<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
Or
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-15491
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PARLUX FRAGRANCES, INC.
- --------------------------------------------------------------------------------
( Exact name of registrant as specified in its charter )
DELAWARE 22-2562955
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( State or other jurisdiction of ( IRS employer
incorporation or organization ) identification no. )
3725 S.W. 30th Avenue, Ft. Lauderdale, FL 33312
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( Address of principal executive offices ) ( Zip code )
Registrant's telephone number, including area code 954-316-9008
------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate with an "X" 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
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate with an "X" whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15( d ) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 11, 1996, 17,204,373 shares of the issuer's common stock
were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages 9 to 12.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's ( the Company's ) financial
position and operating results during the periods included in the accompanying
financial statements and notes. This discussion and analysis should be read in
conjunction with such financial statements and notes.
RECENT DEVELOPMENTS
During October 1996, the Company entered into agreements to redeem approximately
$5,232,000 of previously issued convertible debentures by issuing $6,134,000 of
10% bonds due December 31, 1996. See "Liquidity and Capital Resources" for
further discussion.
On October 17, 1996, the Company amended its credit agreement with Finova
Capital Corporation, increasing the line of credit from $5,000,000 to
$10,000,000. See "Liquidity and Capital Resources" for further discussion.
Effective October 1, 1996, the Company entered into an agreement with Hirel
Holdings, Inc., a publicly traded company, to sublease the Company's previous
corporate headquarters and distribution center in Pompano Beach, Florida, for
the approximate lease commitment, including escalations.
On June 28, 1996, the Company consummated the acquisition of substantially all
of the assets and assumption of certain liabilities of Richard Barrie
Fragrances, Inc. ( RBF ) the holder of the worldwide Baryshnikov fragrance
license, for a combination of cash and Parlux common stock, pursuant to an asset
purchase agreement entered into on January 31, 1996. See Note C to the
accompanying consolidated financial statements for further discussion.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 WITH THE
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1995.
During the quarter ended September 30, 1996, net sales increased 83% to
$25,503,173 compared to $13,925,214 for the same period for the prior year. Of
these, net sales of Parlux continued brands ( brands which the Company owned or
held licenses at March 31, 1995) were $19,114,362, an increase of 37% from the
prior year. Net sales of Alexandra de Markoff ( AdM ) brand cosmetics, and Bal A
Versailles and Baryshnikov
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brand fragrances, totaled $6,388,811 in the current period. These brands were
acquired in December 1995, and March and June 1996, respectively, and
accordingly, there were no sales in the prior year period.
Sales to unaffiliated parties increased 114% to $15,912,920 in the current
period compared to $7,421,402 in the same period in the prior year. Sales to
affiliated parties increased 47% to $9,590,253 in the current quarter compared
to $6,503,812 in the same period in the prior fiscal year.
Cost of goods sold for the quarter ended September 30, 1996 increased to 45% of
net sales as compared to 39% of net sales in the same period in the prior year.
The increase was mainly attributable to the closeout of all remaining Francesco
Smalto merchandise in accordance with the Transition and Termination Agreement
which terminated on September 30, 1996, and to the closeout of other ancillary
brands purchased as part of the RBF acquisition.
Operating expenses increased by 82% compared to the prior fiscal year from
$5,501,243 to $10,021,525, but decreased slightly as a percentage of net sales
to 39% compared to 40% in the prior year. Advertising and promotional expenses
increased 117% to $5,847,568 compared to $2,689,702 in the prior year period,
reflecting increased print advertising and promotional expenses in connection
with the U.S. domestic department and specialty store business resulting mainly
from Perry Ellis and AdM brand activities. Selling and distribution costs
increased by 63% to $1,802,910 in the current fiscal period as compared to
$1,109,374 in the same period of the prior fiscal year, but decreased as a
percentage of net sales from 8% to 7%. This decrease was mainly attributable to
the hiring of its own domestic in-house sales force during the first quarter of
the current fiscal year in lieu of using commissioned manufacturers
representatives, which resulted in a relatively fixed selling cost. Note, in
traditionally lower sales quarters due to seasonality, the percentage of such
costs to net sales will be higher. These fixed costs were incurred to position
the Company for future growth. General and administrative expenses increased by
23% compared to the prior year period from $1,464,444 to $1,801,133, but
decreased as a percentage of net sales from 11% to 7%, further reflecting the
economies of scale realized from the Company's acquisitions. Royalties increased
to $569,914 for the current period compared to $237,718 in the prior year,
principally due to the royalties required on the sale of Perry Ellis brand
products.
As a result of the above, the Company had operating income of $3,965,342 or 16%
of net sales for the three-month period ended September 30, 1996, compared to
$2,993,521 or 21% of net sales for the comparable period in the prior year.
Interest expense increased by 27% to $578,192 in the current fiscal year as
compared to $453,877 in the same period in the prior year, reflecting increased
borrowings offset by lower interest rates on convertible debentures outstanding
during the period and the conversion of certain convertible debentures into
equity. Exchange gains were $77,793 in the current year as compared to exchange
losses of $148,731 in the same period in the prior year. Income before taxes for
the current fiscal year was $3,464,943 or 14% of net sales, compared to
$2,390,913 or 17% of net sales, in the same period in the prior year.
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Giving effect to the tax provision, the Company reported net income of
$2,148,680 or 8% of net sales for the current quarter ended September 30, 1996,
as compared to $1,507,879 or 11% of net sales for the same quarter in the prior
fiscal year.
COMPARISON OF THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1996 WITH THE SIX-MONTH
PERIOD ENDED SEPTEMBER 30, 1995.
During the six months ended September 30, 1996, net sales increased 83% to
$44,242,800 as compared to $24,133,983 for the same period for the prior year.
Of these, sales of Parlux "continued brands" were $34,132,886 , an increase of
41% from the prior year. Net sales of AdM brand cosmetics, and Bal a Versailles
and Baryshnikov brand fragrances totaled $10,109,914 in the current period.
These brands were acquired in December 1995, and March and June 1996,
respectively, and accordingly, there were no sales in the prior year period.
Sale to unaffiliated parties increased 81% to $30,298,784 in the current period
compared to $16,711,841 in the same period in the prior year. Sales to
affiliated parties increased 88% to $13,944,016 in the current period compared
to $7,422,142 in the same period in the prior fiscal year. As a percentage of
total sales, sales to affiliates were 32% in the current period , compared to
31% in the same period in the prior year.
Cost of goods sold for the six months ended September 30, 1996 increased to 40%
of net sales as compared to 35% of net sales in the same period in the prior
year. The increase was mainly attributable to the closeout of the remaining
Francesco Smalto merchandise in accordance with the Transition and Termination
Agreement which terminated on September 30, 1996, and to the closeout of
ancillary brands purchased as part of the RBF acquisition.
Operating expenses increased by 83% compared to the prior fiscal year from
$10,333,984 to $18,893,719. As a percentage of sales, operating expenses
remained relatively constant at 43% of net sales. Advertising and promotional
expenses increased 112% to $10,720,732 compared to $5,062,735 in the prior year
period, reflecting increased print advertising and promotional expenses in
connection with the U.S. department and specialty store business resulting
mainly from Perry Ellis and AdM brand activities. Selling and distribution costs
increased by 87% to $3,654,518 in the current fiscal period as compared to
$1,952,907 in the same period of the prior fiscal year, but remained constant as
a percentage of net sales at 8%. General and administrative expenses increased
by 24% compared to the prior year period from $2,825,521 to $3,501,193, but
decreased as a percentage of net sales from 12% to 8%, reflecting the economies
of scale realized from the Company's acquisitions. Royalties increased to
$1,017,276 for the current period compared to $492,821 in the prior year,
principally due to the royalties required on the sale of Perry Ellis brand
products.
As a result of the above, the Company had operating income of $7,547,281 or 17%
of net sales for the six-month period ended September 30, 1996, compared to
$5,236,433 or 22% of net sales for the comparable period in the prior year.
Interest expense increased by 14%, with $1,066,065 being recorded in the current
fiscal year as compared to $935,090 in the same period in the prior year,
reflecting increased borrowings offset by
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lower interest rates on convertible debentures outstanding during the current
period and the conversion of certain convertible debentures into equity.
Exchange gains were $103,585 in the current year as compared to losses of
$95,240 in the same period in the prior year. Income before taxes for the
current fiscal year was $6,584,801 or 15% of the net sales, compared to
$4,206,103 or 17% of net sales, in the same period in the prior year.
Giving effect to the tax provision, the Company reported a 54% increase in net
income to $4,082,755 or 9% of net sales for the six months ended September 30,
1996, as compared to $2,649,845 or 11% of net sales for the same period in the
prior fiscal year.
Liquidity and Capital Resources
Working capital increased to $55,473,872 at September 30, 1996 from $30,800,351
at March 31, 1996. The increase during the six-month period was mainly
attributable to: (i) During May 1996, the Company issued $10,000,000 of 5%
convertible debentures, due May 1, 1998 (the "May Debentures"), in private
placements pursuant to Regulation D. The net proceeds were used to repay current
liabilities. As of September 30, 1996, $4,300,000 of the May Debentures, plus
accrued interest of $56,473, were converted into 1,005,632 shares of common
stock (an additional $2,055,324, plus accrued interest of $54,032, were
converted into 553,913 shares of common stock during October 1996); (ii) During
April 1996, the Company issued $3,000,000 of 5% convertible debentures in
private placements pursuant to Regulation S. In June 1996, the debentures, plus
accrued interest of $20,411, were converted into 308,727 shares of common stock,
increasing working capital and stockholders' equity by approximately $2,950,000,
net of placement costs; (iii) In connection with the RBF acquisition, the
Company issued 370,000 shares of common stock to RBF, which increased
stockholders' equity by $3,006,250, and, (iv) current period net income.
On July 2, 1996, the Company issued an additional $10,000,000 of 5% convertible
debentures, due June 1, 1997 (the "July Debentures"), in private placements
pursuant to Regulation D. During October 1996, $8,412,236 of the July
Debentures, plus accrued interest of $72,466, were converted into 2,154,222
shares of common stock.
During October 1996, the Company entered into agreements to redeem $5,232,440 of
May and July Debentures which had not been converted, plus $105,638 of accrued
interest thereon, by issuing $6,239,726 of 10% bonds due December 31, 1996. The
redemption will result in a one time charge to net income of approximately
$902,000 during the quarter ending December 31, 1996. If the Company defaults on
the repayment of the bonds, the Company will incur an additional 5% cash
penalty. In addition, the unpaid bond will revert back to a debenture,
convertible into the Company's common stock at the previous five day average
closing bid price.
In August 1995, the Company entered into an agreement to borrow, on an unsecured
basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with an
additional $500,000 available at the option of the Company, to be drawn upon
prior to October 31, 1995. The note bears interest at 12% per annum and was
originally due on February 23, 1996, but was subsequently extended through
September 30, 1996. In connection with
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the note, the Company issued warrants to purchase 53,978 shares of Parlux common
stock at a price of $8.11 per share, which expire on August 21, 1997. The
Company borrowed a total of $674,722 under the agreement. In May 1996, the
Company paid $500,000 of this amount, leaving a balance of $174,722. This
remaining balance was paid in full during August 1996.
In June 1995, the Company borrowed, on an unsecured basis, $300,000 from an
individual related to the Company's Chairman of the Board. The note bears
interest at 11% per annum and was due on June 27, 1997. In connection with the
note, the Company issued warrants to purchase 60,000 shares of Parlux common
stock at a price of $6.94 per share, which expire on June 27, 1997. On July 15,
1996, these warrants were exercised, effectively converting the loan to equity.
In December 1994, the Company entered into a Loan and Security Agreement ( the
Credit Agreement ) with Finova Capital Corporation, pursuant to which the
Company is able to borrow, on a revolving basis for a three-year period, up to
$5,000,000 at an interest rate of 2% in excess of the Citibank, N.A. base or
prime rate ("prime"). Finova has taken a security interest in substantially all
of the domestic assets of the Company. The Credit Agreement contains customary
events of default and covenants which prohibit, among other things, incurring
additional indebtedness in excess of a specified amount, paying dividends,
creating liens, and engaging in mergers and consolidations without the prior
consent of Finova. The Credit Agreement also contains certain financial
covenants relating to net worth, interest coverage and other financial ratios.
In May 1996, the Credit Agreement was amended to provide for a temporary
increase in the line up to $6,000,000 until September 28, 1996.
On October 17, 1996, the Credit Agreement was further amended to increase the
availability under the line to $10,000,000 . The $5,000,000 was funded by
Merrill Lynch Financial Services, Inc., through a participation agreement with
Finova. The addition to the line of credit will bear interest at 1/2 % over
prime.
Simultaneously with the December 1994 closing of the Credit Agreement, the
Company restructured a prior loan extended by the National Bank of Kuwait SAK (
NBK ) by paying NBK approximately $2,120,000, including interest, from
borrowings under the Credit Agreement. In exchange for such payment, NBK
released Parlux, and its subsidiaries, from all outstanding liabilities and
guarantees owed to NBK except for those obligations relating to a new $560,000
term loan, and a $1,000,000 letter of credit made available to support the
Finova loan. The combined $1,560,000 facility was fully cash collateralized by
certain shareholders' deposits. In addition, these shareholders have signed a
subordination agreement in connection with the Credit Agreement. The term loan
was repaid during February 1996.
The Company is currently pursuing additional facilities to finance future
growth. There can be no assurance that such financing facilities will become
available, or, if available, that they will be on terms satisfactory to the
Company.
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Impact of Currency Exchange
The Company's sales and purchases are virtually all in U.S. dollars or French
francs. Since approximately 5% of the Company's sales are currently
manufactured in France, a strengthening of the French franc vis-a-vis the U.S.
dollar results in exchange rate losses for the Company. Conversely, a weakening
of the French franc vis-a-vis the U.S. dollar results in exchange rate gains
for the Company.
The Company monitors exchange rates on a daily basis and regularly seeks to
evaluate long-term expectations for the French franc in order to minimize its
exchange rate risk. To date, the Company has not elected to engage in currency
hedging transactions.
The Company continues to centralize manufacturing in the United States which
will minimize the currency exchange impact on intercompany transactions for the
future.
<TABLE>
<S> <C>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
</TABLE>
There are no legal proceedings of any significance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 12, 1996, the Company held a special meeting of its shareholders to
vote on an increase in the amount of authorized shares of common stock from
15,000,000 to 30,000,000 shares. The shareholders approved the proposal as
follows:
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAINED
--------- ------- ---------
8,214,421 275,100 5,500
</TABLE>
On October 1, 1996, the Company held its annual meeting. The following is a
summary of the proposals and corresponding votes.
Item No.1 Nomination and Election of Directors
The eight nominees named in the proxy statement were elected, with
each director receiving more than 93% of the votes cast.
Item No. 2 Adoption of the Parlux Fragrances, Inc. Stock Option
Plan
Over 99% of the votes were cast in favor of the proposal.
Item No. 3 Ratification of Price Waterhouse LLP as
Independent Accountants
Over 99% of the votes were cast in favor of the proposal.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
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4.32 Amendment No. 5 dated October 17, 1996, to Loan and
Security Agreement dated December 27, 1994, between
the Company and Finova Capital Corporation.
4.33 Agreement and Plan of Exchange dated October 21, 1996,
between the Company and Newsun Limited, Kempton
Investments Ltd., and Southbrook International
Investments Limited.
4.34 Agreement and Plan of Exchange dated October 31, 1996,
between the Company and GFL Performance Fund Limited.
(b) There were no filings on Form 8-K during the period.
8
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PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
- --------------------------------------------- September 30, March 31,
1996 1996
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CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 434,305 $ 339,423
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $3,036,000 and $2,121,000
at September 30, 1996 and March 31, 1996, respectively 14,356,079 10,892,347
Trade receivables from affiliates 21,699,073 13,482,423
Inventories, net 43,945,729 35,762,570
Prepaid expenses and other current assets 10,233,226 7,189,213
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TOTAL CURRENT ASSETS 90,668,412 67,665,976
Equipment and leasehold improvements, net 3,224,316 2,475,919
Trademarks, licenses and goodwill, net 26,428,838 24,623,417
Other 270,233 473,611
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TOTAL ASSETS $ 120,591,799 $ 95,238,923
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Borrowings, current portion $ 9,599,501 $ 11,564,917
Convertible debentures 5,232,440 250,000
Accounts payable 12,108,039 18,739,117
Accrued expenses 1,883,922 1,543,591
Income taxes payable 6,370,638 4,768,000
Advances from customers -- --
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TOTAL CURRENT LIABILITIES 35,194,540 36,865,625
Borrowings, less current portion 5,682,903 4,694,239
Convertible debentures 10,467,560 11,450,000
Deferred tax liability 183,864 183,864
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TOTAL LIABILITIES 51,528,867 53,193,728
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COMMITMENTS -- --
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STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 14,739,343 and 11,456,426
shares issued at September 30, 1996 and March 31, 1996, respectively 147,393 114,564
Additional paid-in capital 56,312,219 32,881,207
Retained earnings 13,083,404 9,000,649
Cumulative translation adjustment 133,301 182,247
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69,676,317 42,178,667
Less - 124,000 shares of common stock in treasury, at cost (613,385) (133,472)
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TOTAL STOCKHOLDERS' EQUITY 69,062,932 42,045,195
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 120,591,799 $ 95,238,923
============= ============
</TABLE>
See notes to consolidated financial statements.
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PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended September 30, Six months ended September 30,
----------------------------------------------------------------
1996 1995 1996 1995
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $15,912,920 $7,421,402 $30,298,784 $16,711,841
Affiliates 9,590,253 6,503,812 13,944,016 7,422,142
----------- ---------- ----------- -----------
25,503,173 13,925,214 44,242,800 24,133,983
Cost of goods sold 11,516,306 5,430,450 17,801,800 8,563,566
----------- ---------- ----------- -----------
Gross margin 13,986,867 8,494,764 26,441,000 15,570,417
----------- ---------- ----------- -----------
Operating expenses:
Advertising and promotional 5,847,568 2,689,702 10,720,732 5,062,735
Selling and distribution 1,802,910 1,109,379 3,654,518 1,952,907
General and administrative 1,801,133 1,464,444 3,501,193 2,825,521
Royalties 569,914 237,718 1,017,276 492,821
----------- ---------- ----------- -----------
Total operating expenses 10,021,525 5,501,243 18,893,719 10,333,984
----------- ---------- ----------- -----------
Operating income 3,965,342 2,993,521 7,547,281 5,236,433
Interest expense and bank charges 578,192 453,877 1,066,065 935,090
Exchange (gains) losses (77,793) 148,731 (103,585) 95,240
----------- ---------- ----------- -----------
Income before income taxes 3,464,943 2,390,913 6,584,801 4,206,103
Income taxes 1,316,263 883,034 2,502,046 1,556,258
----------- ---------- ----------- -----------
Net income $ 2,148,680 $1,507,879 $4,082,755 $2,649,845
=========== ========== ========== ==========
Earnings per common and common equivalent share:
Primary $ 0.12 $ 0.15 $ 0.25 $ 0.27
=========== ========== ========== ==========
Fully Diluted $ 0.12 $ 0.15 $ 0.25 $ 0.26
=========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
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PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------- ADDITIONAL EARNINGS
NUMBER PAR PAID-IN (ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT)
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
BALANCE at April 1, 1994 2,861,189 $ 28,612 $ 8,868,994 ($ 2,959,264)
Net income -- -- -- 4,231,211
Issuance of common stock in connection with:
Excercise of employee stock options 19,025 190 61,020 --
Sale of stock in private placement 110,000 1,100 438,523 --
Acquisition of assets 500,000 5,000 2,195,000 --
Foreign currency translation adjustment -- -- -- --
Purchase of 19,500 shares of treasury stock, at cost -- -- -- --
---------- -------- ----------- ------------
BALANCE at March 31, 1995 3,490,214 34,902 11,563,537 1,271,947
Net income -- -- -- 7,772,691
Issuance of common stock upon exercise of:
Employee stock options 11,175 112 33,910 --
Warrants 1,056,916 10,569 3,006,022 --
Sale of stock in private placements 1,001,514 10,015 7,605,570 --
Stock issued in connection with the acquisition of assets 424,000 4,240 3,739,760 --
Conversion of debentures, net of unamortized debt 1,073,688 10,737 6,932,408 --
issuance costs
Adjustment for stock split 4,398,919 43,989 -- (43,989)
---------- -------- ----------- ------------
Foreign currency translation adjustment -- -- -- --
BALANCE at March 31, 1996 11,456,426 114,564 32,881,207 9,000,649
Net income -- -- -- 4,082,755
Issuance of common stock upon exercise of:
Employee stock options 14,500 145 18,448 --
Options 176,000 1,760 1,406,240 --
Warrants 60,000 600 415,650 --
Stock issued in connection with the acquisition of assets 370,000 3,700 3,002,550 --
Conversion of debentures, net of unamortized debt
issuance costs 2,662,417 26,624 18,588,124 --
Foreign currency translation adjustment -- -- -- --
Purchase of 85,000 shares of treasury stock, at cost -- -- -- --
---------- -------- ----------- ------------
BALANCE at September 30, 1996 (Unaudited) 14,739,343 $147,393 $56,312,219 $ 13,083,404
========== ======== =========== ============
<CAPTION>
CUMULATIVE
TRANSLATION TREASURY
ADJUSTMENT STOCK TOTAL
--------- ---------- ------------
<S> <C> <C> <C>
BALANCE at April 1, 1994 $ 129,258 -- $ 6,067,600
Net income -- -- 4,231,211
Issuance of common stock in connection with:
Excercise of employee stock options -- -- 61,210
Sale of stock in private placement -- -- 439,623
Acquisition of assets -- -- 2,200,000
Foreign currency translation adjustment 216,495 -- 216,495
--------- --------- ------------
Purchase of 19,500 shares of treasury stock, at cost -- ($133,472) (133,472)
BALANCE at March 31, 1995 345,753 (133,472) 13,082,667
Net income -- -- 7,772,691
Issuance of common stock upon exercise of:
Employee stock options -- -- 34,022
Warrants -- -- 3,016,591
Sale of stock in private placements -- -- 7,615,585
Stock issued in connection with the acquisition of assets -- -- 3,744,000
Conversion of debentures, net of unamortized debt -- -- 6,943,145
issuance costs
Adjustment for stock split -- -- --
Foreign currency translation adjustment (163,506) -- (163,506)
--------- --------- ------------
BALANCE at March 31, 1996 182,247 (133,472) 42,045,195
Net income -- -- 4,082,755
Issuance of common stock upon exercise of:
Employee stock options -- -- 18,593
Options -- -- 1,408,000
Warrants -- -- 416,250
Stock issued in connection with the acquisition of assets -- -- 3,006,250
Conversion of debentures, net of unamortized debt
issuance costs -- -- 18,614,748
Foreign currency translation adjustment (48,946) -- (48,946)
--------- --------- ------------
Purchase of 85,000 shares of treasury stock, at cost -- (479,913) (479,913)
BALANCE at September 30, 1996 (Unaudited) $ 133,301 ($613,385) $ 69,062,932
========= ========= ============
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 12
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended September 30,
---------------------------
(Unaudited)
1996 1995
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,082,755 $ 1,141,966
------------ -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,156,287 343,928
Changes in assets and liabilities net of effect of acquisitions:
Increase in trade receivables - customers (4,043,956) (1,108,588)
(Increase) decrease in trade receivables - affiliates (8,216,650) 1,316,171
Increase in inventories (6,398,685) (1,970,023)
Increase in prepaid expenses and other current assets (2,382,774) (955,705)
Decrease (increase) in other non-current assets 223,644 (16,710)
(Decrease) increase in accounts payable (7,786,633) 255,012
Increase in accrued expenses 207,488 370,771
Increase in income taxes payable 1,602,638 634,247
Decrease in advances from customers -- (1,792,156)
------------ -----------
Total adjustments (25,638,641) (2,923,053)
------------ -----------
Net cash used by operating activities (21,555,886) (1,781,087)
------------ -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (472,019) (114,084)
Purchases of trademarks (52,723) (27,999)
Net cash paid in acquisition of Richard Barrie Fragrances, Inc. (694,707) --
------------ -----------
Net cash used in investing activities (1,219,449) (142,083)
------------ -----------
Cash flows from financing activities:
Payments - receivable financing and overdraft facilities (400,881) (160,439)
(Payments) proceeds - note payable (8,796) 300,000
Proceeds - note payable to Finova Capital Corp. 982,231 679,867
Payments - note payable to National Bank of Kuwait -- (150,000)
Proceeds - note payable Eagle Bank 12,608 165,000
Payments - note payable to Sanofi Beaute, Inc. -- (1,243,076)
Payments - note payable to Fred Hayman Beverly Hills (234,698) --
Payments - note payable to Parfums Jean Desprez (1,685,135) --
Payments - note payable to Distr. de Perfumes Senderos (674,722) --
Payments - note payable to stockholder (148,545) --
Proceeds - note payable Lyon Credit Corporation 1,481,186
Proceeds - 5% convertible debentures, net 22,691,500 --
Purchase of treasury stock, at cost (479,913)
Proceeds from issuance of common stock 1,426,593 1,824,366
------------ -----------
Net cash provided by financing activities 22,961,428 1,415,718
------------ -----------
Effect of exchange rate changes on cash (91,211) (8,665)
------------ -----------
Net increase (decrease) in cash and cash equivalents 94,882 (516,117)
Cash and cash equivalents, beginning of period 339,423 575,700
------------ -----------
Cash and cash equivalents, end of period $ 434,305 $ 59,583
============ ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 13
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The Consolidated Balance Sheet as of September 30, 1996, the Consolidated
Statements of Income for the three-month and six-month periods ended September
30, 1996 and 1995, and the Consolidated Statements of Cash Flows for the
six-month periods ended September 30, 1996 and 1995, have been prepared without
audit. In the opinion of management, the statements reflect all adjustments
consisting of normal recurring adjustments necessary to present fairly the
financial position of Parlux Fragrances, Inc., and subsidiaries at September 30,
1996 and the results of their operations and their cash flows for the
three-month and six-month periods ended September 30, 1996 and 1995.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
be read in conjunction with the financial statements and notes thereto included
in the Company's March 31, 1996 Form 10-K as filed with the Securities and
Exchange Commission on June 28, 1996.
Certain reclassifications were made to the September 30, 1995 financial
statements to conform with the presentation of the September 30, 1996 financial
statements. All comparable share information has been restated to reflect the
two-for-one stock split consummated in November 1995.
B. INVENTORIES
Inventories are stated at the lower of cost ( first-in, first-out method ) or
market. The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
Raw Material, Packaging and Components $27,427,697 $22,285,515
Finished Products 16,518,032 13,477,055
------------------ --------------
$43,945,729 $35,762,570
================== ==============
</TABLE>
The above amounts are net of reserves for potential inventory obsolescence of
approximately $1,942,000 and $1,200,000 at September 30, 1996 and March 31,
1996, respectively.
C. ACQUISITIONS
On June 28, 1996, the Company consummated the acquisition of substantially all
of the assets and assumption of certain liabilities of Richard Barrie
Fragrances, Inc. (RBF), pursuant to an asset purchase agreement entered into on
January 31, 1996.
13
<PAGE> 14
Parlux acquired from RBF certain inventories, fixed assets and licenses relating
to the brands Baryshnikov and Melrose Place, as well as fixed assets located in
RBF's office and distribution center in Orange, Connecticut.
Parlux provided as consideration $750,000 in cash which was paid on July 1,
1996, and 370,000 shares of common stock valued at $3,006,250, the average price
of the shares on January 30, 1996, the date of the original asset purchase
agreement.
The estimated fair value of the net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Molds and other fixed assets $ 893,856
Inventories, net 1,784,474
Other assets 141,518
Goodwill and licenses 2,091,957
Accounts payable and other liabilities (1,155,555)
-----------
Fair value of net assets acquired $3,756,250
===========
</TABLE>
On March 19, 1996, the Company consummated the acquisition of the trademarks and
certain inventory for the Bal a Versailles (BAV) fragrance and beauty products
brand name from Parfums Jean Desprez, S.A., pursuant to a letter of intent
entered into on January 11, 1996.
At closing, the Company provided as consideration $1,697,500 in cash and
$2,553,360 in the form of non-interest bearing promissory notes due in varying
installments through August 1996.
The estimated fair value of the assets acquired is summarized as follows:
<TABLE>
<S> <C>
Goodwill, licenses and trademarks $2,772,500
Inventories 978,360
Covenant-not-to-compete 300,000
Molds and other fixed assets 200,000
------------
Fair value of assets acquired $4,250,860
============
</TABLE>
On December 27, 1995, the Company consummated the acquisition of substantially
all of the assets of Alexandra de Markoff (AdM), a prestige cosmetic line,
pursuant to an asset purchase agreement entered into on September 21, 1995
between the Company and Revlon Holdings, Inc. (Revlon).
Parlux acquired from Revlon certain inventories and fixed assets and the rights
in certain trademarks relating to AdM. Parlux provided as consideration
$8,608,000 in cash, 424,000 shares of common stock valued at $3,392,000 and
agreed to accept returns and allowances in excess of $100,000 related to sales
of AdM products by Revlon prior to December 27, 1995. In addition, the Company
granted Revlon an option to purchase 176,000 shares of the Company's common
stock, until June 30, 1996, at an exercise price of $8.00 per share, which was
exercised in May 1996.
14
<PAGE> 15
The estimated fair value of the net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Goodwill, licenses and trademarks $10,115,000
Advances for future inventory purchases 4,000,000
Molds and other fixed assets 85,000
Reserve for sales returns and allowances (2,200,000)
--------------
Fair value of net assets acquired $12,352,000
==============
</TABLE>
D. BORROWINGS - BANKS AND OTHERS
The composition of debt is as follows:
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------ ------------
<S> <C> <C>
Note payable to FHBH, secured by the
acquired licensed trademarks, interest at
7.25%, payable in equal monthly
installments of $69,863, including
interest, through June 2004 $ 4,938,511 $ 5,173,209
Revolving credit facility payable to
Finova Capital Corporation, interest at
Citibank N.A. prime (8.25% September 30, 1996)
plus 1 3/4 %, payable on December 27,
1997 4,870,609 3,888,378
Notes payable to Parfums Jean Desprez,
non-interest bearing, payable in
installments through November 1996 868,225 2,553,360
Note payable to Lyon Credit Corporation,
secured by certain equipment, interest at
11.10%, payable in equal monthly
installments of $32,688, including
interest, through September 2001 1,481,186 --
Unsecured $500,000 line of credit payable
to Eagle National Bank, interest at the
bank's prime rate plus 2%, due November 1,
1996 495,000 482,392
Note payable to Distribudora de Perfumes
Senderos, Ltda., unsecured, interest at 12%
due September 30, 1996 -- 674,722
Receivable financing and overdraft
facilities, interest at 9.20% to 10.45%,
payable on demand (1) 2,167,363 2,568,244
Note payable to stockholder, interest at
10%, payable on demand (l) -- 148,544
Unsecured notes payable to related parties,
interest at 11%, due December 31, 1996 400,000 700,000
Other notes payable 61,510 70,307
------------ ------------
15,282,404 16,259,156
Less: long-term borrowings (5,682,903) (4,694,239)
------------ ------------
Short-term borrowings $ 9,599,501 $ 11,564,917
============ ============
(l) Denominated in French francs
</TABLE>
15
<PAGE> 16
In December 1994, the Company entered into a Loan and Security Agreement ( the
Credit Agreement ) with Finova Capital Corporation ( Finova ), ( formerly
Greyhound Financial Corporation ) pursuant to which the Company is able to
borrow, depending on the availability of a borrowing base, as defined in the
Credit Agreement, on a revolving basis for a three-year period, up to
$5,000,000, at an interest rate of 2% in excess of Citibank, N.A. "base or prime
rate." Finova has taken a security interest in substantially all of the domestic
assets of the Company. The Credit Agreement contains customary events of default
and covenants which prohibit, among other things, incurring additional
indebtedness in excess of a specified amount, paying dividends, creating liens,
and engaging in mergers and consolidation without the prior consent of Finova.
The Credit Agreement also contains certain financial covenants relating to net
worth, interest coverage and other financial ratios. In May 1996, the Credit
Agreement was amended to provide for a temporary increase in the line up to
$6,000,000 until September 28, 1996.
Simultaneously with the closing of the Credit Agreement, the Company
restructured a prior loan extended by the National Bank of Kuwait SAK ( NBK ) by
paying NBK approximately $2,120,015, including interest, from borrowings under
the Credit Agreement. In exchange for such payment, NBK released Parlux, and all
of its subsidiaries, from all outstanding liabilities and guarantees owed to
NBK, except for those obligations relating to a new $560,000 term loan, and a
$1,000,000 letter of credit made available to support the Finova loan. The
combined $1,560,000 facility was fully cash collateralized by certain
shareholders' deposits. In addition, the shareholders have signed a
subordination agreement in connection with the Credit Agreement. The term loan
was repaid during February 1996.
The Company has overdraft and trade financing facilities aggregating 15,950,000
French francs (approximately $3,098,000 as of September 30, 1996). These
credit facilities are reviewed annually.
In August, 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with an
additional $500,000 available at the option of the Company, to be drawn upon
prior to October 31, 1995. The note bears interest at 12% per annum and was due
on February 23, 1996. The Company borrowed a total of $674,722 under the
agreement. In May 1996, the Company paid $500,000, leaving a balance due of
$174,722, which was subsequently paid in full during August 1996.
In June 1995, the Company borrowed, on an unsecured basis, $300,000 from an
individual related to the Company's Chairman of the Board. The note bears
interest at 11% per annum and was due on June 27, 1997. In connection with the
note, the Company issued warrants to purchase 60,000 shares of Parlux common
stock at a price of $6.94 per share, which expire on June 27, 1997. On July 15,
1996, these warrants were exercised effectively converting the loan to equity.
On October 17, 1996, the Credit Agreement was further amended to increase the
availability under the line to $10,000,000. The $5,000,000 permanent increase
was
16
<PAGE> 17
funded by Merrill Lynch Financial Service, Inc., through a participation
agreement with FINOVA. The addition to the line of credit will bear interest at
1/2% over prime.
The Company is currently pursuing additional facilities to finance future
growth. There can be no assurance that such financing facilities will become
available, or, if available, that they will be on terms satisfactory to the
Company.
E. CONVERTIBLE DEBENTURES
During the period November 2, 1995 through March 31, 1996, the Company issued
$3,700,000 of 7% convertible debentures and $15,000,000 of 5% convertible
debentures (the Debentures), pursuant to Regulation S with maturities between
one and two years. The Debentures were convertible into shares of the Company's
common stock at 85% of the average closing price of the stock over a five-day
period prior to conversion.
As of March 31, 1996, $7,000,000 of the Debentures, plus accrued interest of
$48,146, had been converted into 1,073,688 shares of common stock and
$10,000,000 of the 5% Debentures and $1,700,000 of the 7% Debentures were
outstanding. During the period April 1, 1996 through June 30, 1996, an
additional $11,450,000 have been converted into 1,317,893 shares of common
stock. Accordingly, these $11,450,000 of Debentures were classified as long-term
in the accompanying consolidated balance sheet at March 31, 1996.
During April and May 1996, the Company issued an additional $13,000,000
($3,000,000 and $10,000,000 pursuant to Regulation S and Regulation D,
respectively) in 5% Debentures with the same conversion features and terms as
those issued above, of which $3,000,000, plus accrued interest of $20,411, have
been converted into 308,727 shares of common stock during June 1996, and
$4,300,000, plus accrued interest of $56,473, have been converted into 1,005,632
shares of common stock during September 1996. An additional $2,055,324 of the
debentures, plus accrued interest of $54,032, were converted into 553,913 shares
of common stock during October 1996.
On July 2, 1996, the Company issued an additional $10,000,000 of 5% Debentures,
due June 1, 1997, in private placements pursuant to Regulation D, with the same
conversion features and terms as those issued above, except that the conversion
rate is 86%. During October 1996, $8,412,236 of the debentures, plus accrued
interest of $72,466, were converted into 2,154,222 shares of common stock.
During October 1996, the Company entered into agreements to redeem $5,232,440 of
the May and July Debentures which had not been converted, plus $105,638 of
accrued interest thereon, by issuing $6,239,726 of 10% bonds due December 31,
1996. The redemption will result in a one time charge to net income of
approximately $902,000 during the quarter ending December 31, 1996. If the
Company defaults on the repayment of the bonds, the Company will incur an
additional 5% cash penalty. In addition, the unpaid bond will revert back to a
debenture, convertible into the Company's common stock at the previous five day
average closing bid price.
17
<PAGE> 18
F. TRANSACTIONS WITH AFFILIATES
Sales to Perfumania, Inc., a public company affiliated with the Company's
Chairman of the Board, amounted to $13,944,016 or 32% of net sales for the
six-month period ended September 30, 1996, as compared to $7,422,142 or 31% of
net sales in the same period for the prior fiscal year.
Amounts due from Perfumania amounted to $21,699,073 and $13,482,423 at September
30, 1996 and March 31, 1996, respectively.
G. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
On October 26, 1995, the Company announced a two-for-one stock split in the form
of a dividend to shareholders of record as of November 3, 1995. The following
share and per share data have been retroactively adjusted to reflect the
transaction.
Earnings per common and common equivalent share and the weighted average number
of shares outstanding used in the computations, retroactively adjusted for the
stock split, are summarized as follows:
<TABLE>
<CAPTION>
Three-Months Ended September 30,
----------------------------------
1996 1995
---- ----
Primary Fully Diluted Primary Fully Diluted
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 2,148,680 (1) $ 1,507,879 $ 1,507,879
Add - reduction of interest
expense (2) 112,877 -- --
----------- ----------- -----------
Adjusted for per share computation $ 2,261,557 $ 1,507,879 $ 1,507,879
=========== ===========
Number of shares:
Weighted average shares outstanding 13,803,867 8,534,806 8,534,806
Add - net additional shares
issuable (3) 4,695,492 1,624,111 1,637,968
----------- ----------- -----------
Weighted average shares used in
the per share computation 18,499,359 10,158,917 10,172,774
=========== =========== ===========
Earnings per common and common
equivalent share $ 0.12 $ 0.15 $ 0.15
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six-Months Ended September 30,
----------------------------------
1996 1995
---- ----
Primary Fully Diluted Primary Fully Diluted
----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Net Income $ 4,082,755 (1) $2,649,845 $ 2,649,845
Add - reduction of interest
expense (2) 189,736 -- --
----------- ---------- -----------
Adjusted for per share computation $ 4,272,481 $2,649,845 $ 2,649,845
=========== ========== ===========
Number of shares:
Weighted average shares outstanding 13,079,576 8,035,804 8,035,804
Add - net additional shares
issuable (3) 3,967,958 1,827,874 1,964,456
----------- ---------- -----------
Weighted average shares used in
the per share computation 17,047,534 9,863,678 10,000,260
=========== ========== ===========
Earnings per common and common
equivalent share $ 0.25 $ 0.27 $ 0.26
=========== ========== ===========
</TABLE>
18
<PAGE> 19
(1) The calculation of fully diluted earnings per share was not required for
1996 since it would be antidilutive.
(2) Reduction of interest expense assumes that the convertible debentures were
converted into shares of common stock on the date of their issuance.
Accordingly, no interest expense on the convertible debentures would have been
incurred.
(3) Assumes exercise or conversion of outstanding common stock equivalents
(options, warrants and convertible debentures) at the beginning of the period,
or at the date of issuance if issued during the period, net of the assumed
repurchase of common stock from exercise proceeds. The assumed repurchase of
common stock is based on the average price of the Company's common stock during
the period for primary and, when dilutive, the end of period price for fully
diluted.
H. CASH FLOW INFORMATION
The Company considers temporary investments with an original maturity of three
months or less to be cash equivalents. Supplemental disclosures of cash flow
information are as follows:
<TABLE>
<CAPTION>
Six months ended September 30,
1996 1995
-------- --------
<S> <C> <C>
Cash paid for:
Interest $955,842 $902,204
Income taxes $179,040 $377,643
</TABLE>
In addition to the RBF, BAV and AdM acquisitions discussed in Note C, which were
partially funded through the issuance of common stock and notes, the Company
used barter credits totaling $149,000 ($376,000 in 1995) in payment of
advertising expenses.
Additionally, during 1996, notes payable and accrued interest in the amount of
$300,000 and $53,323, respectively, ($350,000 and $178,750, respectively, in
1995) were repaid through the issuance of common stock in connection with the
exercise of certain warrants and options.
I. INCOME TAXES
As of March 31, 1995, the Company had utilized its remaining U.S. net operating
loss carryovers. The provision for income taxes for the periods ended September
30, 1995 and 1996 reflects an effective tax rate of approximately 38%.
J. LICENSE AND DISTRIBUTION AGREEMENTS
PERRY ELLIS: As discussed in Note C, the Company acquired the Perry Ellis
license from Sanofi Beaute. The Perry Ellis license is entering its eleventh
year, and is renewable every two years if the average annual sales in the
completed period exceed
19
<PAGE> 20
75% of the average sales of the previous four years. All minimum sales levels
have been met by the previous licensee, and the Company believes that this will
continue. The license requires the payment of royalties, which decline as a
percentage of net sales as net sales volume increases, and the spending of
certain minimum amounts for advertising based upon net sales levels achieved in
the prior year.
VICKY TIEL: In September 1992, the Company entered into an exclusive worldwide
license agreement with VICKY TIEL S.A. in which the Company secured the rights
to manufacture and distribute fragrances and beauty care products using the
VICKY TIEL trademark for an initial five-year period, renewable for a subsequent
five-year period upon achieving specified sales or minimum royalty levels. Under
this agreement, the Company is obligated to pay royalties calculated as a
percentage of net sales, which decline as net sales volume increases. The
Company is also obligated to spend certain minimum amounts for advertising based
upon the annual net sales of the products.
TODD OLDHAM: In December 1992, the Company entered into an exclusive worldwide
licensing agreement with L-7 Designs, Inc. in which the Company secured the
rights to manufacture and distribute fragrances and beauty care products using
the TODD OLDHAM trademark for an initial period of three-years, renewable for
subsequent three-year and four-year periods upon achieving specified sales or
minimum royalty levels. The license requires the payment of royalties, which
decline as a percentage of net sales as net sales volume increases, and the
spending of certain minimum amounts for advertising based upon net sales levels.
The Company launched a TODD OLDHAM women's fragrance line in March 1995.
PHANTOM OF THE OPERA: In April 1993, the Company entered into an exclusive
worldwide agreement with Creative Fragrances, Inc., for the worldwide
distribution rights to PHANTOM OF THE OPERA covering men's and women's
fragrances and beauty related products. The agreement expires in April 1998.
Royalties are payable at 7% of net sales, and there are no minimum royalty
requirements, nor are there minimum requirements for sales or advertising.
FRANCESCO SMALTO: In May 1995, the Company terminated its license agreement with
FRANCESCO SMALTO INTERNATIONAL (SMALTO) for breach of contract. On October 5,
1995, the Company entered into a transition and termination agreement with
SMALTO which provided for the continued use of the Francesco Smalto trademark
through September 30, 1996. The agreement contained certain production
restrictions and required a fixed amount of royalties during the period, which
approximated 6% of net sales of SMALTO fragrances. Sales of Francesco Smalto
products represented approximately 7% of total Company net sales for the year
ended March 31, 1996, and approximately 2% in the six-month period ended
September 30, 1996. The contract has been terminated in accordance with the
Agreement.
* * * * * * * * * *
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARLUX FRAGRANCES, INC.
/s/ Ilia Lekach
- ---------------
Ilia Lekach, Chairman and Chief Executive Officer
/s/ Frank A. Buttacavoli
- -------------------------
Frank A. Buttacavoli, Executive Vice President, Chief Financial Officer and
Director
Date: November 13, 1996
21
<PAGE> 1
Exhibit 4.32
October 17, 1996
Parlux Ltd.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
RE: AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT
Ladies and Gentlemen:
We refer to the Loan and Security Agreement dated December 29, 1994, as
amended (the "Loan Agreement"), between Greyhound Financial Corporation, now
known as FINOVA Capital Corporation ("FINOVA") and you. Defined terms used in
this letter and not defined herein have the meanings given to them in the Loan
Agreement.
You have requested that FINOVA increase the Total Facility and make certain
other amendments to the Loan Agreement. FINOVA is willing to do so, but only on
the terms and conditions set forth herein. Accordingly, Borrower hereby agrees
with FINOVA as follows:
1. Amendments to Loan Agreement and Schedule.
(a) Each reference in the Loan Agreement, the Schedule, or any other
Loan Document to FINOVA's address in Los Angeles, California is hereby amended
to read: "355 South Grand Avenue, Suite 2400, Los Angeles, California 90071".
(b) Section 18.1 of the Schedule is amended by adding the following
definitions:
"Base Rate" means the rate of interest announced publicly by
Citibank, N.A., from time to time as its "base rate" (or any
successor thereto), which may not be such institution's lowest
rate.
(c) Section 1.1of the Schedule is amended in its entirety to read:
<PAGE> 2
"The amount of the Total Facility is Ten Million Dollars ($10,
000,000). "
(d) Section 1.2 of the Schedule is amended as follows:
(1) Clause (a) under "Revolving Loans" is amended in its
entirety to read: "Ten Million Dollars ($10,000,000) (the "Revolving
Loan Facility"); or
(2) Subclause (b)(ii)(A) under "Revolving Loans" is
amended in its entirety to read: "Six Million Dollars ($6,000,000)";
and
(3) Subclause (b)(ii)(B)(ii) under "Revolving Loans" is
amended by deleting the words "Five Hundred Thousand Dollars
($500,000)" and replacing them with "Seven Hundred Fifty Thousand
Dollars ($750,000)".
(e) Section 3.1 of the Schedule is amended
as follows:
(1) The first sentence under "Interest" is amended in
its entirety to read: "Borrower shall pay FINOVA interest (i) at a
per annum rate of one and three-quarters percent (1.75 %) in excess
of the Base Rate on fifty percent (50%) of the daily outstanding
balance of Borrower's loan account and (ii) at a per annum rate of
one-half of one percent (0. 5 %) in excess of the Base Rate on the
remaining fifty percent (50%) of the daily outstanding balance of
Borrower's loan account. Borrower's loan account shall be adjusted
on a weekly basis."
(2) The words "one-fourth of one percent (.25 %) per
annum of the amount of the Total Facility, or" shall be deleted from
the first sentence under "Annual Renewal."
(f) Section 5.2(iii) of the Loan Agreement is amended by deleting
the word "monthly" before the words "unaudited financial statements" and
replacing it with "quarterly".
(g) Section 5.2, Paragraph 4, of the Schedule is amended as follows:
(1) The words "month", "months" and "monthly" shall be
deleted and replaced with "quarter", "quarters" and
"quarterly", respectively; and
2
<PAGE> 3
(2) The words "thirty (30)" shall be deleted and
replaced with "forty-five (45)".
(h) Section 13.14 of the Schedule is amended as follows:
(1) The words "and not less than $15,000,000 on and
and after March 31, 1996" in the "Net Worth" covenant shall be
deleted and replaced with "not less than $15,000,000 from March
31, 1996 until June 29, 1996, and not less than $35,000,000 on
and after June 30, 1996"; and
(2) The word "month" shall be deleted and replaced with
"quarter".
2. Conditions Precedent. The amendments set forth in Paragraph I above
shall not be effective unless and until each of the following conditions
precedent is satisfied as determined by FINOVA in its sole judgment:
(a) Each of Borrower, Parent and Ilia Lekach shall have executed and
delivered this Amendment to FINOVA.
(b) Merrill Lynch Business Financial Services Inc. ("Merrill Lynch")
shall have executed and delivered a Participation Agreement, in form and
substance satisfactory to FINOVA, pursuant to which Merrill Lynch will acquire
and FINOVA will sell an ongoing participation interest of fifty percent (50%)
in the Collateral, Revolving Loans, Loan Documents and the transactions
thereunder.
(c) Parent shall have executed and delivered to FINOVA a written
agreement, in form and substance satisfactory to FINOVA, in which Parent agrees
and covenants to notify FINOVA immediately of any termination with respect to
any of Parent's license agreements, and to send a copy of any notice of
termination delivered by a licensor.
(d) Borrower shall have delivered or caused to be delivered to FINOVA
(1) evidence that all amounts outstanding under the Perry Ellis Purchase
Agreement have been indefeasibly paid in full, including without limitation a
copy of the note dated December 29, 1994 in favor of Sanofi marked "CANCELLED"
and the Reversionary Assignment and Assumption dated December 29, 1994 between
Sanofi and Guarantor marked "CANCELLED", and (2) copies of termination
statements executed by Sanofi in connection with any UCC financing statements
it filed against Borrower and/or Parent.
(e) At the time the conditions in subparagraphs (a) through (d) above
have been satisfied, no Event of Default, or event or condition which with
notice or the passage of time, or both, would become an Event of Default, has
occurred and is continuing.
3
<PAGE> 4
3. Fee and Expenses. In consideration of FINOVA's agreements contained
herein and in order to induce FINOVA to enter into this letter, Borrower
herewith pays FINOVA a fee of $62,500, which FINOVA is authorized to charge to
Borrower's loan account with FINOVA. Borrower confirms that, under the Loan
Agreement, it shall pay FINOVA's attorneys' fees and expenses incurred in
connection with this letter and the transactions contemplated hereby.
4. Ratification. (a) Except as expressly set forth herein, the Loan
Agreement and the other Loan Documents are not modified hereby and each shall
remain in full force and effect in accordance with the respective provisions
thereof on the date hereof, and the Loan Agreement and the other Loan Documents
are each in all respects ratified and affirmed. FINOVA's agreements herein shall
not be construed to require FINOVA to extend any additional credit not expressly
contemplated by the Loan Agreement, or make any amendment to the Loan Agreement
or any other Loan Documents, on any other occasion, regardless of the similarity
of circumstances.
(b) Each of Parent and Ilia Lekach (which join in this letter solely for
the purposes of this subsection) hereby (i) acknowledges notice of the terms and
conditions of this letter, (ii) confirms and agrees that the Indebtedness under
and as defined in the Continuing Guaranties listed on Exhibit A hereto include
all Borrower's Obligations for or in respect of the principal of, accrued
interest in, and other charges now or hereafter payable in connection with the
Revolving Loans including, without limitation, those arising after giving effect
to this letter, and (iii) confirms that, after giving effect to this letter and
to the of the amendments to the Loan Agreement and Schedule, each such
Continuing Guaranty, to extent it is a party thereto, is its valid and binding
obligation, enforceable against it in accordance with its terms, without
defenses, offsets, or counterclaims, and continues in full force and effect.
5. Representations and Warranties. Without limiting any other provision of
this letter, and as an inducement to FINOVA to enter into this letter, Borrower
hereby: (a) represents, warrants and agrees that the Loan Agreement and the
other Loan Documents are its valid and binding obligations enforceable against
it in accordance with their terms, without defenses, offsets or counterclaims;
and (b) represents and warrants that:
(i) each of the representations and warranties of Borrower set forth
in the Loan Agreement and the other Loan Documents is true and
correct in all material respects, as of the date hereof, and
(ii) after giving effect to this letter, no Event of Default, or
event or condition which with notice or the passage of time, or
both, would become an Event of Default, has occurred and is
continuing.
4
<PAGE> 5
6. Governing Law. This letter shall be construed in accordance
with and be governed by the laws (as opposed to the conflicts of
laws provisions) of the State of Arizona.
7. Counterparts. This letter may be executed in one or more
counterparts, and by FINOVA and each other party hereto in separate
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument
Please countersign below to indicate your agreement to and acceptance of
the foregoing terms. The provisions of this letter shall not become effective
unless and until so countersigned.
Very truly yours,
FINOVA CAPITAL CORPORATION
By: /s/ Frank Manzo
-------------------------
Name: Frank Manzo
Title: Asst. V.P.
Accepted and Agreed:
PARLUX LTD.
By: /s/ Frank A. Buttacavoli
----------------------------
Name: Frank A. Buttacavoli
Title: Exec. Vice President and CFO
PARLUX FRAGRANCES, INC.
By: /s/ Frank A. Buttacavoli
-----------------------------
Name: Frank A. Buttacavoli
Title: Exec. Vice President and CFO
/s/ Ilia Lekach
- --------------------------
ILIA LEKACH, an individual
3
<PAGE> 1
Exhibit 4.33
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE, dated as of October 21, 1996 (the
"Plan"), by and among Parlux Fragrances, Inc., a corporation organized under the
laws of the State of Delaware (the "Company"), Newsun Limited, a corporation
organized under the laws of the British Virgin Islands ("Newsun"), Kempton
Investments Ltd., a corporation organized under the laws of Ireland ("Kempton"),
and Southbrook International Investments Limited, a corporation organized under
the laws of the British Virgin Islands (individually, "Southbrook" and together
with Newsun and Kempton, the "Holders");
W I T N E S S E T H:
THAT WHEREAS, the Company and Newsun are parties to a Regulation D
Securities Subscription Agreement, entered into as of May 8, 1996 (the "May
Agreement"), pursuant to which Newsun purchased an aggregate principal amount of
$5,000,000 of the 5% Convertible Debentures Due May 1, 1998 (the "May
Debentures") of the Company for an aggregate purchase price of $5,000,000;
WHEREAS, the Company and each of Kempton and Newsun are parties to
Regulation D Securities Subscription Agreements, entered into as of July 2, 1996
(the "July Agreements"), pursuant to which each of Kempton and Newsun purchased
an aggregate principal amount of $5,000,000 of the 5% Convertible Debentures Due
June 1, 1997 (the "July Debentures") of the Company for an aggregate purchase
price of $5,000,000;
WHEREAS, Newsun assigned all of its right, title and interest in and under
the July Agreement and the July Debentures to Southbrook pursuant to the terms
of an Assignment, dated as of August 30, 1996; and
WHEREAS, all of the parties hereto desire to enter into this Plan pursuant
to which (i) Newsun will exchange the aggregate of $1,731,676 principal amount
of May Debentures currently held by it for an aggregate of $2,076,642.70
principal amount of new 10% Bonds Due December 31, 1996 (the "Bonds") issued in
the name of Newsun, (ii) Kempton will exchange the aggregate of $2,000,000
principal amount of the July Debentures currently held by it for (a) an
aggregate of $1,180,560 principal amount of new 5% Convertible Debentures Due
June 1, 1997 (the "New Debentures") issued in the name of Kempton and (b) an
aggregate of $983,247.60 principal amount of the Bonds issued in the name of
Kempton and (iii) Southbrook will exchange the aggregate of $768,324 principal
amount of the July Debentures currently held by it for an aggregate of
$905,082.20 principal amount of the Bonds issued in the name of Southbrook;
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEBENTURE EXCHANGE
Section I.1 Debenture Exchange. On the date hereof, the following events
(collectively, the "Exchange") shall take place: (i) Newsun will exchange the
aggregate of $1,731,676 principal amount of the May Debentures currently held by
it for an aggregate of $2,076,642.70 principal amount of the Bonds issued in the
name of Newsun, (ii) Kempton will exchange the aggregate of $2,000,000 principal
amount of the July Debentures currently held by it for (a) an aggregate of
$1,180,560 principal amount of the New Debentures issued in the name of Kempton
and (b) an aggregate of $983,247.60 principal amount of the Bonds issued in the
name of Kempton and (iii) Southbrook will exchange the aggregate of $768,324
principal amount of the July Debentures currently held by it for an aggregate of
$905,082.20 principal amount of the Bonds issued in the name of Southbrook. The
terms and provisions of the New Debentures and the Bonds are set forth in the
form of Debenture certificate and Bond attached hereto as Exhibits A and B,
respectively. After the date hereof, the Debentures will no longer be of any
force and effect and the rights of each of the Holders will be with respect only
to the New Debentures and the Bonds, as the case may be, issued to such Holder
in accordance with the Exchange.
Section I.2 Mechanics of Exchange of Debentures. On the date hereof, each
of Newsun, Kempton and Southbrook shall surrender to the Company all of the
certificate(s) representing the May Debentures and July Debentures owned by such
Holder. Simultaneously with such delivery, the May Debentures and July
Debentures, respectively, owned by each of Newsun, Kempton and Southbrook
immediately prior to the date hereof shall be canceled and (a) the Bonds to be
issued to Newsun as set forth in Section 1.1(i) above shall be issued to Newsun,
(b) the New Debentures and Bonds to be issued to Kempton as set forth in Section
1.1(ii) above shall be issued to Kempton and (c) the Bonds to be issued to
Southbrook as set forth in Section 1.1(iii) above shall be issued to Southbrook.
ARTICLE II
HOLDER REPRESENTATIONS AND WARRANTIES
Section II.1 Representations and Warranties. As a material inducement
<PAGE> 3
to the Company to issue and deliver the New Debentures and the Bonds to each of
Newsun, Kempton and Southbrook as set forth above, each Holder individually
represents and warrants to the Company as follows:
(i) The Holder is an "Accredited Investor" as that term is defined in
Rule 501(a) of Regulation D and, as of the date hereof, the Holder is not
an affiliate of the Company.
(ii) the Holder is acquiring the securities referred to in Section
1.1 above for its own account solely for investment and not with a view to
the distribution or sale thereof in violation of any federal or state
securities laws;
(iii) the Holder has had access to any and all information that such
Holder has requested from the Company concerning the Company and has had
the opportunity to ask questions of and receive answers from the Company
regarding the Company's business and financial affairs;
(iv) the Holder has not relied upon any representation or warranty
by the Company that is not expressly set forth in this Agreement;
(v) the Holder has such knowledge and experience in financial and
business matters as to be fully capable of evaluating the merits and risks
of ownership of the New Debentures and the Bonds, as the case may be;
(vi) the Holder understands that no federal or state agency has
passed upon the New Debentures or Bonds, as the case may be;
(vii) as of the date hereof, neither the Holder nor any of its
affiliates or agents have directly or indirectly maintained any short
position in any securities of the Company; and
(viii) this Plan has been duly authorized, validly executed and
delivered on behalf of each of the Holders and is a valid and binding
agreement enforceable against each of the Holders in accordance with its
terms, subject to general principles of equity and to bankruptcy or other
laws affecting the enforcement of creditors' rights generally.
Section II.2 Survival and Indemnification. The foregoing representations
and warranties shall survive the issuance and delivery of the New Debentures and
Bonds, as the case may be, as set forth herein. Each Holder shall indemnify and
hold the Company harmless from and against all damages, losses and expenses
(including, without limitation, reasonable attorneys' fees, court costs and
disbursements) suffered
<PAGE> 4
or paid, directly or indirectly, by the Company arising out of the failure of
any of the foregoing representations and warranties made by such Holder to be
true and correct in all material respects on and as of the date hereof.
ARTICLE III
COMPANY REPRESENTATIONS AND WARRANTIES
Section III.1 Representations and Warranties. As a material inducement to
the each of the Holders to accept the New Debentures and the Bonds from the
Company as set forth above, the Company represents and warrants as follows:
(i) the issuance, sale and delivery of the New Debentures and the
Bonds are within the Company's corporate powers and have been duly
authorized by all required corporate action on the part of the Company and
its stockholders and when such securities are issued and delivered in
accordance with the terms hereof and of the New Debentures and the Bonds
for the consideration expressed herein and in the New Debentures and the
Bonds, such securities will be duly and validly issued, fully paid and
nonassessable;
(ii) the issuance, sale and delivery of the shares of Common Stock
issuable upon conversion of the New Debentures, and if necessary upon the
conversion of the Default Debentures (as such term is defined in the
Bonds), is within the Company's corporate powers and has been duly
authorized by all required corporate action on the part of the Company and
its stockholders and when such securities are issued, sold and delivered
in accordance with the terms hereof and of the New Debentures and the
Default Debentures for the consideration expressed herein and in the New
Debentures and the Default Debentures, such securities will be duly and
validly issued, fully paid and nonassessable;
(iii) there are no preemptive rights of any shareholders of the
Company; and
(iv) this Plan has been duly authorized, validly executed and
delivered on behalf of the Company and is a valid and binding agreement
enforceable against the Company in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally.
Section III.2 Survival and Indemnification. The foregoing representations
and warranties shall survive the issuance and delivery of the New Debentures and
<PAGE> 5
Bonds, as the case may be, as set forth herein. The Company shall indemnify and
hold each of the Holders harmless from and against all damages, losses and
expenses (including, without limitation, reasonable attorneys' fees, court costs
and disbursements) suffered or paid, directly or indirectly, by each Holder
arising out of the failure of any of the foregoing representations and
warranties made by the Company to be true and correct in all material respects
on and as of the date hereof.
ARTICLE IV
COVENANTS
Section IV.1 No Additional Shares. For so long as any New Debentures, Bonds
or Default Debentures held by either Holder remain outstanding, the Company
covenants and agrees with the Holders that:
(a) It will maintain the listing of its Common Stock on the NASDAQ
National Market;
(b) Subsequent to the filing of the Amendments (as hereinafter
defined), it will not issue stop transfer instructions to its transfer
agent with respect to and will not place a restrictive legend on the
shares of Common Stock issuable upon the conversion of the New Debentures
or the Default Debentures, as the case may be;
(c) it will permit the Holders to exercise their respective rights to
convert the New Debentures or the Default Debentures, if necessary, by
telecopying an executed and completed Notice of Conversion to the Company
and delivering the original Notice of Conversion and the certificate
representing the New Debentures or the Default Debentures, as the case may
be, to the Company by express courier. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with
the provisions hereof shall be deemed a conversion date. The Company will
transmit the certificates representing shares of Common Stock issuable
upon conversion of any New Debentures or Default Debentures (together with
the certificates representing the New Debentures or Default Debentures, as
the case may be, not so converted) to the respective Holder via express
courier, by electronic transfer or otherwise, within three business days
after the date the Company has received the original Notice of Conversion
and certificate representing the New Debentures or Default Debentures
being so converted. In addition to any other remedies which may be
available to the Holders, in the event that the Company fails for any
reason to effect delivery of such shares of Common Stock within such
three-business day period, the respective Holder, prior to receiving such
<PAGE> 6
shares of Common Stock, will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Company whereupon
the Company and the Holder shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion; and
(d) it will prepare and file with the Securities and Exchange
Commission (the "Commission") not later than twenty days from the date
hereof, post-effective amendments (the "Amendments") to each of (i)
registration statement, Registration No. 333-8395 (the "August
Registration Statement") and (ii) registration statement, Registration No.
333-11953 (individually, the "October Registration Statement," and
together with the August Registration Statement, the "Registration
Statements"), which were declared effective by the Commission on August
12, 1996 and October 2, 1996, respectively, increasing the number of
shares of Common Stock covered by the Registration Statement to Two
Hundred percent (200%) of the number of shares of Common Stock issuable
upon the conversion of both the New Debentures and the Default Debentures
(the "Registration Shares") as would be issuable on the date of filing of
the Amendments if all of the New Debentures and Default Debentures were
converted on that date, pursuant to the rules and regulations of the
Commission;
(i) prepare and file with the Commission such additional
amendments and supplements to the Registration Statements and the
prospectus used in connection therewith as may be necessary to keep the
Registration Statements effective for a period of not less than nine
months and comply with the applicable provisions of the rules and
regulations of the Commission;
(ii) furnish to the Holders such number of copies of each
prospectus included in the Registration Statements for the Registration
Shares, including each preliminary prospectus, as each such Holder shall
reasonably request each of which shall be in conformity with the
requirements of the rules and regulations of the Commission;
(iii) notify the Holders at any time, but in any event no
later than five days following the happening thereof, when a prospectus
relating to such Registration Shares is required to be delivered under
rules and regulations of the Commission, of the happening of any event as
a result of which the prospectus included in the Registration Statements,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of
circumstances then existing, and at any such Holder's request, prepare
and furnish to it a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so
<PAGE> 7
that, as thereafter delivered to the purchasers of such Registration
Shares, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(iv) cause all of the Registration Shares to be listed on the
NASDAQ National Market; and
(v) in instances where an exemption from such qualification is
not available, use its best efforts to register or qualify the
Registration Shares under the securities or Blue Sky laws of such
jurisdictions as any such Holder shall reasonably request; provided, that
the Company shall not be required to register or qualify under the Blue
Sky laws in states where the Company is already registered or qualified.
Section IV.2 Restrictive Legends. Subsequent to the filing of the
Amendments, all shares of Common Stock issuable upon conversion of the New
Debentures or Default Debentures, if necessary, will be issued without
restrictive legend, in the name of the respective Holder on the date of the
Notice of Conversion. The Company warrants that no stop transfer instructions
have been given or will be given and that the New Debentures, the Bonds, the
Default Debentures, if necessary, and the shares of Common Stock issuable upon
the conversion of the New Debentures and the Default Debentures shall be freely
transferable on the books and records of the Company.
Section IV.3 Restriction of Conversion of Securities. Each of the Holders
or any subsequent holder of the New Debentures, Bonds or Default Debentures (the
"Subsequent Holder") shall be prohibited from converting any portion of the New
Debentures, Bonds or Default Debentures which would result in such Holder or
Subsequent Holder being deemed the beneficial owner, in accordance with the
provisions of Rule 13d-3 of the Securities Exchange Act of 1934, as amended, of
five percent (5%) or more then the issued and outstanding Common Stock of the
Company.
ARTICLE V
MISCELLANEOUS
Section V.1 Fees and Expenses. All costs and expenses incurred in
connection with this Plan and the consummation of the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, except that
the Company hereby agrees to pay all fees of Patterson, Belknap, Webb & Tyler
LLP, counsel to each of the Holders, incurred in connection herewith.
Section V.2 Amendment and Waiver. This Plan may be amended by the
<PAGE> 8
parties hereto only by an instrument in writing signed by all of the parties
hereto. The failure of any party to insist in any one or more cases upon the
strict performance of any of the terms and provisions of this Plan, or to
exercise any right herein contained, shall not be construed as a waiver by such
party of such terms and provisions or rights. No party shall be deemed to have
waived any provision of this Plan unless such waiver shall be in writing and
executed by such party.
Section V.3 Entire Agreement. This Plan and the Exhibits hereto constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior or contemporaneous agreements and understandings,
both written and oral, by and among the parties, or any of them, with respect to
the subject matter hereof.
Section V.4 Assignment. No party shall be entitled to assign its rights
hereunder to any other person without the prior written consent of the other
parties hereto, which consent shall not unreasonably be withheld.
Section V.5 Governing Law. This Plan and the rights of the parties
hereunder shall be governed by the laws of the State of New York without regard
to the choice of law provisions thereof.
Section V.6 Further Assurances. Each of the parties hereto shall do,
execute, acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further instruments, acts, deeds and assurances as may be
reasonably required for the purpose of carrying out the provisions and intent of
this Plan and the Exhibits annexed hereto.
Section V.7 Counterparts. This Plan may be executed in one or more
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties have caused this Plan to be executed as of
the date first written above.
PARLUX FRAGRANCES, INC.
By: /s/ Frank A. Buttacavoli
----------------------------------
Name: Frank A. Buttacavoli
Title: Executive Vice-President/C.F.O.
NEWSUN LIMITED
By: /s/ Raz Steinmetz
-----------------------------------
Name: Raz Steinmetz
Title: Proxy
KEMPTON INVESTMENTS LTD.
By: /s/ Chaim Farro
------------------------------------
Name: Chaim Farro
Title: Secretary
SOUTHBROOK INTERNATIONAL INVESTMENTS LIMITED
By: /s/ Raz Steinmetz
-------------------------------------
Name: Raz Steinmetz
Title: Proxy
<PAGE> 1
EXHIBIT 4.34
AGREEMENT AND PLAN OF EXCHANGE
This AGREEMENT AND PLAN OF EXCHANGE, dated as of October 31, 1996 (the
"Plan"), by and among Parlux Fragrances, Inc., a corporation organized under the
laws of the State of Delaware (the "Company") and GFL Performance Fund Ltd., a
corporation organized under the laws of the British Virgin Islands ("GFL" or the
"Holder");
W I T N E S S E T H:
THAT WHEREAS, the Company and GFL are parties to a Regulation D Securities
Note Purchase Agreement, entered into as of May 8, 1996 (the "May Agreement"),
pursuant to which GFL purchased on May 17, 1996, an aggregate principal amount
of $5,000,000 of the 5% Convertible Debentures Due May 1, 1998 (the "May
Debentures") of the Company for an aggregate purchase price of $5,000,000;
WHEREAS, GFL has converted $3,087,000 principal amount of the May
Debentures into the Company's common stock in accordance with the terms of the
May Agreement and the May Debentures; and
WHEREAS, all of the parties hereto desire to enter into this Plan pursuant
to which GFL will exchange the $1,913,000 aggregate principal amount of May
Debentures currently held by it, plus accrued interest thereon in the amount of
$24,166 for an aggregate of $2,274,754 principal amount of new 10% Bonds Due
December 31, 1996 (the "Bonds") issued in the name of GFL;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby mutually acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEBENTURE EXCHANGE
Section I.1 Debenture Exchange. On the date hereof, the following event
(the "Exchange") shall take place: (i) GFL will exchange the aggregate of
$1,913,000 principal amount of the May Debentures currently held by it, plus
accrued interest thereon in the amount of $24,166, for an aggregate of
$2,274,754 principal amount of the Bonds issued in the name of GFL. The terms
and provisions of the
<PAGE> 2
2
Bonds are set forth in the form of the Bond attached hereto as Exhibit A. After
the date hereof, the May Debentures will no longer be of any force and effect
and the rights of GFL will be with respect only to the Bonds issued to GFL in
accordance with the Exchange.
Section I.2 Mechanics of Exchange of Debentures. On the date hereof, GFL
will surrender to the Company the certificate representing the remaining May
Debentures owned by it. Simultaneously with such delivery, the May Debentures
owned by GFL immediately prior to the date hereof shall be canceled and the
Bonds to be issued to GFL as set forth in Section 1.1above shall be issued to
GFL.
ARTICLE II
HOLDER REPRESENTATIONS AND WARRANTIES
Section II.1 Representations and Warranties. As a material inducement to
the Company to issue and deliver the Bonds to GFL as set forth above, the Holder
represents and warrants to the Company as follows:
(i) The Holder is an "Accredited Investor" as that term is defined in
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended
(the "1933 Act"), and, as of the date hereof, the Holder is not an
affiliate of the Company.
(ii) the Holder is acquiring the securities referred to in Section
1.1 above for its own account solely for investment and not with a view to
the distribution or sale thereof in violation of any federal or state
securities laws;
(iii) the Holder has had access to any and all information that such
Holder has requested from the Company concerning the Company and has had
the opportunity to ask questions of and receive answers from the Company
regarding the Company's business and financial affairs;
(iv) the Holder has not relied upon any representation or warranty by
the Company that is not expressly set forth in this Plan (including the
exhibits hereto);
(v) the Holder has such knowledge and experience in financial and
business matters as to be fully capable of evaluating the merits and risks
of ownership of the Bonds;
<PAGE> 3
3
(vi) the Holder understands that no federal or state agency has
passed upon the Bonds;
(vii) as of the date hereof, neither the Holder nor any of its
affiliates or agents directly or indirectly maintain any net short
position in any securities of the Company; and
(viii) this Plan has been duly authorized, validly executed and
delivered on behalf of the Holder and is a valid and binding agreement
enforceable against the Holder in accordance with its terms, subject to
general principles of equity and to bankruptcy or other similar laws
affecting the enforcement of creditors' rights generally.
Section II.2 Survival and Indemnification. The foregoing representations
and warranties shall survive the issuance and delivery of the Bonds, as set
forth herein. The Holder shall indemnify and hold the Company harmless from and
against all damages, losses and expenses (including, without limitation,
reasonable attorneys' fees, court costs and disbursements) suffered or paid,
directly or indirectly, by the Company arising out of the failure of any of the
foregoing representations and warranties made by such Holder to be true and
correct in all material respects on and as of the date hereof.
ARTICLE III
COMPANY REPRESENTATIONS AND WARRANTIES
Section III.1 Representations and Warranties. As a material inducement to
the Holder to accept the Bonds from the Company as set forth above, the Company
represents and warrants as follows:
(i) the issuance, sale and delivery of the Bonds are within the
Company's corporate powers and have been duly authorized by all required
corporate action on the part of the Company and its stockholders and when
such securities are issued and delivered in accordance with the terms
hereof and of the Bonds for the consideration expressed herein the Bonds
will be valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, subject to general principles
of equity and to bankruptcy and similar laws affecting the enforcement of
creditors' rights generally; and the issuance, sale and delivery of the
Default Debentures (as defined in the Bonds) are within the Company's
corporate powers and have been duly authorized by all required corporate
action on the part of the Company and its stockholders and when the
Default Debentures are issued and delivered
<PAGE> 4
4
in accordance with the terms of the Bonds, the Default Debentures will be
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to general principles of
equity and to bankruptcy and similar laws affecting the enforcement of
creditors' rights generally;
(ii) the issuance, sale and delivery of the shares of Common Stock
issuable upon conversion, if necessary, of the Default Debentures (as such
term is defined in the Bonds), is within the Company's corporate powers
and have been duly authorized by all required corporate action on the part
of the Company and its stockholders and when such securities are issued,
sold and delivered in accordance with the terms hereof and of the Default
Debentures for the consideration expressed herein, in the Bonds and in the
Default Debentures, such securities will be duly and validly issued, fully
paid and nonassessable;
(iii) there are no preemptive rights of any shareholders of the
Company;
(iv) this Plan has been duly authorized, validly executed and
delivered on behalf of the Company and is a valid and binding agreement
enforceable against the Company in accordance with its terms, subject to
general principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally;
(v) no event which, if the Bonds were outstanding, would constitute
an Event of Default (as defined in the Bonds) or would, with giving of
notice or the passage of time or both, constitute an Event of Default has
occurred and is continuing; and
(vi) The execution, delivery and performance of this Plan by the
Company and the consummation by the Company of the transactions
contemplated hereby will not (i) result in a violation of the Certificate
of Incorporation or By-laws of the Company or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is
a party, or result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by
which any property or asset of the Company or any of its subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a material adverse effect on the
<PAGE> 5
5
business, operations, condition (financial or other), results of
operations or prospects of the Company. Except as required under the 1933
Act and any applicable state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to
execute, deliver or perform any of its obligations under this Plan in
accordance with the terms hereof.
Section III.2 Survival and Indemnification. The foregoing representations
and warranties shall survive the issuance and delivery of the Bonds, as set
forth herein. The Company shall indemnify and hold GFL harmless from and against
all damages, losses and expenses (including, without limitation, reasonable
attorneys' fees, court costs and disbursements) suffered or paid, directly or
indirectly, by GFL arising out of the failure of any of the foregoing
representations and warranties made by the Company to be true and correct in all
material respects on and as of the date hereof.
ARTICLE IV
COVENANTS
Section IV.1 Certain Covenants. For so long as any Bonds or Default
Debentures held by the Holder remain outstanding or the Holder beneficially owns
any shares of Common Stock issued upon conversion of Default Debentures, the
Company covenants and agrees with the Holder that:
(a) It will maintain the listing of its Common Stock on the NASDAQ
National Market;
(b) Subsequent to the filing of the Amendment (as hereinafter
defined), it will not issue stop transfer instructions to its transfer
agent with respect to and will not place a restrictive legend on the
shares of Common Stock issuable upon the conversion of the Default
Debentures;
(c) it will permit the Holder to exercise its right to convert the
Default Debentures, if necessary, by telecopying an executed and completed
Notice of Conversion to the Company and delivering the original Notice of
Conversion and the certificate representing the Default Debentures, to the
Company by express courier. Each date on which a Notice of Conversion is
telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a conversion date. The Company will
transmit the certificates representing shares of Common Stock issuable
upon conversion of any Default Debentures (together with the certificates
representing the Default Debentures, not so converted) to the Holder via
express courier, by electronic
<PAGE> 6
6
transfer or otherwise, within three business days after the date the
Company has received the original Notice of Conversion and certificate
representing the Default Debentures being so converted. In addition to any
other remedies which may be available to the Holder, in the event that the
Company fails for any reason to effect delivery of such shares of Common
Stock within such three-business day period, the Holder, prior to
receiving such shares of Common Stock, will be entitled to revoke the
relevant Notice of Conversion by delivering a notice to such effect to the
Company whereupon the Company and the Holder shall each be restored to
their respective positions immediately prior to delivery of such Notice of
Conversion; and
(d) it will prepare and file with the Securities and Exchange
Commission (the "Commission") not later than twenty days from the date
hereof, a post-effective amendment (the "Amendment") to the registration
statement, Registration No. 333-8395 (the "Registration Statement"), which
was declared effective by the Commission on August 12, 1996, increasing
the number of shares of Common Stock covered by the Registration Statement
to Two Hundred percent (200%) of the number of shares of Common Stock
issuable upon the conversion of the Default Debentures (the shares covered
by the Registration Statement being referred to herein as the
"Registration Shares") as would be issuable on the date of filing of the
Amendment if all of the Default Debentures were converted on that date,
pursuant to the rules and regulations of the Commission;
(i) prepare and file with the Commission such additional
amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective for a period of not less than nine
months and comply with the applicable provisions of the rules and
regulations of the Commission;
(ii) furnish to the Holder such number of copies of each
prospectus included in the Registration Statement for the Registration
Shares, including each preliminary prospectus, as such Holder shall
reasonably request each of which shall be in conformity with the
requirements of the rules and regulations of the Commission;
(iii) notify the Holder at any time, but in any event no later
than five days following the happening thereof, when a prospectus
relating to such Registration Shares is required to be delivered under
rules and regulations of the Commission, of the happening of any event as
a result of which the prospectus included in the Registration Statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the
<PAGE> 7
7
light of circumstances then existing, and at the Holder's request, prepare
and furnish to it a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registration Shares, such prospectus
shall not include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(iv) cause all of the Registration Shares to be listed on the
NASDAQ National Market;
(v) in instances where an exemption from such qualification is
not available, use its best efforts to register or qualify the
Registration Shares under the securities or Blue Sky laws of such
jurisdictions as any such Holder shall reasonably request; and
(vi) notwithstanding any other provision of this Plan, the
Debentures or the Default Bonds, the Amendment shall be deemed a
registration statement filed by the Company pursuant to the Registration
Rights Agreement, dated as of May 8, 1996, by and among the Company and
the Holder (the "Registration Rights Agreement") and the Registration
Shares covered by the Amendment and any shares of Common Stock issuable
by the Company pursuant to the Default Debentures shall be deemed
Registrable Securities for all purposes of the Registration Rights
Agreement.
Section IV.2 Restrictive Legends. Subsequent to the filing of the
Amendment, all shares of Common Stock issuable upon conversion of the Default
Debentures, if necessary, will be issued without restrictive legend, in the name
of the Holder on the date of the Notice of Conversion. The Company warrants that
no stop transfer instructions have been given or will be given and that the
Bonds, the Default Debentures, if necessary, and the shares of Common Stock
issuable upon the conversion of the Default Debentures shall be freely
transferable on the books and records of the Company.
ARTICLE V
MISCELLANEOUS
Section V.1 Fees and Expenses. All costs and expenses incurred in
connection with this Plan and the consummation of the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses.
<PAGE> 8
8
Section V.2 Amendment and Waiver. This Plan may be amended by the parties
hereto only by an instrument in writing signed by all of the parties hereto. The
failure of any party to insist in any one or more cases upon the strict
performance of any of the terms and provisions of this Plan, or to exercise any
right herein contained, shall not be construed as a waiver by such party of such
terms and provisions or rights. No party shall be deemed to have waived any
provision of this Plan unless such waiver shall be in writing and executed by
such party.
Section V.3 Entire Agreement. This Plan and the Exhibit hereto constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior or contemporaneous agreements and understandings,
both written and oral, by and among the parties, or any of them, with respect to
the subject matter hereof.
Section V.4 Assignment. No party shall be entitled to assign its rights
hereunder to any other person without the prior written consent of the other
parties hereto, which consent shall not unreasonably be withheld.
Section V.5 Governing Law. This Plan and the rights of the parties
hereunder shall be governed by the laws of the State of Delaware without regard
to the choice of law provisions thereof.
Section V.6 Further Assurances. Each of the parties hereto shall do,
execute, acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all such further instruments, acts, deeds and assurances as may be
reasonably required for the purpose of carrying out the provisions and intent of
this Plan and the Exhibit annexed hereto.
Section V.7 Counterparts. This Plan may be executed in one or more
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
Section V.8 May Agreement and Registration Rights Agreement. Except as
amended by this Plan, the May Agreement and the Registration Rights Agreement
shall remain in effect in accordance with their respective terms.
( REMAINDER OF PAGE INTENTIALLY LEFT BLANK )
<PAGE> 9
9
IN WITNESS WHEREOF, the parties have caused this Plan to be executed as of
the date first written above.
PARLUX FRAGRANCES, INC.
By: /s/ Frank A. Buttacavoli
-------------------------------------
Name: Frank A. Buttacavoli
Title: Executive Vice President and CFO
GFL PERFORMANCE FUND LTD.
By: /s/ P.A. de Groot
--------------------------------------
Name: P.A. de Groot
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PARLUX FRAGRANCES, INC. FOR THE PERIOD ENDED SEPTEMBER
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 434,305
<SECURITIES> 0
<RECEIVABLES> 17,391,830
<ALLOWANCES> (3,035,751)
<INVENTORY> 43,945,729
<CURRENT-ASSETS> 90,668,412
<PP&E> 6,930,165
<DEPRECIATION> (3,705,849)
<TOTAL-ASSETS> 120,591,799
<CURRENT-LIABILITIES> 35,194,540
<BONDS> 0
0
0
<COMMON> 147,393
<OTHER-SE> 68,915,539
<TOTAL-LIABILITY-AND-EQUITY> 120,591,799
<SALES> 44,242,800
<TOTAL-REVENUES> 44,242,800
<CGS> 17,801,800
<TOTAL-COSTS> 18,755,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35,000
<INTEREST-EXPENSE> 1,066,065
<INCOME-PRETAX> 6,584,801
<INCOME-TAX> 2,502,046
<INCOME-CONTINUING> 4,082,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,082,755
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
