of the Company or its Subsidiaries or any contract
to which the Company or any of its Subsidiaries is bound;
(b) violate or, alone or with notice or the passage of time, result in the
material breach or termination of, or otherwise give any contracting party
the right to terminate, or declare a material default under, the terms of
any material agreement or other document or undertaking, oral or written
to which the Company or any of its Subsidiaries is a party or by which it
or its properties or assets may be bound (except for such violations,
conflicts, breaches or defaults as to which required waivers or consents
by other parties have been, or will be obtained, prior to the Closing);
(c) result in the creation or imposition of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company
or any of its Subsidiaries pursuant to the terms of any such agreement or
instrument;
(d) violate any judgment, order, injunction, decree or award against, or
binding upon the Company or any of its Subsidiaries or upon their
properties or assets; or
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Investment Agreement
Page 25
(e) violate any law or regulation of any jurisdiction relating to either
the Company or any of its respective securities, assets or properties or
of any of its Subsidiaries.
4.4 VALIDITY. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms.
4.5 GOVERNMENT APPROVAL. Except for filing of a Form D with the Securities
and Exchange Commission, filing a Form D and a consent to service of process
with the Connecticut Department of Banking, and the filing of the Certificate of
Designation, no registration or filing with, or consent or approval of, or other
action by, any federal, state or other governmental agency or instrumentality is
or will be necessary for the valid execution, delivery and performance of this
Investment Agreement or any other document contemplated hereby.
4.6 CAPITALIZATION. There are (a) thirty million (30,000,000) shares of
Common Stock, $.01 par value, and (b) six hundred sixty-six thousand five
hundred twenty-nine (666,529) shares of Series A Preferred Stock, $.05 par
value, and (c) one hundred twenty thousand six hundred ninety (120,690) shares
of Series B Preferred Stock, $0.05 par value, authorized for issuance under the
Company's certificate of incorporation, as amended (delivered along with the
Company's bylaws to the Pioneer Partnership). Immediately prior to the First
Closing Date, there will be sixteen million seven hundred twenty-nine thousand
seventy-four (16,729,074) shares of Common Stock issued and outstanding, six
hundred sixty-six thousand five hundred twenty-nine (666,529) shares of Series A
Preferred Stock issued and outstanding, and one hundred twenty thousand six
hundred ninety (120,690) shares of Series B Preferred Stock issued and
outstanding. No shares of Common Stock are issuable pursuant to existing
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Investment Agreement
Page 26
agreements and there are no outstanding warrants, options or other securities
convertible into the Common Stock of the Company, EXCEPT the Class A Preferred
Stock and the Class B Preferred Stock each share of which is convertible into
one (1) share of Common Stock at an exercise price of $7.00 per share and four
(4) shares of Common Stock at an exercise price of $7.25 per share of Common
Stock, respectively, options to purchase in aggregate of (i) 156,000 shares of
Common Stock granted pursuant to the Company's Amended and Restated Stock Option
Plan, (ii) 634,000 shares of Common Stock granted pursuant to the Company's 1997
Long Term Incentive Plan and (iii) 605,000 shares of Common Stock granted
outside either of the foregoing plans and warrants to purchase (a) 2,000,000
shares of Common Stock at a price per share of $5.34, (b) 50,000 shares of
Common Stock and (c) 400,000 shares of Common Stock at a price per share of
$2.75. No other shares of Common Stock are issued or outstanding or committed
for issuance EXCEPT those committed for issuance upon conversion of the
Preferred Stock to be issued to the Pioneer Partnership hereunder.
4.7 ANNUAL REPORT AND THE FINANCIAL STATEMENTS. The Company has heretofore
furnished to the Pioneer Partnership copies of (a) the Company's annual report
on Form 10-K for fiscal year ended December 31, 1997 including the Company's
consolidated audited financial statements for its fiscal year ended December 31,
1997, and (b) the Company's consolidated unaudited interim financial statement
for the six months ended June 30, 1998, (hereinafter collectively referred to as
the "FINANCIAL STATEMENTS"). Such financial statements are true, correct and
complete in all material respects, and accurately set forth, in all material
respects, the financial condition of the Company and its Subsidiaries as of
their respective dates, and the results of operations for the fiscal periods
involved, and were prepared in conformity with generally accepted accounting
principles and practices consistently applied and are annexed hereto as EXHIBIT
4.7-A. The financial statements fairly present in all material respects the
financial condition and results of operations of the Company and its
Subsidiaries at the dates thereof and for the periods covered thereby. Except as
set forth in such financial statements, the Company and/or its Subsidiaries had,
as of September 3, 1998, no material obligation or liability, whether absolute,
accrued, contingent or otherwise.
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(a) The Company and/or its Subsidiaries have good and marketable title to
all of its property and assets subject to no mortgage, pledge, lien or
other encumbrance except as disclosed in EXHIBIT 4.7-B annexed hereto and
made a part hereof.
(b) The Company and/or its Subsidiaries had no obligations, liabilities or
commitments, contingent or otherwise, of a material nature which were not
provided for except as set forth in EXHIBIT 4.7-A and EXHIBIT 4.7-B and
except those incurred in the normal course of business since December 31,
1997 and March 31, 1998.
(c) Since December 31, 1997 there has been no materially adverse change in
the nature of the business of the Company and/or its Subsidiaries nor in
any of their financial condition or property, other than changes in the
usual or ordinary course of business, and the Company has incurred no
obligations or liabilities nor made any commitments other than in the
usual and ordinary course of business or as disclosed in EXHIBIT 4.7-A and
EXHIBIT 4.7-B.
(d) The Company and/or its Subsidiaries are not a party to any employment
contract with any officer, director, or stockholder, or to any lease,
agreement or other commitment not in the usual and ordinary course of
business, nor to any pension, insurance, profit-sharing or bonus plan,
except as disclosed in EXHIBIT 4.7-A and EXHIBIT 4.7-B.
4.8 PATENTS, TRADEMARKS, ETC. All of the officers, directors, principals
and the affiliates of the Company have assigned and transferred all of their
Patents, as defined below, to the Company. The Company and/or its Subsidiaries
own or possess, without any adverse claims with respect thereto, and without
known conflict with the rights of
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Investment Agreement
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others, except as disclosed in EXHIBIT 4.8, the rights to the patents,
trademarks, service marks, trade names, copyrights and licenses listed in
EXHIBIT 4.8 hereto and the same constitute all of the patents, trademarks,
service marks, service names, copyrights, and licenses necessary or used in the
conduct of the business of the Company (collectively the "PATENTS"). The Company
protects all technical, trade secret and confidential information developed by
and belonging to the Company and/or its Subsidiaries, which has not been
patented, by maintenance of secrecy relating thereto, and the Company and/or its
Subsidiaries will continue to seek to protect all such information, technology
and intellectual property by maintenance of secrecy related thereto.
4.9 TAXES. Except as set forth on EXHIBIT 4.9, the Company and each of the
Subsidiaries has filed all applicable federal, state, county and local tax and
franchise returns and reports required to be filed by it and has paid (or, as to
taxes not currently due and payable, has made adequate provision in accordance
with generally accepted accounting principles for the payment of) all income and
other taxes, assessments, franchise fees and other governmental charges required
by law (including, without limitation, withholding, social security, payroll and
similar taxes) and all interest and penalties, if any, thereon and all federal,
state, local and other taxes accruable since the filing of such returns have
been properly accrued. Except as set forth on Exhibit 4.9, no adverse
proceedings or other actions are pending or have been taken for the assessment
or collection of additional taxes of any kind from the Company and/or its
Subsidiaries for any period, and to the Company's knowledge, no investigation by
the Internal Revenue Service or any taxing authority affecting the Company
and/or its Subsidiaries is now pending. Except as set forth on Exhibit 4.9, all
taxes that the Company and/or its Subsidiaries are required by law to withhold
or collect have been withheld or collected and have been paid over to the proper
governmental authorities or are properly held by the Company for such payment.
4.10 APPROVALS. Except for claiming an exemption from section 5 of the
Securities Act of 1993 by filing a Form D or otherwise, and by claiming an
exemption from registration from applicable state Blue Sky laws by filing a Form
D and a consent to service of process with the Connecticut Department of
Banking, no authorization or approval of, or filing with, or compliance with any
applicable order, judgment, decree, statute, rule or regulation of, any court or
governmental authority, or approval, consent, release or action of any third
party, is required in connection with the execution and delivery by the Company
of, or the performance or satisfaction of any agreement of the Company contained
in or contemplated by, this Agreement.
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4.11 LITIGATION. Except as set forth in EXHIBIT 4.11, the Company and its
Subsidiaries are not a defendant, nor are they a plaintiff against whom a
counter-claim has been asserted in any actions, suits, claims, arbitrations,
administrative or other proceedings or governmental investigations seeking
$10,000 or more in damages, or any equitable relief, pending or, to the best of
the Company's knowledge, threatened against, relating to or affecting the
Company or any of the Subsidiaries, or their respective business, operations or
assets, not covered by insurance, or which question or seek to prevent
consummation of the transactions provided for in this Agreement, whether at law
or in equity, or before or by any Federal, state, local, foreign or other
governmental department, agency or instrumentality, nor to the best of its
knowledge is there any basis therefor. Except as set forth in Exhibit 4.11, the
Company and the Subsidiaries are not bound or adversely affected by or in
default with respect to any judgment, order, writ, injunction or decree of any
court or of any governmental department, agency or instrumentality.
4.12 SCHEDULE OF DOCUMENTS. The schedule of contracts including a summary
in tabular form of all material terms attached hereto as EXHIBIT 4.12 lists any
and all material (material for purposes of this paragraph only shall mean
$25,000) contracts or other material commitments or obligations relating to the
Company and its Subsidiaries, (a) to which a Principal Shareholder and/or
officer or director of the Company or any Subsidiary is a party, (b) all leases
of real and/or personal property, (c) union collective bargaining, employment,
management and consulting agreements to which the Company or any Subsidiary is a
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party, (d) compensation plans, bonus plans, deferred compensation arrangements,
pension and retirement plans, profit sharing plans, stock purchase and stock
option plans, (e) loan agreements and notes, (f) options to purchase property,
(g) stockholder agreements, and (h) all other material contracts or commitments
to which the Company is a party. Except as listed on EXHIBIT 4.12,, neither the
Company nor any of its Subsidiaries are a party to or bound by any material
contract or commitment (or group of related contracts or commitments), other
than contracts, or agreements in the ordinary course of business; nor is the
Company nor any of its Subsidiaries bound by any charter, contractual or other
corporate restriction that materially and adversely affect or could affect its
business, financial condition or prospects, or which restricts its right or
ability to operate its business as conducted or proposed to be conducted. On or
prior to the date hereof, the Company has delivered to the Pioneer Partnership
or a representative thereof, a true and correct copy or a summary of each of the
documents listed in EXHIBIT 4.12.
4.13 NO DEFAULTS. The Company and the Subsidiaries are not in violation
of, breach of or default under, and no event (including, without limitation,
execution of and consummation of the transactions provided for in this
Agreement) has occurred which with the passage of time or notice from or action
by any party thereto or otherwise could result in a violation of or default
under, or give any other person the right to terminate, as the case may be, any
indenture, mortgage, security, loan, lease or other material agreement to which
the Company or any of the Subsidiaries is a party or by which it is bound or
result in the creation, imposition or acceleration of any material lien of any
nature in favor of any other person.
4.14 LACK OF FELONIES. Except as disclosed in the proxy statement dated
January 14, 1998, as filed with the SEC, neither the Company nor its
Subsidiaries nor any of their respective principals, directors, or executive
officers have been convicted of or pled guilty to any felony under the laws of
the United States or any state thereof. No criminal arrests, proceedings or
actions are pending, nor have any been threatened in the last thirty-six (36)
months against any of such persons.
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4.15 NO JUDGMENTS. There are no judgments, decrees, binding decisions
outstanding against the Company or any of its Subsidiaries which were issued in
any legal proceeding of any kind by any court, arbitrator, panel, or other
governing or determining authority.
4.16 INSURANCE. The Company and its Subsidiaries are covered by policies
of general liability insurance with coverage of at least $2,000,000, and
workers' compensation insurance and extended coverage on its property. There
does not exist, nor has there been, any lapse in the coverage under such
insurance policies. Such policies are carried by a reputable and financially
stable insurance company and are sufficient to cover risks as are customarily
insured against by similar businesses. The Company represents it has adequate
insurance to replace a substantial amount of its assets.
4.17 NO BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with the Pioneer
Partnership by the Company, without the intervention of any broker, finder,
investment banker (except the Pioneer Ventures Corp.), or other third party, and
except for Greater Metropolitan who shall receive $200,000 payable by the
Company as a finder's fee. The Company has not engaged, consented to, or
authorized any broker, finder, investment banker or other third party to act on
its or his behalf, directly or indirectly, as a broker or finder in connection
with the transactions contemplated by this Agreement.
4.18 LOANS AND LIENS. Attached hereto as EXHIBIT 4.18 is a complete and
accurate list of all secured and unsecured loans to which the Company or any of
its Subsidiaries is a party as a borrower, debtor, guarantor or as a party
obligated thereunder and all other financial obligations or judgments to which
they are subject. Such schedule sets forth in tabular form the identity of the
borrower, lender, any guarantors, the original principal amount, the principal
amount due at a current date within 30 days hereof, the current standing of such
obligation, the due date, the interest rate, the amount of interest due with in
a recent date, and a summary of any material provisions not requested herein.
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4.19 SOLVENCY. The Company has not admitted in writing an inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made an assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for the whole or any substantial part of
its property, or had a petition in bankruptcy filed against it, been adjudicated
a bankrupt, or filed a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws or any other laws or of the United States or
any other jurisdiction.
4.20 REGISTRATION RIGHTS. Except as provided for herein, the Company is
not a party to any agreement or commitment that obligates the Company to
register under the Securities Act of 1933, as amended (the "1933 ACT"), any of
the Company's presently outstanding securities or any of the Company's
securities that may hereafter be issued.
4.21 COMPLIANCE WITH SECURITIES LAWS. Assuming the accuracy of the
representations contained in ss.5.5 hereof, the offer, grant, sale, and/or
issuance of the Shares shall not be in violation of the 1933 Act, the Securities
Exchange Act of 1934, as amended, (the "EXCHANGE ACT") any state securities or
"blue sky" laws, or the Company's organization documents such as the certificate
of incorporation or bylaws, when offered, sold and issued in accordance with
this Agreement.
4.22 TRANSFER RESTRICTIONS. There are no restrictions on the transfer of
capital stock of the Company imposed by its certificate of incorporation,
bylaws, other organization documents, any agreement to which the Company is a
party (other than those agreements expressly contemplated by this Agreement),
any order of any court or any governmental agency to which the Company is
subject, or any statute other than those imposed by relevant state and federal
securities laws.
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4.23 RELATED PARTY TRANSACTIONS. There are no agreements, understandings
or proposed transactions between the Company and any of its officers, directors
or other "affiliates" (as defined in Rule 405 promulgated under the 1933 Act)
which involve transactions exceeding $5,000, EXCEPT as outlined on EXHIBIT 4.23.
4.24 MISCELLANEOUS. Except as set forth in EXHIBIT 4.12, EXHIBIT 4.7-A or
EXHIBIT 4.7-B or the Financial Statements or notes thereto, (a) the Company is
not a party to or bound by any distribution, sales agency, franchise or similar
agreement or understanding that relates to the sale or distribution of its
products and services, (b) the Company does not have a sole-source supplier of
significant goods and services (other than utilities) with respect to which
practical alternative sources are not available on comparable terms and
conditions, (c) there are neither pending, nor threatened, any labor
negotiations involving or affecting the Company, and no organizing activities
involving union representation exists in respect of any of its employees, (d)
except in the ordinary course of business the Company is not bound by any
warranties relating to its products or services, and (e) there has been no
assertion of any breach of product or service warranties that could have a
material adverse affect on the business, financial condition or prospects of the
Company. Neither the Company nor any of its employees, consultants, officers or
directors is prohibited from engaging in any business activity that is currently
carried on or contemplated by the Company, by reason of any restrictive covenant
or agreement, including but not limited to, a covenant not-to-compete.
4.25 ADDITIONAL REPRESENTATIONS. The Company represents and warrants that:
(a) The investment to be consummated by the Pioneer Partnership in the
Company is NOT opposed by its board of directors;
(b) The Company is NOT engaged as a business in real estate investments,
and is not a real estate operating company;
(c) The Company is NOT undergoing a bankruptcy liquidation;
(d) The securities to be issued upon consummation of the Investment are
either exercisable for, or convertible into, equity securities at a
pre-determined exercise price or conversion ratio;
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Investment Agreement
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(e) The Company is NOT offering as an investment or otherwise any
uncovered options, or any transaction in which securities are sold short
in an uncovered transaction or which would be in violation of Section
16(c) of the Exchange Act as amended, PROVIDED, HOWEVER, that nothing in
this subsection (e) shall prevent the Pioneer Partnership from acquiring
options or warrants exercisable for, or other securities convertible into,
equity securities or assets at a pre-determined exercise price or
conversion ratio;
(f) The Company and its subsidiaries are NOT domiciled in any country that
is, at the time of the closing of the Investment and will ensure that, at
the time of the conversion or partial conversion of any of the securities,
a participant in an international boycott illegal under United States law
or opposed by the United States government;
(g) The Company is NOT an investment company registered or required to be
registered under the Investment Company Act of 1940, as amended;
(h) The Company conducts NO operations in Northern Ireland and will ensure
that at the time of the conversion or partial conversion of any of the
Debentures that it conducts NO operations in Northern Ireland unless the
Company complies with the McBride principles to the satisfaction of the
Pioneer Partnership. The McBride principles consist of, but are not
limited to, the following:
1) increasing the representation of individuals from under-represented
religious groups in the workforce, including managerial,
supervisory, administrative, clerical and technical jobs;
2) providing adequate security for the protection of minority employees
at the workplace and while traveling to and from work;
3) banning provocative religious or political emblems from the
workplace;
4) publicly advertising all job openings and making special recruitment
efforts to attract applicants from under-represented religious
groups;
5) layoff, recall and termination procedures which do not in practice
favor particular religious groupings;
6) abolishing job reservations; apprenticeship restrictions and
differential employment criteria, which discriminate on the basis of
religion or ethnic origin;
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Investment Agreement
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7) developing training programs that will prepare substantial numbers
of current minority employees for skilled jobs, including the
expansion of existing programs and the creation of new programs to
train, upgrade and improve the skills of minority employees;
8) establishing procedures to assess, identify and actively recruit
minority employees with potential for further advancement; and
9) appointing a senior management staff member to oversee the company's
affirmative action efforts and the setting up of timetables to carry
out affirmative action principles.
For purposes of this ss.4.25, a corporation will be considered to be
"conducting operations in Northern Ireland" if it has facilities and
employees in Northern Ireland, either directly or through one or more
subsidiaries; and
(i) The Company is NOT and shall NOT be engaged in any form of business in
Iran which could be considered contrary to the foreign policy or national
interests of the United States.
(j) The Company, if it is an entity organized outside of the United
States, covenants that it shall obtain, on or before closing, a written
opinion of counsel, which counsel and opinion letter shall be acceptable
to the Pioneer Partnership and its Investor Committee, to the effect that
as a result of the investment in the Company by the Pioneer Partnership
neither the limited partners, the general partner nor the Pioneer
Partnership will be liable, either directly or indirectly, for any claim,
obligation, or liability of the Company; and
(k) The Company covenants it shall obtain a cold comfort written opinion
of counsel, which counsel and opinion letter shall be acceptable to the
Pioneer Partnership, to confirm the representations within this ss.4.25
and the legality thereof.
4.26 USE OF PROCEEDS. The Company represents it shall use and apply the
proceeds from the stock purchase through the First and Second Closings only for
such purposes as set forth in Section 1.12 hereof.
4.27 INDUSTRY SPECIFIC REGULATIONS. The Company and the Subsidiaries and
their operations do not violate any state or federal laws or regulations with
respect to the U.S. Environmental Protection Agency, OSHA, or the U.S. Food and
Drug Administration; or their state corollary agencies, or any other laws or
regulations to which the Company or its Subsidiaries are subject. No notices of
deficiency or notices of any kind which may inhibit the operations of the
Company or its Subsidiaries has been received from the U.S. Environmental
Protection Agency, OSHA, or the U.S. Food and Drug Administration, or their
state corollary agencies, or any other governmental agency or authority.
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4.28 WAGES AND SALARY. As of the Closing Date the level of wages, salaries
and fees payable to the officers and directors of the Company is set forth in
EXHIBIT 4.28 hereto.
4.29 ERISA. The Company and all of its employee plans are in full
compliance with ERISA and no ERISA plan of the Company is in default.
4.30 CORE SHETH LETTER OF CREDIT. The Core Sheth Families provided a $1.5
million letter of credit for the Company in May 1998. The letter of credit is in
good standing and may not be withdrawn without the written approval of the BNY
Financial Corporation. The Core Sheth Families and their principals or
affiliates received no compensation, directly or indirectly, as a result of
entering into the letter of credit arrangement and/or supplying collateral
thereunder.
4.31 PROTEST IRS CLAIM FOR DISALLOWANCE. The facts as stated in the June
26, 1998 letter from Coopers & Lybrand addressed to Mr. Edward C. Hernandez of
the Internal Revenue Service ("IRS") office in San Antonio, Texas protesting the
disallowance of certain deductions for taxable years ending August 31, 1990
through 1995, are true, accurate and correct. The shares alleged by the IRS to
have been purchased at artificially inflated prices were NOT sold to the
plaintiffs in the Stockholder Class Action Lawsuit by the Company; the sales
actually occurred between buyers and sellers in the open marketplace, and not
between the Company and the plaintiffs. The entire settlement was paid by the
Company because the Company was bound to indemnify and hold the officers and
directors as there was joint and several liability. The Company intends to
vigorously defend this entire matter.
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4.32 NO RESTRICTIONS ON DIVIDENDS. There are no restrictions on the
payment of dividends if paid in the form of stock of the Company.
4.33 COMPLETE DISCLOSURE. No representation, warranty or statement,
written or oral, made by the Company in this Agreement or in any schedule,
exhibit, certificate or other document furnished or to be furnished to the
Pioneer Partnership, including any and all documents filed with the Commission
within the past 12 months, pursuant hereto or otherwise, in connection with the
transactions contemplated hereby, has contained, contains or will contain at the
closing date any untrue statement of a material fact or has omitted, omits or
will omit at the closing date a material fact required to be stated therein or
necessary to make the statements contained therein not misleading. Without
limiting the generality of the foregoing, the Company is current in all filings
required under the Exchange Act.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE PIONEER PARTNERSHIP
The Pioneer Partnership represents and warrants as follows:
5.1 ORGANIZATION. The Pioneer Partnership is a limited partnership duly
organized and validly existing under the laws of the State of Connecticut.
5.2 NO BREACH. The execution and delivery of this Agreement by the Pioneer
Partnership and the consummation of the transactions contemplated hereby will
not violate any judgment, order, injunction, decree, or award against, or
binding upon, the Pioneer Partnership or upon its properties or assets.
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Investment Agreement
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5.3 AUTHORITY FOR AND BINDING NATURE OF AGREEMENT. This Agreement and the
documents delivered pursuant hereto have been duly executed and delivered by the
Pioneer Partnership are valid and binding upon it in accordance with its terms.
5.4 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly with the Company
by the Pioneer Partnership without the intervention of any broker, finder,
investment banker (except Pioneer Ventures Corp.), or other third party, and
except for Greater Metropolitan who shall receive $200,000 payable by the
Company as a finder's fee. The Pioneer Partnership has not engaged, consented
to, or authorized any broker, finder, investment banker (except Pioneer Ventures
Corp.), or other third party to act on its behalf, directly or indirectly, as a
broker or finder in connection with the transactions contemplated by this
Agreement.
5.5 SECURITIES LAWS MATTERS.
(a) The Pioneer Partnership recognizes and understands that the Preferred
and Common Stock into which the Preferred Stock is convertible to be issued to
the Pioneer Partnership pursuant to this Agreement (collectively, the
"SECURITIES") will not be registered under the 1933 Act, or under the securities
laws of any state (the "SECURITIES LAWS"). The securities are not being so
registered in reliance upon exemptions from the 1933 Act and the securities laws
which are predicated, in part, on the representations, warranties and agreements
of the Pioneer Partnership contained herein.
(b) The Pioneer Partnership represents and warrants that (i) Pioneer
Partnership has business knowledge and experience, such experience being based
on actual participation therein, (ii) Pioneer Partnership is capable of
evaluating the merits and risks of an investment in the securities and the
suitability thereof as an investment therefor, (iii) the securities to be
acquired by the Pioneer Partnership in connection with this Agreement will be
acquired solely for investment and not with a view toward resale or
redistribution in violation of the securities laws, (iv) in connection with the
transactions contemplated hereby, no assurances have been made concerning the
future results of the Company and its subsidiaries or as to the value of the
securities and (vi) Pioneer Partnership is an "accredited investor" within the
meaning of Regulation D promulgated by the Securities and Exchange Commission
(the "COMMISSION") pursuant to the 1933 Act. The Pioneer Partnership understands
that none of the Company or its subsidiaries or affiliates is under any
obligation to file a registration statement or to take any other action under
the securities laws with respect to any such securities EXCEPT as expressly set
forth in ARTICLE II hereof.
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(c) The Pioneer Partnership has consulted with Pioneer Partnership's own
counsel in regard to the securities laws and is fully aware (i) of the
circumstances under which the Pioneer Partnership is required to hold the
securities, (ii) of the limitations on the transfer or disposition of the
securities, (iii) that the securities must be held indefinitely unless the
transfer thereof is registered under the securities laws or an exemption from
registration is available and (iv) that no exemption from registration is likely
to become available for at least one year from the date of acquisition of the
securities. The Pioneer Partnership has been advised by Pioneer Partnership's
counsel as to the provisions of Rules 144 and 145 as promulgated by the
Commission under the 1933 Act and has been advised of the applicable limitations
thereof. The Pioneer Partnership acknowledges that the Company is relying upon
the truth and accuracy of the representations and warranties in this SECTION 5.5
by the Pioneer Partnership in consummating the transactions contemplated by this
Agreement without registering the securities under the securities laws.
(d) The Pioneer Partnership has been furnished with (i) the definitive
proxy statement filed with the Commission in connection with the annual meeting
of stockholders of the Company held on February 12, 1998 and (ii) copies of the
Company's Annual Report on Form 10-K for the year ended August 30, 1997, and
Quarterly Reports on Form 10-Q for the quarters ended November 29, 1997,
February 28, 1998 and May 30, 1998 filed with the Commission under the Exchange
Act (collectively, the "SEC REPORTS"). The Pioneer Partnership has been
furnished with the complete financial statements of the Company for the fiscal
years ended August 30, 1997, August 31, 1996 and 1995, and the quarters ended
November 29, 1997, February 28, 1998 and May 30, 1998, respectively. The Pioneer
Partnership has been furnished with a summary description of the terms of the
securities and the Company has made available to the Pioneer Partnership the
opportunity to ask questions and receive answers concerning the terms and
conditions of the transactions contemplated by this Agreement and to obtain any
additional information which they possess or could reasonably acquire for the
purpose of verifying the accuracy of information furnished to the Pioneer
Partnership as set forth herein or for the purpose of considering the
transactions contemplated hereby. The Company has offered to make available to
the Pioneer Partnership upon request at any time all exhibits filed by the
Company with the Commission as part of any of the reports filed therewith.
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Investment Agreement
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(e) The Pioneer Partnership agrees that the certificates representing the
securities to be acquired pursuant to this Agreement will be imprinted with the
following legend, the terms of which are specifically agreed to:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT. NEITHER THE SHARES NOR ANY
INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF
COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
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The Pioneer Partnership understands and agrees that appropriate stop transfer
notations will be placed in the records of the Company and with its transfer
agent in respect of the securities which are to be issued to the Pioneer
Partnership.
5.6 ADDITIONAL MATTERS. The Pioneer Partnership agrees that neither the
Pioneer Partnership nor any other holder of any shares of Series C Preferred
Stock shall convert or sell any shares of the Common Stock or otherwise engage
in short-selling efforts during the 90 days prior to the First Closing Date.
ARTICLE VI. COVENANTS
The Company hereby warranties and covenants that:
6.1 FINANCIAL. Since December 31, 1997 except as contemplated or disclosed
in this Agreement, the Company shall not have (i) paid or declared any dividends
on, or made any distributions in respect of, or issued, purchased or redeemed,
any of the outstanding shares of its capital stock, or (ii) made or authorized
any changes in its Certificate of Incorporation or in any amendment thereto or
in its bylaws, or (iii) made any commitments or disbursements or incurred any
obligations or liabilities of a substantial nature and which are not in the
usual and ordinary course of business, or (iv) mortgaged or pledged or subjected
to any lien, charge or other encumbrance any of its assets, tangible or
intangible, or (v) sold, leased, or transferred or contracted to sell, lease or
transfer any assets, tangible or intangible or entered into any other
transactions, except for the sale of Tristar do Brasil and otherwise in the
usual and ordinary course of business, or (vi) made any advance to any
stockholder, officer or director of the Company or to any other person, firm, or
corporation other than in the ordinary course of business or any loan to such
persons except as summarized on EXHIBIT 4.12 hereof, or (vii) except for a new
employment agreement with Robert Viola and/or an amendment to Richard Howard's
employment agreement, made any material change in any existing employment
agreement or increased the compensation payable or made any arrangement for the
payment of any bonus to any officer, director, employee or agent, except as set
forth in EXHIBIT 2.10 hereof.
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6.2 ACCESS. For so long as either the Pioneer Partnership or its limited
partners own 10,000 shares or more of the Company's Common Stock directly or
through the possible conversion of its Preferred Stock all on a fully diluted
basis, the Company shall afford, at its sole cost and expense, to the officers,
attorneys, accountants and other authorized representatives of the Pioneer
Partnership and/or its limited partners free and full access, during regular
business hours and upon reasonable notice, to the books, records, personnel,
accountants, attorneys, and properties of the Company so that the Pioneer
Partnership may have full opportunity to make such review, examination and
investigation as it may desire of its respective business and affairs. The
Company will cause its employees, accountants, and attorneys to cooperate fully
with said review, examination and investigation and to make full disclosure to
the Pioneer Partnership of all material facts affecting its financial condition
and business operation. Nothing herein shall limit the rights of the Pioneer
Partnership which are available under or granted by applicable statutes with
respect to access, review, examination and investigations. Interference with
said rights or delay in accommodating such rights by the Company shall be an
event of Default of the terms of the Preferred Stock.
6.3 BOOKS OF RECORD AND ACCOUNT. The Company shall maintain at all times
proper books of record and account in accordance with generally accepted
accounting principles ("GAAP"), consistently applied. For so long as either the
Pioneer Partnership or its limited partners own 10,000 shares or more of the
Company's Common Stock directly or through the possible conversion of its
Preferred Stock all on a fully diluted basis, it will permit any of the Pioneer
Partnership's officers or any of their authorized representatives or accountants
to visit, upon reasonable notice, and inspect offices and properties, examine
its books of account and other records, and discuss its affairs, finances and
accounts with its appropriate officers, accountants and auditors, all at such
reasonable times and reasonable frequency as the Pioneer Partnership may
request. In addition, the Pioneer Partnership shall be provided with copies of
quarterly, within 45 days of the end of each fiscal quarter, and annual, within
90 days of the end of each fiscal year, financial statements consisting of
balance sheets, statements of operations, statements of cash flows, statements
of changes in stockholders equity and notes thereto all prepared in accordance
with GAAP. The annual financial statements shall be audited in accordance with
GAAP by an accounting firm acceptable to the Pioneer Partnership. Interference
with said rights or delay in accommodating such rights by the Company shall be
an event of Default of the terms of the Preferred Stock. No limitation in either
ss.6.3 or ss.6.2 shall constitute a waiver of any rights granted under any
applicable statute.
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6.4 MEMBERSHIP ON BOARD. The Company's bylaws shall provide for a maximum
of a nine (9) person Board of Directors. Promptly upon the Closing Date and for
so long as the Pioneer Partnership owns any Common Stock or Preferred Stock, the
Principal Shareholders shall cause one (1) designee from the Pioneer Partnership
to be nominated and elected to serve as directors of the Company. The nominee of
the Pioneer Partnership shall be reasonably acceptable to the board of directors
of the Company to serve as a director. Grounds for rejecting such nominee shall
be any matter of record of the nominee which would cause the Company to be in
violation of any order issued by the Commission or such nominee is disqualified
as a result of Rule 262(b) promulgated under the 1933 Act; provided, however, no
such nominee shall be an affiliate of any competitor of the Company. Except as
provided for herein, additional membership on the Board shall require majority
approval of the remaining members of the Board of Directors or election at a
meeting of shareholders. At the next meeting of the Board of Directors, a
Compensation Committee of the Board shall be established. The Compensation
Committee shall consist of three directors; a designee of the Pioneer
Partnership, a designee of the Principal Stockholders, and one other person
selected by the Board. The Compensation Committee shall be maintained to
consider and recommend to the Board of Directors matters concerning the
compensation of executives and employee awards of stock options and other
incentive compensation.
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Investment Agreement
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6.5 STOCK OPTION PLAN. The Company may retain its current stock option,
bonus or stock incentive plan(s), or cancel such plan(s) and adopt a new stock
incentive plan in order to have the ability to incentivize its key employees,
future employees and others. The aggregate stock incentive pool shall consist of
that number of shares of the Common Stock of the Company which, without the
prior written consent of the Pioneer Partnership, shall not exceed thirteen and
fifty-two one hundredths of one percent (13.52%) the Common Stock of the Company
immediately following the investment herein. No person beneficially owning five
hundred thousand (500,000) shares or more of the Company's stock shall be
eligible to participate in such plans.
6.6 RULE 144 COMPLIANCE. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the shares to the public without registration, at all times after ninety
(90) days after any registration statement covering a public offering of
securities of the Company under the 1933 Act shall have become effective, or at
all times after the Company has a class of Securities registered under the
Exchange Act, the Company agrees to use its best efforts to: (i) make and keep
public information available, as those terms are understood and defined in Rule
144 under the 1933 Act; (ii) use its best efforts to file with the Commission
(as hereinafter defined) in a timely manner all reports and other documents
required of the Company under the 1933 Act and the Exchange Act of 1934; (iii)
furnish to each holder of Registrable Securities forthwith upon request, a
written statement by the Company as to the Company's compliance with the
reporting requirements of Rule 144 and of the 1933 Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Registrable Securities without
registration; and (iv) use the Company's best efforts to satisfy the
requirements of all such rules and regulations (including the requirements for
current public information, registration under the Exchange Act and timely
reporting to the Commission) at the earliest possible date after its first
registered public offering.
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6.7 UNDERTAKING TO REGISTER ITS SECURITIES. Not applicable.
6.8 UNDERTAKING TO FILE 34 ACT FILINGS AND TO BE LISTED ON NASDAQ. (A) The
Company undertakes to continue filing its proxy statement, its annual reports on
Form 10-K and its quarterly reports on Form 10-Q, or on such other appropriate
forms, with the SEC for so long as the Pioneer Partnership holds a five (5%)
percent or greater equity interest in the Company. (B) The Company undertakes to
use its best efforts to maintain its present listing on the NASDAQ Small Cap
market for so long as the Pioneer Partnership holds any Preferred Stock, or
Common Stock obtained through conversion of the Preferred Stock. Once the
Company qualifies for a period of six (6) consecutive months subsequent to the
date of the First Closing, the Company undertakes to apply to be listed on the
NASDAQ National Market System, the American Stock Exchange or such other
national stock exchange. The Company shall take all reasonable action to
maintain such listing after it is so approved and listed.
6.9 DIVIDEND RESTRICTION WAIVER. The Company shall obtain prior to the
First Closing a signed original waiver (addressed to the Company) from each of
its lenders, including BNY Financial Corporation, certifying and agreeing either
that (a) there are no restrictions on the declaration and payment of dividends
on the Series C Preferred Stock, or (b) the declaration and payment of any and
all cash dividends on the Series C Preferred Stock are permitted in accordance
with its terms and no such declaration or payment shall constitute an event of
default so long as the Company is in compliance with all other provisions
(including without limitation the financial covenants) of the loan agreement
between the Company and BNY Financial Corporation. It is expressly understood
and represented by the Company that there are no restrictions on the payment of
dividends if paid in the form of stock of the Company.
6.10 CORE SHETH LETTER OF CREDIT. The Company shall obtain prior to the
First Closing a written warranty and covenant (addressed to it and to the
Pioneer Partnership) of the Core Sheth Families that the May 1998 letter of
credit delivered to the BNY Financial Corporation and the collateral in support
thereof shall be renewed by the Core Sheth Families as may be necessary to
support the present lending relationship with the BNY Financial Corporation.
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6.11 SIGNING OBLIGATIONS. The Company covenants that it shall require
that: (a) all checks, notes, drafts, wire fund transfers, withdrawals of funds,
or other obligations or money transfers in excess of $20,000 shall be manually
signed by at least two (2) officers, directors and/or authorized employees; and
(b) unless otherwise pre-approved by the board of directors with respect to such
specific instrument or agreement, all agreements, notes, indentures, instruments
or other documents incurring obligations, liability, responsibility or
agreements on the part of the Company valued in excess of $20,000 shall be
manually signed by at least two (2) officers, directors and/or authorized
employees. A breach of these covenants shall constitute a default under the
Preferred Stock.
6.12 NO COST LICENSES. Unless such patents or trademarks are owned by the
Company, the Company shall obtain prior to the First Closing no-cost licenses
for commercial use of all of the patents and trademarks listed in EXHIBIT 4.8
from each and every patent or trademark owner. Such agreement shall provide that
all future patents and trademarks of such owners shall similarly be subject to
such no-cost license agreement.
6.13 SEC FILINGS. The Company shall pay all legal fees and filing expenses
of all filings made with the Commission on behalf of the director(s) nominated
by the Pioneer Partnership pursuant to ss.1.10 and/or ss.6.4 hereof. Such
filings shall include but not be limited to those maDE under Sections 13 and 16
of the Exchange Act.
6.14 BLUE SKY. The Company shall file a form D and a consent to service of
process with the Connecticut Department of Banking.
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6.15 NO BREACH. The Company will (i) use its best efforts to assure that
all of its representations and warranties contained herein are true in all
material respects as of each Closing as if repeated at and as of such time, and
that no material breach or default shall occur with respect to any of its
covenants, representations or warranties contained herein that has not been
cured by each Closing; (ii) not voluntarily take any action or do anything which
will cause a breach of or default respecting such covenants, representations or
warranties; and (iii) promptly notify the Pioneer Partnership of any event or
fact which represents, or is likely to cause such a breach or default.
ARTICLE VII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE PIONEER PARTNERSHIP TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PIONEER PARTNERSHIP TO CLOSE. The
obligation of the Pioneer Partnership to enter into and complete each Closing is
subject to the fulfillment, prior to or on each Closing Date, of each of the
following conditions, any one or more of which may be waived by the Pioneer
Partnership (except when the fulfillment of such condition is a requirement of
law), as well as the satisfactory completion (in the sole opinion of the Pioneer
Partnership) of (i) an audit or review of the books, records and accounts of the
Company, and (ii) legal and other due diligence.
7.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Company contained in this Agreement and in any written statement, exhibit,
certificate, schedule or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be true and correct
in all material respects as at each Closing Date, as if made at each Closing and
as of each Closing Date.
7.2 COVENANTS. The Company shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by each of them prior to or at each Closing.
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Investment Agreement
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7.3 NO ACTIONS. No action, suit, proceeding or investigation shall have
been instituted, and be continuing before a court or before or by a governmental
body or agency, or shall have been threatened and be unresolved, to restrain or
to prevent or to obtain damages in respect of, the carrying out of the
transactions contemplated hereby, or which might materially affect (i) the right
of the Pioneer Partnership to own the Company's Stock, or (ii) the Company to
operate or control the assets, properties and business of the Company after each
Closing Date, or which might have a materially adverse effect thereon.
7.4 CONSENTS, LICENSES AND PERMITS. The Company shall have obtained all
consents, licenses and permits of third parties necessary for the performance of
its obligations under this Agreement, and such other consents, if any, to
prevent (i) agreements of the Company from terminating, the termination of
which, in the aggregate, would have a material adverse effect on the business,
financial condition or assets of the Company, or (ii) any material indebtedness
of the Company from becoming due or being subject to becoming due with the
passage of time or on notice as a result of the performance of this Agreement,
any other provision of this Agreement to the contrary notwithstanding.
7.5 CERTIFICATE. The Pioneer Partnership shall have received a certificate
in the form satisfactory to its counsel, dated each Closing Date, signed by an
authorized representative of the Company, confirming the substance and effect of
the representations and warranties set forth in Article IV hereto, and as to the
satisfaction of the conditions contained in sections 7.1 and 7.2.
7.6 LEGAL OPINION. (A) The Pioneer Partnership shall have received the
written opinion of the Company's Counsel, dated each Closing Date, in form and
substance satisfactory to the Pioneer Partnership and its counsel, confirming
the substance and effect of certain of the representations and warranties set
forth in Article II hereto, that this Agreement is the valid and binding
obligation of the Company, enforceable in accordance with its terms, and as to
such other matters as the Pioneer Partnership may request.
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(B) The Pioneer Partnership shall have received the written opinion of
counsel to the Principal Shareholders, dated each Closing Date, in form and
substance satisfactory to the Pioneer Partnership and its counsel, confirming
the substance and effect of the representations and warranties set forth in the
Voting and Shareholders Agreement, and any modification, supplements or
subsequent agreements thereto confirming that such agreement is the valid and
binding obligation of the Principal Shareholders, enforceable in accordance with
its terms, and as to such other matters as the Pioneer Partnership may request.
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no materially
adverse change at each Closing Date in the business, assets, and properties,
financial status or prospects of the Company from December 31, 1997, except as
disclosed in EXHIBIT 7.7 hereof.
7.8 AGREEMENTS WITH PRINCIPALS. The Company shall have received and
delivered to the Pioneer Partnership the Voting and Shareholder Agreement
referred to in Section 1.10(a).
7.9 KEY PERSON INSURANCE. The Company shall have applied for Key-Person
term life insurance, from a licensed and reputable insurance company in the
minimum face amount of $5,000,000 each, insuring the lives of the president,
Richard Howard, CEO, Viren Sheth, CFO, Robert Viola. The Company shall be the
designated beneficiary and the Pioneer Partnership shall be the designated loss
payee. Renewal of the policies after the first year term shall be at the
discretion of the Company's Board of Directors.
7.10 PATENTS. All of the officers, directors, principals and the
affiliates of the Company shall have assigned and transferred all of the Patents
to the Company or provided to the Company for a no-cost license in form and of
substance approved by the Pioneer Partnership.
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7.11 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement, or incidental thereto, and all
other related legal matters shall have been approved as to form and substance by
the Pioneer Partnership's counsel, which approval shall not be unreasonably
withheld or delayed.
7.12 CONSENTS, LICENSES AND PERMITS. The Company, shall have obtained all
consents, licenses and permits of third parties necessary for the performance of
its obligations under this Agreement, and such other consents, if any, to
prevent (i) agreements of the Company from terminating, the termination of
which, in the aggregate, would have a material adverse effect on the business,
financial condition or assets of the Company or (ii) any material indebtedness
of the Company from becoming due or being subject to becoming due with the
passage of time or on notice as a result of the performance of this Agreement,
any other provision of this Agreement to the contrary notwithstanding.
7.13 ADDITIONAL DOCUMENTS. The Company shall have delivered all such other
certificates and documents as the Pioneer Partnership or their counsel may have
reasonably requested.
ARTICLE VIII. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE COMPANY TO CLOSE
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY TO CLOSE. The
obligation of the Company to enter into and complete each Closing is subject to
the fulfillment, prior to or on each Closing Date, of each of the following
conditions, any one or more of which may be waived by the Company (except when
the fulfillment of such condition is a requirement of law).
8.1 REPRESENTATIONS AND WARRANTIES. All representations and warranties of
the Pioneer Partnership contained in this Agreement and in any written
statement, exhibit, certificate, schedule or other document delivered pursuant
hereto or in connection with the transactions contemplated hereby shall be true
and correct in all material respects as at each Closing Date, as if made at each
Closing and as of each Closing Date.
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8.2 COVENANTS. The Pioneer Partnership shall have performed and complied
in all material respects with all covenants and agreements required by this
Agreement to be performed or complied with by it prior to or at each Closing.
8.3 NO ACTIONS. No action, suit, proceeding, or investigation shall have
been instituted, and be continuing before a court or before a governmental body
or agency, or have been threatened and be unresolved, to restrain or prevent, or
obtain damages in respect of, the carrying out of the transactions contemplated
hereby.
8.4 ADDITIONAL DOCUMENTS. The Pioneer Partnership shall have delivered all
such other certificates and documents as the Company or its counsel may have
reasonably requested.
8.5 APPROVAL OF COUNSEL. All actions, proceedings, instruments and
documents required to carry out this Agreement or incidental thereto, and all
other related legal matters, shall have been approved as to form and substance
by Company's counsel, which approval shall not be unreasonably withheld or
delayed.
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ARTICLE IX. CLOSING
9.1 LOCATION. Each Closing shall occur the offices of the Pioneer
Partnership or at such place and upon such date as the Company and the Pioneer
Partnership mutually agree.
9.2 ITEMS TO BE DELIVERED BY THE COMPANY. At the First Closing, the
Company will deliver or cause to be delivered to the Pioneer Partnership:
(a) duly executed Investment Agreement;
(b) duly executed Voting and Shareholders Agreement;
(c) duly executed resolutions;
(d) duly executed and recorded Certificate of Designation;
(e) validly issued original certificates representing the Preferred
Stock in accordance with Article I hereof.
(f) the certificates required by section 7.5 hereof;
(g) the opinion of the Company's counsel, as required by section 7.6
hereof;
(h) the agreements required by section 7.8 and 7.11 hereof;
(i) the insurance binder and paid receipt required by section 7.9
hereof;
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(j) Separate checks for $75,000 and $5,000 payable to Ventures Management
Partners LLC (the General Partner of the Pioneer Partnership) as required
by sections 11.1, 11.2, and 11.4 hereof;
(k) a check for $15,000 payable to Kenneth B. Lerman, Esquire as required
by section 11.3 hereof;
(l) such other certified resolutions, exhibits, instruments, documents and
certificates as are required to be delivered by the Company pursuant to
the provisions of this Agreement and pursuant to the checklists presented
by the Pioneer Partnership or its counsel.
9.3 ITEMS TO BE DELIVERED BY THE PIONEER PARTNERSHIP. At the First
Closing, the Pioneer Partnership will deliver or cause to be delivered to the
Company:
(a) a check or checks or evidence of wire transfer in the aggregate amount
of four million six hundred ninety-nine thousand nine hundred eighty
($4,699,980) dollars, as specified in Article I hereof; and
9.4 ITEMS TO BE DELIVERED BY THE COMPANY AT SUBSEQUENT CLOSINGS.
At each Subsequent Closing the Company shall deliver or cause to deliver
such documents, certificates, funds, or such other items as required to be
delivered by the Company pursuant to the provisions of this Agreement and as
reasonably requested by the Pioneer Partnership. Requests for materials or
updates to materials previously submitted shall be deemed a reasonable request;
in addition, previously unrequested materials may be so requested by the Pioneer
Partnership as it deems necessary in its business judgment in order to complete
its investment in the Company.
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9.5 ITEMS TO BE DELIVERED BY THE PIONEER PARTNERSHIP AT SUBSEQUENT
CLOSINGS. At each Subsequent Closing, the Pioneer Partnership will deliver or
cause to be delivered to the Company:
(a) a check or checks or evidence of wire transfer in an amount equal to
the product of (i) the number of shares of Preferred Stock to be purchased
by the Pioneer Partnership at such Subsequent Closing TIMES (ii) $60.00,
subject to the provisions of ss.1.2 and ss.1.7; PROVIDED, HOWEVER, the
aggregate of all such amounts from aLL Subsequent Closings shall not
exceed the amount of one million three hundred thousand twenty
($1,300,020) dollars, as specified in Article I hereof; and
(b) such other certified resolutions, documents and certificates as are
required to be delivered by the Pioneer Partnership pursuant to the
provisions of this Agreement.
ARTICLE X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; FEES
10.1 SURVIVAL. The parties hereto agree that their respective
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing for a period of six (6) years.
10.2 INDEMNIFICATION. The Company agrees to save, defend and indemnify the
Pioneer Partnership and its limited and general partners and their respective
officers, directors, managing members and the agents, as well as the attorneys,
accountants, or other representatives of such parties (jointly or severally
"INDEMNIFIED PARTIES") against, and hold them harmless from any and all
liabilities, of every kind, nature and description, fixed or contingent
(including, without limitation, reasonable counsel fees, expert witness fees,
and expenses in connection with any action, claim or proceeding relating to such
liabilities) arising out of a material breach (a "material breach" shall be any
breach with a potential liability in excess of $5,000 as estimated by the
Pioneer Partnership) of any of the representations and warranties contained
herein and/or any transaction or event commencing or occurring on or prior to
the Closing Date, which is not fully disclosed or provided for in EXHIBIT 4.7-A,
EXHIBIT 4.7-B, and the accounts payable listing dated June 16, 1998 attached
thereto, this Agreement or the several exhibits hereto, including, without
limitation, any tax liabilities to the extent not so reflected or reserved
against in the Balance Sheet.
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10.3 DEFENSE OF CLAIMS. The Pioneer Partnership agrees to notify the
Company with reasonable promptness of any claim asserted against them in respect
of which the Company may be liable under this Agreement, which notification
shall be accompanied by a written statement setting forth the basis of such
claim and the manner of calculation thereof. The Company shall have the right to
defend any such claim(s) at its own expense and with counsel of its choice;
provided that the Pioneer Partnership may participate in such defense, if it so
chooses, with its own counsel and at its expense. The Company agrees that if any
of the representations and warranties made by it in this Agreement shall be
finally determined not to have been true, correct or complete when made, then
the Company shall pay to the Pioneer Partnership at the time of such final
determination an amount sufficient to indemnify the Pioneer Partnership and the
other indemnified parties hereto to the full extent of its losses and expenses
sustained by reason thereof, including attorneys, accountants, expert witnesses,
and other professional fees and expenses.
10.4 RIGHTS WITHOUT PREJUDICE. The rights of the Pioneer Partnership under
this Article are without prejudice to any other rights or remedies that it may
have by reason of this Agreement or as otherwise provided by law.
ARTICLE XI. FEES
11.1 INVESTMENT BANKING FEES. The Company shall pay an investment banking
fee of $85,000 to the General Partner of the Limited Partnership (Ventures
Management Partners LLC) concurrently with its execution and delivery of the
this Agreement. The General Partner of the Pioneer Partnership hereby
acknowledges receipt from the Company of a check in the amount of $10,000 in
payment of the commitment fee and expenses set forth in this Section 11.1.
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11.2 EXPENSES. The Company shall promptly pay and reimburse the General
Partner of the Pioneer Partnership a non-accountable expense allowance of $5,000
for its out-of-pocket expenses incurred in connection with visits to the
Company's facilities and other costs and expenses in connection with its due
diligence investigation of the Company.
11.3 LEGAL FEES. The Company shall pay at the First Closing the attorneys
fees and out-of-pocket expenses of counsel for the Pioneer Partnership in
connection with the transactions contemplated hereby; such attorneys fees and
out-of-pocket expenses shall equal $25,000. It is acknowledged that $10,000 has
been paid prior to Closing. In addition, the Company shall pay its own counsel's
fees and all of the expenses of the closing, including all search fees, filing
fees, governmental certification fees, third party investigation or other due
diligence fees for reports, filings or certifications requested by the Pioneer
Partnership to effect the closing.
11.4 ACCOUNTING FEES. Not applicable.
11.4 BREAK-UP FEE. At any time prior to the funding of the investment, the
Company may terminate this Agreement by written notice without any obligation or
liability other than to forfeit the pre-payment of $10,000 paid as a commitment
fee to the General Partner of the Pioneer Partnership as then recharacterized as
the non-refundable Break-up fee and the legal fee paid.
ARTICLE XII. TERMINATION AND WAIVER
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12.1 TERMINATION. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the transactions provided
for herein abandoned at any time prior to the Closing Date:
(a) by mutual consent of the Pioneer Partnership and the Company;
(b) by the Pioneer Partnership if any of the conditions set forth in
Article VII and Sections 1.12 and 1.13 hereof, in its sole opinion, shall
not have been fulfilled on or prior to closing, or shall become incapable
of fulfillment, and shall not have been waived;
(c) by the Company if any of the conditions set forth in Article VIII
hereof shall not have been fulfilled on or prior to Closing, or shall have
become incapable of fulfillment, and shall not have been waived;
(d) by any party if any material legal action or proceeding shall have
been instituted or threatened seeking to restrain, prohibit, invalidate or
otherwise affect the consummation of the transactions contemplated by this
Agreement
In the event that this Agreement is terminated as described above, this
Agreement shall be void and of no force and effect, without any liability or
obligation on the part of any of the parties hereto, except the provisions of
Section 11.5 hereof.
12.2 WAIVER. Any condition to the performance of the Company or of the
Pioneer Partnership which legally may be waived on or prior to the Closing Date
may be waived at any time by the party entitled to the benefit thereof by action
taken or authorized by an instrument in writing executed by the relevant party
or parties. The failure of any party at any time or times to require performance
of any provision hereof shall in no manner affect the right of such party at a
later time to enforce the same. No waiver by any party of the breach of any
term, covenant, representation or warranty contained in this Agreement as a
condition to such party's obligations hereunder shall release or affect any
liability resulting from such breach, and no waiver of any nature, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be or
construed as a further or continuing waiver of any such condition or of any
breach of any other term, covenant, representation or warranty of this
Agreement.
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ARTICLE XIII. MISCELLANEOUS PROVISIONS
13.1 EXPENSES. Except as set forth in Article XI, each of the parties
hereto shall bear its own expenses in connection herewith.
13.2 MODIFICATION, TERMINATION OR WAIVER. This Agreement may be amended,
modified, superseded or terminated, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, but only by a
written instrument executed by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision hereof shall
in no manner affect the right of such party at a later time to enforce the same.
13.3 NOTICES. Any notice or other communication required or which may be
given hereunder shall be in writing and either be delivered personally or be
mailed, certified or registered mail, postage prepaid, and shall be deemed given
when so delivered personally, or if mailed, five (5) days after the date of
mailing, as follows:
If to the Pioneer Partnership, to: Copies to:
PIONEER VENTURES ASSOCIATES Kenneth B. Lerman, Esquire
LIMITED PARTNERSHIP KENNETH B. LERMAN, P.C.
651 Day Hill Road 651 Day Hill Road
P.O. Box 40 Windsor, Connecticut 06095-0040
Windsor, Connecticut 06095
Attention: Robert A. Lerman
Managing Director
If to the Company, to: Copies to:
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Office of the Chairman Phillip M. Renfro, Esquire
TRISTAR CORPORATION FULLBRIGHT & JAWORSKI L.L.P.
12500 San Pedro Avenue 300 Convent Street, Suite 2200
Suite 500 San Antonio, Texas 78205-3792
San Antonio, Texas 78216
Attention: Mr. Richard Rifenburgh, Chairman
The parties may change the persons and addresses to which the notices or other
communications are to be sent to it by giving written notice of any such change
in the manner provided herein for giving notice.
13.4 BINDING EFFECT AND ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of the other party.
13.5 ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties with respect to the subject matter hereof.
13.6 CALENDAR DAYS. All references to "days" in this agreement with
respect to the amount of time allocated for notices, performance or other
periods shall mean calendar days, unless otherwise specified.
13.7 EXHIBITS. All Exhibits annexed hereto and the documents and
instruments referred to herein or required to be delivered simultaneously
herewith or at the Closing are expressly made a part of this Agreement as fully
as though completely set forth herein, and all references to this Agreement
herein or in any such Exhibits, documents or instruments shall be deemed to
refer to and include all such Exhibits, documents and instruments. Any execution
of this Agreement is subject to the receipt of current and complete exhibits.
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13.8 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with the laws of the State of New York.
13.9 CONSENT TO JURISDICTION. The parties here to consent to jurisdiction
of the Courts of the State of Connecticut and to the U.S. District Court in the
District of Connecticut.
13.10 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but which together shall constitute
one and the same instrument.
13.11 SECTION HEADINGS. The section headings contained in this Agreement
are inserted for convenience of reference only and shall not affect the meaning
or interpretation of this Agreement.
13.12 GENDER. Whenever the content of this Agreement permits, the
masculine, neuter or third person genders shall include the feminine, third
person and neuter genders, and reference to singular or plural shall be
interchangeable with the other.
13.13 CONTROLLING DOCUMENT. To the extent that any provisions contained in
this Agreement are inconsistent with those contained in the Certificate of
Designation, the provisions of the Certificate of Designation shall control.
13.14 USE OF TERM "PIONEER PARTNERSHIP". Notwithstanding any provision of
this Agreement to the contrary, included in the definition and meaning of the
"Pioneer Partnership" shall be any one or more parallel limited partnerships
which have been or shall be organized by Ventures Management Partners LLC as the
general partner to invest in parallel with Pioneer Ventures Associates Limited
Partnership on the same economic terms and PRO RATA based upon their aggregate
subscriptions. The limited
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Investment Agreement
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partners of Pioneer Ventures Associates Limited Partnership and the parallel
partnerships shall be referred to herein as the "LIMITED PARTNERS". [Signature
Page Follows]
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WITNESS the execution of this Agreement as of the date first above
written.
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
BY: VENTURES MANAGEMENT PARTNERS LLC
its General Partner
BY: Pioneer Ventures Corp.
Its Managing Member
BY: /s/ ROBERT A. LERMAN
Robert A. Lerman, President
TRISTAR CORPORATION
BY: /s/ RICHARD HOWARD
Name: Richard Howard
Title: President and COO
ATTEST:
(Corporate Seal)
BY: /s/ ROBERT VIOLA
Name: Robert Viola
Title: Vice President and CFO
EXHIBIT 10.43
STOCK WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER
THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND SUCH LAWS, WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS
CORPORATION, IS AVAILABLE.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF TRISTAR CORPORATION
Warrant Certificate No. 1998-1 Date: September 3, 1998 ("Effective
Date")
This certifies that, for value received, Tristar Corporation, a Delaware
corporation (the "COMPANY"), hereby grants to Pioneer Ventures Associates
Limited Partnership (the "HOLDER") the right to purchase, subject to adjustment
and the other terms and conditions set forth herein, 125,000 shares of common
stock, par value $.01 per share (the "Stock"), at the WARRANT EXERCISE PRICE per
share (as defined in SECTION 1(D) hereof), subject to adjustment as set forth in
SECTION 3 hereof, at any time or from time to time after the date hereof and
prior to 5:00 P.M. (Eastern Time) on September 2, 2003 (the "WARRANT EXPIRATION
DATE").
This Warrant and all warrants hereafter issued in exchange or substitution
of this Warrant, are hereinafter referred to as the "WARRANTS." THIS WARRANT, TO
THE EXTENT NOT EXERCISED IN THE MANNER SET FORTH HEREIN, SHALL TERMINATE AND
BECOME NULL AND VOID AT 5:00 P.M. (EASTERN TIME) ON THE WARRANT EXPIRATION DATE.
This Warrant is subject to the following terms and conditions.
<PAGE>
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT OF SHARES.
2.
3. (a) This Warrant may be exercised, at the option of the Holder, in whole or
in part at any time prior to 5:00 P.M. (Eastern Time) on the Warrant Expiration
Date, by surrender to the Company of this Warrant Certificate properly endorsed
together with the Form of Subscription attached hereto duly filled in, signed
and with proper payment of the Warrant Exercise Price multiplied by the number
of shares of Stock for which the Warrant is being exercised. Payment shall be in
cash, certified check or official bank check or check, subject to collection,
payable to the order of the Company.
<PAGE>
4.
5. (b) In addition to the method of payment set forth in Section 1(a) above and
in lieu of any cash payment required thereunder, unless otherwise prohibited by
law, the Holder shall have the right at any time, when exercisable, and from
time to time to exercise the Warrants in full or in part by receiving from the
Company the number of shares of Stock equal to the number of shares of Stock
otherwise issuable upon such exercise less the number of shares of Stock having
an aggregate "Fair Market Value" on the date of exercise equal to the Warrant
Exercise Price multiplied by the number of shares of Stock for which this
Warrant is being exercised. For purposes hereof, the "Fair Market Value" of a
share of Stock on a given date shall be equal to the "Closing Sales Price" on
such date. The "Closing Sales Price" as of a certain date will mean the closing
sales price, in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System, or if not so
reported, as reported by the National Quotation Bureau, Incorporated, or any
successor thereof, or if not so reported, the closing sales price as furnished
by any member of the National Association of Securities Dealers, Inc., selected
from time to time by the Company for that purpose, or, if the Stock is listed or
admitted to trading on a national securities exchange, the closing sales price,
regular way, on the principal national securities exchange on which the Stock is
listed or admitted to trading.
6.
7. (c) The Company agrees that the shares of Stock purchased on the exercise of
each Warrant shall be deemed to be issued as of the close of business on the
date on which this Warrant Certificate shall have been surrendered and payment
made for such shares of Stock. Issuance of the shares of Stock shall be subject
to compliance with all provisions of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and any relevant state securities law. Subject to the
provisions of Section 2 hereof, certificates for the largest whole number of
shares of Stock so purchased, together with any other securities or property to
which the Holder is entitled upon such exercise, shall be delivered to the
Holder by the Company within two business days after this Warrant has been
exercised. No fractional shares of Stock shall be issued upon exercise of this
Warrant. Each Stock Certificate so delivered shall be registered in the name of
the Holder or such other name as shall be designated by the Holder, subject to
the provisions of Sections 6 and 8 hereof. If prior to the Warrant Expiration
Date, this Warrant is exercised in part, one or more new Warrants substantially
in the form of, and on the terms contained in, this Warrant Certificate will be
issued for the remaining number of shares of Stock in respect of which this
Warrant has not been exercised.
8.
9. (d) If at the time of exercise of all or part of this Warrant, the Fair
Market Value of a share of Stock, on the trading day immediately prior to the
date of exercise, is less than $5 7/16 (for purposes of this Section 1(d), $5
7/16 shall be referred to as a "Pricing Standard"), then the Warrant Exercise
Price shall be $4.00 (for purposes of this Section 1(d), $4.00 shall be referred
to as a "Pricing Standard"). If at the time of exercise of all or part of this
Warrant, the Fair Market Value of a share of Stock, on the trading day
immediately prior to the date of exercise, is $5 7/16 or more, then the Warrant
Exercise Price shall be the sum of (a) $4.00 and (b) one-half (50%) of the
difference between the Fair Market Value of a share of Stock and $5 7/16;
provided, however in no event shall the Warrant Exercise Price be more than $6
9/32 per share (for purposes of this Section 1(d), $6 9/32 shall be referred to
as a "Pricing Standard"). In the event the Warrant Exercise Price is adjusted
pursuant to Section 3 hereof, then each of the Pricing Standards shall be
similarly adjusted.
<PAGE>
10.
11. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all shares of Stock which may be issued upon the exercise of this
Warrant will, upon issuance, be duly authorized, validly issued, fully paid and
nonassessable. The Company further covenants and agrees that during the period
within which this Warrant may be exercised, the Company will at all times have
authorized and reserved, and will keep available solely for issuance upon
exercise of this Warrant, a sufficient number of shares of Stock or other
securities and properties as from time to time shall be receivable upon the
exercise of this Warrant. The Company shall provide that any successor
corporation will reserve a sufficient number of shares of authorized but
unissued stock or other securities or set aside sufficient other property, as
the case may be, as provided for in this Section 2.
12.
13. ADJUSTMENT OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES; EVENTS REQUIRING
NOTICE; CHANGES IN STOCK.
14.
14.1 METHOD OF ADJUSTMENT. The Warrant Exercise Price and the number of shares
of Stock purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the occurrence of the events described in
Section 3.2. Upon each adjustment of the Warrant Exercise Price, the Holder
shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares of Stock obtained by
multiplying the Warrant Exercise price in effect immediately prior to such
adjustment by the number of shares of Stock purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
14.2
14.3 SUBDIVISION OR COMBINATION OF STOCK AND STOCK DIVIDEND. In case the Company
shall at any time subdivide its outstanding shares of Stock into a greater
number of shares of Stock or declare a dividend upon its Stock payable solely in
shares of Stock, the Warrant Exercise Price in effect immediately prior to such
subdivision or dividend shall be proportionately reduced, and conversely, in
case the outstanding shares of Stock of the Company shall be combined into a
smaller number of shares of Stock, the Warrant Exercise Price in effect
immediately prior to such combination shall be proportionately increased.
<PAGE>
14.4
14.5 ADJUSTMENTS FOR DIVIDENDS IN SECURITIES OTHER THAN COMPANY Stock. While
this Warrant, or any portion hereof, remains outstanding and unexpired, if the
Holders of the Stock shall have received, or, on or after the record date fixed
for the determination of eligible stockholders, shall have become entitled to
receive, without payment therefore, shares of capital stock of a subsidiary of
the Company by way of dividend or otherwise, then in such case, this Warrant
shall represent the right to acquire, in addition to the number of shares of the
Stock receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such capital stock of such
subsidiary that the Holder would have received if the Holder had exercised this
Warrant prior to any such capital stock distribution; provided, however, no
adjustment to the Warrant Exercise Price shall occur as a result of any such
dividend of the capital stock of a subsidiary of the Company.
14.6
14.7 NOTICE OF ADJUSTMENT. Upon any adjustment of the Warrant Exercise Price and
any increase or decrease in the number of shares of Stock purchasable upon the
exercise of this Warrant, the Company promptly shall give written notice thereof
to the Holder, which shall state the Warrant Exercise Price resulting from such
adjustment and increase or decrease, if any, in the number of shares of Stock
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
14.8
14.9 OTHER NOTICES. If at any time:
14.10
14.11 (a) the Company shall declare a dividend upon its Stock
payable in shares of capital stock of one of its subsidiaries;
14.12
14.13 (b) there shall be any consolidation or merger of the Company with another
corporation, or a sale of all or substantially all of the Company's assets to
another corporation; or
14.14
14.15 (c) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
14.16
14.7 then, in any one or more of said cases, the Company shall give the Holder
(i) at least thirty (30) days' prior written notice of the date on which the
books of the Company shall close or a record date shall have occurred for such
dividend or distribution or for determining rights to vote in respect of any
such consolidation, merger, sale, dissolution, liquidation or winding-up, and
(ii) in the case of any such consolidation, merger, sale, dissolution,
liquidation or winding-up, at least twelve (12) calendar days' written notice of
the date when the same shall take place. Any notice given in accordance with
clause (i) above shall also specify, in the case of any such dividend or
distribution, the date on which the holders of Stock shall be entitled thereof.
Any notice given in accordance with clause (ii) above shall also specify the
date on which the holders of Stock shall be entitled to exchange their Stock for
securities or other property deliverable upon such consolidation, merger, sale,
dissolution, liquidation or winding-up, as the case may be. Notwithstanding
anything contained herein to the contrary, if the Holder does not exercise this
Warrant prior to a record date or the occurrence of an event described above, as
applicable, except as provided in Section 3.2, the Holder shall not be entitled
to receive the benefits accruing to existing holders of the Stock in such event.
<PAGE>
14.18
15. ISSUE TAX. The issuance of certificates for shares of Stock upon the
exercise of this Warrant shall be made without charge to the Holder or its
limited partners for any issue tax in respect thereof; PROVIDED, HOWEVER, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the Holder or its limited partners.
16.
17. NO VOTING OR DIVIDEND RIGHTS. This Warrant does not confer upon the Holder
the right to vote or to consent or to receive notice as a stockholder of the
Company, in respect of meetings of stockholders for the election of directors of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company prior to the exercise hereof. No cash dividends shall be payable or
accrued in respect of this Warrant or the shares of Stock purchasable hereunder
until, and only to the extent that, this Warrant shall have been exercised.
18.
19. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES
ACT.
20.
20.1 RESTRICTIONS ON TRANSFERABILITY. The Holder may transfer or assign this
Warrant, except that the Company shall not be obligated to effect any transfer
of this Warrant unless a registration statement is in effect with respect
thereto under applicable state and Federal securities laws or the Company has
received an opinion in substance reasonably satisfactory to it from counsel
reasonably satisfactory to it that such registration is not required and this
Warrant is surrendered to the Company at its principal office together with the
Assignment Form annexed hereto, duly completed and executed, and sufficient
funds to pay any transfer tax.
1.1 OWNERSHIP. The Company and any agent of the Company may treat the person in
whose name this Warrant Certificate is registered on the register which the
Company shall cause to be maintained for such purpose as the owner and holder
thereof for all purposes. This Warrant Certificate, if properly assigned, may be
exercised by a new holder without first having a new Warrant Certificate issued.
1.2
<PAGE>
1.3 LEGEND. A legend setting forth or referring to the above restrictions shall
be placed on this Warrant, any replacement hereof or any certificate
representing the Stock, and a stop transfer restriction or order shall be placed
on the books of the Company and with any transfer agent until such securities
may be legally sold or otherwise transferred.
1.4
2. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the Party against which enforcement of the same is sought.
3.
4. NOTICES. Any notice, request or other document required or permitted to be
given or delivered to the Holder or the Company shall be personally delivered or
shall be sent by certified or registered mail, postage prepaid, if to the Holder
at 651 Day Hill Road, Windsor, Connecticut 06095, or if to the Company at its
principal office at 12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216.
Any notice, request or other document shall be deemed to have been given upon
receipt if personally delivered, or on the seventh day after being mailed if
mailed, registered or certified mail. Each party shall notify the other party in
writing of any change of address of the Company within a reasonable time
following such change of address.
5.
6. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the
several sections and paragraphs of this Warrant Certificate are inserted for
convenience only and do not constitute a part of this Warrant Certificate. This
Warrant Certificate shall be construed and enforced in accordance with, and the
rights of the Parties shall be governed by, the laws of the State of Delaware.
7.
8. LOST WARRANT CERTIFICATES OR STOCK CERTIFICATES. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant Certificate or any stock certificate deliverable upon
the exercise hereof and, in the case of any such loss, theft or destruction,
upon receipt of an indemnity and, if requested, bond reasonably satisfactory to
the Company, or in the case of any such mutilation upon surrender and
cancellation of this Warrant Certificate or such stock certificate, the Company
at its expense shall make and deliver a new Warrant Certificate or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant Certificate or stock certificate.
9.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its officer, thereunder duly authorized as of the ___th day of
September, 1998.
TRISTAR CORPORATION
By:
Name:
Title:
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: TRISTAR CORPORATION
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
_______________ shares of Common Stock of TRISTAR CORPORATION and herewith makes
payment of $____________ therefore and requests that the certificates for such
shares be issued in the name of, and delivered to, ____________________________,
whose address is _____________________________________________.
Dated: ______________, _____
___________________________________
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
<PAGE>
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant in accordance with the
provisions of Section 6 of the Warrant Certificate)
For value received, the undersigned hereby sells, assigns, and
transfers unto _____________________ the right represented by the written
Warrant to purchase shares of Common Stock of TRISTAR CORPORATION to which the
within Warrant relates and appoints Attorney to transfer such rights on the
books of TRISTAR CORPORATION with full power of substitution in the premises.
Dated: _____________, _____
__________________________________
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
EXHIBIT 10.44
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT is effective as of September 3, 1998 (hereinafter the
"EFFECTIVE DATE") by and between:
S & J Perfume Company, (hereinafter referred to as "LICENSOR"), and
Tristar Corporation, a Delaware corporation (hereinafter referred to as
"LICENSEE");
WHEREAS, Licensor is the owner of the trademarks and registrations thereof
listed on SCHEDULE A, which Schedule may be amended from time to time by mutual
consent of the parties (the "MARKS");
WHEREAS, Licensee desires to obtain a license from Licensor to use the
Marks on products produced, marketed, sold and distributed by Licensee (the
"PRODUCTS"); and
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
In this Agreement, the following terms shall have the meanings set forth
below:
"NET SALES" shall mean the total of all charges invoiced by Licensee for
sales of the Products less the following items insofar as they are separately
stated but included in the amounts invoiced to customers: usual trade discounts
actually taken, returns, allowances, packing costs, insurance, transportation
costs, customs duties and sales, use, import, export and excise taxes.
"TERRITORY" shall mean North America, Central America and South America
excluding, however, Argentina, Chile, Brazil, Uruguay and Paraguay.
2. TERM
2.1 Subject to the provision of ARTICLE 10 herein, this Agreement shall
continue with respect to each of the Marks, in force from the Effective Date
until the termination, cancellation or expiration of such Mark (the "Term").
3. GRANT OF LICENSE
3.1 Subject to the provisions of this Agreement, Licensor grants to
Licensee, and Licensee accepts, a nonexclusive, nontransferable, personal
license (with the right to enter into sublicenses only with producers of the
Products and only for the sole purpose of producing the Products for Licensee)
to use the Marks in the Territory solely in connection with the production,
distribution, sale and advertisement of the Products.
<PAGE>
3.2 Licensee shall not use the Marks other than as provided in SECTION 3.1
hereof.
4. PAYMENT
4.1 Licensee shall pay to Licensor an initial payment of one dollar
($1.00) on the Effective Date.
4.2 In addition to the payment set forth in SECTION 4.1 hereof, Licensee
also shall pay to Licensor royalties in the amount of five percent (5%) of the
Net Sales of the Products. Licensor hereby waives its right to such royalties;
provided however, at the sole discretion of Licensor and upon thirty (30) days
written notice to Licensee, Licensor has the right to revoke such waiver and to
collect royalties for any Net Sales made after such thirty (30) day period.
5. ACCOUNTING AND AUDITING
5.1 After Licensor's revocation of the waiver set forth in SECTION 4.2
hereof, within sixty (60) days following the end of each quarterly period ending
three (3) months, six (6) months, nine (9) months, and twelve (12) months after
the Effective Date and any anniversary date of the Effective Date, during the
Term, Licensee shall provide Licensor with a written statement of Licensee's
inventory and Net Sales during such quarterly period showing the number, type
and Net Sales of each Product and a calculation of the royalty due based
thereon. Within sixty (60) days after any expiration or termination of this
Agreement, Licensee shall provide Licensor such a statement for the last whole
or partial quarterly period during the Term. Each such statement shall be
accompanied by the remittance to Licensor of the royalties shown to be due
thereby.
5.2 Upon five (5) days' notice to Licensee, Licensor, at its expense,
shall have the right at any time during regular business hours, not more
frequently than twice annually, to have a qualified accountant selected by
Licensor audit the records of Licensee to the extent necessary to verify
Licensee's statements and payments of royalties. Such records shall be made
available to Licensor's accountant at Licensee's office located at the address
stated below. Licensee shall cooperate with and assist Licensor's accountant for
the purpose of facilitating such audit.
5.3 If, as a result of such audit, Licensor's accountant determines that
the amount of royalties due was greater than the amount reported by Licensee in
a quarterly statement furnished pursuant to SECTION 5.1, Licensor shall promptly
furnish to Licensee a copy of the report of its accountant setting forth the
amount of the deficiency showing, in reasonable detail, the basis upon which
such deficiency was determined. Licensee shall promptly remit to Licensor a sum
equal to such deficiency so claimed, together with interest thereon at the rate
of the lesser of twelve percent (12%) per annum or the maximum non-usurious rate
allowed by law, from the date such royalty was due until the date of such
remittance. In addition, if the audit reveals the underpayment by more than ten
percent (10%) of the royalties in any quarterly period, Licensee shall pay to
Licensor the cost of such audit.
-2-
<PAGE>
6. USE OF MARKS
6.1 Licensee agrees that the nature and quality of: (i) all services and
goods rendered by Licensee in connection with the Marks; (ii) all goods
produced, distributed or sold by Licensee under the Marks; and (iii) all related
advertising, promotional, and other related uses of the Marks by Licensee shall
conform to standards set by Licensor. Any usage not in conformity with standards
set by Licensor shall require Licensor's prior written consent.
6.2 Licensee may use its own trademarks and the trademarks of third
parties in conjunction with the Marks.
6.3 Licensee agrees to permit reasonable, periodic inspection of
Licensee's and/or sublicensees' operations, at reasonable times and with
reasonable notice, and to supply Licensor with specimens of all uses of the
Marks upon request. Licensee shall comply with all applicable laws and
regulations and obtain all appropriate governmental approvals pertaining to the
production, distribution, sale and advertising of the Products.
6.4 Licensor shall not use or adopt, during the term of the License nor at
any time thereafter, except as expressly permitted by this Agreement, in its
business, in its business name, in its trading style, or in any of its services
or on any of its products any trademark, service mark, name, style or dress
which is so similar to, or so nearly resembles any of the Marks or any other
trademark, service mark, trade name, trade dress or label of Licensor as to be
likely to cause or as to be calculated to cause deception or confusion, or which
is graphically or phonetically similar to or is derived from or based upon any
of the Marks. If Licensee adopts or uses, at any time, any trademark, service
mark, name, dress or style which Licensor regards as being in breach of this
Section, Licensee shall, immediately upon request of Licensor, discontinue such
adoption or use.
6.5 Licensee shall not use any of the Marks in Licensee's name or in any
trade name, trademark, service mark, or trade dress of Licensee. Nor shall
Licensee use any of the Marks in it stationery, letterhead, advertising or
otherwise in such a way as may cause any confusion between Licensee and Licensor
in respect to third parties.
6.6 Licensee shall include the Marks on or with all Products sold under
the Marks and shall include all notices and legends with respect to the Marks as
are or may be required by applicable federal, state, and local laws or which may
be reasonably requested by Licensor.
7. OWNERSHIP OF MARKS
7.1 Licensee acknowledges the ownership of the Marks by Licensor, agrees
that it will do nothing inconsistent with such ownership, and that all use of
the Marks by Licensee and all good will developed therefrom shall inure to the
benefit of and be on behalf of Licensor.
7.2 Licensee agrees that nothing in this Agreement shall give Licensee any
right, title, or interest in the Marks other than the right to use the Marks in
accordance with this Agreement, and Licensee agrees that it will not challenge
the title of Licensor to the Marks or challenge the validity of this Agreement.
-3-
<PAGE>
7.3 If notwithstanding the foregoing, Licensee at any time develops,
adopts or acquires (including development or acquisition as a matter of law),
directly or indirectly, any right, title or interest in or to the use of any of
the Marks in any jurisdiction, then Licensee shall, at Licensee's request
whether during the Term or thereafter, assign to Licensor or any designee or
Licensor all such right, title and interest together with any and all good will
incident thereto.
8. INFRINGEMENT
8.1 Licensee shall notify Licensor promptly of any actual or threatened
infringements, imitations or unauthorized use of the Marks by third parties of
which Licensee becomes aware. Licensor shall have the sole right, at its
expense, to bring any action on account of any such infringements, imitations,
or unauthorized use, and Licensee shall cooperate with Licensor, as Licensor may
reasonably request, in connection with any such action brought by Licensor.
Licensor shall retain any and all damages, settlement and/or compensation paid
in connection with any such action brought by Licensor.
9. INDEMNIFICATION
9.1 Licensee, at its expense, shall defend and indemnify, and save and
hold Licensor harmless from and against any and all liabilities, claims, causes
of action, suits, damages, including without limitation, suits for personal
injury or death of third parties, and expenses, including reasonable attorneys'
fees and expenses, for which Licensor becomes liable, or may incur or be
compelled to pay by reason of Licensee's activities or breach of the terms of
this Agreement, including but not limited to (i) claims of infringement of any
intellectual property right, or (ii) product liability suits by direct or
indirect customers of Licensee.
10. TERMINATION
10.1 Licensor shall have the right to terminate this Agreement effective
immediately upon (i) Licensee's receipt of written notice from Licensor in the
event of any affirmative act of insolvency by Licensee, (ii) the appointment of
any receiver or trustee to take possession of the properties of Licensee or upon
the winding-up, or any sequestration by governmental authority of Licensee,
(iii) any material breach of any of the duties and obligations of Licensee under
this Agreement, or (iv) the value or validity of the Marks reasonably being
expected to be compromised in any way by Licensee's continued use of the Marks.
10.2 The exercise of any right of termination under this ARTICLE 10 shall
not affect any rights which have accrued prior to termination and shall be
without prejudice to any other legal or equitable remedies to which Licensor may
be entitled by reason of such rights. The obligations and provisions of ARTICLES
5, 7, and 9 shall survive any expiration or termination of this Agreement.
11. EFFECTS OF AND PROCEDURE ON TERMINATION
11.1 Upon the expiration or termination of this Agreement, Licensee agrees
immediately to discontinue all use of the Marks and any term confusingly similar
thereto, to destroy all printed materials bearing any of the Marks, and that all
rights in the Marks and the good will connected therewith shall remain the
property of Licensor.
-4-
<PAGE>
12. RELATIONSHIP OF THE PARTIES
12.1 The relationship of Licensee to Licensor is that of an independent
contractor and neither Licensee nor its agents or employees shall be considered
employees or agents of Licensor. This Agreement does not constitute and shall
not be construed as constituting a partnership or joint venture or grant of a
franchise between Licensor and Licensee. Licensee shall not have the right to
bind Licensor to any obligations to third parties.
13. ASSIGNMENT
13.1 This Agreement may be assigned by Licensor but shall not be
assignable or transferable by Licensee without the prior written consent of
Licensor, and any attempted assignment by Licensee without such prior written
consent shall be void and shall constitute a breach of the obligations of
Licensee hereunder.
14. NOTICES
14.1 Any notice, demand, waiver, consent, approval, or disapproval
(collectively referred to as "NOTICE") required or permitted herein shall be in
writing and shall be given personally, by messenger, by air courier, by
telecopy, or by prepaid registered or certified mail, with return receipt
requested, addressed to the parties at their respective addresses set forth
below or at such other address as a party may hereafter designate in writing to
the other party.
14.2 A notice shall be deemed received on the date of receipt.
15. APPLICABLE LAW
15.1 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to principles of conflicts of
laws. Any case, controversy, suit, action, or proceeding arising out of, in
connection with, or related to, this Agreement shall be brought in any Federal
or State court located in Bexar County and the State of Texas, and each party
hereby consents to the jurisdiction of such Courts.
-5-
<PAGE>
16. SUBLICENSE
16.1 No sublicense agreement into which Licensee enters pursuant to
SECTION 3.1 of this Agreement may extend beyond the Term. Licensee may not enter
into any sublicense pursuant to this Agreement without the prior written consent
of Licensor, which consent shall not be unreasonably withheld.
17. MODIFICATION, AMENDMENT, SUPPLEMENT OR WAIVER
17.1 This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all previous
agreements, promises, representations, understandings, and negotiations whether
written or oral.
17.2 No modification, amendment, supplement to or waiver of this Agreement
or any of its provisions shall be binding upon the parties hereto unless made in
writing and duly signed by both of the parties to this Agreement. A waiver by
either party of any of the terms or conditions of this Agreement in any one
instance shall not be deemed a waiver of such terms or conditions in the future.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the Effective Date.
LICENSOR LICENSEE
S & J PERFUME COMPANY TRISTAR CORPORATION
By: _______________________ By: ________________________
Name: _____________________ Name: ______________________
Title: ____________________ Title: _____________________
Address: __________________ Address: ___________________
<PAGE>
SCHEDULE A
TRADEMARKS
Adroit Lisette
Anissa L'Ombre
Aria of Love Lovange
Aziano Love Dream
Beseech Luger
Bestow Morning Dream
Bianca Natasha
Black Lace One Way
Blue Mist Oscent
Caneta Pasadena
Cantata Pink Lady
Club Exclusif Precious Diamonds
Crimson Premium
Cyanese Prize
Devoir Red Love
Dikaasa Regal Hush
Dream Birds Renata
Endless Reputation
Entranced* Ribbons N'Roses
Essensuality Rio Grande
Expedition Risky
Fiero Rivoli
Forever Roxy
Gazebo Sandalwood
Gina Shardeena
Gina Logo Silk Flame
Golden Love Simply You
Grand Prize Sparkling Solitaire
Heavenly Tidal Wave
Heavenly Mist Token of Love
Hideout Tsunami
Hinting Utmost
Identity Vibes
Indeed Voix
Insinuation Whirl Wind
Lazoo Wild Wonder
Legrand* Winter Love
Leopard Zanutti
*Copy of registration certificate not available.
EXHIBIT 10.45
VOTING AND SHAREHOLDERS AGREEMENT
VOTING AND SHAREHOLDERS AGREEMENT dated as of September 3, 1998 by
and between PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP, having an office at
651 Day Hill Road, Windsor, Connecticut 06095 (the "PIONEER PARTNERSHIP "), AND,
(A) SHASHIKANT S. SHETH, JAMMADAS SHETH, KIRIT SHETH, MAHENDRA SHETH, VIREN S.
SHETH, JAY J. SHETH, B.J. HARID, NEVELL INVESTMENTS, S.A.,TRANSVIT MANUFACTURING
CORPORATION, STARION INTERNATIONAL LIMITED, STARION B.V.I., AND (B) ARON ZUTLER,
PETER LIMAN, ROBERT VIOLA, RICHARD HOWARD, RICHARD P. RIFENBURGH, ROBERT R.
SPARCINO, or any trusts, or other entities or affiliates (collectively
hereinafter referred to as the "PRINCIPAL SHAREHOLDERS"). Those Principal
Shareholders listed in (b) above shall be automatically released from their
respective obligations and rights hereunder on the date that such Principal
Shareholder ceases to be affiliated with the Company, PROVIDED that the
remaining Principal Shareholders shall maintain such 51% ownership as specified
below.
WHEREAS, the Principal Shareholders have sole or shared voting power
over an aggregate of at least 15,237,984 of the shares of the common stock, $.01
par value per share ("COMMON SHARES"), of TRISTAR CORPORATION (the "COMPANY") as
more specifically set forth in EXHIBIT A attached hereto;
WHEREAS, pursuant to a certain Investment Agreement dated the date
hereof (the "INVESTMENT AGREEMENT"), the Pioneer Partnership is investing in the
Company through the purchase of Preferred Stock and may make additional
investments in the Company through one or more Preferred Stock investments in
the future; and
WHEREAS, the execution of this Agreement by the parties hereto is a
condition precedent to the consummation of the transactions provided for in the
Investment.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
<PAGE>
Voting Agreement
Page 2
ARTICLE I. VOTING BY PRINCIPAL SHAREHOLDERS.
1.1 AGREEMENT TO VOTE. Each of the Principal Shareholders agrees
that, so long as the Pioneer Partnership shall own any Preferred Stock (as
defined in the Investment Agreement), or Common Stock (as defined in the
Investment Agreement), each of them shall vote all of his, hers or its Common
Shares, whether now owned or hereafter acquired, for the election as a
director(s) of the Company of the designee(s) of the Pioneer Partnership in
accordance with Section 1.10(a) of the Investment Agreement at any meeting of
the Company's shareholders at which such designee shall be nominated as a
director. Without limiting the generality of the foregoing, the Principal
Shareholders agree to execute and deliver any and all documents, agreements and
instruments, including, without limitation, proxies, as the Pioneer Partnership
shall reasonably request so that at least one (1) designee of the Pioneer
Partnership, subject to the qualifications for such designee as set forth in the
Investment Agreement, shall be a director of the Company at all times while any
Preferred Stock or Common Stock is held by the Pioneer Partnership.
1.2 SPECIAL MEETING UPON DEFAULT. In the event the default under, or a
breach of, this Agreement, or the Investment Agreement, or the Certificate of
Designation of Preferred Stock at any time while the Pioneer Partnership or its
limited partners (in the event of a distribution of such securities to the
limited partners) are a holder of 75,000 shares or more of the Common Stock,
directly or through the possible conversion of the Preferred Stock, all on a
fully diluted basis, the Principal Shareholders agree to call a special meeting
of the Shareholders at the sole expense of the Company and they each agree that
they shall vote in favor of the nominee to the Board of Directors designated by
the Pioneer Partnership under ss.1.1 hereof and for one (1) additional nominee
designated by the Pioneer Partnership to be elected as a director. The board of
directors shall then be comprised of members constituting at least a simple
majority of directors who are independent of the Core Sheth Families (as the
term
<PAGE>
Voting Agreement
Page 3
"Core Sheth Families" is defined in the Investment Agreement) and the Company,
and of which two directors shall be the Pioneer Partnerships' nominees; such
election or appointment shall be effective no later than 30 days after and
during the continuation of any such defaults. The nominee of the Pioneer
Partnership shall be reasonably acceptable to the board of directors of the
Company to serve as a director. Grounds for rejecting such nominee shall be any
matter of record of the nominee which would cause the Company to be in violation
of any order issued by the Commission or such nominee is disqualified as a
result of Rule 262(b) promulgated under the 1933 Act; provided, however, no such
nominee shall be an affiliate of a competitor of the Company. The two directors
designated by the Pioneer Partnership for nomination and election or appointment
together with the other independent outside directors shall form and constitute
the Company's Post-Default Executive Committee which shall be granted full
executive and operational control over the Company's operations. The Principal
Shareholders hereby agree to take no action to contravene, limit or otherwise
terminate such the Pioneer Partnership board majority mechanism. The Principal
Shareholders agree to vote in favor of such the Pioneer Partnership nominees for
as long as any interest or principal remains unpaid under such Preferred Stock.
1.3 PRESERVATION OF BYLAWS. If the directors or the shareholders of the
Company amend the Bylaws to permit more than nine (9) directors at any time
while the Pioneer Partnership or its limited partners (in the event of a
distribution of such securities to the limited partners) are a holder of 75,000
shares or more of the Common Stock, directly or through the possible conversion
of the Preferred Stock, all on a fully diluted basis, notice shall be given to
the Pioneer Partnership, thereafter, immediately upon the written demand
therefor by the Pioneer Partnership, the Principal Shareholders shall call a
special meeting of the Shareholders at the sole expense of the Company. The
Principal Shareholders each agree that they shall vote all of their Common
Shares, whether now owned or hereafter acquired, for the Bylaws to reduce the
number of directors to no more than nine (9).
<PAGE>
Voting Agreement
Page 4
ARTICLE II. TRANSFERS
2.1 TRANSFER OF COMMON SHARES TO AFFILIATES. During the term of this
Agreement, neither the Principal Shareholders nor any other person who shall
become a party to or bound by this Agreement without the prior written consent
of the Pioneer Partnership which consent will not be unreasonably withheld,
shall transfer any Common Shares, whether now or hereafter acquired, (i) to any
person, (ii) to any affiliate, as hereinafter defined, unless the affiliate
shall have first delivered a written agreement of such affiliate agreeing to be
bound by and subject to the terms and conditions of this Agreement, with the
same force and effect as if such person were named as a party to this Agreement
or as a Principal Shareholder hereunder, or (iii) pursuant to a registration
statement; PROVIDED HOWEVER, the consent of the Pioneer Partnership shall not be
required if the aggregate holdings of the Principal Shareholders shall equal
fifty-one percent (51%) or more on a fully diluted basis (including all of the
issued Series C Preferred Stock) of the issued Common Shares. The term
"affiliate" shall have the same meaning as provided in Rule 405 promulgated
under the 1933 Act.
2.2 LEGEND ON STOCK CERTIFICATES. The certificates of the Common Stock now
owned by the Principal Shareholders shall be subject to and bear a restrictive
legend as follows:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO ALL OF
THE TERMS OF A CERTAIN VOTING AND SHAREHOLDERS AGREEMENT DATED SEPTEMBER
3, 1998, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE ISSUER. THE
SHARES ARE SUBJECT TO CERTAIN VOTING, CO-SALE AND TRANSFER RESTRICTIONS.
ANY ACTIONS TAKEN IN CONTRAVENTION TO THAT AGREEMENT SHALL BE NULL AND
VOID.
The terms of such endorsement and restrictions are hereby expressly consented to
and accepted.
<PAGE>
Voting Agreement
Page 5
2.3 PERMISSIBLE PLEDGE TRANSACTIONS. Notwithstanding any legal requirement
to the contrary, the Pioneer Partnership agrees that the pledge by the Principal
Shareholders of any securities to any third-party lenders is permitted, PROVIDED
that the aggregate holdings of all of the Principal Shareholders plus the
holdings of the Pioneer Partnership shall not be less than fifty-one (51%)
percent of the issued voting stock of the Company on a fully diluted basis
including all of the issued Series C Preferred Stock (the "MINIMUM PERCENTAGE").
In the event that any of the Principal Shareholders desire to pledge any
securities which decrease the number of such aggregate holdings below the
Minimum Percentage, then the Pioneer Partnership's consent to such pledge shall
be valid only upon the third-party lenders entering into a Voting and
Shareholders Agreement with the Pioneer Partnership on terms and conditions
substantially similar to the terms hereof, and such agreement shall be
satisfactory in all respects to the Pioneer Partnership. The third-party lenders
shall agree therein that in the event that they obtain equitable or legal title,
or any voting rights, to any securities of the Company, that they shall perform
under the agreement as if they were Principal Shareholders hereunder.
ARTICLE III. CO-SALE PROVISIONS
3.1 THIRD-PARTY OFFER AND NOTICE. Any sale of the Common Shares by any
Principal Shareholder will be subject to a participation right of co-sale by
Pioneer Ventures or its limited partners, in the event of a distribution to such
limited partners, on a PRO RATA fully diluted basis. If any one or more of the
Principal Shareholders obtains from a third party ("THIRD PARTY PURCHASER") an
offer to purchase any amount of his or her Shares, such Principal Shareholders
shall submit a written notice (the "CO-SALE NOTICE") to Pioneer Ventures
disclosing the number of Common Shares proposed to be sold, the offered purchase
price, the proposed closing date, and the total number of Common Shares owned by
the Principal Shareholders.
<PAGE>
Voting Agreement
Page 6
3.2 CO-SALE RIGHT OF PARTICIPATION. Upon receipt of a Co-Sale Notice from
any Principal Shareholder, Pioneer Ventures or its limited partners, in the
event of a distribution to such limited partners, may elect to participate in
such transaction and shall have the right to offer its securities, at the same
price and on the same terms. Each participating selling party who elects to
participate in such sale shall be entitled to sell his Pro Rata Share (as herein
defined) of the number of shares the purchaser is willing to purchase. "PRO RATA
SHARE" as used in the preceding sentence means the product of the number of
shares owned by such party and a fraction, the numerator of which is the number
of fully diluted shares held by such party, and the denominator of which is the
total number of fully diluted shares held by all shareholders participating in a
subject sale. Each participating selling party shall in turn be entitled to
receive at the applicable closing the net proceeds of the sale allocable to the
securities sold on behalf of each selling shareholder, after deduction of such
selling shareholder's proportionate share of the reasonable expenses of the
sale. These co-sale provisions will not apply to any sale of securities pursuant
to a distribution to the public, whether pursuant to a registered public
offering, Rule 144 or otherwise.
3.3 NOTICE OF INTENT TO PARTICIPATE IN CO-SALE. If the Pioneer Partnership
wishes to participate in any sale under this Article III, then Pioneer Ventures
shall notify the selling Principal Shareholder(s) in writing of such intention
as soon as practicable after such Pioneer Partnership's receipt of the Co-Sale
Notice made pursuant to Section 3.1, and in any event within fifteen (15) days
after the date of such Co-Sale Notice has been delivered. Such notification
shall be delivered in person or by facsimile to the Principal Shareholder(s) at
the Company's offices.
ARTICLE IV. REMEDIES
4.1. VIOLATION OF AGREEMENT; CONSENT TO INJUNCTIVE RELIEF. Each of the
Principal Shareholders recognizes and agrees that any violation of any of their
obligations set forth in this Agreement would cause irreparable damage which
could not be compensated by monetary damages. Such violation shall constitute an
event of default under the Investment Agreement. Accordingly, in the event of
any breach of a Principal Shareholder's obligations under this Agreement, such
Principal Shareholder consents to the entry of injunctive relief, including the
remedy of specific performance, by a court of competent jurisdiction restraining
any such violation or threatened violation, and/or granting full voting
authority to the Pioneer Partnership for purposes of this Agreement, in addition
to any other remedies available at law or in equity.
<PAGE>
Voting Agreement
Page 7
ARTICLE V. MISCELLANEOUS
5.1. REPRESENTATIONS. Each of the Principal Shareholders represents and
warrants that, at the date hereof, he/she or it is the sole record and
beneficial owner of the number of Common Shares set forth opposite his/her name
on EXHIBIT A to this Agreement.
5.2 FURTHER ASSURANCES. From and after the date of this Agreement, the
parties hereto shall from time to time, at the request of any other party and
without further consideration, do, execute and deliver, or cause to be done,
executed and delivered, all such further acts, things and instruments as may be
reasonably requested or required more effectively to evidence and give effect to
the transactions provided for in this Agreement.
5.3. NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given if personally delivered or if mailed by first
class registered or certified mail return receipt requested, or by first class
mail or overnight courier if received, addressed to the parties at their
respective addresses set forth on the first page of this Agreement, or to such
other person or address as may be designated by like notice hereunder.
5.4 MODIFICATIONS. This Agreement may not be modified or discharged
orally, but only in writing duly executed by the party to be charged.
5.5 SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and
agreements in this Agreement shall bind the parties' respective heirs,
successors and assigns, whether so expressed or not; provided, however, the
Pioneer Partnership shall not assign this Agreement nor any of its rights or
obligations hereunder to any party, except to its limited partners, in the event
of a distribution to its limited partners, without the prior written consent of
a majority of the Principal Shareholders.
<PAGE>
Voting Agreement
Page 8
5.6 HEADINGS. The headings of the various sections of this Agreement are
for convenience of reference only and shall in no way modify any of the terms or
provisions of this Agreement.
5.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to instruments made
and to be performed entirely within such State.
5.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same document.
5.9 GENDER. All pronouns used herein are inserted for convenience only and
shall be applied in the masculine, feminine, or third person as appropriate for
each party signing hereto.
5.10 USE OF TERM "PIONEER PARTNERSHIP". Notwithstanding any provision of
this Agreement to the contrary, included in the definition and meaning of the
"Pioneer Partnership" shall be any one or more parallel limited partnerships
which have been or shall be organized by Ventures Management Partners LLC as the
general partner to invest in parallel with Pioneer Ventures Associates Limited
Partnership on the same economic terms and PRO RATA based upon their aggregate
subscriptions. The limited partners of Pioneer Ventures Associates Limited
Partnership and the parallel partnerships shall be referred to herein as the
"LIMITED PARTNERS".
5.12 Facsimile or other electronically delivered signatures may be relied
upon as valid, binding and enforceable signatures of the parties delivering such
signatures by such means.
<PAGE>
Voting Agreement
Page 9
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date and year first above written.
BY THE PIONEER PARTNERSHIP:
PIONEER VENTURES ASSOCIATES LIMITED PARTNERSHIP
By: Ventures Management Partners LLC
Its General Partner
By: Pioneer Ventures Corp.,
Its Managing Member
BY: ROBERT A. LERMAN
Robert A. Lerman, President
[Signature Pages Continue on following pages]
<PAGE>
Voting Agreement
Page 10
BY THE PRINCIPAL SHAREHOLDERS:
/s/ MAHENDRA SHETH /s/ SHASHIKANT S. SHETH
MAHENDRA SHETH SHASHIKANT S. SHETH
/s/ JAMMADAS SHETH /s/ KIRIT SHETH
JAMMADAS SHETH KIRIT SHETH
/s/ JAY J. SHETH /s/ VIREN S. SHETH
JAY J. SHETH VIREN S. SHETH
/s/ B.J. HARID
B.J. HARID
NEVELL INVESTMENTS, S.A. STARION B.V.I.
BY: ____________________ BY:_________________
Its Director Its Director
TRANSVIT MANUFACTURING CORPORATION STARION INTERNATIONAL LIMITED
BY:_________________ BY:_________________
Its Director Its Director
/s/ RICHARD P. RIFENBURGH /s/ ARON ZUTLER
RICHARD P. RIFENBURGH ARON ZUTLER
/s/ PETER LIMAN /s/ ROBERT R. SPARACINO
PETER LIMAN ROBERT R. SPARACINO
/s/ ROBERT VIOLA /s/ RICHARD HOWARD
ROBERT VIOLA RICHARD HOWARD
_____________________________
<PAGE>
Voting Agreement
Page 9
_____________________________
CONSENTED TO, AND THE OBLIGATION SET FORTH IN ARTICLE
I TO PAY FOR SUCH SPECIAL MEETINGS OF THE SHAREHOLDERS
IS HEREBY AGREED TO:
TRISTAR CORPORATION
BY: ___________________________
Name:
Title:
<PAGE>
EXHIBIT A
TO
VOTING AGREEMENT
PRINCIPAL SHAREHOLDERS
NO. OF PERCENTAGE
NAME AND ADDRESS(1) SHARES OWNERSHIP
------------------------ ---------- ---------------
A) CORE SHETH FAMILIES ET AL.
SHASHIKANT S. SHETH
JAMMADAS SHETH
KIRIT SHETH
MAHENDRA SHETH
VIREN S. SHETH
JAY J. SHETH
TRANSVIT MANUFACTURING CORPORATION
STARION INTERNATIONAL LIMITED
STARION B.V.I.
NEVELL INVESTMENTS, S.A.
B.J. HARID
TOTAL RE CORE SHETH FAMILIES ET AL. 14,697,984 73%
(B) OTHER OFFICERS AND DIRECTORS
ARON ZUTLER 10,000
PETER LIMAN 30,000
ROBERT VIOLA 150,000
RICHARD HOWARD 250,000
RICHARD P. RIFENBURGH 50,000
ROBERT R. SPARACINO 50,000
- -----------------------
(1) The address for these individuals and entities is c/o Tristar Corporation,
12500 San Pedro Avenue, Suite 500, San Antonio, Texas 78216
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
(Nos. 33-45396 and 333-26567) on Form S-8 of Ross Cosmetics Distributions
Centers, Inc. and Tristar Corporation, respectively, of our report dated
December 4, 1998, on our audit of the consolidated financial statements and
financial statement schedule of Tristar Corporation and subsidiaries as of
August 29, 1998 and August 30, 1997, and for the years then ended, which report
is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Dallas, Texas
December 4, 1998
EXHIBIT 24.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Tristar Corporation:
We consent to incorporation by reference in the registration statements (Nos.
33-45396 and 333-26567) on Form S-8 of Ross Cosmetics Distributions Centers,
Inc. and Tristar Corporation, respectively, of our report dated December 11,
1996, relating to the consolidated statements of operations, shareholders'
equity, and cash flows for the year ended August 31, 1996, and the related
schedule, which report appears in the August 29, 1998, annual report on Form
10-K of Tristar Corporation.
KPMG Peat Marwick LLP
San Antonio, Texas
December 4, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-END> AUG-29-1998
<CASH> 66,000
<SECURITIES> 0
<RECEIVABLES> 17,813,000
<ALLOWANCES> 895,000
<INVENTORY> 11,375,000
<CURRENT-ASSETS> 29,581,000
<PP&E> 8,199,000
<DEPRECIATION> 8,805,000
<TOTAL-ASSETS> 38,708,000
<CURRENT-LIABILITIES> 26,748,000
<BONDS> 0
0
9,177,000
<COMMON> 168,000
<OTHER-SE> (1,996,000)
<TOTAL-LIABILITY-AND-EQUITY> 38,708,000
<SALES> 67,683,000
<TOTAL-REVENUES> 67,683,000
<CGS> 50,432,000
<TOTAL-COSTS> 66,856,000
<OTHER-EXPENSES> 2,256,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,786,000
<INCOME-PRETAX> (1,429,000)
<INCOME-TAX> 62,000
<INCOME-CONTINUING> (1,491,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,491,000)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
