-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PZU5XvRzeSniceoWUgJPXX7eXM2M+S4S7VppHq/8j62zwPv9gADhAfusR6QVc75w TFbv7oWDlFe5EdNULTZ7fQ== 0000950134-99-005747.txt : 19990629 0000950134-99-005747.hdr.sgml : 19990629 ACCESSION NUMBER: 0000950134-99-005747 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19990628 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: GENERAL HOUSEWARES CORP CENTRAL INDEX KEY: 0000040643 STANDARD INDUSTRIAL CLASSIFICATION: NONFERROUS FOUNDRIES (CASTINGS) [3360] IRS NUMBER: 410919772 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-14327 FILM NUMBER: 99654007 BUSINESS ADDRESS: STREET 1: P O BOX 4066 1536 BEECH STREET CITY: TERRE HAUTE STATE: IN ZIP: 47804 BUSINESS PHONE: 8122321000 MAIL ADDRESS: STREET 2: P O BOX 4066 1536 BEECH STREET CITY: TERRE HAUTE STATE: IN ZIP: 47804 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HELEN OF TROY LTD CENTRAL INDEX KEY: 0000916789 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 742692550 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 6827 MARKET AVE CITY: EL PASO STATE: TX ZIP: 79915 BUSINESS PHONE: 9157796363 MAIL ADDRESS: STREET 1: 6827 MARKET AVE CITY: EL PASO STATE: TX ZIP: 79915 SC 13D 1 SCHEDULE 13D 1 Securities and Exchange Commission Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13D-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13D-2(a) (Amendment No. __)* GENERAL HOUSEWARES CORP. (Name of Issuer) COMMON STOCK, $.33-1/3 PAR VALUE (Title of Class of Securities) 370073108 (CUSIP Number) GERALD J. RUBIN 6827 MARKET STREET EL PASO, TEXAS 79915 (915)779-6363 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) JUNE 18, 1999 (Date of Event Which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ] NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. - ------------ *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). (Continued on following pages) (Page 1 of 8 Pages) 2 ==================== ================= CUSIP NO. 370073108 13D PAGE 2 OF 8 PAGES ==================== ================= ======================================================================================================================= Helen of Troy Limited 1 Name of reporting person 74-2692550 IRS Identification No. of above person (entities only) ======================================================================================================================= 2 Check the appropriate box if a member of a group* (a) ------- (b) X ------- ======================================================================================================================= 3 SEC use only ======================================================================================================================= 4 Source of funds* WC, BK ======================================================================================================================= 5 Check box if disclosure of legal proceedings is required pursuant to Items 2(d) [X] or 2(e) ======================================================================================================================= 6 Citizenship or place of organization Bermuda ======================================================================================================================= Number of Sole voting power 536,999 Shares 7 ================================================================================================= Beneficially Shared voting power N/A Owned 8 ================================================================================================= By each Sole dispositive power 536,999 Reporting 9 ================================================================================================= Person Shared dispositive power N/A with 10 ======================================================================================================================= 11 Aggregate amount beneficially owned by each reporting person 536,999 ======================================================================================================================= 12 Check box if the aggregate amount in row (11) excludes certain shares* [ ] ======================================================================================================================= 13 Percent of class represented by amount in row (11) 13.3 % ======================================================================================================================= 14 Type of reporting person* HC =======================================================================================================================
3 Page 3 of 8 Pages The information contained in this statement is as of the date hereof, unless otherwise expressly provided herein. ITEM 1. SECURITY AND ISSUER. This statement relates to the common stock, par value $.33-1/3 per share (the "Common Stock"), of General Housewares Corp. (the "Issuer"). The principal executive offices of the Issuer are located at 1536 Beech Street, Terre Haute, Indiana 47804. ITEM 2. IDENTITY AND BACKGROUND. (a) Name: This statement is filed on behalf of Helen of Troy Limited, a Bermuda company ("HoT"). The name, business address and present principal occupation (including the name and address of the corporation or organization in which such employment is conducted) of each executive officer and director of HoT is set forth in Schedule I to this Schedule 13D, which is incorporated herein by reference. (b) Address of principal business and principal offices of HoT: Helen of Troy Limited 6827 Market Street El Paso, Texas 79915 (c) Present principal business of HoT: HoT designs, develops and sells a variety of personal care and comfort products, including hair dryers, curling irons, brush irons, lighted mirrors, hair setters, hair brushes, combs, hair accessories, women's shavers, foot baths, body massagers and artificial finger nails. Most of HoT's products are sold by mass merchandisers, drug chains, warehouse clubs, grocery stores and beauty supply retailers and wholesalers. HoT sells its products primarily in the United States. (d) During the last five years, neither HoT nor, to its knowledge, any of its directors or executive officers has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) During the last five years HoT was not a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State 4 Page 4 of 8 Pages securities laws or finding any violation with respect to such laws, nor, to its knowledge, have any of its directors or executive officers, other than as noted under "Election of Directors" in HoT's 1999 Proxy Statement, attached as Exhibit 4 to this Schedule 13D, and incorporated herein by reference. (f) Citizenship: All directors and executive officers of HoT are citizens of the United States. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. All of the shares of Common Stock acquired by HoT, except for 496,999 of the shares acquired on June 18, 1999, were acquired with funds from HoT's working capital, in the total aggregate amount of $590,025 (includes brokerage commissions). A total of 496,999 shares of Common Stock acquired by HoT were acquired with funds provided through HoT's previously existing line of credit with Chase Bank of Texas, in the total aggregate amount of $9,964,829.95 (includes brokerage commissions). A copy of such credit agreement (as amended) is attached as Exhibits 1-3 to this Schedule 13D. The shares of Common Stock held by Gerald J. Rubin (see Item 5) were acquired with his personal funds on October 22, 1996, for the total aggregate amount of $49,062.50 (includes brokerage commissions). ITEM 4. PURPOSE OF TRANSACTION. HoT acquired the Common Stock as part of its continuing strategy to evaluate business opportunities and make investments that might enhance shareholder value. HoT acknowledges that it might seek to increase its ownership stake under certain circumstances and is attempting to enter into discussions with Issuer regarding a possible business combination. HoT has retained Donaldson, Lufkin & Jenrette as its exclusive financial advisor in connection with any transaction involving the Issuer. HoT will continue to review its investment in Issuer and reserves the right, based on such review, (1) to acquire additional securities of Issuer, including possibly acquiring the Issuer through a business combination with HoT or a wholly-owned subsidiary, (2) to dispose of any or all of the securities purchased by it, or (3) to otherwise change its intentions with respect to any or all of the matters referred to in this Item 4. Gerald J. Rubin acquired the Common Stock for investment purposes only. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a)-(b) HoT owns beneficially, and has the sole power to vote or dispose of, 536,999 shares, or 13.3%, of the outstanding Common Stock. HoT disclaims the existence of a "group" with any person as contemplated by Rule 13d-5(b) of the Act. 5 Page 5 of 8 Pages Other than as described below in this Item 5, to HoT's knowledge, none of the directors or executive officers of HoT named on Schedule I hereto beneficially owns or has any power to vote or dispose of any of the shares of Common Stock of the Issuer. Gerald J. Rubin beneficially owns and has the sole power to vote or dispose of, 5,000 shares, or less than 1%, of the outstanding Common Stock. Gerald J. Rubin disclaims the existence of a "group" with any person as contemplated by Rule 13d-5(b) of the Act. The calculation of percentages of outstanding Common Stock set forth herein is based upon 4,027,912 shares of Common Stock outstanding as of May 14, 1999, as reported by the Issuer in its Form 10-Q for the quarter ended March 31, 1999. (c) Commencing on June 4, 1999, HoT acquired the following shares of Common Stock of the Issuer. All shares of Common Stock, other than 496,999 shares, were acquired on the open market. The 496,999 shares shown below as acquired on June 18, 1999, were purchased in an after-hours brokerage transaction.
Date No. of Shares Price per Share (1) - --------------- ------------- ------------------- June 4, 1999 5,800 $13.9375 June 7, 1999 6,000 14.0000 June 15, 1999 3,000 15.0625 June 16, 1999 6,100 15.0000 June 17, 1999 4,000 15.0000 June 18, 1999 15,100 15.0000 June 18, 1999 496,999 20.0000
(1) Excludes brokerage commissions. Gerald J. Rubin has acquired the following shares of Common Stock of the Issuer. All of the shares were acquired on the open market.
Date No. of Shares Price per Share (2) - --------------- ------------- ------------------- October 22, 1996 5,000 $9.8125
(2) Includes brokerage commissions. 6 Page 6 of 8 Pages ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Except for the engagement of Donaldson, Lufkin & Jenrette discussed above in Item 4, there are no contracts, arrangements, understandings, agreements or relationships (legal or otherwise) between HoT and any person with respect to the securities of the Issuer. To HoT's knowledge, there are no contracts, arrangements, understandings, agreements or relationships (legal or otherwise) between any of the individuals named on Schedule I hereto and any person with respect to the securities of the Issuer. ITEM 7. MATERIALS TO BE FILED AS EXHIBITS. Exhibit 1 Loan Agreement, dated December 31, 1996, between Chase Bank of Texas, National Association, a national banking association, f/k/a Texas Commerce Bank National Association, Helen of Troy L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, and Helen of Troy Corporation, a Texas corporation. Exhibit 2 Amendment to Loan Agreement, dated July 31, 1997, between Chase Bank of Texas, National Association, a national banking association, f/k/a Texas Commerce Bank National Association, Helen of Troy L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, HoT Nevada, Inc., a Nevada corporation, Helen of Troy Limited, a Barbados corporation, Helen of Troy Nevada Corporation, a Nevada corporation and Helen of Troy Texas Corporation, a Texas corporation. Exhibit 3 Second Amendment to Loan Agreement, dated July 31, 1998, between Chase Bank of Texas, National Association, a national banking association, f/k/a Texas Commerce Bank National Association, Helen of Troy L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, HoT Nevada, Inc., a Nevada corporation, Helen of Troy Limited, a Barbados corporation, Helen of Troy Nevada Corporation, a Nevada corporation and Helen of Troy Texas Corporation, a Texas corporation. Exhibit 4 Helen of Troy Limited 1999 Proxy Statement, originally filed with the Commission on June 25, 1999. 7 Page 7 of 8 Pages SIGNATURE After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Date: June 28, 1999 HELEN OF TROY LIMITED By: /s/ H. McIntyre Gardner ---------------------------------------- Name: H. McIntyre Gardner Title: President and Chief Operating Officer 8 Page 8 of 8 Pages SCHEDULE I The name and principal occupation or employment of each of the directors and executive officers of Helen of Troy Limited are set forth below. Unless otherwise indicated, the director's or officer's business address is 6827 Market Street, El Paso, Texas 79915. Except as set forth below, each occupation set forth opposite an individual's name refers to Helen of Troy Limited.
Name Present Principal Occupation or Employment - ---------------------------------- ------------------------------------------ Gerald J. Rubin Chairman of the Board and Chief Executive Officer H. McIntyre Gardner President and Chief Operating Officer Dona Fisher Senior Vice-President, Finance and Chief Financial Officer Gary B. Abromovitz Director of Helen of Troy Limited Gary B. Abromovitz, P.C. President of Gary B. Abromovitz, P.C. 213 Montebello Phoenix, Arizona 85013 Stanlee N. Rubin Director of Helen of Troy Limited 801 River Oaks Drive El Paso, Texas 79912 Christopher L. Carameros Director of Helen of Troy Limited L&M Asset Management, Inc. Vice-President of L&M Asset Management, Inc. Box 12007 El Paso, Texas 79913 Byron H. Rubin Director of Helen of Troy Limited Daniels & Rubin Partner, Daniels & Rubin 5310 Harvest Hill Road, Suite 169 Dallas, Texas 75230-5805 Daniel C. Montano Director of Helen of Troy Limited C&K Capital Corp. Managing Director, Investment Banking 18500 Von Karman Ave., Suite 560 of C&K Capital Corp. Irvine, California 92612
9 INDEX TO EXHIBITS
Exhibit Number Description - ------ ----------- 1 Loan Agreement, dated December 31, 1996, between Chase Bank of Texas, National Association, a national banking association, f/k/a Texas Commerce Bank National Association, Helen of Troy L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, and Helen of Troy Corporation, a Texas corporation. 2 Amendment to Loan Agreement, dated July 31, 1997, between Chase Bank of Texas, National Association, a national banking association, f/k/a Texas Commerce Bank National Association, Helen of Troy L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, HoT Nevada, Inc., a Nevada corporation, Helen of Troy Limited, a Barbados corporation, Helen of Troy Nevada Corporation, a Nevada corporation and Helen of Troy Texas Corporation, a Texas corporation. 3 Second Amendment to Loan Agreement, dated July 31, 1998, between Chase Bank of Texas, National Association, a national banking association, f/k/a Texas Commerce Bank National Association, Helen of Troy L.P., a Texas limited partnership, Helen of Troy Limited, a Bermuda company, HoT Nevada, Inc., a Nevada corporation, Helen of Troy Limited, a Barbados corporation, Helen of Troy Nevada Corporation, a Nevada corporation and Helen of Troy Texas Corporation, a Texas corporation. 4 Helen of Troy Limited 1999 Proxy Statement, originally filed with the Commission on June 25, 1999.
EX-1 2 LOAN AGREEMENT 1 Exhibit 1 LOAN AGREEMENT between HELEN OF TROY L.P. and TEXAS COMMERCE BANK NATIONAL ASSOCIATION dated December 31, 1996 -1- 2 LOAN AGREEMENT THIS LOAN AGREEMENT ("this Agreement"), dated as of December 31, 1996, is made by and between TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association ("Lender"), with its principal office at 201 E. Main, El Paso, Texas 79901, HELEN OF TROY L.P., a Texas limited partnership duly organized under the laws of the State of Texas, with its principal office at 6827 Market Avenue, El Paso, Texas 79915 ("Borrower"), HELEN OF TROY LIMITED a company organized under the laws of Bermuda, with its principal office at 6827 Market Avenue, El Paso, Texas 79915 ("Limited"), and HELEN OF TROY CORPORATION, a Texas corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915 ("HOTC") (Limited and HOTC are collectively referred to herein as the "Guarantors"). Borrower has requested Lender to provide a revolving line of credit loan (the "Revolving Credit Loan") up to an aggregate amount not exceeding $5,000,000.00 at anytime outstanding. Lender and Borrower desire to set forth the terms pursuant to which Lender and Borrower have agreed to enter into the Revolving Credit Loan; NOW, THEREFORE, Lender and Borrower agree as follows: 1. DEFINITIONS 1.01 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of such first Person or any Subsidiary or such first Person or any corporation of which such first Person and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of Limited. "Agreement" means this Loan Agreement, and all Exhibits appended hereto, as the same may be from time to time amended, supplemented or modified. "Alternate Base Rate" means, for any day, a rate per annum equal to the Prime Rate in effect on such day. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by Texas Commerce Bank National Association, as its prime rate, and thereafter entered in the minutes of its Loan and Discount Committee; each change in the Prime Rate shall be effective on the date such change is -2- 3 determined without special notice to the Borrower or any other person or entity. In the event the Prime Rate ceases to be stated or designated by Texas Commerce Bank National Association, or any successor to it, Prime Rate shall mean the rate of interest published as "Prime Rate" in the "Money Rates" section of The Wall Street Journal. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer, and Lender disclaims any statement, representation or warranty to the contrary. Any change in the Alternate Base Rate due to a change in the Prime Rate shall be effective on the effective date of such change in the Prime Rate. "Alternate Base Rate Loan" means a loan which bears interest at a rate determined by reference to the Alternate Base Rate. "Borrowing" means a borrowing by Borrower consisting of a loan made by Lender hereunder, each such loan being a "Loan". "Borrowing Date" means any Business Day on which Lender shall make a Loan hereunder. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Business Day" means a day (i) on which the Lender and commercial banks in New York City are generally open for business, and (ii) with respect to Eurodollar Loans, on which dealings in Dollar deposits are carried out in the Eurodollar interbank markets. "Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurring of a liability in accordance with GAAP. "Commitment" means the obligation of Lender to make the Revolving Credit Loan pursuant to Section 2. "Commitment Period" means the period of time the Commitment is in effect, which period shall commence on the Effective Date and, unless sooner terminated pursuant to the Loan Documents, shall end on July 31, 1997. "Consolidated Indebtedness" means all Indebtedness of Limited and its Subsidiaries, all as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Earnings" means for any period, net earnings (or loss) after income taxes of Limited and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, but not including in such net earnings (or loss) the following: -3- 4 (a) any extraordinary gain or loss arising from the sale of capital assets; (b) any extraordinary gain or loss arising from any write-up or write-down of assets; (c) net earnings of any Person in which Limited or any Subsidiary shall have an ownership interest other than a Subsidiary unless such net earnings (or any portion thereof) shall have actually been received by Limited or such Subsidiary in the form of cash distributions; (d) earnings or losses of any Subsidiary accrued prior to the date it became a Subsidiary; (e) any portion of the net earnings of any Subsidiary that by reason of any contract or charter restriction or applicable law or regulation (or in the good faith judgment of the Board of Directors of Limited for any reason) is unavailable for payment of dividends to Limited or any of its Subsidiaries; (f) the earnings or losses of any Person acquired by Limited or any Subsidiary through purchase, merger, consolidation or otherwise, or the earnings or losses of any Person substantially all of whose assets have been acquired by Limited or any of its Subsidiaries, for any period prior to the date of such acquisition; (g) any gain arising from the acquisition of any Securities of Limited or any of its Subsidiaries; and (h) any other extraordinary gains or losses or any other gain or loss arising from any event or transaction that is unusual in nature and infrequent in occurrence (but which otherwise does not constitute an extraordinary item under GAAP) and which GAAP requires to be reported as a separate component of revenues and expenses from continuing operations. The above determination of net earnings (or loss) shall be made without giving effect to any allocation thereof to any minority interest in respect of Limited or any of its Subsidiaries. "Consolidated Net Worth" means, at any time, shareholders' equity of Limited as set forth in its consolidated balance sheet, determined in accordance with GAAP. "Consolidated Total Capitalization" means, at any time, Consolidated Net Worth plus Consolidated Indebtedness. "Contingent Obligation" means as to any Person, any obligation of such Person guaranteeing, or in effect guaranteeing any indebtedness, leases, dividends or other obligations ("Primary Obligations") of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such -4- 5 Person, (a) to advance or supply funds (i) for the purchase or payment of any such Primary Obligation, or (ii) to maintain working capital or equity capital for the Primary Obligor, or otherwise to maintain the net worth or solvency of the Primary Obligor, (b) to purchase property, securities or services primarily for the purpose of assuring the owner of any such Primary Obligation of the ability of the Primary Obligor to make payment of such Primary Obligation, or (c) otherwise to assure the owner of such Primary Obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business, or Borrower's guaranteeing of the Primary Obligations of any Subsidiary. "Contractual Obligation" means as to any Person, any provision of any security issued by such Person, or of any mortgage, indenture, lease, contract or other agreement, instrument or undertaking to which such Person is or purports to be a party or by which it or any of its property is or purports to be bound. "Default" means any Event of Default (as defined herein), whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Default Rate" means a rate per annum equal to the lesser of (a) eighteen percent (18.00%), or (b) the Highest Lawful Rate, which interest shall be due and payable on demand. "Effective Date" means the date of this Agreement. "Eurodollar Lending Office" means the office of Texas Commerce Bank National Association located at 712 Main Street, Houston, Texas, or such other office of said Bank as the said Bank may from time to time specify to Borrower. "Eurodollar Loan" means a Loan which bears interest at a rate determined by reference to the Eurodollar Rate. "Eurodollar Rate" means, for each Eurodollar Loan, an interest rate per annum determined by dividing (i) the rate per annum determined by Texas Commerce Bank National Association at or before 10:00 a.m. (Houston time) (or as soon thereafter as practicable) two (2) Business Days before the first day of the applicable Interest Period to be the rate per annum at which deposits of dollars are offered to Texas Commerce Bank National Association by prime banks in whatever Eurodollar interbank market may be selected by the said Bank in its sole discretion, acting in good faith, at the time of determination and in accordance with the usual practice in such market for delivery on the first day of such Interest Period in immediately available funds and for a period equal to such Interest Period and in an amount substantially equal to the amount of the said Bank's Eurodollar Loan during such Interest Period, by (ii) Statutory Reserves. "Event of Default" means any of the events specified in Section 9 hereof. -5- 6 "Generally Accepted Accounting Principles" means generally accepted accounting principles as applied to businesses of this nature and the official interpretations thereof by the Financial Accounting Standards Board in effect from time to time. All accounting terms herein and not otherwise defined shall have the meanings given them in accordance with generally accepted accounting principles. "Governmental Authority" means the United States Government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by the foregoing. "Guarantor's Guaranty" means the continuing guaranty agreement by which each Guarantor unconditionally guarantees payment of the Note. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Highest Lawful Rate" means the maximum nonusurious contract interest rate permitted from time to time to be contracted for, taken, reserved, charged or received on any Loan under applicable federal or Texas laws, whichever permits the higher lawful rate; provided, however, that in the event (i) such maximum nonusurious interest rate shall, at any -6- 7 time or times during the term of a Loan evidenced hereby, be reduced to a rate less than the maximum non-usurious contract rate in effect on the date of such Loan, and (ii) applicable law permits contracting for, taking, reserving, charging and receiving on such Loan throughout the duration thereof the maximum nonusurious contract rate in effect on the date such Loan was made, then and at all such times the Highest Lawful Rate shall be the maximum nonusurious contract rate permitted to be contracted for, taken, reserved, charged or received on such Loan under applicable law in effect on the date of such Loan. At all such times, if any, as Texas law shall establish the Highest Lawful Rate, it shall be the "indicated rate ceiling" (as defined in Tex. Rev. Civ. Stat. art. 5069-1.04) from time to time in effect. "Indebtedness" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Interest Period" means, with respect to any Loan, the period commencing on the Borrowing Date and ending on the Maturity Date, consistent with the following provisions. The duration of each Interest Period shall be: (a) in the case of an Alternate Base Rate Loan, a period of up to 90 days; and -7- 8 (b) in the case of a Eurodollar Loan, two (2) weeks, one (1) month, three (3) months, or six (6) months; in each case as selected by Borrower and agreed to by Lender. Borrower's choice of Interest Period shall also be subject to the following limitations: (c) no Interest Period shall end on a date after the Termination Date of the Note; and (d) if the last day of an Interest Period would be a day other than a Business Day, the Interest Period shall end on the next succeeding Business Day (unless the Interest Period relates to a Eurodollar Loan and the next succeeding Business Day is in a different calendar month than the day on which the Interest Period would otherwise end, in which case the Interest Period shall end on the next preceding Business Day); and (e) there shall not be more than seven (7) Interest Periods in effect at any one time. "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "Loan Documents" means, as in effect at anytime, this Agreement, the Note (including all renewals, extensions and rearrangements thereof), together with all other instruments executed (i) pursuant to this Agreement or in connection with it, and (ii) any other document reasonably required by Lender in connection with this Agreement. "Revolving Credit Loan Note" means the promissory note of Borrower executed and delivered under Section 2.02 hereof, including any and all renewals, modifications, extensions or rearrangements thereto. "Maturity Date" means, with respect to any Loan, the maturity date agreed to by Lender and Borrower with respect to such Loan as the date when such Loan is due and payable. In no event shall any Maturity Date fall on a date after the Termination Date. "Note" shall mean the Revolving Credit Loan Note in the original principal amount of $5,000,000.00. -8- 9 "Person" means any natural person, partnership, association, joint venture, corporation (which shall include any business trust), bank, trust, unincorporated organization and/or any government, agency or political subdivision thereof. "Preferred Stock" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "Requirement of Law" means as to any Person, the Articles of Incorporation and Bylaws, or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon, or purporting to be applicable to or binding upon, such Person or any of its assets or to which such Person or any of its assets is or purports to be subject. "Statutory Reserves" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves) expressed as a decimal established by the Board and any other banking authority to which Lender or Texas Commerce Bank National Association are subject with respect to the Eurodollar Rate, for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include, without limitation, those imposed under such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any bank under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Stock" means and includes any and all shares, interests, participations or other equivalents (howsoever designated) of corporate stock. "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or Voting Stock to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of -9- 10 such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of Limited and, in any event, includes HOTC, Borrower and HOT-Barbados. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Termination Date" means a final scheduled maturity date of July 31, 1997. "Voting Stock" shall mean securities or other equity interests of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or persons performing similar functions in the case of business entities other than corporations). 1.02 Other Definitions. All terms defined in this Agreement shall have the defined meanings when used in the Note or any certificate or other document made or delivered pursuant hereto. As used herein and in the Note, any certificate or other document made or delivered pursuant hereto, accounting terms not defined in Section 1.01, and accounting terms partly defined in Section 1.01, to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. 2. AMOUNT AND TERMS OF REVOLVING CREDIT LOAN 2.01 Revolving Credit Loan Commitment. Subject to the terms and conditions and relying upon the representations and warranties set forth in this Agreement, Lender agrees to lend hereunder to Borrower on any one or more Business Days during the Commitment Period, for the purpose of providing working capital and for general corporate purposes, amounts which shall -10- 11 not at anytime exceed in the principal sum of $5,000,000.00 less the aggregate unpaid principal amount of all Loans, and the aggregate amount of all Letters of Credit issued by Lender pursuant to this Agreement, which are outstanding on the Business Day on which such borrowing is to be made. To the extent the unpaid principal balance of the Revolving Credit Loan shall at anytime exceed the amount permitted above, payment in an amount necessary to reduce the unpaid principal balance of the Note to the lesser of the amount permitted under this Section, shall be made within two (2) Business Days. During the Commitment Period, Borrower may use the Revolving Credit Loan by borrowing, prepaying as herein provided, and reborrowing; provided, however, Borrower must be in full compliance with all of the terms of the Loan Documents at the time of and as a prerequisite to any Loan. Lender's records shall serve as presumptive evidence of any and all amounts outstanding under the Revolving Credit Loan. 2.01.1 Letters of Credit. In the event that during the Commitment Period Lender shall agree to issue on Borrower's account letters of credit ("Letters of Credit"), as defined in Chapter 5 of the Texas Uniform Commercial Code - Letters of Credit, then Borrower agrees as aforesaid that (i) the available principal balance of the Revolving Credit Loan shall be reduced by the aggregate amount of all Letters of Credit outstanding from time to time; (ii) outstanding Letters of Credit shall never exceed in the aggregate at any time the sum of $3,000,000.00, and (iii) no Letter of Credit shall have an expiry date later than July 31, 1997. Borrower agrees to pay to Lender all customary charges for issuing Letters of Credit, and Borrower further agrees that should Lender be required to fund all or any part of any Letter of Credit on behalf of Borrower, any such funding shall be simultaneously charged to the Revolving Credit Loan, subject to all of the terms and conditions of this Agreement. 2.02 Revolving Credit Loan Note. The Revolving Credit Loan shall be evidenced by the Revolving Credit Loan Note in the principal sum of $5,000,000.00, dated as of the Effective Date, executed and delivered by Borrower, payable to the order of Lender, in the form appended hereto as Exhibit "A". The Termination Date of the Revolving Credit Loan Note shall be July 31, 1997. Loans made by Lender under the terms of the Revolving Credit Loan Note may be either Alternate Base Rate Loans, or two (2) week, one (1) month, three (3) month, or six (6) month Eurodollar Loans. Borrower shall pay interest on each Alternate Base Rate Loan for the Interest Period with respect thereto at a rate per annum equal to the lesser of (i) the Alternate Base Rate for such Interest Period, or (ii) the Highest Lawful Rate, which interest shall be due and payable on March 31, 1997, June 30, 1997, and on the Termination Date. -11- 12 Borrower shall pay interest on each Eurodollar Loan for the Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the lesser of (i) the Eurodollar Rate plus one percent (1.00%) (the "Effective Eurodollar Rate"), or (ii) the Highest Lawful Rate, which interest shall be due and payable on March 31, 1997, June 30, 1997, and on the Termination Date. If not sooner paid, the entire unpaid principal of, and all accrued, unpaid interest on, the Revolving Credit Loan Note shall be due and payable on July 31, 1997. 2.03 Notice for Revolving Credit Loan Borrowing. Any Loan which Lender agrees in its sole discretion to make under the Note shall be made (a) in the case of Eurodollar Loans, on the Borrower's irrevocable notice given to Lender not later than 10:00 a.m. (Houston time) on the third Business Day prior to the proposed Borrowing Date, or, (b) in the case of Alternate Base Rate Loans, on the Borrower's irrevocable notice given to Lender not later than 3:00 p.m. (El Paso time) on the first Business Day prior to the proposed Borrowing Date. Each such notice of a requested borrowing (a "Notice of Requested Borrowing") may be oral or in writing, and shall specify (i) the requested amount of such Loan, (ii) the proposed Borrowing Date, (iii) whether the requested Loan is to be Alternate Base Rate Loan or a Eurodollar Loan, (iv) if a Eurodollar Loan, whether it is a two (2) week, one (1) month, three (3) month, or six (6) month Eurodollar Loan, and (v) the Interest Period for such Loan. If any Notice of Requested Borrowing shall be oral, Borrower shall deliver to Lender prior to the Borrowing Date a confirmatory written Notice of Requested Borrowing. 2.04 Payments. All payments (whether of principal, interest, reimbursements or otherwise) by or on behalf of Borrower shall be made, in immediately available funds, at the principal office of Lender without set-off, deduction or counterclaim. If received prior to 2:00 p.m. (El Paso time), payments shall be credited on the day of receipt, or if received after 2:00 p.m., payments shall be credited on the next Business Day after receipt by Lender, and shall be applied first to interest accrued to the date of payment, and the balance, if any, to the unpaid principal thereof. Except as is otherwise provided herein with respect to Eurodollar Loans, if the due date of any payment falls on a day which is not a Business Day, such date shall be extended to the next succeeding full Business Day and interest shall be payable for any principal so extended for the period of such extension. 2.05 Prepayments. Borrower may, at its option, on any Business Day, prepay the outstanding principal amount of any Alternate Base Rate Loan, in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid. Except as specified in this Section 2.05, Borrower shall have no right to prepay any Loan. 2.06 Past Due Amounts. Any amount not paid when due with respect to the principal of a Loan (whether at the Termination Date, by acceleration or otherwise), costs or expenses, or, to the extent permitted by applicable law, interest, shall bear interest at the Default Rate. The principal of any Loan shall be deemed past due if not paid on or before the expiration of ten (10) days after the Maturity Date or any earlier maturity date resulting from acceleration in -12- 13 accordance with the terms of the Note evidencing such Loan or as provided by law or otherwise. Interest accrued and unpaid with respect to any Loan shall be deemed past due if not paid on or before the expiration of ten (10) days after the applicable interest payment date as provided in such Note. 2.07 Set-off. In the event Borrower shall fail to pay any sum due under the terms of this Agreement or the Note, which failure shall constitute one or more Events of Default hereunder, Lender shall have the right, in addition to all other rights and remedies available to it, to set-off, to the extent permitted by applicable law, against the unpaid balance of any note held by it or any debt owing to Borrower, HOTC or Limited, including, without limitation, any funds in any deposit account, whether general or special in nature, maintained by Borrower, HOTC, or Limited with Lender, and nothing in this Agreement shall be deemed any waiver or prohibition of any depository's right or banker's lien or set-off. 3. INTEREST; FEES 3.01 Interest. Interest with respect to Alternate Base Rate Loans and Eurodollars Loans shall be calculated on the basis of a 360 day year for the actual days elapsed, unless such calculation would result in a usurious rate, in which case such interest shall be calculated on the basis of a 365 day or 366 day year, as the case may be. 3.02 Usury; Non-Usurious Interest. Lender and Borrower intend in the execution of the Loan Documents to contract in strict compliance with applicable usury laws. Lender and Borrower therefore stipulate and agree that none of the terms and provisions contained in this Agreement, or in the Loan Documents, shall ever be construed to create a contract to pay for the use, forbearance, or detention of money, or interest at a rate in excess of the Highest Lawful Rate. Accordingly, it is agreed that (i) the aggregate of all interest, and other charges and fees constituting interest under applicable laws, contracted for, chargeable, receivable or reserved under the Loan Documents or otherwise in connection with this loan transaction, shall never exceed that which would accrue on the outstanding principal balance of the Revolving Credit Loan at the Highest Lawful Rate, and (ii) no provision of the Loan Documents, or any other instrument relating to the Revolving Credit Loan, shall require the payment or permit the charging, receipt, collection or reserving of interest in excess of that which would accrue at the Highest Lawful Rate. If any such excess is, or is adjudicated to be, so provided for, it shall be deemed a mistake and the provisions of this Section 3.02 shall govern, and neither Borrower, nor any guarantors, endorsers or other parties now or hereafter becoming liable for payment of the Note, nor their heirs, personal representatives, successors or assigns, shall be contractually obligated to pay such excess, nor shall Lender be permitted to contract for, charge, receive, collect or reserve such excess, and this Loan Agreement and the Loan Documents shall automatically be reformed so as to permit only the charge for and collection of the amount of non-usurious interest allowed under applicable usury laws. The Highest Lawful Rate shall be computed from the date Loan funds are disbursed to Borrower for its account, and interest shall, to the full extent permitted by applicable law, be amortized, prorated, allocated and spread over the full term of the Note, that is, from the Effective Date until the Maturity Date, to the extent permitted by applicable law. -13- 14 Any interest in excess of that which accrues at the Highest Lawful Rate shall be canceled automatically, and if theretofore paid, shall at Lender's option, be either refunded to Borrower or credited on the unpaid principal amount of the Revolving Credit Loan. For purposes of this Section 3, "interest" shall include, if and to the extent characterized as interest under applicable law, any charge, payment, fee or obligation characterized as interest under applicable laws. 4. CONDITIONS OF LENDING 4.01 Conditions Precedent. The obligation of Lender to make the initial advance constituting a Loan hereunder on the first Borrowing Date is subject to the receipt by Lender of the following documents, each of which shall be satisfactory in form and substance to Lender, and the satisfaction of the following conditions precedent: (a) Note. Lender shall have received the Note, conforming to the requirements hereof, duly completed and executed. (b) Resolutions and Certificates. Lender shall have received, prior to the execution of the Loan Documents (i) appropriate resolutions from Borrower evidencing that the partners of Borrower have authorized execution and delivery of this Agreement and all instruments contemplated hereby, (ii) appropriate resolutions from Guarantors evidencing that the Board of Directors or shareholders of Guarantors, as applicable, have authorized execution and delivery of this Agreement, the Guarantors' Guaranties, and all instruments contemplated hereby, (iii) the Articles of Incorporation and Bylaws of each Guarantor, and a Certificate of Limited Partnership of Borrower from the State of Texas confirming the existence and good standing of each Guarantor and Borrower, respectively, and (iv) if applicable, a certificate of assumed name duly filed as required by law. (c) Guarantors' Guaranty. Lender shall have received the Guarantors' Guaranties in form and substance acceptable to the Lender. (d) Opinion of Counsel. If required by Lender, Lender shall have received a legal opinion from Borrower's legal counsel opining as to due organization, existence, good standing and authority of Borrower and each Guarantor, due authority of the Person or Persons executing the Loan Documents on behalf of Borrower and each Guarantor, the enforceability, validity and binding effect of the Loan Documents to be executed by Borrower and/or each Guarantor, and such other matters as Lender may reasonably require. (e) Additional Matters. Such other documents as reasonably requested by Lender, each duly completed and executed. All documents and legal matters in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to Lender and its counsel. 4.02 Conditions to All Loans. The obligation of Lender to make any Loan under the Revolving Credit Loan is subject to the satisfaction concurrently with the making of such Loan of the following conditions precedent: -14- 15 (a) Representations and Warranties. The representations and warranties contained in Section 5 hereof, or which are contained in any certificate, document or financial or other statement furnished at anytime under or in connection herewith, shall be materially true and correct on and as of the Borrowing Date for such Loan as if made on and as of such date. (b) No Default or Event of Default. No Default or Event of Default shall have occurred and be continuing on such date, or after giving effect to the advance to be made on such Borrowing Date unless, in the case of a Default other than (i) failure to pay the Note as and when due, (ii) failure to give any notice required in Section 7.05 hereof, and (iii) failure to comply with the negative covenants set forth in Section 8 hereof (for which no notice or opportunity to cure is required to be given or is allowed, as the case may be) Borrower has commenced in good faith to cure any such Default in a manner reasonably acceptable to Lender. (c) Delivery of Waived Items. Lender shall have received any items or documents which were to have been delivered to Lender on or before the initial funding of the Revolving Credit Loan, the delivery of which was waived by Lender at the time of the initial funding of the Revolving Credit Loan. (d) Approvals. The business and operations of Borrower as conducted at all times relevant to the transactions contemplated by this Agreement to and including the close of business on the date of each advance hereunder shall have been and shall be in compliance with all applicable laws, regulations and orders of any Governmental Authority affecting Borrower and its business and operations. (e) Commitment Fees. All commitment fees, if any, billed to Borrower pursuant to this Agreement have been paid in full. 5. REPRESENTATIONS AND WARRANTIES In order to induce Lender to enter into this Agreement and to make the Revolving Credit Loan, Borrower and each Guarantor jointly and severally represent and warrant, as of the date hereof, and as of the date of each advance under the Revolving Credit Loan or any renewal thereof, that: 5.01 Corporate Existence; Compliance with Law. 5.01.1 Borrower is (a) a Texas limited partnership which is duly organized, validly existing and in good standing; (b) has the power, authority and legal right to own or lease and operate its property and to conduct the business in which it is currently engaged; and (c) is in compliance with all material Requirements of Law, including, without limitation, all Requirements of Law necessary for the operation of Borrower's business. Borrower is duly qualified to do business and is in good standing in all jurisdictions wherein the character of property it owns or the nature of the business it transacts makes such qualification necessary. -15- 16 5.01.2 Limited is (a) a Bermuda corporation which is duly organized, validly existing and in good standing; (b) has the corporate power, authority and legal right to own or lease and operate its property and to conduct the business in which it is currently engaged; and (c) is in compliance with all material Requirements of Law, including, without limitation, all Requirements of Law necessary for the operation of Limited's business. Limited is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein the character of property it owns or the nature of the business it transacts makes such qualification necessary. 5.01.3 HOTC is (a) a Texas corporation which is duly organized, validly existing and in good standing; (b) has the power, authority and legal right to own or lease and operate its property and to conduct the business in which it is currently engaged; and (c) is in compliance with all material Requirements of Law, including, without limitation, all Requirements of Law necessary for the operation of HOTC's business. HOTC is duly qualified to do business and is in good standing in all jurisdictions wherein the character of property it owns or the nature of the business it transacts makes such qualification necessary. 5.02 Authority; Authorization; Enforceable Obligations. 5.02.1 Borrower has the power, authority and legal right to make, deliver and perform this Agreement and the Loan Documents and to borrow hereunder and has taken all necessary action to authorize the borrowings on the terms and conditions of this Agreement and the Loan Documents and to authorize the execution, delivery and performance of this Agreement and the Loan Documents. No further consent of any other Person (including partners and creditors of Borrower), and no further authorization of, notice to, or other act by or in respect of any Governmental Authority, is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or the Loan Documents. This Agreement has been, and the Note will be, duly executed and delivered on behalf of Borrower, and this Agreement constitutes, and each of the Loan Documents when executed and delivered will constitute, a legal valid and binding obligation of Borrower enforceable against Borrower substantially in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. 5.02.2 Each Guarantor has the corporate power, authority and legal right to make, deliver and perform this Agreement and such Guarantor's Guaranty and has taken all necessary corporate action to authorize the guarantee of the Revolving Credit Loan on the terms and conditions of this Agreement and its Guaranty and to authorize the execution, delivery and performance of this Agreement and its Guaranty. No further consent of any other Person (including stockholders and creditors of either Guarantor), and no further authorization of, notice to, or other act by or in respect of any Governmental Authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement or the Guaranties. This Agreement has been duly executed and delivered on behalf of each Guarantor, and this Agreement constitutes, and each Guarantor's Guaranty when executed and delivered will constitute, a legal valid and binding obligation of such -16- 17 Guarantor enforceable against such Guarantor substantially in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally. 5.03 No Legal Bar. The execution, delivery and performance of this Agreement and the Loan Documents, and the use of the proceeds of the borrowings hereunder, will not violate any Requirement of Law or any Contractual Obligation of Borrower or either Guarantor, and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or Contractual Obligation. 5.04 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of Borrower, Limited or HOTC overtly threatened against Borrower, Limited or HOTC or any of their respective properties or revenues with respect to this Agreement or the Loan Documents or any of the transactions contemplated hereby, which involve the probability of any judgment or liability not adequately covered by insurance and which, if adversely determined, could result in any material adverse change in the business, operations, properties, or financial or other condition of Borrower, Limited or HOTC. 5.05 No Default. Neither Borrower, Limited or HOTC is in Default under, or with respect to, any Contractual Obligation in any respect which could be materially adverse to the business, operations, property or financial or other condition of such party, or which could materially adversely affect the ability of such party to perform its obligations under this Agreement and the Loan Documents. None of the execution of and delivery of the Loan Documents, the consummation of the transactions therein contemplated, and compliance with the terms and provisions thereof, will conflict with or result in a breach of, or require any consent (not theretofore obtained at the time the representation is made) under, applicable law or regulation, or any order, writ, injunction or decree of any court or Governmental Authority, or any agreement to which the Borrower, Limited or HOTC is a party or by which it is bound, or to which it is subject. 5.06 No Burdensome Restrictions. No Contractual Obligation of Borrower, Limited or HOTC and no Requirement of Law materially adversely affects, or insofar as Borrower, Limited or HOTC may reasonably foresee may so affect, the business, operations, property or financial or other condition of Borrower, Limited or HOTC. 5.07 Taxes. Each of the Borrower and Guarantors has filed all material tax returns which, to their knowledge, are required to be filed with any domestic or foreign Governmental Authority, and has paid all taxes shown on said returns and all assessments which are due, except such taxes the payment of which is not yet due, or which if due, is not yet delinquent or is being contested in good faith by appropriate proceedings or which has not been finally determined. Except as reported in Guarantors' financial statements, Guarantors know of no claims by any Governmental Authority for any unpaid taxes, and the charges, accruals and reserves on the books of Guarantors in respect of all taxes and other governmental charges are, in the opinion of Guarantors, adequate in all respects. -17- 18 5.08 Purpose of Loans. Borrower does not own any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (hereinafter called "margin stock"). None of the proceeds of the Revolving Credit Loan will be used for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might make this transaction a "purpose" credit within the meaning of said Regulation U, as now in effect or as it may hereafter be amended. Neither Borrower, nor any agent acting on its behalf, has taken or will take any action which might cause this Agreement or the Note to violate Regulation U, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Exchange Act of 1934, as in effect now or as the same may hereafter be in effect on the date of the Revolving Credit Loan. 5.09 Trade Names. Borrower and each Guarantor have all licenses, permits, patents, patent rights, trademark rights, trade names, trade name rights, and copyrights which are required in order for them to conduct their business as now conducted without known material conflict with the rights of others. 5.10 Investment Company Act. Borrower to the best of its knowledge is not, and to the best of its knowledge is not directly or indirectly controlled by, or acting on behalf of any Person which is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6. COLLATERAL SECURITY. The Loan is unsecured, but is guaranteed by Continuing Guaranty Agreements executed by Guarantors. 7. AFFIRMATIVE COVENANTS Borrower and each Guarantor covenant and agree that so long as this Agreement, or any renewal, extension or modification hereof, remains in effect, or any Note remains outstanding and unpaid, or any Liabilities are owing to Lender, Borrower shall: 7.01 Financial Statements; Reports. Deliver to Lender: (a) Borrower's Financial Statements. As soon as available, and in any event (i) within forty-five (45) days after the end of each of the first three (3) quarters of Borrower's fiscal year, a quarterly unaudited balance sheet and income statement prepared by Borrower, and (ii) annually within ninety (90) days after the end of each fiscal year, Borrower's annual unaudited balance sheet and income statement prepared by Borrower. The balance sheets and income statements shall present the separate results of operations (including investments in Subsidiaries on a cost basis) for Borrower for the period covered, and Borrower's financial condition as of the end of such period in a manner consistent with the Borrower's prior unaudited balance sheets and income statements. Each balance sheet and income statement shall be certified as such by the General Partner or Chief Financial Officer of Borrower. The unaudited balance sheets and income statements need not be prepared in accordance with Generally Accepted Accounting Principles, so long as they are prepared in a manner consistent with prior balance sheets and income statements delivered to the Bank. -18- 19 (b) Financial Statements of Limited. As soon as available, and in any event (i) within forty-five (45) days after the end of each of the first three (3) quarters of Limited's fiscal year, quarterly unaudited financial statements showing Limited's financial condition and the results of its operations for each such quarter, and (ii) annually within ninety (90) days after the end of each fiscal year, Limited's audited financial statement at the end of and for the entire fiscal year. Such statements shall be on a consolidated basis and fairly present the result of Limited's operations for the period covered and Limited's financial condition as of the end of such period in accordance with Generally Accepted Accounting Principles consistently applied. Each quarterly financial statement shall be certified as such by the President or Chief Financial Officer of Limited, and each annual statement shall be accompanied by (i) a report of independent certified public accountants acceptable to Lender, which report will not be qualified by reason of any audit limitations imposed by Limited, and, if required by Lender, (ii) a so-called "Management Letter" to Lender commenting on any accounting or financial deficiencies. Each quarterly financial statement shall set forth Limited's quarterly and year-to-date balance sheet and income statement prepared in accordance with Generally Accepted Accounting Principles consistently applied on a comparative basis. (c) Financial Statements of HOTC. As soon as available, and in any event (i) within forty-five (45) days after the end of each of the first three (3) quarters of HOTC's fiscal year, a quarterly unaudited balance sheet and income statement prepared by HOTC, and (ii) annually within ninety (90) days after the end of each fiscal year, HOTC's annual unaudited balance sheet and income statement prepared by HOTC. The balance sheets and income statements shall present the separate results of operations (including investments in Subsidiaries on a cost basis) for HOTC for the period covered, and HOTC's financial condition as of the end of such period in a manner consistent with the HOTC's prior unaudited balance sheets and income statements. Each balance sheet and income statement shall be certified as such by the President or Chief Financial Officer of HOTC. The unaudited balance sheets and income statements need not be prepared in accordance with Generally Accepted Accounting Principles, so long as they are prepared in a manner consistent with prior balance sheets and income statements delivered to the Bank. (d) SEC Reports. Together with each delivery of each financial statement, a copy of all reports with or submitted to the Securities and Exchange Commission by Borrower, Limited, or HOTC during the period covered by such financial statement, including, without limitation, Form 10-K -- Annual Report, and Form 10-Q -- Quarterly Report; -19- 20 (e) Compliance Report. Together with each delivery of each financial statement, a certificate from Borrower's General Partner or Chief Financial Officer stating that (x) there exists no Event of Default or, if the same has occurred, stating the nature thereof, the period of existence thereof and what action Borrower has taken and proposes to take with respect thereto, and (y) that no Default (as defined in the Loan Agreement) exists with respect to the payment of any debt of Borrower, any Affiliate, or, if the same has occurred, stating the nature thereof, the period of existence thereof and what action Borrower, or such Affiliate has taken or proposed to take with respect thereto. 7.02 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, or in accordance with a plan of arrangement, as the case may be, all its debt and other obligations of whatever nature, except when the amount or validity thereof is currently being contested in good faith and by appropriate proceedings, or, when the amount involved exceeds the sum of $500,000.00, Lender has been furnished with a certificate of Borrower's Chief Financial Officer stating that Borrower has a bona fide defense to the debt being contested and that Borrower is contesting such indebtedness in good faith. 7.03 Conduct of Business and Maintenance of Existence. Continue to engage in business of the same general type as now conducted by it, and preserve, renew and keep in full force and maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business; comply with all Contractual Obligations and Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, have a material adverse effect on the business, operations, property or financial or other condition of Borrower. 7.04 Inspection of Books and Records; Discussions. Keep proper books of records and accounts in which full, true and correct entries in conformity with generally accepted accounting principles, and all Requirements of Law, shall be made of all dealings and transactions in relation to their respective business and activities; and permit representatives of Lender, upon reasonable advance notice, to visit and inspect any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, properties and financial and other condition of each such party with their respective officers and employees and with their respective independent certified public accountants. 7.05 Notices. Promptly give notice to Lender in writing of: (a) the occurrence of any Default or Event of Default; (b) any default, or claim of default, with respect to any Contractual Obligation of Borrower, Limited or HOTC in excess of $500,000.00; (c) any litigation, arbitration, administrative proceeding, or other proceeding affecting Borrower, Limited or HOTC in which (i) the amount involved is $500,000.00 or more, which involves the probability of any judgment or liability not adequately covered by insurance, or (ii) in which injunctive or similar relief is sought, and which, if adversely determined, could result in any material adverse change in the business, operations, properties, or financial or other condition of Borrower, Limited or HOTC; -20- 21 (d) a material adverse change in the business, operations, property or financial or other condition of Borrower; (e) the resignation or removal of Gerald J. Rubin as Chairman of the Board of Directors of HOTC, and/or the resignation or removal of Sam L. Henry as an officer of HOTC, after the date of this Agreement; and (f) any material change in the method of computing its depreciation for either tax or book purposes, or make any other material change in its accounting method, at least fifteen (15) days prior to the effective date of such change. Each notice pursuant to this Section 7.05 shall be accompanied by a statement of a senior officer setting forth details of the occurrence referred to therein and stating what action Borrower proposes to take with respect thereto. 7.06 Payment of Expenses and Costs. Pay all costs and expenses of Lender (including, without limitation, the reasonable attorneys' fees of its legal counsel) in connection with the enforcement or preservation of Lender's rights under the Loan Documents; and Borrower will pay all costs and expenses (including, without limitation, the reasonable attorneys' fees of Lender's legal counsel) in connection with the preparation, execution and delivery of this Agreement and the other documents described herein and any and all amendments, modifications and supplements thereof or thereto, whether or not the transactions contemplated hereby are consummated. 7.07 Amendments to Note Purchase Agreement. Give Lender written notice prior to amending that certain Note Purchase and Guaranty Agreement dated effective January 5, 1996, by and among HOTC, Limited and certain note purchasers as further described therein, and to deliver copies of any such amendments to the Lender within ten (10) days following the date the amendment(s) is fully executed. 7.08 Dividends. Have the right to declare and pay dividends on any shares of any class of its Stock, so long as no Event of Default has occurred and is continuing at the time of such payment, and so long as the making of such payment does not cause or create an Event of Default. 8. NEGATIVE COVENANTS Borrower and each Guarantor covenant and agree that so long as this Agreement, or any renewal, extension or modification hereof, remains in effect, or the Note remains outstanding and unpaid, or any Liabilities are owing to Lender: 8.01 Consolidated Net Worth. Limited will not permit Consolidated Net Worth (i) at any time during the period commencing on the date of this Agreement and ending on February 29, 1996 to be less than $65,000,000, (ii) at the end of the fiscal quarter of Limited ending on May 31, 1996 to be less than $65,000,000 plus the greater of zero or 40% of Consolidated Net Earnings for such quarter, or (iii) at any time during any fiscal quarter of Limited thereafter to be less than the -21- 22 minimum Consolidated Net Worth required by this Section at the end of the immediately preceding fiscal quarter of Limited plus the greater of zero or 40% of Consolidated Net Earnings for the immediately preceding fiscal quarter of Limited. 8.02 Consolidated Indebtedness. Limited will not permit Consolidated Indebtedness to exceed 55% of Consolidated Total Capitalization at any time. 8.03 Liens. Neither Borrower, HOTC nor Limited shall grant, create, incur, assume, permit or suffer to exist any Lien upon its property, assets or revenues, whether now owned or hereafter acquired, except: (a) liens for taxes not yet due, or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of such party in accordance with generally accepted accounting principles; (b) other Liens incidental to the conduct of its business or the ownership of its assets which (i) are expressly subordinated to all debt due Lender, and (ii) which do not in the aggregate materially detract from such party's ability to perform its obligations hereunder or in connection herewith; (c) liens created by this Agreement, or hereafter granted to Lender for the benefit of Lender; (d) purchase money Liens granted in connection with any purchase of equipment; (e) liens, or any existing pledge of a deposit, securing the payment of senior debt by an Affiliate or Subsidiary to a foreign financial institution as disclosed in the financial statements delivered pursuant to Section 5.07 of this Agreement or which may be granted or amended and may be disclosed from time to time by any such party. 8.04 Operations. Neither Borrower, HOTC, nor Limited shall materially change the nature of the business in which it is presently engaged. 8.05 Law. Neither Borrower, HOTC nor Limited shall be in violation of any law or any regulation, order, writ, injunction or decree of any court or Governmental Authority, or in breach of any agreement or instrument to which Borrower, HOTC or Limited is a party or to which Borrower, HOTC or Limited is subject or in Default thereunder, the breach or violation of which, or Default under which, would have a material adverse effect on Borrower, HOTC or Limited, or their respective financial condition. 8.06 Overdrafts. Borrower shall not use overdrafts or draw on uncollected funds instead of using the proceeds of the Revolving Credit Loan available under this Agreement. If such an event does occur, Borrower agrees to pay interest on such overdrafts and uncollected funds, in addition to any other charges applicable to such overdrafts and uncollected funds, at the Alternate Base Rate; provided, however, in no event shall the rate contracted for, charged to Borrower, -22- 23 received, collected or reserved hereunder exceed the Highest Lawful Rate, and if application of the Alternate Base Rate as provided in this Section, or any other circumstances, would cause the rate of interest hereunder to exceed the Highest Lawful Rate, the rate of interest hereunder shall automatically be reduced to the Highest Lawful Rate. 8.07 Merger. Without the written consent of Lender, which shall not be unreasonably withheld, Borrower, HOTC and Limited shall not, and shall not permit any Subsidiary of either to, enter into any transaction of merger, consolidation, reorganization, exchange of Stock or assets, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or otherwise dispose of all or a substantial part of their assets, except that, for so long as no Event of Default has occurred and is continuing, (i) any Subsidiary may merge into or transfer assets to Borrower, HOTC or Limited, and (ii) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary. 8.08 Management. Limited shall not, and shall not permit its Affiliates to change the duties, obligations, titles and offices of Gerald J. Rubin without the prior written consent of the Lender. 9. EVENTS OF DEFAULT 9.01 Events of Default. The following shall be Events of Default under this Agreement: (a) Borrower shall fail to pay any principal of or interest on the Note, or either of them, or any other amount payable hereunder, within ten (10) days after the date due in accordance with the terms hereof; or (b) any representation or warranty made or deemed made by Borrower or either Guarantor herein or which is contained in any certificate, document or financial or other statement furnished at anytime under or in connection with this Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Borrower or either Guarantor shall Default in the observance or performance of any other covenant or agreement contained in this Agreement, and (except for Borrower's covenants as to (i) notices as set forth in Section 7.05, and (ii) negative covenants as set forth in Section 8 hereof, for which no notice or opportunity to cure is required to be given or is allowed, as the case may be) said Default shall have continued for a period of thirty (30) days after written notice thereof shall have been given to Borrower by Lender, or Borrower or either Guarantor, as the case may be, has not, by the expiration of such thirty (30) day period, commenced in good faith to cure such Default and pursue such cure with diligence; or (d) Borrower or either Guarantor shall Default in its payments according to a plan of arrangement, composition or readjustment of its debts or any other event shall occur, the effect of which Default or other event is to cause, or permit the holder or holders of any material indebtedness or beneficiary or beneficiaries of any material Contingent -23- 24 Obligation (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, any material indebtedness or Contingent Obligation to become due prior to its stated maturity; or (e) Borrower or either Guarantor shall commence any case, proceeding or other action relating to it in bankruptcy or seek reorganization, liquidation, dissolution, winding-up, arrangement, composition, readjustment of debt or other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing; or Borrower or either Guarantor shall apply for a receiver, custodian or trustee of it or for all or a substantial part of its property; or Borrower or either Guarantor shall make an assignment for the benefit of creditors; or (f) any case, proceeding or other action against Borrower or either Guarantor shall be commenced in bankruptcy or Borrower or either Guarantor shall seek reorganization, liquidation, dissolution, winding-up, arrangement, composition or readjustment of its debts, or any other relief, under any bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement, composition, readjustment of debt or other similar act or law of any jurisdiction, domestic or foreign, now or hereafter existing; or a receiver, custodian or trustee of Borrower or either Guarantor or for all or a substantial part of its property shall be appointed; or a warrant of attachment, execution or distraint, or similar process, shall be issued against any substantial part of the property of Borrower or either Guarantor; and in each such case such condition shall continue for a period of sixty (60) days undismissed, undischarged or unbonded; or (g) one or more judgments or decrees shall be entered against Borrower or either Guarantor involving in the aggregate a liability (not paid or fully covered by insurance) of $500,000.00 or more and all such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (i) the failure by Borrower or either Guarantor to perform any covenant or agreement contained in this Agreement (after the expiration of any applicable cure period); or (j) upon the occurrence of an Event of Default under the terms of, and as defined in, that certain Note Purchase and Guaranty Agreement dated effective January 5, 1996, among Guarantors and certain named purchasers, regarding the purchase of 7.01% Guaranteed Senior Notes due January 5, 2008. Upon the occurrence of any Event of Default, either or both of the following actions may be taken by Lender: (a) declare the Commitment to be terminated forthwith, whereupon the Commitment shall immediately terminate; and (b) declare the Revolving Credit Loan (with accrued interest thereon) and all other amounts owing under this Agreement and the Note to be due and payable forthwith, whereupon the same shall immediately become due and payable, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration, or other notice of any kind, all of which are hereby expressly waived, except as otherwise expressly provided herein. -24- 25 10. MISCELLANEOUS 10.01 Amendment; Waivers. Borrower and Lender may, from time to time, enter into written amendments, supplements, waivers or modifications hereto for the purpose of adding any provisions to this Agreement or the Note or changing in any manner the rights of Lender or of Borrower hereunder or thereunder. 10.02 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of Lender, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 10.03 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO BE CONTRACTS UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF SAID STATE AND APPLICABLE FEDERAL LAW. TEX. REV. CIV. STAT. ANN. ART. 5069-15.01, AS AMENDED, SHALL NOT APPLY TO THIS AGREEMENT AND THE NOTE ISSUED HEREUNDER. 10.04 Survival of Representation and Warranties. All representations and warranties made by Borrower and Guarantors hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Note. 10.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of Borrower, Guarantors and Lender, all future holders of the Note and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Lender. 10.06 Severability. Should any clause, sentence, paragraph or Section of this Agreement be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Agreement and the parties hereto agree that the part or parts of this Agreement so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein. 10.07 Descriptive Headings. The Section headings in this Agreement have been inserted for convenience only and shall be given no substantive meaning or significance whatsoever in construing the terms and provisions of this Agreement. 10.08 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. -25- 26 10.09 No Liability. Lender shall not be deemed to be a partner or a Joint Venturer of Borrower or an agent or principal of Borrower, nor shall it be liable for the performance or Default of any party other than Lender. Nothing, including, without limitation, any advance of any of the proceeds of the Revolving Credit Loan, or any acceptance of any document, shall be construed as a representation or warranty of any kind by Lender. 10.10 Indemnity. Borrower and Guarantors agree to protect, indemnify, defend and save harmless Lender and its directors, officers, agents, and employees from and against any and all liability, expense or damage of any kind or nature and from any suits, claims, commissions, brokerage fees or demands, including reasonable legal fees and expenses on account of any matter or thing, whether in suit or not, arising out of this Agreement, the Revolving Credit Loan, the Note, or in connection herewith, unless the suits, claims, commissions, brokerage fees or damages are caused by the negligence or willful misconduct by Lender, or any of the parties herein indemnified. This obligation shall survive the repayment of the indebtedness evidenced by the Note. 10.11 Assignment. Neither this Agreement, nor the Loan proceeds shall be assignable by Borrower without the prior written consent of Lender and any attempt at any such assignment without such consent shall be void and at the option of Lender be deemed a Default hereunder. 10.12 No Third Party Beneficiaries. This Agreement is made for the sole and exclusive benefit of Borrower and Guarantors. No other person, firm, corporation or entity shall have any right of action, claim for relief or benefit from this Agreement, nor shall this Agreement be construed to establish any fund, loan, or payment for the benefit of anyone not a party hereto. 10.13 Notices. All notices, requests and demands to or upon the respective parties hereto shall be effective and shall be deemed to have been duly given or made, unless otherwise expressly provided herein, when deposited in the mail, postage prepaid, certified mail, return receipt requested. The mailing address of each party for the purpose of this Section 10.13 is as follows: Borrower: 6827 Market El Paso, Texas 79915 Attention: Gerald J. Rubin Sam L. Henry Guarantors: 6827 Market El Paso, Texas 79915 Attention: Gerald J. Rubin, Chairman Sam L. Henry, Chief Financial Officer Lender: P. O. Drawer 140 El Paso, Texas 79980 Attention: David W. Osborn, Senior Vice President, Corporate Banking Division
-26- 27 10.14 Exhibits. Exhibit A appended hereto is hereby incorporated herein for all purposes. 10.16 Sale of Participations. Lender reserves the right in its sole discretion, without notice to Borrower or Guarantors, to sell participations or assign its interest, or both, in all or any part of the Revolving Credit Loan, the Note or the Commitment to banks owned by Chemical Banking Corporation or Texas Commerce Bancshares, Inc., and further reserves the right to sell such participations and/or assign such interests to any other financial institution with the written consent of Borrower. NOTICE THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXECUTED TO BE EFFECTIVE as of December 31, 1996, regardless of the date actually signed. HELEN OF TROY L.P., a Texas limited partnership By: HELEN OF TROY NEVADA CORPORATION, a Nevada corporation, General Partner By: /s/ Sam L. Henry -------------------------------------- Sam L. Henry, Chief Financial Officer BORROWER TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ David W. Osborn -------------------------------------- David W. Osborn, Senior Vice President LENDER EX-2 3 AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 2 AMENDMENT TO LOAN AGREEMENT THIS AMENDMENT TO LOAN AGREEMENT (this "Amendment") is entered into effective the 31st day of July, 1997 (the "Effective Date"), by and among TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association ("Lender"), with its principal office at 201 E. Main, El Paso, Texas 79901, HELEN OF TROY L.P., a Texas limited partnership, with its principal office at 6827 Market Avenue, El Paso, Texas 79901 ("Borrower"), and HELEN OF TROY LIMITED, a Bermuda corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915, HOT NEVADA, INC., a Nevada corporation, with its principal office at 1325 Airmotive Drive, Suite 130, Reno, Nevada 89502, HELEN OF TROY LIMITED, a Barbados corporation, with its principal office at P. O. Box 36, Lucas Steet, Bridgetown, Barbados, West Indies, HELEN OF TROY NEVADA CORPORATION, a Nevada corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915, and HELEN OF TROY TEXAS CORPORATION, a Texas corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915 (collectively "Guarantors") for the purpose of amending and supplementing that one certain Loan Agreement dated as of December 31, 1996, among Lender, Borrower, HELEN OF TROY LIMITED and HELEN OF TROY TEXAS CORPORATION (the "Loan Agreement"). Capitalized terms used, but not otherwise defined, in this Amendment shall have the meanings ascribed to them in the Loan Agreement. WHEREAS, Borrower has requested Lender to (i) increase the amount that may be advanced under the terms of the Revolving Credit Loan to TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), and (ii) extend the maturity of the Note evidencing the Revolving Credit Loan to July 31, 1999; all in accordance with the terms of this Amendment, which Lender is willing to do upon the terms and conditions hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and Guarantors hereby agree as follows: 1. INCREASE OF MAXIMUM LOAN TOTAL. From the effective date of this Amendment the amount available under the Revolving Credit Loan shall be increased from FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) to TEN MILLION AND NO/100 DOLLARS ($10,000,000.00), to be evidenced by a Revolving Credit Loan Note dated effective July 31, 1997, executed by Borrower. Beginning July 31, 1997, and continuing until fully paid, the Maximum Loan Total available under the Note shall be in the amount of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00). There is no current outstanding principal balance on the Note. 2. COMMITMENT PERIOD. The Commitment Period is hereby extended to July 31, 1999; subject, however, to the payment of the Commitment Fee described below. 3. LETTERS OF CREDIT. Section 2.01 of the Loan Agreement is amended to read as follows: 2 2.01.1 Letters of Credit. In the event that during the Commitment Period Lender shall agree to issue on Borrower's account letters of credit ("Letters of Credit"), as defined in Chapter 5 of the Texas Uniform Commercial Code - Letters of Credit, then Borrower agrees as aforesaid that (i) the available principal balance of the Revolving Credit Loan shall be reduced by the aggregate amount of all Letters of Credit outstanding from time to time; (ii) outstanding Letters of Credit shall never exceed in the aggregate at any time the sum of $3,000,000.00, and (iii) no Letter of Credit shall have an expiry date later than July 31, 1999. Borrower agrees to pay to Lender a fee equal to one-half of one percent (.5%) per annum of the face amount for issuing Letters of Credit, and Borrower further agrees that should Lender be required to fund all or any part of any Letter of Credit on behalf of Borrower, any such funding shall be simultaneously charged to the Revolving Credit Loan, subject to all of the terms and conditions of this Agreement. 4. RENEWAL OF REVOLVING CREDIT LOAN NOTE. Section 2.02 of the Loan Agreement is amended to read as follows: 2.02 Revolving Credit Loan Note. The Revolving Credit Loan shall be evidenced by the Revolving Credit Loan Note in the principal sum of $10,000,000.00, executed and delivered by Borrower, payable to the order of Lender, in the form appended hereto as Exhibit "A". The Termination Date of the Revolving Credit Loan Note shall be July 31, 1999. Loans made by Lender under the terms of the Revolving Credit Loan Note shall be two (2) week, one (1) month, two (2) month, three (3) month, or six (6) month Eurodollar Loans. Borrower shall pay interest on each Alternate Base Rate Loan for the Interest Period with respect thereto at a rate per annum equal to the lesser of (i) the Alternate Base Rate for such Interest Period, or (ii) the Highest Lawful Rate, which interest shall be due and payable quarterly, beginning October 31, 1997, and continuing on the last day of each third month thereafter until Termination Date. Borrower shall pay interest on each Eurodollar Loan for the Interest Period with respect thereto on the unpaid principal amount thereof at a rate per annum equal to the lesser of (i) the Eurodollar Rate plus one-half of one percent (.50%) (the "Effective Eurodollar Rate"), or (ii) the Highest Lawful Rate, which interest shall be due and payable quarterly, beginning October 31, 1997, and continuing on the last day of each third month thereafter until Termination Date. -2- 3 If not sooner paid, the entire unpaid principal of, and all accrued, unpaid interest on, the Revolving Credit Loan Note shall be due and payable on July 31, 1999. 5. CONSOLIDATED NET WORTH. Section 8 of the Loan Agreement is amended to read as follows: 8.01 Consolidated Net Worth. HELEN OF TROY LIMITED ("Limited") will not permit Consolidated Net Worth (i) at any time during the period commencing on May 31, 1997, and ending on July 31, 1997 to be less than $110,000,000, (ii) at any time during any fiscal quarter of Limited thereafter to be less than the minimum Consolidated Net Worth required by this Section at the end of the immediately preceding fiscal quarter of Limited plus the greater of zero or 40% of Consolidated Net Earnings for the immediately preceding fiscal quarter of Limited. 6. COMMITMENT FEE. Borrower agrees to pay to Lender a Commitment Fee of $12,500.00 on or before July 31, 1997, in consideration of Lender's execution of this Amendment, and at the option of Borrower an additional $12,500.00 on or before August 31, 1998; provided, that if the payment due on or before August 31, 1998 is not paid, the Commitment shall terminate on that date and the Revolving Credit Loan Note shall be immediately due and payable. 7. LIMITATION ON USE. The proceeds of the Revolving Credit Loan Note shall not be used to acquire the stock or assets of any Person unless there is a firm commitment from another lender to provide the funds to pay off Lender within thirty (30) days of the draw under the Revolving Credit Loan Note. 8. CONTINUED VALIDITY. Except as expressly provided in this Amendment, all terms, conditions, representations, warranties, and covenants contained in the Loan Agreement, shall remain in full force and effect, and are hereby confirmed and acknowledged by Borrower. 9. COUNTERPARTS. This Amendment may be executed in several counterparts, each of which shall be fully effective as an original, and all of which together shall constitute one and the same instrument. 10. DISCLOSURE. As of the date hereof, there is no fact known to Borrower which Borrower has not disclosed to Lender in writing, that materially and adversely affects or in the future may (as far as Borrower can now foresee) materially and adversely affect the business, operations, properties, prospects or conditions, financial or otherwise, of Borrower or any of its affiliates. Borrower shall immediately notify the Lender in writing in the event any such fact or facts become known during the term of the Loan Agreement, as herein amended. 11. CONDITIONS. This Amendment shall not be effective unless and until the Lender -3- 4 shall have received this Amendment and all such other agreements, documents or instruments necessary or required by Lender in connection with the transactions contemplated by this Amendment, including the Note Modification Agreement, all duly executed. 12. NO DEFAULT. Borrower represents and warrants to Lender (after giving effect to the terms and conditions of this Amendment), that there exists on this day no Event of Default, as that term is defined in the Loan Agreement, and no event which, with notice or lapse of time or both, would become an Event of Default. 13. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that all of the representations and warranties set forth in the Loan Agreement (after giving effect to the terms and conditions of this Amendment), are true and correct on and as of the date of this Amendment as if made on and as of such date. 14. EVENT OF DEFAULT. It is understood and agreed by Borrower that an Event of Default shall exist if any representation, warranty or covenant made or deemed made by Borrower in this Amendment, in the Loan Agreement (including all amendments and supplements thereto), or in any document or exhibit attached thereto or referred to therein, shall prove to have been incorrect in any material respect on or as of the date made or deemed made. 15. CONSTRUCTION. This Amendment and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with and governed by, the laws of the State of Texas, except as federal law may apply. 16. BINDING EFFECT. This Amendment shall be binding upon and enure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns; provided, however, that Borrower shall not assign or transfer its rights or obligations hereunder without the prior written consent of the Lender. 17. OTHER TERMS. Except as expressly provided herein, all of the terms and conditions of the Loan Agreement and the Guaranty (collectively, the "Loan Documents"), and any and all other documents described in or executed in connection with the Loan Documents shall continue in full force and effect and are hereby reaffirmed. It is expressly understood and agreed that if there are inconsistencies between or among the Loan Documents, the terms of the Loan Agreement, as amended, shall prevail. THIS AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. -4- 5 THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. HELEN OF TROY L.P., a Texas limited partnership By: /s/ Sam L. Henry -------------------------------------- Sam L. Henry Chief Financial Officer BORROWER HELEN OF TROY LIMITED, a Bermuda corporation By: /s/ Sam L. Henry -------------------------------------- Sam L. Henry Chief Financial Officer HELEN OF TROY LIMITED a Barbados corporation By: /s/ Sam L. Henry -------------------------------------- Sam L. Henry Chief Financial Officer/Vice President HOT NEVADA, INC. a Nevada corporation By: /s/ Gary B. Abromovitz -------------------------------------- Gary B. Abromovitz President -5- 6 HELEN OF TROY NEVADA CORPORATION a Nevada corporation By: /s/ Sam L. Henry -------------------------------------- Sam L. Henry Chief Financial Officer HELEN OF TROY TEXAS CORPORATION a Texas corporation By: /s/ Sam L. Henry -------------------------------------- Sam L. Henry Chief Financial Officer GUARANTORS TEXAS COMMERCE BANK NATIONAL ASSOCIATION By: /s/ David W. Osborn -------------------------------------- David W. Osborn Senior Vice President LENDER -6- EX-3 4 2ND AMENDMENT TO LOAN AGREEMENT 1 EXHIBIT 3 SECOND AMENDMENT TO LOAN AGREEMENT THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is entered into effective the 31st day of July, 1998, by and among CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, a national banking association, f/k/a TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("Lender"), with its office at 201 E. Main, El Paso, Texas 79901, HELEN OF TROY L.P., a Texas limited partnership, with its principal office at 6827 Market Avenue, El Paso, Texas 79901 ("Borrower"), and HELEN OF TROY LIMITED, a Bermuda corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915, HOT NEVADA, INC., a Nevada corporation, with its principal office at 1325 Airmotive Drive, Suite 130, Reno, Nevada 89502, HELEN OF TROY LIMITED, a Barbados corporation, with its principal office at P. O. Box 36, Lucas Street, Bridgetown, Barbados, West Indies, HELEN OF TROY NEVADA CORPORATION, a Nevada corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915, and HELEN OF TROY TEXAS CORPORATION, a Texas corporation, with its principal office at 6827 Market Avenue, El Paso, Texas 79915 (collectively "Guarantors") for the purpose of amending and supplementing that one certain Loan Agreement dated as of December 31, 1996, among Lender, Borrower, HELEN OF TROY LIMITED and HELEN OF TROY TEXAS CORPORATION, as amended by an Amendment to Loan Agreement dated effective July 31, 1997 (the "Loan Agreement"). Capitalized terms used, but not otherwise defined, in this Amendment shall have the meanings ascribed to them in the Loan Agreement. WHEREAS, Borrower has requested Lender to (i) replace the current committed revolving line of credit with an uncommitted revolving line of credit in the same amount, (ii) cancel the existing Revolving Credit Loan Note, which has no current outstanding principal balance, (iii) extend the period in which Borrower may request loans under the new uncommitted revolving credit line of credit, and (iv) increase the minimum required Consolidated Net Worth, all in accordance with the terms of this Amendment, which Lender is willing to do upon the terms and conditions hereinafter set forth; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender, Borrower and Guarantors hereby agree as follows: 1. GENERAL. This Amendment is intended to delete from the Loan Agreement any obligation on the part of the Lender to make a Loan to Borrower, and to replace any such obligation with an uncommitted facility. Any references in the Loan Agreement to a Borrowing, Commitment, Commitment Period, Revolving Credit Loan Note, and other terms indicating a committed facility are hereby deleted to the extent inconsistent with this Amendment. The term "Note" shall now refer to each note executed by the Borrower to evidence an Advance (as hereinafter defined), and the term "Loan" shall mean each Advance approved by the Lender and evidenced by a Note. 2. ADVANCE PERIOD. The Commitment Period as used in the Loan Agreement is hereby cancelled and from July 31, 1998 until July 31, 2000 (the "Advance Period"), the Lender 2 shall establish an uncommitted line of credit for the benefit of the Borrower subject to the terms and conditions of the Loan Agreement, as amended. 3. LINE OF CREDIT. Subject to the terms and conditions of the Loan Agreement, as amended, the Lender hereby establishes during the Advance Period, an uncommitted line of credit (the "Line of Credit") in favor of the Borrower, pursuant to which the Lender may, in its sole discretion, from time to time make advances in an aggregate amount of TEN MILLION DOLLARS ($10,000,000) (the "Line Amount"). 4. ADVANCES. In order to obtain an Advance from the Lender, the Borrower shall deliver to the Lender a written borrowing request (a "Borrowing Request") at least five (but not more than fifteen) Business Days prior to the date on which the Advance is to be made, specifying (i) the date (which shall be a Business Day) on which the Advance is to be made, (ii) the amount thereof, (iii) whether the requested Advance is to be an Alternate Base Rate Loan or a Eurodollar Loan, (iv) if a Eurodollar Loan, whether it is a two (2) week, one (1) month, three (3) month, or six (6) month Eurodollar Loan, (v) the Interest Period for such Loan, and (vi) the Maturity Date of such Loan (which must be on or before July 31, 2000). The Lender shall notify the Borrower in writing as to whether a Borrowing Request is approved. Upon fulfillment of the applicable conditions set forth in Section 4 of the Loan Agreement, the Lender will make such Advance available to the Borrower at the offices of the Lender in El Paso, Texas. Each Advance will be evidenced by a separate Note issued pursuant to the Loan Agreement. Interest on all Notes issued pursuant to the Loan Agreement shall be due and payable quarterly, and all such Notes shall mature not later than July 31, 2000. 5. CONSOLIDATED NET WORTH. Section 8.01 of the Loan Agreement is amended to read as follows: 8.01 Consolidated Net Worth. HELEN OF TROY LIMITED ("Limited") will not permit Consolidated Net Worth (i) at any time during the period commencing on the date hereof and ending August 31, 1998 to be less than $120,000,000, and (ii) at any time during any fiscal quarter of Limited thereafter to be less than the minimum Consolidated Net Worth required by this Section at the end of the immediately preceding fiscal quarter of Limited plus the greater of zero or 40% of Consolidated Net Earnings for the immediately preceding fiscal quarter of Limited. 6. LETTERS OF CREDIT. In connection with the conversion to an uncommitted line of credit, Section 2.01.1 of the Loan Agreement is hereby amended in its entirety to read as follows: 2.01.1 Letters of Credit. In the event that during the Advance Period Lender shall agree to issue on Borrower's account letters of credit ("Letters of Credit"), as defined in Chapter 5 of the Texas Uniform Commercial Code - Letters of Credit, then Borrower agrees that (i) the uncommitted Line of Credit shall be reduced by the aggregate amount of all Letters of Credit outstanding from time to time; (ii) outstanding Letters of Credit shall never exceed in the aggregate at any time the sum of $3,000,000.00, and (iii) no -2- 3 Letter of Credit shall have an expiry date later than July 31, 2000. Borrower agrees to pay to Lender all customary charges for issuing Letters of Credit, and Borrower further agrees that should Lender be required to fund all or any part of any Letter of Credit on behalf of Borrower, any such funding shall be simultaneously charged as an Alternate Base Rate Loan, subject to all of the terms and conditions of this Agreement. 7. LIMITATION ON USE. The proceeds of the Line of Credit shall not be used to acquire the stock or assets of any Person unless there is a firm commitment from another lender to provide the funds to pay off Lender within thirty (30) days of the Advance. 8. CONTINUED VALIDITY. Except as expressly provided in this Amendment, all terms, conditions, representations, warranties, and covenants contained in the Loan Agreement, shall remain in full force and effect, and are hereby confirmed and acknowledged by Borrower. 9. COUNTERPARTS. This Amendment may be executed in several counterparts, each of which shall be fully effective as an original, and all of which together shall constitute one and the same instrument. 10. DISCLOSURE. As of the date hereof, there is no fact known to Borrower which Borrower has not disclosed to Lender in writing, that materially and adversely affects or in the future may (as far as Borrower can now foresee) materially and adversely affect the business, operations, properties, prospects or conditions, financial or otherwise, of Borrower or any of its affiliates. Borrower shall immediately notify the Lender in writing in the event any such fact or facts become known during the term of the Loan Agreement, as herein amended. 11. CONDITIONS. This Amendment shall not be effective unless and until the Lender shall have received this Amendment and all such other agreements, documents or instruments necessary or required by Lender in connection with the transactions contemplated by this Amendment, all duly executed. 12 NO DEFAULT. Borrower represents and warrants to Lender (after giving effect to the terms and conditions of this Amendment), that there exists on this day no Event of Default, as that term is defined in the Loan Agreement, and no event which, with notice or lapse of time or both, would become an Event of Default. 13. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and warrants to Lender that all of the representations and warranties set forth in the Loan Agreement (after giving effect to the terms and conditions of this Amendment), are true and correct on and as of the date of this Amendment as if made on and as of such date. 14. EVENT OF DEFAULT. It is understood and agreed by Borrower that an Event of Default shall exist if any representation, warranty or covenant made or deemed made by Borrower in this Amendment, in the Loan Agreement (including all amendments and supplements thereto), or in any document or exhibit attached thereto or referred to therein, shall prove to have been incorrect in any -3- 4 material respect on or as of the date made or deemed made. 15. CONSTRUCTION. This Amendment and the rights and obligations of the parties hereunder shall be construed and interpreted in accordance with and governed by, the laws of the State of Texas, except as federal law may apply. 16. BINDING EFFECT. This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns; provided, however, that Borrower shall not assign or transfer its rights or obligations hereunder without the prior written consent of the Lender. 17. OTHER TERMS. Except as expressly provided herein, all of the terms and conditions of the Loan Agreement and the Guaranty (collectively, the "Loan Documents"), and any and all other documents described in or executed in connection with the Loan Documents shall continue in full force and effect and are hereby reaffirmed. It is expressly understood and agreed that if there are inconsistencies between or among the Loan Documents, the terms of the Loan Agreement, as amended, shall prevail. THIS AMENDMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. HELEN OF TROY L.P., a Texas limited partnership By: Helen of Troy Nevada Corporation General Partner By: /s/ Sam L. Henry --------------------------------------- Sam L. Henry Chief Financial Officer BORROWER HELEN OF TROY LIMITED, a Bermuda corporation By: /s/ Sam L. Henry --------------------------------------- Sam L. Henry Chief Financial Officer -4- 5 HELEN OF TROY LIMITED a Barbados corporation By: /s/ Sam L. Henry --------------------------------------- Sam L. Henry Chief Financial Officer/Vice President HOT NEVADA, INC. a Nevada corporation By: /s/ Gary B. Abromovitz --------------------------------------- Gary B. Abromovitz President HELEN OF TROY NEVADA CORPORATION a Nevada corporation By: /s/ Sam L. Henry --------------------------------------- Sam L. Henry Chief Financial Officer HELEN OF TROY TEXAS CORPORATION a Texas corporation By: /s/ Sam L. Henry --------------------------------------- Sam L. Henry Chief Financial Officer GUARANTORS CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: /s/ Dan B. Dawes --------------------------------------- Dan B. Dawes Senior Vice President LENDER -5- EX-4 5 PROXY STATEMENT 1 EXHIBIT 4 HELEN OF TROY LIMITED ONE HELEN OF TROY PLAZA EL PASO, TEXAS 79912 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AUGUST 24, 1999 Notice is hereby given that the Annual Meeting of the Shareholders (the "Meeting") of Helen of Troy Limited, a Bermuda company, will be held at the Camino Real Hotel, 101 S. El Paso Street, El Paso, Texas on Tuesday, August 24, 1999 at 1:00 p.m., Mountain Daylight Time, for the following purposes: 1. To elect a board of seven directors; 2. To consider approval of amendments to the Helen of Troy Limited 1995 Non-Employee Director Stock Option Plan; 3. To transact such other business as may properly come before the Meeting or any adjournment thereof. June 23, 1999 has been fixed as the date of record for determining Shareholders entitled to receive notice of and vote at the Annual Meeting. You are urged to read carefully the attached Proxy Statement for additional information concerning the matters to be considered at the Meeting. If you do not expect to be present in person at the Meeting, please sign and date the enclosed proxy and return it promptly in the enclosed postage-paid envelope that has been provided for your convenience. The prompt return of proxies will help ensure the presence of a quorum and save the Company the expense of further solicitation. You are cordially invited and encouraged to attend the Meeting in person. Gerald J. Rubin Chairman of the Board El Paso, Texas June 25, 1999 IMPORTANT WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENVELOPE PROVIDED. IF YOU DO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. Helen of Troy(R) 2 HELEN OF TROY LIMITED PRINCIPAL EXECUTIVE OFFICE ONE HELEN OF TROY PLAZA EL PASO, TEXAS 79912 PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS AUGUST 24, 1999 SOLICITATION OF PROXIES The accompanying proxy is solicited by the Board of Directors of Helen of Troy Limited (the "Company") for use at its Annual Meeting of Shareholders (the "Meeting") to be held at the Camino Real Hotel, 101 S. El Paso Street, El Paso, Texas, on Tuesday, August 24, 1999 at 1:00 p.m., Mountain Daylight Time, and at any adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. A proxy may be revoked by filing written notice of revocation or an executed proxy bearing a later date with the Secretary of the Company any time before exercise of the proxy. A shareholder giving a proxy may attend the Meeting and vote in person. Forms of proxy and proxy statements are to be mailed on or about July 7, 1999. The Annual Report to Shareholders for the year ended February 28, 1999 ("fiscal 1999"), including financial statements, is enclosed. It does not form any part of the material provided for the solicitation of proxies. The cost of solicitation of proxies will be borne by the Company. In addition to solicitation by mail, officers and employees of the Company may solicit the return of proxies by telephone and personal interview. Forms of proxy and proxy material may also be distributed through brokers, custodians and like parties to beneficial owners of the Company's common shares, par value $.10 per share (the "Common Stock") for which the Company will, upon request, reimburse the forwarding expense. VOTING SECURITIES The close of business on June 23, 1999 was the record date for determination of shareholders entitled to notice of, and to vote at, the Meeting. At the record date, there were 29,054,862 issued and outstanding shares of Common Stock, entitled to one vote per share. 2 3 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of June 15, 1999, the beneficial ownership of the Common Stock of the Directors, the executive officers of the Company, the executive officers and the Directors of the Company as a group, and each person known to the Company to be the beneficial owner of more than 5% of the Common Stock:
NAME NUMBER OF SHARES PERCENT Gerald J. Rubin (1)(2)(3)(4)(5) 4,724,922 15.3% One Helen of Troy Plaza El Paso, Texas 79912 Byron H. Rubin (6) 33,000 * Daniel C. Montano (7) 32,000 * Gary B. Abromovitz (7) 36,000 * Stanlee N. Rubin (1)(2)(3)(4)(5) 4,724,922 15.3% One Helen of Troy Plaza El Paso, Texas 79912 Christopher L. Carameros (6) (8) 34,000 * H. McIntyre Gardner (9) 66,666 * All directors and executive officers as a group 4,926,588 16.0% (8 persons) (10) (11) (12) Fidelity Management and Research 2,705,000 8.9% Company (13) 82 Devonshire Street Boston, Massachusetts 02109
*Ownership of less than 1% of the outstanding Common Stock (1) Does not include 144,000 shares in a trust for the children of Gerald J. Rubin and Stanlee N. Rubin in which they disclaim any beneficial ownership. (2) Includes 276,980 shares held beneficially through a partnership in which Gerald J. Rubin and Stanlee Rubin are partners. (3) Includes 1,550,000 shares that are held by Gerald J. Rubin and that are issuable pursuant to options that are exercisable within sixty days of June 15, 1999. Gerald J. Rubin's stock options are subject to a one-half undivided community property interest with Stanlee N. Rubin. (4) Includes 2,865,942 shares owned directly by Gerald Rubin, all of which are subject to a one-half undivided community property interest with Stanlee N. Rubin. (5) Includes 32,000 stock options, issued under the 1995 Non-Employee Director Plan and exercisable within 60 days of June 15, 1999, held by Stanlee Rubin and subject to a one-half undivided community property interest with Gerald J. Rubin. (6) 24,000 of the shares for each of Byron H. Rubin and Christopher L. Carameros consist of options issued under the 1995 Non-Employee Director Stock Option Plan and exercisable within 60 days of June 15, 1999. 3 4 (7) 32,000 of the shares for each of Daniel C. Montano and Gary B. Abromovitz consist of options issued under the 1995 Non-Employee Director Stock Option Plan and exercisable within 60 days of June 15, 1999. (8) Includes 10,000 shares held in a trust, of which Mr. Carameros is the trustee, for Mr. Carameros' family. (9) All of the shares for H. McIntyre Gardner consist of stock options exercisable within 60 days of June 15, 1999. (10) The Company's Senior Vice-President, Finance and Chief Financial Officer, Dona Fisher, did not beneficially own any shares of the Company's common stock at June 15, 1999. Ms. Fisher's tenure with the Company commenced in March 1999. (11) The following shares are included in both Gerald J. Rubin's and Stanlee N. Rubin's individual beneficial ownership totals: 2,865,942 shares owned directly by Gerald J. Rubin and subject to a one-half undivided community property interest with Stanlee N. Rubin; 1,550,000 stock options exercisable within 60 days of June 15, 1999 held directly by Gerald J. Rubin and subject to a one-half undivided community property interest with Stanlee N. Rubin; 276,980 shares held beneficially through a partnership in which Gerald J. Rubin and Stanlee N. Rubin are partners; and 32,000 stock options exercisable within 60 days of June 15, 1999, held directly by Stanlee N. Rubin and subject to a one-half undivided community property interest with Gerald J. Rubin. (12) Includes 1,760,666 stock options, 1,616,666 of which were issued under the Company's 1994 and 1998 Employee Stock Option and Restricted Stock Plans and 144,000 of which were issued under the Company's 1995 Non-Employee Director Stock Option Plan. All stock options included in this total are exercisable within 60 days of June 15, 1999. (13) As extracted from Form 13G filed as of February 1, 1999 by Fidelity Management and Research Company, represents sole dispositive power for 2,705,000 shares and sole voting power for no shares. ELECTION OF DIRECTORS (PROPOSAL 1) The By-laws of the Company state that the number of Directors of the Company shall not be less than two. Accordingly, the number of Director positions has been set at seven. The Nominating Committee has identified seven candidates for election to the Board of Directors. Each Director elected shall serve as a Director until the next annual meeting of shareholders, or until his or her successor is elected and qualified. The seven persons named below are the Nominating Committee's nominees for election as Directors. Gerald J. Rubin and Stanlee N. Rubin are married. Gerald J. Rubin and Byron H. Rubin are brothers. Set forth below are descriptions of the principal occupations during at least the past five years of the nominees for membership on the Company's Board of Directors. Gerald J. Rubin, age 55, founder of the Company, has been the Chairman of the Board and Chief Executive Officer of the Company since 1984. Mr. Rubin has been a Director of the Company since 1969. Gary B. Abromovitz, age 56, has been a Director of the Company since 1990. Mr. Abromovitz was a partner in the law firm of Bonn/Abromovitz from January 1990 to September 1998. Since September 1998, Mr. Abromovitz has been active in real estate, concentrating on historic properties and downtown redevelopment. Stanlee N. Rubin, age 55, has been a Director of the Company since 1990. Mrs. Rubin is active in civic and charitable organizations. She is a member of the University of Texas at El Paso Board of Development. She is presently on the Board of Directors of the Alumni Association of the University of Texas at El Paso, The National Conference of Christians and Jews and the El Paso Symphony Guild. Mrs. Rubin is also a Partner for the Susan G. Komen Breast Cancer Foundation. 4 5 Christopher L. Carameros, age 45, has been a Director of the Company since June 1993. Mr. Carameros has been an officer of L & M Asset Management Inc., a financial services and asset management company, from August 1997 to the present. He was an Executive Vice President of Cactus Apparel Inc., an apparel manufacturing company, from January 1992 to July 1997. Byron H. Rubin, age 49, has been a Director of the Company since 1981. He has been a partner in the firm Daniels & Rubin (formerly known as Integrated Financial of Texas), an insurance and tax planning firm in Dallas, Texas since 1979. Daniel C. Montano, age 50, has been a Director of the Company since 1980. He has been the managing Director of C&K Capital since January 1997. From January 1995 to December 1996, he was Director of Investment Banking at Brookstreet Securities. Mr. Montano was President and a director of Montano Securities Corporation from 1979 to January 1995. In connection with matters that occurred in 1994, Mr. Montano agreed in 1997 to a settlement with the National Association of Securities Dealers, Inc. (the "NASD") pursuant to which he was fined $102,500 and suspended by the NASD from associating with any NASD members for a period of two years. Mr. Montano consented to the findings that he had engaged in a course of conduct that resulted in the mishandling or misuse by his firm, Montano Securities, of funds entrusted to it. Montano Securities was also found to have carried out securities transactions without maintaining sufficient net capital. In May 1998, the NASD suspended Mr. Montano's registration as a registered securities broker for an unspecified time due to his failure to pay an arbitration award. In July 1998, the Securities and Exchange Commission entered an order affirming a decision by the NASD that Mr. Montano was found to have violated certain rules of the NASD, including not accurately and sufficiently discussing the mechanism of short-selling or the risks associated with implementing the strategy using a particular stock, making improper references to prior recommendations, making exaggerated and inappropriate presentations of prior recommendations and making improper projections. None of the matters discussed above with regard to Mr. Montano involved any securities of or transactions involving Helen of Troy Limited or any of its subsidiaries. H. McIntyre Gardner, age 38, has been the President and Chief Operating Officer of the Company since September 1997. Mr. Gardner served as Executive Vice President and President of Appliance Corp. of America from 1994 to September 1997. Mr. Gardner held the position of President of Hanover Associates, Inc. from 1991 to 1994. VOTE REQUIRED FOR ELECTION OF DIRECTORS The nominees receiving a majority of the votes cast at the Meeting will be elected as Directors. THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE SEVEN NOMINEES NAMED ABOVE. 5 6 MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES The Company's Executive Committee consisted of Mr. Gerald J. Rubin and Mr. Byron H. Rubin during fiscal 1999. The Executive Committee has the power to exercise all of the authority of the Board of Directors in the management of the business and affairs of the Company, except to the extent provided in the Company's By-laws and by applicable law. All actions and resolutions of the Executive Committee are reported to the Board of Directors at the next meeting of the Board for its review, approval and ratification. The Executive Committee meets periodically during the year; but no resolutions were adopted nor were any formal meetings held during fiscal 1999. The Company's Audit Committee consisted of Mr. Gary B. Abromovitz, Mr. Daniel C. Montano and Mr. Christopher L. Carameros during fiscal 1999. The Audit Committee is responsible for evaluating the accounting and control procedures and practices of the Company and for reporting on such matters to the Board of Directors. The Audit Committee serves as a direct liaison with the Company's independent public accountants and recommends the engagement or discharge of such accountants. The Audit Committee meets periodically with the Chief Financial Officer, other appropriate officers of the Company and the Company's independent public accountants to review the Company's financial and accounting systems, accounting and financial controls, reports by the independent public accountants, proposed accounting changes and financial statements and opinions on such financial statements. The Audit Committee met three times during fiscal 1999. The Company's Nominating Committee consisted of Mr. Gerald J. Rubin and Mrs. Stanlee N. Rubin during fiscal 1999. The Nominating Committee receives recommendations from its members or other members of the Board of Directors for candidates to be appointed to the Board or Committee positions, reviews and evaluates such candidates and makes recommendations to the Board of Directors for nominations to fill Board and Committee positions. The Nominating Committee held periodic informal meetings during the year. The Nominating Committee will consider candidates recommended by employees and shareholders. Written suggestions for candidates, accompanied by a written consent of the proposed candidate to serve as a Director if nominated and elected, a description of his or her qualifications and other relevant biographical information, should be sent by March 6, 2000 for consideration by the Nominating Committee prior to the next Annual Meeting to the Secretary of the Company, One Helen of Troy Plaza, El Paso, Texas 79912. The Company's Stock Option and Compensation Committee consisted of Mr. Gary B. Abromovitz and Mr. Daniel C. Montano during fiscal 1999. The Stock Option and Compensation Committee generally oversees matters relating to compensation of executive employees of the Company. In connection with this oversight, it reviews and makes recommendations to the Board of Directors on officer and senior employee compensation and on grants of stock options under the Company's stock option plans. The Stock Option and Compensation Committee met or unanimously voted on resolutions twice during fiscal 1999. The full Board of Directors met or unanimously voted on resolutions seven times during fiscal 1999. Three of the seven Board of Directors meetings were held by telephone. Each of the Directors attended or acted upon at least seventy-five percent of the aggregate number of Board of Director meetings, consents, and Committee meetings or consents held or acted upon during the period for which he or she acted as a member of the Board of Directors during fiscal 1999. 6 7 EXECUTIVE COMPENSATION The following table sets forth the summary of compensation paid to the Company's Chief Executive Officer and its other Executive Officers during fiscal years 1997 through 1999. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ---------------------------------------- ------------ OTHER SECURITIES ANNUAL UNDERLYING NAME AND PRINCIPAL FISCAL COMPENSATION OPTIONS / ALL OTHER POSITION YEAR SALARY ($) BONUS ($) ($) SARS (#) COMPENSATION ($) - ----------------------------------------------------------------------------------------------------------- Gerald J. Rubin 1999 $ 600,000 $ 1,250,000 $ -- 1,000,000 $ 17,052(1)(2)(3) Chairman and Chief 1998 625,003 885,000 -- 1,000,000 16,414(1)(2)(3) Executive Officer 1997 623,158 551,705 -- -- 15,821(1)(2)(3) H. McIntyre Gardner 1999 400,000 400,000 -- -- 1,629(1)(2) President and Chief 1998 216,667 50,000 -- 300,000 -- Operating Officer 1997 -- -- -- -- -- Sam L. Henry 1999 218,032 25,000 -- -- 3,545(1)(4) Senior Vice-President 1998 215,636 28,240 -- 20,000 4,517(1)(4) Finance and Chief 1997 205,367 40,343 -- -- 4,517(1)(4) Financial Officer
(1) Includes $1,000 consisting of the Company's contributions to the Helen of Troy 401(k) Plan. (2) Includes amounts representing the economic benefit of split-dollar life insurance policies for which the Company paid the premiums. In the case of Gerald J. Rubin, the economic benefit of such polices totaled $7,802, $7,164 and $6,571 in fiscal 1999, 1998 and 1997, respectively. In the case of H. McIntyre Gardner the economic benefit of such policies totaled $629 in fiscal 1999. (3) Includes $8,250 representing the annual lease value of a vehicle provided by the Company. (4) Includes amounts consisting of premiums paid by the Company for term life insurance on behalf of Sam L. Henry. Such premiums totaled $2,545 in fiscal 1999 and $3,517 in fiscal 1998 and 1997. 7 8 OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION INDIVIDUAL GRANTS TERM - ----------------------------------------------------------------------------------------- --------------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS / SARS UNDERLYING GRANTED TO OPTIONS / SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE 5% ($) 10% ($) - ----------- ---------------- -------------------- -------------------- ------------- ------------- ------------- G. Rubin 500,000 45.8% 17.6250 1/29/2009 $ 5,542,134 $ 14,044,855 G. Rubin 500,000 45.8% 13.4688 2/26/2009 $ 4,235,228 $ 10,732,900
AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION / SAR VALUES
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED OPTIONS / IN-THE-MONEY OPTIONS / SARS SARS AT YEAR-END (#) AT FISCAL YEAR-END ($) (2) ------------------------------- ------------------------------- SHARES ACQUIRED ON EXERCISE VALUE REALIZED NAME (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------ ----------- -------------- ------------------------------- ------------------------------- G. Rubin 900,000 $ 16,246,890 1,300,000 1,900,000 $ 11,325,000 $ 234,500 H.M. Gardner -- $ -- 66,666 234,334 $ -- $ -- S. Henry 34,284 $ 559,740 35,716 68,000 $ 339,054 $ 500,000
(1) Represents the number of shares acquired on exercise multiplied by the increase in the price of the Common Stock from the option grant date to the exercise date. (2) Based on the closing price of the NASDAQ National Market System - Composite Transactions of the Common Stock on February 26, 1999 ($13.9375). Mr. Sam L. Henry resigned as the Company's Chief Financial Officer, Senior Vice-President, Finance and Secretary in March 1999. Dona Fisher, age 46, has been the Senior Vice-President, Finance and Chief Financial Officer of the Company since March 1999. Ms. Fisher was a Senior Executive Vice-President at Sun Apparel, Inc., an apparel manufacturer, from September 1996 to March 1999. Ms. Fisher was with the Franklin Mint from 1982 to June 1996, serving as a Senior Vice-President from 1991 to 1996. EMPLOYMENT CONTRACTS The Company indemnifies each of its Directors and executive officers, as well as certain officers of the subsidiaries, against certain fees, expenses and losses incurred in legal proceedings to which the officer or Director is made a party by reason of serving as an executive officer or Director of the Company, so long as the party to be indemnified acted in good faith or in a manner reasonably believed to be in or not opposed to the best interests of the Company Mr. Rubin's employment contract was amended and restated effective March 1999. Mr. Rubin's employment contract has a term of five years, renews itself daily and provides for a base salary of $600,000, a bonus equal to 5% of adjusted earnings from continuing operations less Mr. Rubin's base salary in accordance with the Company's cash bonus performance plan, which was approved by the Company's shareholders, and reimbursement of certain expenses and taxes. Mr. Rubin also received options to purchase common stock of the Company that are immediately vested in the amount of 250,000 shares on May 28, 1999, and will continue to receive options in such amount on the last business day of each 8 9 August, November, February and May during the term of the agreement. Should Mr. Rubin's employment with the Company be terminated by an occurrence other than by death, disability, or good cause, Mr. Rubin will receive payments, each in an amount equal to his monthly rate of basic compensation, which shall commence on the date of termination and shall continue until the date the employment contract would have expired but for said occurrence. Mr. Rubin would also receive payments, payable annually after the close of each fiscal year of the Company, each in an amount equal to the amount of incentive compensation and bonuses that would otherwise have been payable to him if he had continued in the employ of the Company for the same period. Upon the occurrence of a change in control of the Company, Mr. Rubin may elect to terminate his employment with the Company, and upon such termination will receive a lump sum payment of that amount due to him as basic compensation if his employment contract had continued until the date the employment contract would have expired but for said occurrence. In the event of a change in control, Mr. Rubin will also receive a lump sum payment in an amount equal to the amount of incentive compensation and bonuses that would otherwise have been payable to him under the employment agreement. For the purposes of calculating such lump sum payment, Mr. Rubin's incentive compensation and bonuses payable with respect to each fiscal year shall be the highest annual incentive compensation and bonus award made to him with respect to the Company's most recent three fiscal years ending prior to the date of the termination, with present value calculated using the applicable federal rate for the date of the termination of employment. Mr. Rubin's contract also provides for a gross-up for the excise tax on any amounts that are treated as excess parachute payments under the Internal Revenue Code. If Mr. Rubin's employment is terminated by an occurrence other than by death, disability, or good cause, including upon a change in control, Mr. Rubin will also receive: (1) all amounts earned, accrued or owing but not yet paid to him, (2) immediate vesting of all options granted to him, (3) removal of all restrictions on restricted stock awarded to him and immediate vesting of the rights to such stock, (4) medical benefits for him and his wife for life and to his children until their attainment of age 23, and (5) paid premiums on his life insurance policy. Mr. Rubin will continue to participate in all employee benefits plans, programs or arrangements available to Company executives in which he was participating on the date of termination until the date the employment contract would have expired but for said occurrence or, if earlier, until he receives equivalent benefits and coverage by another employer. The Company has an employment contract with H. McIntyre Gardner. Mr. Gardner's contract became effective September 1, 1997, and provides for a base salary of $400,000 and a bonus that is dependent upon the Company earning specific amounts of pre-tax income. No incentive compensation will be paid to Mr. Gardner for any fiscal year unless such pre-tax income for a fiscal year exceeds $30 million. Upon the occurrence of Mr. Gardner's termination for reasons other than death, disability or good cause, and upon his election to terminate his employment after a change in control of the Company, the Company shall make monthly payments to Mr. Gardner, each in an amount equal to the monthly rate of his basic compensation under the employment contract, commencing on the first day of the month following the occurrence of the termination and ending on the date the employment contract would have naturally expired. In addition, upon termination, in the event the Stock Option and Compensation Committee fails to grant an incentive award under the bonus plan of the Company, Mr. Gardner will receive an amount equal to the product of (1) the incentive compensation he would have received for the entire fiscal year, multiplied by (2) a fraction, the numerator of which is the number of days during such fiscal year in which he was an employee of the Company or its affiliates, and the denominator of which is the number of days in such fiscal year. In the event of the death of Messrs. Rubin or Gardner, all unpaid benefits under these agreements are payable to their estates. Gerald J. Rubin's and H. McIntyre Gardner's contracts grant each of them the right to elect a cash payment of the remainder of their contracts in the event of a merger, consolidation or transfer of all or substantially all of the Company's assets to any unaffiliated company or other person. The Company has purchased, pursuant to the terms of his employment contract, life insurance in the amount of $5.0 million on the life of Gerald J. Rubin, payable in the event of death to his respective designees. The Company has purchased three "second to die" life insurance contracts in the cumulative amount of $29.0 million on the lives of Gerald J. Rubin and Stanlee N. Rubin, payable to their respective designee(s). The Company has also purchased life insurance in the amount 9 10 of $1.0 million on the life of H. McIntyre Gardner, payable in the event of death, to his respective designee(s). All of the above policies referred to in this paragraph are Split Dollar policies, which provide for the return of premiums advanced by the Company, to be reimbursed to the Company upon death of the insured(s). DIRECTOR COMPENSATION During fiscal 1999, each member of the Board of Directors of the Company who is not an employee or officer of the Company received a fee of $3,000 for each meeting of the Board of Directors attended, together with travel and lodging expenses incurred in connection therewith. Additional payments of $1,500 were made quarterly to each such director. For fiscal 2000, each member of the Board of Directors who is not an employee or officer of the Company will receive a $4,000 quarterly retainer, $3,000 for each meeting of the Board of Directors attended, together with travel and lodging expenses incurred therewith, and $3,000 for each Audit Committee meeting attended after March 1, 1999. Members of the Board of Directors were not compensated for their participation in telephonic meetings of the Board of Directors during fiscal 1999, nor will they be compensated for such meetings in fiscal 2000. As approved by the Company's shareholders in fiscal 1996, each non-employee director receives stock options to acquire 4,000 shares of the Common Stock on September 1 of each year. Subject to approval by the Company's shareholders, beginning September 1, 1999, each non-employee director will receive 4,000 stock options quarterly. The following table illustrates the total annual benefits that will be received by the group of Non-Employee Directors if the amendment to the 1995 Non-Employee Director Stock Option Plan is approved by the shareholders.
NEW PLAN BENEFITS 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN -------------------------------------------- NAME AND POSITION DOLLAR VALUE ($) NUMBER OF OPTIONS - ----------------- ---------------- ----------------- Non-Employee Director Group $106,875 (1) 80,000 (2) (5 persons)
(1) Represents the dollar value that the Non-Employee Directors would have received during fiscal 1999 if they had received 4,000 options each quarter during that year. The total dollar value is computed based upon the closing price of the Company's Common Stock at June 15, 1999 ($17.625). Options that would have been granted with exercise prices above $17.625 are valued at zero in this calculation. (2) Each Non-Employee Director would receive 16,000 options per year, compared to the 4,000 per year that they receive currently. Stock options granted to non-employee directors have an exercise price equal to the median of the high and low market prices of the Common Stock on the day the stock options are granted. Such stock options vest after one year. STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None. STOCK OPTION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Stock Option and Compensation Committee has submitted the following report: The Stock Option and Compensation Committee is responsible for developing the Company's executive compensation strategy and for administering the policies and programs that implement this strategy. The Committee is comprised entirely of independent, Non-Employee Directors. The executive compensation strategy reflects the Company's fundamental philosophy of aligning the interests of management with the long-term performance of the Company and offering competitive compensation opportunities based on each individual's contribution to the achievement of shareholder value. This strategy is designed to attract and retain employees with outstanding qualifications and experience. 10 11 The three elements of the Company's executive compensation strategy, all determined by corporate and individual performance, are: Base salary Annual incentive compensation Long-term incentive compensation Total compensation opportunities are competitive with those offered by a range of comparable companies and are intended to align management interests with shareholder interests. The Stock Option and Compensation Committee has reviewed the Company's primary competitors in determining competitive compensation. Some of these competitors are privately held and are therefore not included in the stock performance graph. Base salaries for Gerald J. Rubin (Chief Executive Officer) and H. McIntyre Gardner for fiscal 1999 were based on their long-term employment contracts. See "Executive Compensation - Employment Contracts." Base salary for the Vice President of Finance and Chief Financial Officer is determined by the Chief Executive Officer and the President of the Company based upon the skills and experience required by the position, the effect of the individual's performance on the Company and the potential of the individual and is ratified by the Board of Directors. Annual incentive compensation consists of cash bonuses. The amount of the cash bonus for Gerald J. Rubin is based upon the 1997 Cash Bonus Performance Plan, which was approved by the Company's shareholders. The amount of the cash bonus for H. McIntyre Gardner is based on his employment contract with the Company. During fiscal 1999, the Company awarded bonuses of $1,250,000 and $400,000 to Messrs. Gerald J. Rubin and H. McIntyre Gardner, respectively. The bonus for the Vice President of Finance and Chief Financial Officer is determined based upon performance objectives set by the Company's Chief Executive Officer and the Company's President. Long-term incentive compensation consists of the Company's stock option plans. Stock options are granted based on the performance and position of the executive officer, as well as the Company's performance. Executive officers are provided with opportunities for ownership positions in the Common Stock through the Company's stock option plans. This opportunity for ownership, combined with a significant performance-based incentive compensation opportunity, forges a strong link between the Company's management and its shareholders. During fiscal 1999 the Company's Board of Directors granted to Gerald J. Rubin stock options to purchase 1,000,000 shares of the Common Stock. All of the factors discussed in this report were taken into consideration by the Stock Option and Compensation Committee in determining the total compensation for Mr. Rubin for fiscal 1999. Gary B. Abromovitz (Chairman) The foregoing report of the Stock Option and Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference the Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. 11 12 HELEN OF TROY FIVE-YEAR PERFORMANCE GRAPH The graph below compares the cumulative total return of the Common Stock to the NASDAQ Market Index and a peer group index. ASSUMES $100 INVESTED March 1, 1994 [HELEN OF TROY FIVE-YEAR PERFORMANCE GRAPH] ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING FEBRUARY 28, 1999. - -------------------------------------------------------------------------------- The Peer Group Index was the Dow Jones Industry Group - Cosmetics. - -------------------------------------------------------------------------------- 12 13 The graph is comprised of the following data:
Fiscal Year Helen of Troy Limited NASDAQ Market Index Peer Group Index - ----------- --------------------- ------------------- ---------------- 1994 100.00 100.00 100.00 1995 121.31 95.47 118.99 1996 150.82 131.83 160.80 1997 324.59 158.24 219.24 1998 401.64 215.21 283.06 1999 365.57 278.09 282.84
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During fiscal 1999 the Company entered into an agreement (the "Lease") under which it leases a 108,000 square foot warehouse facility in El Paso, Texas from a real estate partnership (the "Landlord") in which the Company's Chief Executive Officer is a partner. The Company entered into the Lease in order to expand its inventory storage capacity in El Paso, Texas. Under the terms of the Lease, the Company pays $29,250 in monthly rent. The Company also pays certain expenses associated with the operation of the facility. The Company began leasing the warehouse facility in July 1998 and made a total of $271,335 in payments for associated rent and operating expenses during fiscal 1999. The Company believes that the amount of rent under the Lease is comparable to that being paid by other companies for similar facilities in El Paso. The Company obtained comparable rental information on similar properties from an unaffiliated real estate company. This information was used to establish the rental rate for this facility. The Lease is a month-to-month agreement. Either the Company or the Landlord may cancel the Lease by providing the other party with notice 30 days in advance of exiting the Lease. The Company also leases other storage space in El Paso, Texas from the Landlord. The Company paid a total of $12,123 for the use of this other storage space in fiscal 1999. The Company is the sublessee of office space in three locations within the United States under three separate agreements (collectively, the "Subleases") with the real estate partnership (the "Sublessor") from whom the Company leases the warehouse space and other storage space discussed above. Under the Subleases, the Company pays rent and certain operating expenses in amounts equal to the rent and operating expenses paid by the Sublessor under its leases of these facilities. During fiscal 1999, the Company paid $85,774 under the Subleases. Chris Carameros, a member of the Company's Board of Directors, serves as an officer of a financial services and asset management company to which the Company paid $40,000 in consulting fees during fiscal 1999. In exchange for the amounts paid, the Company received consulting services in regard to various business issues. Byron H. Rubin, a member of the Company's Board of Directors, earned ordinary insurance agent's commissions in connection with the Company's group health, life and disability insurance as well as in connection with certain life insurance policies on its officers. During fiscal 1999 his commissions received from policies sold to the Company approximated $35,000. 13 14 AMENDMENTS TO THE HELEN OF TROY LIMITED 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN (PROPOSAL 2) The Board of Directors has determined that it is in the best interest of the Company and its shareholders to amend the 1995 Non-Employee Director Stock Option Plan (the "Directors Plan"). The Board of Directors has approved certain amendments to the Directors Plan, to be effective as of the date of approval thereof by the Company's shareholders. The following summary of the Directors Plan does not purport to be complete and is subject in all respects to, and qualified by, the provisions of the Directors Plan. The Directors Plan currently provides for an automatic annual grant of options for 4,000 shares of Common Stock to each director, who is not at the time of the grant an officer or employee of the Company or any of its affiliates (each an "Eligible Director"). Section 3(a) of the Directors Plan has been amended, subject to shareholder approval, to increase the automatic grant of options for shares of Common Stock to each Eligible Director from 4,000 annually to 4,000 quarterly, effective as of the date of shareholder approval. The full text of this proposed amendment to Section 3(a) of the Directors Plan is set forth as follows: (a) The Company shall automatically grant to each Director, on the first day of September, December, March and June following the Director's appointment, election, reappointment, or reelection as a member of the Board, Stock Options for 4,000 shares of Common Stock; provided, however, the aggregate number of shares of Common Stock issued under Stock Options granted under the Plan shall not exceed 480,000. The Directors Plan currently provides for transferability of options for Common Stock granted under the Directors Plan only by will or the laws of descent or distribution. Section 7(d) of the Directors Plan has been amended, subject to shareholder approval, to allow the bona fide gift of options for Common Stock granted to a Director under the Directors Plan to family members of the Director, to trusts established for the benefit of family members of the Director or to entities controlled by the Director or family members of the Director, effective as of the date of shareholder approval. The full text of this proposed amendment to Section 7(d) of the Directors Plan is set forth as follows: (d) No Stock Option or any other right under the Plan, contingent or otherwise, shall be transferable, assignable or subject to any encumbrance, pledge or charge of any nature, other than (i) by will or the laws of descent or distribution, or (ii) by bona fide gift to a family member(s) of the Director, a trust established for the benefit of a family member(s) of the Director, or an entity controlled by the Director or a family member(s) of the Director. Upon the death of the Director, if the beneficiary of any Stock Option is the executor or administrator or the estate of the Director, any rights with respect to the Stock Option may be transferred to the person or persons or entity (including a trust) entitled thereto under the will of the holder of the Stock Option. If no beneficiary is designated, the Director's legal representative shall be the beneficiary, and any rights with respect to the Stock Option may be transferred to the Director's legal representative. If the beneficiary is a person or entity other than the executor or administrator of the estate of the Director, any rights with respect to the Stock Option may be transferred to the designated beneficiary. If the amendments to the Directors Plan are not approved by the shareholders of the Company, options will continue to be granted in accordance with the terms of the current Directors Plan. GENERAL PLAN INFORMATION The Directors Plan was adopted by the Board of Directors on June 6, 1995, subject to shareholder approval, which was subsequently obtained on August 23, 1995 at the Annual Meeting of Shareholders. The purpose of the Directors Plan is to attract and to retain the services of experienced and knowledgeable independent individuals as members of the Board of Directors, to extend to them the opportunity to acquire a proprietary interest in the Company so that they will apply their best efforts for the benefit of the Company, and to provide those individuals with an additional incentive to continue in their positions, for the best interest of the Company and its shareholders. A total of 480,000 shares of Common Stock are reserved and available for issuance under the Directors Plan, subject to adjustments to reflect certain changes in capitalization. 14 15 Options will be awarded under the Directors Plan only to members of the Board of Directors who are not at the time of the grant an officer or employee of the Company or any of its affiliates. ADMINISTRATION OF THE DIRECTORS PLAN The Directors Plan is administered by the members of the Board of Directors who are employees of the Company or one of its affiliates (the "Ineligible Directors"). The Ineligible Directors have the authority and discretion to interpret the Directors Plan and to make all other determinations necessary for the administration of the Directors Plan and to prescribe, amend and rescind any rules and regulations relating to the Directors Plan. However, the Ineligible Directors have no discretion or authority to disregard or change any of the terms and conditions under which options are granted to the Eligible Directors or may be exercised under the Directors Plan. PRIOR GRANTS OF PLAN AWARDS During fiscal 1999, options to purchase 4,000 shares of Common Stock were granted to each Eligible Director pursuant to the Directors Plan. The following table summarizes the options outstanding under the Directors Plan as of June 15, 1999.
NUMBER OF POSITION OPTIONS Non-employee directors as a group (five 164,000 persons)
As of June 15, 1999, 16,000 shares of Common Stock, adjusted for stock dividends, had been acquired by Eligible Directors using options that were issued under the Directors Plan. A total of 300,000 options were available for issuance under the Directors Plan at June 15, 1999. OPTIONS UNDER THE DIRECTORS PLAN An option granted under the Directors Plan becomes fully vested for one hundred percent (100%) of the number of shares of Common Stock subject to the option one year after the date such option was granted. The exercise price under each option shall be equal to the mean between the high and low prices of the Common Stock reported on the NASDAQ National Market System or other primary market or exchange on the last trading day preceding the date on which such option is granted to an Eligible Director. The option shall be deemed exercised on the day when written notice of such exercise has been received by the Company from the person entitled to exercise the option, accompanied by full payment of the purchase price in cash or check. No option is exercisable after the tenth anniversary of its grant. In the event that an optionee ceases to be a director of the Company or one or more of its affiliates, for any reason other than death or disability, and such optionee does not remain or thereupon become an employee of the Company or one or more of its affiliates, all options to the extent then exercisable may be exercised for a period of six months after the date of cessation of directorship or employment. In the event that the optionee dies while serving on the Board of Directors of the Company or the Board of Directors of an affiliate of the Company or while an employee thereof, all options granted to such optionee may be exercised by the optionee's legal representatives, legatees or distributees to the extent such options are exercisable at any time prior to the first anniversary of his or her death, and his or her unexercised options shall expire at the end of such period. If an option holder becomes disabled while a director or an employee of the Company or one or more of its affiliates and thereafter ceases to be such a director by reason of a disability, all options to the extent then exercisable may be exercised for a period of 90 days after the date of cessation of directorship or employment. In no event, however, shall the period during which such options may be exercised extend beyond the term of the options. Currently under the Directors Plan, an option may not be transferred, assigned, encumbranced, pledged or charged, other than by will or the laws of descent or distribution. Subject to shareholder approval of Proposal 2, options for Common Stock granted to a Director under the Directors Plan may be transferred to relatives of the Director, to trusts established for 15 16 the benefit of relatives of the Director or to entities controlled by the Director or relatives of the Director, effective as of the date of shareholder approval. If Proposal 2 is not approved by the Shareholders, options may continue to be transferred under the current terms of the Plan. CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL Adjustments to prevent dilution will be made in the event of a stock dividend, or split, combination, exchange of shares or other recapitalization, merger, or otherwise, in which the Company is the surviving corporation. No fractional shares of Common Stock shall be issued under the Directors Plan on account of any such adjustments. Such adjustments shall be made by the Ineligible Directors. TERM AND TERMINATION OF THE DIRECTORS PLAN; AMENDMENT The Directors Plan will continue in effect until June 6, 2005, unless sooner terminated. The Board of Directors may make such changes in and additions to the Directors Plan as it may deem proper; provided, however, except for adjustments to reflect certain changes in capitalization permitted under the Directors Plan, shareholder approval is required for any amendment that (i) materially increases the benefits accruing to the Eligible Directors under the Directors Plan; (ii) changes the class of persons eligible to receive options under the Directors Plan; or (iii) increases the duration of the Directors Plan. The Board of Directors may not, without the Eligible Director's written consent, modify the terms and conditions of an option previously granted under the Directors Plan. In addition, no amendment, suspension or termination of the Directors Plan shall, without the Eligible Director's written consent, alter, terminate or impair any right or obligation under any option previously granted under the Directors Plan. An amendment revising the price, date of exercisability, option term or amount of shares of Common Stock covered by an option granted under the Directors Plan may not be made more frequently than every six months, unless such an amendment is required to comply with the Code, or the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder. In the event that regulations and rules of the Securities and Exchange Commission cease to require shareholder approval as a condition of exemption under Rule 16b-3 of the Exchange Act or any successor rule or regulation, and shareholder approval is not required as a condition of registration or listing with an applicable national market system or stock exchange, the Directors Plan shall cease to be subject to shareholder approval, and any amendment, suspension or termination of the Directors Plan shall be deemed to be effective upon adoption by the Board of Directors. MISCELLANEOUS The Directors Plan is not qualified under the provisions of Section 401(a) of the Code and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974, as amended. FEDERAL INCOME TAX CONSEQUENCES The following general summary is based upon the Internal Revenue Code and does not include a discussion of any state or local tax consequences. A participant will not recognize any taxable income upon the grant of an option. However, upon exercise of an option, a participant must recognize ordinary income in an amount equal to the excess of the fair market value of the shares of Common Stock at the time of exercise over the exercise price. Upon the subsequent disposition of the shares, the participant will realize a capital gain or loss, depending on whether the selling price exceeds the fair market value of the shares on the date of exercise. The participant's holding period in the shares, for capital gains and losses purposes, begins on the date of exercise. A participant's tax basis in the shares received on exercise of an option will be equal to the amount of consideration paid by the participant on exercise, plus the amount of ordinary income recognized as a result of the receipt of such shares. If a participant exercises an option by delivering shares of Common Stock, the participant will not recognize gain or loss with respect to the shares delivered by the participant, even if the then fair market value of such shares is different from the participant's tax basis therein. The participant, however, will be taxed as described above with respect to the exercise of the option as if he had paid the exercise price in cash. The participant's tax basis in the shares received on such exercise will be equal to his basis in the number of shares surrendered on such exercise plus the fair market value of the number of shares received in excess of the number of shares surrendered and the holding period for 16 17 such number of shares received will include the holding period of the shares surrendered. The Company will not be entitled to a deduction for federal income tax purposes for the compensation paid to the participants under the Directors Plan. THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO ALL INDIVIDUALS. PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR A DETERMINATION AS TO THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM. SHAREHOLDER APPROVAL The affirmative vote of the majority of the votes cast at the Annual Meeting is required to approve these amendments to the Directors Plan. If these amendments thereto are not approved by the Company's shareholders, the Directors Plan, as previously approved, will continue in effect. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THESE AMENDMENTS TO THE DIRECTORS PLAN. SHAREHOLDER PROPOSALS Shareholders intending to present proposals at the 2000 Annual Meeting of Shareholders and desiring to have those proposals included in the Company's proxy statement and form of proxy relating to that meeting must submit such proposals, in compliance with Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to be received at the executive offices of the Company no later than March 6, 2000. For proposals that shareholders intend to present at the 2000 Annual Meeting of Shareholders outside the processes of Rule 14a-8 of the Exchange Act, unless the shareholder notifies the Company of such intent by June 9, 2000, any proxy solicited by the Company for such Annual Meeting will confer on the holder of the proxy discretionary authority to vote on the proposal so long as such proposal is properly presented at the Annual Meeting. RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS No action is to be taken with respect to the selection or approval of the Company's independent public accountants. KPMG LLP has served as independent public accountants for the Company since 1978. A representative of KPMG LLP is expected to be present at the Annual Meeting of Shareholders with the opportunity to make a statement if he desires to do so. The KPMG LLP representative is also expected to be available to respond to appropriate questions. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Executive officers, Directors and greater than ten percent shareholders are required by SEC Regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during fiscal 1999, all Section 16(a) filing requirements applicable to the officers, Directors and greater than ten percent beneficial owners were complied with. 17 18 QUORUM; VOTING The presence in person of two or more persons, representing throughout the Meeting, in person or by proxy, at least a majority of the issued shares of Common Stock entitled to vote is necessary to constitute a quorum at the Meeting. Abstentions and broker non-votes are counted for purposes of determining whether a quorum is present. If a quorum is present, the seven nominees for Directors receiving a majority of the votes cast at the Meeting in person or by proxy shall be elected. The affirmative vote of the majority of the votes cast at the Meeting in person or by proxy shall be the act of the shareholders with respect to Proposal 2. If within half an hour from the time appointed for the Meeting a quorum is not present or represented by proxy, the Meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place the Board of Directors may determine, provided that at least two persons are present at such adjourned meeting, representing throughout the meeting, in person or by proxy, at least a majority of the issued shares of Common Stock entitled to vote. At any such adjourned meeting at which a quorum is presented or represented, any business may be transacted that might have been transacted at the Meeting as originally called. Broker non-votes are shares held by a broker or nominee that are represented at the Meeting, but with respect to which such broker or nominee is not empowered to vote on a particular proposal. Such broker non-votes will be counted towards a quorum. Abstentions and broker non-votes are not counted in determining the total number of votes cast and will have no effect with respect to Proposals 1 and 2. OTHER MATTERS The Board of Directors knows of no matters to be presented at the Meeting other than the election of Directors and consideration of the amendments to the 1995 Non-Employee Director Stock Option Plan to increase the number of options granted annually under that plan and to change the terms under which options granted under that plan may be transferred. If other matters properly come before the Meeting or any adjournment thereof, the holders of the proxies are authorized to vote on these matters in accordance with management's discretion. YOUR VOTE IS IMPORTANT You are encouraged to let us know your preference by completing and returning the enclosed proxy card. Gerald J. Rubin Chairman of the Board 18 -----END PRIVACY-ENHANCED MESSAGE-----