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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
[X] SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JULY 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
[ ] THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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Commission File Number: 1-9135
ADRIEN ARPEL, INC., (FORMERLY ALFIN, INC.)
NEW YORK 13-3032734
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 110, Norwood, NJ 07648
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 767-6880
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange
- ---------------------- on which registered
Common Stock, $.01 par -------------------
value per share American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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 Rule 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 price on November 4, 1998, was $7,410,297. As
of November 4, 1998, the Registrant had 14,310,866 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its 1998 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Annual Report on Form 10-K.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
ADRIEN ARPEL, INC., (formerly ALFIN, INC.) a New York corporation (the
"Company"), is engaged in distributing cosmetics and other beauty products and
providing facial and other beauty services in department stores and in specialty
stores throughout the United States and Canada. The Company also markets and
sells its products through catalogs and the Internet. From April 1994 through
January 1997, the Company also distributed specially packaged cosmetic products
through television marketing on the Home Shopping Network ("HSN").
In February 1998, the Company's then board of directors approved an agreement
with an investment group headed by Barry W. Blank (the "Blank Group"). Under the
agreement, the Blank Group advanced the Company working capital of $500,000 and
committed to use its best efforts to raise no less than an additional $2 million
in equity. The initial $500,000 investment was in the form of a 12% five year
note convertible into the Company's common stock, commencing on August 1, 1998
and ending on the day before the note is paid but no later than January 30,
2003, at the rate of $0.25 per share. The board of directors also elected Mr.
Blank as Chairman, President and Chief Executive Officer of the Company and
accepted the resignation of Ms. Elisabeth Fayer, the Company's former Chairman
and Chief Executive Officer, who owns a majority of the Company's common stock
through an affiliated company, Fine Fragrances Distribution Inc., ("FFD"). Mr.
Blank is an investment banker who, until October 1998, was employed as the
manager of the Phoenix office of J. Robbins Securities LLC. Mr. Blank is
currently employed as the manager of the Phoenix office of Dirks & Company, Inc.
Mr. Blank personally owns seats on the New York and American Stock Exchanges.
Under the agreement with the Blank Group, FFD issued an option to the Group to
acquire all of its shares of the Company's common stock and has granted Mr.
Blank a proxy to vote these shares. FFD owns 7,188,235 shares of the Company's
common stock which represented approximately 61% of the outstanding shares of
the Company's common stock on the date of transaction. The option to acquire
FFD's shares is exercisable, in all or in part, from time to time, for a period
of 12 months which commenced on August 1, 1998 at $0.25 per share.
During February 1998, Jacques Desjardins, Steven Korda and Suzanne Langlois, all
of whom had been members of the board of directors since November 1992,
resigned. On March 13, 1998, Barry Blank, acting as the sole director of the
Company, appointed Barry Feiner, Joseph Giamanco and John McConnaughy, Jr., as
directors of the Company. On May 5, 1998, Charles R. Hoover was also appointed
as a director. On August 18, 1998, the board of directors elected Mr. Hoover to
the position of President and Chief Operating Officer of the Company. Mr. Blank
remains as the Company's Chairman and Chief Executive officer.
On March 27, 1998, the Company's board of directors approved an additional
$250,000 loan to the Company by a group (the "Interim Loan Group") which
includes Mr. Blank, Mr. McConnaughy, Janet M. Portelly, and an unaffiliated
party. Ms. Portelly, who is the wife of Mr. Feiner, is also a member of the
Blank Group. This advance was needed to help settle certain trade payables which
were due to key inventory suppliers. This loan, which was received by the
Company on April 20, 1998, bears interest at 12% and matures on May 31, 1999.
The members of the Interim Loan Group also received one share of common stock
for each dollar loaned. On June 23, 1998, the Company repaid $100,000, plus
interest, to Mr. McConnaughy from the proceeds of the Company's Private Equity
Financing described in the next paragraph.
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During May 1998, the Company commenced a private placement offering (the
"Offering")through J. Robbins Securities, LLC., (the "Placement Agent") as
Placement Agent, designed to raise up to $3 million in equity financing. The
Offering consisted of the issuance of up to 60 units (the "Units"), each in the
amount of $50,000. Each Unit consisted of 50,000 shares of the Company's Common
Stock and 50,000, Class A Warrants. Each Class A Warrant entitles the holder to
purchase one share of the Company's Common Stock at $2.00 per share and one
Class B Warrant. Two Class B Warrants entitle the holder to purchase one share
of the Company's Common Stock at $4.00 per share. The Class A Warrants are
exercisable at any time commencing upon issuance until May 31, 2001 and the
Class B Warrants are exercisable at any time commencing upon issuance until May
31, 2003. This Offering was terminated on August 31, 1998 at which time 40.84
Units had been sold and gross proceeds of $2,042,000 had been raised. The net
amount available to the Company was $1,756,120 after payment of $285,880 in
placement fees and other Offering expenses.
Mr. Blank participated in marketing this Offering and earned aggregate
commissions of $112,310 from the Placement Agent. The Placement Agent was also
to be granted Warrants, exercisable over a five year period, commencing on the
last closing date of the Offering. The Warrants to be granted, were to purchase
an amount of Units equal to 10% of the number of Units sold in the Offering, at
an exercise price equal to 120% of the Unit Offering price. ($60,000 per Unit).
Mr. Blank, as an employee of the Placement Agent, was to receive 25% of such
Warrants. The Company is currently disputing the issuance of these Warrants to
the Placement Agent.
PRODUCTS AND MAJOR DISTRIBUTION AGREEMENTS
CURRENT PRODUCTS
The Company develops, distributes and sells skin care and cosmetic products
under the trademarks ADRIEN ARPEL(R) and ARPEL(R). It also acts as an operator
of service-oriented skin care salons in certain department and specialty stores.
From April 1994 through January 1997, the Company also distributed specially
packaged cosmetic products through television marketing on HSN. The Company's
relationship with HSN ended as of January 27, 1997, following a contract dispute
between the Company and Adrienne Newman which led to the departure of Ms. Newman
from the Company. Ms. Newman served as the President of Adrien Arpel, Inc.,
(Delaware) ("ADRIEN ARPEL"), the Company's wholly owned subsidiary and had been
the Company's selling host, under the name of ADRIEN ARPEL, in its sales program
on HSN. For a discussion of the legal action between the Company and Ms. Newman
as a result of this dispute. See "Item 3. Legal Proceedings."
The Company's products consist of a line of high quality natural based skin care
products and a line of make up products. The Company's products are positioned
in the better segment of the market and are competitively priced with other
comparable brands.
DISCONTINUED PRODUCTS
The Company, under its former name, ALFIN, INC., was originally engaged in the
manufacturing, importation, distribution, marketing and merchandising of fine
imported fragrance products. Beginning in 1993, ALFIN significantly reduced its
distribution of fragrance products and, in July 1995, ceased its distribution of
fragrance products.
SALES AND MARKETING
The Company's major domestic accounts include Bloomingdale's, Boscov's,
Kaufmanns, Sears, Ulta 3 and the U.S. Military. The Company also sells directly
to the Canadian department store, the Bay. The Company commenced shipping to
approximately 160 Sears locations during August 1998. The Company and Sears plan
to expand this distribution to approximately 270 additional locations commencing
in the summer of 1999.
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The Company's arrangement with Bloomingdale's and two Kaufmann's locations is
structured as a Leased Main Floor arrangement. Under this arrangement, the
Company's products are sold at retail by employee's of the Company, with
Bloomingdale's and Kaufmann's receiving a lease payment equal to 25% of the
Company's gross retail sales. For the fiscal year ended July 31, 1998, 32.5% of
the Company's net sales were attributable to this type of arrangement.
For the fiscal year ended July 31, 1998 net sales to the Bay accounted for 17.2%
of total net sales revenues of the Company, No other single domestic account,
foreign distributor or independent sales agent accounted for sales in an
aggregate amount equal to 10% or more of the Company's consolidated net sales.
During fiscal 1998 the Company began marketing and selling its products through
its own professionally designed mail order catalog. The Company's catalog is
updated seasonally and is mailed to customers in markets which have
traditionally been strong markets for the Company's products.
During December 1997, the Company entered into an agreement with Spiegel, Inc.,
("Spiegel"). Under the terms of the agreement, the Company participated in
Spiegel's Specialty Catalog Reverse Syndication Program. This program was
designed to identify ADRIEN ARPEL mail order buyers and involved seasonal
mailings of the Company's catalog featuring a selection of the Company's
cosmetic and skin care products. The Company was responsible for all promotional
expenses, including but not limited to printing and production costs. Spiegel
was responsible for mailing costs and received a fee equal to 10% of net sales
including shipping and handling charges. The agreement can be terminated upon
ninety days written notice by either party. The Company and Spiegel are
currently in the process of analyzing the results of this program and, while
conducting this analysis, have temporarily suspended further catalog mailings.
During May 1998, the Company entered into an agreement with a consultant related
to services rendered with regards to certain of the Company's catalog and direct
television marketing business. Under the agreement, the consultant is eligible
to earn a commission of 10% of the Company's net sales attributable to the
consultants activities up to $5 million and 15% of the Company's net sales
attributable to the consultants activities in excess of $5 million during any
consulting year. The consultant was also granted 100,000 options exercisable at
$0.68 per share, of which 50,000 vested immediately, 25,000 vest when sales
generated from eligible business exceeds $5 million during the first consulting
year and 25,000 vest when sales from eligible business exceeds $10 million
during the first consulting year.
During June 1998, the Company began marketing and selling its products via the
Internet (www.adrienarpel.com). The Company is utilizing Net Ventures, Inc.'s.,
Shopbuilder technology (TM) to maintain its online outlet.
Sales through the Company's mail order catalog, its relationship with Spiegel
and it's Internet site accounted for approximately 6.5% of the Company's fiscal
1998 sales.
As is common in the fragrance and cosmetic industry, the Company provides its
domestic department store customers with the limited right to return merchandise
in order to balance inventory and stock levels. The rate of return experienced
by the Company was approximately 2.9%, 4.7% and 6.1% for the fiscal years ended
July 31,1998, 1997, and 1996, respectively.
Sales to foreign accounts, expressed as a percentage of net sales, were 17.3%,
7.2%, 6.4% for the fiscal years ended July 31, 1998, 1997 and 1996,
respectively.
RESEARCH AND DEVELOPMENT
The Company did not spend a material amount on research and development during
the fiscal years ended July 31, 1998, 1997 and 1996. It introduces new products
and changes its packaging in response to changing consumer demands.
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ADVERTISING
The Company advertises through cooperative advertising programs, catalogs and
the Internet. Department store advertising costs as a percentage of
consolidated department store sales for the fiscal years ended July 31, 1998,
1997 and 1996 were 10.9%, 11.7%, and 9.7%, respectively. The Company also
promotes its products through the use of promotional materials, special
promotions and in-store displays.
MANUFACTURING
The Company does not maintain any manufacturing facilities. It subcontracts to
manufacture its products, in accordance with the Company's specifications and
formulas. See "Trademarks and Regulations" below. The Company believes that
other manufacturing subcontractors are available if alternative production
sources need to be obtained. The Company believes that it is in compliance with
all applicable laws and regulations pertaining to its business and to any
federal, state or local laws and regulations designated to protect the
environment.
TRADEMARKS AND REGULATIONS
The Company owns the relevant trademarks of the products which are distributed
by it. The ADRIEN ARPEL(R) and ARPEL(R) names are registered as trademarks in
the United States and a number of foreign countries.
The Food and Drug Administration ("FDA") monitors certain aspects of the
cosmetic industry, particularly those that relate to advertising claims and
purported benefits with respect to cosmetic products and the physical
composition of cosmetics. The Company has not been notified by the FDA, nor, to
its knowledge, have any of its manufacturers been notified by the FDA, that any
of the products that the Company distributes are currently the subject of any
FDA investigation or that any claims or complaints have been made or are
threatened against the products that the Company distributes. Notwithstanding
the foregoing, the Company does not believe that any FDA approvals or consents
are required with respect to any of the products the Company distributes.
The Federal Trade Commission ("FTC") monitors certain other aspects of the
Company's business, particularly as they relate to product packaging and
advertising. The Company designs the packaging of all products it distributes,
and for which it owns the relevant trademark. The Company has not been notified
by the FTC that any of the Company's products or practices are currently the
subject of any FTC investigation or that any, claims or complaints have been
made or are threatened against the Company.
The Company believes that it is in material compliance with all applicable laws
and regulations pertaining to its business.
PRODUCT LIABILITY
The Company believes that the manufacturers of its products carry product
liability insurance in an amount sufficient to cover any foreseeable product
liability claim and that the Company is protected thereunder. In addition, the
Company maintains product liability coverage in the aggregate amount of $2
million which it believes is adequate to cover any exposure it may have with
respect to its products. The Company has never been the subject of any material
product liability litigation.
COMPETITION
The market for cosmetics is volatile, competitive and sensitive to changing
consumer preferences and demands. There are products which are better known than
the products distributed by the Company and there are many companies
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which are substantially larger, more diversified and which have substantially
greater financial and other resources than the Company and which have the
ability to develop and market products which are similar to and competitive with
those distributed by the Company.
The Company considers its major competitors to be "Clinique" and "Origins", both
subsidiaries of "Estee Lauder", who offer similar "all natural" products. The
Company's catalog offerings compete with, among others, "Avon", which also
markets through catalog's.
GENERAL ECONOMIC CONDITIONS
Retail cosmetic purchases are discretionary and are frequently made by customers
using consumer credit. The Company believes that a decline in consumer credit
purchases could adversely affect the business and financial condition of
department stores and, therefore, the Company.
EMPLOYEES
As of October 26, 1998, the Company had seventy two direct employees. Of these,
forty eight were engaged in sales and marketing activities, fifteen in
administrative functions and nine in distribution activities.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in New York City and occupies
approximately 7,400 rentable square feet under a lease expiring on November 30,
2001. The lease provides for annual payments of approximately $240,000. During
June 1997 the Company sold its Norwood, New Jersey distribution and
administration center for $1,416,000. From the proceeds of this sale the Company
satisfied the remaining balance of its term promissory note in the amount of
$450,000 which was due to PNC Bank. The Company currently occupies approximately
19,000 rentable square feet in the same facility under a lease expiring in June
2001. The lease provides for annual payments of approximately $152,000.
ITEM 3. LEGAL PROCEEDINGS
On April 23, 1998, the Company and Adrienne Newman reached a settlement
agreement related to their litigation which was initiated by Ms. Newman during
October 1996.
On October 28, 1996 the Company received notice from Ms. Newman purporting to
terminate her April 4, 1990 Employment Agreement with the Company (such
agreement as subsequently amended was the "Employment Agreement"), based on an
alleged breach of the Employment Agreement by the Company. Ms. Newman served as
the President of ADRIEN ARPEL, the Company's wholly-owned subsidiary, and had
been the selling host, under the name of ADRIEN ARPEL, in its sales program on
HSN. The Employment Agreement provided for salary, fringe benefits and
commission payments based upon 33% of the revenues, net of direct expenses
attributable to television shopping sales. Ms. Newman also had vested rights in
625,000 warrants, 500,000 of which were scheduled to expire in November 1998 and
the remaining 125,000 of which were scheduled to expire on July 31, 2001.
On November 8, 1996 the Company and Ms. Newman reached an agreement (the
"Interim Agreement") whereby Ms. Newman agreed to appear as the selling host for
ADRIEN ARPEL on HSN shows scheduled for November and December 1996 and January
1997 (the "HSN Selling Period"). During the HSN Selling Period Ms. Newman acted
as an independent contractor and not as an employee of the Company. The Company
and Ms. Newman also agreed to refrain from initiating legal action against the
other in connection with their dispute over Ms. Newman's termination of the
Employment Agreement until after the expiration of the HSN Selling Period.
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On January 28, 1997, after the expiration of the HSN Selling Period, the Company
was served by Ms. Newman with a summons and complaint returnable in the Supreme
Court, New York County whereby Ms. Newman asserted claims for damages against
the Company based upon alleged breaches by the Company of Ms. Newman's
Employment Agreement and the Interim Agreement. Unspecified damages were
claimed. A further claim requested a judicial determination that the Employment
Agreement was materially breached by the Company resulting in its termination.
On March 19, 1997 the Company served an Answer and Counterclaim in response to
the action commenced by Ms. Newman. The Company's Counterclaim asserted various
claims against Ms. Newman, seeking damages and injunctive relief. Among other
things, it was the position of the Company that Ms. Newman was in material
breach of her Employment Agreement when she terminated the Employment Agreement
on October 28, 1996. As a consequence, it was the Company's belief that Ms.
Newman's refusal to provide services to the Company throughout the term of her
Employment Agreement which was due to expire in April 1998, particularly her
willful refusal and failure to appear as the Company's selling host on HSN,
would damage the Company in the sum of at least eleven million dollars
($11,000,000). The Company also asserted claims against Ms. Newman for breaches
of her covenant not to compete and her covenant not to disclose trade secrets
and proprietary data.
During May 1997, Ms. Newman started appearing on HSN as a representative of her
own company selling cosmetic products under the name "Signature Club A. " She
subsequently appeared on HSN on a regular basis. During these appearances Ms.
Newman was not acting on behalf of the Company or its trademark protected ADRIEN
ARPEL product line.
Under the settlement agreement reached on April 23, 1998, Ms. Newman is paying
the Company $1 million. The agreement specified that $150,000 would be paid upon
execution of the settlement agreement and $25,000 per month until the Company
raised $2 million under its equity finance offering. Upon raising $2 million in
equity financing, Ms. Newman was required to pay an additional installment of
$150,000 and $50,000 per month until the balance is paid in full. Upon raising
$2 million in equity financing, monthly payments also bear interest at the prime
rate. On August 6, 1998, the Company's equity finance offering surpassed the $2
million amount resulting in the additional payment of $150,000 from Ms. Newman
and increased installment payments of $50,000 plus interest at the prime rate.
In addition to the above, the Company, in the normal course of business, is a
defendant in numerous actions/lawsuits. The Company does not believe the outcome
of these action/lawsuits will have a material impact on the Company's financial
position or results from operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 16, 1998, at the Company's Annual Meeting of Shareholders (the
"Meeting") Shareholders present or represented by proxy at the Meeting (i)
elected Barry W. Blank, Barry Feiner, Joseph Giamanco, Charles R. Hoover and
John E. McConnaughy, Jr. as directors of the Company for a term of one year or
until their successors have been duly elected and qualified, (ii) approved the
appointment of Goldstein Golub Kessler LLP as independent auditors of the
accounts of the Company for the fiscal year beginning August 1, 1998, (iii)
approved an amendment to the Company's Certificate of Incorporation to change
the name of the Company from ALFIN, INC., to ADRIEN ARPEL, INC. and (iv)
approved an amendment to the Company's Certificate of Incorporation to increase
the number of authorized shares of the Common Stock from 17 million to 50
million shares.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
In July 1997 the Company was advised by the American Stock Exchange (the "ASE")
that it wished to review with the Company its continued listing eligibility on
the ASE based upon the Company falling below certain ASE continued listing
guidelines. The Company met with representatives of the ASE, and made both oral
and written presentations to the ASE. The Company was advised by the ASE, by
letter dated September 15, 1997, that the Company's listing on the ASE would be
continued subject to future review by the ASE of the Company's favorable
progress in satisfying the ASE's guidelines for continued listing and to the
ASE's routine periodic reviews of the Company's SEC and other filings.
On September 2, 1998 the Company was advised by the ASE that the ASE intended to
proceed with the filing of an application with the Securities and Exchange
Commission (the "SEC") to strike the Company's common stock from listing and
registration on the Exchange. The Company has exercised its right to appeal this
determination and filed a letter of appeal on September 4, 1998. The Company is
currently scheduled to meet with the ASE on November 10, 1998 regarding its
appeal.
Since May 5, 1986, shares of the Company's $0.01 par value Common Stock, have
traded on the ASE (symbol "AFN"). On August 6, 1998, the Company changed its
symbol to RPL in connection with the Company name change from ALFIN, INC. to
ADRIEN ARPEL, INC. The following table sets forth, for the periods indicated and
as reported by the ASE, the high and low sales prices for shares of the
Company's Common Stock.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
JULY 31, 1996 3-1/16 1-1/4
OCTOBER 31, 1996 2-3/8 1-1/2
JANUARY 31, 1997 1-11/16 1-1/8
APRIL 30, 1997 1-9/16 13/16
JULY 31, 1997 1-1/4 1/2
OCTOBER 31, 1997 11/16 1/2
JANUARY 31, 1998 15/16 5/16
APRIL 30, 1998 1-1/8 3/8
JULY 31, 1998 1-7/16 13/16
</TABLE>
The number of shareholders of record of the Common Stock on October 26, 1998 was
2,239. The Company believes that there are a significant number of beneficial
owners of its Common Stock whose shares are held in "Street Name."
The Company has paid no cash dividends with respect to its Common Stock since
its inception.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and related notes thereto included elsewhere
in this report.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JULY 31
(000'S OMITTED, EXCEPT PER SHARE 1998 1997 1996 1995 1994
AMOUNTS)
- -----------------------------------------------------------------------------------------------------------------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
NET SALES $ 5,909 $ 24,701 $ 34,733 $ 32,151 $ 29,358
GROSS PROFIT 4,176 16,517 23,353 22,859 21,707
OPERATING (LOSS) INCOME (3,490) (3,877) 2,820 1,960 (924)
OTHER (EXPENSE)INCOME (253) 948 54 (460) (503)
(LOSS) INCOME BEFORE PROVISION FOR (3,742) (2,929) 2,874 1,500 (1,427)
INCOME TAXES
NET (LOSS) INCOME $ (3,748) $ (3,009) $ 2,693 $ 1,365 ($ 1,427)
======== ======== ======== ======== ========
BASIC (LOSS) INCOME PER COMMON &
COMMON EQUIVALENT SHARE: $ (0.32) $ (0.26) $ 0.21 $ 0.12 $ (0.14)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
WORKING CAPITAL $ 1,335 $ 1,254 $ 988 $ (2,629) $ (5,905)
TOTAL ASSETS 3,666 4,611 11,228 10,756 12,362
SHORT-TERM DEBT 63 - 1,938 2,863 5,421
LONG-TERM DEBT 500 - 425 725 149
SHAREHOLDER'S EQUITY $ 526 $ 1,181 $ 4,131 $ 1,388 $ 24
======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS -
Certain statements in this report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation's" and elsewhere
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including without limitation,
statements regarding future cash requirements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance and achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, general economic and business conditions,
industry capacity, industry trends, competition, litigation, material costs and
availability, the loss of any significant management personnel, the loss of any
significant customers, changes in business strategy or development plans,
quality of management, availability, terms and deployment of capital, business
abilities and judgment of personnel,
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availability of qualified personnel, changes in, or the failure to comply with,
government regulations, and other factors referenced in this report.
The following table sets forth items in the Statements of Operation as a percent
of net sales:
<TABLE>
<CAPTION>
RELATIONSHIP TO NET SALES FOR
THE FISCAL YEARS ENDED JULY 31,
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
NET SALES 100.0% 100.0% 100.0%
COST OF GOODS SOLD 29.3 33.1 32.8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 129.7 71.7 59.1
WRITE OFF OF GOODWILL - 10.9 -
OPERATING (LOSS) INCOME (59.0) (15.7) 8.1
OTHER (EXPENSE)INCOME, NET (4.2) 3.8 0.2
NET (LOSS) INCOME BEFORE PROVISION FOR INCOME
TAX (63.3) (11.9) 8.3
------ ------ ------
NET (LOSS) INCOME (63.4)% (12.2)% 7.8%
====== ====== ======
</TABLE>
FISCAL YEARS ENDED JULY 31, 1998 AND 1997
The Company recorded a net loss of $3,748,446 for the fiscal year ended July 31,
1998, as compared to a net loss of $3,008,562 for the fiscal year ended July 31,
1997. The net loss per common and common equivalent share was $0.32 for the year
ended July 31, 1998, as compared to a net loss of $0.26 per share for the year
ended July 31, 1997. Included in the loss for the fiscal year ended July 31,
1998 is $1,250,000 of income related to the settlement of the Company's
litigation with Adrienne Newman. The Company recorded the gross settlement of $1
million as part of "Other Income" and additionally, reversed a liability which
it was carrying on its balance sheet related to commissions which were
previously recorded as due Ms. Newman in the amount of $250,000. Also included
in the loss for the fiscal year ended July 31, 1998, is $1,302,223 of non cash
finance charges related to the financing agreements which the Company has with
the Blank Group and an Interim Loan Group. The Issuance of 250,000 shares of
stock to the Interim Loan Group, the beneficial conversion feature pertaining to
the $500,000 note payable to the Blank Group and the Blank Group's option to
acquire FFD's shares at $0.25 per share are deemed to be an additional cost of
financing. Excluding the effect of the Newman settlement and the non cash
financing charges, the Company would have recorded a net loss of $3,696,223 or
$0.30 per share for the fiscal year ended July 31, 1998.
Included in the loss for the fiscal year ended July 31, 1997, is the write off
of goodwill in the amount of $2,620,081 recorded during the fourth quarter of
fiscal 1997, as a result of the Company's prior assessment of future operating
cash flows required in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, " Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." Also included in the loss for the
fiscal year ended July 31, 1997 is a gain of $986,320 which was attributable to
the Company's sale of its Norwood, New Jersey distribution and administration
facility. Excluding the effect of the write off of goodwill and the gain related
to the sale of the Company's distribution facility the Company would have
recorded a loss of $1,374,801 or $0.12 per share for the fiscal year ended July
31, 1997.
9
<PAGE> 11
Net sales for the fiscal year ended July 31, 1998, decreased to $5,908,754 from
$24,700,684 recorded in the prior fiscal year, a decrease of $18,791,930 or
76.1%. The sales decrease is primarily attributable to an end of the Company's
relationship with the Home Shopping Network ("HSN") combined with a decrease in
sales to department stores. The Company's relationship with HSN ended during
January 1997 due to the Company's contract dispute with Ms. Newman. Sales to HSN
for the year ended July 31, 1997 were $11,965,350. For a detailed discussion of
the Company's dispute with Ms. Newman see Item 3, "Legal Proceedings."
Net sales to department stores for the fiscal year ended July 31, 1998 decreased
to $5,493,254 from $12,659,346 for the fiscal year ended July 31, 1997, a
decrease of $7,166,092 or 56.6%. The Company was distributing its products to
114 department store locations throughout the United states and Canada at July
31, 1998, as compared to 243 locations at July 31, 1997. During the fiscal year
ended July 31, 1998, the Company ceased distribution of its product line through
Bullocks, Burdines, Dayton/Hudson, Dillards, Foley's, Hechts, Macy's and
Mercantile department store locations. The Company continues to distribute its
product line through the Bay, in Canada, Bloomingdales, Boscov's, Kaufmanns,
Ulta 3 and, during August 1998, launched its product line in approximately 160
Sears locations throughout the United States.
Cost of goods sold as a percentage of net sales was 29.3% for the fiscal year
ended July 31, 1998, as compared to 33.1% for the fiscal year ended July 31,
1997. The decrease is primarily due to product mix. Sales to HSN during the
fiscal year ended July 31, 1997 consisted of 48.8% of fiscal 1997 sales and had
a higher cost of goods rate than products sold through department stores.
Additionally, 40.3% of the Company's fiscal 1998 sales were at retail as
compared to 18.6% for fiscal 1997.
Selling, general and administrative expenses decreased to $7,665,526 for the
fiscal year ended July 31, 1998, from $17,774,382 for the fiscal year ended July
31, 1997, a decrease of $10,108,856 or 56.9%. This decrease is primarily
attributable to the decreased cost of operating the Company's current downsized
department store business combined with a decrease of $2,300,339 in compensation
payments to Ms. Newman which were attributable to her appearance on HSN during
the fiscal year ended July 31, 1997. Ms. Newman's employment agreement with the
Company required that the Company compensate Ms. Newman for 33.3% of the net
revenues after direct expenses attributable to sales of products on HSN. The
Company also reversed a liability during Fiscal 1998 in the amount of $250,000,
which was reflected as commissions which were previously recorded as due Ms.
Newman, but which the Company will not pay.
The Company has made dramatic expense cuts during the latter part of fiscal 1998
and seeks a further reduction of non-operating costs during fiscal 1999. For a
discussion of the Company's current plans, see "Liquidity and Capital
Resources."
The Company recorded net other expenses of $252,656 during the fiscal year ended
July 31, 1998 as compared to net other income of $948,307 during the fiscal year
ended July 31, 1997. During fiscal 1998, the Company recorded a $1 million
settlement pertaining to its litigation with Ms. Newman, $1,302,223 in non cash
finance charges related to its financing agreements with the Blank Group and
$24,280 of net interest income primarily related to the payments received from
Selecta. During fiscal 1997, the Company recorded $986,320 of other income
related to the gain on the sale of its Norwood, New Jersey distribution and
administration facility along with $38,013 of net interest expense under its
loan facility with PNC Bank.
The remaining NOL available to the Company for federal income tax reporting
purposes at July 31, 1998, is approximately $4.3 million with various expiration
dates through 2013. In 1992 the Company had an ownership change and has had
several recent sales of securities. Under Section 382 of the Internal Revenue
Code (the "Code"), ownership changes may severely limit, on an annual basis, the
Company's ability to utilize its net operating loss carryforwards.
10
<PAGE> 12
The Company has recorded a valuation allowance equal to the amount of deferred
income tax assets for the fiscal year ended July 31, 1998. In making this
determination the Company considered its operating history and the end of its
relationship with HSN during January 1997.
FISCAL YEARS ENDED JULY 31, 1997 AND 1996
The Company recorded a net loss of $3,008,562 for the fiscal year ended July 31,
1997, as compared to net income of $2,692,692 for the fiscal year ended July 31,
1996. The net loss per common and common equivalent share was $0.25 for the year
ended July 31, 1997, as compared to income of $0.22 for the year ended July 31,
1996. Included in the loss is the write off of goodwill in the amount of
$2,620,081 recorded during the fourth quarter of the prior fiscal year as a
result of the Company's assessment of future operating cash flows in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Excluding the effect of the write off of goodwill the net loss for the
fiscal year ended July 31, 1997, was $407,307. Excluding the effect of the write
off of goodwill the net loss per common and common equivalent shares was $0.03
for the fiscal year ended July 31, 1997.
Net sales for the fiscal year ended July 31, 1997, decreased to $24,700,684 from
$34,733,375 recorded in the prior fiscal year, a decrease of $10,032,691 or
28.9%. The sales decrease was primarily related to an end to the Company's
relationship with HSN combined with a decrease in sales to department stores.
Sales to HSN for the year ended July 31, 1997, were $11,965,350 as compared to
$17,858,631 for the year ended July 31, 1996, a decrease of $5,893,281 or 33.0%.
The Company's relationship with HSN ended during January 1997 due to the
Company's contract dispute with Adrienne Newman.
Net sales to department stores for the year ended July 31, 1997, decreased to
$12,735,334 from $16,570,070 for the year ended July 31, 1996, a decrease of
$3,834,736, or 23.1%. The Company was selling its Arpel product line in 243
locations throughout the United States and Canada at July 31, 1997, as compared
to 315 locations at July 31, 1996. In fiscal 1997 the Company ceased
distributing its products through Federated Department stores Macy's East and
Macy's West Divisions. Distribution through Macy's East and Macy's West ceased
during October 1996 and May 1997, respectively.
Cost of goods sold as a percentage of net sales was 33.1% for the fiscal year
ended July 31, 1997,as compared to 32.8% for the fiscal year ended July 31,
1996. The decrease was primarily related to product mix, offset by the decrease
in HSN sales.
Selling, general and administrative expenses decreased to $17,774,382 for the
fiscal year ended July 31, 1997, from $20,532,894 for the fiscal year ended July
31, 1996, a 13.4% decrease. The decrease was primarily related to a decrease of
approximately $1,688,000 in compensation payments to Ms. Newman. Ms. Newman's
employment agreement with the Company required that the Company compensate Ms.
Newman for 33.3% of the net revenues after direct expenses attributable to sales
of products on HSN. Contributing to the expense decrease was the expense
reduction program which has been implemented by the Company during January 1997.
In accordance with SFAS No. 121, the Company recorded a non-cash write off of
$2,620,081 in the fourth quarter of fiscal year 1997 as a result of its
evaluation of expected future cash flows from operations before interest.
The Company recorded net interest expense for the fiscal year ended July 31,
1997, in the amount of $38,013 as compared to interest expense for the fiscal
year ended July 31, 1996, in the amount of $313,100. This decrease was primarily
attributable to significantly lower debt levels. The Company has reduced bank
debt to $0 at July 31, 1997. During June 1997 the Company satisfied the
remaining balance due on its Term Promissory note with PNC Bank.
The Company recorded other income of $986,320 for the fiscal year ended July 31,
1997, related to the sale of its Norwood, New Jersey distribution and
administration facility in June 1997. For the fiscal year ended July 31,
11
<PAGE> 13
1996, the Company recorded a gain of $394,392 related to the sale of its
licensing and distribution rights for certain fragrances by Robert Piguet to
Fashion Fragrances and Cosmetics Ltd. ("FF&C").
The remaining NOL available to the Company for federal income tax reporting
purposes at July 31, 1997, was approximately $4.3 million with various
expiration dates through 2013.
The Company recorded a valuation allowance equal to the amount of deferred
assets for the fiscal year ended July 31, 1997. In making this determination the
Company considered its operating history and the end of its relationship with
HSN during January 1997 following the departure of Ms. Newman from the Company.
FISCAL YEARS ENDED JULY 31, 1996 AND 1995
The Company recorded net income of $2,692,692 for the fiscal year ended July 31,
1996 as compared to $1,364,646 for the fiscal year ended July 31, 1995.
Net sales for the fiscal year ended July 31, 1996 increased to $34,733,375 from
$32,151,204 recorded in the prior fiscal year, an increase of $2,582,171 or
8.0%. Sales of cosmetic products increased to $34,428,701 from $31,073,515 as
compared to the prior year, a 10.8% increase. Sales of fragrance products
decreased to $304,674 from $1,077,689, as compared to the prior fiscal year, a
71.7% decrease to $304,674 from $1,077,689, as compared to the prior fiscal
year, a 71.7% decrease attributable in large part to the Company's decision to
suspend its fragrance business during the latter part of fiscal 1995. The fiscal
1996 fragrance sales were related to the sale of the Company's remaining
inventory of fragrance products.
The cosmetic sales increase of $3,355,186 was primarily attributable to the
Company's continued success in selling cosmetic products through HSN. Sales to
HSN increased to $17,858,631 from $15,667,416 recorded in the prior fiscal year,
an increase of $2,191,215 or 14.0%. The Company commenced selling products
through HSN of Canada during January 1996 with $933,261 of sales to HSN of
Canada being recorded during fiscal year ended July 31, 1996. Sales of cosmetic
products to department stores increased to $16,570,070 from $15,406,099 recorded
in the prior fiscal year, and increase of $1,163,971 or 7.6%. This increase was
primarily due to increased awareness of the ARPEL brand name as a result of the
Company's appearances on HSN, as well as normalization of the Company's
inventory out of stock situation in the second half of fiscal 1996.
Cost of goods sold as a percentage of net sales was 32.8% for the fiscal year
ended July 31, 1996, as compared to 28.9% for the fiscal year ended July 31,
1995. Cost of goods sold for cosmetic products was 32.1% for the fiscal year
ended July 31, 1996, as compared to 28.5% for the fiscal year ended July 31,
1995. The increase in the cosmetic cost of goods sold percentage was primarily
related to sales of cosmetic products to HSN.
Selling, general and administrative expenses decreased to $20,532,894 for the
fiscal year ended July 31, 1996 from $20,898,893 for the fiscal year ended July
31, 1995, a 1.8% decrease. The decrease was primarily attributable to decreases
in advertising and promotional expenses related to the Company's decision to
cease its fragrance business.
Interest expenses decreased to $313,100 for the fiscal year ended July 31, 1996,
from $439,743 recorded during the prior fiscal year ended July 31, 1995, a 28.8%
decrease. This decrease is primarily attributable to lower debt levels. The
Company recorded a gain of $394,392 related to the sale of its licensing and
distribution rights for certain fragrances by Robert Piquet to FF&C during March
1996.
Net income per common and common equivalent share for the fiscal year ended July
31, 1996 was $0.22 as compared to $0.12 for the fiscal year ended July 31, 1995.
12
<PAGE> 14
The remaining NOL available to the Company for federal income tax reporting
purposes at July 31, 1996 was approximately $4,300,000. The Company had $707,000
of the NOL carry-forward available for use for the tax year ending July 31,
1997.
OTHER
Revenue is recognized upon shipment of merchandise to the customer with a
reserve for sales returns recorded based upon historical experience.
The Company expenses all advertising costs in the period in which the cost is
incurred.
Trade receivables are shown net of certain valuation allowances which consist of
reserves for bad debts, reserves for returns and provisions for advertising and
salary chargebacks. The provisions for advertising and salary chargebacks are
based on agreements with department stores with which the Company does business.
The Company is liable for certain advertising and salary charges which take
place at the store level which will be deducted by the department store at the
time payment is made to the Company. The Company believes that this presentation
more accurately reflects the actual amount which will be collected as cash
receipts. At July 31, 1998 and 1997, the Company's provision for advertising and
salary deductions was $728,018 and $844,162 respectively.
The Company utilizes financial and distribution software that was developed to
be year 2000 compliant. Its software vendor has performed tests on each of the
Company's software programs and has made revisions as needed. Final tests have
not yet been performed and the Company's plans include a test which will
simulate year 2000 conditions. This test is scheduled to be completed during the
fiscal year ending July 31, 1999. The Company has assessed the impact of the
year 2000 on its operations, including the development of cost estimates for and
the extent of programming changes required to address the issue and determined
the costs related thereto would not have a material impact on its ongoing
results of operation.
LIQUIDITY AND CAPITAL RESOURCES
The Company had positive working capital of $1,335,089 at July 31, 1998, an
increase of $80,941 from working capital of $1,254,148 at July 31, 1997.
Beginning in the third quarter of fiscal 1997 the Company began suffering
significant losses from operations as a result of the unanticipated
discontinuance of appearances on HSN. The Company's relationship with HSN ended
as a result of the Company's contract dispute with Adrienne Newman. The Company
appeared on HSN from April 1995 through January 1997. Ms. Newman had been the
Company's spokesperson on HSN under the name Adrien Arpel. During the period
that the Company appeared on HSN it recorded profits and generated positive cash
flows from operations. For the fiscal years ended July 31, 1995, 1996 and 1997,
the Company's sales to HSN were $15,667,416, $17,858,631 and $11,965,350, which
consisted of 48.7%, 51.4% and 48.4% of the Company's total revenues,
respectively. As a result of the above factors, the Company's independent public
accountants have issued a going concern opinion for the fiscal year ended July
31, 1998.
In February 1998, the Company's then Board of Directors approved an agreement
with an investment group headed by Barry W. Blank, (the "Blank Group"). Under
the agreement the Blank Group advanced the Company working capital of $500,000.
The initial $500,000 investment was in the form of a 12% five year note
convertible into the Company's Common Stock, commencing August 1, 1998, and
ending on the day before the note is paid but no later than January 30, 2003, at
the rate of $0.25 per share. On February 9, 1998, the Company's Board of
Directors elected Mr. Blank as President and Chief Executive Officer of the
Company and accepted the resignation of Elisabeth Fayer, the Company's former
Chairman and Chief Executive Officer, who owns a majority of the Company's
Common Stock through an affiliated company, Fine Fragrance
13
<PAGE> 15
Distribution, Inc.("FFD"). Mr. Blank is an investment banker who, until October
1998, was employed as the manager of the Phoenix office of J. Robbins Securities
LLC. Mr. Blank is currently the manager of the Phoenix office of Dirks and
Company, Inc., and personally owns seats on the New York and American Stock
Exchanges.
Under the agreement with the Blank Group, FFD also issued an option to the Group
to acquire all of FFD's shares of the Company's Common Stock and granted Mr.
Blank a proxy to vote these shares. FFD owns approximately 7.1 million shares of
the Company's Common Stock which represented approximately 61% of the currently
outstanding shares of such stock on the date of the transaction. The option is
exercisable, in part or in whole, from time to time, for a period of 12 months
which commenced on August 1, 1998, at $0.25 per share.
The Company's former directors resigned their respective positions in
conjunction with the above agreement and Mr. Blank appointed a new board
consisting of Barry Feiner, an attorney who practices law in New York City,
Joseph Giamanco, who is the principal owner of GHM, Inc., an American Stock
Exchange specialist firm, John McConnaughy, Jr., a private investor, and Charles
R. Hoover, an attorney practicing law in Phoenix, Arizona. On August 18, 1998,
Mr. Hoover was also appointed President and Chief Operating Officer of the
Company.
On March 27, 1998, the Company's board of directors approved an additional
$250,000 loan to the Company by a group (the "Interim Loan Group") which
included Mr. Blank , Mr. McConnuaghy and Janet Portelly, the wife of Mr. Feiner.
Ms. Portelly is also a member of the Blank Group. The advance was needed to help
settle certain trade payables which were due to key inventory suppliers. This
loan, which was received by the Company on April 20, 1998, bears interest at 12%
and matures on May 31, 1999. The members of the Interim Loan Group also received
one share of common stock for each dollar loaned. On June 23, 1998, the Company
repaid $100,000, plus interest to Mr. McConnuaghy from the proceeds of the
private financing discussed below.
During May 1998, the Company commenced a private placement offering (the
"Offering") through J. Robbins Securities, LLC., as placement agent, designed to
raise up to $3 million in equity financing. The Offering consisted of the
issuance of up to 60 units (the "Units"), each in the amount of $50,000. Each
Unit consisted of 50,000 shares of the Company's Common Stock and 50,000 Class A
Warrants. Each Class A Warrant entitles the holder to purchase one share of the
Company's Stock at $2.00 per share and one Class B Warrant. Two Class B Warrants
entitle the holder to purchase one share of Common Stock at $4.00 per share. The
Class A Warrants are exercisable at any time commencing upon issuance until May
31, 2001 and the Class B Warrants are exercisable at any time commencing upon
issuance until May 31, 2003. This Offering was terminated on August 31, 1998 at
which time 40.84 Units had been sold and gross proceeds of $2,042,000 had been
raised. The net proceeds received by the Company amounted to $1,756,120 after
paying $285,880 of placement fees and other Offering expenses.
The Company was dependent upon the receipt of the proceeds from the Blank Group,
the Interim Loan Group and its Offering in order to reduce past due accounts
payables and invest in the production of finished goods inventory; However, the
Company received these proceeds later than anticipated which resulted in a delay
of payments to key inventory suppliers during the last quarter of fiscal 1998.
In addition, some of the Company's key suppliers have been hesitant about
producing new orders without being fully paid on past due invoices. During the
fourth quarter of fiscal 1998 the need for finished goods inventory became even
more critical when the Company was successful in obtaining the commitment from
Sears. The commitment resulted in the Company's launching its product line in
approximately 160 Sears locations throughout the United States. The Company and
Sears plan to increase distribution to an additional 270 locations commencing in
the summer of 1999. The Company considers its Sears relationship as one of the
major steps towards building a growing, long term, profitable business.
Substantial inventory could not be ordered until additional funds were received
by the Company. The Company's suppliers refused to extend additional
14
<PAGE> 16
credit. Upon receipt of the initial equity financing in June, orders were
immediately placed. These orders began to be filled during July. The inventory
of finished goods was so small, until the end of July, that no customers could
effectively be supplied. Packing for shipment started in late July as soon as
inventory arrived. However, no substantial shipments were possible until after
July 31, 1998, the end of the current fiscal year. These factors contributed to
the Company's unprofitable results for the fourth quarter ended July 31, 1998.
The Company's inventory levels continue to improve but they are not yet at
levels satisfactory to meet immediate anticipated customer demand.
The Company has effected significant expense reductions during the latter part
of fiscal 1998 and seeks further non-operating expense reductions during fiscal
1999. In addition, the Company's plans are directed in the following areas:
- Continued realignment of the Company's United States
department store operations by concentrating on potentially
profitable department store groups and markets. The Company
has undertaken a program to close non performing and
unprofitable locations and concentrate in markets and
department stores where its products are potentially more
profitable. As a result of this plan, during fiscal 1998, the
Company reduced its distribution from 243 stores at July 31,
1997 to 114 stores at July 31, 1998. During August 1998, the
Company began distribution of its products through
approximately 160 Sears Roebuck & Company locations
("Sears")throughout the United States. The Company and Sears
currently plan to expand this distribution to an approximately
270 additional locations commencing in the summer of 1999.
- Development of other areas of distribution. The Company will
commence distribution to the U.S. Military through an insert
included in the Military's mailings. Separate mailings are
currently scheduled to take place during the fall of 1998 and
will reach a worldwide audience of approximately 1.5 million
military personnel.
- Further enhancement of the Company's Internet site. The
Company began offering its products through its Internet site
during June 1998, (www.adreinarpel.com). The Company is
utilizing NETVENTURES, INC., SHOPBUILDER (TM) technology to
maintain its online outlet.
- Improvement of the Company's salon business. The Company
currently operates 64 salons under various arrangements within
select department stores throughout the United States and
Canada. The Company plans to re-fixture and modernize many of
these locations. The Company plans to rename its wholly owned
subsidiary as ADRIEN ARPEL SPA & SALON, Inc., through which it
intends to conduct its salon business. Management plans to
introduce a line of products specifically designed for this
new subsidiary. Management also plans to offer its products
through independent salons.
Management believes that its cost reduction programs combined with its new
initiatives should enable the Company to improve upon its fiscal 1998
performance and provide satisfactory liquidity during fiscal 1999, although no
assurance can be given that management will be successful.
EFFECTS OF INFLATION
The Company did not have any significant price increases for its products during
the fiscal years ended July 31, 1998, 1997, 1996. Selected price increases are
planned for January 1999 and will be announced during December 1998.
15
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required financial statements and supplementary financial information are
attached at the end of this report. For page of reference, see the Index to the
Consolidated Financial Statements appearing on page F-1 of this Annual Report on
Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On April 30, 1998, Arthur Andersen LLP (the "Former Accountants") resigned as
the Company's certified public accountants. In connection with the audits of the
Company's financial statements for the fiscal years ended July 31, 1996 and 1997
and for the period from August 1, 1997 through April 30, 1998, there were no
disagreements with the Former Accountants on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the Former
Accountants, would have caused them to make reference to the subject matter of
the disagreement in their report. The Former Accountants' reports on the
Company's financial statements for the fiscal years ended July 31, 1996 or 1997
do not contain an adverse opinion or disclaimer of opinion but does include an
explanatory paragraph concerning the Company's ability to continue as a going
concern. A letter from the Former Accountants addressed to the Securities and
Exchange Commission stating that they agree with the Company's response to this
Item is filed with the Securities Exchange Commission as an Exhibit to the
Company's Form 8-K dated May 5, 1998. On May 7, 1998 the Company retained the
services of Golub Goldstein Kessler LLP as its certified public accountants
commencing with the fiscal year ending July 31, 1998. The Company's Audit
Committee, Board of Directors and Shareholders have approved the change in
auditors.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
The following table sets forth the names of each of the directors of the Company
as of October 26, 1998, all of whom are expected to be nominated for reelection
at the Company's next Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION WITH COMPANY
---- --- -------------- ---------------------
<S> <C> <C> <C>
BARRY W. BLANK 57 February 1998 Chief Executive Officer, Director
CHARLES R. HOOVER 68 May 1998 President, Chief Operating Officer and
Director
BARRY FEINER 64 March 1998 Director
JOSEPH GIAMANCO 56 March 1998 Director
JOHN E. MCCONNAUGHY, JR. 68 March 1998 Director
</TABLE>
BARRY W. BLANK became Chief Executive Officer, President and Chairman of the
Board of Directors on February 9, 1998. Mr. Blank is currently the manager of
Dirk's & Company, Inc's., Phoenix branch office and from April 1997 until
October 1998, was the manager of the Phoenix, Arizona branch office of J.
Robbins Securities, LLC, a NASD securities brokerage firm. For more than ten
years prior thereto Mr. Blank acted in a similar capacity with a number of other
securities brokerage firms, including Coleman and Company Securities, Inc., from
May 1995 to April 1997, RAS Securities, Inc., from April 1993 to May 1995, and
Dickinson & Co., from July 1991 to April 1993. Mr. Blank owns a seat on the New
York and American Stock Exchanges, and for approximately 30 years has served as
an officer with the Phoenix Police Department. He is also a director of Action
Industries, a publicly held company engaged through a partially owned subsidiary
in the retail optical business, and Integrated Technologies USA, Inc., who's
shares are listed on the American Stock Exchange.
16
<PAGE> 18
CHARLES R. HOOVER, was elected as President and Chief Operating Officer of the
Company during August 1998. For more than the past five years Mr. Hoover has
been an attorney practicing in Phoenix, Arizona, from August 1997 as a partner
of Piccoli, Lester & Hoover, LLP., and prior thereto under his own name.
BARRY FEINER is and has been for more than the past five years an attorney
practicing in New York City under his own name. Mr. Feiner is also a director of
Fortune National Resources Corporation, and American Stock Exchange listed
company engaged in the business of exploiting oil and natural gas resources.
JOSEPH GIAMANCO is and has been for more than the past five years the President
of GHM, Inc., a company which acts as a specialist on the American Stock
Exchange.
JOHN E. MCCONNAUGHY, JR. is and has been for more than the past five years the
Chairman and Chief Executive Officer of JEMC Corporation, a private investment
company located in Stamford, Connecticut.
EXECUTIVE OFFICERS
Set forth below is certain information as of October 26, 1998 regarding the
executive officers of the Company:
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- -----
<S> <C> <C> <C>
BARRY W. BLANK 57 Chief Executive Officer February 1998
CHARLES R. HOOVER 68 President, Chief Operating Officer August 1998
MICHAEL D. FICKE 43 Vice President, Chief Financial Officer; November 1993
Secretary
MARY PANVINI 51 Senior Vice President/General Manager June 1997
</TABLE>
Information with respect to MESSRS. BLANK and HOOVER is set forth under
"Directors" above.
MARY PANVINI rejoined the Company as Senior Vice President/General Manager in
June 1997 and has served in this capacity since that time. Prior to her
rejoining the Company, from January 1996 to June 1997, Ms. Panvini acted as an
independent marketing consultant based in Washington DC. For more than the five
years prior thereto, she served as a Regional Sales Director with Christian Dior
Perfumes.
MICHAEL D. FICKE joined the Company in July 1989. Mr. Ficke served the Company
as Corporate Controller until his promotion to Vice President and Chief
Financial Officer in November 1993. He is a certified public accountant and
prior to joining the Company in 1989 served as Assistant Controller of Chanel
Inc., a manufacturer and distributor of fragrance and cosmetic products.
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<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for the fiscal years ended July 31,
1998, 1997 and 1996 with respect to all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and its other executive officers
who earned in excess of $100,000 for fiscal 1998 (the "Named Executive
Officers") in all capacities in which such officers served.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ OTHER ANNUAL STOCK
- --------------------------- ----- -------- ------- ------------- -----
COMPENSATION (3) OPTION/WARRANT/COMPENSATION
---------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
ELISABETH FAYER (1) 1998 $182,869 $-0- $-0- -0- -0-
CHAIRMAN AND CHIEF 1997 $574,167 -0- -0- -0- -0-
EXECUTIVE OFFICER 1996 $290,000 -0- -0- -0- -0-
BARRY W. BLANK (2) 1998 $49,917 $-0- $-0- -0- 200,000
CHAIRMAN AND CHIEF 1997 -0- -0- -0- -0- -0-
EXECUTIVE OFFICER 1996 -0- -0- -0- -0- -0-
MICHAEL D. FICKE 1998 $125,000 -0- -0- -0- 100,000
VICE PRESIDENT, 1997 $123,533 -0- -0- -0- -0-
CHIEF FINANCIAL OFFICER, 1996 $ 96,500 -0- -0- -0- -0-
SECRETARY
MARY PANVINI 1998 $115,000 -0- -0- -0- 100,000
SENIOR VICE PRESIDENT 1997 $ 12,197 -0- -0- -0- -0-
AND GENERAL MANAGER 1996 -0- -0- -0- -0- -0-
</TABLE>
(1) Named President of the Company in September 1996, became Chief Executive
Officer on October 23, 1996 and resigned on February 9, 1998.
(2) Named Chairman and Chief Executive Officer and President of the Company on
February 9, 1998
(3) Excludes personal benefits which did not exceed the lesser of $50,000 or
10%, on an annual basis, of such officer's salary and bonus,
STOCK OPTION GRANTS
The following table sets forth information as of October 26, 1998, with respect
to stock options granted to directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME POSITION VESTED NON VESTED EXERCISE
- ---- -------- ------ ---------- PRICE
-----
<S> <C> <C> <C> <C>
BARRY W. BLANK Chairman 25,000 75,000 (1) $0.68
BARRY FEINER Director 25,000 75,000 (1) 0.68
JOSEPH GIAMANCO Director 25,000 75,000 (1) 0.68
JOHN E. MCCONNAUGHY JR. Director 25,000 75,000 (1) 0.68
MICHAEL D. FICKE Chief Financial Officer, 25,000 75,000 (1) 0.68
Secretary
MARY PANVINI Senior Vice President, General 25,000 75,000 (1) 0.68
Manager Sales
CHARLES R. HOOVER Chief Operating officer, 300,000(2) -0- 0.875-1.0625
President, Director
</TABLE>
18
<PAGE> 20
(1) On March 27, 1998 100,000, options were granted which are exercisable
at $0.68 per share for a period of 10 years. 25,000 options vested
immediately and 25,000 options vest each year thereafter for a period
of three years. If the Company has earnings per share of at least $0.30
during any annual period all non vested options vest immediately.
(2) On June 4, 1998, 100,000 options were granted which are exercisable at
$0.875 per share for a period of 10 years. These options were issued
for services, specifically, assistance provided in the negotiation of
the terms and drafting of two substantial contracts for channels of
sales and distribution of the Company's products, with one to be
completed on or before July 31, 1998 and the other on or before August
28, 1998. These options become vested as to 50% upon the completion of
the services for one contract and 100% upon the completion of both
contracts, or in the recognition and acknowledgment by the Company that
neither contract will be completed by August 28, 1998.
On August 18, 1998, 200,000 options were granted which are exercisable
at $1.0625 per share. These options were granted pursuant to Mr.
Hoover's appointment as President and Chief Operating officer. These
options are qualified stock options pursuant to a plan which has not
yet been submitted to shareholders for approval. All of these options
vested immediately.
YEAR-END OPTION VALUES TABLE
The following table sets forth information at July 31, 1998, respecting
exercisable and non-exercisable options held by the Named Executive Officers.
The table also includes the value of "in-the-money" options which represents the
spread between the exercise price of the existing stock options and the year-end
price of the Common Stock. None of the named Executive Officers exercised any
options during fiscal 1998.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF OPTIONS IN-THE-MONEY
HELD AT OPTIONS HELD AT
JULY 31, 1998 JULY 31, 1998(1)
NOT NOT
NAME EXERCISABLE EXERCISABLE EXERCISABLE EXERCISABLE
<S> <C> <C> <C> <C>
BARRY W. BLANK (2) 25,000 75,000 $17,375 $52,125
MICHAEL D. FICKE (2) 25,000 75,000 $17,375 $52,125
CHARLES R. HOOVER (3) -0- 100,000 -0- $50,000
MARY PANVINI (2) 25,000 75,000 $17,375 $52,125
</TABLE>
(1) Based on a July 31, 1998 closing price of $1.375.
(2) 100,000 Options granted March 27, 1998 exercisable at $0.68 per share
for a period of ten years. 25,000 options vest immediately and 25,000
options vest each year thereafter for a period of three years. If the
Company records earnings per share of at least $0.30 per share at the
close of any fiscal year period all non vested options vest
immediately.
(3) 100,000 Options granted June 4, 1998 exercisable at $0.875 per share
for a period of ten years. These options were issued for services,
specifically, assistance provided in the negotiation of the terms and
drafting of two substantial contracts for channels of sales and
distribution of the Company's products, with one to be completed on or
before July 31, 1998 and the other on or before August 28, 1998. These
options become vested as to 50% upon the completion of the service for
one contract and 100% upon the completion of both contracts, or on the
recognition and acknowledgment by the Company that neither contract
will be completed. These options vested after the close of the fiscal
year ended July 31, 1998.
19
<PAGE> 21
COMPENSATION ARRANGEMENTS
Mr. Blank is currently an executive officer of the Company earning $100,000 per
annum. He does not have a written employment agreement with the Company and
currently devotes approximately one third of his time to Company business.
Mr. Hoover is currently an executive officer with the Company earning $60,000
per annum. Mr. Hoover currently devotes approximately one half of his time to
Company business. Commencing January 1, 1999, Mr. Hoover's salary will be
increased to 110% of the next highest officers compensation at which time Mr.
Hoover will devote approximately 100% of his time to Company business. Mr.
Hoover's salary is being deferred until January 1999. Mr. Hoover does not have a
written employment agreement with the Company. See Item 11, note (2) "Stock
Option Grants" for information related to options granted to Mr. Hoover.
Mr. Ficke is currently an executive officer of the Company earning $125,000 per
annum pursuant to an employment agreement dated March 27, 1998. This agreement
initially terminates on March 27, 1999, but will renew for one year periods
unless either party serves written notice 90 days prior to the expiration of the
agreement of such parties intent not to renew. Mr. Ficke also receives certain
benefits which do not exceed 10% of his annual compensation and is also eligible
to earn a bonus of $25,000 if the Company records a pre tax profit during two
consecutive quarters. See Item 11, note (1) "Stock Option Grants" for more
information related to options granted to Mr. Ficke.
Ms. Panvini is currently Senior Vice President/General Manager of retail sales
of the Company earning $115,000 per annum pursuant to an employment agreement
dated March 27, 1998, which will renew for one year periods unless either party
serves written notice 90 days prior to the expiration of agreement of such
party's intent not to renew. Ms. Panvini also receives certain benefits which do
not exceed 10% of her annual compensation. Ms. Panvini is also eligible to earn
a bonus of $23,000 if the Company earns a pre-tax profit at the end of any
fiscal year. See Item 11, note (1) "Stock Option Grants" for information related
to options granted to Ms. Panvini.
COMPENSATION FOR SERVICE AS DIRECTOR
Until February 1998 each Director who was not also an officer or employee of the
Company (Messrs. Desjardins and Korda for fiscal 1997) received $650 for each
Board of Directors or Committee meeting attended by such Director or $200 for
each meeting in which such Director participated by telephone conference. The
Company does not currently compensate directors for attendance at board meetings
but reimburses directors for expenses incurred for attending such meetings
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Fayer, who until February 9, 1998 served as President and Chief Executive
Officer of the Company, determined the compensation for the Officers and
employees of the Company for the fiscal year ended July 31, 1997. Ms. Fayer was
not involved in the determination of her compensation as the Chief Executive
Officer. Ms. Fayer's compensation was determined by the Company's Board of
Directors.
The current Board of Directors determines the compensation for the officers and
employees of the Company. Mr. Blank, who serves as the Company's current
Chairman and Mr. Hoover, who serves as the Company's current President and Chief
Operating Officer, were not involved in the determination of their respective
compensation arrangements.
20
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of October 26, 1998,
regarding, (i) the share ownership of the Company by each person who is known to
the Company to be the beneficial owner of more than five percent (5%) of the
Company's outstanding Common Stock, (ii) the share ownership of the Company of
each director, (iii) the share ownership of the Company of the Chief Executive
Officer and each of the other executive officers of the Company who earned in
excess of $100,000 during the Company's last fiscal year, and (iv) the share
ownership of the Company of all directors of the Company and named executive
officers as a group.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL BENEFICIALLY APPROXIMATE
OWNER OWNED (1) PERCENT OF CLASS (1)
- ----- ----- --------------------
<S> <C> <C>
ELISABETH FAYER (2)
32 Belvedere -0- *
Westmont, Quebec H34 IP4
BARRY W. BLANK (1) (2) (3)
P.O Box 32056 8,213,935 51.7
Phoenix, Arizona 85064
BARRY FEINER (3) (5)
170 Falcon Court 25,000 *
Manhassett, New York 11031
JOSEPH GIAMANCO (3)
GHM, Inc. 25,000 *
74 Trinity Place
New York, New York 10006
CHARLES HOOVER (4) (6)
2398 East Camelback Road 392,000 2.5
Phoenix, Arizona 85016
JOHN E. MCCONNAUGHY, JR. (1) (3) (6)
JEMC Corp. 355,000 2.2
1011 High Ridge Road
Stamford, Connecticut 06905
CAROL J. LUBIN (1) (2)
4079 Governor Drive, #231 900,000 5.7
San Diego, California 92122
JANET M. PORTELLY (1) (2) (5) (6)
c/o Barry Feiner 237,500 1.5
170 Falcon Court
Manhassett, New York 11031
MICHAEL D. FICKE (3)
75 Waters Edge 25,000 *
Sparta, New Jersey 07871
MARY PANVINI (3)
Watergate East 25,000 *
2510 Virginia Avenue
Washington, DC 20037
OFFICER AND DIRECTORS
as a group (7 persons) 10,198,435 64.2
*Less than 1%
</TABLE>
21
<PAGE> 23
(1) Ownership is of record and beneficial except as otherwise noted. This
Stock includes 2 million shares issuable after July 31, 1998 upon
conversion of the Notes as follows: 900,000 to Barry W, Blank; 900,000
to Carol J. Lubin; and 200,000 to Janet M. Portelly and 250,000 shares
in connection with the Interim Loan as follows; 100,000 to Barry W.
Blank; 100,000 to John McConnaughy; 25,000 to Ms. Portelly and 25,000
to a non Affiliated third party.
(2) These shares are held by Barry Feiner, Esq., as escrow agent, in
accordance with the option agreement between Ms. Fayer and Mr. Blank
and others, as hereinafter described. They were transferred by Fine
Fragrances Distribution, Inc. ("FFD"), a wholly-owned subsidiary of
3143040 Canada, Inc. which is controlled by Ms. Fayer. Ms. Fayer has
caused FFD to grant an irrevocable proxy to Mr. Blank with respect to
these shares. She has also caused FFD to grant Options to purchase
these shares at $0.25 per share for a period of 12 months commencing
August 1, 1998 as follows: 3,235,021 to Mr. Blank; 3,235,021 to Ms.
Lubin; and 718,893 to Ms. Portelly. Mr. Blank has sole investment and
voting discretion with respect to these shares and, accordingly, is
deemed to be the beneficial owner of them.
(3) On March 27, 1998, 100,000 options were granted, which are exercisable
at $0.68 per share for a period of ten years. 25,000 vest immediately
and 25,000 options vest each year thereafter for a period of three
years. If the Company has earnings per share of $0.30 during any annual
period all non vested options vest immediately.
(4) On June 4, 1998 100,000 options were granted, which are exercisable at
$0.875 per share for a period of 10 years. These options were issued
for services and vest based on the occurrence of certain events,
specifically the consummation of two substantial contracts for channels
of distribution of the Company's products, with one to be completed
before July 31, 1998 and the other on or before August 28, 1998. These
options become vested as to 50% upon the completion of the services for
one contact and 100% upon the completion of both contracts, or on the
recognition and acknowledgment by the Company that neither contract
will be completed. On August 18, 1998 200,000 options were granted at
$1.0625 per share for a period of ten years. These options are
qualified stock options pursuant to a plan which has not yet been
submitted to shareholders for approval. All of these options vested
immediately.
(5) Mr. Feiner is Ms. Portelly's husband. Mr. Feiner disclaims beneficial
ownership in these securities. These shares exclude 718,893 shares
issuable upon exercise of the option granted by FFD to Ms. Portelly and
other members of the Blank Group.
(6) Includes 12,500, 92,000 and 230,000 shares, issued to Janet M.
Portelly, Mr. Hoover and Mr. McConnaughy respectively, as participants
in the Company's private placement offering to raise up to $3 million
in equity financing. Excludes an aggregate of 33,000 shares purchased
by Mr. Hoover's adult children in the Private Placement Offering as to
which Mr. Hoover disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1998, an investment group headed by Barry W. Blank which includes
Janet M. Portelly, Mr. Feiner's wife, advanced the Company $500,000 in the form
of convertible subordinated notes (the "Notes"). The Notes bear interest at the
rate of 12% annum and are convertible commencing August 1, 1998 and ending on
the day before the note is paid but no later than January 30, 2003, into Common
Stock at a price of $0.25 per share. Interest is payable quarterly and principal
is due January 31, 2003.
22
<PAGE> 24
On February 9, 1998, Elizabeth Fayer, through Fine Fragrances Distribution, Inc.
("FFD"), a wholly owned subsidiary of 3143040 Canada, Inc., which is controlled
by Ms. Fayer, granted an option to Mr. Blank, Ms. Portelly and Carol Lubin, the
members of the Blank Group, to purchase 3,235,021, 3,235,021 and 718,893, shares
respectively of the Company's Common Stock at $0.25 per share, exercisable in
whole or in part, from time to time, for a period of 12 months commencing August
1, 1998
On March 27, 1998 the Board of Directors approved an additional advance of
$250,000 to the Company. This loan was made by Mr. Blank, Mr. McConnaughy, Ms.
Portelly and an unaffiliated third party, as follows: $100,000 by Mr. Blank,
$100,000 by Mr. McConnaughy, $25,000 by Ms. Portelly and $25,000 by an
unaffiliated third party. This loan bears interest at 12% and matures May 31,
1999. Participants also received one share of Common Stock for each dollar
loaned. On June 23, 1998 the Company repaid $100,000, plus interest to Mr.
McConnaughy from the proceeds of its Private Placement Offering.
Mr. Blank, as an employee of the Placement Agent participated in marketing the
Company's Offering and earned aggregate commissions of $112,310.
The Placement Agent was also to be granted Warrants, exercisable over a five
year period, commencing on the last closing date of the Offering. The Warrants
to be granted, were to purchase an amount of Units equal to 10% of the number of
Units sold in the Offering at an exercise price equal to 120% of the Unit
Offering price. ($60,000 per unit). Mr. Blank, as an employee of the Placement
Agent, was to receive 25% of such Warrants. The Company is disputing the
issuance of these Warrants to the Placement Agent.
Mr. Feiner, who is a current director of the Company, performs various legal
services on behalf of the Company. Mr. Feiner specializes in Securities law and
earned $20,420 which represented, an agreed upon amount of 1% of the gross
proceeds raised under the Company's equity offering. Mr. Feiner has also earned
approximately $50,200 for additional services performed on behalf of the Company
for the Fiscal year ended July 31, 1998.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The audited consolidated financial statements of the Company and its
subsidiaries and the Report of Independent Public Accountants thereon, as
required, are set forth in the Index to Consolidated Financial Statements on
page F-1 of this report.
(a) (2) FINANCIAL STATEMENT SCHEDULES
Except for Schedule VIII, which is included herein, all other schedules have
been omitted as not applicable or not required, or because information required
is shown in the consolidated financial statements or notes thereto.
(a) (3) EXHIBITS
The following items are filed herewith or incorporated by reference:
3.1 Certificate of Incorporation of the Company, as amended (1) (Exhibit
3.1)
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company, as amended, as filed with the New York State Department of
State on September 11, 1991. (2) (Exhibit 3.2)
3.3 By-Laws of the Company, as amended. (2) (Exhibit 3.3)
23
<PAGE> 25
4.1 Form of specimen of the Company's Common Stock certificate. (3)
(Exhibit 4.1)
10.1 Stock Option Plan. (4) (Exhibit 10.1)
10.2 New Jersey EA. Bond Financing Agreement, dated July 20, 1983 and Note
of Company thereunder. (5) (Exhibit 10.2)
10.3 Lease Agreement, dated November 30, 1983, for 720 Fifth Avenue, New
York, New York. (6) (Exhibit 10.3)
10.4 Form of Stock Option Agreement under the Stock Option Plan. (4)
(Exhibit 10.4)
10.5 ALFIN Inc. (f/k/a/ ALFIN Fragrances, Inc.) Stock Option Plan, as
amended. (3) (Exhibit 10.5)
10.6 The 1993 Stock Option Plan of ALFIN, INC. (7) (Exhibit 10.6)
10.7 Agreement dated June 13, 1997 between the Company and H. Galow related
to the sale of the Company's Norwood, New Jersey distribution facility.
(8) (Exhibit 10.7)
(1) Incorporated by reference from the designated Exhibit of the Company's
Current Report on Form 8-K, reporting an event on April 5, 1990 (File
No. 1-9135).
(2) Incorporated by reference from the designated exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1990. (File No.
1-9135)
(3) Incorporated by reference from the designated Exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1989. (File No.
1-9135).
(4) Incorporated by reference from the designated Exhibits to the Company's
Annual Report on Form 10-K for the year ended July 31, 1985. (File No.
1-9135).
(5) Incorporated by reference from the designated Exhibit to the Company's
Registration Statement on Form S-1. (File No. 2-85600).
(6) Incorporated by reference from the designated Exhibits to the Company's
Annual Report on from 10-K for the year ended July 31, 1984. (File No.
1-9135).
(7) Incorporated by reference from the designated Exhibits to the Company's
Annual Report on Form 10-K for the year ended July 31, 1994. (File No.
1-9135)
(8) Incorporated by reference from the designated Exhibits to the Company's
Annual report in Form 10K for the year ended July 31, 1997. (File No.
1-9135).
(9) Incorporated by reference from the designated Exhibits to the Company's
report on Form 8-K reporting on an event on May 5, 1998 including a
letter from Arthur Andersen LLP (File No. 1-9135)
(10) Incorporated by reference from the designated Exhibit of the Company's
report on 8-K reporting on an event on May 9, 1998 (File No. 1-9135)
24
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 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.
Dated: November 11, 1998 ADRIEN ARPEL, INC.
By: /s/ Barry W. Blank
-----------------------------
Barry W. Blank
Chief Executive Officer/
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Michael D. Ficke and his true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to and other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, each acting alone, or his substitutes,
may lawfully due or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on November 9, 1998 on behalf of the
Registrant and in the capacities indicated.
Signature Title
/s/Barry W. Blank Chief Executive Officer/
Barry W. Blank Director
/s/Charles R. Hoover President/Chief Operating Officer
Charles R. Hoover Director
/s/Michael D. Ficke Vice President
Michael D. Ficke Chief Financial Officer
/s/Barry Feiner Director
Barry Feiner
/s/Joseph Giamanco Director
Joseph Giamanco
/s/John E. McConnaughy, Jr. Director
John E. McConnaughy, Jr.
25
<PAGE> 27
ADRIEN ARPEL, INC., (FORMERLY ALFIN, INC.) AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITOR'S REPORTS F- 2, F-3
CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 1998 AND 1997 F-4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE FISCAL YEARS ENDED JULY 31, 1998 F-5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE FISCAL YEARS ENDED F-6
JULY 31, 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE FISCAL YEARS ENDED JULY
31, 1998 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 - F-20
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE FISCAL YEARS
ENDED JULY 31, 1998 F-21
</TABLE>
F-1
<PAGE> 28
GOLDSTEIN GOLUB KESSLER LLP
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Adrien Arpel, Inc.
We have audited the accompanying consolidated balance sheet of Adrien Arpel,
Inc., (formerly Alfin, Inc.) and Subsidiaries as of July 31, 1998 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is no express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Adrien Arpel, Inc.
and Subsidiaries as of July 31, 1998 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered significant losses from
operations and has had negative cash flow from operations. The above factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are described in Note 3.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the fiscal 1998 financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 12, 1998
F-2
<PAGE> 29
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Adrien Arpel, Inc.:
We have audited the accompanying consolidated balance sheet of Adrien Arpel,
Inc., (formerly known as Alfin, Inc.) and Subsidiaries (the "Company") as of
July 31, 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years ended July 31, 1997 and July
31, 1996. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
July 31, 1997, and the results of their operations and their cash flows for the
years ended July 31, 1997 and July 31, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, during fiscal year ended July 31, 1997, significant losses
from operations and cash used in operations were incurred as a result of the
discontinuance of appearances on the Home Shopping Network ("HSN") resulting
from the dispute with Adrienne Newman. The Company had been significantly
dependent upon HSN during the fiscal years 1995 and 1996. The Company does not
maintain any financing arrangements and relies upon cash generated from
operations. The above factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes for
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York New York
November 11, 1997
F-3
<PAGE> 30
ADRIEN ARPEL, INC., (FORMERLY ALFIN, INC.)
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash & Cash Equivalents $ 433,943 $ 658,378
Accounts receivable, net of allowance
for doubtful accounts and chargebacks
of $868,116 and $891,532 at July 31, 1998
and 1997, respectively and sales allowances
of $83,957 and $81,597 at July 31, 1998
and 1997, respectively 171,529 167,021
Inventories 1,743,684 2,227,549
Prepaid expenses & other current assets 876,248 880,938
------------ ------------
Total Current Assets 3,225,404 3,933,886
------------ ------------
Property & Equipment, Net 256,864 592,687
------------ ------------
Other Assets 183,597 83,938
------------ ------------
Total Assets $ 3,665,865 $ 4,610,511
============ ============
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY 1998 1997
- ----------------------------------- ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Due to related parties $ 62,517 $ 0
Accounts Payable 818,699 1,365,767
Accrued expenses - other 1,009,099 1,313,971
------------ ------------
Total Current liabilities 1,890,315 2,679,738
CONVERTIBLE NOTE - RELATED PARTIES 500,000 -
------------ ------------
Total Liabilities 2,390,315 2,679,738
------------ ------------
REDEEMABLE PREFERRED STOCK $ 750,000 $ 750,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value 50,000,000
shares authorized; 14,146,366 & 11,787,983
shares issued & outstanding at July 31,
1998 & 1997, respectively 141,463 117,879
Additional paid-in capital 16,131,512 12,953,123
Accumulated deficit (15,747,425) (11,890,229)
------------ ------------
Shareholders' equity 525,550 1,180,773
------------ ------------
Total Liabilities & Shareholders' Equity $ 3,665,865 $ 4,610,511
============ ============
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements
F-4
<PAGE> 31
ADRIEN ARPEL, INC., (FORMERLY, ALFIN, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED JULY 31
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 5,908,754 $ 24,700,684 $ 34,733,375
COST OF GOODS SOLD 1,732,805 8,183,676 11,380,089
------------ ------------ ------------
GROSS PROFIT 4,175,949 16,517,008 23,353,286
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 7,665,526 17,774,382 20,532,894
WRITE-OFF OF GOODWILL - 2,620,081 -
------------ ------------ ------------
OPERATING (LOSS) INCOME $ (3,489,577) $ (3,877,455) $ 2,820,392
------------ ------------ ------------
OTHER INCOME (EXPENSE), NET
INTEREST INCOME
(EXPENSE), NET 24,280 (38,013) (313,100)
NON CASH FINANCING CHARGES (1,302,223) - -
LEGAL SETTLEMENT 1,000,000 - -
GAIN ON SALES OF
ASSETS - 986,320 394,392
OTHER INCOME (EXPENSE) 25,287 - (27,992)
------------ ------------ ------------
TOTAL OTHER (EXPENSE) INCOME (252,656) 948,307 53,300
------------ ------------ ------------
(LOSS) INCOME BEFORE
PROVISION FOR INCOME TAXES (3,742,233) (2,929,148) 2,873,692
PROVISION FOR INCOME TAXES 6,213 79,414 181,000
------------ ------------ ------------
NET (LOSS) INCOME (3,748,446) (3,008,562) 2,692,692
PREFERRED STOCK DIVIDENDS 108,750 108,750 108,750
------------ ------------ ------------
INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ (3,857,196) $ (3,117,312) $ 2,583,942
============ ============ ============
BASIC (LOSS) INCOME PER
SHARE AVAILABLE TO
COMMON SHAREHOLDERS $ (0.32) $ (0.26) $ 0.21
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES 12,127,908 11,894,471 12,200,730
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements
F-5
<PAGE> 32
ADRIEN ARPEL, INC., (FORMERLY, ALFIN, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
================================================================================================================
NUMBER OF ADDITIONAL SHAREHOLDERS
COMMON COMMON PAID-IN ACCUMULATED EQUITY
SHARES STOCK CAPITAL DEFICIT TOTAL
=================================================================================================================
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1995 11,519,311 $ 115,193 $12,629,976 $(11,356,859) $ 1,388,310
STOCK DIVIDENDS ON REDEEMABLE
PREFERRED STOCK 93,615 936 107,814 (108,750) -
STOCK ISSUED FOR OPTIONS 50,000 500 49,500 - 50,000
NET INCOME 2,692,692 2,692,692
----------- ----------- ----------- ----------- -----------
BALANCE, JULY 31, 1996 11,662,926 116,629 12,787,290 (8,772,917) 4,131,002
STOCK DIVIDENDS ON REDEEMABLE
PREFERRED STOCK 66,724 667 108,083 (108,750) _
STOCK ISSUED FOR OPTIONS 58,333 583 57,750 - 58,333
NET LOSS (3,008,562) (3,008,562)
----------- ----------- ----------- ----------- -----------
BALANCE, JULY 31, 1997 11,787,983 117,879 12,953,123 (11,890,229) 1,180,773
STOCK DIVIDENDS ON REDEEMABLE
PREFERRED STOCK 230,883 2,309 106,441 (108,750) -
BENEFICIAL CONVERSION FEATURE OF
CONVERTIBLE DEBT SECURITIES 625,000 625,000
STOCK ISSUED PRIVATE PLACEMENT OFFERING 1,877,500 18,775 1,614,650 1,633,425
COMMON STOCK ISSUED IN CONNECTION
WITH RELATED PARTY NOTE PAYABLE 250,000 2,500 200,625 203,125
FINANCING COSTS RELATED TO ISSUANCE OF
BENEFICIAL OPTION 561,581 561,581
DEFERRED OFFERING COSTS RELATED TO THE
ISSUANCE OF BENEFICIAL OPTIONS 70,092 70,092
NET LOSS (3,748,446) (3,748,446)
----------- ----------- ----------- ------------ -----------
BALANCE, JULY 31, 1998 14,146,366 $ 141,463 $16,131,512 $(15,747,425) $ 525,550
=========== =========== =========== ============ ===========
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements
F-6
<PAGE> 33
ADRIEN ARPEL, INC. (FORMERLY, ALFIN, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED JULY 31
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 1996
- ------------------------------------ ---- ---- ----
<S> <C> <C> <C>
Net (Loss) Income $(3,748,446) ($3,008,562) $ 2,692,692
Adjustments to Reconcile Net (Loss) Income
to Net Cash (Used in) Provided by
Operating Activities:
Depreciation and Amortization 314,658 461,485 749,887
Non Cash Financing Cost 1,302,223 - -
Loss on Write-off of Fixed Assets 122,134 270,188 3,750
Gain on Sales of Assets - (986,320) (394,392)
Write-off of Goodwill - 2,620,081 -
Changes in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable (4,508) 513,349 711,945
Decrease in Inventory 483,865 1,043,577 55,441
Increase in Prepaid Expenses and Other (24,876) (41,168) (56,726)
Decrease in Accounts Payable & Accrued Expenses (851,940) (1,304,121) (1,046,256)
----------- ----------- -----------
Total Adjustments 1,341,556 2,577,071 23,649
----------- ----------- -----------
Net Cash (Used in) Provided by Operating Activities
(2,406,890) (431,491) 2,716,341
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital Expenditures (100,970) (231,786) (346,485)
Sale of License Agreement - - 500,000
Sale of Building - 1,415,675 -
----------- ----------- -----------
Net Cash (Used in) Provided by Investing Activities
(100,970) 1,183,889 153,515
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Payment of Lines of Credit - (1,600,000) (822,520)
Borrowings from Line of Credit - - 328,000
Loans from (Payments to) Related Parties 650,000 (4,826) (30,000)
Payment of Debt Obligations - (33,499) (300,000)
Payment of Term Promissory Note - (725,000) (400,000)
Proceeds from Sale of Stock 1,633,425 58,333 50,000
----------- ----------- -----------
Cash Provided by (Used in) Financing Activities 2,283,425 (2,304,992) (1,174,520)
----------- ----------- -----------
Net (Decrease) Increase in Cash (224,435) (1,552,594) 1,695,336
Cash & Cash Equivalents at Beginning of Year 658,378 2,210,972 515,636
----------- ----------- -----------
Cash & Cash Equivalents at End of Year $ 433,943 $ 658,378 $ 2,210,972
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Year for:
Interest $ 21,014 $ 114,994 $ 297,432
Income Taxes 11,165 158,109 271,695
Supplemental Disclosure of Non Cash Financing
Activities; $ 108,750 $ 108,750 $ 108,750
Stock Dividends
</TABLE>
The accompanying notes and independent auditor's report should be read in
conjunction with the financial statements.
F-7
<PAGE> 34
ADRIEN ARPEL, INC. (FORMERLY, ALFIN, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS:
Until July 1998, the Company was comprised of ALFIN, Inc., a New York
corporation and its wholly owned subsidiary ADRIEN ARPEL, INC., a Delaware
corporation. During the Company's annual meeting, shareholders' approved an
amendment to Alfin, Inc's., Certificate of Incorporation to change the name of
Alfin, Inc., to Adrien Arpel, Inc. (the "Company"). In conjunction with the
change of the New York Corporation name, the name of the Delaware corporation
was changed from Adrien Arpel, Inc. to Arpel Cosmetics, Inc.
The Company, develops, distributes and sells treatment and cosmetic products.
Additionally, the Company acts as an operator of service-oriented skin care
salons in certain select department stores. From April 1994 through January 1997
the Company also distributed specially packaged cosmetic products through
television marketing on the Home Shopping Network ("HSN"). During fiscal 1998
the Company also began marketing and selling products through catalogs and the
Internet.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION -
The accompanying consolidated financial statements include the accounts of the
Company's wholly owned subsidiary, ADRIEN ARPEL, INC.(Delaware), and its wholly
owned subsidiary, Arpel Cosmetics Inc.
All significant intercompany transactions and accounts have been eliminated in
consolidation.
INVENTORIES -
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
Inventories at July 31, 1998 and 1997 were comprised of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
FINISHED GOODS $1,049,002 $ 790,079
RAW MATERIAL AND
COMPONENTS 694,682 1,437,470
---------- ----------
$1,743,684 $2,227,549
========== ==========
</TABLE>
REVENUE RECOGNITION -
The Company recognizes revenue upon shipment of its merchandise to the customer
and provides a reserve for sales returns based upon historical experience.
F-8
<PAGE> 35
CASH AND CASH EQUIVALENTS -
Cash equivalents consist of money market accounts and liquid investments with
maturities of three months or less.
TRADE RECEIVABLES -
Trade receivables are shown net of certain valuation allowances which consist of
reserves for bad debts, reserves for returns and provisions for advertising and
salary chargebacks. The provisions for advertising and salary chargebacks are
based on agreements with department stores with which the Company does business.
The Company is liable for certain advertising and salary charges which take
place at the store level which will be deducted by the department store at the
time payment is made to the Company. The Company believes that this presentation
more accurately reflects the actual amount which will be collected as cash
receipts. At July 31, 1998 and 1997 the Company's provision for advertising and
salary deductions was $728,018 and $844,162 respectively.
PROPERTY AND EQUIPMENT -
Property and equipment are stated cost and depreciated using the straight-line
method over their estimated useful lives ranging from 4 to 7 years. Betterments
and renewals that extend the life of the related asset are capitalized; other
repairs and maintenance costs are expensed as incurred.
Property and equipment were comprised of the following at July 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
FURNITURE & FIXTURES $ 1,243,105 $ 1,450,653
MACHINERY & EQUIPMENT 340,572 882,375
----------- -----------
TOTAL PROPERTY & EQUIPMENT 1,583,677 2,333,028
ACCUMULATED DEPRECIATION (1,326,813) (1,740,341)
----------- -----------
NET PROPERTY & EQUIPMENT $ 256,864 $ 592,687
=========== ===========
</TABLE>
During June, 1997 the Company sold its Norwood, New Jersey distribution and
administration center for approximately $1,416,000 and recorded a gain of
approximately $986,000.
OTHER ASSETS -
On April 23, 1998, the Company and Adrienne Newman reached a settlement
agreement related to their litigation which was initiated by Ms. Newman on
October 28, 1996. Under the settlement agreement, Ms. Newman is paying the
Company $1 million dollars in installments. The Company had received $225,000 as
of July 31, 1998. Under the settlement agreement, Ms. Newman is required to pay
the Company $725,000 during fiscal 1999 with the final installment of $50,000
due on August 1, 1999. Commencing October 1998 installment payments will bear
interest at the prime rate. The Company recorded the gross settlement of $1
million during the fiscal year ended July 31, 1998. This settlement is reflected
as "Other Income" on the Company's statement of operations. The current portion
of $715,000 and the long-term portion of $50,000 which remain due are reflected
as part of Prepaid Expenses & Other Current Assets and, Other Assets,
respectively on the accompanying balance sheet.
During March 1996, the Company sold its exclusive worldwide manufacturing,
distribution and licensing rights for FRACAS and BANDIT and other fragrances by
Robert Piquet to Fashion Fragrances and Cosmetics Ltd. ("FF&C") for $1.2 million
which was payable in installments. During the first quarter of fiscal 1997 the
Company and FF&C agreed to reduce the purchase price payable by FF&C to the
Company by $100,000. This adjustment was necessary because certain molds
included in the purchase price were damaged and unusable. The Company received
the remaining purchase price installment of $350,000 in July, 1997.
F-9
<PAGE> 36
During December 1996 the Company made a deposit of $1 million ostensibly towards
the purchase of fragrance products from Laboratories Selecta in France
("Selecta"). During May 1997 the Company and Selecta agreed to cancel this
purchase. Under the agreement to cancel Selecta has refunded to the Company $1
million dollars plus interest of $76,229. The final installment payment was made
during January 1998. Interest on the repayment was charged at 10.5%. The
Company's current management does not understand the commercial viability for
this transaction or the reason for it being undertaken.
Goodwill was being amortized using the straight-line method over 40 years. The
Company's prior management evaluated the recoverability of goodwill based upon
an analysis of operating results and consideration of other significant events
or changes in the business in accordance with SFAS No. 121. Since operating
losses were experienced and projections indicated that they would continue, the
Company's prior management determined that impairment existed on the basis of
undiscounted expected future cash flows from operations before interest. Since
impairment existed, the carrying value amount was reduced by the estimated
shortfalls of cash flows. As a result of the Company's prior management's
evaluation of its future cash flows from operations before interest a non-cash
write off of $2,620,081 was recorded in the fourth quarter of fiscal 1997.
BALANCE SHEET DETAIL:
Prepaid expenses & other current assets at July 31, consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT PORTION OF LEGAL SETTLEMENT $ 725,000 $ -
DUE FROM LABORATORIES SELECTA - 750,000
PREPAID INSURANCE 64,353 76,806
OTHER 86,895 54,132
---------- ----------
PREPAID EXPENSES & OTHER CURRENT ASSETS $ 876,248 $ 880,938
========== ==========
Other assets at July 31, consist of the following:
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
SECURITY DEPOSITS $ 63,505 $ 83,938
LONG TERM PORTION OF LEGAL SETTLEMENT 50,000 -
DEFERRED FINANCE CHARGES 70,092 -
---------- ----------
OTHER ASSETS $ 183,597 $ 83,938
========== ==========
Accrued expenses - other at July 31, consist of the following:
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
COMMISSIONS DUE ADRIENNE NEWMAN $ - $ 328,693
ACCRUED SALARIES & WAGES 160,662 199,114
ACCRUED GENERAL OBLIGATIONS 829,477 767,204
OTHER 18,960 18,960
---------- ----------
ACCRUED EXPENSES $1,009,099 $1,313,971
========== ==========
</TABLE>
NON CASH FINANCING CHARGES:
In February 1998, the Company's then board of directors approved an agreement
with an investment group headed by Barry W. Blank (the "Blank Group"). Under the
agreement, the Blank Group advanced the Company working capital of $500,000 and
committed to use its best efforts to raise no less than an additional $2 million
in equity. The initial $500,000 investment was in the form of a 12% five year
note convertible into the Company's Common Stock, commencing on August 1, 1998
and ending on the day before the note is paid but no later than January 30,
2003, at the rate of $0.25 per share. The board of directors also elected Mr.
Blank as Chairman, President and Chief Executive Officer of the Company and
accepted the resignation of Ms. Elisabeth Fayer, the Company's former Chairman
and Chief Executive Officer, who owns a majority of the Company's common stock
through an affiliated company, Fine Fragrances, Inc. ("FFD"). The Blank Group
was also issued an option from the Company's majority shareholder to acquire
7,188,235 shares of the
F-10
<PAGE> 37
Company's Common Stock which represented approximately 61% of the outstanding
shares of the Company's Common Stock on the date of the transaction. The option
to acquire there shares is exercisable, in whole or in part, for a period of 12
months commencing in August 1, 1998 at $0.25 per share.
During April 1998 an Interim Loan Group advanced the Company $250,000. The
Interim Loan Group includes Mr. Blank, Mr. McConnaughy, Janet M. Portelly, and
an unaffiliated party. Ms. Portelly, who is the wife of Mr. Feiner, is also a
member of the Blank Group. In connection therewith, the group also received one
share of Common Stock for each dollar loaned constituting an aggregate of
250,000 shares. This loan bears interest at 12% and matures on May 31, 1999.
The Company is accounting for the issuance of these convertible debt securities
in accordance with "Emerging Issues Task Force Topic No. D-60." This topic
addresses the issuance of convertible securities that have a beneficial
conversion feature. The beneficial conversion feature is recognized and measured
by allocating a portion of the proceeds equal to the intrinsic value of that
feature to paid-in capital. The amount is calculated as the difference between
the conversion price and the fair market value of the Company's Common Stock at
the date of the loan. Any discount resulting from the allocation of proceeds to
the beneficial conversion feature increases the effective interest rate of the
security and is reflected as a charge to non cash financing charges. As it
relates to the initial $500,000 in financing, received from the Blank Group
during February 1998, the Company has allocated $625,000 to the beneficial
conversion feature which has been reflected as non cash financing charges, at
August 1, 1998, which is when the debt first becomes convertible. As it relates
to the $250,000 advance to the Company during April 1998 the Company has
recorded $115,642 of non cash finance charges which reflects the value of the
common stock on the date of the loan.
The Company recorded $561,581 of non cash financing charges related to the Blank
Group's option to purchase 7,188,235 shares of common stock from FFD at $0.25
per share commencing August 1, 1998. This amount was recorded as non cash
financing charges for the portion which was allocated to the $500,000 Related
Party Note and as an offset to Additional Paid in Capital, for the portion based
on equity (due to the Company's private placement) and was calculated as the
difference between the exercise price and the fair market value of the Company's
Common Stock at the date the Blank Group received the option to purchase the FFD
shares.
COST OF ADVERTISING -
The Company expenses all advertising costs in the period in which the cost is
incurred. During December 1997, the Company entered into an agreement with
Spiegel Inc. ("Spiegel"). Under the terms of the agreement, the Company
participates in Spiegel's Specialty Catalog Reverse Syndication Program. This
program currently involves seasonal mailings of the Company's catalog featuring
a selection of the Company's cosmetic and skin care products. The Company is
responsible for all promotional expenses, including but not limited to printing
and production costs. Spiegel is responsible for mailing costs and receives a
fee equal to 10% of net sales including shipping and handling charges.
INCOME TAXES -
Income taxes consist of taxes on taxable income and deferred taxes for
differences in the basis of assets and liabilities for financial statement and
income tax reporting. The differences arise primarily because of the reserve
method for bad debts, accrued expenses and the use of accelerated depreciation
methods.
FOREIGN SALES -
Sales to foreign accounts, expressed as a percentage of net sales, were 17.3%,
7.2% and 6.4% for the fiscal years ended July 31, 1998, 1997 and 1996,
respectively.
F-11
<PAGE> 38
CONCENTRATION OF CREDIT RISK -
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. The Company's major
customers are department stores, in the United States and Canada and HSN which
represented 48.4% of net sales during fiscal year 1997. The Company's
relationship with HSN ended during January 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS -
During fiscal year 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes a fair value based method
of accounting for an employee stock option or similar equity instrument but
allows companies to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has elected for the
fiscal year ended July 31, 1998 to remain with the accounting under APB opinion
No. 25 and make pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting defined in SFAS No. 123 had been
applied. (Note 10).
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 128, Earnings per Share. SFAS No. 128 requires dual presentation of
basic earnings per share ("EPS") and diluted EPS on the face of all statements
of earnings issued for periods ending after December 15, 1997 for all entities
with complex capital structures. Basic EPS is computed as net earnings divided
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur from common shares
issuable through stock-based compensation including stock options, restricted
stock awards, warrants and other convertible securities. The adoption of SFAS
No.128 had no effect on the restatement of the net income or loss per common
share for the years ended July 31, 1997 and 1996.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective beginning with fiscal
year ending July 31, 1999. SFAS No. 131 will require that segment financial
information be publicly reported on the basis that is used internally for
evaluating segment performance. The Company believes the adoption of SFAS No.
131 will not have a material effect on the financial statements.
USE 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.
CONCENTRATION OF REVENUES -
Approximately 94% of the Company's fiscal 1998 sales were made with department
stores, of which approximately 79.0% were derived from merchandise, 7.6% from
salon services and 13.4% from seasonal promotional items. One department store
arrangement accounted for approximately 32.5% of the Company's net sales for the
year ended July 31, 1998, and one department store customer accounted for
approximately 17.2% of the Company's net sales for the year ended July 31, 1998.
(3) GOING CONCERN:
The Company has incurred significant losses from operations since January 1997
as a result of the unanticipated discontinuance of appearances on the Home
Shopping Network resulting from a dispute with Adrienne Newman. The Company does
not maintain any debt financing arrangements and has been dependent upon cash
provided by an investment group, an interim loan group and a private equity
finance offering. The Company has implemented certain initiatives and
management's plans include a number of new
F-12
<PAGE> 39
initiatives to improve upon its fiscal 1998 results. If the Company is not
successful, it is anticipated that losses from operations will continue to
occur. This uncertainty raises doubt about the Company's ability to continue as
a going concern and its ability to generate sufficient cash to support its
operations.
The Company has made dramatic expense cuts during the latter part of fiscal 1998
and seeks a further reduction of non-operating costs during fiscal 1999. The
Company's fiscal 1998 operating results suffered from a shortage of readily
available and regularly produced finished goods inventory. The Company has been
successful in improving the level and flow of inventory and has recently
introduced its products through approximately 160 Sears locations with the
prospect of expanding this relationship to up to an approximately additional 270
locations. The Company's other plans include development of additional avenues
of distribution, further enhancement of the Company's Internet capabilities and
improvement and expansion of its salon business.
Management believes that its cost reduction programs combined with its new
initiatives should enable the Company to improve upon its fiscal 1998
performance and provide satisfactory liquidity during fiscal 1999 although no
assurance can be given that management will be successful.
(4) COMMON STOCK DIVIDENDS:
The Company has paid no cash dividends with respect to its common stock since
its inception. Dividends of common stock have been issued to holders of the
Company's Senior Cumulative Redeemable Preferred Stock (Note 8).
(5) WARRANTS :
The following table lists the warrant transactions that have occurred for the
period August 1, 1995 through July 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
J U L Y 3 1
1998 1997 1996
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
WARRANTS OUTSTANDING,
BEGINNING OF PERIOD 625,000 750,000 875,000
GRANTED 1,877,500 - -
EXERCISED - - -
FORFEITED 625,000 125,000 125,000
WARRANTS OUTSTANDING,
END OF PERIOD 1,877,500 625,000 750,000
EXERCISE PRICES PER SHARE
FOR SHARES UNDER WARRANT,
END OF PERIOD $2.00 $1.25 $1.25
</TABLE>
The warrants granted during 1998 were granted as part of the Company's private
placement offering (the "Offering") designed to raise equity financing. Under
the Offering, participants received 50,000 shares of the Company's common stock
and 50,000 Class A Warrants. Each Class A Warrant entitles the holder to
purchase one share of the Company's common stock at $2.00 per share and one
Class B Warrant. Two Class B Warrants entitle the holder to purchase one share
of the Company's common stock at $4.00 per share. The Class A Warrants, which
are reflected above, are exercisable at any time upon issuance until May 31,
2001 and the Class B Warrants are exercisable at any time commencing upon
issuance until May 31, 2003.
F-13
<PAGE> 40
(6) INCOME TAXES:
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes", which requires using
the asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of temporary differences between financial statement and taxable
income by applying statutory tax rates applicable to future years. Under SFAS
No. 109, the effect on deferred taxes of a change in tax rates is recognized as
income in the period that includes the enactment date of the change. If it is
more likely than not that some portion or all of the deferred asset will not be
realized, a valuation allowance is recognized. The Company has recorded a
valuation allowance equal to the amount of deferred income tax asset for the
fiscal years ended July 31, 1998 and 1997 due to, the operating history of the
Company and the end of the Company's relationship with HSN during January 1997
as a result of the litigation with Adrienne Newman.
Significant components of the Company's deferred income tax assets and
liabilities at July 31, 1998 and July 31, 1997, are as follows:
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1998 1997
----------- -----------
(TAX EFFECTED)
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
NET OPERATING LOSS CARRY FORWARDS $ 645,000 $ 2,140,000
ALTERNATIVE MINIMUM TAX CREDIT CARRY FORWARD 114,000 114,000
BAD DEBT RESERVE 11,000 106,000
INVENTORY RESERVE 83,000 549,000
OTHER - 50,000
----------- -----------
853,000 2,959,000
VALUATION ALLOWANCE (853,000) (2,959,000)
----------- -----------
NET DEFERRED TAX ASSET $ - $ -
----------- -----------
</TABLE>
The reconciliation of income tax attributable to continuing operations compared
to the U.S. federal statutory rates tax expense is as follows:
<TABLE>
<CAPTION>
JULY 31, 1998
-------------
<S> <C>
FEDERAL STATUTORY RATE (34%)
VALUATION ALLOWANCE 34%
-----------
EFFECTIVE TAX RATE -0%-
-----------
</TABLE>
In 1992 the Company had an ownership change and has had several recent sales of
securities. Under Section 382 of the Internal Revenue Code (the "Code"),
ownership changes may severely limit, on an annual basis, the Company's ability
to utilize its net operating loss carryforwards.
At July 31, 1998, the amount of federal operating loss carry forwards was
$4,300,000 with expirations at various dates through 2013, however; the use of
pre-acquisition operating loss carryforwards is limited by the Code.
F-14
<PAGE> 41
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JULY 31
---------------------------------
1998 1997
------- -------
<S> <C> <C>
CURRENT:
STATE $ 6,213 $79,414
------- -------
TOTAL CURRENT $ 6,213 $79,414
------- -------
DEFERRED:
------- -------
TOTAL PROVISION $ 6,213 $79,414
======= =======
</TABLE>
RELATED PARTY LOANS:
During February 1998, the Company received $500,000 in financing, pursuant to an
agreement with the Blank Group. This Financing is in the form of a 12% five year
note convertible into the Company's Common Stock, commencing on August 1, 1998,
and ending on the day before the note is paid but no later than January 30,
2003, at the rate of $0.25 per share.
During April 1998 an Interim Loan Group advanced the Company $250,000. In
connection therewith, the group will also received one share of Common Stock for
each dollar loaned constituting an aggregate of 250,000 shares. This loan bears
interest at 12% and matures on May 31, 1999. The issuance of the 250,000 shares
is deemed to be an additional financing cost which is valued at the fair market
value of the Company's Common Stock at the date of the loan. The Related Party
Loan Payable is stated net of $89,483 of deferred financing charges expense at
July 31, 1998. During June, the Company repaid $100,000 toward this loan from
the proceeds of its Private Placement Offering.
RELATED PARTY TRANSACTIONS:
Mr. Blank participated in marketing the Company's Private Placement Offering and
earned aggregate commissions of $112,310, as an employee of the Placement Agent.
The Placement Agent was also to be granted Warrants, exercisable over a five
year period, commencing on the last closing date of the Offering. The Warrants
to be granted, were to purchase an amount of Units equal to 10% of the number of
Units sold in the Offering, at an exercise price equal to 120% of the Unit
Offering price ($60,000 per Unit). Mr. Blank, was to receive 25% of such
Warrants from the Placement Agent. The Company is currently disputing the
issuance of these Warrants to the Placement Agent.
Mr. Feiner, who is a current director of the Company, performs various legal
services on behalf of the Company. Mr. Feiner specializes in Securities law and
earned $20,420 which represented, an agreed upon amount of 1% of the gross
proceeds raised under the Company's equity offering. Mr. Feiner has also earned
approximately $50,200 for additional services performed on behalf of the Company
for the Fiscal year ended July 31, 1998.
(7) EQUITY
During May 1998, the Company commenced a Private Placement Offering (the
"Offering") designed to raise up to $3 million in equity financing. The Offering
consisted of the issuance of up to 60 units (the "Units"), each in the amount of
$50,000. Each Unit offered consisted of 50,000 shares of the Company's Common
Stock, 50,000 Class A Warrants and 50,000 Class B Warrants. Each Class A Warrant
entitles the holder to purchase one share of the Company's Stock at $2.00 per
share and one Class B Warrant.
F-15
<PAGE> 42
Two Class B Warrants entitle the holder to purchase one share of the Company's
Common Stock at $4.00 per share. The Class A Warrants are exercisable at anytime
up until May 31, 2001 and the Class B Warrants are exercisable at any time upon
issuance until May 31, 2003. No valve has been allocated to the Warrants due to
immateriality. As of July 31, 1998, the Company has received $1,877,500 in gross
proceeds under the Offering. The net proceeds available to the Company was
$1,614,650 after paying $262,850 in placement expenses and Offering fees.
Subsequent to the Company's fiscal year ended July 31, 1998, the Company
received as additional $164,500 of gross proceeds under the Offering and net
proceeds of $141,470. This Offering was terminated on August 31, 1998, at which
time 40.84 Units had been sold.
(8) REDEEMABLE PREFERRED STOCK:
On July 6, 1993, the Company issued 30,000 shares of $25.00, 14.5% Preferred
Stock, which is required to be redeemed 10 years after issuance. The Company has
the option to pay dividends in common stock or cash. The value of the Common
Stock payable as dividends is calculated based on the average closing price of
the Company's Common Stock during the 40 trading days prior to October 22nd for
each year, minus 20% of that average price.
The Company declared a Common Stock dividend of 230,883 shares which was issued
in April 1998. The Company's Board of Directors is expected to declare a Common
Stock dividend of approximately 163,000 shares during November 1998.
(9) EMPLOYEE BENEFIT PLAN:
During November 1995, the Board of Directors of the Company approved the
adoption of a 401(k) Profit Sharing Plan. Under the plan eligible employees can
contribute up to a maximum of 15% or $10,000 of their annual gross compensation.
The Company has the option to make discretionary matching contributions and has
not contributed to the plan for the years ended December 31, 1996 and 1997. For
the plan year ending December 31, 1998, no Company matching contribution is
presently planned, but such a contribution will be considered by the board of
directors.
(10) STOCK OPTION PLANS:
During December 1992, the Board of Directors of the Company adopted the 1993
Stock Option Plan ("the 1993 Plan") pursuant to which up to 300,000 shares of
Common Stock are authorized to be subject to options.
The options available under the plan are in the form of incentive options and
non-qualified options. Incentive options are available to key employees of the
Company and non-qualified options are available to key employees, non-employee
directors and consultants of the Company at the fair market value of the Common
Stock at the date of the grant. Options are exercisable as determined by the
Board of Directors. During the year ended July 31, 1998, the Company has issued
certain stock options pursuant to a qualified stock option plan which has not
yet been submitted to shareholder's for approval.
The Company has adopted the disclosure only provision of SFAS No. 123 and is
continuing to recognize compensation expense using the intrinsic value method
under APB No. 25. Had compensation expense for the Company's stock options been
determined based on the fair market value at the grant date for awards in fiscal
years 1996, 1997 and 1998, consistent with provision of SFAS No. 123, the
Company's net (loss) income and (loss) income per share would have been as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET (LOSS) INCOME AS REPORTED $(3,748,446) ($3,008,562) $2,692,692
NET (LOSS) INCOME AS PROFORMA (3,886,771) (3,008,888) 2,692,692
(LOSS) INCOME PER SHARE AS REPORTED ($0.32) ($0.25) $0.22
(LOSS) INCOME PER SHARE PROFORMA ($0.32) ($0.26) $0.21
</TABLE>
F-16
<PAGE> 43
Changes in outstanding options and options available for grant pursuant to the
1993 Plan and other option grants, expressed in numbers of shares, are as
follows:
<TABLE>
<CAPTION>
JULY 31, 1997 JULY 31, 1996
------------- -------------
<S> <C> <C>
OPTIONS OUTSTANDING,
BEGINNING OF PERIOD 500,000 550,000
GRANTED 50,000 -
EXERCISED (58,333) (50,000)
FORFEITED (55,000) -
OPTIONS AVAILABLE FOR GRANT,
END OF PERIOD 436,667 500,000
OPTIONS OUTSTANDING, END OF
PERIOD 250,000 -
EXERCISE PRICE PER SHARE FOR
SHARES UNDER OPTION, END OF
PERIOD $0.63-$1.00 $1.00-$1.75
</TABLE>
Presented below is a summary of other option activity for the periods shown:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISABLE EXERCISE PRICE
------- -------------- ------------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 31, 1997 436,667 396,667
-------- ----------------
GRANTED 800,000
EXERCISED
FORFEITED (366,667)
-------- ------------ --------------- ----------------
BALANCE AT JULY 31, 1998 870,000 $0.75 340,000 $.75
</TABLE>
The following table summarizes information for options currently outstanding and
exercisable at July 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE RANGE NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
-------------------- ------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
$0.68 700,000 9.5 years $0.68 250,000 $0.68
0.875 100,000 10 years 0.875 50,000 0.875
1.00 70,000 3 years 1.00 40,000 1.00
---------------- ------------ -------------- ------------- -------------- --------------
$0.68-$1.00 870,000 9 years $0.73 340,000 $0.75
================ ============ ============== ============= ============== ==============
</TABLE>
This proforma impact only takes into account options granted since January 1,
1995. The SFAS No. 123 fair value of each option granted in 1996 and 1997 was
estimated on the date of the grant using a number of factors that resulted in a
net value of approximately 50% of the stock price on the grant date.
The fair value of options granted during the year ended July 31, 1998 (which is
amortized to expense over the option vesting period in determining the pro forma
impact) is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<S> <C>
EXPECTED LIFE OF OPTIONS 7 years
RISK-FREE INTEREST RATE 5.6% - 5.7%
EXPECTED VOLATILITY OF ADRIEN ARPEL, INC. 86%
EXPECTED DIVIDEND YIELD ON ADRIEN ARPEL,INC. -
</TABLE>
F-17
<PAGE> 44
(11) COMMITMENTS AND CONTINGENCIES:
The Company has entered into employment and consulting agreements with various
individuals. The aggregate yearly amounts under the agreements are $240,000 plus
commissions and bonuses. The agreements are for a one year term and renew
automatically for successive one year periods unless terminated by either party.
Additionally, 300,000 options to purchase shares of common stock were issued in
connection with these agreements.
LEASES:
The Company leases office space and other equipment under various non-cancelable
operating lease agreements. Rental expense for the fiscal years ended 1998, 1997
and 1996 was $493,930, $1,129,765 and $1,436,121 respectively.
Minimum annual rental commitments under non-cancelable leases in effect at July
31, 1998, excluding escalation's are as follows:
<TABLE>
<S> <C>
FISCAL YEAR ENDING JULY 31:
1999 ................... $ 556,187
2000 ................... 543,963
2001 ................... 472,350
2002 ................... 98,891
----------
TOTAL .................. 1,671,391
----------
</TABLE>
The Company is required to pay certain rental expenses based on a percentage of
sales under an agreement with certain department stores.
LITIGATION:
On April 23, 1998, the Company and Adrienne Newman reached a settlement
agreement related to their litigation which was initiated by Ms. Newman during
October 1996.
On October 28, 1996 the Company received notice from Ms. Newman purporting to
terminate her April 4, 1990 Employment Agreement with the Company due to an
alleged breach of the Employment agreement by the Company. Ms. Newman served as
the President of ADRIEN ARPEL, the Company's, then wholly owned subsidiary, and
had been the selling host, under the name of ADRIEN ARPEL, in its sales program
on the HSN. The Employment Agreement provided for salary, fringe benefits and
commission payments based upon 33% of the revenues, net of direct expenses
attributable to television shopping sales. Ms. Newman also had vested rights in
625,000 warrants, 500,000 of which were scheduled to expire in November 1998 and
the remaining 125,000 of which were scheduled to expire on July 31, 2001.
On November 8, 1996 the Company and Adrienne Newman reached an agreement (the
"Interim Agreement") whereby Ms. Newman agreed to appear as the selling host for
ARPEL on HSN shows scheduled for November and December 1996 and January 1997
(the "HSN Selling Period"). During the HSN Selling Period, Ms. Newman acted as
an independent contractor and not as an employee of the Company. The Company and
Ms. Newman also agreed to refrain from initiating legal action against the other
in connection with their dispute over Ms. Newman's termination of the Employment
Agreement until after the expiration of the HSN Selling Period.
On January 28, 1997, after the expiration of the HSN Selling Period, the Company
was served by Ms. Newman with a summons and complaint returnable in the Supreme
Court, New York County whereby Ms. Newman asserted claims for damages against
the Company based upon alleged breaches by the Company of Ms. Newman's
Employment Agreement and the Interim Agreement. Unspecified damages were
claimed. A further claim requested a judicial determination that the Employment
Agreement was materially breached by the Company resulting in its termination.
On March 19, 1997, the Company served an Answer and Counterclaim in response to
the action commenced by Ms. Newman. The Company's Counterclaim asserted various
claims against Ms. Newman, seeking damages and injunctive relief. Among other
things, it was the position of the Company that Ms. Newman was in material
breach of her Employment
F-18
<PAGE> 45
Agreement when she terminated the Employment Agreement on October 28, 1996. As a
consequence, it was the Company's belief that Ms. Newman's refusal to provide
services to the Company throughout the term of her Employment Agreement which
was due to expire in April 1998, particularly her willful refusal and failure to
appear as the Company selling host on HSN, would damage the Company in the sum
of at least eleven million dollars ($11,000,000). The Company also asserted
claims against Ms. Newman for breaches of her covenant not to compete and her
covenant not to disclose trade secrets and proprietary data.
During May 1997, Ms. Newman started appearing on HSN as a representative of her
own company selling cosmetic products under the name "Signature Club A." She has
subsequently appeared on HSN on a regular basis. During these appearances Ms.
Newman was not acting on behalf of the Company or its trademark protected ADRIEN
ARPEL product line.
Under the settlement agreement reached on April 23, 1998, Ms. Newman is paying
the Company $1 million. Additionally, the Company reversed a liability which it
was carrying on its balance sheet related to commissions which were previously
recorded as due Ms. Newman in the amount of $250,000. The agreement specified
that $150,000 would be paid upon execution of the settlement agreement and
$25,000 per month until the Company raised $2 million under its equity finance
offering. Upon receiving $2 million in equity financing, Ms. Newman agreed to
pay an additional installment of $150,000 and $50,000 per month until the
balance is paid in full. Upon raising $2 million in equity financing, monthly
payments will also bear interest at the prime rate. On August 6, 1998, the
Company's equity offering surpassed the $2 million amount resulting in the
additional payment of $150,000 from Ms. Newman and increased installment
payments of $50,000 plus interest at the prime rate beginning in October 1998.
The Company, in the normal course of business is a defendant in numerous
actions/lawsuits. The Company does not believe that the outcome of these
actions/lawsuits will have a material impact on the Company's financial position
or results from operations.
(12) SUPPLEMENTAL INCOME STATEMENT INFORMATION:
<TABLE> FOR THE FISCAL YEARS ENDED
<CAPTION> JULY 31,
1998 1997 1996
-------- ---------- ----------
<S> <C> <C> <C>
Advertising Costs $770,235 $1,469,569 $1,557,905
</TABLE>
F-19
<PAGE> 46
(13)QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1998 QUARTER QUARTER QUARTER QUARTER
- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 2,396,339 $ 1,379,724 $ 1,471,572 $ 661,119
Gross Profit 1,624,948 997,017 1,189,417 364,567
Net (loss) Income (757,892) (1,407,020) 761,031 (2,344,565)
Basic and Diluted (loss) Income, Per
Common Share: $ (0.06) $ (0.12) $ 0.06 $ (0.20)
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1997 QUARTER QUARTER QUARTER QUARTER
- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 9,634,712 $ 10,188,567 $ 3,130,544 $ 1,746,861
Gross Profit 6,539,418 6,331,733 2,339,636 1,306,221
Net Income (loss) 590,458 701,405 (1,126,135) (3,174,294)
Net Income (loss),
Per Common and Common
Equivalent Share: $ 0.05 $ 0.06 $ (0.09) $ (0.27)
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1996 QUARTER QUARTER QUARTER QUARTER
- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 7,673,898 $ 9,110,445 $ 8,582,452 $ 9,366,580
Gross Profit 5,502,846 5,975,188 5,712,894 6,162,358
Net Income (loss) 435,104 741,451 785,836 730,301
Net Income (loss),
Per Common and Common
Equivalent Share: $ 0.04 $ 0.06 $ 0.07 $ 0.05
</TABLE>
F-20
<PAGE> 47
ADRIEN ARPEL, INC., (FORMERLY, ALFIN, INC.)
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNT
FOR THE THREE FISCAL YEARS ENDED JULY 31
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A D D I T I O N S
-----------------
BALANCE AT CHARGED TO CHARGED BALANCE AT
BEGINNING OF COSTS AND TO OTHER DEDUCTIONS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS (1) PERIOD
----------- ------ -------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
1998 Allowance for doubtful
Accounts Receivable
Chargebacks and Sales
Returns $971,729 $1,438,611 $ - $1,458,267 $952,073
1997 Allowance for doubtful
Accounts Receivable
Chargebacks and Sales
Returns $1,255,033 $2,732,434 $ - $3,015,738 $971,729
1996 Allowance for doubtful
Accounts Receivable
Chargebacks and Sales
Returns $1,040,857 $4,339,814 $ - $4,125,638 $1,255,033
</TABLE>
(1) Charges to the accounts are for the purposes for which the reserves were
created.
F-21
<PAGE> 48
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES
EXHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1998
ADRIEN ARPEL, INC., (FORMERLY, ALFIN, INC.)
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT TITLE PAGE
<S> <C> <C>
10.8 Agreement dated December 1, 1997 between the Company and Spiegel Inc. Related to Participation in
Spiegel's Reverse Syndication Program. (Filed herewith) 1-9
10.9 Agreement dated February 19, 1998 between the Company and Newmark & Company Real Estate Inc.
related to Newmark's appointment as the Company's agent for the possible sublet of the Company's
New York offices. (Filed herewith) 10-14
10.10 Consulting Agreement dated March 1, 1998 between the Company and Ben White. Related to direct
and electronic marketing of the Company's products. (Filed herewith) 15-22
10.11 Employment Agreement dated March 27, 1998 between the Company and Mary Panvini. (Filed herewith) 23-24
10.12 Employment Agreement dated March 27, 1998 between the Company and Michael D. Ficke. (Filed herewith) 25-26
10.13 Settlement agreement dated April 23, 1998 between the Company, Adrienne Newman, AAN Services Inc.,
and Signature Club A related to the settlement of a litigation. (Filed herewith) 27-42
10.14 Agreement dated July 1, 1998 between the Company and RPR Marketing. (Filed herewith) 42-45
10.15 Agreement dated February 3, 1998 to provide financing to the Company and to purchase shares of
the Company's Common Stock owned by Fine Fragrances distribution (Incorporated by reference)
10.16 Promissory Note dated February 4, 1998 between the Company and Barry W. Blank related to $225,000,
12% convertible subordinated financing. (Incorporated by reference)
10.17 Promissory Note dated February 4, 1998 between the Company and Carol J. Lubin related to $225,000,
12% convertible subordinated financing. (Incorporated by reference)
10.18 Promissory Note dated February 4, 1998 between the Company and Janet M. Portelly related to $50,000,
12% convertible subordinated financing. (Incorporated by reference)
10.19 Irrevocable proxy dated February 6, 1998 between Barry W. Blank and Fine Fragrance Distribution.
(Incorporated by reference)
</TABLE>
<PAGE> 49
10.20 Agreement dated February 6, 1998 related Barry W. Blank's option
to purchase shares of Fine fragrances Distribution Inc.
(Incorporated by reference)
10.21 Agreement dated February 6, 1998 related Carol J. Lubin's option
to purchase shares of Fine Fragrances Distribution Inc.
(Incorporated by reference)
10.22 Agreement dated February 6, 1998 related Janet M. Portelly's
option to purchase shares of Fine fragrances Distribution Inc.
(Incorporated by reference)
10.23 Promissory Note dated April 2, 1998 related to $100,000 of
financing provided to the Company by Barry W. Blank. (Incorporated
by reference)
10.24 Promissory Note dated April 2, 1998 related to $100,000 of
financing provided to the Company by John E. McConnaughy Jr.
(Incorporated by reference)
10.25 Promissory Note dated April 2, 1998 related to $25,000 of
financing provided to the Company by Michael Hosey. (Incorporated
by reference)
10.26 Promissory Note dated April 2, 1998 related to $25,000 of
financing provided to the Company by Janet M. Portelly.
(Incorporated by reference)
10.27 Disclosure statement dated February 18, 1998 pursuant to Section
14(F) of the securities Exchange Act of 1934 and Rule 14F-1
thereunder. (Incorporated by reference)
10.28 Form of Subscription agreement in connection with the Company's
Private Placement Offering of up to 60 unites at $50,000 per unit,
related investment letter and risk factors. (Incorporated by
reference)
10.29 The company's Form of Class A Warrant to purchase Common Stock and
Class B Warrants. (Incorporated by reference)
10.30 The company's Form of Class B Warrant to purchase Common Stock
(Incorporated by reference)
<PAGE> 1
EXHIBIT 10-8 PAGE 1
SPIEGEL. INC.
3500 LACEY ROAD
DOWNERS GROVE. ILLINOIS
60515-5432
(630) 986-8800
EXECUTIVE OFFICE
December 1, 1997
Ms. Mary Panvini
Adrien Arpel
720 Fifth Avenue
New York, New York 10019
Dear Mary:
This letter sets forth the terms of your company's participation in the Spiegel
Specialty Catalog Reverse Syndication Marketing Program. The use of the words
"you" and "your" in this Contract/Letter of Agreement ("the Agreement") shall
mean your company as listed above and any division or other subsidiary or
affiliate operating pursuant to the terms and conditions of this Agreement.
1. SUBMISSION OF SAMPLE AND FINAL MEDIA
You agree to timely submit samples of promotional media and/or
telemarketing program (together "Media") in advance of any
printing or telemarketing for Spiegel's review and written
approval. No changes may be made in the Media after such
approval by Spiegel. You will furnish 75 pieces of the
approved Media to Spiegel.
2. ORDER ACCEPTANCE AND PROCESSING
You will accept and fill all orders for the purchase of the
goods and services, if any, described in the Media (such
purchase is herein referred to as a "Sale") by persons in
whose name an FCNB Preferred(R) Charge Account has been
opened, and any other authorized users thereof, or by persons
using any other methods of payment, for example, other
bankcards, debit cards, checks, etc. (for purposes in the
Agreement all foregoing persons making a purchase or order
shall be defined as "Accountholders"), subject to the
following conditions:
a. For mail orders, you must receive from the Accountholder
the order form from the Media or a memorandum (such order
form or memorandum is herein referred to as an "Order
Form") indicating the Accountholder's desire to purchase
the goods and accompanying service, if any, described in
the Media and containing the Accountholder's name, account
number, and signature;
<PAGE> 2
2
b. For phone orders, you must maintain a record or
memorandum indicating the Accountholder's request to
purchase the goods and accompanying services, such
record or memorandum to contain the Accountholder's
name and account number only; and
c. All orders charged to a FCNB Preferred(R) Charge
account require authorization from the Spiegel FCNB
Preferred(R) Charge Credit Department, except for
those orders from Accountholders who have already
been identified by Spiegel for you as being in a
credit-approved status. For such orders, you have
authorization to provide merchandise to the
Accountholders for up to $75 for a period not to
exceed 90 days from the date of the Selection Letter
you receive from Spiegel which is the date of the
selection of names for your promotion.
3. SALES MEMORANDUM/BILLING REGISTER
Upon shipment of goods or materials evidencing any services,
you agree to complete the form of sales memorandum (approved
by Spiegel at the inception of the program) evidencing a Sale
(such a sales listing sheet or other approved sales memorandum
is referred to herein as a "Billing Register") for all Sales,
including all check, direct debit and other charge card sales,
at the time the goods are shipped to the Accountholders. Each
sales memorandum will include: Accountholder's FCNB
Preferred(R) Charge account number; the 8 or 12-digit order
number; full Accountholder's name and address; total charge
for goods or services; delivery charge; total of all charges
(or sale, if a direct debit or check transaction); and
commission due to Spiegel. You will retain a copy of the
Billing Register and remit a copy to Spiegel, once weekly as
determined by Spiegel, along with an invoice, after shipment
of the goods or materials evidencing any services to the
Accountholder.
4 Warranties and Representations
You warrant, represent, and agree that:
a. Accuracy
All representations and information made in the Media will be
accurate and correct and none will be misleading or deceptive,
nor will there be any material omissions. All goods delivered
will be as described in the Media.
b. Legal Compliance
You will comply with all applicable federal and state laws and
regulations, including, but not limited to, the
Truth-in-Lending Act, the Federal Trade Commission ("FTC")
Telemarketing Sales Rules and the FTC Mail or Telephone Order
Merchandise Rule, and all other FTC rules regulating
merchandise, warranties, and mail/phone order
<PAGE> 3
3
transactions. In addition, adherence to the Direct Marketing
Association's Fair Information Practices Manual should also be
observed.
c. Delivery Deadlines
All goods and services described in the Media will be
delivered within thirty (30) days after receipt of an order
from an FCNB Preferred(R) Charge Customer within such time as
specified in the Media, as communicated to the Accountholder,
or as otherwise required by law.
d. Insurance/No Infringements/Indemnification
Prior to mailing of promotional material to or prior to any
telemarketing or other promotional activity with
Accountholders, you shall name Spiegel, Inc., 3500 Lacy Road,
Downers Grove, Illinois 60515 as an additional insured on your
comprehensive general liability insurance policy in the
minimum amount of Two Million Dollars. You shall furnish
Spiegel with a current Certificate of Insurance evidencing
such insurance upon execution of this Agreement and then once
annually upon the anniversary date of this Agreement.
You agree to defend and indemnify Spiegel against all cost,
loss, damage, fine, penalty or expense, including reasonable
attorney fees, arising from any product liability or
intellectual property claim or from any alleged or actual
violation of a state or federal law, rule or regulation
related to the products or services under the Program/Media or
the marketing, distribution or solicitation of sales under the
Program/Media including without limitation, the Federal Trade
Commission's Telemarketing Sales Rule and the Federal Trade
Commission's Mail or Telephone Order Merchandise Rule.
All goods and services described in the Media and the Media
itself do not violate any right or property interest therein
of any third party, or Spiegel, including, without limitation,
such right or property interest based upon patent, trademark,
copyright, or trade secret. You agree to defend and indemnify
and hold Spiegel, its subsidiaries, parent, and affiliates and
all of their respective directors, officers, employees and
agents ("Indemnities") harmless from and against any and all
liabilities, losses, claims, lawsuits, judgments, damages,
fines, penalties and expenses, including, without limitation,
costs and expenses of litigation and reasonable counsel fees
("Claim Obligations"), whatsoever arising from any (i)
defense, dispute, offset, claim, or counterclaim made by any
third party, or Spiegel, that any of the material in the Media
and/or the sale by you to any Accountholder of the goods
and/or accompanying services, if any, described in the Media
or delivered to any person, violates any right and/or property
interest of a third party, including, without limitation, any
such right or property interest based upon copyright, patent,
trademark, trade secret or any other intellectual property
right under any state or federal law; (ii) product liability
claim; product recall, retrofit or safety notice; or claim of
unfitness or impurity of any goods or services sold pursuant
to the transactions contemplated by this Agreement; (iii)
alleged
<PAGE> 4
4
or actual violation of a state or federal law, rule or
regulation related to the products or services marketed under
the Media or the marketing, distribution or solicitation of
sales under the Media including without limitation, the
Federal Trade Commission's Telemarketing Sales Rule and the
Federal Trade Commission's Mail or Telephone Order Merchandise
Rule; (iv) and all claims arising out of this Agreement,
except to the extent that the same are caused by Spiegel's
agents or employees. Spiegel agrees (i) to give you prompt
notice of any claims, demands, suits, proceedings or actions
for which we intend to seek indemnification hereunder, (ii)
not to compromise or settle any claim against Spiegel for
which indemnification is sought without your prior written
consent, and (iii) that you shall have the right to select
counsel to defend any claim for which indemnification is to be
sought, such selection being subject to our approval, which
approval shall not be unreasonably withheld.
e. Taxes
You are the actual seller or vendor of the merchandise. You
agree to collect and pay any and all sales, use, or similar
taxes levied on the transactions contemplated by this
Agreement.
The warranties and representations stated above are cumulative
and are to be considered as reaffirmed and restated each time
you execute a new Addendum/Schedule.
5. SUBMISSION OF BILLING REGISTERS
No Billing Registers for FCNB Preferred(R) Charge transactions
will be presented to Spiegel for credit or payment until after
an order has been shipped to the Accountholder or their
designated shipping address. Billing Registers for all other
direct debit, check or other bankcard transactions shall be
sent to Spiegel on a weekly basis.
6. RECORD RETENTION AND AUDIT
You hereby agree that Spiegel may, at any reasonable time, and
upon at least three (3) business days' notice, examine any of
your records relating to the transactions covered or
contemplated by this Agreement. You will retain original order
information and proof of shipment for three (3) years and a
microfilm copy of those records for an additional two years.
You will furnish copies of such documents to Spiegel within
two (2) working days after a request is received. You agree
that if you cannot provide such copies and the customer
disputes the sale, you will authorize a credit to the
customer's FCNB Preferred(R) Charge Account and agree to a
chargeback by Spiegel to you for such disputed sales without
any credit for any adjusting commission due or paid to
Spiegel. In addition, you will retain your Purchase Order
Agreements with your supplier or manufacturer of the goods and
services described in the Media pursuant to the same document
retaining guidelines stated above. You shall make available to
Spiegel upon three business days notice, all books and records
in connection with or related to any and/or all transactions
contemplated by this Agreement and any Addenda/Schedules or
<PAGE> 5
5
related to any sale made pursuant to any Media.
7. MEDIA APPROVAL
You acknowledge and agree that Spiegel has an absolute right
to refuse to allow you to mail any promotional material or
telemarket any program to Accountholders. In the event of such
refusal and provided that you have met all the terms and
conditions of this Agreement, Spiegel will reimburse you for
the reasonable, actual cost of the Media directly associated
with that promotion which you are unable to use for a future
promotion.
IN NO EVENT SHALL SPIEGEL BE LIABLE FOR SPECIAL OR
CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH THIS
AGREEMENT OR ANY ADDENDUM/SCHEDULE OR THE CONDUCT OF BUSINESS
CONTEMPLATED HEREIN, EVEN IF PRIOR NOTICE FROM YOU OF ANY
POSSIBLE DAMAGES HAS BEEN GIVEN TO SPIEGEL.
8. CUSTOMER SERVICE
You agree to resolve all complaints that Spiegel regards as
reasonable to the customer 5 satisfaction without cost to
Spiegel. You also agree to respond in writing or by telephone
to all Spiegel customer correspondence within five (5) working
days of receipt of such correspondence. If an Accountholder
advises in writing the reasons that the Account-holder refuses
to pay for a purchase, Spiegel will promptly notify you
thereof; you must then resolve the Accountholder's claim or
complaint within thirty (30) days from the date you receive
such notification. If you do not resolve the Accountholder's
claim or complaint within thirty (30) days, you will, in
Spiegel's sole discretion, authorize a credit for this
customer.
9. MERCHANDISE RETURNS/CREDIT REGISTERS
In the event the customer returns the merchandise or cancels a
membership or subscription for whatever reason, you will
credit the customer 5 account for the complete cost of the
returned merchandise, and/or canceled membership or
subscription, if applicable, and any applicable taxes. Upon
request by a customer, you will also refund shipping and
handling charges for returning merchandise. You will not make
any refunds or adjustments with respect to FCNB Preferred(R)
Charge Sales in cash or by check. Instead, when the goods are
returned to you or an adjustment is made, you will complete a
Credit Register or other credit memorandum approved by Spiegel
at the inception of the program (such approved credit
memorandum is referred to herein as a "Credit Register"). Such
Credit Register will include the following information:
- Accountholder's FCNB Preferred(R) account
number;
- the eight or twelve-digit order number;
- full Accountholder's name and address; U
total merchandise charge;
<PAGE> 6
6
- delivery charge;
- total of all charges;
- commission previously paid to Spiegel;
- Bankcard account number, or other payment
method, if not Spiegel FCNB Preferred(R)
Charge.
You will remit a copy of the Credit Register to Spiegel within
five (5) business days of the date the goods are returned to
you or the adjustment is made, whichever is earlier. You will
adhere to all other bankcard charge agreements with respect to
returns for credit for Sales made with other charge cards.
10. ACCOUNTHOLDER LIST
Spiegel will furnish to you a list of FCNB Preferred(R) Charge
Accountholders ("Spiegel List") for your use in performing
your rights and obligations under this Agreement. We
understand that you may perform various "merges and purges" of
such list in accordance with normal industry practice. Such
merges and purges shall be made subject, however, to the
following:
a. List Return
You will return to Spiegel the original tape furnished to you
and any copies made by you after any such merge/purge has been
completed;
b. Merge/Purge Reports
You will send to Spiegel, upon its generation or upon
Spiegel's request, any report or documentation which
summarizes the result of any such merge and purge by you
regarding the Spiegel List;
c. Name Exclusions
Any names merged and purged because they are already on your
primary customer file when the list was furnished to you will
not be considered part of this Agreement for any purpose;
d. Name List Conflicts
Spiegel must agree in writing to a merge and purge of Spiegel
List names furnished to you against any outside rented list or
any other syndication participant list procured for the same
solicitation. Spiegel requires that the Spiegel List names
will have priority over any outside rented names and any other
syndication participant list; that is, the name is credited to
our list and dropped from the outside list or syndication
participant list;
<PAGE> 7
7
e. Use and Non-Disclosure
You agree not to disclose any name and address from the
Spiegel List, authorized users, and any "ship to" names and
addresses provided to you by Spiegel or obtained as a result
of any list furnished hereunder. You will use such names
and/or addresses only in connection with Sales made in
response to the Media, and you will not make and/or maintain
such list or part thereof for any other purpose, including for
any subsequent solicitations. You will not make any names or
addresses supplied to you a part of your database. You also
agree not to sell, rent, lend or lease or otherwise give,
directly or indirectly, and such names and/or addresses to any
other person or organizations for any purpose, and you will
not allow any other person or organization to obtain or use
any such names and/or addresses. You will not offer to open an
account for or offer your own or another credit card to any
person by using such names and/or addresses developed from
Accountholder orders for the goods and accompanying service,
if any, described in the Media.
11. NO ALTERNATE PAYMENT SOLICITATION
You agree that you will not directly or indirectly by any
means solicit payment for any potential or actual sales other
than by payment to be charged to a customer's FCNB
Preferred(R) Charge account for the goods and/or services
described in the Media.
12. INCLUSION OF PAYMENT ALTERNATIVES
If you should receive an order from an Accountholder or a
non-Accountholder in connection with or as a result of the
Media, in the form of cash, check, debit card, or acceptable
charge card other than the FCNB Preferred(R) Charge, such
order shall be subject to the terms and conditions of this
Agreement.
13. CONTRACT ADDENDUM/SCHEDULE GUIDEBOOK EXHIBITS
A Schedule to this Agreement, in the form as provided in
Section XI of the Spiegel Re-verse Syndication Program
Guidebook, shall be completed and executed for each
promotional program or Media offered by you and Spiegel
pursuant to this Agreement. Such Schedule(s) shall be serially
numbered. This Agreement, together with the Schedule(s) which
may be entered into from time to time, and the Operations
Guidelines and Exhibits and Tables, copies of which have been
furnished to you in the Spiegel Reverse Syndication Program
Guidebook, shall constitute the entire Agreement between you
and Spiegel.
14. PAYMENT SCHEDULE
Any payments owed to you pursuant to this Agreement shall be
made in accordance with the Spiegel Payment Schedule, a copy
of which is within the Spiegel Reverse Syndication Program
Guidebook in Section VI.
<PAGE> 8
8
15. TERMINATION
This Agreement will remain in effect until terminated by
either of us on ninety (90) days written notice to the other,
except that any such promotional program or Media may be
terminated by Spiegel at any time as provided in Paragraph 7
herein above. Any termination of the Agreement shall not
affect the rights and obligations of the parties hereto
(including the duty to pay Spiegel amounts due to it
regardless of this Agreement's termination) with respect to
any promotional program or Media entered into by execution of
a Schedule prior to the termination date. Nothing in this
Agreement shall be construed to obligate you to undertake any
mailings whatsoever to the Spiegel List, or to grant us any
rights with respect to the Media except as provided above in
Paragraph 1.
16. PROPRIETARY INFORMATION
Spiegel acknowledges that the contents of the Media is
proprietary to you and agrees not to make any use of it or any
other name or mark proprietary to you without your prior
written approval. You hereby acknowledge that the Spiegel List
information is proprietary and confidential to Spiegel and
such information shall not be disclosed in any form to any
third party or used by you except as specifically authorized
in this Agreement.
17. NO ASSIGNMENT
You may not assign this Agreement or any Schedule without
Spiegel's prior written consent. Any attempt to assign or
transfer this Agreement or any Schedule by you without
Spiegel's prior written consent shall be null and void and
have no effect whatsoever.
18 NO AGENCY
This Agreement shall in no way constitute or give rise to a
partnership, joint venture, or agency between the parties,
including any manufacturer or supplier of any goods or
services. All operations and Sales made by you pursuant to any
Media are made for and on your behalf only and not as an
independent contractor nor agent of Spiegel.
19. ENTIRE AGREEMENT
This letter, together with the documents specified in
Paragraph 13, shall constitute our entire agreement, and
supersedes and replaces all other agreements, written or oral,
between the parties with regard to the subject matter covered
by this Agreement. Spiegel reserves the right to amend this
Agreement from time to time on ninety (90) days written notice
to you. If any such amendment is unacceptable to you, you may
terminate this Agreement as provided in Paragraph 15.
<PAGE> 9
9
20 ENFORCEABILITY
If any phrase, sentence, or paragraph of this Agreement, the
Reverse Syndication Guidebook, or any Schedule shall to any
extent be held invalid, the remainder of such instrument or
the application of such provisions to persons or circumstances
other than those as to which it is held invalid shall not be
affected hereby, and all other phrases, sentences, and
paragraphs of this Agreement, the Reverse Syndication
Guidebook, or any Schedule shall be valid and enforced to the
fullest extent permitted by law.
21. CHOICE OF LAW/INJUNCTION
This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois. It is
specifically agreed that, should you breach the terms of this
Agreement (especially Paragraphs 10 and 11), the actual
damages of Spiegel may be difficult to ascertain and you waive
any procedural objection you have or may have in the future to
the entry of a permanent injunction against any telemarketing
program or any mailings to Accountholders or to names and/or
addresses on the Spiegel List, or against any use of the name
"Spiegel, Inc.," "FCNB," or "FCNB Preferred(R) Charge," in
addition to any other remedy Spiegel may seek or obtain.
If this Agreement is acceptable to you, please execute two copies of this
Agreement. Retain one copy for you file and return the other to Spiegel. This
Agreement is effective as of the date of this letter, or upon the date of any
mailing of any Media, whichever is earlier.
Very truly yours,
SPIEGEL, INC.
By: /S/
- -----------------------------------------
Title: Divisional Vice President,
Customer Development
Accepted and agreed to:
By: /S/ Mary Panvini
- -----------------------------------------
Title: Senior Vice President,
General Manager
<PAGE> 1
EXHIBIT 10.9 PAGE 10
EXCLUSIVE RIGHT AGREEMENT
AGREEMENT made the 19 day of FEBRUARY, 1998 by and between ALFIN FRAGRANCES,
INC. (hereinafter referred to as the "Principal"), with its principal office
located at 720 FIFTH AVENUE, NEW YORK, NEW YORK 10019 and Newmark & Company Real
Estate, Inc., (hereinafter referred to AS the "Agent") WITH ITS principal office
located at 125 Park Avenue, New York, New York, 10017.
WITNESSETH
WHEREAS, Principal is the tenant under a certain lease agreement dated NOVEMBER
30, 1983, which was subsequently amended as per Extension Agreement dated March
4, 1993 between Principal and 720 FIFTH AVENUE ASSOCIATES, as landlord
("Landlord") (hereinafter the lease and extension agreement shall collectively
be referred to as the "Lease") for THE ENTIRE EIGHTH (8TH) FLOOR AT 720 FIFTH
AVENUE (hereinafter referred to as the "Sublet Premises") and is vested with the
authority to enter into this Agreement and perform the terms and conditions
hereunder; and
WHEREAS, Principal desires to appoint Agent as its sole and exclusive leasing
agent with respect to the disposition of the Sublet Premises and Agent desires
to accept such appointment subject to and conditioned upon the terms and
conditions hereunder; and
NOW, THEREFORE, for Ten ($10.00) Dollars and other good and valuable
consideration, each to the other in hand paid, the receipt and sufficiency of
which is hereby, the parties hereof acknowledged, as follows:
1. APPOINTMENT OF AGENT: Principal hereby appoints Agent and Agent hereby
agrees to act as agent with the sole and exclusive right to dispose of
all or a portion of the Sublet Premises by sublease, assignment,
release, cancellation surrender, license or sale of the Lease or in any
other manner whatsoever (hereinafter individually and collectively
referred to as the "Sublease") on the terms and conditions as may be
agreed upon by the Principal and the proposed sublessee, assignee, or
other occupant, (hereinafter collectively referred to as the "Proposed
Subtenant") or Landlord.
2. TERM: Agreement shall become effective on the FEBRUARY 12, 1998 and may
be terminated after this Agreement has been in effect for SIX (6)
months by either party upon thirty (30) days prior written notice to
the other parry, sent by certified mall return receipt requested (the
date that this Agreement is to terminate shall hereinafter be referred
to as the "Termination Date").
3. PRINCIPAL'S AND AGENT'S DUTIES: Principal agrees during the term of
this Agreement to refer to Agent all offers and inquiries with respect
to the Sublet Premises and Agent agrees to make diligent investigations
and develop such offers or inquiries, and to canvas, solicit and
otherwise employ its services to sublet or otherwise dispose of the
Sublet Premises.
4. OUTSIDE BROKER As the sole and exclusive agent for the Sublet
Premises,Agent is hereby authorized by Principal to utilize the
services of real estate brokers licensed by the State of New York who
are not in the employ of the Agent (hereinafter referred to as the
Outside Broker).
5. ADVERTISING. Principal agrees that, subject to Principal's
authorization, it shall pay the cost of any and all advertising,
promotional material, messenger and mailing costs and other reasonable
expenses incurred
<PAGE> 2
PAGE 11
by Agent in connection with Agent's appointment hereunder.
6. COMPENSATION:
a. In the event that a Sublease for the Sublet Premises is fully
executed by the parties thereto, and if required, approved by
Landlord and, whether or not Agent is the procuring cause
thereof, then, and in such event, Agent does hereby agree to
accept as compensation in fall, a commission computed in
accordance with the terms and rates as set forth in Exhibit
"A" annexed hereto and made part hereof. The commissions
payable to Agent hereunder shall be paid to Agent one hundred
(100%) percent on the date the Sublease is fully executed by
the parties thereto and Landlord's consent is provided, if
required.
b. If a Sublease is effected whereby an Outside Broker is the
procuring cause, then and in such event, Principal agrees to
pay Agent a commission in an amount equal to fifty (30%)
percent of the fall commission calculated in accordance with
the terms and rates as set forth in Exhibit A. The commission
hereunder shall be paid as set forth in paragraph 6 (a).
Principal shall pay the Outside Broker pursuant to a separate
brokerage agreement entered into between the parties.
d. If there is a release, surrender, buyout or recapture of the
Lease by the Landlord or its designee or assignee, Agent shall
be paid a fall commission in accordance with the schedule of
commission rates set forth hereinabove, calculated upon the
remaining rentals for the inexpired term of the Lease and upon
any consideration for such release, surrender, sale or other
disposition.
7. PENDING TRANSACTIONS: Within thirty (30) days of the Termination Date,
Agent shall deliver to Principal a complete list of pending, proposed
and incomplete transactions in connection with the disposition of the
Sublet Premises then under negotiation (the "Pending List"). The
Pending List shall contain sufficient information to identify the
transactions. In the event any pending or incomplete transaction on the
Pending List is closed after the Termination Date, Principal shall
recognize Agent as the exclusive broker and shall pay Agent a
commission in accordance with the terms set forth in Article 6.
8. DEFAULT BY PRINCIPAL: In the event that any payment provided for herein
is not paid within thirty (30) days after notice of non-payment, the
entire commission or any remaining unpaid portion thereof shall become
immediately due and payable and Principal agrees to pay all costs of
collection, including reasonable attorneys attorney's. In addition, any
amounts owed pursuant to this Agreement and not paid when due shall
accrue interest at the rate of one and one-half (1-1/2%) percent per
month, commencing from the due date until paid in fall.
9. MISCELLANEOUS.
a. Principal represents and warrants to Agent that it has the
fall authority to enter into this Agreement and that the
individual(s) executing the Agreement is authorized to act on
behalf of Principal.
b. In the event any provision of the Agreement is found to be
void or unenforceable by a court of
<PAGE> 3
PAGE 12
competent jurisdiction, the remaining provisions of the agreement shall
nevertheless be binding upon the parties with the same effect as though
the void or unenforceable part had been severed and deleted. Principal
acknowledges that Agent may represent both potential tenants and Principal
simultaneously with respect to the same transaction and Principal consents
to such du~ I representation.
a. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, applicable to agreements made and to
be performed entirely within New York.
e. This Agreement shall be construed without regard to any rule of
construction to the effect that an agreement shall be construed against
the party who drafted such agreement.
f. In the event of a dispute between the parties arising under the terms
and conditions of this agreement is not settled by the parties thereto,
such dispute shall be submitted to arbitration in accordance with the
Commercial Rules and Regulations of the American Arbitration
Association or the Real Estate Board of New York. However, each party
shall be permitted disclosure pursuant to Article 31 of the Civil
Practice Law and Rules.
g. The parties acknowledge that Agent is not responsible to determine
whether toxic or hazardous wastes or substances or other undesirable
materials are present at the Sublet Premises.
h. This Agreement contains the entire understanding of the parties with
respect to the subject matter hereof. This Agreement may not be changed
or modified orally but only by written instrument signed by the parties
thereto. This agreement shall be binding upon and inure to the benefit
of the successors and assigns of the respective parties.
IN WITNESS WHEREOF- the parties have executed and delivered this Agreement as of
the date first above Written.
Dated
---------
NEWMARK & COMPANY REAL ESTATE, INC.
Dated: 2/20/98 BY: /S/ Elaine Goldberg
------- -------------------------
NAME: /S/ Elaine Goldberg
-------------------------
TITLE:
-------------------------
ALFIN FRAGRANCES INC.
Dated: 2/19/98 BY: /S/ Michael D. Ficke
------- -------------------------
NAME: Michael D. Ficke
-------------------------
TITLE: Secretary
-------------------------
<PAGE> 4
PAGE 13
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of February 1998, before me personally came Elaine Goldberg to
me known, who being by me duly sworn, did depose and say that he resides at New
York County, NY that he is the General Counsel of Nemark & Company Real Estate,
Inc. the corporation described in and which executed the foregoing instrument by
order of the board of directors of said corporation.
Notary Public /s/ Rolla S. Eisner
OF NEW YORK
) ss.:
COUNTY OF NEW YORK
On the 19th day of February 1998, before me personally came Michael D. Ficke, to
me known, who being by me duly sworn, did depose and say that he resides 720
Fifth Avenue, Ny, NY 10017, of Alfin Frangrances, Inc. the corporation described
in and which executed the foregoing instrument by order of the board of
directors of said corporation.
STATE OF NEW YORK
COUNTY OF NEW YORK
On the day of ____________, 199 , before me came ______________ a
Partner of a New York General Partnership, to me known and known to me to be the
individual described in and who executed the foregoing instrument; and he
thereupon acknowledged to me that he executed the same for and on behalf of said
Partnership as a General Partner thereof.
LEASES
The first, second years 5%
The third year 4%
The fourth, fifth, sixth and seventh years 3%
The eighth year and beyond 2%
For selling furniture,
fixtures and/or goodwill 10%
SALES
For selling or exchange real estate on the selling
price, up to and including $l,000,000.00 6%
On the excess above $1,000,000.00 3%
<PAGE> 5
PAGE 14
SPECIAL CONDITIONS
1. The commission will be 10% of the aggregate rental for leases
with a term of two years or less.
2. On leases where there is an allowance in the form OF a rental
concession (as ciistin"'~aished from an allowance for repairs
and decoration, etc.) the commission shall be figured on the
net rental for the term, ',with the concession ratably spread
over the entire term of the Sublease.
3. All commissions payable hereunder shall be payable only on the
base or fixed annual rental due under the Sublease or other
agreement evidencing the disposition of the Sublet Premises
for the term thereunder, and (a) percentage or overage rent,
or (b) payments made by the Proposed Subtenant allocable to
increases in real estate taxes, flael, operating expenses or
labor, shall not be subject to the commission paid to Agent.
4. 1f the Sublease gives Principal the right of cancellation, a
full commission for the entire term called for in the Sublease
shall be paid by Principal. If a Sublease gives the Proposed
Subtenant the rictht or option of cancellation, provided that
such tight or option is not conditioned upon the Principal's
act or omission to act, a full commission shall be paid on the
aggregate rentals up to the date on which said Sublease may,
under its terms, be canceled by the Proposed Subtenant. In
addition, Principal shall, if such Proposed Subtenants
cancellation tight or option is not exercised, pay the balance
of the full commission for the remainder of the term of the
Sublease not surrendered or canceled by the Proposed
Subtenant, less the amount of commission solely arcributable
to such consideration previously paid by the Principal to
Agent. Notwithstanding the foregoing) in the event that there
is a cancellation penalty which includes Agent's (or Outside
Broker's) unauthorized commissions, then Agent shall be paid
for the entire term of the Sublease, regardless of such
cancelable portion of the Sublease, as if such option to
cancel did not exist.
<PAGE> 1
EXHIBIT 10.10 PAGE 15
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into this 15th day
of May 1998, by and between ALFIN, INC., a New York corporation, (hereinafter
referred to as "Alfin'"), Alfin's wholly-owned subsidiary, ADRIEN ARPEL, INC., a
New York corporation, and STAR SHOPPE DIRECT, INC., a Florida corporation,
(hereinafter referred to as "Consultant").
WHEREAS, Alfin, by itself and through Arpel, develops, distributes and sells
cosmetics and beauty services and products: and
WHEREAS, Alfin desires to engage Consultant, and Consultant desires to
be engaged, to advise and consult with Alfin on direct and electronic retail
marketing of Alfin's products and services.
NOW, THEREFORE, Alfin and Consultant do hereby covenant and agree as follows:
1. Engagement. During the of this Agreement,
Consultant will render advice to, and otherwise consult with, Alfin and its
subsidiaries regarding direct marketing through means such as catalogue sales
and television direct marketing. During the term of this Agreement, Consultant
will devote as much time as is determined reasonably necessary by Consultant to
enable Consultant to render such services, including whatever time is necessary
to attend meetings reasonably requested by Alfin (including meetings with
representatives of Alfin), but Consultant will not be required to expend more
than 15 hours in any week nor more than 50 hours in any month rendering services
under this Agreement. Subject to the foregoing, Consultant shall use its best
efforts to perform its services herein. Benedict V. White ("White"),
Consultant's President shall provide substantially all of the
non-administrative, services of Consultant hereunder.
2. Term.
(a) Initial Term. The term of this Agreement is
effective as of March 1, 1998 ("Effective Date") and, unless earlier terminated
under Section 6 herein, will end on and include February 28, 1998.
(b) Extensions. Thereafter, this Agreement
shall renew for successive one year periods, each year being a Consulting Year
(as defined herein), unless either party gives written notice of termination at
least ninety (90) days before the end of the Consulting Year.
3. Compensation.
(a) Definitions. As used in this Agreement (a)
the term "Consulting Year(s)" shall mean each twelve month period commencing on
the Effective Date and each additional consecutive twelve month period as
renewed under Section 2(b); (b) the term "Consulting Net Sales" shall mean the
consolidated gross revenues less returns of Alfin and all of its direct and
indirect subsidiaries, including, but not limited to, Arpel, now existing or
hereafter acquired or created, arising out of or in connection with the efforts
of Consulting (whether before the Effective Date or at any time during a
Consulting Year) including, but not limited to, revenues derived from (i)
Spiegel's Reverse Syndication Marketing Program and any other agreements other
relationships with Spiegel, (ii) media placement (ads), (iii) direct marketing
and catalog, (iv) electronic marketing; and (v) licensing agreements to mass
marketers.
(a) Amount of Compensation.
(i) For each Consulting Year, Consultant shall
be entitled to ten percent (10%) of Alfin's Consolidated Net Sales to the extend
that Alfin's Consolidated Net Sales are less than or equal to five million
dollars ($5,000,000).
<PAGE> 2
PAGE 16
(ii) For each Consulting year, Consultant shall
be entitled to fifteen percent (15%) of Alfin's Consolidated Net Sales to the
extent that Alfin's Consolidated Net Sales are less than or equal to five
million dollars ($5,000,000).
(iii) If (A) Consultant terminates this Agreement
under Section 2(b) or other wise than for Cause under Section 6(b) or (B) Alfin
properly terminates Consultant for Cause under Section 6(a), then Consultant's
fees under this Section 3(b) shall cease as of the date of such termination.
(iv) If (A) Alfin terminates this Agreement other
than pursuant to Section 2(b) or for Cause under Section 2(b) for Cause under
Section 6(a) or (B) Consultant terminates this Agreement for Cause under Section
6(b), then Consultant shall be entitled to its compensation under Section
3(b) (A) through the end of the Consulting Year of such termination, plus (B)
compensation for the next succeeding twelve month period following the
Consulting Year of termination arising out of services performed by Consultant
during the Consulting Year of termination, and, if any contract is renewed
during that twelve month period, the compensation applicable to such renewal
period, plus (C) compensation during the term of any legally binding agreement
which Alfin or any of its subsidiaries has entered as a result of Consultant's
services performed herein.
(v) If Alfin terminates this Agreement under
Section 2(b), then Consultant shall be entitled to its compensation under
Section 3(b)(A) through the end of the Consulting Year of such termination, plus
(B) compensation during the term of any legally binding agreement which Alfin or
any of its subsidiaries has entered as a result of Consultant's services
performed herein.
(vi) Notwithstanding the foregoing, Consultant
shall be entitled to compensation earned but yet unpaid under Section 3(c),
unreimbursed expenses under Section 3(d), and stock options and back fees under
Sections 18 and 19, respectively.
(c) Method of Compensation. Payments for
compensation earned under Section 3(b) shall be made to Consultant no less
frequently than monthly within the later of fifteen (15) calendar days of the
end of such month or when Alfin or its subsidiaries receives payment for which
Consultant's compensation relates. Alfin agrees that Consultant may enter into
agreements with third parties to assist Consultant in its duties hereunder
solely at Consultant's expense and not otherwise inconsistent with this
Agreement. Alfin agrees to cooperate as reasonably request by Consultant to
assist Consultant in performing its duties hereunder. Consultant may, upon
reasonable notice to Alfin and during normal business hours, have the right to
inspect Alfin's books and records to the extent reasonably necessary ensure
compliance with this Agreement; provided, however, if the right is tot exercised
within sixty (60) days after the end of each calendar quarter, the amount
received by Consultant during such calendar quarter shall be deemed to be
accepted as accepted by Consultant.
(d) Expenses. Alfin will reimburse Consultant
for the reasonable expense, with receipts, incurred by Consultant in performing
its duties under this Agreement, including (i) traveling expenses incurred in
attending meetings outside the New York City Metropolitan area at the request of
Alfin, and (ii) if Consultant informs Alfin in advance that travel is required
from outside the New York City Metropolitan area in order to attend a meeting in
the New York City Metropolitan area at the request of Alfin and Alfin continues
to request that Consultant attend that meeting, the costs of traveling to the
New York City Metropolitan area in order to attend that meeting, provided,
however, expenses incurred during calendar month which exceeds $1,500 must be
preapproved in writing by Alfin.
<PAGE> 3
PAGE 17
4. Confidentiality.
(a) By Consultant. Consultant will keep
confidential and will not directly or indirectly divulge to anyone nor use or
otherwise appropriate for Consultant's own benefit, or on behalf of Consultant's
directors, officers, employees, or agents, or any entity which controls, is
controlled by, or under common control with, Consultant, any and all trade
secrets or other confidential information of any kind, nature or description
concerning any matters affecting or relating to the business of Alfin or any
subsidiary which derives economic value, actual or potential, from not being
generally known to the public or to other persons who can obtain economic value
from Its disclosure or use and which is subject to effort by Alfin that are
reasonable under the circumstances to maintain its secrecy, but excluding
information which (i) is or becomes generally available to the public or the
trade other than as a result of a disclosure by Consultant or any of its agents
or representatives, or (ii) was with Consultant's possession prior to its being
furnished to Alfin; provided that the source of such information in the case of
either clause (i) or (ii) was not bound by a confidentiality agreement or other
obligation of confidentiality with respect to such information. Hamilton
(b) By Alfin. Alfin, on behalf of itself and
its subsidiaries and affiliates, will keep confidential and will not directly or
indirectly divulge to anyone nor use or otherwise appropriate for Alfin's own
benefit, or on behalf of Alfin's directors, officers, employees, or agents, or
any entity which controls, is controlled by, or under common control with,
Consultant, any and all trade secrets or other confidential information of any
kind, nature or description concerning any matters affecting or relating to the
business of Consultant or any subsidiary which derives economic value, actual or
potential, from not being generally known to the public or to other persons who
can obtain economic value from its disclosure or use and which is subject to
efforts by Consultant that are reasonable under the circumstances to maintain to
its secrecy, but excluding information which (i) is or becomes generally
available to the public or the trade other than an a result of a disclosure by
Alfin or any of its agents or representatives, or (ii) was within Alfin's
possession prior to its being furnished to Consultant; provided that the source
of such information in the case of either clause (i) or (ii) was not bound by a
confidentiality agreement or other obligation of confidentiality with respect to
such information.
5. Restrictions on Competitive Activities.
(a) By Consultant. Except in connection with
Natural Hairs, neither Consultant nor Benedict V. White thereof ("White") shall
(as stockholder, principal, agent, employee, consultant or otherwise), anywhere
in the United States, directly or indirectly, without the prior written approval
of Alfin, (i) invest in any person, firm, corporation or other business which is
or intends to become engaged in the retail cosmetics business which is in direct
competition with Alfin or Arpel ("Competitive Business"), or (ii) engage in
activities for, or render services to, any person, firm, corporation or other
business in connection with such person's, firm's, corporation's or business'
line of business which is a Competitive Business. Competitive businesses shall
include businesses Alfin or its subsidiaries conduct in the future provided (i)
Consultant does not, at that time, invest in, engage in activities for, or
render services to, another entity which competes with such business, and (ii)
this Agreement or similar agreement is extended and accepted by Consultant as to
such new business. Notwithstanding the foregoing, White may have an interest
consisting of publicly traded securities constituting less than 5% percent of
any class of publicly traded securities in any public company engaged in
Competitive Businesses so long as neither Consultant or White is employed by and
does not consult with, or become a director of or otherwise engaged in any
activities for, such company.
(b) By Alfin. During the term of this
Agreement, neither Alfin or any of its subsidiaries shall engage a consultant or
employee for the purpose of advising or rendering services to Alfin or Alfin's
subsidiaries which is in direct competition with Consultant, including, but not
limited to, direct marketing, electronic marketing, and mass marketing
licensing, without the prior written approval of Consultant.
<PAGE> 4
PAGE 18
(c) Solicitation of Employees. During the term
of this Agreement, neither Consultant nor its controlling persons shall solicit
or intentionally induce any employee of Alfin or its subsidiaries to terminate
his or her employment with Alfin or its subsidiaries. For six (6) months after
termination of this Agreement, neither Consultant or its Affiliates shall hire
any Alfin's employee without Alfin's consent.
6 Termination.
(a) Termination by Alfin for Cause. This Agreement
may be terminated at any time by Alfin (i) if any material breach by Consultant
of any agreement or covenant in this Agreement is not cured within 30 days of
notice of such breach, or (ii) if any representation or warranty in Section 10
is materially false as of the date of this Agreement.
(b) Termination by Consultant for Cause. Agreement
may be terminated at any time by Consultant (i) if any material breach by Alfin
or Arpel of any agreement or covenant in this Agreement is not cured within 30
days of notice of such breach, or (ii) if any representation or warranty in
Section 9 is materially false as of the date of this Agreement.
(c) Survival. Upon termination of this Agreement,
whether by termination after the end of the term of this Agreement, termination
by Alfin under Section 6(a) or by Consultant under Section 6(b), each provision
shall be of no further effect, except that Section 3 (to the extent as provided
in Section 3(b)(iii)-(v), inclusive), Section 4, Section 5(c), Section 7,
Section 8, Section 11, Section 12, Section 13, Section 14, Section 15, Section
16, Section 17, Section 18, Section 19, and Section 20 shall survive.
7. Notices. Any notices or other communications under
or with regard to this Agreement must be in writing, and will be deemed given
when delivered in person, when given by facsimile transmission (promptly
confirmed in writing sent by mail) or on the third business day after the date
on which mailed, to the following addresses:
If to Consultant or White: If to Alfin or Arpel;
Star 3001 Executive Drive, Suite 120 Adrien Arpel, Inc.
Clearwater, FL 34622 720 Fifth Avenue
Attn: Benedict V. White New York, NY 10019
Attn: Michael Ficke
with a copy to: with a copy to:
Gersten, Savage, Kaplowitz &Fredericks, LLP Barry Feiner, Esq.
101 East 52nd Street. 9th Floor 1345 Avenue of the Americas,
New York, NY 10022 Suite 2200
Attn: James G. Smith, Esq. New York, NY 10105
8. Work Made For Hire. Any and all works produced by
Consultant exclusively for Alfin shall be deemed work specifically ordered or
commissioned by Alfin and each such work shall be considered a "work made for
hired" within the meaning of 17 U.S.C. Section 101 of the United States
Copyright Act, as amended, and all rights to such work shall belong entirely to
Alfin or any nominee selected by Alfin. All other works produced by Consultant
shall be deemed the exclusive owner of such work.
<PAGE> 5
PAGE 19
9. A1fin Representations and Warranties.
(a) Corporate Existence. Each of Alfin and each of
Alfin's subsidiaries is a corporation duly organization, validly existing and in
good standing under its jurisdiction of organization and has full corporate
power and authority to conduct its business as presently conducted by it and to
perform this Agreement and to carry out the transactions contemplated by this
Agreement. Each of Alfin and Arpel is duly qualified to do business as a foreign
corporation doing business in the states where it does business requiring such
qualification.
(b) Authority. The execution, delivery, and
performance of this Agreement by Alfin has been duly authorized by all necessary
corporate action, and this Agreement constitutes a valid and binding obligation
of Alfin enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy or other similar laws now or
hereafter in effect relating to creditors' rights, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defense and to the discretion of the court before which any
proceeding therefor may be brought.
(c) No Conflicts. The execution, delivery and
performance of this Agreement by Alfin, will not violate any provisions of law,
any order of any court or other agency of government, conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a default
under, any agreement to which Alfin is bound.
(d) Intellectual Property. Alfin reasonably believes
that it and/or its subsidiaries has good title to all material copyrights,
patents, trademarks, trade names and trade secrets, or adequate licenses and
rights to use patents, trademarks, copyrights, trade names and trade secrets of
others necessary for the conduct of its business as conducted or as proposed to
be conducted. The business of Alfin and its subsidiaries is being presently
conducted and as proposed to be conducted without known conflicts with patents,
licenses, trademarks, copyrights, trade names and trade secrets of others and to
the best of Alfin's knowledge, no other persons are conducting their businesses
in conflict with patents, licenses, trademarks, copyrights, trade names and
trade secrets used by Alfin and/or its subsidiaries. Notwithstanding the
foregoing, no representations are made herein in connection with the pending
litigation Adrienne Newman v. Alfin, Inc. New York Supreme Court No. 600405.
10. Consultant's Representations and Warranties.
(a) Corporate Existence. Consultant is a corporation
duly organized, validly existing and in good standing under its jurisdiction of
organization and has full corporate power and authority to conduct its business
as presently conducted by it and to perform this Agreement and to carry out the
transaction contemplated by this Agreement.
(b) Authority. The execution, delivery, and
performance of this Agreement by Consultant has been duly authorized by all
necessary corporate action, and this Agreement constitutes a valid and binding
obligation of Consultant enforceable against it in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy or other similar
laws now or hereafter in effect relating to creditors' rights, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) No Conflicts. The execution, delivery and
performance of this Agreement by Consultant will not violate any provisions of
law, any order of any court or other agency of government, conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under, any agreement to which Consultant is bound.
<PAGE> 6
PAGE 20
11. Indemnification
(a) Obligation to Indemnify. Any party to this
Agreement (the "Indemnitor") shall indemnify, defend and hold harmless the other
party to this Agreement (the "Indemnitee") and its assigns from and against any
losses, liabilities, damages or deficiencies, including interest, penalties and
reasonable attorneys' fees, but net of any related benefits, ("Losses") arising
out of or due to a breach of any representation, warranty, covenant or agreement
of the Indemnitor contained herein.
(b) Notice to Indemnitor. If any Indemnitee receives
of any claim or the commencement of any action or proceeding with respect to
which the Indemnitor is obligated to provide indemnification under this Section,
the Indemnitee shall promptly give the Indemnitor notice thereof. Such notice
shall be a condition precedent to any of the Indemnitor under the provisions for
indemnification contained in this Agreement provided that such Indemnitor shall
be relieved of its obligation hereunder only to the extent of the detriment
suffered by the Indemnitor as a result of of Indemnitee's failure to give prompt
notice. If such event involves a claim by a third party, the Indemnitor shall
have the right at its sole expense to control and assume the defense of the
matter giving rise to such indemnification with counsel reasonably satisfactory
to the Indemnitee and to compromise or settle any such matter, provided that
such compromise or settlement entirely and unconditionally releases the
Indemnitee from all liability with respect thereto. If the Indemnitor shall
assume the defense of the Indemnitee, the Indemnitee shall have the right to
participate in such defense but only at its own expense and the Indemnitor shall
not be obligated to pay the fees of counsel to the Indemnitee incurred after
such assumption. If the Indemnitor does not assume the defense of such matter
within a reasonable time after notice thereof, the Indemnitee may defend, settle
and/or compromise such matter for the account and the expense of the Indemnitor.
12. No Agency. Nothing contained in this agreement
shall be construed as creating an agency relationship between Alfin or any of
its subsidiaries or affiliates and Consultant or any of its affiliates and,
without Alfin's prior written consent. Consultant shall have no authority
hereunder to bind Alfin or any of its subsidiaries or affiliates or make any
commitments on Alfin's or any of its subsidiaries or affiliate's behalf.
Consultant shall be deemed to be an independent contractor for all purposes
hereunder and shall be responsible for all of its applicable faxes.
13. Further Assurances. Each of the parties shall
execute such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.
14 . Entire Agreement. This Agreement contains the
entire agreement among the parties with respect to the transactions contemplated
hereby and supersedes all prior agreement, written or oral, with respect
thereto.
15. Waivers and Amendments. This Agreement may be
amended, Modified, superseded, canceled, renewed or extended, and terms and
conditions hereof may be waived, by the only by a written instrument signed by
the parties or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any right, power or privilege hereunder, nor any single or partial
exercise of any right, power or privilege hereunder, preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity.
16. Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York.
<PAGE> 7
PAGE 21
17. Assignment. This Agreement is not assignable by
either Alfin or Consultant, whether by operation of law or otherwise, without
the prior written consent of the other. For purposes of this Section 17, an
assignment, as to Alfin or Arpel or Consultant, shall include, but not be
limited to, (i) the change in control of more than fifty percent (50%) of the
voting securities of Alfin or Arpel or Consultant, respectively, or (ii) the
sale of all or substantially all of the assets of Alfin or Arpel or Consultant,
respectively. Consultant consents to (i) the change in control of more than
fifty percent of the voting securities of Alfin or Arpel, or (ii) sale of all
or substantially all of the assets of Alfin or Arpel provided that the entity
acquiring control of the assets shall expressly assume in writing the
obligations of this Agreement. Alfin and Arpel consent to the change in control
of more than fifty percent (50%) of the voting securities of Consultant, or (ii)
sale of all or substantially all of the assets of Consultant provided that White
shall continue to provide substantially all of the non-clerical,
non-administrative services of Consultant as provided in Section 1.
18. Stock Options. As soon as practicable but in no
event later than thirty (30) days after the date this Agreement is executed,
Alfin shall, in the form of a stock option agreement ("Option Agreement"), (i)
grant White the Option to acquire 50,000 shares of Alfin common stock
exercisable at $0.68 per share, (ii) for the first Consulting Year only, grant
White the option to acquire 25,000 shares exercisable upon Consolidated Net
sales for such Consulting Year equaling or exceeding $5,0000,000, at $0.68 per
share, and (iii) for the first Consulting Year only, grant White the option to
acquire 25,000 shares exercisable upon Consolidated Net Sales for such
Consulting Year equaling or exceeding $10,000,000, at $0.68 per share. The
Option Agreement shall provide that the options are exercisable for five years
from the date of grant, shall provide for antidilution protection including
stock splits, stock dividends, recapitalizations, and stock issuances below the
lesser of market or exercise price, shall be registered as soon as practicable
upon grant, and shall contain such other terms and conditions mutually
acceptable to Alfin and Consultant.
19. Back Fees. Alfin agrees to pay Consultant for
services rendered prior to the Effective Date in the following amounts (i)
$5,000 by February 17,1998, receipt of which is acknowledged by Consultant, (ii)
$5,000 by March 17, 1998, receipt of which is acknowledged by consultant, (iii)
$10,000 by April 17, 1998 receipt of which is acknowledged by Consultant, (iv)
$10,000 by June 1, 1998, (v) $10,000 by June 17, 1998, (vi) $10,000 by July 17,
1998, and (viii) $7,019,34 by August 17, 1998, plus 5% of the gross receipts
derived by Alfin or Arpel from Spiegel for the month of February 1998 by August
17, 1998.
20. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(Signatures on following page)
<PAGE> 8
PAGE 22
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date set forth above.
STAR SHOPPE DIRECT, INC.
By: /s/______________________________
Benedict V. White
President
ALFIN, INC.
By: /s/______________________________
Name: Michael D. Ficke
Title: Chief Financial Officer
ADRIEN ARPEL, INC.
By: /s/______________________________
Name: Michael D. Ficke
Title: Chief Financial Officer
Solely as to obligations of White specified
herein under Section 1,5 and 18:
By: /s/______________________________
Benedict V. White
President
<PAGE> 1
EXHIBIT 10.11 PAGE 23
EMPLOYMENT AGREEMENT
PARTIES
Alfin, Inc., a New York Corporation and its wholly owned subsidiary,
Adrien Arpel, Inc., a Delaware Corporation with offices currently located
at 720 Fifth Avenue, New York, New York, 10019, (the "Company") and Mary
Panvini ("employee"), currently residing at Watergate East, 2510 Virginia
Avenue, Washington D.C. 20037.
The employee is currently the Senior Vice President/General Manager of
Sales and has been employed by the Company since June, 1997.
PURPOSE
The parties desire to enter into an employment agreement ("agreement"), as
follows;
TERM
The term of the agreement will be for a period of one year commencing on
March 27, 1998 and ending on March 26, 1999. The agreement will renew
automatically for successive 1 year periods unless either party notifies
the other party, 90 days prior to the March 26th of each year, of their
intent not to renew the agreement. Any notification must be in writing.
This agreement shall survive a change in control, or ownership of the
Company.
COMPENSATION
The employee will continue to earn her current level of gross annual
earnings of $115,000 payable on the 15th and 30th falls of each month. If
the 15th or 30th falls on a weekend or holiday, then on the next business
day.
BENEFITS
The employee will be given a commuting allowance. The employee's primary
residence is in Washington, D.C. and the employee will be reimbursed for
reasonable commuting expenses between the Company's offices and employee's
primary residence. The employee will also be given reasonable living
accommodations in New York City consisting of either an apartment or hotel
room. If the Company does not keep a New York presence and does house the
employee in an apartment or hotel, then the employee will be entitled to a
$1,000, per month allowance, for an office in her home. The employee will
also be reimbursed for business telephone charges incurred from a home
office.
STOCK OPTIONS
The employee will be granted stock options ("Options"), to purchase
100,000 shares of the Company's Common Stock at $0.68 per share. Of the
100,000 options, 25,000 shall vest
<PAGE> 2
PAGE 24
immediately, 25,000 on March 27, 1999, 25,000 on March 27, 2000 and 25,000
on March 27, 2001. If the Company records earnings per share of $.30 or
greater at the end of any fiscal year, then all non vested options shall
vest immediately. The options shall expire 10 years after granted.
The Option is not transferable by the Employee, except if the Employee
dies or becomes physically disabled during the term of this agreement. If
the employee dies or becomes physically disabled, during the term of this
agreement, then the employee's daughter (Ms. Joelle Martini) may exercise
such options for a period of 90 days from the date of death or physical
disability.
In the event that, prior to the delivery by the Company of all shares of
Common Stock in respect of which the Option is granted, the number of
outstanding shares of Common Stock of the Company shall be changed through
the declaration of stock dividends, stock splits, recapitalization or
other change affecting the outstanding Common Stock, the remaining number
of shares of Common Stock still subject to the Option and the purchase
price thereof shall be appropriately adjusted by the Company.
The Options granted by the Company, to the employee, will be exercisable
by the employee for a period of 90 days beyond the date of this agreement,
or the termination of the employee by the Company, for any reason.
BONUS
The employee shall earn a bonus of 20% of gross annual compensation during
the term of this agreement, if the Company earns a pre tax profit at the
end of its fiscal year, and an additional 5% of gross annual compensation
if the Company records a 5% increase in profitability over its forecasted
profit at the end of its fiscal year.
Agreed to
Date: March 27, 1998
-----------------------
On behalf of Alfin, Inc. /S/ Barry W. Blank
----------------------------------
Barry W. Blank/Chairman
On behalf of Employee: /S/ Mary Panvini
----------------------------------
Mary Panvini
<PAGE> 1
EXHIBIT 10.12 PAGE 25
EMPLOYMENT AGREEMENT
PARTIES
Alfin, Inc., a New York Corporation and its wholly owned subsidiary,
Adrien Arpel, Inc., a Delaware Corporation with offices currently located
at 720 Fifth Avenue, New York, New York, 10019, (the "Company") and
Michael D. Ficke ("employee"), currently residing at 75 Waters Edge Road,
Sparta, New Jersey, 07871.
The employee is currently the Chief Financial Officer of the Company and
has been employed by the Company since July 17, 1989.
PURPOSE
The parties desire to enter into an employment agreement ("agreement"), as
follows;
TERM
The term of the agreement will be for a period of one year commencing on
March 27, 1998 and ending on March 26, 1999. The agreement will renew
automatically for successive 1 year periods unless either party notifies
the other party, 90 days prior to the March 26th of each year, of their
intent not to renew the agreement. Any notification must be in writing.
This agreement shall survive a change in control, or ownership of the
Company.
COMPENSATION
The employee will continue to earn his current level of gross annual
earnings of $125,000 payable on the 15th and 30th falls of each month. If
the 15th or 30th falls on a weekend or holiday, then on the next business
day.
BENEFITS
The employee will have continued usage of a Company leased vehicle, which
will be billed directly to the Company by the leasing agency.
STOCK OPTIONS
The employee will be granted stock options ("Options"), to purchase
100,000 shares of the Company's Common Stock at $0.68 per share. Of the
100,000 options, 25,000 shall vest immediately, 25,000 on March 27, 1999,
25,000 on March 27, 2000 and 25,000 on March 27, 2001. If the Company
records earnings per share of $.30 or greater at the end of any fiscal
year, then all non vested options shall vest immediately. The options
shall expire 10 years after granted.
The Option is not transferable by the Employee, except if the Employee
dies or becomes physically disabled during the term of this agreement. If
the employee dies or becomes
<PAGE> 2
PAGE 26
physically disabled, during the term of this agreement, then the
employee's spouse may exercise such options for a period of 90 days from
the date of death or physical disability.
In the event that, prior to the delivery by the Company of all shares of
Common Stock in respect of which the Option is granted, the number of
outstanding shares of Common Stock of the Company shall be changed through
the declaration of stock dividends, stock splits, recapitalization or
other change affecting the outstanding Common Stock, the remaining number
of shares of Common Stock still subject to the Option and the purchase
price thereof shall be appropriately adjusted by the Company.
The Options granted by the Company, to the employee, will be exercisable
by the employee for a period of 90 days beyond the date of this agreement,
or the termination of the employee by the Company, for any reason.
BONUS
The employee shall earn a bonus of 25,00 if the Company records a pre tax
profit for two consecutive quarters. The Company's quarter ending periods
are October 31, January 31, April 30, and July 31.
Agreed to
Date: March 27, 1998
------------------------
On behalf of Alfin, Inc. /S/ Barry W. Blank
-----------------------------------
Barry W. Blank/Chairman
On behalf of Employee: /S/ Michael D. Ficke
-----------------------------------
Michael D. Ficke
<PAGE> 1
EXHIBIT 10.13 PAGE 27
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement"), is entered into as of this 23rd of
April, 1998, by and among Alfin, Inc.("Arpel") and Adrien Arpel, Inc. ("Arpel")
(collectively, the "Alfin Parties"), and Adrienne Newman ("Newman"), A.A.N.
Services Inc. ("A. A. N. ") and Signature Club A, Ltd. ("SCA") (collectively,
the "Newman Parties"). Alfin, Arpel, Newman, A. A. N. and SCA shall be
collectively referred to herein as the "Parties".
WHEREAS, in January of 1997, Newman commenced an action in the Supreme
Court of the State of New York against Alfin, captioned Adrienne Newman v.
Alfin. Inc., Index No.600405/97 (the "Action");
WHEREAS, in March of 1997, Alfin filed an answer and asserted
counterclaims against Newman in the Action;
WHEREAS, in April of 1997, Alfin filed an amended answer and amended
counterclaims against Newman in the Action;
WHEREAS, in June of 1997, the Court dismissed Alfin's counterclaims for
counterclaims interference with contract, for tortious interference with
prospective economic advantage and for defamation; and
WHEREAS, the Parties hereto desire to settle all claims and causes of
actions which were or could have been asserted against any of them in the Action
without the need for further protracted litigation and the accompanying costs
and risks thereof, on the terms and conditions set forth herein:
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, promises and representations set forth herein, and intending to be
legally bound, it is hereby agreed by and among the Parties hereto as follows:
1. The Parties will execute general releases in the form of the
releases annexed hereto as Exhibits A, B, C, D and E, respectively.
2. Newman and Alfin hereby consent to the entry of the Stipulation of
Dismissal in the form annexed hereto as Exhibit F.
<PAGE> 2
PAGE 28
3. Simultaneously with the execution of this Agreement, the Parties
shall exchange the general releases referred to in paragraph 1 herein. Within
five (5) business days of the date of the execution of this Agreement, the
Stipulation of Dismissal referred to in paragraph 2 herein shall be filed with
the Supreme Court of the State of New York, County of New York.
4. In consideration of this Agreement, SCA agrees to pay to Alfin the
principal sum of One Million Dollars ($1,000,000) (the "Principal") payable as
follows:
a. Simultaneously with the execution of this Agreement, SCA shall pay
to Alfin $150,000 (the "Pre-Certification Lump Sum Payment").
b. On the first business day of the month immediately following the
date of the execution of this Agreement, and on the first business day of every
subsequent month, SCA shall pay $25,000 to Alfin (the "Pre-Certification Monthly
Payments") until
(1) the Principal has been paid in full, or (2) Alfin has received the sum of $2
Million Dollars ($2,000,000) in cash as an equity investment in Alfin and has
certified that fact to the Newman parties (the "Alfin Certificate").
c. If at any time before SCA has made twenty-eight (28)
Pre-Certification Monthly Payments, as described in paragraph 4(b), Alfin
delivers the Alfin Certificate to the Newman Parties, then SCA shall cease
making the Pre-Certification Monthly Payments and shall act as follows:
1. SCA shall pay $150,000 to Alfin within five business days
after the date on which the Newman Parties receive the Alfin Certificate. The
$150,000 payment described in this subparagraph shall be referred to herein as
the "Post-Certification Lump Sum Payment";
ii. On the first business day of the month immediately
following the date on which the Newman Parties receive the Alfin Certificate,
and on the first business day of every subsequent month, SCA shall pay $50,000
to Alfin (the "Post-Certification Monthly Payments") until the sum of (a) the
Pre-Certification Lump Sum Payment; (b) the product of the Pre-Certification
Monthly Payments multiplied by the
<PAGE> 3
PAGE 29
number of those payments; (c) the Post-Certification Lump Sum Payment; and (d)
the product of the Post-Certification Monthly Payments multiplied by the number
of those payments equal the Principal. If, while making payments pursuant to
paragraph 4(c)(ii), the amount of unpaid Principal falls below $50,000 then SCA
shall pay, on the first business day of the next month, the full amount of the
unpaid Principal; and
iii. SCA shall pay simple interest on the unpaid Principal
which shall begin accruing on the first business day of the month immediately
following the date on which the Newman Parties receive the Alfin Certificate.
SCA shall pay the simple interest, accrued on the unpaid Principal during the
prior month, on the first business day of each month, until the entire Principal
is paid. Interest on the unpaid Principal shall be calculated using the prime
rate in effect at Citibank N.A. on the first business day of each month.
d. If SCA has made exactly twenty-eight (28) Pre-Certification Monthly
Payments when Alfin delivers the Alfin Certificate to the Newman parties, SCA
shall cease making the Pre-Certification Monthly Payments described in paragraph
4(b), and shall, within five (5) business days, pay the lump sum of $150,000 to
Alfin which shall constitute the final payment by SCA to Alfin under this
Agreement.
e. If SCA has made twenty-nine (29) to thirty-three (33)
Pre-Certification Monthly Payments when Alfin delivers the Alfin Certificate to
the Newman Parties, then SCA shall cease making the Pre-Certification Monthly
Payments described in paragraph 4(b), and shall, within five (5) business days,
pay a lump sum in the amount equal to the Principal less the sum of (a) the
Pre-Certification Lump Sum Payment and (b) the product of the Pre-Certification
Monthly Payments multiplied by the number of those payments. This payment shall
constitute the final payment by SCA to Alfin under this Agreement.
f. If SCA defaults in the making of any payment due hereunder and such
default continues for 15 days after notice of default is given to the Newman
Parties, the whole of the principal sum shall become due, together with any
interest described in paragraph 4(c)(iii).
g. Newman guarantees the full performance of SCA's payment obligations
pursuant to this paragraph 4. This guarantee is intended to be a guarantee by
Newman of payment of all of SCA's payment obligations hereunder.
<PAGE> 4
PAGE 30
5. In no event shall the payments to Alfin total more than $1,000,000,
plus the interest generated on the unpaid Principal described in paragraph
4(c)(iii).
6. SCA may prepay all or a portion of the Principal at any time without
penalty.
7. Neither the making of this Agreement nor any of the provisions
herein shall constitute an admission of, and the Parties do not admit, any of
the substantive allegations asserted by either Newman or Alfin in the Action or
any liability on account thereof.
8. This Agreement constitutes the entire understanding among the
Parties hereto concerning the subject matter hereof and supersedes any prior or
contemporaneous representations or agreements not contained herein concerning
the subject matter of this Agreement.
9. This Agreement may be executed in one or more counterparts, each of
which shall constitute an original and all of which taken together shall
constitute one agreement.
10. This Agreement shall be deemed to have been mutually prepared by
the Parties hereto and shall not be construed against any of them solely by
reason of authorship.
11. This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of New York and may only be modified or
amended by a written instrument signed by each of the undersigned Parties. All
notices hereunder, including the Alfin Certificate, shall be in writing and be
delivered by hand or by registered mail, return receipt requested. All notices
to the Newman Parties shall be addressed separately to Adrienne Newman, A.A.N.
Services Inc., 660 Madison Avenue, New York, New York 10021 with copy to Henry
P. Wasserstein, Esq., Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third
Avenue, New York, New York 10017. All notices to the Alfin Parties shall be
addressed to Alfin, Inc., P.O. Box 110, Norwood, N.J. 07648, attention Michael
Ficke, CFO with copy to Paul M. Brown, Esq., Parson & Brown, 666 Third Avenue,
New York, New York 10017.
<PAGE> 5
PAGE 31
IN WITNESS WHEREOF, the Parties hereto now execute and deliver this
Agreement as of April 23, 1998.
ADRIENNE NEWMAN
By: /s/
------------------------------------
Adrienne Newman
SIGNATURE CLUB A, LTD.
By: /s/
------------------------------------
Jeffrey Glassman
Chief Financial Officer
of Signature Club A, Ltd.
A.A.N. SERVICES, INC.
By: /s/
------------------------------------
Jeffrey Glassman
Chief Financial Officer
Of A.A.N. Services
ALFIN, INC.
By: /s/ Michael D. Ficke
------------------------------------
Name:
Title:
ADRIEN ARPEL, INC.
By: /s/ Michael D. Ficke
------------------------------------
Name:
Title:
<PAGE> 6
PAGE 32
RELEASE FROM ALFIN, INC TO ADRIENNE NEWMAN,
A.A.N. SERVICES INC. AND SIGNATURE CLUB A. LTD.
ALFIN, INC. ("ALFIN"), intending to be legally bound and in exchange
for good and valuable consideration, receipt of which is hereby acknowledged,
hereby releases and discharges Adrienne Newman, A.A.N. Services Inc. and
Signature Club A, Ltd. and each of their predecessors, officers, board members,
parents, subsidiaries, companies, divisions, affiliates, predecessors, agents,
attorneys, employees, heirs, executors, administrators, successors, past and
present shareholders, partners, indemnities and assigns, and their respective
heirs, executors, administrators, successors and assigns (all of whom shall be
hereinafter referred to as "RELEASEES"), from all actions, causes of action,
suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, and
demands whatsoever, whether known or unknown, in law, in admiralty or equity, in
any jurisdiction in the world, which against the RELEASEES or any of them,
ALFIN, ALFIN's parents, subsidiaries, companies, divisions, affiliates,
predecessors, agents, attorneys, employees, officers, board members, partners,
indemnities, and their respective heirs, executors, administrators, successors
and assigns ever had, now have or hereafter can, shall or may have for, upon, or
by reason of any matter, cause or thing whatsoever, including but not limited
to, any claims ALFIN may have against the RELEASEES arising out of or relating
in any way to (i) Adrienne Newman's employment, affiliation or association with
ALFIN or Adrien Arpel, Inc.; (ii) any claims asserted or that could have been
asserted by Alfin against Newman in the action entitled Adrienne Newman v.
Alfin. Inc., Index Number 600405/97; or (iii) any claim that the RELEASEES have
infringed or otherwise violated ALFIN's trademark, copyright or patent rights.
This RELEASE shall be governed by the laws of the State of New York and
may only be modified or amended by a written instrument signed by each of the
undersigned. This release may not be changed orally.
<PAGE> 7
PAGE 33
ALFIN has carefully read the foregoing RELEASE and understands the
contents thereof ALFIN represents, declares and decrees that it relies solely on
the judgment of its officers and agents in entering into the settlement and in
executing this RELEASE.
This RELEASE is not intended to, and does not, release the RELEASEES
from the obligations set forth in the SETTLEMENT AGREEMENT dated as of April 23,
1998, to which this RELEASE is an exhibit.
Whenever the text hereof requires, the use of the singular shall
include the appropriate plural.
IN WITNESS WHEREOF, ALFIN has caused this RELEASE to be signed by its
duly authorized officer and agent on the ___ day of April, 1998.
IN WITNESS WHEREOF, ALFIN has duly executed this RELEASE.
ALFIN, INC.
By: /s/ Adrienne Newman
_____________________________
Name:
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ________ day of April, 1998, before me personally came
____________________ to me known, who, being by me duly sworn, did depose and
say that he reside at ___________________________ that he is the duly appointed
__________________________ of Alfin, Inc., the corporation described in the
foregoing Release, and that he has been given full authority to prosecute or
dispose of the claims of Alfin, Inc. and to execute the foregoing release.
/s/ Rita Marlowe
_____________________________
Notary Public
<PAGE> 8
PAGE 34
RELEASE FROM ADRIEN ARPEL, INC TO ADRIENNE NEWMAN,
A.A.N. SERVICES INC AND SIGNATURE CLUB A LTD
ADRIEN ARPEL, INC. ("ARPEL"), intending to be legally bound and in
exchange for good and valuable consideration, receipt of which is hereby
acknowledged, hereby releases and discharges Adrienne Newman, A.A.N. Services
Inc. and Signature Club A, Ltd. and each of their predecessors, officers, board
members, parents, subsidiaries, companies, divisions, affiliates, predecessors,
agents, attorneys, employees, heirs, executors, administrators, successors, past
and present shareholders, partners, indemnities and assigns, and their
respective heirs, executors, administrators, successors and assigns (all of whom
shall be hereinafter referred to as ("RELEASEES"), from all actions, causes of
action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, damages, judgments, extents, executions, claims, and
demands whatsoever, whether known or unknown, in law, in admiralty or equity, in
any jurisdiction in the world, which against the RELEASEES or any of them,
ARPEL, ARPEL's parents, subsidiaries, companies, divisions, affiliates,
predecessors, agents, attorneys, employees, officers, board members, partners,
indemnities, and their respective heirs, executors, administrators, successors
and assigns ever had, now have or hereafter can, shall or may have for, upon, or
by reason of any matter, cause or thing whatsoever, including but not limited
to, any claims ARPEL may have against the RELEASEES arising out of or relating
in any way to (i) Adrienne Newman's employment, affiliation or association with
ARPEL or Alfin, Inc.; (ii) any claims asserted or that could have been asserted
by ARPEL against Newman in the action entitled Adrienne Newman v. Alfin Inc.,
Index Number 600405/97; or (iii) any claim that the RELEASEES have infringed or
otherwise violated ARPEL's trademark, copyright or patent rights.
This RELEASE shall be governed by the laws of the State of New York and
may only be modified or amended by a written instrument signed by each of the
undersigned. This release may not be changed orally.
<PAGE> 9
PAGE 35
ARPEL has carefully read the foregoing RELEASE and understands the
contents thereof ARPEL represents, declares and decrees that it relies solely on
the judgment of its officers and agents in entering into the settlement and in
executing this RELEASE.
This RELEASE is not intended to, and does not, release the RELEASEES
from the obligations set forth in the SETTLEMENT AGREEMENT dated as of April 23,
1998, to which this RELEASE is an exhibit.
Whenever the text hereof requires, the use of the singular shall
include the appropriate plural.
IN WITNESS WHEREOF, ARPEL has caused this RELEASE to be signed by its
duly authorized officer and agent on the ___ day of April, 1998.
IN WITNESS WHEREOF, ARPEL has duly executed this RELEASE. ADRIEN ARPEL,
INC
ADRIEN ARPEL, INC
By: /s/ Michael D. Ficke
_____________________________
Name:
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ________ day of April, 1998, before me personally came
____________________ to me known, who, being by me duly sworn, did depose and
say that he reside at ___________________________ that he is the duly appointed
__________________________ of Adrien Arpel, Inc., the corporation described in
the foregoing Release, and that he has been given full authority to prosecute or
dispose of the claims of Adrien Arpel, Inc. and to execute the foregoing
release.
/s/ Rita Marlowe
_____________________________
Notary Public
<PAGE> 10
PAGE 36
RELEASE FROM ADRIENNE NEWMAN
TO ALFIN, INC AND ADRIEN ARPEL INC
ADRIENNE NEWMAN ("NEWMAN"), intending to be legally bound and in
exchange for good and valuable consideration, receipt of which is hereby
acknowledged, hereby releases and discharges Alfin, Inc. and Adrien Arpel, Inc.
and each of their predecessors, officers, board members, parents, subsidiaries,
companies, divisions, affiliates, predecessors, agents, attorneys, employees,
heirs, executors, administrators, successors, past and present shareholders,
partners, indemnities and assigns, and their respective heirs, executors,
administrators, successors and assigns (all of whom shall be hereinafter
referred to as "RELEASEES"), from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, extents, executions, claims, and demands whatsoever, whether known or
unknown, in law, in admiralty or equity, in any jurisdiction in the world, which
against the RELEASEES or any of them, NEWMAN, NEWMAN's companies, divisions,
affiliates, predecessors, agents, attorneys, employees, officers, partners,
indemnities, and their respective heirs, executors, administrators, successors
and assigns ever had, now have or hereafter can, shall or may have for, upon, or
by reason of any matter, cause or thing whatsoever, including but not limited
to, any claims NEWMAN may have against the RELEASEES arising out of or relating
in any way to (i) her employment, affiliation or association with Adrien Arpel,
Inc. or Alfin, Inc.; (ii) any claims asserted or that could have been asserted
by NEWMAN against Adrien Arpel, Inc. or Alfin, Inc. in the action entitled
Adrienne Newman v. Alfin Inc., Index Number 600405/97; (iii) any claim that the
RELEASEES have infringed or otherwise violated NEWMAN's trademark, copyright or
patent rights; or (iv) warrants issued to NEWMAN by Alfin, Inc. pursuant to a
warrant agreement, dated as of November 19, 1993.
This RELEASE shall be governed by the laws of the State of New York and
may only be modified or amended by a written instrument signed by each of the
undersigned. This release may not be changed
<PAGE> 11
PAGE 37
orally.
NEWMAN has carefully read the foregoing RELEASE and understands the
contents thereof NEWMAN represents, declares and decrees that it relies solely
on the judgment of its officers and agents in entering into the settlement and
in executing this RELEASE.
This RELEASE is not intended to, and does not, release the RELEASEES
from the obligations set forth in the SETTLEMENT AGREEMENT dated as of April 23,
1998, to which this release is an exhibit.
Whenever the text hereof requires, the use of the singular shall
include the appropriate plural.
IN WITNESS WHEREOF, NEWMAN has duly executed this RELEASE on this 28,
day of April, 1998.
By: /s/ Mike Ficke
-----------------------------
Name:
Title:
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 28th day of April, 1998, before me personally came Adrienne
Newman to me known, who, being by me duly sworn, did depose and say that she
reside at 660 Madison Avenue, NYC and that deponent to execute the foregoing
release.
/s/ Rita Marlowe
- -----------------------------
Notary Public
ss.:
<PAGE> 12
PAGE 38
RELEASE FROM A.A.N. SERVICES INC.
TO ALFIN, INC. AND ADRIEN ARPEL, INC.
A.A.N. SERVICES INC. ("A.A.N."), intending to be legally bound and in
exchange for good and valuable consideration, receipt of which is hereby
acknowledged, hereby releases and discharges Alfin, Inc. and Adrien Arpel, Inc.
and each of their predecessors, officers, board members, parents, subsidiaries,
companies, divisions, affiliates, predecessors, agents, attorneys, employees,
heirs, executors, administrators, successors, past and present shareholders,
partners, indemnities and assigns, and their respective heirs, executors,
administrators, successors and assigns (all of whom shall be hereinafter
referred to as "RELEASEES"), from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, extents, executions, claims, and demands whatsoever, whether known or
unknown, in law, in admiralty or equity, in any jurisdiction in the world, which
against the RELEASEES or any of them, A.A.N., A.A.N.'s parents, subsidiaries,
companies, divisions, affiliates, predecessors, agents, attorneys, employees,
officers, board members, partners, indemnities, and their respective heirs,
executors, administrators, successors and assigns ever had, now have or
hereafter can, shall or may have for, upon, or by reason of any matter, cause or
thing whatsoever, including but not limited to, any claims A.A.N. may have
against the RELEASEES arising out of or relating in any way to (i) Adrienne
Newman's employment, affiliation or association with Adrien Arpel, Inc. or
Alfin, Inc.; (ii) any claims asserted or that could have been asserted by A.A.N.
against the RELEASEES in the action entitled Adrienne Newman v. Alfin Inc.,
Index Number 600405/97; or (iii) any claim that the RELEASEES have infringed or
otherwise violated A.A.N.'s trademark, copyright or patent rights.
This RELEASE shall be governed by the laws of the State of New York and
may only be modified or amended by a written instrument signed by each of the
undersigned. This release may not be changed orally.
<PAGE> 13
PAGE 39
A.A.N. has carefully read the foregoing RELEASE and understands the
contents thereof A.A.N. represents, declares and decrees that it relies solely
on the judgment of its officers and agents in entering into the settlement and
in executing this RELEASE.
This RELEASE is not intended to, and does not, release the RELEASEES
from the obligations set forth in the SETTLEMENT AGREEMENT dated as of April 23,
1998, to which this RELEASE is an exhibit.
Whenever the text hereof requires, the use of the singular shall
include the appropriate plural.
IN WITNESS WHEREOF, ANN. has caused this RELEASE to be signed by its
duly authorized officer and agent on the 28 day of April, 1998.
IN WITNESS WHEREOF, A.A.N. has duly executed this RELEASE.
A.A.N. SERVICES INC.
By: /s/ Jeffrey Glassman
Jeffrey Glassman
Chief Financial Officer
of A.A.N. Services Inc.
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 28 day of April, 1998, before me personally came Jeffrey
Glassman to me known, who, being by me duly sworn, did depose and say that he
reside at 660 Madison Avenue, NYC that he is the duly appointed Chief Financial
Officer of A.A.N. Services Inc., the corporation described in the foregoing
Release, and that he has been given full authority to prosecute or dispose of
the claims of Alfin, Inc. and to execute the foregoing release.
/S/ Rite Marlowe
Notary Public
<PAGE> 14
PAGE 40
RELEASE FROM SIGNATURE CLUE A, LTD.
TO ALFIN INC AND ADRIEN ARPEL, INC.
SIGNATURE CLUB A, LTD. ("SCA"), intending to be legally bound and in
exchange for good and valuable consideration, receipt of which is hereby
acknowledged, hereby releases and discharges Alfin, Inc. and Adrien Arpel, Inc.
and each of their predecessors, officers, board members, parents, subsidiaries,
companies, divisions, affiliates, predecessors, agents, attorneys, employees,
heirs, executors, administrators, successors, past and present shareholders,
partners, indemnities and assigns, and their respective heirs, executors,
administrators, successors and assigns (all of whom shall be hereinafter
referred to as "RELEASEES"), from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, extents, executions, claims, and demands whatsoever, whether known or
unknown, in law, in admiralty or equity, in any jurisdiction in the world, which
against the RELEASEES or any of them, SCA, SCA's parents, subsidiaries,
companies, divisions, affiliates, predecessors, agents, attorneys, employees,
officers, board members, partners, indemnities, and their respective heirs,
executors, administrators, successors and assigns ever had, now have or
hereafter can, shall or may have for, upon, or by reason of any matter, cause or
thing whatsoever, including but not limited to, any claims SCA may have against
the RELEASEES arising out of or relating in any way to (i) Adrienne Newman's
employment, affiliation or association with Adrien Arpel, Inc. or Alfin, Inc.;
(ii) any claims asserted or that could have been asserted by SCA against the
RELEASEES in the action entitled Adrienne Newman v. Alfin, Inc., Index Number
600405/97; or (iii) any claim that the RELEASEES have infringed or otherwise
violated SCA's trademark, copyright or patent rights.
This RELEASE shall be governed by the laws of the State of New York and
may only be modified or amended by a written instrument signed by each of the
undersigned. This release may not be changed orally.
<PAGE> 15
PAGE 41
SCA has carefully read the foregoing RELEASE and understands the
contents thereof SCA represents, declares and decrees that it relies solely on
the judgment of its officers and agents in entering into the settlement and in
executing this RELEASE.
This RELEASE is not intended to, and does not, release the
RELEASEES from the obligations set forth in the SETTLEMENT AGREEMENT dated as of
April 23, 1998, to which this RELEASE is an exhibit.
Whenever the text hereof requires, the use of the singular shall
include the appropriate plural.
IN WITNESS WHEREOF, SCA has caused this RELEASE to be signed by its
duly authorized officer and agent on the 28 day of April, 1998.
IN WITNESS WHEREOF, SCA has duly executed this RELEASE.
SIGNATURE CLUB A, LTD
By: /s/ Jeffrey Glassman
-----------------------------
Jeffrey Glassman
of Signature Club A, Ltd.
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 28 of April, 1998, before me personally came Jeffrey Glassman by
me duly sworn, did depose and say that he reside at 660 Madison Avenue, NYC,
that he is Chief Financial Officer of Signature Club A, Ltd., the corporation
described in the foregoing Release, and that he has been given full authority to
prosecute or dispose of the claims of Signature Club A,. and to execute the
foregoing release.
- ----------------------------
Notary Public
<PAGE> 16
PAGE 42
SUPREME COURT OF NEW YORK
COUNTY OF NEW YORK
ADRIENNE NEWMAN,
Index No. 600405/97
Plaintiff,
-against-
STIPULATION OF
ALFIN, INC. DISCONTINUANCE
Defendant.
No party hereto is an infant or incompetent person for whom a committee
has been appointed or a conservate and no person not a party has an interest in
the subject matter of this action, it is hereby stipulated and agreed, by and
between the undersigned attorneys for the respective parties that the
above-entitled action, including the counterclaims asserted therein, be, and the
same hereby is discontinued with prejudice without costs to either party as
against the other.
Dated: New York, New York
April , 1998
SKADDEN, ARPS, SLATE, PARSON & BROWN
MEAGHER & FLOM LLP Attorneys for Defendant
Attorneys for Plaintiff Alfin, Inc.
Adrienne Newman By: Paul M. Brown
By: Henry P. Wasserstein
<PAGE> 1
EXHIBIT 10.14 PAGE 43
PUBLIC RELATIONS
AGENCY AGREEMENT
This Agency Agreement, dated the 1st day of July 1, 1998, is by and between
Regina Public Relations, Inc., (the "Agent" hereinafter referred to as "RPR").
located at 545 Madison Avenue, Suite 800, New York NY 10022, and Alfin, Inc.,
whose company name will officially change to Adrien Arpel, Inc. on August 4,
1998, (the "client" hereinafter referred to as Adrien Arpel"), currently located
at 720 Fifth Avenue, 8th Fl,.
The following constitutes the mutual agreement of the parties with respect to
the retention of RPR as Public Relations Agency of record (handling all national
product and corporate publicity for Adrien Arpel, Inc.)
A. SERVICES:
As public relations counsel. RPR will use its best efforts to:
- Generate maximum publicity regarding the following
corporate priorities: General PR representation announcement
to national media outlets: Sears announcement press collateral
and press distribution; company name change press collateral
and press distribution: development and distribution of QVC
announcement and National Spokesperson press kit; development
and distribution of "classic" product mailing and press
collateral (focus on product heritage etc.); PR presentations
to company executives on a designated basis: and daily
servicing of editor requests and media follow-up (emphasis on
Business, Beauty and Trade press).
- RPR will create and streamline Adrien Arpel press
collateral; create and distribute targeted press mailings that
will be supported by daily phone contact with the media, daily
servicing of edit or product requests, and scheduling of
one-on-one-one editor presentations/meetings. As appropriate,
RPR also will develop and organize special events.
RPR and the "Client" acknowledge that there will be additional public
relations projects that will call for project fees in excess of the
current three month project fee. All projects and fee scales will be
agreed upon between both parties prior to billing.
B. RPR WILL PERFORM THESE SERVICES IN ACCORDANCE WITH THE FOLLOWING TERMS:
1) INDEPENDENT CONTRACTOR STATUS:
RPR shall provide these services AS an independent contractor, not as
the "Client's employee."
2) AGENCY FEE AND PAYMENT SCHEDULE:
RPR will bill its services to Adrien Arpel on a three month project
basis beginning June 1, 1998 through August 31, 1998 at the project fee
of twenty thousand dollars ($20,000) payable upon the execution of this
agreement and receipt of invoice.
3) OUT-OF-POCKET EXPENSES AND PRODUCTION COSTS:
Adrien Arpel will reimburse RPR for out-of-pocket expenses including
production fees incurred in connection with the performance of the
services. The expense fee of one thousand five hundred dollars ($1,500)
payable to RPR is due upon the execution of this Agreement (June 1,
1998). All Production fees are subject to Adrien Arpel's written
approval.
<PAGE> 2
PAGE 44
4) CONFIDENTIALITY
(a) RPR acknowledges and agrees that RPR will have access to, or become
acquainted with, confidential information of Adrien Arpel. For the
purposes of this agreement, confidential information shall mean any
information of Adrien Arpel, whether or not developed by RPR. including
but not limited to information which relates to all ideas, designs,
methods, discoveries, improvements, products, documents or other
results of the professional services, trade secrets, product data and
specifications, proprietary rights, business affairs, product
developments, customer information or employee information.
Confidential information does not include any information that:
i.) was known to RPR prior to the date of this agreement
and any other agreement between the parties hereto,
without obligation to keep it confidential;
ii.) was lawfully obtained by RPR from a third party
without any obligation of confidentiality; or
iii.) is or becomes part of the public domain through no
act or violation of any obligation of RPR.
(b) RPR acknowledges and agrees that the confidential information
constitutes valuable trade secrets of Adrien Arpel. RPR shall keep all
confidential information in confidence and shall not, at any time
during or after the term of this agreement, without Adrien Arpel's
prior written consent, disclose or otherwise make available, directly
or indirectly, any item of confidential information to anyone other
than RPR employees who need to know the same in performance of their
professional services. RPR shall use confidential information only in
connection with the performance of professional services hereunder and
for no other
5) INDEMNIFICATION CLAUSE:
(a) Adrien Arpel will indemnify and hold RPR harmless with respect
to any claims or actions instituted by any third party which
result from the use by RPR of information or material
furnished to RPR by Adrien Arpel, or where information or
material created by RPR is substantially changed by Adrien
Arpel. Information or data obtained by RPR from Adrien Arpel
substantiate claims or statements released by RPR on Adrien
Arpel's behalf shall be deemed to be "information or materials
furnished to RPR by Adrien Arpel." However, under no
circumstances shall Adrien Arpel indemnify FPR where RPR was
negligent or engaged in willful misconduct.
(b) In the event of any proceeding against Adrien Arpel by any
regulatory agency, or in the event of any court action or self
regulatory action questioning any materials prepared by RPR on
behalf of Adrien Arpel, at Adrien Arpel's request, RPR shall
assist in the preparation of the defense of such action or
proceeding and cooperate with Adrien Arpel and its attorneys.
Adrien Arpel will pay RPR an hourly rate, the rate of which
shall be agreed upon at a later date, for time expended by it
on such assistance and Adrien Arpel will reimburse RPR any
out-of-pocket costs RPR incurs in connection with any such
action or proceeding.
6) EFFECTIVE DATE AND TERMINATION:
This agreement shall be effective as of June 1, 1998, and shall
continue through August 31, 1998. Either party has the right to
terminate this agreement by giving sixty (60) days advance notice in
writing. This agreement will be reviewed for renewal on September 1,
1998 for an additional one (1) year term (through
<PAGE> 3
PAGE 45
September 1, 1999. RPR will bill at the rate of six thousand five
hundred dollars ($6,500) per month beginning September 1, 1998.
7) GOVERNING LAWS:
This agreement shall be governed and interpreted in accordance with the
laws of the State of New York
8) ARBITRATION:
Any controversy or claim arising out of or relating to this Agreement,
or the parties' decision to enter into this Agreement, or the breach
thereof shall be settled by arbitration by a single arbitrator in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association., and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be held in New York and, as provided in paragraph 7,
shall apply the substantive law of New York, except that the
interpretation and enforcement of this arbitration provision shall be
governed by the Federal Arbitration Act. The arbitrator shall not award
either party punitive damages and the interpretation and enforcement of
this arbitration provision shall be governed by the Federal Arbitration
Act. The arbitrator shall not award either party punitive damages and
the parties shall be deemed to have waived any right to such damages.
Further, the arbitrator shall be bound by the express terms of this
Agreement.
9) OWNERSHIP
All slogans and publicity materials submitted or developed by RPR for
Adrien Arpel during the term of this Agreement, and which Adrien Arpel
uses at least once prior to the termination hereof, or which Adrien
Arpel indicates in writing to RPR during the term hereof as being
specifically within the designated plans for adoption and exploitation
by Adrien Arpel, shall be, as between RPR and Adrien Arpel, Adrien
Arpel's property exclusively. All slogans, ideas or plans submitted,
created or developed by RPR for Adrien Arpel during the term of this
Agreement, and not used by Adrien Arpel during the term hereof, or
designated by Adrien Arpel in writing as being specifically within
designated plans for exploitation and adoption of Adrien Arpel
thereafter are RPR's property, and shall be dealt with by Adrien Arpel
as such.
ACCEPTED AND AGREED
REGINA PUBLIC RELATIONS, INC.
By: /s/ Date: 8/4/98
--------------------------- --------
Regina C. Kulik
President
ADRIEN ARPEL, INC.
By: /s/ Date: 8/4/98
--------------------------- --------
Mary Panvini
Senior Vice President - General Manager
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADRIEN ARPEL
INC. (FORMERLY ALFIN, INC) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1998, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> JUL-31-1998
<EXCHANGE-RATE> 1
<CASH> 433,943
<SECURITIES> 0
<RECEIVABLES> 171,529
<ALLOWANCES> 952,073
<INVENTORY> 1,743,684
<CURRENT-ASSETS> 3,225,404
<PP&E> 1,583,677
<DEPRECIATION> 1,326,813
<TOTAL-ASSETS> 3,665,865
<CURRENT-LIABILITIES> 1,890,315
<BONDS> 562,517
750,000
0
<COMMON> 161,643
<OTHER-SE> 525,550
<TOTAL-LIABILITY-AND-EQUITY> 3,665,865
<SALES> 5,908,754
<TOTAL-REVENUES> 5,908,754
<CGS> 1,732,805
<TOTAL-COSTS> 7,665,526
<OTHER-EXPENSES> 252,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,280
<INCOME-PRETAX> (3,742,223)
<INCOME-TAX> 6,213
<INCOME-CONTINUING> (3,748,446)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,748,446)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.32)
</TABLE>
