SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) JUNE 7, 2000
TRISTAR CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 0-13099 13-3129318
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
105 S. ST. MARY'S STREET, SUITE 1800, SAN ANTONIO, TEXAS 78205
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (210) 402-2200
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12500 SAN PEDRO AVENUE, SUITE 500, SAN ANTONIO, TEXAS 78216
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
This filing is being made for the purpose of updating the factors
affecting Tristar Corporation's (the "Company") business, operating results and
financial condition set forth in the Company's documents on file with the
Securities and Exchange Commission and to provide investors with cautionary
statements regarding any forward-looking statements that may be made from time
to time by the Company in its filings with the Securities and Exchange
Commission, press releases and other public statements.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS AND FACTORS
AFFECTING THE COMPANY'S BUSINESS, OPERATING RESULTS
AND FINANCIAL CONDITION
Our filings with the Securities and Exchange Commission, our press
releases and our other public statements may include, or may incorporate by
reference, certain statements that may be deemed "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 relating to our
objectives, strategies, plans, intentions and expectations are forward-looking
statements, as are all statements that address actions, events or circumstances
that we expect, believe or intend will occur in the future (other than
statements of historical facts). We do not undertake to publicly update or
revise any forward-looking statement, whether as a result of new information,
future events or otherwise. All forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated in the forward-looking statements. Those
risks and uncertainties include the following:
CONTROL BY CERTAIN STOCKHOLDERS
The Sheth Group is comprised of Shashikant S. Sheth, Jammandas Sheth, Kirit
Sheth, and Mahendra Sheth. The Sheth Group owns in excess of 51% of the shares
of our outstanding Common Stock. As a result, the Sheth Group effectively has
the power to control our Company, including the election of directors, the
approval of significant corporate transactions and all other matters requiring
stockholder approval. Such control by the Sheth Group may have the effect of
discouraging a merger or other takeover of our Company in which stockholders may
be paid a premium for their shares over then-current market prices. Kirit Sheth,
one of our directors, is a member of the Sheth Group and is the brother of two
other members of the Sheth Group. Jay J. Sheth, also one of our directors, is
unrelated to Kirit Sheth and is not a member of the Sheth Group, but is the son
of a member of the Sheth Group.
POTENTIAL CONFLICTS OF INTEREST
Transactions between our Company and the Sheth Group or other affiliates may
involve conflicts of interest. We have entered into other transactions with
persons and entities deemed to be our affiliates, including (i) borrowings and
purchases from Sheth Group affiliates and (ii) sales to Sheth Group affiliates,
including the sale of our wholly-owned subsidiary, Tristar de Mexico, S.A. de
C.V., to Transvit Holding Corporation, a wholly-owned affiliate of the Sheth
Group and the sale of our
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Brazilian subsidiary to Transvit Distribution Corp., a wholly-owned affiliate of
the Sheth Group. In addition, we completed a private placement in October 1999,
whereby we sold 100,000 shares of our Series C Senior Convertible Preferred
Stock to Pioneer Venture Associates, L.P. ("PVA"). Among other things, the
related investment agreement requires us to have one director who represents
PVA. Robert Lerman, such director, is the President of the managing member of
the general partner of PVA. We believe that the terms of these transactions have
been on terms no less favorable to our Company than could have been obtained
from unaffiliated parties. There can be no assurance, however, that future
conflicts of interest will not arise with respect thereto, or that if conflicts
do arise, they will be resolved in a manner favorable to us. Pursuant to the
terms of the principal borrowing agreement, we are prohibited from entering into
any transactions with our officers, directors, principal stockholders or
affiliates unless the terms thereof are disclosed to principal lender and are no
less favorable to us than could be obtained in arm's length transactions with
independent third parties.
LACK OF HISTORICAL PROFITABILITY; FUTURE OPERATING RESULTS
We have incurred substantial net losses applicable to common stock every fiscal
year since 1995. There can be no assurance that we will not continue to incur
losses, that we will be able to raise cash as necessary to fund operations or
that we will ever achieve profitability.
WE HAVE SIGNIFICANT LONG-TERM DEBT AND INTEREST PAYMENT OBLIGATIONS
We have a significant amount of long-term debt and interest payment obligations.
In addition, we may incur additional debt in the future under our $22 million
bank credit facility or in connection with other private or public debt
financing. Our significant debt service obligations could have negative
consequences to our business, including:
o a diminished ability to react to changing market conditions, changes
in our industry and economic downturns;
o a diminished ability to compete with others in our industry who are
not as highly leveraged;
o an inability to obtain additional financing on satisfactory terms;
o the need to use a substantial portion of our cash flow for interest
payments;
o an increased sensitivity to fluctuations in interest rates; and
o a lack of financial and operating flexibility as a result of
restrictive covenants contained in our debt instruments.
Further, our ability to make scheduled payments on our present and future debt
may depend on, among other things, our ability to successfully execute our
current business plan on a timely and cost effective basis and our future
operating performance, which, to a large extent, may depend on factors beyond
our control, such as business, economic and competitive factors.
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POSSIBLE ADVERSE EFFECTS OF LOAN COVENANTS
In December 1997, we entered into a $22 million revolving credit facility (the
"Credit Agreement") with our principal lender ("PL"). We granted our PL a
security interest in substantially all of our present and future assets as
collateral for loans made under the Credit Agreement. 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. In addition, the Credit Agreement limits or
prohibits us, without the prior written consent of our PL, from merging or
consolidating with another corporation, paying dividends to any class of
securities except for the Series C Senior Convertible Preferred Stock, acquiring
all or substantially all of the assets of another corporation, selling all or
substantially all of our assets, creating liens or security interests on our
assets, entering into transactions with our affiliates and changing the
composition of our Board of Directors. Failure to comply with loan covenants
under the Credit Agreement could result in an event of default under the Credit
Agreement which, in turn, could result in a foreclosure on substantially all of
our assets.
ACQUISITIONS
We have addressed the need to develop new products and markets, in part, through
the acquisition of Fragrance Impressions Limited ("FIL") in 1999. Acquisitions,
such as the acquisition of FIL, involve numerous risks including difficulties in
assimilating the operations, technologies and products of the acquired
companies, the diversion of management's attention from other business concerns,
risks of entering markets in which competitors have established market positions
and the potential loss of key employees of the acquired company. Achieving the
anticipated benefits of our acquisition of FIL will depend in part upon whether
the integration of our businesses is accomplished in an efficient and effective
manner, and there can be no assurance that this will occur. The inability of
management to successfully integrate the operations of FIL could have a material
adverse effect on our business and results of operations.
WE ARE DEPENDENT ON THIRD-PARTY MANUFACTURERS AND SUPPLIERS AND DO
NOT HAVE ANY LONG-TERM CONTRACTS WITH THEM
We purchase a substantial portion of our supply of fragrances, cosmetics and
related products and packaging materials for resale to our customers from third
parties. We do not maintain long-term contracts with any of our suppliers, which
sell products to us pursuant to purchase orders placed from time to time in the
ordinary course of business. The loss of any of our principal suppliers could
have a material adverse effect on us. There can be no assurance that we will be
able to continue using our existing principal suppliers or that we will be able
to replace our existing principal suppliers without a substantial disruption to
our business. There can be no assurance that we will not remain largely
dependent on a limited number of suppliers.
WE FACE STRONG COMPETITION
The alternative designer fragrance and cosmetic industry is highly competitive
and at times changes rapidly due to consumer preferences and industry trends. We
compete with a large number of
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distributors and manufacturers, many of which have significantly greater
resources than us. Our products compete for consumer recognition and shelf space
with fragrance products that have achieved significant international, national
and regional brand name recognition and consumer loyalty. Our products also
compete with new products that often are accompanied by substantial promotional
campaigns. These factors, as well as demographic trends, economic conditions,
discount pricing strategies by competitors and direct sales by manufacturers to
our customers, could result in increased competition and could harm our
business, financial condition and results of operations.
FREQUENT MARKET CHANGES
The alternative designer fragrance and cosmetic industry is characterized by the
frequent introduction of new products, accompanied by substantial promotional
campaigns, and is subject to rapidly changing consumer preferences and industry
trends resulting in short product life cycles, which may adversely affect our
ability to plan for future design, development and promotion of our products.
Our success will depend on our ability to anticipate and respond to various
competitive factors affecting our industry, including new products which may be
introduced, new market entrants, changes in consumer preferences, demographic
trends, international, national, regional and local economic conditions and
discount pricing strategies by competitors, all of which could adversely affect
us.
OUR BUSINESS IS SEASONAL AND FLUCTUATES QUARTERLY
Our business is seasonal. We generate a majority of our sales and income from
operations during the first and fourth quarters of our fiscal year as a result
of increased demand by retailers in anticipation of and during the holiday
season. Any substantial decrease in sales during this period would likely harm
our business, financial condition and results of operations. Similarly, our
working capital needs are greater during the first and fourth quarters of the
fiscal year. In addition, our sales and profitability may vary from quarter to
quarter as a result of a variety of factors, including the timing of customer
orders, additions or losses of brands or distribution rights and competitive
pricing pressures.
DEPENDENCE ON KEY PERSONNEL
Our performance is substantially dependent on the continued services of certain
members of our senior management, including Richard Howard, our President and
Chief Executive Officer, and Robert Viola, our Chief Financial Officer. We have
employment agreements with Messrs. Howard and Viola which expire in September
2000. If Mr. Howard, Mr. Viola or other key personnel become unable or unwilling
to continue in their present positions, our business and prospects could be
materially adversely affected.
ENVIRONMENTAL MATTERS
In connection with our manufacturing processes, we are subject to various
governmental regulations concerning among other things, emissions to air,
discharges to water, the remediation of
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contaminated soil and groundwater, and the generation, handling, storage,
transportation, treatment and disposal of waste and other materials
(collectively, "Environmental Laws"). Violations of Environmental Laws can
result in civil or criminal penalties or in cease and desist or other orders
against us. In addition, we may be required to spend material amounts to comply
with Environmental Laws, and may be liable with respect to contamination of
sites currently or formerly owned or operated by us or with respect to the
off-site disposal of hazardous substances. Future events, such as new
information, or changes in Environmental Laws (or in their interpretation or
enforcement by courts or governmental agencies) may give rise to additional
costs or claims that could have a material adverse effect on our business,
results of operations, financial condition or cash flows.
YOU ARE UNLIKELY TO RECEIVE DIVIDENDS IN THE FORESEEABLE FUTURE
We have never declared or paid any cash dividends on our Common Stock and do not
expect to do so in the foreseeable future. Our bank credit facility prohibits
our payment of cash dividends and the indentures relating to the senior notes we
have issued condition the payment of cash dividends on the satisfaction of
certain financial and other covenants.
POSSIBLE DILUTIVE EFFECTS OF WARRANTS TO PURCHASE COMMON STOCK AND
CONVERTIBLE PREFERRED STOCK
At February 26, 2000, warrants to purchase 400,000 and 2,000,000 shares of our
Common Stock at an exercise price of $2.75 and $5.34 per share, respectively,
were owned by the Sheth Group. These warrants are exercisable through 2003. We
have also issued to a third party warrants to purchase 50,000 shares of our
Common Stock at an exercise price of $10.47 per share. In addition, warrants to
purchase up to an aggregate of 185,000 shares of our Common Stock at exercise
prices ranging from $4.00 to $6.282 are held by Pioneer Venture Associates, LP
and Ventures Management Partners LLC. As of February 26, 2000, there were
outstanding 537,142 shares of our Series A convertible nonvoting preferred
stock; 120,690 shares of our Series B convertible nonvoting preferred stock and
100,000 shares of our Series C senior convertible preferred stock (collectively,
the "Preferred Stock"). The Preferred Stock is convertible into an aggregate of
2,123,352 shares of our Common Stock. The share price of our Common Stock is
susceptible to downward pressure due to the potential dilutive effects that
would result from the issuance of Common Stock upon the conversion and/or
exercise of the above described derivative securities. The effect of dilution is
that any of our earnings will have to be divided among more shares. As a result,
unless the issuance of the shares involves an increase in our value or earnings,
each outstanding share of Common Stock will be worth a lesser amount.
RELIANCE ON TRADEMARKS
We hold and are currently being assigned several United States and international
registered trademarks with respect to our products and have exclusive licenses
to use the trademarks relating to our licensed products, which we believe are of
material importance to our business. There can be no assurance, however, as to
the breadth or degree of protection which existing or future trademarks, if any,
may afford us. Although we believe that our trademarks do not and will not
infringe on the proprietary rights of third parties, there can be no assurance
that such trademarks do
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not or will not violate the proprietary rights of others. In the event that our
trademarks infringe trademarks or proprietary rights of others, we could, under
certain circumstances, become liable for damages, which could have a material
adverse effect on us.
OUR SUCCESS DEPENDS ON THE VALUE OF OUR BRANDS, PARTICULARLY "ROYAL
SELECTIONS"
Our success depends on our brands and their value. Our business would be
adversely affected if we were unable to adequately protect our brand names,
particularly "Royal Selections." We are also susceptible to others imitating our
products, particularly "Royal Selections," and infringing our intellectual
property rights. We may not be able to successfully protect our intellectual
property rights, upon which we are materially dependent. In addition, the laws
of many foreign countries do not protect intellectual property rights to the
same extent as the laws of the United States. Imitation of our products or
infringement of our intellectual property rights could diminish the value of our
brands or otherwise adversely affect our revenues.
EFFECT OF GLOBAL ECONOMIC FLUCTUATIONS
Demand for our services is significantly affected by the general level of
economic activity in the regions and industries in which we operate. When
economic activity slows, sales of fragrances and cosmetics generally decrease.
Therefore, a significant economic downturn, especially in regions or industries
where our operations are heavily concentrated, could have a material adverse
effect on our business, financial condition and operating results. Further, we
may face increased pricing pressures during such periods. There can be no
assurance that during these periods our results of operations will not be
adversely affected.
WE FACE RISKS RELATING TO OUR FOREIGN OPERATIONS
We sell a substantial portion of our products in various foreign countries,
including several in Latin America, Europe and the Middle East. Such amounts are
collected in the local currency. In addition, we generally pay operating
expenses in the corresponding local currency. Therefore, we are at risk for
exchange rate fluctuations between such local currencies and the dollar. We do
not conduct any significant hedging activities.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRISTAR CORPORATION
By /S/ ROBERT M. VIOLA
Robert M. Viola
Senior Executive Vice President and
Chief Financial Officer
DATE: June 7, 2000
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