-----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, Oguaaw9umOQxEk7OlzhbNsPfc5rT/p3g2JaXs1Ge6CoJk70GmhwzTbzGUEsqWMnN lFExWRfPyGN4oShMoLDQcA== /in/edgar/work/0000890566-00-001696/0000890566-00-001696.txt : 20001130 0000890566-00-001696.hdr.sgml : 20001130 ACCESSION NUMBER: 0000890566-00-001696 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000826 FILED AS OF DATE: 20001129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRISTAR CORP CENTRAL INDEX KEY: 0000737203 STANDARD INDUSTRIAL CLASSIFICATION: [2844 ] IRS NUMBER: 133129318 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-13099 FILM NUMBER: 779939 BUSINESS ADDRESS: STREET 1: 105 S ST MARYS STREET 2: SUITE 1800 CITY: SAN ANTONIO STATE: TX ZIP: 78205 BUSINESS PHONE: 2104022200 MAIL ADDRESS: STREET 1: 12500 SAN PEDRO AVE, STE 500 STREET 2: 12500 SAN PEDRO AVE, STE 500 CITY: SAN ANTONIO STATE: TX ZIP: 78216 FORMER COMPANY: FORMER CONFORMED NAME: ROSS COSMETICS DISTRIBUTION CENTERS INC DATE OF NAME CHANGE: 19930422 10-K 1 0001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 26, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 0-13099 TRISTAR CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 13-3129318 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 105 ST. MARY'S STREET, SUITE 1800, SAN ANTONIO, TEXAS 78205 (Address of principal executive offices) Registrant's telephone number, including area code 210-402-2200 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based on the closing sale price of the Common Stock on November 27, 2000, as reported on the NASDAQ National Market System, was $23,285,505. As of November 27, 2000, the Registrant had outstanding 16,786,756 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement relating to the 2001 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report. PART I This document contains certain statements that are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this document, including without limitation statements that use terminology such as "anticipate", "believe", "continue", "estimate", "expect", "intend", "may", "plan", "predict", "should", "will", and similar expression, are forward-looking statements. These forward-looking statements include, among other things, the Company's business strategy and expectations concerning the Company's market position, future operations, margins, profitability, liquidity and capital resources, expenditures for capital projects and attempts to reduce costs. Although the Company believes that the basis for the assumptions upon which the forward-looking statements contained in this document are reasonable, any of the assumptions could prove to be inaccurate and, as a result, the forward-looking statements based on those assumptions also could be incorrect. All phases of the operations of the Company involve risks and uncertainties, many of which are outside the control of the Company and any one of which, or a combination of which, could materially affect the results of the Company's operations and whether the forward-looking statements ultimately prove to be correct. Important factors that could cause actual results to differ materially from the Company's expectations are set forth under the caption "Factors Affecting the Company's Business, Operating Results and Financial Condition", and elsewhere in this document. Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, the timing and extent of changes in fragrance components, fragrance and cosmetic prices and underlying demand and availability of fragrance components; changes in the cost or availability of means of transporting products; execution of planned capital projects; adverse changes in the credit ratings assigned to the Company's trade credit; the extent of the Company's success in developing and marketing new product lines; state and federal environmental, economic, safety and other policies and regulations, and changes therein, and any legal or regulatory delays or other factors beyond the Company's control; adverse rulings, judgments, or settlements in litigation or other legal matters; actions of customers and competitors; economic conditions affecting the areas in which the Company's products are marketed; political developments in foreign countries; the conditions of the capital markets and equity markets during the periods covered by the forward-looking statements; and other factors described in greater detail in this Form 10-K, the Company's current report on Form 8-K filed June 7, 2000, and in the Company's other filings with the Commission. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing. The Company undertakes no obligation to publicly release the results of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. ITEM 1. BUSINESS TRISTAR CORPORATION ("Tristar" or the "Company") is a Delaware corporation headquartered in San Antonio, Texas. The Company is principally engaged in developing, manufacturing, marketing and distributing value oriented designer alternative fragrances, complementary products to those fragrances, and cosmetic pencils in North and South America. The Company also manufactures and markets its own original fragrances in the form of contemporary botanical scents and lifestyle fragrances. The Company's fragrances are sold under the Fragrance Impressions Ltd. ("FIL"), Euro Collections ("Euro"), Euro Garden Collections ("Euro Garden"), Royal Selections ("Royal"), Regal Collections ("Regal"), Club Exclusif ("Club"), Premiere Editions ("Premiere") and American Dreams brands. The alternative designer fragrances are designed for consumers who desire a scent similar to an original designer fragrance but are unwilling or unable to pay the high prices of originals. The Company also markets eye and lip liner cosmetic pencils, mascara and other value oriented complementary cosmetic products, including high quality lipsticks that are alternatives to major prestige brands sold in department stores, priced at levels significantly lower than original designer brands. Cosmetics are primarily marketed under the Designer Classic Alternatives ("DCA"), Apple Pencil and Royal Selections lines. The Company currently conducts business utilizing its sales and distribution facilities in San Antonio, Texas, its state of the art manufacturing facility, a fragrance and cosmetic laboratory in Pleasanton, Texas, its FIL sales office in Bridgeport, Connecticut, its marketing headquarters in New York City, New York, and its corporate office and design studio in San Antonio, Texas. The Company was incorporated in New York in 1982 and made an initial public offering of its common stock in 1984. In 1987, the Company was reincorporated in Delaware. The Company changed its name from Ross Cosmetics Distribution Centers, Inc. to Tristar Corporation in 1993. 2 The Company's major shareholder, the Core Sheth Family ("Sheth Group"), owns 73% of the Company's outstanding common stock. The Sheth Group is a significant manufacturer of lower priced, value oriented fragrances and cosmetic products. The Sheth Group is also a supplier of products and components to the Company's sales, distribution and manufacturing operations and a purchaser of the Company's products. The Company purchases finished goods and components from Sheth Group affiliates. During fiscal 2000, 1999 and 1998 the Company purchased approximately $2,777,000, $2,979,000 and $4,227,000 respectively, of such products. The Company sold products to Sheth Group affiliates in fiscal 2000, 1999 and 1998 of approximately $2,960,000, $5,418,000 and $6,557,000 respectively. As a percent of net sales, these amounts represent approximately 5% for 2000 and 10% for 1999 and 1998. The Company's retail fragrance business in the United States was enhanced by the acquisition of FIL in November 1999. This further allowed Tristar to extend its market leadership position in alternative designer fragrance products, into the chain drug and supermarket channels. PRODUCTS The Company's principal product category is fragrances with the balance consisting of cosmetics, cosmetic pencils, bath and toiletry products. The following table reflects the dominance of the fragrance category's contribution to the Company's net sales for the last three fiscal years: ================================================================== PRODUCT CATEGORY FISCAL 2000 FISCAL 1999 FISCAL 1998 - ------------------------------------------------------------------ FRAGRANCES 83% 89% 88% - ------------------------------------------------------------------ OTHER PRODUCTS 17% 11% 12% ================================================================== In fiscal 2000, fragrance sales as a percentage of total sales declined in dollars when compared to fiscal 1999. A significant part of the Company's marketing strategy is to continue transitioning to a broader based distribution as well as to diversify its product mix into new growth categories within the cosmetic and toiletry segments of the market. In recent years there has been numerous new products introduced into the consumer marketplace which provide a fragrance experience different than that offered by traditional colognes and fragrances. This is manifested in the growth of the bath and body and skin care categories. The Company has been aggressively seeking out areas of opportunity in these segments during fiscal 2000 with its Euro Garden botanical collection. In additional, the Company introduced new cosmetic products under the Apple, Royal Selections and Regal brands which helped to further diversify its product portfolio. The Company also became a private label supplier for a nationally marketed cosmetic brand. Additionally, the Company is building brand equity by allocating resources towards strengthening marketing support programs and value-added services. These efforts are aimed at creating consumer awareness and trial of its fragrance and cosmetic products at retail point-of-sale. Such activities include cooperative advertising, premium offers and merchandise displays. FRAGRANCES The Company's marketing strategy for designer alternative fragrances and original fragrance scents addresses seven distinct segments of the fragrance market with seven separate product lines uniquely positioned to enable the Company to pursue customized marketing programs tailored to meet the specific needs of the different classes of trade: o The Euro line is marketed in traditional mass, retail, and specialty retail chain stores in the United States, Canada and Latin America. Euro, first introduced in 1989, is the second largest fragrance brand of the Company and until fiscal 1996 had been the Company's principal product line for the wholesale class of trade. In August 1998 a trendy line extension, Euro Garden, was introduced with new original fragrances emulating "mother nature." Fragrances such as Peach, Pear, and Very Berry are believed to attract a younger teen audience market segment for the Company. Generally these younger consumers find nature-type fragrances more appealing than traditional designer alternative fragrances. In 1999, the Euro Garden brand was further extended into botanical scented hand and body lotions, and 3 shower gels in order to capitalize on the growing bath category. The Company's Royal Selections brand, as discussed below, is now targeted to the wholesale market replacing Euro. o In 1996, the Company launched a new line called Royal, designed to recapture a significant part of the wholesale trade class. Within one year, Royal became the largest brand in the Company and is today the overall market leader. This line set new standards in packaging and product innovation for the industry. Royal is competitively priced and couples that with quality packaging and merchandising support. In August 1999, the Company introduced Royal Selections Crown II Series into the U.S. wholesale marketplace. It represents the latest in design innovation and carries a higher price point than Royal Selections which is sold in international markets where there is more price sensitivity. o In fiscal 1997, the Company developed and launched a new fragrance brand called Regal, focusing on new opportunities in retail channels of distribution. Regal has a limited number of designer alternative fragrance "best sellers". The Regal brand is aimed at mass volume retailers including food accounts. o The Premiere line is a budget price brand that is oriented toward dollar stores and other budget-price retailers. o In 1998, the Company introduced a new line of contemporary alternative designer fragrances called Club Exclusif, positioned as a value oriented quality brand for the Latin American market. o In August 1999, a new original fragrance brand called American Dreams was introduced for distribution into international markets. o In November 1999, the Company acquired Fragrance Impressions Limited. The FIL brand is the market leader in alternative designer fragrances in the chain drug channel of distribution and further bolstered the Company's overall market leadership position. The Company believes that to successfully market a fragrance product line, one must identify a market niche and then fill that niche with a value-priced, quality product presented in attractive bottles, cartons and displays. All of the Company's major fragrance lines feature quality glass bottles, caps and collars designed in various unique shapes and styles. In addition, the Company's fragrances are packaged in colorful cartons technologically designed to appear attractive to the consumer. All fragrances are developed by the Company's expert perfumers either as alternatives to the most popular, nationally branded, designer fragrances or for customized original scents. Alternative designer fragrances are sold, however, at a fraction of the original designer fragrance's retail price to satisfy the needs of the consumers in specific niche markets. The Company's own original fragrances (non-designer alternative fragrances) are marketed and distributed in the U.S. and Latin America and other international markets. The majority of these are botanical fragrances, a growth niche targeted to a younger demographic consumer. Prior to the introduction of new or improved fragrances, market evaluation and consumer testing is conducted by the Company with selective testing also done by independent outside laboratories. The Company believes that the success of these products is dependent on the Company correctly identifying the needs of a particular market niche and then, ultimately, on the consumers' acceptance of the product. Life cycles of products vary significantly, with some being successfully marketed for more than five years, whereas other products may fail to gain consumer acceptance and be discontinued within a shorter period of time. The Company believes that the success of the Company's products in the marketplace is largely dependent on the amount and quality of retail advertising and promotion original designers provide for their brands, the appeal of the scent itself and the merchandising and trial programs that the Company develops to accelerate consumer awareness. Many of the Company's fragrance product lines have currently, or will have in the future, companion products, which are discussed below in "Other Products". OTHER PRODUCTS The Company markets numerous complementary products within various fragrance lines such as deodorant sticks, hand and body lotions, shower gels, body sprays, dusting powders, shaker talcs, trial/travel sizes, roll-on perfumes, body glitter and gift sets. In many cases, these companion products are marketed as designer alternatives and are value priced below the prices of the national brands. The Company markets under the brand name DCA a proprietary line of lipstick cosmetics, manufactured by related parties. Cosmetics sold under the DCA brand are premium quality lipstick products designed as alternatives to original 4 designer lipsticks. The DCA products are sold primarily in mass retail chain stores at prices significantly less than the original designer's price in department stores. The Apple line of lip and eyeliner cosmetic pencils that the Company manufactures is marketed and distributed in assorted colors and sizes principally to the wholesale class of trade. New Regal blister packaged lip and eyeliner pencils are value priced and are targeted to budget conscious consumers who shop in retail outlets. These were introduced in June 1999. To enhance the Company's strong franchise in the wholesale sector, Royal Selections lip and eye pencils, and mascara were introduced. The Company believes it has increased opportunities to expand its color cosmetics business in both the retail and wholesale trade channels, and is actively developing new products to increase its permanent planogram and promotional business. With the exception of cosmetic eye and lip liner pencils, new, redesigned, or replacement cosmetics or specialty toiletries are developed by the Company's suppliers at the request of the Company. The Company believes that similar to fragrances, selecting the right cosmetic or toiletry products for a particular market segment and their acceptance by the consumer play a large role in the success or failure of any particular product. CUSTOMERS The Company distributes its products to more than 1,200 customers, including wholesalers, distributors, drug and grocery chains, mass merchandisers and specialty chain stores located primarily in North and South America. These customers provide approximately 40,000 outlets for the Company's products. The Company markets its products through Company sales personnel located in various markets and through a network of independent sales representatives. It is an industry practice in the United States for businesses that market fragrances, cosmetics and toiletry products to provide the right to return merchandise. The Company's products are subject to such return rights. It is the Company's practice to establish reserves and provide allowances for product returns at the time of sale. The Company believes that such reserves and allowances are adequate based on past experience; however, no assurance can be made that reserves and allowances will continue to be adequate. Consequently, if product returns are in excess of the reserves and allowances made by the Company, net sales will be reduced when such fact becomes known. The Company has invested heavily in developing the mature U.S. retail markets as well as the emerging mass markets in Latin America and other international markets. The Company believes that the customer base in these markets fits the Company's target customer profile and presents an opportunity for future growth. The Company has focused the expansion of its customer base in the U.S. by creating and repositioning products to better meet the needs of its existing channels of distribution and in gaining entrance into certain new channels. The Company has strengthened its position in the U.S. markets by the recent (November 1999) acquisition of Fragrance Impressions Ltd. which markets fragrances through its complementary distribution network. Sales to customers in the United States were $39,150,000, $35,282,000 and $37,993,000 for fiscal years 2000, 1999 and 1998, respectively. For those same fiscal years, $16,458,000 (30% of net sales), $20,712,000 (37% of net sales), and $29,690,000 (44% of net sales) respectively, were exported directly to foreign customers or sold through the Company's subsidiaries in Mexico and Brazil (prior to the disposition of the Company's Mexican and Brazilian subsidiaries discussed more fully in Notes 7 and 8 of the Notes to Consolidated Financial Statements). Certain of the sales to U.S. customers are ultimately resold outside of the U.S. The amount of these indirect export sales cannot be determined as the Company does not have access to its customers' sales information. As a significant portion of the Company's products are sold directly or indirectly into the Latin American market, there are certain factors such as local political and economic conditions that could have an adverse effect on these sales. See "Management's Discussion and Analysis of Financial Condition and Results of Operations (Factors Affecting the Company's Business, Operating Results and Financial Condition) for a specific discussion of those risks. The North and South American markets will continue to be a primary focus of the Company's marketing strategy as other Sheth Group affiliates or other company alliances distribute similar products throughout the rest of the world. 5 In fiscal 2000, 1999 and 1998 one customer accounted for approximately 14%, 13% and 10% respectively, of the Company's net sales. The Company is not dependent upon a single or a few customers. However, the loss of a single or a few customers may have a material adverse effect on the Company's business. SUPPLIERS The company has a unique core manufacturing capability in aerosol filling of fragrances. At present, the Company purchases pressurized glass containers for its fragrances primarily from European glass manufacturers. If these products were unavailable from any of these suppliers, the Company believes that it could purchase such products from other suppliers but could experience disruption in its supply chain which would thereby adversely effect the Company. In addition, the Company purchases specially blended fragrance compounds principally from a Sheth Group affiliate in France. In the event such supplier was unable to provide such compounds, the Company could suffer minor manufacturing delays until such supplier could be replaced. The Company is dependent on the supply of certain lipstick cosmetics, mascara and nail polish products from Sheth Group affiliates. If any of these companies were to cease or be unable to supply these cosmetic products, the lack of such products would not have a material adverse effect on the Company while secondary suppliers were being located. PATENTS AND TRADEMARKS The Company owns or has applied for substantially all of the product name trademarks for products sold by the Company. The Company is dependent on the continued use of these trademarks; however, the cessation of the Company's right to use such trademarks would not have a materially adverse effect on the Company's business. BACKLOG OF ORDERS The Company had no substantial backlog of orders at the end of each of fiscal years 2000, 1999 and 1998. RAW MATERIALS The Company's raw material inventories support the fragrance and cosmetic pencil manufacturing operations. The principal components of that inventory are currently purchased from limited or single sources of supply. Management believes the cessation of supply for the fragrance components from any of the primary suppliers could be replaced by a secondary source with minimal difficulties. ENVIRONMENTAL LAWS In the opinion of management, compliance by the Company with federal, state and local laws relating to the protection of the environment has had no material effect upon the Company's capital expenditures, earnings or competitive condition. COMPETITION IN THE FRAGRANCE AND COSMETICS INDUSTRY The fragrance and cosmetics industry is characterized by intense competition, particularly in the U.S. The Company believes it competes primarily on the basis of pricing and payment terms. Product quality, presentation, merchandising and advertising programs and customer service (incorporating inventory availability and prompt delivery) are also important additional competitive features in the overall industry. Principal competitors in designer alternative fragrances include Inter Parfums, Inc., YAZ Enterprises Inc., Paris Designs, Inc., and Parfums de Coeur, and in budget cosmetics, Artmatic USA Cosmetics, Wet-N-Wild, and Jordana Cosmetics Corporation. While the Company is a significant participant in the value oriented designer alternative fragrance market and has had historically many of the resources of the Sheth Group available to it, the Company is a relatively small participant in the total fragrance and cosmetics industry. Many other companies in the industry, including virtually all large mass- 6 advertised brand manufacturers such as Procter and Gamble, Unilever, Revlon, L'Oreal, Benckiser, and French Fragrances are well established and have been in existence for a significantly longer period of time. Such companies have greater leverage and resources than the Company including financial, marketing, research, manufacturing and personnel. Historically, however, these large manufacturers have not sought to compete in the same value-oriented markets in which the Company participates. INVENTORY The Company maintains finished goods inventory at its San Antonio, Texas facility to meet the demands of its customers. Raw material and work-in-process inventories related to manufacturing of fragrances and cosmetic pencils are located at the Pleasanton, Texas manufacturing facility. SEASONALITY The Company's business has historically been subject to seasonal factors relating to calendar year-end holidays. However, the Company believes that with its range of products, distribution channels, and promotional activity, it has over time been able to reduce some of the differences in sales volume between quarters. EMPLOYEES As of August 2000, the Company employed approximately 388 full-time employees and during peak production periods utilizes temporary or seasonal employees to augment its workforce. During the two most recent peak production periods the Company has utilized up to 225 seasonal employees. None of the Company's employees are covered by a collective bargaining agreement and management believes that its relationship with employees is satisfactory. ITEM 2. PROPERTIES The Company owns a manufacturing plant that consists of a 144,000 square-foot facility on a 14-acre site in Pleasanton, Texas. That facility has approximately 12,000 square feet of office space. The Company rents approximately 30,000 square feet of storage space in Pleasanton, Texas on a month to month basis at the rate of $4,200 per month or $50,400 annually. The Company is currently leasing approximately 72,000 square feet of storage, shipping and office space for its San Antonio distribution center. The lease has an annual cost of $269,000, subject to adjustments, and expires in February 2001. The San Antonio corporate office and design studio occupies approximately 10,000 square feet of office space. The lease has a current annual cost of $111,000 subject to adjustments and expires in January 2005. The Company is currently leasing approximately 2,400 square feet of office space for its marketing headquarters in New York City. The lease has an annual cost of $72,000 subject to adjustments and expires March 2004. The Company is currently leasing approximately 700 square feet of space for its FIL sales division in Bridgeport, Connecticut on a month-to-month basis. The lease has an annual cost of $15,000 or $1,250 per month. On October 10, 2000, the Company broke ground on a project to construct a new, 60,000 square foot distribution center and office complex, adjacent to its existing manufacturing facility in Pleasanton, Texas. According to the credit agreement with its principal lender, all of the Company's present and future assets have been collateralized. See Management Discussion and Analysis section for further discussion. 7 ITEM 3. LEGAL PROCEEDINGS OTHER The Company is subject to ordinary and routine litigation arising out of the conduct of its business. Management believes that the ultimate disposition of these proceedings will not have a material adverse effect on the Company's financial condition. Any expenses incurred are not expected to be material to the Company's financial results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (A) MARKET INFORMATION The Company has a single class of common equity securities outstanding, its Common Stock, $.01 par value ("Common Stock"). The Common Stock is traded over-the-counter on the National Association of Securities Dealers Automated Quotation ("NASDAQ") Small Cap National Market under the symbol "TSAR". The following table presents for the periods indicated the quarterly high and low bid quotations in the over-the-counter market, as quoted by NASDAQ. These quotations reflect the inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. ========================================================= FISCAL 2000 FISCAL 1999 --------------- ------------------ HIGH LOW HIGH LOW - --------------------------------------------------------- FIRST QUARTER $6 1/8 $5 $9 1/2 $4 5/8 - --------------------------------------------------------- SECOND QUARTER $6 3/16 $4 3/4 $11 1/8 $5 3/4 - --------------------------------------------------------- THIRD QUARTER $6 3/8 $4 3/4 $11 5/8 $4 11/16 - --------------------------------------------------------- FOURTH QUARTER $6 1/4 $4 5/8 $7 1/4 $5 5/8 ========================================================= On November 27, 2000, the closing bid price for the Company's Common Stock, as reported by NASDAQ, was $5 3/16. (B) HOLDERS As of November 27, 2000, the number of record holders of the Company's Common Stock was approximately 119. (C) DIVIDENDS The Company has paid no cash dividends on its Common Stock since its inception. The payment by the Company of cash dividends, if any, in the future rests within the discretion of the Board and will depend, among other things, upon the Company's earnings, its capital requirements and its financial condition, as well as other relevant factors. In addition, the Company's ability to pay cash dividends is subject to restrictions imposed by the Company's principal lender (See Note 6 of the Notes to Consolidated Financial Statements) and of Series C Senior Convertible Preferred Stock investor (See Note 15 of the Notes to Consolidated Financial Statements). The Company has no plans to pay any cash dividends on the Common Stock in the foreseeable future. 8 ITEM 6. SELECTED FINANCIAL DATA The following is a summary of selected financial data for the Company and its subsidiaries for each of the last five fiscal years:
============================================================================================================ YEARS ENDED ------------------------------------------------------------------------------- AUGUST 26, AUGUST 28, AUGUST 29, AUGUST 30, AUGUST 31, ------------ ------------ ------------ ------------ ------------ 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------ REVENUES $ 55,608,000 $ 55,994,000 $ 67,683,000 $ 68,959,000 $ 51,720,000 - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) $ 1,673,000 $ 422,000 $ (1,491,000) $ 1,083,000 $(12,053,000) - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 420,000 $ (1,056,000) $ (1,944,000) $ (454,000) $(12,053,000) - ------------------------------------------------------------------------------------------------------------ NET INCOME (LOSS) PER COMMON SHARE: - ------------------------------------------------------------------------------------------------------------ BASIC $ .03 $ (.06) $ (.12) $ (.03) $ (.72) - ------------------------------------------------------------------------------------------------------------ DILUTED $ .02 $ (.06) $ (.12) $ (.03) $ (.72) - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $ 55,248,000 $ 36,129,000 $ 38,708,000 $ 41,084,000 $ 33,767,000 - ------------------------------------------------------------------------------------------------------------ REVOLVING CREDIT AGREEMENT BORROWINGS $ 15,167,000 $ 8,926,000 $ 7,612,000 $ 10,205,000 $ 9,319,000 - ------------------------------------------------------------------------------------------------------------ SHORT-TERM & LONG-TERM BORROWINGS INCLUDING CAPITAL LEASES $ 3,810,000 $ 4,173,000 $ 3,877,000 $ 2,581,000 $ 3,234,000 - ------------------------------------------------------------------------------------------------------------ SUBORDINATED LONG-TERM DEBT $ 3,680,000 $ -0- $ 1,700,000 $ 4,500,000 $ 12,666,000 - ------------------------------------------------------------------------------------------------------------ CASH DIVIDENDS DECLARED PER COMMON SHARE $ -0- $ -0- $ -0- $ -0- $ -0- ============================================================================================================
The Company has significant related party transactions. See Note 11 of the Notes to Consolidated Financial Statements. The Company had subordinated debt of $3,680,000 as of August 26, 2000 incurred in connection with the purchase of FIL. See Note 9 of the Notes to Consolidated Financial Statements. The Company had subordinated debt totaling $1,700,000 as of August 29, 1998 representing the remaining portion of a loan made by the Sheth Group through their affiliate Nevell Investments, S.A. ("Nevell"). Such indebtedness was extinguished in connection with the sale of the Company's wholly owned Mexican subsidiary. See Note 8 of the Notes to Consolidated Financial Statements. The Company had subordinated debt totaling $4,500,000 as of August 30, 1997 representing the remaining portion of a loan made by the Sheth Group through their affiliate Nevell. Such indebtedness was reduced by $2,800,000 in connection with the sale of the Company's wholly owned Brazilian subsidiary. See Note 7 of the Notes to Consolidated Financial Statements. During the first and second quarters of fiscal 1997 affiliates of the Company's primary shareholder, the Sheth Group, converted $8,166,000 of their subordinated debt into shares of Series A and Series B Preferred Stock. During the fourth quarter of fiscal 1996, the Company recorded deferred income tax expense of $3,881,000 resulting from the establishment of a valuation allowance for deferred tax assets. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - FISCAL YEAR ENDED AUGUST 26, 2000 COMPARED TO FISCAL YEAR ENDED AUGUST 28, 1999 NET SALES Net sales for the fiscal year ended August 26, 2000 were $55,608,000 versus net sales of $55,994,000 in fiscal year ended August 28, 1999. The slight decline was mainly attributable to volume decreases in the U.S. wholesale and Latin America markets, primarily in the Royal and Euro product lines. The decrease was virtually entirely offset by volume increases associated with the acquisition of FIL (see Note 9 of the Notes to Consolidated Financial Statements), mainly in the Fragrance Impressions fragrance line, coupled with an increase in the Euro Gardens product line in the U.S. chain, specialty chain and mass merchandising channel. Overall, the Company's direct exports decreased to $16,458,000 (30% of net sales) in fiscal 2000 compared to $20,712,000 (37% of net sales) in fiscal 1999. Of the overall $4,254,000 decrease in export sales, $1,796,000 related to a volume decline in Latin America stemming from unfavorable economic conditions in that market. The remaining $2,458,000 decrease was attributable to a strategic decision to reduce sales to related parties with such sales amounting to $2,960,000 in fiscal 2000 versus $5,418,000 in the prior year. See Business ("Suppliers") and Note 11 of the Notes to Consolidated Financial Statements for further details. Of the net sales in fiscal 2000, approximately 2.3% or $1,294,000, resulted from the sale of products purchased from related parties as finished goods. For fiscal 1999, comparable numbers were approximately 1.5%, or $835,000. In addition, fragrance and other products manufactured and sold by the Company included certain components that were purchased from related parties. The Company purchased approximately $1,978,000 and $2,770,000 of fragrance product components from related parties in fiscal years 2000 and 1999, respectively. See Note 11 of the Notes to Consolidated Financial Statements for additional information. Consolidated net sales are anticipated to grow moderately in fiscal 2001 as the Company continues strategic direction to broaden its product offerings beyond traditional fragrance type products, while focusing distribution expansion in the U.S. chain, mass merchandising and specialty chain market segments. GROSS PROFIT The Company's gross profit for fiscal years 2000 and 1999 was $18,265,000 or 32.8% of net sales and $16,127,000 or 28.8% of net sales, respectively. The improvement over the prior period was primarily due to a decrease in cost of sales as a result of increased operational efficiencies as well as an overall favorable product mix relating largely to the acquisition of FIL whose primary market is the U.S. chain drug retail market. Gross profit margins in this segment tend to be greater than the Company's other market segments but require an increase level of direct marketing support expenditures accounted for in SG&A expenses. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") for fiscal year 2000 were $14,517,000, an increase of 1.8% from $14,255,000 for fiscal year 1999. The SG&A increase was primarily due to the acquisition of FIL (See Note 9 of the Notes to Consolidated Financial Statements). As a percentage of net sales, SG&A was 26.1% and 25.5% for fiscal years 2000 and 1999, respectively. The increase in SG&A as percentage of sales in fiscal 2000 is primarily due to slightly lower sales levels with an increase in direct marketing expenses relating mainly to the acquisition of Fragrance Impressions Ltd. (See Note 9 of the Notes to Consolidated Financial Statements). NON-OPERATING INCOME OR EXPENSE Interest expense was $1,968,000 in fiscal 2000, an increase of 57.9% over the comparable fiscal 1999 amount of $1,246,000. The significant increase was attributable to debt incurred in connection with the acquisition of Fragrance Impressions Ltd. (see Note 9 of the Notes to Consolidated Financial Statements) coupled with higher interest rates. NET INCOME OR LOSS The Company recorded net income of $1,673,000, an increase of $1,251,000 versus net income of $422,000 in fiscal 1999. After giving effect to preferred stock dividends and beneficial conversion feature of a preferred stock issue, the Company recorded a net income available to common stockholders of $420,000 in fiscal 2000 versus a comparable net 10 loss available to common stockholders of $1,056,000 in fiscal 1999, an improvement of $1,476,000. Related earnings per diluted common share were $.02 versus a loss of $.06 per diluted common share for each respective fiscal year. RESULTS OF OPERATIONS - FISCAL YEAR ENDED AUGUST 28, 1999 COMPARED TO FISCAL YEAR ENDED AUGUST 29, 1998 NET SALES Net sales for the fiscal year ended August 28, 1999 were $55,994,000, a decrease of 17.3% compared to net sales of $67,683,000 in fiscal year ended August 29, 1998. The decrease is primarily attributable to volume decreases in the Latin America and U.S. wholesale markets in the Royal Selections line and reduced DCA sales to the U.S. retail channel. As well, approximately 4% of the sales decline was attributable to the disposal of the Company's wholly-owned subsidiaries in Mexico (as of November 1998) and Brazil (as of May 1998) coupled with a strategic decision to reduce the Company's sales to related parties. This decline was somewhat offset by volume increases in the combined U.S. chain, specialty chain and mass merchandising channel in the Euro and Regal fragrance lines. Overall, the Company's direct exports decreased to $20,712,000 (37% of net sales) in fiscal 1999 compared to $29,690,000 (44% of net sales) in fiscal 1998. The decrease in direct exports is primarily due to volume decreases in Latin America as well as sales to related parties. While the Company continues to aggressively pursue the strategically important Latin America channel, the Company believes that the Mexican and Brazilian markets will grow at a slower than desired rate and as a result, the Company sold its Brazilian subsidiary to an affiliate of the Sheth Group in May 1998 (described more fully in Note 7 of the Notes to the Consolidated Financial Statements). The Company sold its Mexican subsidiary to an affiliate of the Sheth Group in November 1998 (described more fully in Note 8 of the Notes to Consolidated Financial Statements). Included in export sales were sales of $5,418,000 in fiscal 1999 and $6,557,000 in fiscal 1998 to Sheth Group affiliates. See Business ("Suppliers") and Note 11 of the Notes to Consolidated Financial Statements. Of the net sales in fiscal 1999, approximately 1.5% or $835,000, resulted from the sale of products purchased from related parties as finished goods. For fiscal 1998, comparable numbers were approximately 4%, or $2,833,000. In addition, fragrance and other products manufactured and sold by the Company included certain components that were purchased from related parties. The cost of those components approximated 7% of cost of sales in fiscal 1999 and 6% of cost of sales in fiscal 1998. See Note 11 of the Notes to Consolidated Financial Statements for additional information. GROSS PROFIT The Company's gross profit for fiscal year 1999 and fiscal year 1998 was $16,127,000 or 28.8% of net sales and $16,643,000 or 24.6% of net sales respectively. Although achieving significant improvement in gross margin, overall gross profit dollars declined relating primarily to the overall sales decrease offset by significant improvements in cost of sales as a result of increased operational efficiencies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") for fiscal year 1999 were $14,255,000, a decrease of 9.9% from $15,816,000 for fiscal year 1998. The SG&A decrease was primarily due to the sale of the Company's wholly owned subsidiaries in Mexico and Brazil (described previously). As a percentage of sales, SG&A were 25.5% and 23.4% for fiscal years 1999 and 1998 respectively. The increase in SG&A as percentage of sales in fiscal 1999 is primarily due to lower sales levels. NON-OPERATING INCOME OR EXPENSE Interest expense for fiscal year 1999 was $1,246,000, a decrease of 30.2% from $1,786,000 for fiscal year 1998 as a result of lower revolving credit borrowings in the current fiscal year. Other expense for fiscal year 1999 was $128,000, versus other expense of $240,000 for fiscal year 1998, which was primarily due to a decrease in foreign exchange losses. NET INCOME OR LOSS The Company recorded net income of $422,000 for fiscal 1999. After giving effect to preferred stock dividends and beneficial conversion feature of a preferred stock issue, the Company recorded a fiscal 1999 net loss applicable to common stock of $ 1,056,000 or $.06 per share. In fiscal 1998, the Company recorded a net loss of $1,491,000. After 11 giving effect to preferred stock dividends, the Company recorded a net loss of $1,944,000 or $.12 per share applicable to common stock. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES Operating activities in fiscal 2000 used $1,221,000 in cash. The cash used was primarily the result of earnings adjusted for non-cash items, increases in accounts payable and accrued expenses, offset by increases in accounts receivable and inventory during fiscal 2000. Accounts receivable grew as a result of significantly higher fourth quarter sales in fiscal year 2000 compared to the same period in fiscal 1999 coupled with slower collections. Inventory and accounts payable increased primarily as a result of the FIL acquisition. Accrued expenses increased primarily due to the direct marketing costs and provisions associated with the significant level of retail sales volume recorded in the fourth quarter of fiscal 2000, consisting mainly of commissions, cooperative advertising and anticipated returns and allowances. INVESTING ACTIVITIES Capital expenditures during fiscal 2000 amounted to $1,201,000, relating mainly to production related machinery and equipment, and facilities related items and computer equipment. Capital expenditures in fiscal 1999 and 1998 were $1,892,000 and $1,599,000, respectively. In addition, $554,000 of cash was invested in the FIL business acquisition in fiscal 2000 (See Note 9 of the Notes to Consolidated Financial Statements). FINANCING ACTIVITIES Net cash provided by financing activities during fiscal 2000 was primarily due to proceeds from the issuance of Series C Senior Convertible Preferred Stock and a net increase in borrowings under the revolving credit facility. In December 1997, the Company entered into a $22,000,000 credit agreement (the "Credit Agreement")with its principal lender. In November 1999, the Credit Agreement was amended and restated to provide for a revolving credit facility (the "Revolving Credit") of $16,000,000 of maximum borrowings; with a $4,500,000 sublimit allocated to support the requirements of Tristar USA (see Note 9 of the Notes to Consolidated Financial Statements for further details on Tristar USA acquisition). Such borrowings bear interest, at the Company's election, at the Alternate Base Rate (the higher of the prime rate or the Federal Funds Rate plus .50%) plus 1.00% or the London Interbank Offered Rate (LIBOR) plus 3.50%. At August 26, 2000, the Revolving Credit bore interest at rates of 10.50 % and 10.12 %, respectively, in accordance with the above noted interest computations. Borrowings under the Revolving Credit are limited by a formula based on Eligible Accounts Receivable and Inventory, as defined. Remaining availability based on the borrowing formulas as of August 26, 2000 approximated $756,000. Additionally, borrowings based on LIBOR can not exceed 60% of the total outstanding borrowings under the Revolving Credit. Commitment fees equal to .50% per annum on the unused portion of the Revolving Credit are payable monthly. All outstanding amounts under the Revolving Credit Agreement are due in December 2001. The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan") and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term Loan bears interest, payable monthly, at the Alternate Base Rate (10.50 % at August 26, 2000) plus 2.00%. Principal payments on the Term Loan consist of equal monthly principal payments in the amount of $56,667 for 60 months beginning in January 1998. Additionally, 50% of annual excess cash flow, as defined, must be applied to the Term Loan installments in the inverse order of maturity. As of August 26, 2000, the Company had outstanding borrowings under the Term Loan totaling $1,600,000. Borrowings under the Cap Ex Facility are limited to 80% of the cost of new machinery and equipment, limited to annual utilization of $1,500,000. These borrowings also bear interest, payable monthly, at the Alternate Base Rate (10.50% at 12 August 26, 2000) plus 2.00%. Principal payments on the Cap Ex Facility commence one month after the take down in an amount based on a three-year amortization. However, a balloon payment in an amount equal to all outstanding borrowings under the Cap Ex Facility is also due in December 2001. As of August 26, 2000, the Company had outstanding borrowings under the Cap Ex Facility totaling $2,189,000. Principal payments are due at the rate of $86,000 per month. Borrowings under the Credit Agreement are collateralized by all of the Company's present and future assets. Restrictive financial covenants including Minimum Tangible Net Worth, Minimum EBITDA, Maximum Loss, Minimum Fixed Charge Coverage, Maximum Leverage and Maximum Capital Expenditures were agreed upon in connection with the FIL acquisition. Additional covenants limit borrowings, asset sales and dividends. The Company was in violation of certain financial covenants at August 26, 2000 and was granted waivers to such covenants by its lender. The Company is currently in discussions with its lender concerning new restrictive financial covenants for fiscal 2001. The Credit Agreement, together with cash generated by operations, should provide sufficient cash to meet the cash requirements of the Company for the foreseeable future. As of August 31, 1996, the Company was indebted in the amount of $4.7 million to a Sheth Group affiliate under a loan agreement entered into in August 1993. The note, which was subordinated to the principal lender, bore interest at the rate of 4.5% per annum. On December 11, 1996, the $4.7 million of subordinated debt was converted into the Company's Series A convertible preferred stock, $.05 par value ("Series A Preferred Stock"), (See Note 15 of the Notes to Consolidated Financial Statements). The Company remains indebted to the affiliate for delinquent interest payments of $1,631,000 on the converted debt. At August 26, 2000, cumulative dividends in arrears on the Series A Preferred Stock approximate $612,000. In a transaction effective February 21, 1997, Nevell Investments S.A. ("Nevell"), the holder of a subordinated long-term promissory note in the principal amount of $4,000,000, converted $3,500,000 of that note into 120,690 shares of the Company's Series B convertible nonvoting preferred stock, $.05 par value ("Series B Preferred Stock"). The Series B Preferred Stock has cumulative preferred dividends of $2.03 per share and a preferred liquidation distribution of $29.00 per share plus accrued and unpaid dividends. Each share of the Series B Preferred Stock is convertible at the option of Nevell, into four shares of the Company's Common Stock. The Company can redeem the shares of Series B Preferred Stock at any time for cash of $29.00 per share ($7.25 per common share), plus all accrued and unpaid dividends. See Note 15 of the Notes to Consolidated Financial Statements. At August 26, 2000, cumulative dividends in arrears on the Series B Preferred Stock approximate $224,000. Certain related party accounts receivable balances were determined not to be settled in the normal course of business. Accordingly, outstanding balances totaling $2,365,000 were reclassified to shareholder's equity at August 28, 1999. During fiscal 2000, the amount of these outstanding balances increased to $2,740,000. As of August 26, 2000, the Sheth Group settled this outstanding balance due to the Company. Payment was made by the redemption of 88,800 shares of Series B Convertible Preferred Stock, $.05 par value ("Series B Preferred"), issued to Nevell. The agreed to redemption value was determined to be $23.75 per share of Series B Preferred based upon the closing price of $5.938 per share of the Company's common stock on August 26, 2000. This amounted to $2,109,000 with the remaining $631,000 representing dividends in arrears. The difference between the stated redemption price of $29.00 and the agreed to price of $23.75 per Series B Preferred share amounted to $1,229,000 and was ascribed to additional paid in capital. As part of this share redemption transaction, the Sheth Group agreed to transfer 12,500 shares of common stock owned by Transvit to the holder of the Company's Series C Preferred Stock. Effective May 30, 1998, the Company sold all of the capital stock and distribution rights of its Brazilian subsidiary to Transvit Distribution Corp. ("TDC"), a wholly owned affiliate of the Sheth Group, for $2,800,000. The agreement provides for a non-compete restriction and a supply arrangement whereby the Company agreed to continue selling product to the Brazilian unit through May 31, 2001. The Company also received an option to repurchase the stock and distribution rights from TDC at anytime prior to May 31, 2003. The Company currently has no plans to repurchase the stock and distribution rights under this option. 13 In conjunction with the sale of the Company's Brazilian subsidiary, the Company received payment from TDC in the form of a $2,800,000 reduction of the subordinated debt to Nevell, another affiliated company within the Sheth Group (described more fully in Note 7 of the Notes to the Consolidated Financial Statements). The subordinated debt reduction, net of the related write-down of warrant valuation costs attributable to such debt, exceeded the carrying value of the Company's Brazilian investment by $1,506,000 and was recorded as an increase in additional paid-in-capital. On March 15, 1999, pursuant to a stock purchase agreement entered into by and among the Company, Transvit Holding Corporation ("THC"), a wholly owned affiliate of the Sheth Group, the majority stockholder of the Company, and Nevell, the Company sold to THC for $2,686,000 all of the issued and outstanding capital stock ("Trimex Stock") and certain distribution rights of its wholly owned subsidiary, Tristar de Mexico, S.A. de C.V. ("Trimex"), a distributor of fragrance and cosmetic products into the formal retail market in Mexico. The transaction was effective as of November 29, 1998. The transaction provides for a non-compete restriction and a supply agreement whereby the Company agreed to continue selling certain products to Trimex. The Company also received an option to repurchase the Trimex Stock and distribution rights from THC at a fair value at anytime prior to March 15, 2004. The Company currently has no plans to exercise such option but may do so in the future. The Company received payment for Trimex Stock in the form of a reduction of debt due Nevell, and redemption of shares of the Company's Series A Preferred Stock, issued to Nevell, at a redemption price of $7.62 per share. Of the total purchase price for Trimex Stock of $2,686,000, an amount equal to $1,700,000 was applied to a reduction of debt due Nevell with the remaining $986,000 attributed to redeemed shares of the Series A Preferred Stock at a total redemption of approximately $906,000 plus $80,000 of dividends in arrears. Warrant valuation costs of $99,000 associated with the subordinated debt reduction were written-off in connection with the sale. The excess of the carrying value of the Company's investment in Trimex over the proceeds received was recorded as an increase in accumulated deficit. See Note 8 of the Notes to Consolidated Financial Statements. Effective September 3, 1998, the Company completed a private placement whereby it sold 78,333 shares of Series C Senior Convertible Preferred Stock ("Series C Preferred Stock") to a private investor for $60 per share. Each share of Series C Preferred Stock is convertible into 11.0345 common shares at a conversion price of $5.44 per share. In addition, the Company issued a warrant to purchase 125,000 shares of Common Stock at an exercise price of between $4.00 to $6.28 per share. The Company received proceeds of approximately $4,700,000 from such private placement. On October 14, 1999, the Company completed another private placement whereby it sold an additional 21,667 shares of Series C Preferred Stock to the private investor mentioned previously for $60 per share. Each share of Series C Preferred Stock is convertible into 11.0345 common shares at a conversion price of $5.44 per share. In connection with such sale, the Company issued warrants to purchase an aggregate of 60,000 shares of Common Stock at an exercise price of $4.75 per share. The Company received approximately $1,300,000 from such private placement. The holder of the Series C Preferred Stock is entitled to receive a cumulative cash dividend of $4.80 per share per annum. The dividend is payable quarterly in arrears ($1.20 per quarter). See Note 15 of the Notes to the Consolidated Financial Statements for further discussion. Effective November 1999 the Company, through a newly formed wholly-owned subsidiary Tristar USA, Inc. ("Tristar USA"), purchased all of the issued and outstanding common stock of Fragrance Impressions Limited ("FIL") for $350,000 in cash, $3,050,000 in interest bearing promissory notes ("Notes") due in equal annual installments on November 15, 2000 through 2004 and options to purchase up to 100,000 shares of the Company's common stock. The Notes are subject to post closing adjustment to the outstanding principal balance, based upon sales achievement during the next two calendar years. Cash used to finance this transaction was derived from the sales of 21,667 shares of Series C Preferred Stock in October 1999, discussed above. See Note 9 of the Notes to Consolidated Financial Statements for further discussion. The Company does not have any plans to pay any cash dividends on the Common Stock, the Series A Preferred Stock or the Series B Preferred Stock in the foreseeable future. Further, payments of such dividends are subject to restrictions imposed by the Company's principal lender in connection with the existing revolving line of credit. On October 10, 2000, the Company began the construction of a new, 60,000 square foot distribution center and office complex, adjacent to its existing manufacturing facility in Pleasanton, Texas. The project is scheduled for completion in April 2001. The financing of this project will be mainly provided through the utilization of the Company's existing credit facility. 14 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement as amended in June 2000 by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133", establishes accounting and reporting standards for derivative instruments and all hedging activities. The Company must adopt SFAS No. 133, as amended by SFAS No. 138, in the first quarter of fiscal 2001. The Company has completed assessing the impact adoption of this standard will have and has concluded that there is no expected material effect on its financial presentation and results of operations as a result of this standard. In December 1999, the Securities and Exchage Commission staff issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition", which provides guidance on the recognition and disclosure of revenues. Adoption of SAB No. 101 is required by the fourth quarter of fiscal 2001. The Company is in the process of evaluating the effect adoption of SAB No. 101 will have on the Company's consolidated financial position and results of operations. INFLATION During fiscal year ended 2000, and consistent with the Company's 1999 and 1998 fiscal years, inflation did not have a material adverse impact either on the Company's net sales or income from continuing operations. The Company does not expect inflation to have a material adverse impact in fiscal year 2001. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK Market risk represents the risk of loss that may occur due to adverse changes in financial market prices, including interest rate risk and foreign currency exchange risk, and the effect they may have on the financial position, results of operation or cash flow of the Company. The Company's short-term and long-term debt at August 26, 2000 bear interest at variable rates (See Note 8 of the Notes to the Consolidated Financial Statements). A one-percentage point increase in the effective interest rate would result in an approximate $226,000 and $130,000 for 2000 and 1999, respectively, reduction in annual pretax earnings. This estimate assumes no change in the volume or composition of the short-term and long-term debt as of August 26, 2000. As discussed in Note 21 of the Notes to the Consolidated Financial Statements, the Company's direct exports comprise approximately 30% of net sales for the fiscal year ended August 26, 2000. In addition, certain U.S. based customers ultimately distribute the Company's products into foreign countries. As a result, the Company has exposure to risk associated with the decrease in value of foreign currencies. Although the risk cannot be quantified, any significant decrease in value of the currency of foreign countries where the Company's products are distributed could have a material adverse effect on the Company's sales and results of operations. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and financial statement schedules listed in Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section. 15 ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required under this Item will be contained in the Company's Proxy Statement for its 2001 Annual Meeting, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information required under this Item will be contained in the Company's Proxy Statement for its 2001 Annual Meeting, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this Item will be contained in the Company's Proxy Statement for its 2001 Annual Meeting, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required under this Item will be contained in the Company's Proxy Statement for its 2001 Annual Meeting, which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) The following documents are filed as part of this report: 1. FINANCIAL STATEMENTS: Consolidated Financial Statements as detailed in the Index to Financial Statements and Schedules for the years ended August 26, 2000, August 28, 1999, and August 29, 1998 required in response to Item 8 of Part II of this report are annexed to this report as a separate section. 2. FINANCIAL STATEMENT SCHEDULES: Any financial statement schedules for the years ended August 26, 2000, August 28, 1999 and August 29, 1998, required in Item 8 of Part II of this report are annexed to this report as a separate section. (B) REPORTS ON FORM 8-K: 1. The Form 8-K filed June 7, 2000, updating factors that have potential adverse effects on results of operations for future periods. 2. The Form 8-K filed July 19, 2000, reporting a change in control. (C) EXHIBITS 16 EXHIBIT INDEX 2.1 Stock purchase agreement between the Company and Transvit Holding Corporation dated November 29, 1998. Incorporated herein by reference to Exhibit 2.1 to the Company's current report on Form 8-K dated March 25, 1999. 2.2 Plan of Merger and Acquisition agreement dated effective November 1, 1999 by and among Tristar Corporation, Tristar USA, Inc. and Fragrance Impressions Limited (incorporated herein by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K filed November 30, 1999). 3.1 Certificate of Incorporation of the Registrant, as amended. Incorporated herein by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal year ended August 29, 1998. 3.2 By-Laws of the Registrant (Amended as of August 14, 1992). Incorporated by reference to Exhibit 3.2 of the Company's Annual Report on Form 10-K for the year ended August 31, 1992. 4 Form of Registrant Common Stock certificates. Incorporated by reference to Exhibit 4.2 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended February 28, 1993. 10.01 1991 Amended and Restated Stock Option Plan of the Registrant. Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year ended August 31, 1992. 10.02 Agreement dated August 31, 1993 between the Core Sheth Families, Viren Sheth, Starion International, Ltd. and the Registrant. Incorporated by reference to Exhibit 10.31 of the Company's Annual Report on Form 10-K for the year ended August 31, 1993. 10.03 Financing Agreement dated August 31, 1993 between the Core Sheth Families and the Registrant. Incorporated by reference to Exhibit 10.32 of the Company's Annual Report on Form 10-K for the year ended August 31, 1993. 10.04 Lease Agreement Re: Bulk Warehouse Facility in San Antonio dated December 8, 1993, between Northwestern Mutual Life Insurance Co. and Registrant. Incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for period ended November 30, 1993. 10.05 Amendment to Common Stock Purchase Warrant dated August 31, 1995, between the Company and Starion International, Ltd. Incorporated by reference to Exhibit 10.2 of the Company's Report on Form 8-K dated August 31, 1995. 10.06 Non-Qualified Stock Option Grant to Viren S. Sheth dated April 19, 1996. Incorporated by reference to Exhibit 10.29 of the Company's Annual Report on Form 10-K for the year ended August 31, 1996. 10.07 Letter Agreement with Transvit Manufacturing Corporation Converting Line of Credit Promissory Note to 666,529 shares of Series A Convertible Preferred Stock dated December 11, 1996. Incorporated by reference to Exhibit 10.30 of the Company's Annual Report on Form 10-K for the year ended August 31, 1996. 17 10.08 Incentive Stock Option between the Company and Peter C. Liman dated January 27, 1997. Incorporated by reference to Exhibit 10.32 of the Company's Quarterly Report on Form 10-Q for the period ended March 1, 1997. 10.09 Letter Agreement with Nevell Investments S.A. converting Subordinated Debt Promissory Note to 120,690 shares of Series B Convertible Preferred Stock dated February 21, 1997. Incorporated by reference to Exhibit 10.34 of the Company's Quarterly Report on Form 10-Q for the period ended March 1, 1997. 10.10 Revolving Credit Term Loan and Security Agreement dated December 19, 1997 between the Company and BNY Financial Corporation, incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the period ended November 29, 1997. 10.11 Stock purchase agreement between the Company and Transvit Distribution Corporation dated May 30, 1998. Incorporated herein the reference to Exhibit 10.40 of the Company's annual report on Form 10-K for the fiscal year ended August 29, 1998. 10.12 Letter agreement between the Company and Nevell Investments, S.A. ("Nevell") dated March 1, 1998. Incorporated herein the reference to Exhibit 10.41 of the Company's annual report on Form 10-K for the fiscal year ended August 29, 1998. 10.13 Investment agreement between the Company and Pioneer Ventures Associates Limited Partnership, dated September 3, 1998. Incorporated herein the reference to Exhibit 10.42 of the Company's annual report on Form 10-K for the fiscal year ended August 29, 1998. 10.14 Warrant to purchase shares of common stock of the Company granted to Pioneer Ventures Associates Limited Partnership, dated September 3, 1998. Incorporated herein the reference to Exhibit 10.43 of the Company's annual report on Form 10-K for the fiscal year ended August 29, 1998. 10.15 Trademark agreement between the Company and S&J Perfume Company, dated September 3, 1998. Incorporated herein the reference to Exhibit 10.44 of the Company's annual report on Form 10-K for the fiscal year ended August 29, 1998. 10.16 Voting and shareholders agreement dated September 3, 1998. Incorporated herein the reference to Exhibit 10.45 of the Company's annual report on Form 10-K for the fiscal year ended August 29, 1998. 10.17 Employment agreement between the Company and Richard Howard dated September 1, 1998. Incorporated herein by reference to Exhibit 10.1 of the Company's quarterly report on Form 10-Q for the quarter ended November 28, 1998. 10.18 Employment agreement between the Company and Robert M. Viola dated September 1, 1998. Incorporated herein by reference to Exhibit 10.2 of the Company's quarterly report on Form 10-Q for the quarter ended November 28, 1998. 10.19 Warrant to purchase shares of Common Stock of the Company granted to Pioneer Ventures Associates Limited Partnership, dated October 14, 1999. Incorporated herein by reference to Exhibit 10.48 of the Company's annual report on Form 10-K for the fiscal year ended August 28, 1999. 18 10.20 Form of Option agreement between Tristar Corporation and each of the former stockholders of Fragrance Impressions Limited (incorporated herein by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed November 30, 1999. 10.21 Employment agreement dated November 10, 1999 between Tristar USA< Inc. and Thomas E. McCann (incorporated herein by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed November 30, 1999. *10.22 Employment agreement between the Company and Richard Howard dated September 21, 2000. *10.23 Employment agreement between the Company and Robert M. Viola dated September 21, 2000. 18 Preferability letter from KPMG Peat Marwick LLP regarding change in accounting principles dated November 6, 1995. Incorporated by reference to Exhibit 18 of the Annual Report on Form 10-K for the year ended August 31, 1995. *24.1 Consent by PricewaterhouseCoopers LLP. *27 Financial Data Schedule. - -------------------- * Filed herewith. 19 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 28, 2000 TRISTAR CORPORATION By: /s/ RICHARD R. HOWARD RICHARD R. HOWARD President and Chief Executive Officer (Principal Executive Officer) By: /s/ ROBERT M. VIOLA ROBERT M. VIOLA Senior Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: November 28, 2000 /s/ RICHARD P. RIFENBURGH RICHARD P. RIFENBURGH, Director Date: November 28, 2000 /s/ B. J. HARID B. J. HARID, Director Date: November 28, 2000 /s/ RICHARD R. HOWARD RICHARD R. HOWARD, Director Date: November 28, 2000 /s/ ROBERT A. LERMAN ROBERT A. LERMAN, Director Date: November 28, 2000 /s/ VIREN S. SHETH VIREN S. SHETH, Director 20 TRISTAR CORPORATION SAN ANTONIO, TEXAS ANNUAL REPORT ON FORM 10-K YEAR ENDED AUGUST 26, 2000 ITEM 14(A)(1) AND (2), (C), AND (D) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS TRISTAR CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES ITEM 14(A)(1) AND (2) The following consolidated financial statements of TRISTAR CORPORATION and subsidiaries are included in Item 8: CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Accountants .................................... F1 Balance sheets as of August 26, 2000 and August 28, 1999 ............. F2 and F3 Statements of operations and comprehensive income for each of the three years in the period ended August 26, 2000 ....... F4 Statements of shareholders' equity for each of the three years in the period ended August 26, 2000 ...................................... F5 Statements of cash flows for each of the three years in the period ended August 26, 2000 ............................................. F6 and F7 Notes to consolidated financial statements ........................... F8 to F23 CONSOLIDATED FINANCIAL STATEMENT SCHEDULE: The following consolidated financial statement schedule of TRISTAR CORPORATION and subsidiaries is included in Item 14(d): Schedule II - Valuation and qualifying accounts ...................... F24 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tristar Corporation: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) and (2), present fairly, in all material respects, the financial position of Tristar Corporation and its subsidiaries at August 26, 2000 and August 28, 1999, and the results of their operations and their cash flows for each of the three years in the period ended August 26, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(1) and (2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PRICEWATERHOUSECOOPERS LLP Dallas, Texas November 28, 2000 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AUGUST 26, AUGUST 28, ASSETS 2000 1999 ------------ ------------ Current assets: Cash ......................................................... $ 124,000 $ 90,000 Accounts receivable, less allowance for doubtful accounts of $852,000 and $651,000, respectively ................... 19,745,000 13,519,000 Accounts receivable - related parties - net .................. 5,013,000 4,118,000 Inventories .................................................. 13,482,000 9,531,000 Other current assets ......................................... 340,000 72,000 ------------ ------------ Total current assets .................................. 38,704,000 27,330,000 Property, plant and equipment, less accumulated depreciation of $11,774,000 and $10,434,000, respectively ................. 8,271,000 8,364,000 ------------ ------------ Other assets: Goodwill, less accumulated amortization of $267,000 in 2000 ...................................... 7,986,000 -- Other assets ................................................. 287,000 435,000 ------------ ------------ Total other assets .................................... 8,273,000 435,000 ------------ ------------ Total assets ................................. $ 55,248,000 $ 36,129,000 ============ ============
See accompanying notes to the consolidated financial statements. F-2 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY AUGUST 26, 2000 AUGUST 28, 1999 ---------------- ---------------- Current liabilities: Revolving credit agreement borrowings ....................................... $ 15,167,000 $ 8,926,000 Accounts payable - trade .................................................... 8,624,000 7,055,000 Accounts payable - related parties - net .................................... 4,512,000 3,516,000 Accrued expenses ............................................................ 8,179,000 3,728,000 Current portion of capital lease obligations ................................ 9,000 132,000 Current portion of long-term debt ........................................... 1,712,000 1,283,000 Current portion of subordinated debt ........................................ 945,000 -- ---------------- ---------------- Total current liabilities ............................................... 39,148,000 24,640,000 Long-term debt, less current portion ............................................ 2,077,000 2,738,000 Subordinated debt, less current portion ......................................... 2,735,000 -- Obligations under capital leases, less current portion .......................... 12,000 20,000 ---------------- ---------------- Total Liabilities ....................................................... 43,972,000 27,398,000 ---------------- ---------------- Commitments and contingencies (Note 19) Shareholders' equity: Preferred stock, $.05 par value; authorized 1,000,000 shares: Series A, 537,142 shares issued and outstanding ......................... 3,760,000 3,760,000 Series B, 31,890 and 120,690 shares, respectively issued and outstanding 1,173,000 4,511,000 Series C, 100,000 and 78,333 shares, respectively issued and outstanding 6,133,000 4,699,000 Common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding 16,783,909 shares in 2000 and 16,768,859 shares in 1999 ..... 168,000 168,000 Additional paid-in capital .................................................. 14,723,000 12,841,000 Related party receivables ................................................... -- (2,365,000) Accumulated deficit ......................................................... (14,681,000) (14,883,000) ---------------- ---------------- Total shareholders' equity .............................................. 11,276,000 8,731,000 ---------------- ---------------- Total liabilities and shareholders' equity .......................... $ 55,248,000 $ 36,129,000 ================ ================
See accompanying notes to the consolidated financial statements. F-3 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEARS ENDED -------------------------------------------- AUGUST 26, AUGUST 28, AUGUST 29, 2000 1999 1998 ------------ ------------ ------------ Net sales ............................................... $ 55,608,000 $ 55,994,000 $ 67,683,000 Cost of sales ........................................... 37,343,000 39,867,000 51,040,000 ------------ ------------ ------------ Gross profit ............................................ 18,265,000 16,127,000 16,643,000 Selling, general and administrative expenses ............ 14,517,000 14,255,000 15,816,000 ------------ ------------ ------------ Income from operations .................................. 3,748,000 1,872,000 827,000 Other income (expense): Interest expense .............................. (1,968,000) (1,246,000) (1,786,000) Other income (expense) ........................ 11,000 (128,000) (240,000) Litigation expenses ........................... (21,000) (69,000) (230,000) ------------ ------------ ------------ Income (loss) before income taxes ....................... 1,770,000 429,000 (1,429,000) Income tax expense ...................................... 97,000 7,000 62,000 ------------ ------------ ------------ Net income (loss) ....................................... 1,673,000 422,000 (1,491,000) Less: Cumulative preferred stock dividends .......... (881,000) (797,000) (453,000) Beneficial conversion feature ................. (372,000) (681,000) -- ------------ ------------ ------------ Net income (loss) applicable to common stock ............ $ 420,000 $ (1,056,000) $ (1,944,000) ============ ============ ============ Earnings per Common Share: Basic ................................................... $ 0.03 $ (0.06) $ (0.12) ============ ============ ============ Diluted ................................................. $ 0.02 $ (0.06) $ (0.12) ============ ============ ============ Net income (loss) ....................................... $ 1,673,000 $ 422,000 $ (1,491,000) Foreign currency translation adjustment, net of tax ..... -- 376,000 (376,000) ------------ ------------ ------------ Comprehensive income (loss) ............................. $ 1,673,000 $ 798,000 $ (1,867,000) ============ ============ ============
See accompanying notes to the consolidated financial statements. F-4 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED AUGUST 26, 2000, AUGUST 28, 1999 AND AUGUST 29, 1998
PREFERRED STOCK ---------------------------------------------------------------------- COMMON STOCK SERIES A SERIES B SERIES C -------------------- ---------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- -------- -------- ----------- -------- ----------- -------- ---------- Balance, August 30, 1997 ......... 16,729,074 $168,000 666,529 $ 4,666,000 120,690 $ 4,511,000 -- -- Net loss ......................... -- -- -- -- -- -- -- -- Exercise of stock options ........ 27,495 -- -- -- -- -- -- -- Contribution to 401(k) Plan ...... 4,924 -- -- -- -- -- -- -- Sale of Brazilian subsidiary ..... -- -- -- -- -- -- -- -- Issuance of Warrants ............. -- -- -- -- -- -- -- -- Foreign currency translation ..... -- -- -- -- -- -- -- -- ---------- -------- -------- ----------- -------- ----------- -------- ---------- Balance, August 29, 1998 ......... 16,761,493 168,000 666,529 4,666,000 120,690 4,511,000 -- -- Net income ....................... -- -- -- -- -- -- -- -- Preferred Stock Dividends ........ -- -- -- -- -- -- -- -- Contribution to 401(K) Plan ...... 7,366 -- -- -- -- -- -- -- Issuance of Series C Preferred Stock and related warrants ...... -- -- -- -- -- -- 78,333 $4,699,000 Related Party Receivables ........ -- -- -- -- -- -- -- -- Sale of Mexican Subsidiary ....... -- -- (129,387) (906,000) -- -- -- -- ---------- -------- -------- ----------- -------- ----------- -------- ---------- Balance, August 28, 1999 ......... 16,768,859 168,000 537,142 3,760,000 120,690 4,511,000 78,333 4,699,000 Net income ....................... -- -- -- -- -- -- -- -- Series C Preferred Stock Dividends -- -- -- -- -- -- -- -- Stock option exercise ............ 5,000 -- -- -- -- -- -- -- Contribution to 401(k) Plan ...... 10,050 -- -- -- -- -- -- -- Issuance of Series C Preferred Stock and related warrants ....... -- -- -- -- -- -- 21,667 1,434,000 Issuance of options relating to FIL Acquisition .................. -- -- -- -- -- -- -- -- Increase in Related Party Receivables ...................... -- -- -- -- -- -- -- -- Related Party Receivables Settlement ....................... -- -- -- -- (88,800) (3,338,000) -- -- ---------- -------- -------- ----------- -------- ----------- -------- ---------- Balance, August 26, 2000 ......... 16,783,909 $168,000 537,142 $ 3,760,000 31,890 $ 1,173,000 100,000 $6,133,000 ========== ======== ======== =========== ======== =========== ======== ========== FOREIGN ADDITIONAL RELATED CURRENCY PAID-IN PARTY TRANSLATION ACCUMULATED CAPITAL RECEIVABLES ADJUSTMENT DEFICIT ----------- ----------- ----------- ------------ Balance, August 30, 1997 ......... $10,566,000 -- -- $(12,612,000) Net loss ......................... -- -- -- (1,491,000) Exercise of stock options ........ 264,000 -- -- -- Contribution to 401(k) Plan ...... 51,000 -- -- -- Sale of Brazilian subsidiary ..... 1,506,000 -- -- -- Issuance of Warrants ............. 96,000 -- -- -- Foreign currency translation ..... -- -- $ (376,000) -- ----------- ----------- ----------- ------------ Balance, August 29, 1998 ......... 12,483,000 -- (376,000) (14,103,000) Net income ....................... -- -- -- 422,000 Preferred Stock Dividends ........ -- -- -- (375,000) Contribution to 401(K) Plan ...... 51,000 -- -- -- Issuance of Series C Preferred Stock and related warrants ...... 307,000 -- -- (681,000) Related Party Receivables ........ -- $(2,365,000) -- -- Sale of Mexican Subsidiary ....... -- -- 376,000 (146,000) ----------- ----------- ----------- ------------ Balance, August 28, 1999 ......... 12,841,000 (2,365,000) -- (14,883,000) Net income ....................... -- -- -- 1,673,000 Series C Preferred Stock Dividends -- -- -- (468,000) Stock option exercise ............ 7,000 -- -- -- Contribution to 401(k) Plan ...... 60,000 -- -- -- Issuance of Series C Preferred Stock and related warrants ....... 185,000 -- -- (372,000) Issuance of options relating to FIL Acquisition .................. 401,000 -- -- -- Increase in related Party Receivables .................... -- (375,000) -- -- Related Party Receivables Settlement ..................... 1,229,000 2,740,000 -- (631,000) ----------- ----------- ----------- ------------ Balance, August 26, 2000 ......... $14,723,000 $ -- $ -- $(14,681,000) =========== =========== =========== ============
See accompanying notes to the consolidated financial statements. F-5 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ------------------------------------------ AUGUST 26, AUGUST 28, AUGUST 29, 2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities: Net income (loss) ............................................... $ 1,673,000 $ 422,000 $ (1,491,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation ................................................. 1,340,000 1,727,000 1,775,000 Amortization of goodwill ..................................... 267,000 -- -- Other amortization costs ..................................... 60,000 -- -- Provision for losses on accounts receivable .................. 608,000 886,000 998,000 Provision for market valuation of inventory .................. 292,000 170,000 720,000 Provision for (reduction in) LIFO reserve ................... 8,000 109,000 (685,000) Foreign currency translation adjustment ...................... -- -- (376,000) Compensation expense related to extension of stock options ... -- -- 217,000 Issuance of stock in connection with 401K plan ............... 60,000 51,000 51,000 Amortization of deferred loan origination costs .............. 252,000 255,000 188,000 Amortization of warrant valuation ............................ 15,000 4,000 60,000 Change in operating assets and liabilities: Accounts receivable ....................................... (4,599,000) (2,278,000) 145,000 Accounts receivable, affiliates ........................... (1,270,000) (2,876,000) (1,787,000) Inventories ............................................... (3,021,000) 1,428,000 1,414,000 Other current assets ...................................... (387,000) 350,000 264,000 Accounts payable .......................................... (449,000) (2,234,000) 1,251,000 Accounts payable, affiliates .............................. 996,000 (1,567,000) 722,000 Accrued expenses .......................................... 2,859,000 243,000 (239,000) Income taxes payable ...................................... 75,000 -- (11,000) ------------ ------------ ------------ Net cash provided by (used in) operating activities ....... (1,221,000) (3,310,000) 3,216,000 ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures ............................................ (1,201,000) (1,892,000) (1,599,000) Investment in business acquisition; net of cash acquired ........ (554,000) -- Decrease (increase) in other assets ............................. -- -- (20,000) ------------ ------------ ------------ Net cash used in investing activities ..................... (1,755,000) (1,892,000) (1,619,000) ------------ ------------ ------------ Cash flows from financing activities: Book overdraft .................................................. -- (334,000) 334,000 Borrowings under revolving credit facility ...................... 69,076,000 80,993,000 53,948,000 Repayments under revolving credit facility ...................... (65,817,000) (79,679,000) (46,336,000) Net borrowings (repayment) under former revolving credit facility -- -- (10,205,000) Proceeds from long-term debt .................................... 1,271,000 1,414,000 4,258,000 Principal payments on capital leases ............................ (131,000) (122,000) (132,000) Principal payments on long-term debt ............................ (2,175,000) (996,000) (3,157,000) Deferred loan costs relating to revolving credit facility ....... -- -- (780,000)
F-6 TRISTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Issuance of Preferred Stock C ................................................. 1,300,000 4,699,000 -- Payment of issuance costs for Preferred Stock C ............................... (53,000) (374,000) -- Payment of dividends on Preferred Stock C ..................................... (468,000) (375,000) -- Proceeds from issuance of common stock ........................................ 7,000 -- 47,000 ------------- ------------- ------------- Net cash provided by (used in) financing activities ....................... 3,010,000 5,226,000 (2,023,000) ============= ============= ============= Net increase (decrease) in cash .................................................... 34,000 24,000 (426,000) Cash at beginning of year .......................................................... 90,000 66,000 492,000 ------------- ------------- ------------- Cash at end of year ................................................................ $ 124,000 $ 90,000 $ 66,000 ============= ============= ============= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest ................................................................... $ 1,683,000 $ 991,000 $ 1,637,000 Income taxes paid (received) ............................................... $ 63,000 $ (38,000) $ 131,000
Supplemental disclosure of noncash financing and investing activities: 2000 o The Company purchased all of the capital stock of FIL for $730,000. In conjunction with this acquisition, liabilities were assumed as follows: Fair value of assets acquired ........... $ 11,795,000 Value of options issued ................. (307,000) Cash paid for the capital stock, including acquisition costs ........... (730,000) ------------ Liabilities assumed ................. $ 10,758,000 o As of August 26, 2000, the Sheth Group settled the related party accounts receivable outstanding balance of $2,740,000 due to the Company. Payment was made by the redemption of 88,800 shares of Series B Convertible Preferred Stock, $.05 par value ("Series B Preferred"), issued to Nevell. The agreed to redemption value of $23.75 per share of Series B Preferred amounted to $2,109,000 with the remaining $631,000 representing dividends in arrears. 1999 o Sale of a Mexican subsidiary to an affiliated company for $2,686,000. The result was a non-cash decrease of subordinated debt to Nevell Investments, S.A. of $1,700,000 and the remaining $986,000 attributed to redeemed shares of Series A Preferred Stock (See Note 15 of the Notes to Consolidated Financial Statements for further discussion). o Certain related party accounts receivable balances will not be collected in the normal course of business. Accordingly, as of August 28, 1999, outstanding balances totaling $2,365,000 have been reclassified to shareholder's equity. 1998 o A non-cash increase in property and equipment and obligations under capital leases of $327,000. o Sale of a Brazilian subsidiary to an affiliated company for $2,800,000. The result was a non-cash decrease of subordinated debt to Nevell Investments, S.A. of $2,800,000 (See Note 15 of the Notes to Consolidated Financial Statements for further discussion). o Warrants issued to an investment banker resulted in a non-cash increase in additional paid-in-capital and other assets of $96,000. See accompanying notes to the consolidated financial statements. F-7 TRISTAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: AFFILIATION The Company, which is primarily owned by companies under the control of the Sheth Group (Starion International, Ltd., a British Virgin Islands Limited Partnership ("Starion B.V.I.") and Transvit Manufacturing Corporation ("Transvit")), operates in one industry segment; the development, manufacturing, marketing and distribution of designer alternative fragrances, complimentary products to those fragrances and cosmetic pencils, and in the marketing and distribution of other cosmetic and selected toiletry products. The Company distributes its products to wholesalers, distributors, drug and grocery chains, mass merchandisers and specialty chain stores located primarily in North and South America. In fiscal 2000, 1999 and 1998, one customer accounted for approximately 14%, 13% and 10%, respectively, of the Company's net sales. FISCAL YEAR END The Company utilizes a 52-53 week fiscal year ending on the Saturday nearest the last day of the month of August in each year. The 2000, 1999 and 1998 fiscal years ended on August 26, August 28, and August 29, respectively. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Tristar Corporation and all subsidiaries (the "Company"). All intercompany accounts and transactions have been eliminated in consolidation. Effective May 30, 1998, the company sold its Brazilian subsidiary. See Note 7 of the Notes to Consolidated Financial Statements for further discussion. Effective November 29, 1998, the Company sold its Mexican subsidiary. See Note 8 of the Notes to Consolidated Financial Statements for further discussion. Effective November 15, 1999, the Company acquired FIL. See Note 9 of the Notes to Consolidated Finanaical Statements for further discussion. INVENTORY Inventories are stated at the lower of last-in-first-out (LIFO) cost or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Depreciation is determined by the straight-line method over the estimated useful lives of the assets. Maintenance and repairs are charged to operations. The estimated useful lives are as follows: Buildings 32 years Leasehold improvements Term of the lease or estimated useful life, whichever is less Furniture and equipment 7 to 10 years Manufacturing equipment 7 years Vehicles 5 years Computer equipment 5 years Gains and losses from disposals of property and equipment are reflected in the Statement of Operations in the period of disposal. EQUIPMENT UNDER CAPITAL LEASES Equipment under capital leases is amortized over the term of the lease or the estimated useful life of the equipment, whichever is less. REVENUE RECOGNITION Revenue is recognized by the Company when goods are shipped and title passes to the purchaser. NET INCOME (LOSS) PER COMMON SHARE The Company adopted SFAS No. 128, "Earnings per Share," in fiscal 1998. Accordingly, basic EPS is computed F-8 by dividing net income (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted EPS is computed by dividing net income (loss) applicable to common shareholders, as adjusted for the assumed conversion of preferred stock, if applicable, by the sum of the weighted-average number of common shares outstanding, and the number of additional common shares that would have been outstanding if dilutive options, warrants and convertible preferred stock had been exercised or converted. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSACTIONS The Company purchases a significant portion of its inventory for its manufacturing operations from foreign suppliers. Such inventory is recorded using currency exchange rates in effect on the date of purchase. Gains and losses on the settlement of accounts payable for such purchases are recorded based upon the currency exchange rates in effect on the date of settlement. Foreign currency denominated accounts payable balances outstanding at August 26, 2000 and August 28, 1999 have been translated to U.S. dollars utilizing exchange rates in effect at the respective balance sheet dates. The net foreign currency transaction and translation gains/(losses) reflected in the Statement of Operations for the years ended August 26, 2000, August 28, 1999 and August 29, 1998 were approximately $77,000, $157,000, and ($111,000) respectively. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising costs were approximately $2,583,000, $1,909,000 and $1,860,000, for the year ended August 26, 2000, August 28, 1999 and August 29, 1998, respectively. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS Certain prior period amounts have been reclassified to conform to the current year presentation. 2. NET INCOME/(LOSS) PER COMMON SHARE A reconciliation of the numerators and denominators of the basic and diluted loss per share computations, as required by SFAS No. 128, is presented below:
FOR THE YEAR ENDED AUGUST 26, 2000 ------------------------------------------- PER SHARE INCOME SHARES AMOUNT ------------ ------------ ------------ Basic EPS:Net income available to common stockholders .................... $ 420,000 16,773,840 $ .03 ============ ============ ============ Effect of Dilutive Securities: Stock Options ............................................................ -- 15,646 -- Warrants ................................................................. -- 374,629 -- ------------ ------------ ------------ Dilutive EPS: Net income available to common stockholders and assumed conversions ...... $ 420,000 17,164,115 $ .02 ============ ============ ============ FOR THE YEAR ENDED AUGUST 28, 1999 ------------------------------------------- PER SHARE LOSS SHARES AMOUNT ------------ ------------ ------------ Basic/Diluted EPS: Net loss available to common stockholders ................................ $ (1,056,000) 16,764,506 $ (.06) ============ ============ ============
F-9
FOR THE YEAR ENDED AUGUST 29, 1998 ------------------------------------------- PER SHARE LOSS SHARES AMOUNT ------------ ------------ ------------ Basic/Diluted EPS: Net loss available to common stockholders ....................... $ (1,944,000) 16,748,798 $ (.12) ============ ============ ============
Options to purchase 1,875,000 shares of common stock and warrants to purchase 50,000 shares of common stock at $5.766 per share were outstanding at August 26, 2000 but were not included in the computation of diluted EPS because the options' and warrants' exercise price was greater than the average market price of the common shares and would have an anti-dilutive effect. Dilutive EPS equals basic EPS for the years ended August 28, 1999 and August 29, 1998 as the assumed conversion of convertible preferred stock and the assumed exercise of outstanding options and warrants would have an anti-dilutive effect. 3. INVENTORIES:
August 26, 2000 August 28, 1999 --------------- --------------- Raw materials .................... $ 7,331,000 $ 4,183,000 Work-in-process .................. 1,498,000 630,000 Finished goods ................... 6,575,000 5,395,000 --------------- --------------- 15,404,000 10,208,000 Reserves for market valuation .... (1,542,000) (305,000) LIFO valuation allowance ......... (380,000) (372,000) --------------- --------------- $ 13,482,000 $ 9,531,000 =============== ===============
Cost of sales was increased by approximately $362,000 as a result of LIFO inventory decrements in 1999. 4. PROPERTY, PLANT AND EQUIPMENT: August 26, 2000 August 28, 1999 --------------- --------------- Land ................................... $ 33,000 $ 33,000 Building and leasehold improvements .... 4,894,000 4,903,000 Machinery and equipment ................ 11,527,000 10,359,000 Computer equipment ..................... 2,735,000 2,667,000 Furniture and equipment ................ 856,000 836,000 --------------- --------------- 20,045,000 18,798,000 Less accumulated depreciation .......... (11,774,000) (10,434,000) --------------- --------------- $ 8,271,000 $ 8,364,000 =============== =============== During the fiscal years ended August 26, 2000, August 28, 1999 and August 29, 1998, the Company recorded depreciation expense of $1,340,000, $1,727,000 and $1,775,000. F-10 5. ACCRUED EXPENSES: The company's accrued expenses consist of the following: August 26, 2000 August 28, 1999 --------------- --------------- Accrued interest expense - subordinated debt. $ 1,631,000 $ 1,731,000 Accrued cooperative advertising ............. 1,028,000 96,000 Accrued allowance for sales returns ......... 3,501,000 618,000 Other ....................................... 2,019,000 1,283,000 --------------- --------------- $ 8,179,000 $ 3,728,000 =============== =============== 6. REVOLVING CREDIT AGREEMENT BORROWINGS AND LONG-TERM DEBT: August 26, 2000 August 28, 1999 ---------------- ---------------- Revolving credit agreement borrowings . $ 15,167,000 $ 8,926,000 ================ ================ Term loan ............................. $ 1,600,000 $ 2,286,000 Capital expenditure loan .............. 2,189,000 1,713,000 Other note payable .................... -- 22,000 ---------------- ---------------- 3,789,000 4,021,000 Less current portion .................. (1,712,000) (1,283,000) ---------------- ---------------- Long-term debt, less current portion .. $ 2,077,000 $ 2,738,000 ================ ================ In December 1997, the Company entered into a $22,000,000 credit agreement (the "Credit Agreement")with its principal lender. In November 1999, the Credit Agreement was amended and restated to provide for a revolving credit facility (the "Revolving Credit") of $16,000,000 of maximum borrowings; with a $4,500,000 sublimit allocated to support the requirements of Tristar USA ("FIL") (see Note 9 of the Notes to Consolidated Fiancial Statements for further details on Tristar USA acquisition). Such borrowings bear interest, at the Company's election, at the Alternate Base Rate (the higher of the prime rate or the Federal Funds Rate plus .50%) plus 1.00% or the London Interbank Offered Rate (LIBOR) plus 3.50% (although, borrowings based on LIBOR cannot exceed 60% of the total oustanding borrowings under the Revolving Credit). At August 26, 2000, the Revolving Credit bore interest at rates of 10.50% and 10.12%, respectively, in accordance with the above noted interest computations. Borrowings under the Revolving Credit are limited by a formula based on Eligible Accounts Receivable and Inventory, as defined in the agreement. Remaining availability under the line as of August 26, 2000 approximated $756,000 based on the borrowing formula. Commitment fees equal to .50% per annum on the unused portion of the Revolving Credit are payable monthly. The credit agreement contains certain provisions giving the lender the right to accelerate payment of all outstanding amounts in the event of a "material adverse change", as defined. Accordingly, all Revolving Credit amounts are classified as current in the accompanying consolidated balance sheets. All outstanding amounts under the Revolving Credit Agreement are due in December 2001. The Credit Agreement also provides for a $3,400,000 term loan (the "Term Loan") and a $3,500,000 capital expenditure facility (the "Cap Ex Facility"). The Term Loan bears interest, payable monthly, at the Alternate Base Rate (10.50 % at August 26, 2000) plus 2.00%. Principal payments on the Term Loan consist of equal monthly principal payments in the amount of $56,667 for 60 months beginning in January 1998. Additionally, 50% of annual excess cash flow, as defined, must be applied to the Term Loan installments in the inverse order of maturity. As of August 26, 2000, the Company had outstanding borrowings under the Term Loan totaling $1,600,000. F-11 Borrowings under the Cap Ex Facility are limited to 80% of the cost of new machinery and equipment, limited to annual utilization of $1,500,000. These borrowings also bear interest, payable monthly, at the Alternate Base Rate (10.50 % at August 26, 2000) plus 2.00%. Principal payments on the Cap Ex Facility commence one month after the related borrowing in an amount based on a three year amortization. However, a balloon payment in an amount equal to all outstanding borrowings under the Cap Ex Facility is also due in December 2001. As of August 26, 2000 the Company had outstanding borrowings under the Cap Ex Facility totalling $2,189,000. Principal payments are due at the rate of $86,000 per month. Aggregate maturities of amounts outstanding under the Term Loan and Cap Ex Facility are as follows as of August 26, 2000: Fiscal Year Amount ----------- --------------------- 2001 $ 1,712,000 2002 2,077,000 2003 - 2004 - --------------------- $ 3,789,000 ===================== Borrowings under the Credit Agreement are collateralized by all of the Company's present and future assets. Restrictive financial covenants including Minimum Tangible Net Worth, Minimum EBITDA, Maximum Loss, Minimum Fixed Charge Coverage, Maximum Leverage and Maximum Capital Expenditures, were agreed upon in connection with the FIL acquisition. Additional covenants limit borrowings, asset sales and dividends. The Company was in violation of certain financial covenants at August 26, 2000 and was granted waivers to such covenants by its lender. The Company is currently in discussions with its lender concerning new restrictive financial covenants for fiscal 2001. 7. SALE OF WHOLLY OWNED BRAZILIAN SUBSIDIARY Effective May 30, 1998, the Company sold all of the capital stock and distribution rights of its Brazilian subsidiary to Transvit Distribution Corp. ("TDC"), a wholly owned affiliate of the Sheth Group, for $2,800,000. The agreement provides for a non-compete restriction and a supply arrangement whereby the Company agreed to continue selling product to the Brazilian unit through May 31, 2001. The company also received an option to repurchase the stock and distribution rights from TDC at anytime prior to May 31, 2003. The Company currently has no plans to repurchase the stock and distribution rights under this option. The Company received payment in the form of a reduction of the subordinated debt to Nevell Investments, S.A., ("Nevell") another affiliated company within the Sheth Group. The subordinated debt reduction, net of the related write-down of warrant valuation costs attributable to such debt, exceeded the carrying value of the Company's Brazilian investment by $1,506,000 and was recorded as an increase in additional paid-in-capital. 8. SALE OF WHOLLY OWNED MEXICAN SUBSIDIARY On March 15, 1999, pursuant to a stock purchase agreement entered into by and among the Company, Transvit Holding Corporation ("THC"), a wholly owned affiliate of the Sheth Group, the majority stockholder of the Company, and Nevell Investments, S.A. ("Nevell"), another affiliate of the Sheth Group, the Company sold to THC for $2,686,000 all of the issued and outstanding capital stock ("Trimex Stock") and certain distribution rights of its wholly owned subsidiary, Tristar de Mexico, S.A. de C.V. ("Trimex") , a distributor of fragrance and cosmetic products into the formal retail market in the United Mexican States. The transaction was effective as of November 29, 1998. F-12 The transaction provides for a non-compete restriction and a supply agreement whereby the Company agreed to continue selling certain products to Trimex. The Company also received an option to repurchase the Trimex Stock and distribution rights from THC at a fair value at anytime prior to March 15, 2004. The Company currently has no plans to exercise such option but may do so in the future. The Company received payment in the form of a reduction of debt due Nevell, and redemption of 129,387 shares of the Company's Series A Convertible Preferred Stock, $.05 par value ("Series A Preferred"), issued to Nevell, at a redemption price of $7.62 per share. Of the total purchase price of $2,686,000, an amount equal to $1,700,000 was applied to a reduction of debt due Nevell (See Note 8 of the Notes to Consolidated Financial Statements) with the remaining $986,000 attributed to redeemed shares of the Series A Preferred at a total redemption of approximately $906,000 plus $80,000 of dividends in arrears. Warrant valuation costs of $99,000 associated with the subordinated debt reduction were written-off in connection with the sale. The excess of the carrying value of the Company's investment in Trimex over the proceeds received was recorded as an increase in accumulated deficit. 9. PURCHASE OF FRAGRANCE IMPRESSIONS LIMITED ("FIL") On November 15, 1999, the Company, and its newly formed wholly owned subsidiary, Tristar USA, Inc. ("Tristar USA"), entered into an acquisition agreement dated effective November 1, 1999 to acquire Fragrance Impressions Limited, a Connecticut corporation ("FIL"). FIL, headquartered in Bridgeport, Connecticut, markets and distributes designer alternative fragrances, cosmetics and bath and body products. Under the terms of the acquisition agreement, FIL was merged into Tristar USA which purchased all of the issued and outstanding common stock of FIL for $350,000 in cash, $3,050,000 in promissory notes ("Notes"), and options to purchase up to 100,000 shares of the Company's common stock at $5.82 per share which were valued at approximately $307,000 utilizing the Black Scholes Method. Pursuant to the purchase agreement, the Notes are subject to post closing adjustments to the outstanding principle balance, based upon sales achievement during the next two calendar years and other post acquisition adjustments. As of August 26, 2000, the Company has recorded additional reserves for product returns and obsolete inventory with a corresponding increase in goodwill. The Company is currently in negotiations with the FIL selling shareholders concerning the fair value of the assets acquired as provided in the acquisition agreement. The outcome of these negotiations is still uncertain and although management believes that the ultimate outcome will substantially reduce subordinated notes payable to the FIL selling shareholders, such notes are unadjusted as of August 26, 2000. In connection with the FIL acquisition, the Company assumed and entered into other notes payable with key employees and consultants for change in control and other liabilities amounting to $1,498,000 (See Note 10 of the Notes to Consolidated Financial Statements). Cash used to finance this transaction was derived from the sale of 21,667 shares of Series C Preferred Stock in October 1999 (See Note 15 of the Notes to Consolidated Financial Statements). The consideration paid by Tristar USA was arrived at through negotiations between the Company, Tristar USA, and FIL and was based on a variety of issues, including without limitation, earnings and revenue, the value of goodwill and the nature of alternative designer fragrance, cosmetic and bath and body industry. The acquisition of FIL has been treated as a purchase acquisition for accounting purposes. Accordingly, net assets acquired have been adjusted to fair value as appropriate. The excess of the purchase price over the related fair value of net assets acquired of approximately $8 million has been recorded as goodwill to be amortized on a straight line basis over 20 years. F-13 The following represents supplemental consolidated pro-forma information for the fifty-two weeks ended August 26, 2000 and August 28, 1999 assuming the FIL acquisition had occurred at the beginning of each respective period: 2000 1999 (UNAUDITED) (UNAUDITED) -------------- -------------- Net Sales .................... $ 56,173,000 $ 66,314,000 Net Income/(Loss) applicable to common stock............. $ 658,000 $ (1,226,000) EPS .......................... $ .04 $ (.07) 10. SUBORDINATED LONG-TERM DEBT: Subordinated debt as of August 26, 2000, consists of the following (See Note 9 of the Notes to Consolidated Financial Statements):
Notes to selling shareholders; senior subordinated debt; interest at prime payable annually; principal is payable in four annual installments of $731,108 through November 2003 ......................... $ 2,683,000 Notes to key employees for change in control; senior subordinated debt; interest at 7 1/2% payable quarterly; principal is payable in twelve quarterly installments of $34,166 through November 2002 ................ 282,000 Notes to consultant; senior subordinated debt; interest at prime payable quarterly; principal is payable in twelve quaterly installments of $29,167 through November 2002 ................................. 239,000 Notes to creditor; senior subordinated debt; interest at prime payable quarterly; principal is payable in 16 quarterly installments of $37,436 through November 2003 .............................................. 446,000 Notes payable - other .......................................................... 30,000 ----------- Total subordinated debt ........................................................ $ 3,680,000 Less: current portion of subordinated debt ..................................... (945,000) ----------- Total subordinated debt less current portion ................................... $ 2,735,000 ===========
- -------------------------------------------------------------------------------- Aggregate maturities of amounts outstanding under Subordinated debt is as follows as of August 26, 2000: Fiscal Year Amount ----------- -------------------- 2001 $ 945,000 2002 1,307,000 2003 1,045,000 2004 383,000 --------------------- $ 3,680,000 ===================== F-14 The Company is currently in negotiations with the FIL selling shareholders concerning the fair value of assets acquired as provided in the acquisition agreement. The outcome of these negotiations is still uncertain and although management believes that the ultimate outcome will substantially reduce subordinated notes payable to the FIL selling shareholders, such notes are unadjusted as of August 26, 2000. 11. RELATED PARTY TRANSACTIONS: As of August 26, 2000, a majority of the Company's outstanding common stock (73%) is owned by companies under control of the Sheth Group. Effective April 22, 1998, the Sheth Group sold 700,000 shares of the Company's stock to a business associate. The purchase price was substantially lower than the price reported by NASDAQ, reflecting a discount from the market price due to the magnitude of the transaction and the relatively low trading volume of the Company's stock. This transaction reduced the Sheth Group holdings to 73% of the Company's outstanding stock. The Company purchases finished goods and components from Sheth Group affiliates. During fiscal 2000, 1999 and 1998 the Company purchased approximately $2,777,000, $2,979,000, and $4,227,000, respectively, of such products. The Company sold products to Sheth Group affiliates during fiscal 2000, 1999 and 1998 of approximately $2,960,000, $5,418,000, and $6,557,000, respectively. Gross margins on these sales during fiscal 2000, 1999, and 1998 were 25%, 36% and 16%, respectively. In fiscal 2000, 1999 and 1998, the Company incurred fees to directors of approximately $103,000, $206,000 and $279,000, respectively, of which approximately $72,000 and $27,000 were unpaid at August 28, 1999 and August 29, 1998, respectively. As of August 26, 2000, all incurred fees to directors have been paid. At August 26, 2000, warrants to purchase 400,000 and 2,000,000 of the Company's common stock at an exercise price of $2.75 and $5.34 per share, respectively, were owned by the Sheth Group. The warrants are exercisable through 2003. 12. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - RELATED PARTIES: Related parties are the primary suppliers of the Company's cosmetics and are also suppliers of certain components. Related party accounts payable result from the purchase of those items. Related party accounts receivable result from the sale of the Company's products to related parties. The following summarizes the presentations at August 26, 2000 and August 28, 1999. See Note 10 of the Notes to Consolidated Financial Statements for further discussion.
August 26, 2000 August 28, 1999 --------------- --------------- ACCOUNTS RECEIVABLE: Total accounts receivable-related parties ...... $ 5,199,000 $ 4,568,000 Offset amount .................................. (186,000) (450,000) --------------- --------------- Net related parties receivables ................ $ 5,013,000 $ 4,118,000 =============== =============== ACCOUNTS PAYABLE: Total accounts payable-related parties ......... $ 4,698,000 $ 3,966,000 Offset amount .................................. (186,000) (450,000) --------------- --------------- Net related parties payables ................... $ 4,512,000 $ 3,516,000 =============== ===============
F-15 Certain related party accounts receivable balances were determined not to be settled in the normal course of business. Accordingly, outstanding balances totaling $2,365,000 were reclassified to shareholder's equity at August 28, 1999. During fiscal 2000, the amount of these outstanding balances increased to $2,740,000. As of August 26, 2000, the Sheth Group settled this outstanding balance due to the Company. Payment was made by the redemption of 88,800 shares of Series B Convertible Preferred Stock, $.05 par value ("Series B Preferred"), issued to Nevell. The agreed to redemption value was determined to be $23.75 per share of Series B Preferred based upon the closing price of $5.938 per share of the Company's common stock on August 26, 2000. This amounted to $2,109,000 with the remaining $631,000 representing dividends in arrears. The difference between the stated redemption price of $29.00 and the agreed to price of $23.75 per Series B Preferred share amounted to $1,229,000 and was recorded to additional paid-in-capital. Federal witholding taxes on the dividends amounting to $189,227 will be remitted to the Company by the Sheth Group in satisfaction of this obligation and a related party receivable equal to such amount is reflected in the August 26, 2000 Consolidated Balance Sheet. As Part of this share redemption transaction, the Sheth Group agreed to transfer 12,500 shares of common stock owned by Transvit to the holders of the Company's Series C Preferred Stock. 13. LEASES: The future minimum lease payments required under capital leases (together with the present value of minimum lease payments) and future minimum lease payments required under operating leases that have an initial or remaining lease term in excess of one year as of August 26, 2000 are as follows: Operating Capital Fiscal Year Leases Leases - ------------------------------------- ---------- -------- 2001 ................................... $ 380,000 $ 9,000 2002 ................................... 219,000 9,000 2003 ................................... 198,000 4,000 2004 ................................... 164,000 -- 2005 ................................... 50,000 -- ---------- -------- Total minimum lease payments .................... $1,011,000 22,000 ========== Less imputed interest ........................... (1,000) -------- Present value of minimum lease payments ......... 21,000 Less current portion ............................ (9,000) -------- Long-term portion ............................... $ 12,000 ======== Certain of the above leases include escalation charges based on increases in real estate taxes, utilities and common maintenance charges. Rental expense for fiscal 2000, 1999 and 1998 amounted to approximately $783,000, $788,000, and $745,000, respectively. 14. INCOME TAXES: The components of income (loss) before income taxes are as follows: Years Ended ------------------------------------------------------- August 26, 2000 August 28, 1999 August 29, 1998 ---------------- ---------------- ---------------- Domestic ........... $ 1,770,000 $ 300,000 $ (495,000) Foreign ............ -- 129,000 (934,000) ---------------- ---------------- ---------------- $ 1,770,000 $ 429,000 $ (1,429,000) ================ ================ ================ F-16 Under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the asset and liability method is used in accounting for income taxes. Deferred tax balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted marginal tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense (benefit) consists of the following: Current Deferred Total ------------ ------------ ------------ Year ended August 26, 2000 U.S. Federal ............. $ 97,000 $ -- $ 97,000 State .................... -- -- -- ------------ ------------ ------------ $ 97,000 $ -- $ 97,000 ============ ============ ============ Year ended August 28, 1999 U.S. Federal ............. $ 7,000 $ -- $ 7,000 State .................... -- -- -- ------------ ------------ ------------ $ 7,000 $ -- $ 7,000 ============ ============ ============ Year ended August 29, 1998 U.S. Federal ............. $ 62,000 $ -- $ 62,000 State .................... -- -- -- ------------ ------------ ------------ $ 62,000 $ -- $ 62,000 ============ ============ ============ Income tax expense in fiscal 2000, 1999 and 1998 differed from the amounts computed by applying the statutory income tax rate to income (loss) before income taxes as a result of the following:
August 26, August 28, August 29, ------------ ------------ ------------ 2000 1999 1998 ------------ ------------ ------------ Computed expected tax expense (benefit) ................. $ 655,000 $ 159,000 $ (522,000) Increase (decrease) in income taxes resulting from: Net operating loss carryforward utilized .......... (657,000) (46,000) -- Warrant expenses not deductible for income tax Purposes ...................................... -- 22,000 Foreign subsidiary (income) loss not included for Income tax purposes ........................... (36,000) 327,000 U.S. loss providing no current year benefit ....... -- 558,000 Deferred tax asset valuation allowance inclusive of other items providing no current period benefit ... 1,084,000 (518,000) (287,000) Alternative minimum tax ........................... 63,000 7,000 -- Prior year return to provision adjustments ........ (913,000) (518,000) 62,000 IRS settlement impact on net operating loss carryforward ...................................... -- 925,000 -- Other, net ........................................ (135,000) 34,000 (98,000) ------------ ------------ ------------ Total income tax expense ................................ $ 97,000 $ 7,000 $ 62,000 ============ ============ ============
F-17 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at August 26, 2000 and August 28, 1999 are presented below:
August 26, 2000 August 28, 1999 --------------- --------------- Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts and sales returns ................................................... $ 1,184,000 $ 469,000 Inventories, principally due to allowance for obsolescence and difference in certain costs capitalized for tax purposes ....................... 144,000 174,000 Packaging design costs .................................................. 145,000 270,000 Accrued expenses, principally due to accrual of related party interest expense for financial reporting purposes ............................ 867,000 841,000 Net operating loss carryforward ......................................... 3,302,000 2,852,000 Alternative minimum tax credit carryforwards ............................ 363,000 306,000 --------------- --------------- Total deferred tax assets ..................................................... 6,005,000 4,912,000 Less valuation allowance ...................................................... (5,111,000) (4,027,000) --------------- --------------- 894,000 885,000 --------------- --------------- Deferred tax liabilities: LIFO reserve ............................................................ (194,000) (207,000) Plant and equipment, principally due to differences in depreciation ..... (700,000) (678,000) --------------- --------------- Total deferred tax liabilities ................................................ (894,000) (885,000) --------------- --------------- Net deferred tax asset ........................................................ $ -- $ -- =============== ===============
The valuation allowance for deferred taxes increased during fiscal 2000 by $1,084,000 and decreased in 1999 by $407,000. In assessing the realizability of deferred tax assets under the guidelines of SFAS No. 109, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. While management anticipates generating future taxable income, a valuation allowance of $5,111,000 has been recorded at August 26, 2000 in accordance with SFAS No. 109 to reduce the net deferred tax asset to zero due to the uncertainty of realizing the benefits of these deductible differences. At August 26, 2000, the Company has net operating loss carryforwards for federal income tax purposes of approximately $8,924,000 which are available to offset future federal taxable income, if any, through 2019. The Company also has alternative minimum tax credit carryforwards of approximately $363,000 which are available to reduce future federal regular income taxes, if any, over an indefinite period. 15. PREFERRED STOCK: To strengthen the financial position of the Company, effective December 11, 1996, Transvit Manufacturing Corporation ("Transvit"), a related party and principal stockholder, agreed to convert a $4,666,000 subordinated note payable into 666,529 shares of the Company's Series A convertible nonvoting preferred stock. The preferred stock has cumulative preferred dividends of $0.315 per share and a preferred distribution of $7.00 per share plus accrued and unpaid dividends. Each share of the Series A preferred stock is convertible, at the option of Transvit, into one share of the Company's common stock. The Company can redeem the shares of Series A preferred stock at any time for cash of $7 per share, plus all accrued and unpaid dividends. The Company redeemed 129,387 shares of the Series A Stock in connection with the sale of its wholly-owned Mexican subsidiary in fiscal 1999. See Note 8 of the Notes to Consolidated Financial Statements. At August 26, 2000, cumulative dividends in arrears on the Series A preferred stock approximated $612,000. F-18 In a subsequent transaction effective February 21, 1997, Nevell, the holder of a subordinated long-term promissory note in the principal amount of $4,000,000, converted $3,500,000 of that note into 120,690 shares of the Company's Series B convertible nonvoting preferred stock. The Series B preferred stock has cumulative preferred dividends of $2.03 per share and a preferred distribution of $29.00 per share plus accrued and unpaid dividends. Each share of the Series B preferred stock is convertible, at the option of Nevell, into four shares of the Company's common stock. The Company can redeem the shares of Series B preferred stock at any time for cash of $29.00 per share ($7.25 per common share), plus all accrued and unpaid dividends. At August 26, 2000, cumulative dividends in arrears on the Series B preferred stock approximated $224,000. The Company redeemed 88,800 shares of the Series B Preferred in connection with the settlement of certain accounts receivable balances due from the Sheth Group as of August 26, 2000. See Note 12 of the Notes to Consolidated Financial Statements. On February 21, 1997, the closing bid price of the Company's common stock as reported by the NASDAQ was $9 11/32. At that date, the Series B preferred stock carried a beneficial conversion feature of $2 3/32, the difference between the conversion price and the closing bid price. The value of the beneficial conversion feature has been reflected in the financial statements of the Company in a manner similar to that for a dividend to the preferred shareholder. Accordingly, the Company has recorded a charge to retained earnings and an increase in the value of the Series B preferred stock in the amount of $1,011,000. Additionally, as a result of the conversion, the Company wrote off $270,000 of warrant valuation costs attributable to the converted debt. This charge has also been recorded to retained earnings in a manner consistent with that for the beneficial conversion feature described above. Additionally, the charge applicable to the beneficial conversion feature and the warrant valuation adjustment have been deducted in computing net loss applicable to common stock in the accompanying consolidated statement of operations. Effective September 3, 1998, the Company completed a private placement whereby it sold 78,333 shares of Series C Senior Convertible Preferred Stock ("Series C Preferred Stock") to a private investor for $60 per share. Each share of Series C Preferred Stock is convertible into 11.0345 common shares at a conversion price of $5.44 per share. In addition, the Company issued a warrant to purchase 125,000 shares of Common Stock at an exercise price of between $4.00 and $6.28 per share. The Company received proceeds of approximately $4,700,000 in such private placement. On the date of the issuance of the Series C Preferred Stock, the closing bid price of the Company's common stock as reported by the NASDAQ was $5.44. The Series C Preferred Stock conversion ratio was based on this closing bid price at date of issuance. The common stock warrants issued to the holders of the Series C Preferred Stock were valued at approximately $307,000 utilizing the Black Scholes Method. Additionally, the Company incurred costs totaling $374,000 in connection with the Series C Preferred Stock sale. The value of the common stock warrants and the issuance costs have been accounted for as a beneficial conversion feature to the preferred shareholders and thus have been charged directly to accumulated deficit and have been reflected as a reduction in net income applicable to common stock. On October 14, 1999, the Company completed another private placement whereby it sold an additional 21,667 shares of Series C Preferred Stock to the private investor mentioned previously for $60 per share. Each share of Series C Preferred Stock is convertible into 11.0345 common shares at a conversion price of $5.44 per share. In connection with such sale, the Company issued warrants to purchase an aggregate of 60,000 shares of Common Stock at an exercise price of $4.75 per share. The Company received approximately $1,300,000 from such private placement. The holders of the Series C Preferred Stock are entitled to receive a cumulative cash dividend of $4.80 per share annually. The dividend is payable quarterly ($1.20 per share). The dividends may be paid by issuance of additional shares of Series C Preferred Stock except such shares bear a cumulative cash dividend of $7.80 per share annually. Dividends of approximately $468,000 were paid in cash on the Series C Preferred Stock during the fifty-two week period ended August 26, 2000. The holders of the Series C Preferred Stock are entitled to receive a liquidation preference equal to $60.00 per share plus interest thereon from the date of issue until redemption or conversion at a compound rate of 20% per year. The Series C Preferred Stock has full voting rights based on the number of common shares into which it is convertible and is voted together with the Common Stock as one class. F-19 16. FAIR VALUE OF FINANCIAL INSTRUMENTS: FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments," defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying value of cash, accounts receivable - net, and accounts receivable - related parties - net, accounts payable - trade, and accounts payable - related parties - net, approximate their respective fair value because of the short-term maturity of those instruments. The carrying value of amounts outstanding under the Credit Agreement approximates fair value as the interest rates approximate those currently offered to the Company for debt with similar maturities. The carrying amounts of subordinated debt approximate fair value. 17. STOCK OPTION PLANS: The Company has granted stock options under the Amended and Restated Option Plan (the "1991 Plan"), 1997 Long Term Incentive Plan and other plans (collectively the "Plans"). The Company applies APB Opinion 25 and related interpretations in accounting for the Plans. In 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which, if fully adopted by the Company, would change the methods the Company applies in recognizing the cost of the Plans. Adoption of the cost recognition provisions of SFAS 123 is optional and the Company has decided not to elect these provisions of SFAS 123. However, pro forma disclosures as if the Company adopted the cost recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are presented below. Under the Plans, the Company is authorized to issue up to 1,800,000 shares of Common Stock pursuant to awards granted in various forms, including incentive stock options (intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended) and other similar stock-based awards. The stock options granted in fiscal 2000, 1999 and 1998 have contractual terms of 10 years and an exercise price equal to the fair market value of the stock at grant date. The options vest over various vesting schedules. Most vest ratably at the rate of 20% per year beginning on the date of grant or the first anniversary of the date of grant. Others vest according to shorter schedules. F-20 A summary of the status of the Company's stock options as of August 26, 2000, August 28, 1999 and August 29, 1998 and the changes during the years then ended are presented below:
Options Outstanding ------------------------------------------------------------------------------------------ 2000 1999 1998 ---------------------------- ---------------------------- ---------------------------- Weighted Weighted Weighted Number of Average Number of Average Number of Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ---------- -------------- ---------- -------------- ---------- -------------- Outstanding at beginning of the year . 1,755,000 $ 6.24 1,462,500 $ 8.99 1,175,711 $ 8.20 Granted .............................. 405,000 $ 5.78 302,500 $ 5.78 580,000 $ 10.37 Exercised ............................ (5,000) $ 1.44 0 N/A (7,000) $ 6.88 Forfeited ............................ (108,000) $ 5.90 (10,000) $ 4.81 (252,958) $ 8.93 Expired .............................. 0 N/A 0 N/A (33,253) $ 7.32 ---------- -------------- ---------- -------------- ---------- -------------- Outstanding at end of year ........... 2,047,000 $ 6.18 1,755,000 $ 6.24 1,462,500 $ 8.99 ========== ============== ========== ============== ========== ============== Exercisable at end of year ........... 1,264,000 $ 6.23 1,018,000 $ 6.31 588,500 $ 8.35 ========== ============== ========== ============== ========== ============== Weighted average fair value of options Granted .......................... $ 2.57 $ 2.70 $ 4.57 ============================ ============================ ============================
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in fiscal 2000, 1999 and 1998: dividend yield of 0%; risk-free interest rates ranging from 5.18% to 5.19%; an expected life of options of 6 years; and a volatility ranging from 33.48% to 41.88% for all grants. The following table summarizes information about stock options oustanding at August 26, 2000:
Options Outstanding Options Exercisable ----------------------------------------------- ---------------------------- Weighted Weighted Weighted Number Average Remaining Average Number Average Range of Exercise Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price ----------------------- ----------- ----------------- -------------- ----------- -------------- $4.81 to $6.88 2,047,000 7.28 $ 6.18 1,264,000 $ 6.23 ======================= =========== ================= ============== =========== ==============
SFAS 123 establishes a fair value of accounting for stock-based compensation plans. Had the compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company's net income (loss), net loss applicable to common stock and net loss per common share would approximate the pro forma amounts below: F-21
August 26, 2000 August 28, 1999 August 29, 1998 --------------------------- ---------------------------- ---------------------------- As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma ------------- ----------- ------------- ----------- ------------- ----------- SFAS 123 Charge ..................... -- $ 1,033,000 -- $ 2,199,000 $ -- $ 2,005,000 APB 25 Charge ....................... -- -- -- -- -- -- Net income (loss) ................... $ 1,673,000 $ 640,000 $ 422,000 $(1,777,000) $ (1,491,000) $(3,496,000) Net income (loss) applicable To common stock ..................... $ 420,000 $ (613,000) $ (1,056,000) $(3,255,000) $ (1,944,000) $(3,949,000) Basic EPS ........................... $ 0.03 $ (0.04) $ (0.06) $ (0.19) $ (0.12) $ (0.24) Diluted EPS ......................... $ 0.02 $ (0.04) $ (0.06) $ (0.19) $ (0.12) $ (0.24)
The effects of applying SFAS 123 as disclosed above are not indicative of future amounts. SFAS 123 does not apply to awards granted prior to the 1995 fiscal year. On November 17, 1998, the Board of Directors approved a plan to reprice all outstanding options. Accordingly, all outstanding options as of December 9, 1998 were repriced to $6.31, the common stock market price at that date. On February 3, 2000, the Board of Directors agreed to terminate and reissue a non-qualified stock option agreement covering 480,000 options to an existing board member. Among other things, the reissued agreement eliminates certain conditions for early forfeiture. The option price and terms under the reissued agreement remain consistent with the original agreement that was simultaneously terminated. The market value of the Company's common stock was less than the option price stated in the agreement on the amendment date. 18. BENEFIT PLAN: Substantially all of the Company's full time employees are eligible to participate in the Company's 401(k) Plan. The Plan specifies that one-half of the Company's matching contribution is to be paid by the issuance of common stock based on the closing price at the end of each calendar quarter. During fiscal 2000, 1999 and 1998, a total of 10,050, 7,366 and 4,924, respectively, of such shares were issued to the Plan. Contributions including the issuance of Common Stock to the Plan were $ 122,000 in 2000, $106,000 in 1999, and $106,000 in 1998. 19. COMMITMENTS AND CONTINGENCIES: The Company is subject to ordinary and routine litigation arising out of the conduct of its business. Management believes that the ultimate disposition of any of these proceedings will not have a material adverse effect on the Company's financial condition. 20. CLASS ACTION LITIGATION: In December 1993, the Company reached an agreement to settle stockholder class action litigation regarding alleged violations of the federal securities laws, as well as common law fraud and negligence in connection with, among other things, the nondisclosure of the ownership interest of the Sheth Group prior to 1992, for a cash payment of $9.5 million. The settlement resulted in a release of claims by the plaintiff class against the Company and certain other defendants. The Company has recorded legal and professional expenses associated with the stockholder litigation settlement and other related events that were the subject of an internal investigation by a Special Committee of the Board of Directors. These expenses were approximately $21,000, $69,000 and $230,000 in fiscal 2000, 1999 and 1998, respectively. F-22 21. FOREIGN SALES: During fiscal 1999 and 1998, prior to the Company's disposition of its Mexican and Brazilian subsidiaries, the Company exported a significant portion of its sales directly through these subsidiaries. For the years ended August 26, 2000, August 28, 1999 and August 29, 1998, these sales were $16,458,000 (30% of net sales), $20,712,000 (37% of net sales) and $29,690,000 (44% of net sales), respectively. These customers are primarily located in Latin America. In addition, certain U.S. based customers ultimately distribute the Company's products into foreign countries ("indirect exports"). The volume of the indirect exports, which may be significant, could only be estimated as customers do not provide that information to the Company. 22. QUARTERLY RESULTS (UNAUDITED): Summarized quarterly results for 2000 and 1999 are as follows:
2000 Quarter Ended ------------------------------------------------------------------ Nov. 27 Feb. 26 May 27 Aug. 26 ------------ ------------ ------------ ------------ Net Sales ................................................... $ 13,464,000 $ 13,624,000 $ 12,011,000 $ 16,509,000 Gross Profit ................................................ 4,298,000 4,129,000 3,817,000 6,065,000 Net Income (Loss) ........................................... 386,000 (179,000) 133,000 1,333,000 Net Income (Loss) Applicable to Common Stock .......................................... (166,000) (433,000) (90,000) 1,109,000 Net Income (Loss) Per Common Share Basic ................................................. $ (.01) $ (.03) $ (.01) $ .07 Diluted ............................................... $ (.01) $ (.03) $ (.01) $ .06 1999 Quarter Ended ------------------------------------------------------------------ Nov. 28 Feb. 27 May 29 Aug. 28 ------------ ------------ ------------ ------------ Net Sales ................................................... $ 15,075,000 $ 13,440,000 $ 13,436,000 $ 14,043,000 Gross Profit ................................................ 4,469,000 3,575,000 3,601,000 4,482,000 Net Income (Loss) ........................................... 224,000 (510,000) 10,000 698,000 Net Income (Loss) Applicable to Common Stock ................ (624,000) (747,000) (187,000) 502,000 Net Income (Loss) Per Common Share Basic ................................................. $ (.04) $ (.04) $ (.01) $ .03 Diluted ............................................... $ (.04) $ (.04) $ (.01) $ .03
23. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In June 1998, The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement as amended in June 2000 by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133," establishes accounting and reporting standards for derivative instruments and all hedging activities. The Company must adopt SFAS No. 133, as amended by SFAS No. 138, in the first quarter of fiscal 2001. The Company has completed assessing the impact adoption of this standard will have and has concluded that there is no expected material effect on its financial presentation and results of operations as a result of this standard. In December 1999, the Securities and Exchage Commission staff issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition, which provides guidance on the recognition and disclosure of revenues. Adoption of SAB No. 101 is required by the fourth quarter of fiscal 2001. The Company is in the process of evaluating the effect adoption of SAB No. 101 will have on the Company's consolidated financial position and results of operations. F-23 SCHEDULE II TRISTAR CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------------------------- ADDITIONS -------------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END OF PERIOD EXPENSES DESCRIBE DESCRIBE * OF PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts: Year ended August 26, 2000 $651,000 $608,000 - $407,000 $852,000 Year ended August 28, 1999 $895,000 $886,000 - $1,130,000 $651,000 Year ended August 29, 1998 $1,052,000 $998,000 - $1,155,000 $895,000 - ------------------------------------------------------------------------------------------------------------------------------- * Uncollectible accounts written off, net of recoveries. - ------------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------------------------------------------------------------------------------------------------------- ADDITIONS -------------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END OF PERIOD EXPENSES DESCRIBE DESCRIBE * OF PERIOD - ------------------------------------------------------------------------------------------------------------------------------- Inventory reserves: Year ended August 26, 2000 $305,000 $292,000 $1,290,000 $345,000 $1,542,000 Year ended August 28, 1999 $490,000 $170,000 - $355,000 $305,000 Year ended August 29, 1998 $1,381,000 $720,000 - $1,611,000 $490,000 - -------------------------------------------------------------------------------------------------------------------------------
** Additional reserves required relating to the acquisition of FIL *** Write-offs against the reserve F-24 EX-10.22 2 0002.txt EXHIBIT 10.22 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (this "EMPLOYMENT AGREEMENT") effective the 21st day of September, 2000 (the "EFFECTIVE DATE"), by and between Tristar Corporation, a Delaware corporation ("EMPLOYER"), and Richard R. Howard ("EMPLOYEE"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Employer desires to employ Employee as President and Chief Executive Officer for a term of employment as herein provided and Employee desires to accept such employment as herein provided; and WHEREAS, the parties desire to establish by contract the terms and conditions of the employment of Employee by Employer; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties agree as follows: 1. TERM OF EMPLOYMENT. The term of Employee's employment under this Employment Agreement shall commence on the Effective Date and terminate on September 20, 2003, unless terminated earlier as provided herein (the "TERM"). 2. TITLE AND DUTIES OF EMPLOYEE. Employee shall serve as President and Chief Executive Officer of Employer. Employee agrees to his employment by Employer and to devote substantially his entire business time to the business of Employer throughout the period of his employment, provided that Employee may make personal passive investments, be involved in charitable activities and engage in business or consulting activities provided they do not substantially interfere with his activities hereunder. Employee is employed as President and Chief Executive Officer and shall perform such duties as directed by the Board of Directors of Employer. Employer shall have the right at any time to change or modify the work or duties to be performed by Employee, provided that such work or duties as so changed or modified shall include the general powers and duties usually vested in the office of the Chief Executive Officer of a company of Employer's size and shall be commensurate with such position. Subject to the prior sentence, Employer shall have the exclusive power and authority to determine the matters to be assigned to Employee and the specific duties to be performed by him. Employee shall report to only the Board of Directors of Employer. 3. SALARY. For all services rendered by him during the Term, Employee shall be paid an initial base salary at the rate of Three Hundred Thirteen Thousand Five Hundred Dollars ($313,500.00) per annum, payable weekly, subject to standard deductions for all applicable state and federal taxes and other reasonable bonafide deductions; PROVIDED, HOWEVER, as of March 1, 2001, and on each March 1st thereafter during the Term, Employee's base salary shall be increased by at least 5% (the base salary in effect from time to time, "SALARY"). -1- 4. ADDITIONAL BENEFITS. During the Term, Employee shall be entitled to the following other benefits, in addition to his Salary or as otherwise described in this Employment Agreement: (a) REIMBURSEMENT FOR TRAVEL, ENTERTAINMENT AND OTHER EXPENSES. During the Term, Employer shall reimburse Employee for any reasonable travel, entertainment or other necessary expenses incurred in the performance of his duties under this Employment Agreement, consistent with the policies of Employer at the time of such reimbursement with respect to such expenses, as such policy may be modified from time to time. (b) ALL BENEFIT PLANS. During the Term, Employee shall be eligible to participate in all benefit plans generally available to Employer's executive officers, excluding any bonus plans other than as described in SECTION 4(C) below and any car allowance other than as described in SECTION 4(D) below, and shall at a minimum be provided with (i) a health plan and (ii) long-term disability benefits providing for monthly payments to Employee in an amount not less than sixty percent (60%) of Employee's monthly Salary (based upon Employee's inability to do his job following disability for a consecutive period of 6 months) pursuant to Employer's benefit plan in existence at the time hereof as such plan may be enhanced but not diminished during the Term. (c) BONUS PLAN. During the Term, Employee shall be eligible for annual incentive compensation with a targeted maximum benefit of 50% of Employee's Salary upon Employer achieving certain reasonable financial and other goals to be agreed to by Employer and Employee and with adjustments for a lesser bonus than the targeted maximum benefit if certain lesser financial and other goals are achieved. In the event Employee's employment is terminated for reasons other than as set forth in SECTION 7(C) or SECTION 7(E) after six (6) months from the commencement date hereof or after the first six (6) months of any fiscal year of Employer, Employee shall receive a prorated bonus for the period of employment based upon the pro rata accomplishment of the financial goals for such period prior to termination of employment. (d) CAR ALLOWANCE. Employer shall pay Employee a car allowance of $600.00 per month, subject to adjustment during the Term in accordance with the executive car allowance policy in effect from time to time. (e) RELOCATION PACKAGE. In the event that (i) the Compensation Committee and Employee agree that Employee should relocate from Employer's global marketing offices at 225 West 34th Street, Suite 800, New York, New York 10122, to Employer's place of business in San Antonio, Bexar County, Texas, or (ii) in the event that Employer relocates its global marketing offices more than fifty (50) miles from its current location at 225 West 34th Street, Suite 800, New York, New York 10122, Employer shall reimburse Employee for all of Employee's reasonable out-of-pocket expenses incurred in connection with such relocation, including, without limitation, reasonable expenses incurred in connection with (w) the sale of Employee's current residence, including without limitation, brokers' fees and -2- other closing costs, (x) Employee's relocation, (y) Employee's purchase of a new residence at the new location, including without limitation, brokers' fees and other closing costs, and (z) an amount equal to the tax liability of Employee in connection with the amounts paid to Employee pursuant to this SECTION 4(E). (f) LIFE INSURANCE. Each year during the Term of this Employment Agreement, Employer shall pay to Employee the sum of $5,000.00 PLUS an amount equal to the tax liability of Employee in connection with the amounts paid to Employee pursuant to this SECTION 4(F), with which Employee shall purchase a policy of insurance upon the life of Employee. Employee shall have the right to designate the beneficiary of such policy. 5. RESIGNATION. If for any reason other than for Good Reason, as hereinafter defined, Employee voluntarily resigns his employment prior to the expiration of the Term, Employee shall forfeit any right to receive any payments or benefits, including severance benefits, pursuant to this Employment Agreement and Employer shall be released and discharged from any liability, obligation or duty arising in connection with this Employment Agreement or in connection with Employee's employment, except for amounts accrued prior to such termination, a bonus pursuant to SECTION 4(C), if any is earned, and any right of indemnification hereunder or under the provisions of Employer's Bylaws and Articles of Incorporation (collectively, the "INDEMNITY OBLIGATION"). Nevertheless, Employer and Employee shall continue to be bound and obligated by any provision of this Employment Agreement which is intended by its terms to survive and continue beyond the resignation of Employee, including, but not limited to, the provisions of SECTION 9. Employee may terminate his employment hereunder for Good Reason, upon written notice to Employer setting forth the nature of such Good Reason in reasonable detail. "GOOD REASON" shall mean (i) the failure of Employer to provide Employee the salary, incentive and bonus compensation and benefits in accordance with the terms hereof, (ii) the failure of Employer to continue Employee in the position of Chief Executive Officer, (iii) the material diminution in the nature or scope of Employee's responsibilities, duties or authority, (iv) the relocation of Employee's offices from the New York, New York area or (v) any other material breach of this Employment Agreement by Employer. Upon Employer's receipt of written notice of Employee's termination for Good Reason hereunder, such termination shall be effective thirty (30) days after receipt of such notice if a cure for such event has not been effected. 6. SEVERANCE AND NON-RENEWAL PAYMENT. Notwithstanding anything to the contrary herein contained, the provisions of this SECTION 6 shall not be applicable to a termination of employment pursuant to SECTIONS 7(A), 7(B), 7(C) or 7(E) of this Employment Agreement. In addition, there shall be no obligation of Employee to mitigate his damages and seek employment following the termination of Employee's employment in order to receive the Severance or Non-Renewal Payment hereunder. (a) SEVERANCE PAYMENTS. In the event the employment of Employee by Employer is terminated prior to the end of the Term, for any reason other than the reasons set forth in the preamble to this SECTION 6, Employer shall be obligated to pay Employee -3- severance (the "SEVERANCE") in an amount equal to the sum of (i) one (1) year's Salary (at the rate in effect at the date of termination) or Salary for the remaining balance of the Term at the date of termination, whichever sum is greater PLUS (ii) an amount equal to the product of the fractional number of years for which the Severance is payable pursuant to (i) above TIMES the average of all annual incentive bonuses paid to Employee by Employer for the past two (2) years, regardless of whether such bonuses were paid to Employee pursuant to this Employment Agreement or otherwise; PROVIDED, HOWEVER, any Severance payable by Employer hereunder shall be subject to the following conditions and adjustments: (i) Severance payable hereunder shall be payable in equal weekly installments (each a "SEVERANCE PAYMENT") commencing on the first Friday following the termination; (ii) Severance Payments payable by Employer hereunder shall be reduced and offset (the "SEVERANCE OFFSET RIGHT") on a dollar for dollar basis in an amount equal to any sums earned and/or received by Employee for any services directly or indirectly provided to a third party such as salary, incentive payments, bonus or consulting fees during the period during which the Severance Payments are to be paid to Employee (the "SEVERANCE PERIOD"). During the Severance Period, Employee shall immediately give Employer written notice upon Employee's engagement by a third party for Employee to directly or indirectly provide any type of employment, advice or consulting services. (iii) Severance Payments for the first nine (9) months of the Severance Period shall not be subject to the Severance Offset Right. (b) SEVERANCE BENEFITS. In addition to the Severance Payments required to be paid to Employee pursuant to this SECTION 6, Employer shall, during the Severance Period, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law, continue to provide to Employee, at Employer's cost and expense, the benefits set forth in SECTION 4(B) other than participation in Employer's 401(k) plan. (c) NON-RENEWAL PAYMENTS. At the end of the Term of this Employment Agreement, provided this Employment Agreement has not been terminated, if this Employment Agreement is not renewed and extended on a basis that is mutually acceptable to both Employer and Employee, then in such event, Employee shall be entitled to receive, as a non-renewal benefit, twelve (12) months' Salary in equal weekly installments over a 12- month period beginning on the first Friday following the expiration of the Term (each a "NON-RENEWAL PAYMENT") subject to the following conditions and adjustments: (i) The Non-Renewal Payments payable by Employer hereunder shall be reduced and offset (the "NON-RENEWAL OFFSET RIGHT") on a dollar for dollar basis in an amount equal to any sums earned and/or received by Employee for any services -4- directly or indirectly provided to a third party such as salary, incentive payments, bonus or consulting fees during the period during which the Non-Renewal Payments are to be paid to Employee (the "NON-RENEWAL PERIOD"). During the Non-Renewal Period, Employee shall immediately give Employer written notice upon Employee's engagement by a third party for Employee to directly or indirectly provide any type of employment, advice or consulting services. (ii) Non-Renewal Payments for the first nine (9) months of the Non-Renewal Period shall not be subject to the Non-Renewal Offset Right. (d) NON-RENEWAL BENEFITS. In addition to the Non-Renewal Payments required to be paid to Employee pursuant to this SECTION 6, Employer shall, during the Non-Renewal Period, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law, continue to provide to Employee, at Employer's cost and expense, the benefits set forth in SECTION 4(B) other than participation in Employer's 401(k) plan. (e) SURVIVAL OF CERTAIN PROVISIONS. Upon any such termination, this Employment Agreement shall be terminated and Employer shall be released from all obligations to Employee with respect to this Employment Agreement, except for the compensation obligations set forth herein and the indemnification obligation. Nevertheless, Employer and Employee shall continue to be bound and obligated by any provision of this Employment Agreement which is intended by its terms to survive and continue beyond the termination of this Employment Agreement, including, but not limited to, the provisions of SECTION 9. The right of Employer to terminate Employee in Employer's discretion prior to the end of the Term is an independent and absolute right, and may be applied and enforced separately by Employer at its election and in its sole discretion, notwithstanding any other provision contained in this Employment Agreement to the contrary. 7. TERMINATION EARLIER THAN BY EXPIRATION OF TERM. Although the parties expressly intend that employment under this Employment Agreement shall continue until September 20, 2003, unless sooner terminated pursuant to the provisions of SECTION 5 or SECTION 6 above, the parties agree that employment under this Employment Agreement, and the provisions hereof (except for any provision intended by its terms to survive and continue, including, but not limited to, the provisions of SECTION 9), shall be terminated in advance of the expiration of the Term upon the occurrence of any one of the following events: (a) DEATH. The death of Employee. (b) DISABILITY. The physical or mental disability of Employee that has prevented him from performing effectively the duties of his employment for a time period greater than six (6) consecutive months. -5- (c) TERMINATION FOR CAUSE. Employer also reserves the right at its election to terminate the employment of Employee for Cause. "CAUSE" exists if Employee (i) has engaged in a wilful act of dishonesty (other than good faith expense account disputes), or (ii) has willfully violated any material provision of Employer's Code of Conduct which is currently in effect, as the same may be modified, amended or restated from time to time, and a copy of which is attached hereto and marked EXHIBIT A and incorporated herein by reference. Upon the occurrence of any event described in clause (i) of this SECTION 7(C), regardless of whether such event is also described in clause (ii) of this SECTION 7(C), notice of termination for cause of the employment of Employee may be given in writing by Employer to Employee and such termination shall be effective immediately upon the delivery of such notice. Upon the occurrence of any event described in clause (ii) of this SECTION 7(C), notice of termination for cause of the employment of Employee setting forth the grounds for such termination shall be given to Employee by Employer in writing within sixty (60) days of receiving actual knowledge of such default by the Chief Executive Officer or Board of Directors of Employer and such termination shall be effective thirty (30) days thereafter if a cure for such event has not been effected. The giving of such notice shall also effect a termination of the obligations under this Employment Agreement, including without limitation SECTIONS 3, 4, and 6, except as to any provision of this Employment Agreement which is intended by its terms to survive and continue, including, but not limited to, the provisions of SECTION 9. (d) TERMINATION BY EMPLOYER WITHOUT CAUSE. Employer terminates Employee's employment with Employer during the Term without Cause. (e) TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. Employee terminates his employment with Employer during the Term without Good Reason. (f) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee terminates his employment with Employer during the Term for Good Reason. Upon the occurrence of any of the events described above in SECTIONS 7(A) through 7(C), inclusive, or SECTION 7(E), Employer shall be released and discharged from any liability, obligation or duty arising in connection with this Employment Agreement or in connection with Employee's employment except as otherwise provided herein and further, provided that upon the occurrence of any event described in SECTION 7(A), Employee shall be entitled to receive the proceeds of the life insurance policy maintained by Employer for the benefit of Employee on the life of Employee or upon the occurrence of an event described in SECTION 7(B), Employee shall be entitled to the benefits of any disability policy of Employer covering such event to the extent provided in such policy. In all cases the indemnification obligation shall continue. Notwithstanding the foregoing, should Employee at any time within twelve (12) months of the occurrence of a "change of control" (as defined below) cease to be an employee of Employer (or its successor), by reason of (i) termination by Employer (or its successor) other than for "cause" (as -6- defined below) or (ii) voluntary termination by Employee for "good reason upon change of control" (as defined below), then in any such event, (1) Employer shall at the election of Employee either (x) continue to pay Employee his then effective Salary under SECTION 3 through the later to occur of (A) the expiration of the Term or (B) twelve (12) months after such termination or (y) pay Employee, within 45 days of the severance of employment described in this paragraph, a lump-sum payment equal to (without discounting to present value) his then effective Salary under SECTION 3 through the later to occur of (A) the expiration of the Term or (B) twelve (12) months after such termination and (2) all outstanding stock options and other incentive awards held by Employee shall become fully vested and shall be exercisable, to the extent not prohibited by any applicable stock option plan of Employer, within twelve (12) months after such termination. In addition, regardless of the election made by Employee pursuant to (1)(x) or (y) above, Employer shall continue all benefits under SECTION 4 (except participation in Employer's 401(k) plan), through the later to occur of (X) the expiration of the Term or (Y) twelve (12) months after such termination, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law. As used in the immediately preceding paragraph, (I) "cause" shall be limited to the conviction of or a plea of NOLO CONTENDERE to the charge of a felony which, through lapse of time or otherwise, is not subject to appeal, or a material breach of fiduciary duty to Employer through the misappropriation of Employer's funds or property and (II) voluntary termination by Employee for "good reason upon change of control" shall mean (i) removal of Employee from the office(s) Employee holds on the date of this Employment Agreement, (ii) a material reduction in Employee's authority or responsibility, (iii) relocation of Employer's offices from its then current location, (iv) a reduction in Employee's compensation, or (v) Employer otherwise commits a breach of this Employment Agreement. As used herein, a "change of control" shall be deemed to have occurred if (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than Transvit Manufacturing Corporation, Starion International Limited, Nevell Investments S.A., Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth or Mahendra Sheth, is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Employer representing more than 40% of the combined voting power of Employer's then outstanding securities, or (ii) the stockholders of Employer approve a merger or consolidation of Employer with any other corporation, other than a merger or consolidation that would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the total voting power represented by the voting securities of Employer or such surviving entity outstanding immediately after such merger or consolidation, or (iii) the stockholders of Employer approve a plan of complete liquidation of Employer or an agreement of sale or disposition by Employer of all or substantially all of Employer's assets. 8. EMPLOYEE OWNERSHIP. During the Term, Employee will not directly or indirectly, on his own behalf or as a partner, officer, consultant, principal, agent, stockholder (except by -7- ownership of five percent (5%) or less of the outstanding stock of any publicly held corporation) or in any other capacity, invest or engage in, or devote any material endeavor or effort to any other business other than the business of Employer other than the charitable activities as permitted in SECTION 2 hereof. 9. RECORDS; CONFIDENTIAL INFORMATION; NON-COMPETITION AGREEMENT; TANGIBLE PROPERTIES. (a) OWNERSHIP. All business records, data and information ("RECORDS") are and shall remain the exclusive property of Employer. Employee shall not under any circumstances whatsoever permanently remove any Records from the premises of Employer without prior written consent of Employer. (b) RETURN OF RECORDS. Upon request, Employee shall immediately return to Employer all Records and copies thereof in Employee's possession. (c) CONFIDENTIAL AND PROPRIETARY INFORMATION. To the extent not otherwise provided for in this Employment Agreement, except as reasonably desirable in Employee's performance of his duties hereunder, Employee agrees to maintain the confidentiality of all confidential and proprietary information relating to the business or internal operation of Employer both during and after his employment by Employer, provided that if Employee becomes legally compelled to disclose any such information, Employee will (i) promptly notify Employer so that Employer may seek a protective order or other appropriate remedy and/or waive compliance under this SECTION 9(C) and (ii) comply with all reasonable requests of Employer in seeking a protective order or other appropriate remedy. If such protective order or other remedy is not timely obtained, or if Employer waives compliance with the provisions of this SECTION 9(C), Employee will furnish only that portion of such information that is legally required. Employee understands and agrees that this SECTION 9 is a material part of this Employment Agreement, his acceptance of which is an inducement to Employer to enter into this Employment Agreement. (d) NON-COMPETITION AGREEMENT. Employee covenants and agrees that for the period beginning the date of Employee's termination of his employment with Employer, however such termination is brought about (the "TERMINATION DATE"), and ending on the second (2nd) anniversary of said date (the "RESTRICTED PERIOD"), Employee will not, directly or indirectly, on his own behalf or as a partner, officer, consultant, principal, agent, stockholder (except by ownership of five percent (5%) or less of the outstanding stock of any publicly held corporation) or in any other capacity, invest or engage in, or devote any endeavor or effort to the alternative designer fragrances or the cosmetics segment of the perfume or toiletries business, of the type currently sold by the persons set forth on EXHIBIT B attached hereto and not mass brands of the types sold by Proctor and Gamble, Unilever, Colgate-Palmolive, L'Oreal, Benckiser Consumer Products, Inc., Estee Lauder, Del Labs or Revlon (the "BUSINESS"), in the United States or other countries Employer or its -8- subsidiaries are doing business at the time of the termination of this Employment Agreement (the "TERRITORY"). During the Restricted Period, in the event Employee is employed by or consults with a Conglomerate, as herein defined, and such Conglomerate's primary business is not the Business, as long as Employee is not directly or indirectly involved in employment with or consulting in the Business, then in such event, that employment is not prohibited from employment by such Conglomerate; however, Employer shall be prohibited from being involved directly or indirectly with the Business. Employee shall be prohibited from working for a Conglomerate whose primary business is the Business. For the purposes of this SECTION 9, "CONGLOMERATE" shall be defined as any business which is comprised of entities or groups (E.G., divisions) with multiple lines of business. Nothing herein shall prohibit Employee owning an investment of less than ten percent (10%) of a Conglomerate. (e) NON-SOLICITATION AGREEMENT. During the Restricted Period, Employee shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization, intentionally solicit, endeavor to entice away from Employer or any entity controlled by or under common control with Employer, or otherwise interfere in a material fashion with the relationship with, any person who is employed by or otherwise engaged to perform services for Employer or any person or entity who is as of the Termination Date, or within the then most recent 12-month period, a customer or client of Employer. The giving of references shall not be deemed a violation of this SECTION 9. (f) REFORMATION. Each of the parties hereto recognizes the time limitations and territorial restrictions contained in this SECTION 9 are properly required for the adequate protection of the business and goodwill of Employer and agrees in the event any covenant or provision contained herein shall be deemed to be illegal, unenforceable, or unreasonable by a court or other tribunal of competent jurisdiction with respect to the time limitation or any part of the Territory, such provision or covenant should be modified to extend to the maximum time and territory that is reasonable and submits to the reduction of said time limitations and territorial restriction to such a time or an area as said court or tribunal shall deem reasonable. (g) DOCUMENTS, WRITTEN MATERIALS AND TANGIBLE PROPERTIES. To the extent not otherwise provided for in this Employment Agreement, Employee agrees that all documents, written materials and other tangible property, including copies thereof, relating in any way to the business of Employer, shall be and remain the exclusive property of Employer and shall be returned to Employer by Employee immediately upon termination of his employment by Employer or at the request of Employer. (h) INJUNCTIVE RELIEF. Employee hereby acknowledges and agrees that Employer could not be fully compensated for damages resulting from a continuing and material breach of any of the provisions of this SECTION 9 and, accordingly, that Employer shall be entitled to temporary and permanent injunctive relief, including temporary restraining orders, -9- preliminary injunctions and permanent injunctions, to prevent a breach or threatened breach of this SECTION 9 or to enforce the terms of this SECTION 9. This right of Employer with respect to the obtaining of injunctive relief shall not, however, diminish any right of Employer to claim and recover monetary damages or to obtain any other remedy. (i) SURVIVAL. The provisions of this SECTION 9 shall continue in effect notwithstanding the termination of, or resignation from, the employment of Employee by Employer. 10. WAIVER OF BREACH. A waiver by a party of a breach of any provision of this Employment Agreement shall not operate or be construed as a waiver of any subsequent breach by the other party of the same or any other provision of this Employment Agreement. 11. NOTICES. Any notice required to be given under this Employment Agreement shall be deemed sufficient, if in writing, and sent by certified mail, return receipt requested, or hand delivered, or via overnight delivery service to the other party at the address shown below: For Employer Tristar Corporation 105 S. St. Mary's Street, Suite 1800 San Antonio, Texas 78205 Attn: Chief Financial Officer With a copy Fulbright & Jaworski L.L.P. 300 Convent, Suite 2200 San Antonio, Texas 78205 Attn: Phillip M. Renfro, Esq. For Employee Mr. Richard R. Howard 6 Woods End Road Rumson, New Jersey 07760 With a copy Proskauer Rose LLP 1585 Broadway New York, New York 10036 Attn: Michael S. Sirkin, Esq. Either party may change its or his address for notices under this SECTION 11 by giving notice of the change to the other pursuant to this SECTION 11. 12. GOVERNING LAW; FORUM. This Employment Agreement shall be governed by and construed in accordance with the laws of the State where Employer has its corporate and administrative offices without regard to the conflicts of laws rules thereof and is made and entered into in San Antonio, Bexar County, Texas. Any and all controversies between Employer and -10- Employee shall be settled by arbitration, in accordance with the Commercial Arbitration rules, then existing, of the American Arbitration Association. Any arbitration hereunder shall be before one arbitrator associated with the American Arbitration Rules of the American Arbitration Association. The award of the arbitrator shall be final, and judgment upon the award rendered may be entered in Bexar County, Texas. The arbitrator may award attorneys' fees and costs to the prevailing party pursuant to the terms of this Employment Agreement. 13. SEVERABILITY. If any of the provisions of this Employment Agreement is determined to be invalid or unenforceable in part, the remaining provisions, and the enforceable portions of any partially unenforceable provisions, shall nevertheless be binding and enforceable. 14. BINDING EFFECT; EFFECTIVE DATE; ENTIRE AGREEMENT. Subject to SECTION 15 below, this Employment Agreement shall inure to the benefit of and shall be binding upon Employer and its successors and assigns, and upon Employee and his heirs, legatees, executors, administrators, successors and beneficiaries. This Employment Agreement shall be effective as of the date hereof. This Employment Agreement contains the entire agreement between the parties and supersedes any prior agreements, letter agreements, term sheets or discussions between the parties, including the Executive Employment Agreement between Employer and Employee dated as of September 1, 1998. This Employment Agreement may not be amended except by a written agreement signed by the parties. 15. ASSIGNMENT. This Employment Agreement shall not be assignable by Employee without the prior written consent of Employer. This Employment Agreement may only be assigned by Employer in connection with a sale of all or substantially all of the assets of Employer. In such event a written assumption agreement shall be promptly delivered to Employee by the buyer of such assets. 16. CAPTIONS. Captions of sections are inserted only as a matter of convenience and reference and in no way define, limit or describe the substance or scope of this Employment Agreement or the intent of any of its provisions. 17. RULES OF CONSTRUCTION. This Employment Agreement has been negotiated by the parties and is to be interpreted according to its fair meaning as if the parties had prepared it together and not strictly for or against any party. All references in this Employment Agreement to "parties" refer to parties in this Employment Agreement unless expressly indicated otherwise. References in this Employment Agreement to sections are to sections of this Employment Agreement unless expressly indicated otherwise. References in this Employment Agreement to "provisions" of this Employment Agreement refer to the terms, conditions and promises contained in this Employment Agreement. At each place in this Employment Agreement where the context so requires, the masculine, feminine or neuter gender includes the others and the singular or plural number includes the other. Forms of the verb "including" mean "including without limitation." The word "or" is inclusive and includes "and." -11- 18. INDEMNITY. Employer and Employee entered into an Indemnity Agreement dated September 1, 1998 (the "INDEMNITY AGREEMENT"), a copy of which is attached hereto as EXHIBIT C. The Indemnity Agreement remains in full force and effect as of the date hereof and shall not be affected by the execution of this Employment Agreement. 19. REIMBURSEMENT OF EMPLOYEE'S ATTORNEY'S FEES. Employer shall pay Employee for the legal fees of Employee's attorneys, Proskauer Rose LLP, incurred in connection with the negotiation and execution of this Employment Agreement. 20. OTHER AGREEMENTS. This Employment Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes prior agreements relating thereto, including, without limitation, that one certain Employment Agreement dated September 1, 1998 between Tristar Corporation and Richard R. Howard. [SIGNATURES ON NEXT PAGE] -12- IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. TRISTAR CORPORATION By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- RICHARD R. HOWARD EXHIBIT A CODE OF CONDUCT EXHIBIT B LIST OF COMPETITORS UNITED STATES CANADA VENEZUELA - ------------- ------ --------- Inter Parfums Cartland Glamour, C. A. (Jean Nacris) Delagar Claude G Parfums DeCoeur L'Illusions Yaz From France to You Paris Design Q Perfumes Deborah AM Cosmetics EXHIBIT C INDEMNIFICATION AGREEMENT EX-10.23 3 0003.txt EXHIBIT 10.23 EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (this "EMPLOYMENT AGREEMENT") effective the 21st day of September, 2000 (the "EFFECTIVE DATE"), by and between Tristar Corporation, a Delaware corporation ("EMPLOYER"), and Robert M. Viola ("EMPLOYEE"). W I T N E S S E T H: WHEREAS, Employer desires to employ Employee as Senior Executive Vice President and Chief Financial Officer for a term of employment as herein provided and Employee desires to accept such employment as herein provided; and WHEREAS, the parties desire to establish by contract the terms and conditions of the employment of Employee by Employer; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained herein, the parties agree as follows: 1. TERM OF EMPLOYMENT. The term of Employee's employment under this Employment Agreement shall commence on the Effective Date and terminate on September 20, 2003, unless terminated earlier as provided herein (the "TERM"). 2. TITLE AND DUTIES OF EMPLOYEE. Employee shall serve as Senior Executive Vice President and Chief Financial Officer of Employer. Employee agrees to his employment by Employer and to devote substantially his entire business time to the business of Employer throughout the period of his employment, provided that Employee may make personal passive investments, be involved in charitable activities and engage in business or consulting activities provided they do not substantially interfere with his activities hereunder. Employee is employed as Senior Executive Vice President and Chief Financial Officer and shall perform such duties as directed by the President or Board of Directors of Employer. Employer shall have the right at any time to change or modify the work or duties to be performed by Employee, provided that such work or duties as so changed or modified shall include the general powers and duties usually vested in the office of the Chief Financial Officer of a company of Employer's size and shall be commensurate with such position. Subject to the prior sentence, Employer shall have the exclusive power and authority to determine the matters to be assigned to Employee and the specific duties to be performed by him. Employee shall report to only the Board of Directors, the President and the Chief Executive Officer of Employer. 3. SALARY. For all services rendered by him during the Term, Employee shall be paid an initial base salary at the rate of Two Hundred Thirty-One Thousand Dollars ($231,000.00) per annum, payable weekly, subject to standard deductions for all applicable state and federal taxes and other reasonable bonafide deductions; PROVIDED, HOWEVER, as of March 1, 2001, and on each March 1st thereafter during the Term, Employee's base salary shall be increased by at least 5% (the base salary in effect from time to time, "SALARY"). -1- 4. ADDITIONAL BENEFITS. During the Term, Employee shall be entitled to the following other benefits, in addition to his Salary or as otherwise described in this Employment Agreement: (a) REIMBURSEMENT FOR TRAVEL, ENTERTAINMENT AND OTHER EXPENSES. During the Term, Employer shall reimburse Employee for any reasonable travel, entertainment or other necessary expenses incurred in the performance of his duties under this Employment Agreement, consistent with the policies of Employer at the time of such reimbursement with respect to such expenses, as such policy may be modified from time to time. (b) ALL BENEFIT PLANS. During the Term, Employee shall be eligible to participate in all benefit plans generally available to Employer's executive officers, excluding any bonus plans other than as described in SECTION 4(C) below and any car allowance other than as described in SECTION 4(D) below, and shall at a minimum be provided with (i) a health plan and (ii) long-term disability benefits providing for monthly payments to Employee in an amount not less than sixty percent (60%) of Employee's monthly Salary (based upon Employee's inability to do his job following disability for a consecutive period of 6 months) pursuant to Employer's benefit plan in existence at the time hereof as such plan may be enhanced but not diminished during the Term. (c) BONUS PLAN. During the Term, Employee shall be eligible for annual incentive compensation with a targeted maximum benefit of 40% of Employee's Salary upon Employer achieving certain reasonable financial and other goals to be agreed to by Employer and Employee and with adjustments for a lesser bonus than the targeted maximum benefit if certain lesser financial and other goals are achieved. In the event Employee's employment is terminated for reasons other than as set forth in SECTION 7(C) or SECTION 7(E) after six (6) months from the commencement date hereof or after the first six (6) months of any fiscal year of Employer, Employee shall receive a prorated bonus for the period of employment based upon the pro rata accomplishment of the financial goals for such period prior to termination of employment. (d) CAR ALLOWANCE. Employer shall pay Employee a car allowance of $600.00 per month, subject to adjustment during the Term in accordance with the executive car allowance policy in effect from time to time. (e) RELOCATION PACKAGE. In the event that (i) the Compensation Committee and Employee agree that Employee should relocate from Employer's global marketing offices at 225 West 34th Street, Suite 800, New York, New York 10122, to Employer's place of business in San Antonio, Bexar County, Texas, or (ii) in the event that Employer relocates its global marketing offices more than fifty (50) miles from its current location at 225 West 34th Street, Suite 800, New York, New York 10122, Employer shall reimburse Employee for all of Employee's reasonable out-of-pocket expenses incurred in connection with such relocation, including, without limitation, reasonable expenses incurred in connection with (w) the sale of Employee's current residence, including without limitation, brokers' fees and other closing costs, (x) Employee's relocation, (y) Employee's purchase of a new residence -2- at the new location, including without limitation, brokers' fees and other closing costs, and (z) an amount equal to the tax liability of Employee in connection with the amounts paid to Employee pursuant to this SECTION 4(E). (f) LIFE INSURANCE. Each year during the Term of this Employment Agreement, Employer shall pay to Employee the sum of $5,000.00 PLUS an amount equal to the tax liability of Employee in connection with the amounts paid to Employee pursuant to this SECTION 4(F), with which Employee shall purchase a policy of insurance upon the life of Employee. Employee shall have the right to designate the beneficiary of such policy. 5. RESIGNATION. If for any reason other than for Good Reason, as hereinafter defined, Employee voluntarily resigns his employment prior to the expiration of the Term, Employee shall forfeit any right to receive any payments or benefits, including severance benefits, pursuant to this Employment Agreement and Employer shall be released and discharged from any liability, obligation or duty arising in connection with this Employment Agreement or in connection with Employee's employment, except for amounts accrued prior to such termination, a bonus pursuant to SECTION 4(C), if any is earned, and any right of indemnification hereunder or under the provisions of Employer's Bylaws and Articles of Incorporation (collectively, the "INDEMNITY OBLIGATION"). Nevertheless, Employer and Employee shall continue to be bound and obligated by any provision of this Employment Agreement which is intended by its terms to survive and continue beyond the resignation of Employee, including, but not limited to, the provisions of SECTION 9. Employee may terminate his employment hereunder for Good Reason, upon written notice to Employer setting forth the nature of such Good Reason in reasonable detail. "GOOD REASON" shall mean (i) the failure of Employer to provide Employee the salary, incentive and bonus compensation and benefits in accordance with the terms hereof, (ii) the failure of Employer to continue Employee in the position of Chief Financial Officer, (iii) the material diminution in the nature or scope of Employee's responsibilities, duties or authority, (iv) the relocation of Employee's offices from the New York, New York area or (v) any other material breach of this Employment Agreement by Employer. Upon Employer's receipt of written notice of Employee's termination for Good Reason hereunder, such termination shall be effective thirty (30) days after receipt of such notice if a cure for such event has not been effected. 6. SEVERANCE AND NON-RENEWAL PAYMENT. Notwithstanding anything to the contrary herein contained, the provisions of this SECTION 6 shall not be applicable to a termination of employment pursuant to SECTIONS 7(A), 7(B), 7(C) or 7(E) of this Employment Agreement. In addition, there shall be no obligation of Employee to mitigate his damages and seek employment following the termination of Employee's employment in order to receive the Severance or Non-Renewal Payment hereunder. -3- (a) SEVERANCE PAYMENTS. In the event the employment of Employee by Employer is terminated prior to the end of the Term, for any reason other than the reasons set forth in the preamble to this SECTION 6, Employer shall be obligated to pay Employee severance (the "SEVERANCE") in an amount equal to the sum of (i) one (1) year's Salary (at the rate in effect at the date of termination) or Salary for the remaining balance of the Term at the date of termination, whichever sum is greater PLUS (ii) an amount equal to the product of the fractional number of years for which the Severance is payable pursuant to (i) above TIMES the average of all annual incentive bonuses paid to Employee by Employer for the past two (2) years, regardless of whether such bonuses were paid to Employee pursuant to this Employment Agreement or otherwise; PROVIDED, HOWEVER, any Severance payable by Employer hereunder shall be subject to the following conditions and adjustments: (i) Severance payable hereunder shall be payable in equal weekly installments (each a "SEVERANCE PAYMENT") commencing on the first Friday following the termination; (ii) Severance Payments payable by Employer hereunder shall be reduced and offset (the "SEVERANCE OFFSET RIGHT") on a dollar for dollar basis in an amount equal to any sums earned and/or received by Employee for any services directly or indirectly provided to a third party such as salary, incentive payments, bonus or consulting fees during the period during which the Severance Payments are to be paid to Employee (the "SEVERANCE PERIOD"). During the Severance Period, Employee shall immediately give Employer written notice upon Employee's engagement by a third party for Employee to directly or indirectly provide any type of employment, advice or consulting services. (iii) Severance Payments for the first nine (9) months of the Severance Period shall not be subject to the Severance Offset Right. (b) SEVERANCE BENEFITS. In addition to the Severance Payments required to be paid to Employee pursuant to this SECTION 6, Employer shall, during the Severance Period, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law, continue to provide to Employee, at Employer's cost and expense, the benefits set forth in SECTION 4(B) other than participation in Employer's 401(k) plan. (c) NON-RENEWAL PAYMENTS. At the end of the Term of this Employment Agreement, provided this Employment Agreement has not been terminated, if this Employment Agreement is not renewed and extended on a basis that is mutually acceptable to both Employer and Employee, then in such event, Employee shall be entitled to receive, as a non-renewal benefit, twelve (12) months' Salary in equal weekly installments over a 12- month period beginning on the first Friday following the expiration of the Term (each a "NON-RENEWAL PAYMENT") subject to the following conditions and adjustments: -4- (i) The Non-Renewal Payments payable by Employer hereunder shall be reduced and offset (the "NON-RENEWAL OFFSET RIGHT") on a dollar for dollar basis in an amount equal to any sums earned and/or received by Employee for any services directly or indirectly provided to a third party such as salary, incentive payments, bonus or consulting fees during the period during which the Non-Renewal Payments are to be paid to Employee (the "NON-RENEWAL PERIOD"). During the Non-Renewal Period, Employee shall immediately give Employer written notice upon Employee's engagement by a third party for Employee to directly or indirectly provide any type of employment, advice or consulting services. (ii) Non-Renewal Payments for the first nine (9) months of the Non-Renewal Period shall not be subject to the Non-Renewal Offset Right. (d) NON-RENEWAL BENEFITS. In addition to the Non-Renewal Payments required to be paid to Employee pursuant to this SECTION 6, Employer shall, during the Non-Renewal Period, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law, continue to provide to Employee, at Employer's cost and expense, the benefits set forth in SECTION 4(B) other than participation in Employer's 401(k) plan. (e) SURVIVAL OF CERTAIN PROVISIONS. Upon any such termination, this Employment Agreement shall be terminated and Employer shall be released from all obligations to Employee with respect to this Employment Agreement, except for the compensation obligations set forth herein and the indemnification obligation. Nevertheless, Employer and Employee shall continue to be bound and obligated by any provision of this Employment Agreement which is intended by its terms to survive and continue beyond the termination of this Employment Agreement, including, but not limited to, the provisions of SECTION 9. The right of Employer to terminate Employee in Employer's discretion prior to the end of the Term is an independent and absolute right, and may be applied and enforced separately by Employer at its election and in its sole discretion, notwithstanding any other provision contained in this Employment Agreement to the contrary. 7. TERMINATION EARLIER THAN BY EXPIRATION OF TERM. Although the parties expressly intend that employment under this Employment Agreement shall continue until September 20, 2003, unless sooner terminated pursuant to the provisions of SECTION 5 or SECTION 6 above, the parties agree that employment under this Employment Agreement, and the provisions hereof (except for any provision intended by its terms to survive and continue, including, but not limited to, the provisions of SECTION 9), shall be terminated in advance of the expiration of the Term upon the occurrence of any one of the following events: (a) DEATH. The death of Employee. -5- (b) DISABILITY. The physical or mental disability of Employee that has prevented him from performing effectively the duties of his employment for a time period greater than six (6) consecutive months. (c) TERMINATION FOR CAUSE. Employer also reserves the right at its election to terminate the employment of Employee for Cause. "CAUSE" exists if Employee (i) has engaged in a wilful act of dishonesty (other than good faith expense account disputes), or (ii) has willfully violated any material provision of Employer's Code of Conduct which is currently in effect, as the same may be modified, amended or restated from time to time, and a copy of which is attached hereto and marked EXHIBIT A and incorporated herein by reference. Upon the occurrence of any event described in clause (i) of this SECTION 7(C), regardless of whether such event is also described in clause (ii) of this SECTION 7(C), notice of termination for cause of the employment of Employee may be given in writing by Employer to Employee and such termination shall be effective immediately upon the delivery of such notice. Upon the occurrence of any event described in clause (ii) of this SECTION 7(C), notice of termination for cause of the employment of Employee setting forth the grounds for such termination shall be given to Employee by Employer in writing within sixty (60) days of receiving actual knowledge of such default by the Chief Executive Officer or Board of Directors of Employer and such termination shall be effective thirty (30) days thereafter if a cure for such event has not been effected. The giving of such notice shall also effect a termination of the obligations under this Employment Agreement, including without limitation SECTIONS 3, 4, and 6, except as to any provision of this Employment Agreement which is intended by its terms to survive and continue, including, but not limited to, the provisions of SECTION 9. (d) TERMINATION BY EMPLOYER WITHOUT CAUSE. Employer terminates Employee's employment with Employer during the Term without Cause. (e) TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. Employee terminates his employment with Employer during the Term without Good Reason. (f) TERMINATION BY EMPLOYEE FOR GOOD REASON. Employee terminates his employment with Employer during the Term for Good Reason. Upon the occurrence of any of the events described above in SECTIONS 7(A) through 7(C), inclusive, or SECTION 7(E), Employer shall be released and discharged from any liability, obligation or duty arising in connection with this Employment Agreement or in connection with Employee's employment except as otherwise provided herein and further, provided that upon the occurrence of any event described in SECTION 7(A), Employee shall be entitled to receive the proceeds of the life insurance policy maintained by Employer for the benefit of Employee on the life of Employee or upon the occurrence of an event described in SECTION 7(B), Employee shall be entitled to the benefits of any disability policy of Employer covering such event to the extent provided in such policy. In all cases the indemnification obligation shall continue. -6- Notwithstanding the foregoing, should Employee at any time within twelve (12) months of the occurrence of a "change of control" (as defined below) cease to be an employee of Employer (or its successor), by reason of (i) termination by Employer (or its successor) other than for "cause" (as defined below) or (ii) voluntary termination by Employee for "good reason upon change of control" (as defined below), then in any such event, (1) Employer shall at the election of Employee either (x) continue to pay Employee his then effective Salary under SECTION 3 through the later to occur of (A) the expiration of the Term or (B) twelve (12) months after such termination or (y) pay Employee, within 45 days of the severance of employment described in this paragraph, a lump-sum payment equal to (without discounting to present value) his then effective Salary under SECTION 3 through the later to occur of (A) the expiration of the Term or (B) twelve (12) months after such termination and (2) all outstanding stock options and other incentive awards held by Employee shall become fully vested and shall be exercisable, to the extent not prohibited by any applicable stock option plan of Employer, within twelve (12) months after such termination. In addition, regardless of the election made by Employee pursuant to (1)(x) or (y) above, Employer shall continue all benefits under SECTION 4 (except participation in Employer's 401(k) plan), through the later to occur of (X) the expiration of the Term or (Y) twelve (12) months after such termination, to the extent continuation of such benefits is not prohibited by applicable state and/or federal law. As used in the immediately preceding paragraph, (I) "cause" shall be limited to the conviction of or a plea of NOLO CONTENDERE to the charge of a felony which, through lapse of time or otherwise, is not subject to appeal, or a material breach of fiduciary duty to Employer through the misappropriation of Employer's funds or property and (II) voluntary termination by Employee for "good reason upon change of control" shall mean (i) removal of Employee from the office(s) Employee holds on the date of this Employment Agreement, (ii) a material reduction in Employee's authority or responsibility, (iii) relocation of Employer's offices from its then current location, (iv) a reduction in Employee's compensation, or (v) Employer otherwise commits a breach of this Employment Agreement. As used herein, a "change of control" shall be deemed to have occurred if (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than Transvit Manufacturing Corporation, Starion International Limited, Nevell Investments S.A., Shashikant S. Sheth, Jammadas Sheth, Kirit Sheth or Mahendra Sheth, is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Employer representing more than 40% of the combined voting power of Employer's then outstanding securities, or (ii) the stockholders of Employer approve a merger or consolidation of Employer with any other corporation, other than a merger or consolidation that would result in the voting securities of Employer outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 60% of the total voting power represented by the voting securities of Employer or such surviving entity outstanding immediately after such merger or consolidation, or (iii) the stockholders of Employer approve a plan of complete liquidation of Employer or an agreement of sale or disposition by Employer of all or substantially all of Employer's assets. -7- 8. EMPLOYEE OWNERSHIP. During the Term, Employee will not directly or indirectly, on his own behalf or as a partner, officer, consultant, principal, agent, stockholder (except by ownership of five percent (5%) or less of the outstanding stock of any publicly held corporation) or in any other capacity, invest or engage in, or devote any material endeavor or effort to any other business other than the business of Employer other than the charitable activities as permitted in SECTION 2 hereof. 9. RECORDS; CONFIDENTIAL INFORMATION; NON-COMPETITION AGREEMENT; TANGIBLE PROPERTIES. (a) OWNERSHIP. All business records, data and information ("RECORDS") are and shall remain the exclusive property of Employer. Employee shall not under any circumstances whatsoever permanently remove any Records from the premises of Employer without prior written consent of Employer. (b) RETURN OF RECORDS. Upon request, Employee shall immediately return to Employer all Records and copies thereof in Employee's possession. (c) CONFIDENTIAL AND PROPRIETARY INFORMATION. To the extent not otherwise provided for in this Employment Agreement, except as reasonably desirable in Employee's performance of his duties hereunder, Employee agrees to maintain the confidentiality of all confidential and proprietary information relating to the business or internal operation of Employer both during and after his employment by Employer, provided that if Employee becomes legally compelled to disclose any such information, Employee will (i) promptly notify Employer so that Employer may seek a protective order or other appropriate remedy and/or waive compliance under this SECTION 9(C) and (ii) comply with all reasonable requests of Employer in seeking a protective order or other appropriate remedy. If such protective order or other remedy is not timely obtained, or if Employer waives compliance with the provisions of this SECTION 9(C), Employee will furnish only that portion of such information that is legally required. Employee understands and agrees that this SECTION 9 is a material part of this Employment Agreement, his acceptance of which is an inducement to Employer to enter into this Employment Agreement. (d) NON-COMPETITION AGREEMENT. Employee covenants and agrees that for the period beginning the date of Employee's termination of his employment with Employer, however such termination is brought about (the "TERMINATION DATE"), and ending on the second (2nd) anniversary of said date (the "RESTRICTED PERIOD"), Employee will not, directly or indirectly, on his own behalf or as a partner, officer, consultant, principal, agent, stockholder (except by ownership of five percent (5%) or less of the outstanding stock of any publicly held corporation) or in any other capacity, invest or engage in, or devote any endeavor or effort to the alternative designer fragrances or the cosmetics segment of the perfume or toiletries business, of the type currently sold by the persons set forth on EXHIBIT B attached hereto and not mass brands of the types sold by Proctor and Gamble, -8- Unilever, Colgate-Palmolive, L'Oreal, Benckiser Consumer Products, Inc., Estee Lauder, Del Labs or Revlon (the "BUSINESS"), in the United States or other countries Employer or its subsidiaries are doing business at the time of the termination of this Employment Agreement (the "TERRITORY"). During the Restricted Period, in the event Employee is employed by or consults with a Conglomerate, as herein defined, and such Conglomerate's primary business is not the Business, as long as Employee is not directly or indirectly involved in employment with or consulting in the Business, then in such event, that employment is not prohibited from employment by such Conglomerate; however, Employer shall be prohibited from being involved directly or indirectly with the Business. Employee shall be prohibited from working for a Conglomerate whose primary business is the Business. For the purposes of this SECTION 9, "CONGLOMERATE" shall be defined as any business which is comprised of entities or groups (E.G., divisions) with multiple lines of business. Nothing herein shall prohibit Employee owning an investment of less than ten percent (10%) of a Conglomerate. (e) NON-SOLICITATION AGREEMENT. During the Restricted Period, Employee shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization, intentionally solicit, endeavor to entice away from Employer or any entity controlled by or under common control with Employer, or otherwise interfere in a material fashion with the relationship with, any person who is employed by or otherwise engaged to perform services for Employer or any person or entity who is as of the Termination Date, or within the then most recent 12-month period, a customer or client of Employer. The giving of references shall not be deemed a violation of this SECTION 9. (f) REFORMATION. Each of the parties hereto recognizes the time limitations and territorial restrictions contained in this SECTION 9 are properly required for the adequate protection of the business and goodwill of Employer and agrees in the event any covenant or provision contained herein shall be deemed to be illegal, unenforceable, or unreasonable by a court or other tribunal of competent jurisdiction with respect to the time limitation or any part of the Territory, such provision or covenant should be modified to extend to the maximum time and territory that is reasonable and submits to the reduction of said time limitations and territorial restriction to such a time or an area as said court or tribunal shall deem reasonable. (g) DOCUMENTS, WRITTEN MATERIALS AND TANGIBLE PROPERTIES. To the extent not otherwise provided for in this Employment Agreement, Employee agrees that all documents, written materials and other tangible property, including copies thereof, relating in any way to the business of Employer, shall be and remain the exclusive property of Employer and shall be returned to Employer by Employee immediately upon termination of his employment by Employer or at the request of Employer. -9- (h) INJUNCTIVE RELIEF. Employee hereby acknowledges and agrees that Employer could not be fully compensated for damages resulting from a continuing and material breach of any of the provisions of this SECTION 9 and, accordingly, that Employer shall be entitled to temporary and permanent injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, to prevent a breach or threatened breach of this SECTION 9 or to enforce the terms of this SECTION 9. This right of Employer with respect to the obtaining of injunctive relief shall not, however, diminish any right of Employer to claim and recover monetary damages or to obtain any other remedy. (i) SURVIVAL. The provisions of this SECTION 9 shall continue in effect notwithstanding the termination of, or resignation from, the employment of Employee by Employer. 10. WAIVER OF BREACH. A waiver by a party of a breach of any provision of this Employment Agreement shall not operate or be construed as a waiver of any subsequent breach by the other party of the same or any other provision of this Employment Agreement. 11. NOTICES. Any notice required to be given under this Employment Agreement shall be deemed sufficient, if in writing, and sent by certified mail, return receipt requested, or hand delivered, or via overnight delivery service to the other party at the address shown below: For Employer: Tristar Corporation 105 S. St. Mary's Street, Suite 1800 San Antonio, Texas 78205 Attn: President and Chief Executive Officer With a copy to: Fulbright & Jaworski L.L.P. 300 Convent, Suite 2200 San Antonio, Texas 78205 Attn: Phillip M. Renfro, Esq. For Employee: Mr. Robert M. Viola 27 Robbins Drive E. Williston, New York 11596 With a copy to: Raul Felder, P.C. 437 Madison Avenue, 30th Floor New York, New York 10022 Attn: Robert Frey, Esq. Either party may change its or his address for notices under this SECTION 11 by giving notice of the change to the other pursuant to this SECTION 11. -10- 12. GOVERNING LAW; FORUM. This Employment Agreement shall be governed by and construed in accordance with the laws of the State where Employer has its corporate and administrative offices without regard to the conflicts of laws rules thereof and is made and entered into in San Antonio, Bexar County, Texas. Any and all controversies between Employer and Employee shall be settled by arbitration, in accordance with the Commercial Arbitration rules, then existing, of the American Arbitration Association. Any arbitration hereunder shall be before one arbitrator associated with the American Arbitration Rules of the American Arbitration Association. The award of the arbitrator shall be final, and judgment upon the award rendered may be entered in Bexar County, Texas. The arbitrator may award attorneys' fees and costs to the prevailing party pursuant to the terms of this Employment Agreement. 13. SEVERABILITY. If any of the provisions of this Employment Agreement is determined to be invalid or unenforceable in part, the remaining provisions, and the enforceable portions of any partially unenforceable provisions, shall nevertheless be binding and enforceable. 14. BINDING EFFECT; EFFECTIVE DATE; ENTIRE AGREEMENT. Subject to SECTION 15 below, this Employment Agreement shall inure to the benefit of and shall be binding upon Employer and its successors and assigns, and upon Employee and his heirs, legatees, executors, administrators, successors and beneficiaries. This Employment Agreement shall be effective as of the date hereof. This Employment Agreement contains the entire agreement between the parties and supersedes any prior agreements, letter agreements, term sheets or discussions between the parties, including the Executive Employment Agreement between Employer and Employee dated as of September 1, 1998. This Employment Agreement may not be amended except by a written agreement signed by the parties. 15. ASSIGNMENT. This Employment Agreement shall not be assignable by Employee without the prior written consent of Employer. This Employment Agreement may only be assigned by Employer in connection with a sale of all or substantially all of the assets of Employer. In such event a written assumption agreement shall be promptly delivered to Employee by the buyer of such assets. 16. CAPTIONS. Captions of sections are inserted only as a matter of convenience and reference and in no way define, limit or describe the substance or scope of this Employment Agreement or the intent of any of its provisions. 17. RULES OF CONSTRUCTION. This Employment Agreement has been negotiated by the parties and is to be interpreted according to its fair meaning as if the parties had prepared it together and not strictly for or against any party. All references in this Employment Agreement to "parties" refer to parties in this Employment Agreement unless expressly indicated otherwise. References in this Employment Agreement to sections are to sections of this Employment Agreement unless expressly indicated otherwise. References in this Employment Agreement to "provisions" of this Employment Agreement refer to the terms, conditions and promises contained in this Employment Agreement. At each place in this Employment Agreement where the context so requires, the -11- masculine, feminine or neuter gender includes the others and the singular or plural number includes the other. Forms of the verb "including" mean "including without limitation". The word "or" is inclusive and includes "and". 18. INDEMNITY. Employer and Employee entered into an Indemnity Agreement dated September 1, 1998 (the "INDEMNITY AGREEMENT"), a copy of which is attached hereto as EXHIBIT C. The Indemnity Agreement remains in full force and effect as of the date hereof and shall not be affected by the execution of this Employment Agreement. 19. REIMBURSEMENT OF EMPLOYEE'S ATTORNEY'S FEES. Employer shall pay Employee for the legal fees of Employee's attorneys, Raul Felder, P.C., incurred in connection with the negotiation and execution of this Employment Agreement. 20. OTHER AGREEMENTS. This Employment Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes prior agreements relating thereto, including, without limitation, that one certain Employment Agreement dated September 1, 1998 between Tristar Corporation and Robert M. Viola. [SIGNATURES ON NEXT PAGE] -12- IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. TRISTAR CORPORATION By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- ------------------------------------------------ ROBERT M. VIOLA EXHIBIT A CODE OF CONDUCT EXHIBIT B LIST OF COMPETITORS UNITED STATES CANADA VENEZUELA - ------------- ------ --------- Inter Parfums Cartland Glamour, C. A. (Jean Nacris) Delagar Claude G Parfums DeCoeur L'Illusions Yaz From France to You Paris Design Q Perfumes Deborah AM Cosmetics EXHIBIT C INDEMNIFICATION AGREEMENT EX-24.1 4 0004.txt EXHIBIT 24.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-45396 and 333-26567) of Tristar Corporation (formerly Ross Cosmetics Distribution Centers, Inc.) of our report dated November 28, 2000 relating to the financial statements and financial statement schedule of Tristar Corporation and its subsidiaries, which appears in this Form 10-K. PricewaterhouseCoopers LLP Dallas, Texas November 28, 2000 EX-27 5 0005.txt
5 YEAR AUG-26-2000 AUG-26-2000 124,000 0 24,758,000 852,000 13,482,000 38,704,000 8,271,000 11,774,000 55,248,000 39,148,000 0 0 11,066,000 168,000 42,000 55,248,000 55,608,000 55,608,000 37,343,000 51,860,000 1,978,000 0 1,968,000 1,770,000 97,000 1,673,000 0 0 0 1,673,000 0.03 0.02
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