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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For Fiscal Year Ended March 31, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________to _______________
Commission File Number 0-15491
Parlux Fragrances, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2562955
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3725 SW 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
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Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $ .01 per share)
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Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's classes
of stock as of the latest practicable date.
Class Outstanding at June 25, 1996
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Common Stock, $.01 par value 13,229,546
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant was approximately $102,557,000 based on a
closing price of $10.25 for the Common Stock as of June 25, 1996 as reported on
the National Association of Securities Dealers Automated Quotation System on
such date. For purposes of the foregoing calculation, only the Directors and
beneficial owners of the registrant are deemed to be affiliates.
Documents incorporated by Reference: The information required by Part III
(Items 10, 11, 12 & 13) is incorporated by reference from the registrant's
definitive proxy statement (to be filed pursuant to Regulation 14A).
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Item 1. BUSINESS
Parlux Fragrances, Inc. (the Company), was incorporated in Delaware in
1984 and is engaged in the creation, design, manufacture, distribution and sale
of prestige fragrances, cosmetics and beauty related products marketed
primarily through specialty stores and national department stores. The
fragrance market is generally divided into a prestige segment (distributed
primarily through department and specialty stores) and a mass market segment.
The Company's products are positioned primarily in the prestige segment.
Additionally, the Company manufactures and distributes certain brands through
Perfumania Inc., an affiliated national chain which is a leading specialty
retailer of fragrances. Currently, the Company engages in the manufacture
(through sub-contractors), distribution and sale of PERRY ELLIS, FRED HAYMAN
BEVERLY HILLS, TODD OLDHAM, VICKY TIEL and PHANTOM OF THE OPERA fragrances and
grooming items on an exclusive worldwide basis as a licensee. Additionally,
the Company manufactures, distributes and sells its own brands of ANIMALE, BAL
A' VERSAILLES, DANIEL DE FASSON, DECADENCE and LIMOUSINE fragrances and
ALEXANDRA DE MARKOFF cosmetics on a worldwide basis.
Recent Developments
On May 8, 1996 the Company signed a letter of intent with HAAS WHEAT &
PARTNERS (HWP) with respect to the proposed investment by HWP of $40 million
into the Company. The original proposal was structured as a ten-year 10%
pay-in-kind debenture in the face amount of $40 million, accompanied by
warrants to purchase up to 5 million shares of the Company's common stock at
$11.00. On May 31, 1996 the letter of intent was amended to extend the term
of the debenture to 20 years, making the debenture convertible into 3.7 million
shares, and reducing the warrants to the right to acquire 1.3 million common
shares. On June 11, 1996, the parties mutually agreed to terminate the letter
of intent.
On January 31, 1996, the Company entered into an agreement to purchase all
of the assets and assume certain liabilities of Richard Barrie Fragrances, Inc.
(RBF) for a combination of cash and Parlux common stock. The agreement is
subject to the approval of RBF's board of directors, shareholders and
convertible note holders. The Company anticipates that, if the agreement is
approved, closing would take place prior to June 30, 1996.
On January 11, 1996, the Company entered into a non-binding letter of
intent with Parfums Jean Desprez, to purchase, for cash and notes, the
world-wide trademarks and the Bal A' Versailles fragrance brand (BAV). The
acquisition was completed on March 19, 1996. See Note 5 to the accompanying
Consolidated Financial Statements for further discussion.
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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). See
Note 5 to the accompanying Consolidated Financial Statements for further
discussion.
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
provides for the continued use of the Francesco Smalto trademark through
September 30, 1996. The agreement contains certain production restrictions and
requires a fixed amount of royalties during the period, which the Company
anticipates will not exceed 5% 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.
On October 26, 1995, the Company announced a two-for-one stock split
effected in the form of a dividend to shareholders of record as of November 3,
1995 (the stock split). Distribution was effected on November 10, 1995. All
comparable share information in this Form 10-K, unless indicated, has been
retroactively restated to reflect the split.
THE PRODUCTS
The Company's principal products are fragrances and cosmetics. Each
fragrance is distributed in a variety of sizes and packaging. In addition,
each fragrance line may be complemented by beauty-related products such as
soaps, deodorants, body lotions, cremes and dusting powders. The cosmetics
are full-service lines with treatment and make-up products consisting of over
200 stock keeping units (S.K.U.'s). The Company's basic products generally
retail at prices ranging from $20 to $300 per item.
The Company designs and creates fragrances and cosmetics/shades using its
own staff and independent contractors. It also supervises the design of its
packaging by independent contractors and has recently completed the design
process for PERRY ELLIS "AMERICA" for men and women, which is being launched on
July 4, 1996.
During the last three fiscal years, the following brands have accounted
for 10% or more of the Company's gross sales:
Fiscal 1996 Fiscal 1995 Fiscal 1994
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PERRY ELLIS 39% 16% 0%
FRED HAYMAN 20% 45% 0%
ANIMALE 15% 24% 62%
FRANCESCO SMALTO 7% 8% 19%
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The Company anticipates that the sales of PERRY ELLIS, FRED HAYMAN, VICKY
TIEL and ANIMALE brand fragrances, coupled with the recent brand acquisitions
such as ALEXANDRA DE MARKOFF and BAL A' VERSAILLES, will continue to account
for a significant portion of the Company's sales, and will more than offset the
discontinuation of the FRANCESCO SMALTO products.
MARKETING AND SALES
In the United States, the Company has established its own sales and
marketing staff, and also utilizes independent sales representatives for
certain channels of distribution. The Company sells directly to retailers,
primarily national and regional department stores and specialty stores, which
it believes will maintain the image of its products as prestige fragrances.
The Company's products are sold in over 1,800 retail outlets in the United
States. Additionally, the Company sells products to Perfumania, Inc., an
affiliated company, which is a leading specialty retailer of fragrances with
over 190 retail outlets principally located in manufacturers' outlet malls and
regional malls.
Marketing and sales activities outside the United States are conducted
through arrangements with independent distributors. The Company has
established relationships for the marketing of its fragrances with distributors
in Canada, Europe, the Middle East, the Far East, Latin America, the Caribbean
and, recently, Russia.
The Company advertises both directly and through a cooperative advertising
program in association with major retailers in the fashion media on a national
basis and through retailers' statement enclosures and catalogues. The Company
is required to spend certain minimum amounts for advertising under certain
licensing agreements. See "Licensing Agreements" and Note 8(B) to the
Consolidated Financial Statements.
RAW MATERIALS
Raw materials and components for the Company's products are available from
sources in Europe and the United States. The Company uses third party contract
manufacturers to produce finished products. Presently, approximately 10% of
contract manufacturing is performed in France, however, the Company intends to
continue the transition of it's manufacturing to the United States during the
current fiscal year upon the completion of the RBF acquisition.
In the past, the Company has had little difficulty obtaining raw
materials at competitive prices. The Company has no reason to believe that
this situation will change in the near future, but there can be no assurances
that this will continue.
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SEASONALITY
Typical of the fragrance industry, the Company has its highest sales
during the calendar year end holiday season. Lower than projected sales
during this period could have a material adverse affect on the Company's
operating results.
INDUSTRY PRACTICES
It is an industry practice in the United States for businesses that market
cosmetics and fragrances to department stores to provide the department stores
with rights to return merchandise. The Company's products are subject to such
return rights. It is the Company's practice to establish reserves and provide
allowances for product returns at the time of sale. The Company believes that
such reserves and allowances are adequate based on past experience, however,
no assurances can be made that reserves and allowances will continue to be
adequate. Consequently, if product returns are in excess of the reserves and
allowances made by the Company, sales will be reduced in later periods.
CUSTOMERS
The Company concentrates its sales efforts in the United States in
specialty stores, such as Nordstrom's, Neiman Marcus, and Bergdorf Goodman and
a number of regional department store retailers including, among others,
Macy's, J.L. Hudson, Dillards, Bloomingdales and a national department store
chain, J.C. Penney. Retail distribution has been targeted by brand to
maximize potential and minimize overlap between each of these distribution
channels. Certain brands are sold exclusively through specialty stores, while
others are sold exclusively through J.C. Penney.
Sales to Perfumania, a company affiliated with Mr. Ilia Lekach, the
Company's Chairman of the Board and Chief Executive Officer, amounted to
$26,187,460 for the fiscal year ended March 31, 1996. Net amounts owed by
Perfumania to the Company amounted to $13,482,423 at March 31, 1996. The loss
of Perfumania as a customer could have a material adverse effect on the
operations of the Company.
FOREIGN AND EXPORT SALES
A significant portion of the Company's international sales and exports are
made through its wholly-owned French subsidiary, Parlux S.A. Net sales to
unaffiliated customers by Parlux S.A. were $9,101,611, $7,219,601 and
$8,225,259 for fiscal years ended March 31, 1996, 1995, and 1994 respectively.
The French subsidiary reported net income of $887,163, $319,535 and $122,025
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
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LICENSING AGREEMENTS
PERRY ELLIS: The Company acquired the Perry Ellis license from Sanofi Beaute in
December 1994. 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 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.
FRED HAYMAN: In June 1994, the Company entered into an Asset Purchase Agreement
with Fred Hayman Beverly Hills, Inc. (FHBH), pursuant to which the Company
purchased substantially all of the assets and liabilities of the FHBH fragrance
division, including inventory, accounts receivable (excluding those backed by
non-cancelable letters of credit issued prior to June 2, 1994), molds, and
assignable contracts. In addition, FHBH granted to Parlux an exclusive royalty
free 55-year license to use FHBH's United States Class 3 trademarks Fred
Hayman(R), 273(R), Touch(R), With Love(R) and Fred Hayman Personal Selections(R)
and the corresponding international registrations. There are no minimum sales
or advertising requirements.
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 has secured the
rights to manufacture and distribute fragrances and beauty care products using
the TODD OLDHAM trademark for an initial contract period ending March 31, 1997,
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 the 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
manufacturing and 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. There are no minimum
sales or advertising requirements.
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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 provides for the continued use of the Francesco
Smalto trademark through September 30, 1996. The agreement contains certain
production restrictions and requires a fixed amount of royalties during the
period, which the Company anticipates will not exceed 5% 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.
SUMMARY: The Company believes it is presently in compliance with all material
obligations under the above agreements. There can be no assurance the
Company will be able to continue to comply with the terms of these agreements
in the future.
BARTER ARRANGEMENTS
In June 1991, the Company entered into a barter arrangement (the Barter
Agreement) under which the Company would receive advertising credits in
exchange for its inventory of JOAN COLLINS products, which had been
manufactured under a manufacturing and distribution agreement terminated in
1991. Sales under the Barter Agreement were finalized during fiscal 1994.
The estimated value of the advertising was recorded as a prepaid expense
on the Company's balance sheet at the time such inventory was sold, net of
unearned income equal to the amount of advertising credits minus the related
cost of goods bartered. As advertising credits are used by the Company,
unearned income is debited and cost of goods sold is credited. As a result, as
the advertising credits are used aggregate cost of goods as a percentage of net
sales decreases and gross margin as a percentage of net sales increases.
During the fiscal year ended March 31, 1996, the Company had no barter
sales, utilized $684,000 of its deferred advertising credits and realized
$355,000 of deferred income on the use of these credits. Since the inception
of the Barter Agreement, $6,186,000 of JOAN COLLINS products were bartered and
$5,697,000 of advertising credits have been used. In addition, in connection
with the FHBH acquisition in 1994, the Company acquired approximately $471,000
of advertising credits. The balance of deferred advertising credits and
unearned income at March 31, 1996 were $1,493,000 and $434,000, respectively
($1,094,000 and $434,000, respectively relate to the Barter Agreement ).
The Company expects to be able to fully utilize these advertising credits
as part of its normal ongoing advertising expenditures.
TRADEMARKS
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The Company owns the worldwide trademarks and distribution rights to
ANIMALE, BAL A' VERSAILLES, DANIEL DE FASSON, DECADENCE and LIMOUSINE
fragrances, and ALEXANDRA de MARKOFF cosmetics. Accordingly, there are no
licensing agreements requiring the payment of royalties. Additionally, the
Company has the rights to license certain of these trademarks for all classes
of merchandise.
PRODUCT LIABILITY
The Company has insurance coverage for product liability in the amount of
$5 million per incident. The Company maintains an additional $5 million of
coverage under an "umbrella" policy. In addition, the Company believes that
the manufacturers of the products sold by the Company also carry product
liability coverage and that the Company effectively is protected thereunder.
There are no pending and, to the best of the Company's knowledge, no
threatened product liability claims. Over the past eight years, the Company
has not been presented with any product liability claims. Based on this
historical experience, management believes that it's insurance coverage is
adequate.
COMPETITION
The market for fragrances and beauty related products is highly
competitive and sensitive to changing consumer preferences and demands. The
Company believes that the quality of its fragrance and cosmetics products, as
well as its ability to develop, distribute and market new products, will enable
it to continue to compete effectively in the future and to continue to achieve
positive product reception, position and inventory levels in retail outlets.
However, there are products which are better known than the products
distributed by the Company. There are also companies which are substantially
larger and more diversified, and which have substantially greater financial and
marketing resources than the Company, as well as greater name recognition, and
the ability to develop and market products similar to, and competitive with,
those distributed by the Company.
EMPLOYEES
As of March 31, 1996, the Company had 126 full-time and part-time
employees. Of these, 42 were engaged in worldwide sales activities, 46 in
administrative and finance functions and 38 in warehousing and distribution
activities. None of the Company's employees are covered by a collective
bargaining agreement and the Company believes that its relationship with its
employees is satisfactory. The Company also uses the services of independent
contractors in various capacities, including sales representatives.
During June 1993, the Company established a 401-K Plan covering
substantially all of its U.S. employees. Commencing on April 1, 1996, the
Company matches 25% of
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the first 6% of employee contributions, within annual limitations
established by the Internal Revenue Code.
ITEM 2. PROPERTIES
In November 1995, the Company moved its corporate headquarters and
domestic operations from a 38,500 square foot leased facility in Pompano Beach,
Florida to a new 100,000 square foot leased facility in Fort Lauderdale,
Florida to accommodate current and future growth levels. The annual lease cost
of the new facility is approximately $600,000, with the lease covering a
ten-year period.
The Company is actively seeking to sublease the Pompano Beach facility
where the current annual rent is approximately $240,000 annually. Management
expects to sublease this facility for amounts which will closely approximate
its current commitment.
The Company's French subsidiary leases approximately 1,500 square feet
under an operating lease which provides for annual rentals equivalent to
approximately $48,000.
ITEM 3. LEGAL PROCEEDINGS
To the best of the Company's knowledge, there are no proceedings pending
against the Company or any of its properties which, if determined adversely to
the Company, would have a material effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any actions for shareholders' approval during
the fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Company's Common Stock, par value $0.01 per share, has been listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") National Small Cap List market since February 26, 1987 and commenced
trading on the NASDAQ National Market on October 24, 1995. All share
references below have been retroactively adjusted to reflect the two-for-one
stock split effected on November 3, 1995.
In July 1992, 250,000 shares included in the Company's employee stock
option plans were registered with the SEC via a Form S-8 registration
statement. Of these
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shares, 159,592 had been exercised through March 31, 1996. Of the
90,408 remaining shares, 81,000 have been granted, and 9,408 remain available
for future grants.
At March 31, 1995, certain officers and/or directors and previous
employees of the Company held warrants to purchase 2,172,916 shares of the
Company's common stock exercisable at prices ranging from $1.50 to $3.125 per
share. In addition, Mr. Boris Lekach, a relative of the Company's chairman
received warrants to purchase 100,000 shares of common stock in connection with
a $200,000 loan extended to the Company during 1990. In connection with the
October 1990 acquisition of certain fragrance brands from the Deco Distribution
Group, Inc. (Deco), the Deco shareholders held 1,100,000 warrants exercisable
at $2.00 per share, which were to expire in March 1996. In connection with the
FHBH acquisition, FHBH held 200,000 warrants exercisable at $2.125 per share.
In May 1995, the Company extended a discount of $0.75 per share to those
holders of warrants issued in connection with the FHBH and Deco acquisitions,
as well as the loan to Mr. Boris Lekach, if the holders would exercise by May
31, 1995. The exercise period was subsequently extended to July 31, 1995. These
warrant holders exercised all of their warrants into 1,400,000 shares of common
stock, increasing stockholders' equity by approximately $2,300,000. The Company
had agreed to register with the SEC all shares issued as a result of such
warrants being exercised prior to July 31, 1995, and the registration was
completed in September 1995.
In June 1995, in connection with a long-term loan, the Company issued
warrants to acquire 60,000 unregistered shares of common stock to Mr. F.
Lekach, which are exercisable at $6.94 per share, for a two-year period.
During the year ended March 31, 1996, the Company issued 1,125,044 shares
of common stock in private placements pursuant to Regulation S or Rule 144,
which resulted in an increase in stockholders' equity of $7,715,000.
In December 1995, the Company issued 424,000 shares of common stock, and
options to purchase an additional 176,000 shares of common stock to Revlon in
connection with the AdM acquisition. In May 1996, Revlon exercised the 176,000.
The combined effect increased stockholders' equity by $4,800,000 ($3,392,000
in the year ended March 31, 1996 and $1,408,000 in the ensuing fiscal year).
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. The
Debentures were convertible into shares of the Company's common stock at 85% of
the closing price of the stock as listed on NASDAQ over specific time frames.
As of March 31, 1996, $7,000,000 of the Debentures, plus accrued interest of
$48,416, had been converted into 1,073,688 shares of common stock. Subsequent
to March 31, 1996, an additional $10,950,000 have been converted into
1,257,667 shares of common stock. During April and May 1996, the
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Company issued an additional $13,000,000 of 5% convertible debentures,
$3,000,000 pursuant to Regulation S and $10,000,000 pursuant to Regulation D,
of which $3,000,000 have been converted into 308,727 shares of common stock
through June 25, 1996.
The Company believes that the number of beneficial owners of its common
stock is approximately 1,500.
The following chart, as reported by the National Association of Securities
Dealers, Inc., shows the high and low bid prices, adjusted for the stock split,
for the Company's securities available for each quarter of the last two years
and the interim period from January through June 1996. The prices represent
quotations by the dealers without adjustments for retail mark-ups, mark-downs
or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Calendar Quarter Common Stock
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High Low
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<S> <C> <C>
First 1994 3.563 1.688
Second 1994 3.375 1.750
Third 1994 3.063 2.125
Fourth 1994 3.188 2.188
First 1995 4.875 2.875
Second 1995 7.313 4.500
Third 1995 9.188 6.500
Fourth 1995 10.000 7.000
First 1996 13.250 6.125
Second 1996
(to June 25, 1996) 15.250 9.000
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from financial statements audited by
Price Waterhouse LLP, independent certified public accountants. Consolidated
balance sheets at March 31, 1995 and 1996 and the related consolidated
statements of income and of cash flows for the three years ended March 31, 1996
and notes thereto appear elsewhere in this Annual Report on Form 10-K.
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<TABLE>
<CAPTION>
For the Year Ended March 31, (in thousands of dollars, except per share data)
1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C> <C>
Net sales $67,727 $38,209 $25,366 $28,427 $28,120
Costs/operating exps. 53,539 31,208 23,071 26,982 26,791
Operating income 14,188 7,001 2,295 1,445 1,329
Net income 7,772 4,231 1,362 135 310
Income per share:
Primary $ 0.74 $ 0.50 $0.22 $ 0.03 $ 0.07
Fully diluted $ 0.72 $ 0.48 $0.22 $ 0.03 $ 0.06
At March 31, 1996 1995 1994 1993 1992
- ------------ ---- ---- ---- ---- ----
Current assets $67,666 $31,955 $18,514 $18,094 $20,215
Current liabilities 36,866 27,113 14,679 12,575 13,320
Working capital 30,800 4,842 3,835 5,519 6,895
Long-term debt 4,694 5,281 0 3,021 5,093
Total assets 95,239 45,477 20,746 20,184 22,420
Total liabilities 53,194 32,394 14,679 15,596 18,413
Stockholders' equity 42,045 13,083 6,068 4,588 4,007
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this annual report. Except for the historical matters contained herein,
statements made in this annual report are forward looking and are made pursuant
to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
Investors are cautioned that forward looking statements involve risks and
uncertainties which may affect the Company's business and prospects, including
economic, competitive, governmental, technological and other factors discussed
in this annual report and in the Company's filings with the Securities and
Exchange Commission.
Comparison of the twelve-month period ended March 31, 1996 with the
twelve-month period ended March 31, 1995
For the fiscal year ended March 31, 1996 net sales increased 77% to
$67,726,926 as compared to $38,209,099 in the prior fiscal year. This
increase was primarily due to strong international growth of Perry Ellis and to
the full year effect of Perry Ellis brands in fiscal 1996, compared to a
partial year of operations in the prior year. Sales of Perry Ellis increased
337% to $26,663,302 as compared to $6,101,700 in the prior year. Sales of
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Parlux continued brands (brands which the Company owned or held licenses at
March 31, 1994) increased 60% to $24,890,474, as compared to $15,551,408 in
the prior year, due to significant increases in Vicky Tiel and Todd Oldham
fragrances, and to the resolution of out-of-stock situations existing in the
prior year. Sales of the FHBH brands declined 18% from $18,024,268 in the
prior year to $14,848,225 in the current fiscal year. Sales of AdM and Bal a
Versailles were $2,095,305 and $1,542,138, respectively, compared to no sales
in the prior year period.
Sales of $41,539,466 to unaffiliated customers increased by 81%, while
sales to affiliates of $26,187,460 increased by 72%. The percentage of sales to
affiliated customers in relation to total sales decreased from 40% in the prior
year to 39% in fiscal 1996. Approximately 82% of total net sales in the fiscal
year ended March 31, 1996 came from operations in, or supplied by, the United
States, and 17% from the Company's French subsidiary.
In June 1991, the Company entered into the Barter Agreement for which the
Company would receive advertising credits in exchange for its inventory of JOAN
COLLINS products. The company expects to fully utilize these bartered
advertising credits as part of its ongoing advertising expenditures.
Advertising credits, less unearned income, are accounted for as prepaid
expenses on the Company's balance sheet at the time such inventory is bartered.
Unearned income equals the amount of advertising credits minus the cost of
goods bartered. As advertising credits are used by the Company, unearned
income is debited and the cost of goods sold is credited. As a result, as the
advertising credits are used, the aggregate cost of goods sold as a percentage
of net sales decreases and gross margin as a percentage of net sales increases.
Cost of goods sold increased as a percentage of net sales from 39% for the
fiscal year ended March 31, 1995 to 42% for the fiscal year ended March 31,
1996, which was mainly attributable to the effect of the Barter Agreement. The
Company utilized advertising credits amounting to $684,000 in the current year
($1,592,000 in 1995) generating $355,000 ($866,000 in 1995) of earned income
which partially offset cost of goods during this period. Without the effects
of the Barter Agreement, cost of goods sold in the fiscal year ended March 31,
1996 would have remained at 42% compared to 41% in the prior fiscal year. All
of the Company's products are manufactured by third parties. For fiscal 1996,
approximately 10% of the Company's products were manufactured in France. The
Company will continue transitioning the consolidation of manufacturing,
warehousing and shipping to the United States, as it believes that it can
continue to achieve cost reductions through consolidation.
Operating expenses increased 54% to $25,099,294 for the year ended March
31, 1996 compared to $16,251,094 in the prior year, but as a percentage of
sales were 37% in fiscal 1996 compared to 43% in the prior year. Advertising
and promotional expenses of $12,942,647 increased by 79% compared to fiscal
1995, reflecting the similar increase in sales. Selling and distribution costs
increased by 45%, but as a percentage of sales decreased from 9% in the prior
fiscal year to 8% currently. General and administrative
13
<PAGE> 14
costs increased by 19% in fiscal 1996 compared to the prior year, however, as a
percentage of net sales, general and administrative costs declined to 8%
compared to 12% in the prior fiscal year. These percentage decreases reflect
the economies of scale realized from the acquisition of FHBH, Perry Ellis and
Alexandra de Markoff brand products. Royalty expense increased by 83% in
fiscal 1996 compared to the prior year, principally due to the royalties
required on the sale of Perry Ellis and Todd Oldham brand products, but
remained relatively constant at 2% of net sales. As a result of the above,
operating income increased by 103% to $14,187,843 or 21% of net sales for the
year ended March 31, 1996, compared to $7,000,530 or 18% of net sales in the
prior year.
Interest expense increased by 58% for fiscal 1996 compared to fiscal 1995
due to increased borrowing levels, but remained relatively constant at 3% of
net sales. Exchange gains were $234,074 for fiscal 1996 compared to exchange
losses of $300,661 in the prior year, due to the weakening of the French franc
against the U.S. dollar and the Company's net French franc liability position.
As a result of the above, income before taxes increased to $12,536,505 in
fiscal 1996 compared to $5,510,211 in fiscal 1995. Taxes increased to
$4,763,814 in fiscal 1996 compared to $1,279,000 in fiscal 1995, as the Company
utilized all tax loss carryforwards and reversed its valuation allowance on
deferred tax assets in fiscal 1995. As a result, net income increased 84% to
$7,772,691, or 11% of net sales in the fiscal year ended March 31, 1996,
compared to $4,231,211, or 11% of net sales for the fiscal year ended March 31,
1995.
Comparison of the twelve-month period ended March 31, 1995 with the
twelve-month period ended March 31, 1994
For the fiscal year ended March 31, 1995 net sales increased by 51% to
$38,209,099 as compared to $25,366,436 in the prior year. This increase was
primarily due to the acquisition of FHBH in June 1994 and the Perry Ellis
license in December 1994. Sales of FHBH and Perry Ellis products were
$18,024,000 and $6,102,000, respectively, during the year ended March 31, 1995
compared to no sales during the prior year. Sales of continued brands owned
by Parlux decreased 41% to $10,497,000 compared to sales of $17,830,000 in the
prior year, due to the lack of sufficient working capital to support the
manufacturing of existing lines, as well as to complete peak seasonal inventory
requirements for the FHBH products during the first three quarters of fiscal
1995. Sales of continued licensed brands decreased by 19% to $5,055,000
compared to $6,222,000 in the prior year, due to decreases in the Francesco
Smalto line (see Recent Developments above).
Sales to affiliated customers increased by 23%, while sales to
unaffiliated parties increased by 77%. As a result, the percentage of sales to
affiliates in relation to total sales declined to 40% in fiscal 1995, as
compared to 49% in the prior year, in line with Corporate strategy.
Approximately 80% of total net sales in the fiscal year ended March
14
<PAGE> 15
31, 1995 came from operations in the United States, and 20% from the company's
French subsidiary.
Cost of goods sold decreased as a percentage of net sales from 41% for the
fiscal year ended March 31, 1994 to 39% for the fiscal year ended March 31,
1995. The decrease was due primarily to the increase in sales to unaffiliated
parties as a percentage of total sales, since these sales carry a substantially
lower percentage cost of goods than sales to affiliated parties. The Company
utilized advertising credits amounting to $1,592,000 in the current year
($1,154,000 in 1994) generating $866,000 ($619,000 in 1994) of earned income
which partially offset cost of goods during this period. Without the effects
of the Barter Agreement, cost of goods sold in the fiscal year ended March 31,
1995 would have been 41% compared to 40% in the prior fiscal year. All of
the Company's products are manufactured by third parties. For fiscal 1995,
approximately 30% of the Company's products were manufactured in France. The
Company decided to consolidate manufacturing, warehousing and shipping in the
United States, as it believes that it can continue to achieve cost reductions
through consolidation.
Operating expenses increased 28% to $16,251,094 for the year ended March
31, 1995 compared to $12,726,625 in the prior year, but as a percentage of
sales were 43% in fiscal 1995 compared to 50% in the prior year. Advertising
and promotional expenses increased by 51% in line with the sales increase for
fiscal 1995 compared to fiscal 1994, remaining relatively constant at 19% of
net sales, reflecting the increased investment necessary to support FHBH and
Perry Ellis Products. Selling and distribution costs increased by 20%, but
decreased as a percentage of sales from 12% to 9%. General and administrative
costs increased by 3% in fiscal 1995 compared to the prior year, however, as a
percentage of net sales, general and administrative costs declined to 12%
compared to 18% in the prior year, reflecting the economies of scale realized
from the acquisition of FHBH and Perry Ellis brand products. Royalty expense
increased by 77% in fiscal 1995 compared to the prior year, principally due to
the royalties required on the sale of Perry Ellis and Todd Oldham brand
products, but remained relatively constant at 2% of net sales. Sales of FHBH
products represented 45% of total sales, and no royalty is payable on these
sales. As a result of the above, operating income increased by 205% to
$7,000,530 or 18% of net sales for the year ended March 31, 1995, compared to
$2,295,385 or 9% of net sales in the prior year.
Interest expense increased by 69% for fiscal 1995 compared to fiscal 1994
due to increased borrowing levels. Exchange losses were $300,661 for fiscal
1995 compared to exchange losses of $76,124 in the prior year, due to the
strengthening of the French franc against the U.S. dollar.
As a result of the above, income before taxes increased to $5,510,211 in
fiscal 1995 compared to $1,517,334 in fiscal 1994. Taxes increased to
$1,279,000 in fiscal 1995 compared to $155,128 in fiscal 1994, and the Company
utilized all tax loss carryforwards. As a result, net income increased 211% to
$4,231,211, or 11% of net sales
15
<PAGE> 16
in the fiscal year ended March 31, 1995 compared to $1,362,206, or 5% of net
sales for the fiscal year ended March 31, 1994.
Liquidity and Capital Resources
Working capital increased to $30,800,351 at March 31, 1996 from $4,842,290
at March 31, 1995. The increase was mainly attributable to (all references to
share information are on a post-split basis): (i) during the twelve months
ended March 31, 1996, certain warrants and employee stock options to acquire a
total of 1,897,966 shares were exercised into common stock, increasing working
capital and stockholders' equity by approximately $3,693,000; (ii) during the
period August 1995 through March 1996, the Company issued 1,125,044 shares of
common stock in private placements pursuant to Regulation S or Rule 144 at an
average price of $6.86 per share, increasing working capital and stockholders'
equity by approximately $7,715,000, net of placement costs; (iii) in
connection with the AdM acquisition, the Company issued 424,000 shares of
common stock to Revlon in December 1995, which increased stockholders' equity
by $3,392,000 (in May 1996, Revlon exercised 176,000 options relating to the
transaction increasing shareholders' equity by an additional $1,408,000 in
fiscal 1997) and; (iv) current period net income.
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. Of these amounts, $7,000,000 of the Debentures, plus
accrued interest of $48,416, were converted into 1,073,688 shares at an average
price of $6.56 during the period ended March 31, 1996.
In August 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000, from Distribuidora 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 June
30, 1996. In connection with 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 repaid $500,000, leaving an open balance
of $174,722.
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 is due on September 30, 1996. In connection
with the note, the Company had issued warrants to purchase 60,000 shares of
Parlux common stock at a price of $6.94 per share.
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." Finova has taken
16
<PAGE> 17
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 August 29,
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 $2,120,000, 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 is 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
has been repaid at March 31, 1996.
The Company is currently pursuing additional facilities, including an
increase in the Credit Agreement, 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.
Impact of Currency Exchange and Inflation
The Company's business operations were positively affected in the current
year in the amount of $234,074, and negatively affected in the amount of
$300,661 and $76,124 for the fiscal years ended March 31, 1995 and 1994,
respectively, due to the continuing movement of the French franc vs. the U.S.
dollar.
The Company's sales and purchases are virtually all in U.S. dollars or
French francs. Since approximately 10% of the Company's sales are 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, but may pursue this alternative.
17
<PAGE> 18
The Company intends to continue to centralize manufacturing in the United
States which will minimize the currency exchange impact on intercompany
transactions for the future.
ITEM 8. FINANCIAL STATEMENTS
The financial statements are included herein commencing on page F-1.
The financial statement schedules are listed in the Index to Financial
Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission
18
<PAGE> 19
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) 1. Financial Statements
See Index to Financial Statements beginning on page F-1 of this annual
report.
2. Financial Statement Schedules
See Index to Financial Statements beginning on Page F-1 of this annual
report.
3. Exhibit Index
The following exhibits are attached:
4.16 5% Convertible Debenture dated March 1, 1996 between the
Company and Karle Limited.
4.17 5% Convertible Debenture dated March 4, 1996 between the
Company and Newsun Limited.
4.18 5% Convertible Debenture dated March 11, 1996 between the
Company and Kempton Investments Ltd.
4.19 5% Convertible Debenture dated March 11, 1996 between the
Company and Newsun Limited.
4.20 5% Convertible Debenture dated April 16, 1996 between the
Company and Kempton Investments, Ltd.
4.21 5% Convertible Debenture dated April 16, 1996 between the
Company and Newsun Limited.
4.22 5% Convertible Debenture dated May 12, 1996 between the
Company and Newsun Limited.
4.23 5% Convertible Debenture dated May 17, 1996 between the
Company and GFL Performance Fund, Ltd.
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
In January 1996, the Company filed a Current Report on Form 8-K with
respect to the license and asset acquisition of Alexandra de Markoff from
Revlon Holdings, Inc.
19
<PAGE> 20
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statement of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
FORM 10-K SCHEDULES:
Schedule VIII - Valuation and Qualifying Accounts F-28
Schedule IX - Short-term Bank Borrowings F-29
All other Schedules are omitted as the required information is not
applicable or the information is presented in the financial
statements or the related notes thereto.
F-1
<PAGE> 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Parlux Fragrances, Inc.
In our opinion, the consolidated financial statements listed in the index
referred to under Item 14(a)(1) and (2) on page 19 and appearing on page F-1
present fairly, in all material respects, the financial position of Parlux
Fragrances, Inc. and its subsidiaries at March 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Miami, Florida
June 28, 1996
F-2
<PAGE> 22
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
ASSETS --------------------------
- --------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 339,423 $ 302,113
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $2,121,000 and $2,055,000
in 1996 and 1995, respectively 10,892,347 4,888,250
Trade receivables from affiliates 13,482,423 4,893,710
Inventories, net 35,762,570 16,963,006
Prepaid expenses and other current assets 7,189,213 4,908,321
----------- -----------
TOTAL CURRENT ASSETS 67,665,976 31,995,400
Equipment and leasehold improvements, net 2,475,919 2,043,758
Trademarks, licenses and goodwill, net 24,623,417 11,380,201
Other 473,611 97,107
----------- -----------
TOTAL ASSETS $95,238,923 $45,476,466
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
CURRENT LIABILITIES:
Borrowings, current portion $11,564,917 $13,512,291
Convertible debentures 250,000 -
Accounts payable 18,739,117 7,337,910
Accrued expenses 1,543,591 2,425,850
Income taxes payable 4,768,000 1,386,000
Advances from customers - 2,451,059
----------- -----------
TOTAL CURRENT LIABILITIES 36,865,625 27,113,110
Borrowings, less current portion 4,694,239 5,280,689
Convertible debentures 11,450,000 -
Deferred tax liability 183,864 -
----------- -----------
TOTAL LIABILITIES 53,193,728 32,393,799
----------- -----------
COMMITMENTS - -
----------- -----------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 issued and outstanding - -
Common stock, $0.01 par value, 15,000,000
shares authorized, 11,456,426 and 6,980,428
shares issued in 1996 and 1995, respectively 114,564 34,902
Additional paid-in capital 32,881,207 11,563,537
Retained earnings 9,000,649 1,271,947
Cumulative translation adjustment 182,247 345,753
----------- -----------
42,178,667 13,216,139
Less - 39,000 shares of common stock in treasury, at cost (133,472) (133,472)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 42,045,195 13,082,667
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,238,923 $45,476,466
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 23
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended March 31,
----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
Unaffiliated customers $41,539,466 $22,978,956 $12,956,138
Affiliates 26,187,460 15,230,143 12,410,298
----------- ----------- -----------
67,726,926 38,209,099 25,366,436
Cost of goods sold 28,439,789 14,957,475 10,344,426
----------- ----------- -----------
Gross profit 39,287,137 23,251,624 15,022,010
----------- ----------- -----------
Operating expenses:
Advertising and promotional 12,942,647 7,248,839 4,790,189
Selling and distribution 5,130,099 3,530,133 2,945,019
General and administrative 5,524,416 4,648,899 4,527,445
Royalties 1,502,132 823,223 463,972
----------- ----------- -----------
Total operating expenses 25,099,294 16,251,094 12,726,625
----------- ----------- -----------
Operating income 14,187,843 7,000,530 2,295,385
Interest expense and bank charges 1,885,412 1,189,658 701,927
Exchange (gains) losses (234,074) 300,661 76,124
----------- ----------- -----------
Income before income taxes 12,536,505 5,510,211 1,517,334
Income taxes 4,763,814 1,279,000 155,128
----------- ----------- -----------
Net income $ 7,772,691 $ 4,231,211 $ 1,362,206
=========== =========== ===========
Earnings per common and common
equivalent share:
Primary $ 0.74 $ 0.50 $ 0.22
=========== =========== ===========
Fully diluted $ 0.72 $ 0.48 $ 0.22
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 24
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------- ADDITIONAL EARNINGS CUMULATIVE
NUMBER PAR PAID-IN (ACCUMULATED TRANSLATION TREASURY
ISSUED VALUE CAPITAL DEFICIT) ADJUSTMENT STOCK TOTAL
---------- -------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at April 1, 1993 2,812,642 $ 28,127 $ 8,712,669 $(4,321,470) $ 169,243 - $ 4,588,569
Net income - - - 1,362,206 - - 1,362,206
Issuance of common stock upon exercise of:
Employee stock options 36,547 365 111,445 - - - 111,810
Warrants 12,000 120 44,880 - - - 45,000
Foreign currency translation adjustment - - - - (39,985) - (39,985)
---------- -------- ----------- ----------- --------- --------- -----------
BALANCE at March 31, 1994 2,861,189 28,612 8,868,994 (2,959,264) 129,258 - 6,067,600
Net income - - - 4,231,211 - - 4,231,211
Issuance of common stock in connection with:
Excercise of employee stock options 19,025 190 61,020 - - - 61,210
Sale of stock in private placement 110,000 1,100 438,523 - - - 439,623
Acquisition of assets 500,000 5,000 2,195,000 - - - 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 3,490,214 34,902 11,563,537 1,271,947 345,753 (133,472) 13,082,667
Net income - - - 7,772,691 - - 7,772,691
Issuance of common stock upon exercise of:
Employee stock options 11,175 112 33,910 - - - 34,022
Warrants 1,056,916 10,569 3,006,022 - - - 3,016,591
Sale of stock in private placements 1,001,514 10,015 7,605,570 - - - 7,615,585
Stock issued in connection with
acquisition of assets 424,000 4,240 3,739,760 - - - 3,744,000
Conversion of debentures, net of unamortized debt 1,073,688 10,737 6,932,408 - - - 6,943,145
issuance costs
Adjustment for stock split 4,398,919 43,989 - (43,989) - - -
Foreign currency translation adjustment - - - - (163,506) - (163,506)
---------- -------- ----------- ----------- --------- --------- -----------
BALANCE at March 31, 1996 11,456,426 $114,564 $32,881,207 $ 9,000,649 $ 182,247 $(133,472) $42,045,195
========== ======== =========== =========== ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 25
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended March 31,
------------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,772,691 $ 4,231,211 $ 1,362,206
------------ ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,563,673 807,491 546,882
Net deferred tax benefit (4,184) (628,504) -
Changes in assets and liabilities net of effect of acquisitions:
(Increase) decrease in trade receivables - customers (7,900,097) 2,683,107 1,500,320
Increase in trade receivables - affiliates (8,588,713) (1,788,026) (1,093,192)
(Increase) decrease in inventories (15,371,203) 1,919,988 (722,476)
(Increase) decrease in prepaid expenses and other current assets (1,032,135) 944,125 (478,996)
(Increase) decrease in other non-current assets (376,504) (4,497) 58,126
Increase (decrease) in accounts payable 11,401,204 (1,321,624) 238,251
Increase in accrued expenses 2,726,637 2,557,874 146,655
(Decrease) increase in advances from customers (2,451,059) 2,451,059 -
------------ ----------- -----------
Total adjustments (20,032,381) 7,620,993 195,570
------------ ----------- -----------
Net cash (used in) provided by operating activities (12,259,690) 11,852,204 1,557,776
------------ ----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (1,168,386) (336,046) (709,823)
Purchases of trademarks (82,122) (17,467) (50,178)
Cash paid in acquisitions:
Fred Hayman Beverly Hills - (2,000,000) -
Perry Ellis - (7,500,000) -
Alexandra de Markoff (8,608,000) - -
Bal a Versailles (1,697,500) - -
Purchases of treasury stock - (133,472) -
------------ ----------- -----------
Net cash used in investing activities (11,556,008) (9,986,985) (760,001)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds (payments) - overdraft facilities 145,450 (481,929) 242,636
Proceeds (payments) - receivable financing facilities 579,731 (348,082) (657,791)
Proceeds - notes payable Distr. de Perfumes Senderos 674,722 - -
Proceeds - notes payable related parties 300,000 - -
(Payments) proceeds - notes payable to Finova Capital Corp. (127,352) 4,015,729 -
Payments to National Bank of Kuwait (560,000) (2,040,000) (150,000)
Proceeds from Eagle Bank 401,378 81,014 -
Payments to Sanofi Beaute, Inc. (5,501,535) (947,335) -
Payments to Fred Hayman Beverly Hills (202,480) (2,770,027) -
Payments - other notes payable - (29,969) (195,999)
Proceeds - 7% debentures, net 3,666,000 - -
Proceeds - 5% debentures, net 14,614,500 - -
Proceeds from issuance of common stock, net 9,771,094 500,833 80,610
------------ ----------- -----------
Net cash provided by (used in) financing activities 23,761,508 (2,019,766) (680,544)
------------ ----------- -----------
Effect of exchange rate changes on cash 91,500 417,968 (147,893)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 37,310 263,421 (30,662)
Cash and cash equivalents, beginning of year 302,113 38,692 69,354
------------ ----------- -----------
Cash and cash equivalents, end of year $ 339,423 $ 302,113 $ 38,692
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 26
PARLUX FRAGRANCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS
Parlux Fragrances, Inc. was incorporated in Delaware on July 23, 1984,
and is a manufacturer and distributor of prestige fragrances, cosmetics and
beauty related products.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Parlux
Fragrances, Inc., Parlux S.A., a wholly-owned French subsidiary (S.A.) and
Parlux, Ltd. (jointly referred to as the "Company"). All material
intercompany accounts and transactions have been eliminated in consolidation.
C. REVENUE RECOGNITION
Revenue is recognized when the product is shipped to a customer.
Estimated amounts for sales returns and allowances are recorded at the time
of sale.
D. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The more significant estimates relate to the Company's
reserve for doubtful accounts, sales returns and allowances, inventory
obsolescence and periods of amortization for trademarks, licenses and
goodwill. Actual results could differ from those estimates.
E. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The cost of inventories includes product costs and handling
charges, including the allocation of the Company's applicable overhead.
F. BARTER SALES AND CREDITS
The Company has sold certain of its products to a barter broker in
exchange for advertising that the Company will use. The Company defers the
gross margin on barter sales until the advertising is used.
The estimated value of the advertising is recorded as a prepaid expense
on the Company's balance sheet at the time such inventory is sold, net of
unearned income equal to the amount of advertising credits minus the related
cost of goods sold. As advertising credits are used by the
F-7
<PAGE> 27
Company, advertising and promotional expense is charged for the advertising
credits used, unearned income is debited and cost of goods sold is credited.
As a result, as the advertising credits are used, aggregate cost of goods
sold as a percentage of net sales decreases and gross margin as a percentage
of net sales increases.
G. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Equipment is
depreciated using the straight-line method over the estimated useful life of
the asset. Leasehold improvements are amortized over the lesser of the
estimated useful life or the lease period. Repairs and maintenance charges
are expensed as incurred, while betterments and major renewals are
capitalized.
H. TRADEMARKS, LICENSES AND GOODWILL
Trademarks, licenses and goodwill are recorded at cost and amortized
over the estimated periods of benefit, principally 25 years. Accumulated
amortization at March 31, 1996 of trademarks, licenses and goodwill was
$983,499 ($424,694 at March 31, 1995).
I. ADVERTISING COSTS
Advertising and promotional expenditures are charged to operations as
incurred. These expenditures include print and media advertising as well as
in-store promotions.
J. INCOME TAXES
The Company follows the liability method in accounting for income taxes.
The liability method provides that deferred tax assets and liabilities are
recorded, using currently enacted tax rates, based upon the difference
between the tax bases of assets and liabilities and their carrying amounts
for financial statement purposes.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Income tax expense is the
tax payable for the period and the change during the period in deferred tax
assets and liabilities.
K. FOREIGN CURRENCY TRANSLATION
The assets and liabilities of S.A. are translated into U.S. dollars at
year-end exchange rates. Income and expense items are translated at weighted
average rates of exchange prevailing during the year. Translation
adjustments are accumulated as a separate component of stockholders' equity.
Both realized and unrealized gains and losses arising from foreign
currency transactions are recorded in the statement of income.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of instruments whose
fair value approximates their carrying value.
M. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
On October 26, 1995, the Company announced a two-for-one stock split
effected in the form of a dividend to shareholders of record as of November
3, 1995 (the stock split). All references to share and per share data
within the financial statements and notes thereto have been retroactively
adjusted to reflect the stock split.
Fully dilutive earnings per common and common equivalent share have been
computed based upon the weighted average number of shares of common stock and
common stock equivalents outstanding of 10,924,808, 9,014,808 and 6,697,790
for the years ended March 31, 1996, 1995 and 1994, respectively. The
modified treasury stock method was used during 1994 and 1995 to determine the
dilutive effect of the options, warrants, and convertible debentures since
the
F-8
<PAGE> 28
number of shares of common stock issuable upon their exercise exceeds
20% of the outstanding common shares.
Assuming the convertible debentures issued by the Company during fiscal 1996,
and converted into common stock through June 24, 1996, had been converted
into common stock upon issuance, the Company would have had primary earnings
per common and common equivalent share during fiscal 1996 of $0.72. Such
supplemental primary earnings per common and common equivalent share is based
on the number of common and common equivalent shares used in the calculation
of primary earnings per common and common equivalent share (10,682,206) plus
the number of weighted average shares into which the convertible debentures
were converted (38,597), after giving effect to the after tax interest
savings of $104,099 for fiscal 1996 resulting from such pro forma conversion.
N. STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting For Stock
Based Compensation (SFAS123). SFAS 123, the disclosure provisions of which
must be implemented for fiscal years beginning subsequent to December 15,
1995, establishes a fair value based method of accounting for stock based
compensation plans, the effect of which can either be disclosed or recorded.
The Company will adopt the provisions of SFAS 123 for the year ending March
31, 1997. Upon adoption, the Company intends to retain the intrinsic value
method of accounting for stock based compensation, which it currently uses.
O. 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 follow:
<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
Cash paid for:
Interest $1,940,179 $990,859 $610,924
========== ======== ========
Income taxes $1,390,076 $162,372 $106,037
========== ======== ========
</TABLE>
In addition to the barter transactions discussed in Note 8 (D), the
following non-cash transactions were entered into:
Year ended March 31, 1996:
- Acquisition of the Alexandra de Markoff cosmetic line and the
Bal a' Versailles fragrance lines were partially funded through
the issuance of common stock and notes payable, respectively, as
discussed in
Note 5.
- Notes payable and accrued interest in the amount of $792,603 and
$178,750, respectively, were repaid through the issuance of
common stock in connection with the exercise of certain warrants
and options.
Year ended March 31, 1995:
F-9
<PAGE> 29
- Acquisitions of the Fred Hayman and Perry Ellis fragrance lines
which were partially financed through the issuance of common
stock and notes payable as discussed in Note 5.
Year ended March 31, 1994:
- Repayment of accounts payable and accrued expenses totaling
$76,200 in connection with the exercise of outstanding options
and warrants for 44,000 shares of common stock.
P. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for prior years
have been reclassified to conform to the 1996 presentation.
2. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
March 31,
---------
1996 1995
----------- -----------
<S> <C> <C>
Finished products $13,477,055 $ 6,582,102
Components and packaging material 17,306,010 9,412,855
Raw material 4,979,505 968,049
----------- -----------
$35,762,570 $16,963,006
=========== ===========
</TABLE>
The above amounts are net of reserves for potential inventory
obsolescence of $1,200,000 and $686,000 at March 31, 1996 and 1995,
respectively.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are as follows:
<TABLE>
<CAPTION>
March 31,
---------
1996 1995
---------- ----------
<S> <C> <C>
Promotional supplies $2,903,611 $1,965,493
Advances to vendors 1,463,007 153,930
Deferred tax assets 816,552 628,504
Prepaid advertising 424,000 152,000
Advertising barter credits, net 1,059,332 1,459,121
Other 522,711 549,273
---------- ----------
$7,189,213 $4,908,321
========== ==========
</TABLE>
F-10
<PAGE> 30
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are comprised of the following:
<TABLE>
<CAPTION>
Estimated
------------
March 31, useful lives
--------- ------------
1996 1995 (in years)
---- ---- ------------
<S> <C> <C> <C>
Molds and equipment $ 4,593,621 $ 3,492,875 3-7
Furniture and fixtures 840,908 639,206 5
Leasehold improvements 126,756 155,694 5-7
Vehicles 6,260 6,575 3
----------- -----------
5,567,545 4,294,350
Less: accumulated
depreciation and
amortization (3,091,626) (2,250,592)
----------- -----------
$ 2,475,919 $ 2,043,758
=========== ===========
</TABLE>
Depreciation and amortization expense on equipment and leasehold improvements
for the years ended March 31,1996, 1995 and 1994 was $1,007,522, $560,771 and
$498,582, respectively.
5. ACQUISITIONS
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.
F-11
<PAGE> 31
The estimated fair value of the net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Goodwill, licenses and trademarks $10,267,000
Advance for future inventory purchases 4,000,000
Molds and other fixed assets 85,000
Reserve for sales returns and allowances (2,000,000)
-----------
Fair value of net assets acquired $12,352,000
===========
</TABLE>
In December 1994, the Company consummated the acquisition of the license for
the worldwide manufacturing and distribution rights and for the use of the
trademarks associated with the Perry Ellis International, Inc. (Perry Ellis)
line of fragrances and beauty products pursuant to an Asset Purchase Agreement
entered into in October 1994 between the Company and Sanofi Beaute, Inc., the
prior holder of the Perry Ellis fragrances license. In addition to the
acquisition of the license, which is renewable every two years if the Company
meets certain average sales levels, Parlux acquired from Sanofi: a) the
assets, rights, claims and contracts relating to the brands Perry Ellis for
Men(R) and 360(degree) Perry Ellis(R) (the Brands), b) certain inventories
relating to the Brands, c) certain fixed assets relating to the Brands, and d)
the ownership rights in certain trademarks relating to the Brands.
At closing, the Company provided as consideration, $7,500,000 in cash and
$6,535,660 in the form of a one-year promissory note, bearing interest at 7%
and secured by the assets acquired under the Purchase Agreement.
The estimated fair value of the assets acquired is summarized as follows:
<TABLE>
<S> <C>
Goodwill, license and trademarks $ 7,500,000
Inventories 4,528,925
Promotional supplies 1,073,135
Molds and other fixed assets 933,600
-----------
Fair value of assets acquired $14,035,660
===========
</TABLE>
In June 1994, the Company entered into an Asset Purchase Agreement with Fred
Hayman Beverly Hills, Inc. (FHBH) pursuant to which the Company purchased
substantially all of the assets and liabilities of the FHBH fragrance division,
including inventory, accounts receivable molds and other assets. In
addition, FHBH granted Parlux an exclusive 55-year, royalty free license to use
FHBH's United States Class 3 trademarks for Fred Hayman(R), 273(R), Touch(R),
With Love(R), and Fred Hayman Personal Selections(R) and the corresponding
international registrations.
In consideration for the purchased assets, the Company provided the
following to the seller: (i) payment of $2,000,000 in cash, (ii) issuance of
1,000,000 shares of the Company's common stock (approximately $2,200,000 market
value at date of closing), (iii) delivery of a short-term non-interest bearing
note in the amount of $2,544,942 and (iv) delivery of a 10-year 7.25% note in
the amount of $5,950,774. In addition, the Company granted FHBH warrants to
purchase 200,000 shares of the Company's common stock, for a five-year period,
at an exercise price of $2.13 per share.
F-12
<PAGE> 32
The estimated fair value of the net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net $ 2,252,796
Inventories 6,461,236
Prepaid promotional supplies
and expenses 1,407,897
Molds 477,894
Goodwill 2,655,719
Accounts payable and other
liabilities (559,827)
-----------
Fair value of net assets acquired $12,695,715
===========
</TABLE>
Goodwill, licenses and trademarks recorded in connection with these
acquisitions are being amortized over 25 years.
On January 31, 1996, The Company entered into an agreement to purchase all of
the assets and assume certain liabilities of Richard Barrie Fragrances, Inc.
(RBF) for a combination of $750,000 in cash and 370,000 shares of Parlux common
stock. The agreement is subject to the approval of RBF's board of directors,
shareholders and convertible note holders. The Company anticipates that, if
the agreement is approved, closing would take place prior to June 30, 1996.
F-13
<PAGE> 33
6. BORROWINGS
The composition of debt is as follows:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
<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 $5,173,209 $ 5,725,689
Revolving credit facility payable to
Finova Capital Corporation, interest at
Citibank N.A. prime rate (8.25% at
March 31, 1996) plus 2%, payable on
December 27, 1997, net of restricted cash
of $884,464 and $273,587 at March 31, 1996
and 1995, respectively 3,888,378 4,015,729
Notes payable to Parfums Jean Desprez,
non-interest bearing, payable in installments
through August 1996 2,553,360 --
Note payable to Distribuidora de
Perfumes Senderos, Ltda., unsecured,
interest at 12%, $500,000 repaid in May
1996, balance due September 30, 1996 674,722 --
Unsecured $500,000 line of credit payable to
Eagle National Bank, interest at the bank's
prime rate plus 2%, due August 1, 1996 482,392 81,014
Unsecured notes payable to related parties,
interest payable monthly at 11%, due
September 30, 1996 700,000 400,000
Note payable to Sanofi Beaute, Inc., secured
by the acquired inventory and license
agreement with Perry Ellis International, Inc.,
interest at 7%, payable in equal monthly
installments of $565,509, including interest,
through December 31, 1995 -- 5,588,325
Loan payable to NBK, interest at the bank's
prime rate plus 1.5%, secured by
shareholders' deposits, paid in varying
installments through February 1996 -- 560,000
</TABLE>
F-14
<PAGE> 34
<TABLE>
<S> <C> <C>
Overdraft facilities, interest from 10.25% to
10.75%, payable on demand (1) 646,368 500,918
Receivable financing facilities, interest at 9.25%
to 10.25%, payable on demand (1) 1,921,876 1,342,145
Note payable to stockholder, interest at 10%,
repaid in May 1996 (1) 148,544 560,291
Other notes payable 70,307 18,869
----------- -----------
16,259,156 18,792,980
Less: long-term borrowings (4,694,239) (5,280,689)
----------- -----------
Short-term borrowings $11,564,917 $13,512,291
=========== ===========
(1) Denominated in French francs
</TABLE>
In December 1994, the Company entered into a Loan and Security Agreement (the
Credit Agreement) with Finova Capital Corporation (Finova), 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 August 29, 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 the
Company 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 is fully cash collateralized by certain shareholders' deposits. In
addition, the shareholders have signed a subordination agreement in connection
with the Credit Agreement. During the year ended March 31, 1996, the Company
repaid the $560,000 term loan.
The Company has overdraft and trade financing facilities aggregating 15,450,000
French francs (approximately $3,060,000 as of March 31, 1996). These credit
facilities are renewed annually.
On September 21, 1995, in connection with the proposed purchase of the AdM
cosmetic line, the Company entered into a $2,400,000 loan agreement with
Revlon. The loan was repaid on December 27, 1995 upon closing of the AdM
transaction.
F-15
<PAGE> 35
In August, 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribuidora 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 and repaid $500,000 in May 1996, with the
balance being extended to September 30, 1996.
In June 1995, the Company borrowed $300,000 from an individual related to the
Company's Chairman of the Board. The unsecured note bears interest at 11%
per annum and is due on September 30, 1996.
Future maturities of borrowings are as follows (in 000's):
<TABLE>
<CAPTION>
For the year ending March 31,
----------------------------
<S> <C>
1997 $11,565
1998 515
1999 553
2000 594
2001 639
Thereafter 2,393
-------
Total $16,259
=======
</TABLE>
7. 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 are 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. Subsequent to March 31, 1996, an additional $10,950,000 have
been converted into 1,257,667 shares of common stock. Accordingly, these
$10,950,000 of Debentures have been 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
in 5% Debentures with the same conversion features and terms as those issued
above, of which $3,000,000 have been converted into 308,727 shares of common
stock during June 1996.
F-16
<PAGE> 36
8. COMMITMENTS
A. LEASES:
The Company leases its office space and certain equipment in both the
U.S. and France under operating leases expiring on various dates through
the year ending October 31, 2005. Total rent expense charged to
operations for the years ended March 31, 1996, 1995 and 1994 was
approximately $916,000, $568,000 and $422,000, respectively.
At March 31, 1996, the minimum annual rental commitments are as follows
(in 000's ):
<TABLE>
<CAPTION>
For the year ending March 31,
-----------------------------
<S> <C>
1997 $1,052
1998 1,055
1999 1,048
2000 1,033
2001 705
Thereafter 2,580
-----
Total $7,473
======
</TABLE>
B. LICENSE AND DISTRIBUTION AGREEMENTS:
The Company holds the following exclusive worldwide licenses to
manufacture and sell fragrance and other related products:
Perry Ellis
Vicky Tiel
Todd Oldham
Phantom of the Opera
Under each of these arrangements, the Company must pay royalties at
various rates based on net sales, and spend minimum amounts for
advertising based on sales volume. The agreements expire on various dates
through 1998 and are subject to renewal.
In May 1995, the Company terminated its license agreement with Francesco
Smalto for breach of contract. On October 5, 1995, the Company entered
into a transition and termination agreement with SMALTO which provides
for the continued use of the Francesco Smalto trademark through September
30, 1996. The agreement contains certain production restrictions and
requires a fixed amount of royalties during the period, which the Company
anticipates will not exceed 5% 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.
F-17
<PAGE> 37
The Company believes it is presently in compliance with all material
obligations under the above agreements. The Company expects to incur
continuing obligations for advertising and royalty expense under these
license agreements. The minimum amounts of these obligations derived from
the aggregate minimum sales goals, set forth in the agreements, over the
remaining contract periods are as follows (in 000's):
<TABLE>
<CAPTION>
Fiscal year ending
------------------
March 31, 1997 1998
--------- ------ ------
<S> <C> <C>
Advertising $6,781 $5,936
Royalties $ 828 $ 440
</TABLE>
C. TRADEMARKS:
Though various acquisitions since 1991, the Company acquired worldwide
trademarks and distribution rights to ANIMALE, DANIEL DE FASSON, DECADENCE,
LIMOUSINE and BAL A VERSAILLES fragrances and ALEXANDRA de MARKOFF cosmetics
and fragrances. In addition, FHBH granted the Company an exclusive 55-year
royalty free license. Accordingly, there are no licensing agreements
requiring the payment of royalties. The Company also has the rights to
license these trademarks, other than FHBH, for all classes of merchandise.
D. BARTER ARRANGEMENTS:
In June 1991, the Company entered into a barter arrangement (the Barter
Agreement) for which the Company would receive advertising credits in
exchange for its inventory of JOAN COLLINS products. The final sale of these
products was completed in June 1993.
The following table sets forth the balances and transactions included in
the accompanying financial statements related to the Barter Agreement (in
000's):
<TABLE>
<CAPTION>
1996 1995 1994
------ -------- ------
<S> <C> <C> <C>
Prepaid advertising at March 31,
net of deferred income of
$287, $643 and $1,509 in 1996, 1995
and 1994, respectively $ 660 $ 989 $1,714
====== ======== ======
Barter sales for the year ended
March 31 $ --- $ --- $1,285
====== ======== ======
Advertising credits used for the year ended March 31 $ 684 $ 1,592 $1,154
====== ======== ======
Deferred income recognized for
the year ended March 31 $ 355 $ 866 $ 619
====== ======== ======
</TABLE>
F-18
<PAGE> 38
In connection with the June 1994 FHBH acquisition, the Company acquired
$471,000 of advertising credits of which $72,000 has been utilized during the
year ended March 31, 1996. The Company expects to be able to fully utilize
all of these barter advertising credits as part of its normal ongoing
advertising expenditures.
E. EMPLOYMENT AND CONSULTING AGREEMENTS:
The Company has employment contracts with certain officers and employees
which expire from April 1997 through January 1998. Minimum commitments
under these contracts are as follows (in 000's):
<TABLE>
<CAPTION>
For the year ending March 31,
-----------------------------
<S> <C>
1997 $1,291
1998 288
------
$1,579
======
</TABLE>
In connection with the employment contracts, warrants to purchase
1,190,000 shares of common stock, at prices ranging from $1.50 to $7.50 have
been issued. These warrants are exercisable for a ten-year period from the
date of grant and vest over the term of the applicable contracts through
January 1998. During the year ended March 31, 1996, 28,000 warrants were
exercised. As of March 31, 1996, an additional 772,000 of the above mentioned
warrants were vested. In addition, during January 1996, the Board of
Directors approved a resolution whereby the number of warrants issued to
key employees would double in the event of a change in control.
On April 1, 1994, the Company entered into a three-year consulting
agreement with Cosmix, Inc., a company owned by Mr. Frederick Purches, the
Vice Chairman of the Board, which provides for monthly payments of $8,333.
The agreement calls for Mr. Purches to spend substantial time to assist the
Company in the areas of banking, SEC and stockholder relations, financial
planning, assessment and coordination of acquisitions and divestiture, and
any other similar activities which may be assigned by the Board of
Directors. Mr. Purches receives certain insurance benefits as a part of his
agreement, and has received 90,000 warrants to acquire shares of common
stock at $2.06 over the three-year period of the contract, of which 60,000
warrants have been exercised during the year ended March 31, 1996.
On April 1, 1994, the Company entered into a three-year consulting
agreement commencing June 1, 1994, with Cambridge Development Corporation, a
company owned by Mr. Albert F. Vercillo, who is a director of the Company.
The Agreement calls for Mr. Vercillo to devote substantial time to the
Company in the areas of U.S. and international financial analysis and
planning. Cambridge Development Corporation receives $4,500 a month and Mr.
Vercillo receives certain insurance benefits, and has received 30,000
warrants to acquire shares of common stock at $2.06 over the three-year
period of the contract.
On April 1, 1994, the Company entered into a consulting agreement with
its former President, which provides for monthly payments of $16,667 through
September 30, 1997. In addition,
F-19
<PAGE> 39
the former President had previously received warrants to purchase
500,000 shares of common stock, at an exercise price of $1.875 per share.
All of the previously described warrants were issued at the market value
of the underlying shares at the date of grant and reflect the two-for-one
stock split effected as of November 3, 1995.
Contingent upon the closing of the proposed acquisition of RBF, the
Company has entered into employment agreements with four RBF employees
through March 31, 1999. Minimum commitments under these agreements are
approximately $575,400, $575,400 and $575,400 for the fiscal years ending
March 31, 1997, 1998 and 1999, respectively. In addition, these employees
were issued warrants to purchase a total of 210,000 shares of common stock
at $6.75 per share that vest equally over the three year period.
9. FOREIGN SUBSIDIARY
The following amounts relate to the Company's wholly-owned subsidiary, Parlux
S.A.:
<TABLE>
<CAPTION>
As of and for the year ended March 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Total assets $ 9,458,774 $10,607,585 $11,248,450
Working capital 2,115,755 1,112,504 447,107
Equity 2,229,714 1,506,057 970,028
Net Sales:
Trade 9,101,611 7,219,601 8,225,259
Affiliates 2,742,211 336,195 191,425
Intercompany 4,258,054 4,845,524 5,296,957
----------- ----------- -----------
Total $16,101,876 $12,401,320 $13,713,641
=========== =========== ===========
Net income $ 887,163 $ 319,535 $ 122,025
=========== =========== ===========
</TABLE>
Prior to 1996, foreign sales were principally made by Parlux S. A. During the
year ended March 31, 1996, sales to foreign customers from the Company's
domestic subsidiary amounted to approximately $19,000,000. At March 31, 1996,
trade receivables from foreign customers amounted to approximately $5,753,000.
F-20
<PAGE> 40
10. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109) in the first quarter of the fiscal
year ended March 31, 1995. The Company provided a valuation allowance for
the full amount of the deferred tax asset at April 1994 and, therefore,
adoption of this statement did not materially impact the financial
statements.
Income tax expense is as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Current taxes:
U.S. Federal $3,764,477 $1,570,504 $ 30,000
U.S. state and
local 472,360 175,000 63,008
Foreign income
taxes 531,161 162,000 62,120
--------- ---------- --------
4,767,998 1,907,504 155,128
U.S. Federal deferred
tax benefit (4,184) (628,504) -
---------- ---------- --------
Income tax expense $4,763,814 $1,279,000 $155,128
========== ========== ========
</TABLE>
F-21
<PAGE> 41
A reconciliation of the U.S. Federal statutory rate to the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ----- -----
<S> <C> <C> <C>
Tax at statutory rate 35.0% 35.0% 34.0%
Utilization of net operating
loss carry forward
Valuation allowance - (4.3)% (34.7)%
recognition - (11.0)% -
Non-deductible items .3% .8% 3.9%
Incremental foreign taxes .3% (.1)% 4.1%
State and local taxes 2.4% 2.0% 2.9%
---- ----- -----
38.0% 22.4% 10.2%
==== ===== =====
</TABLE>
Deferred tax assets, which are included in other current assets, and deferred
tax liabilities, are comprised of the following:
<TABLE>
<CAPTION>
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Allowance for doubtful accounts, sales returns and
allowances $653,000 $420,000
Reserve for inventory obsolescence 188,000 145,000
Other, net (24,448) 63,504
-------- --------
Total deferred tax assets $816,552 $628,504
======== ========
Deferred tax liabilities related to
depreciation and amortization $183,864 $ -
======== ========
</TABLE>
During fiscal 1995, the Company utilized approximately $700,000 of net
operating loss carryforwards to offset current U.S. taxable income. A
valuation allowance for 100% of these net operating loss carryforwards had
been established at March 31, 1994. Additionally, during fiscal 1995, the
Company reversed $544,000 of valuation allowances on deferred tax assets at
March 31, 1994, as a result of the expected recoverability of such deferred
tax assets in the future.
In June 1996, the Company received a notification from the Internal
Revenue Service informing the Company that its federal income tax return for
the year ended March 31, 1994 would be audited. Management believes that the
outcome of this audit will not have a material effect on the Company's
financial position or results of operations.
11. COMMON STOCK
At various dates since April 1989, the Company has issued, in addition to
the warrants described in Note 8 (E), a total of 738,000 warrants to key
employees and/or consultants to
F-22
<PAGE> 42
purchase the Company's common stock at an exercise price of $1.87 per share.
In March 1993, Mr. Gerard Semhon, in exchange for an amount due him of
$180,000, exercised warrants to acquire 96,000 registered shares and Mr. Fred
Purches exercised warrants for the acquisition of 28,000 unregistered shares in
exchange for cash and amounts due him of $47,000. In September 1993, Mr.
Semhon exercised his remaining warrants to acquire 24,000 registered shares in
exchange for amounts due him of $45,000. Accordingly, as of March 31, 1995,
540,000 of these warrants remained outstanding. The underlying shares
related to the unexercised warrants had not been registered.
In September 1990, in connection with a long-term loan, the Company issued
100,000 warrants to Mr. Boris Lekach which were exercisable at $2.00 per share.
Mr. Boris Lekach is related to Mr. Ilia Lekach, the Company's Chief Executive
Officer.
In March 1991, the Company issued warrants to Deco Distribution Group, Inc.
(Deco) to acquire 1,100,000 shares of common stock in accordance with an Asset
Acquisition Agreement of the same date. The warrants were exercisable
through March 1, 2001 at an exercise price of $2.00 per share.
In May 1995, the Company extended a discount of $0.75 per share to those
holders of warrants issued in connection with the FHBH and Deco acquisitions,
as well as the loan to Mr. Boris Lekach, if the holders would exercise by May
31, 1995. The exercise period was subsequently extended to July 31, 1995.
These warrant holders exercised all of their warrants into 1,400,000 shares of
common stock, increasing stockholders' equity by approximately $2,300,000.
In June 1995, in connection with a long-term loan, the Company issued warrants
to acquire 60,000 unregistered shares of common stock to Mr. F. Lekach, which
are exercisable at $6.94 per share for a two-year period. Mr. F. Lekach is
related to Mr. Ilia Lekach, the Company's Chief Executive Officer.
In June 1993, in recognition of continuing financial support, personal
guarantees and pledged deposits in connection with the NBK loan, the Company
issued 52,916 warrants to Mr. Zouheir Beidoun, a Director of the Company, at an
exercise price of $1.75. These warrants, along with an additional 200,000
warrants issued during 1991, were exercised during February 1996, whereby
a portion of the note payable to Mr. Beidoun, including accrued interest
payable, was converted to equity.
The following table summarizes the activity for the warrants outstanding under
the commitments disclosed in Note 8(E) and the warrants described above after
the retroactive effect of the stock split:
<TABLE>
<CAPTION>
Amount Exercise Price
------------ --------------
<S> <C> <C>
Balance at March 31, 1993 1,614,000 $1.87-$2.00
Issued 452,916 $1.50-$1.87
Exercised (24,000) $1.87
----------
Balance at March 31, 1994 2,042,916 $1.50-$2.00
Issued 1,530,000 $1.75-$3.12
Exercised - -
----------
Balance at March 31, 1995 3,572,916 $1.50-$3.12
Issued 307,978 $3.75-$4.06
Exercised (1,830,916) $1.62-$2.06
----------
Balance at March 31, 1996 2,049,978 $1.50-$8.11
==========
</TABLE>
F-23
<PAGE> 43
12. STOCK OPTION AND OTHER PLANS
The Company has adopted a Stock Option Plan and a 1989 Stock Option Plan
(collectively, the "Plan") and has reserved and registered 250,000 shares of
its Common Stock for issue thereunder. Options for most of the shares in the
Plan may qualify as "incentive stock options" under the Internal Revenue
Code. The shares are also available for distribution pursuant to options
which do not so qualify. Under the Plan, options can be granted to eligible
officers and key employees at not less than the fair market value of the
shares at the date of grant of the option (110% of the fair market value for
10% or greater stockholders).
Options which do not qualify as "incentive stock options" may also be
granted to consultants. Options generally may be exercised only if the
option holder remains continuously associated with the Company or a
subsidiary from the date of grant to the date of exercise.
On June 20, 1995, the Company granted to various employees additional
options to acquire 24,500 shares of common stock at $5.75, the closing bid
price of the stock on June 19, 1995. These options are exercisable at the
rate of 25% per annum beginning June 20, 1996. Concurrently, 5,500 options
were canceled through employee resignations.
As of March 31, 1996, and since the inception of the Plan, options have
been issued, net of cancellations, to purchase 242,592 shares at exercise
prices ranging from $1.06 to $2.32 per share. Through March 31, 1996,
159,592 options had been exercised under the Plan.
The following table summarizes the activity for options covered by the
Plan after the retroactive effect of the stock split:
<TABLE>
<CAPTION>
Amount Exercise Price
------ --------------
<S> <C> <C>
Balance at March 31,1994 118,674 $1.06 - $ 2.32
Issued 10,000 $ 2.19
Exercised (38,050) $1.06 - $ 1.87
Canceled (6,274) $1.06 - $ 1.44
--------
Balance at March 31, 1995 84,350 $1.06 - $ 2.19
Issued 24,500 $ 5.75
Exercised (22,350) $1.06 - $ 2.19
Canceled (5,500) $1.44 - $5.75
--------
Balance at March 31, 1996 81,000 $1.06 - $ 5.75
========
</TABLE>
As of March 31, 1996, options to purchase 81,000 shares are outstanding, of
which 36,000 are currently exercisable and 22,000 are exercisable during the
year ending March 31, 1997.
During June 1993, the Company established a 401-K plan covering substantially
all of its U.S. employees. No Company contribution was made during the year.
Commencing on April 1, 1996, the Company has agreed to match 25% of the
first 6% of employee contributions, within annual limitations established by
the Internal Revenue Code.
F-24
<PAGE> 44
13. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the year ended March 31, 1995, the number of shares of common stock
issuable upon exercise of outstanding options and warrants, in the aggregate,
exceeds 20% of the number of common shares outstanding. Accordingly, the
modified treasury stock method was used to determine the dilutive effect of
the options and warrants on earnings per share.
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>
Primary 1996 1995
------- ---- ----
<S> <C> <C>
Net income $ 7,772,691 $4,231,211
Add - reduction of interest expense 104,099 (1) 237,585 (3)
----------- ----------
Adjusted for per share computation $ 7,876,790 $4,468,796
=========== ==========
Number of shares:
Weighted average shares outstanding 8,791,749 6,696,890
Add - net additional shares issuable 1,890,857 2,317,918
Weighted average shares used in the per ----------- ----------
share computation 10,682,606 (2) 9,014,808 (4)
=========== ==========
Earnings per common and common equivalent
share $ 0.74 $ 0.50
=========== ==========
Fully diluted 1996 1995
------------- ----------- ----------
Net income $ 7,772,691 $4,231,211
Add - reduction of interest expense 104,099 (1) 77,317 (3)
----------- ----------
Adjusted for per share computation $ 7,876,790 $4,308,528
=========== ==========
Number of shares:
Weighted average shares outstanding 8,791,749 6,696,890
Add - net additional shares issuable 2,133,059 2,317,918
Weighted average shares used in the per ----------- ----------
share computation 10,924,808 (2) 9,014,808 (4)
=========== ==========
Earnings per common and common equivalent
share $ 0.72 $ 0.48
=========== ==========
</TABLE>
(1) Reduction of interest expense assumes that the Debentures were converted
into shares of common stock on the date of their issuance. Accordingly, no
interest expense on the Debentures would have been incurred.
(2) 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 the end of period price for
fully diluted.
F-25
<PAGE> 45
(3) Reduction of interest expense assumes that proceeds from the
exercise of stock options and warrants, after the assumed repurchase of 20%
of the weighted average common shares outstanding, were used to repay debt
at the beginning of the period.
(4) Assumes exercise of outstanding common stock equivalents (options and
warrants) 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. The
assumed repurchase of common stock was limited to 20% of the weighted average
common shares outstanding and is based on the average price of the Company's
common stock during the period for primary and the end of period price for
fully diluted.
14. RELATED PARTY TRANSACTIONS, SIGNIFICANT CUSTOMERS AND CONCENTRATION OF
CREDIT RISK
The Company had sales of approximately $26,187,000, $15,230,000 and
$12,410,000 during the fiscal years ended March 31, 1996, 1995 and 1994,
respectively, to Perfumania, Inc. (Perfumania), a company affiliated with the
Company's Chairman and Chief Executive Officer. Net amounts due from
Perfumania amounted to $13,482,000 and $4,894,000 at March 31, 1996 and 1995,
respectively.
No unaffiliated customer accounted for more than 10% of the Company's
sales during the years ended March 31, 1996 and 1995. During the year ended
March 31, 1994, the Company had sales of approximately $2,760,000 or 10.9% of
net sales, to an unaffiliated customer.
F-26
<PAGE> 46
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly results of
operations for the years ended March, 31, 1996 and 1995 (in thousands, except
per share amounts).
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1995 1995 1995 1996
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $10,209 $13,925 $23,834 $19,759
Gross margin 7,076 8,495 13,687 10,029
Net income 1,142 1,508 2,991 2,132
Earnings per common and
common equivalent share:
Primary $ 0.13 $ 0.15 $ 0.29 $ 0.17
Fully diluted $ 0.13 $ 0.15 $ 0.29 $ 0.15
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1994 1994 1994 1995
------------ -------------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales $ 6,492 $ 7,609 $12,356 $11,752
Gross margin 3,992 4,437 6,635 8,188
Net income 623 740 1,228 1,640
Earnings per common and
common equivalent share:
Primary $ 0.09 $ 0.09 $ 0.14 $ 0.18
Fully diluted $ 0.09 $ 0.09 $ 0.14 $ 0.16
</TABLE>
NOTE: Earnings per common and common equivalent shares have been
retroactively adjusted for the effect of the November 1995 two-for-one stock
split.
F-27
<PAGE> 47
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Description Balance at charged to Balance at
beginning of costs and Deductions end of
period expenses period
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
March 31, 1996
- --------------
Reserve for doubtful
accounts and sales
returns &
allowances $2,055,413 $6,548,444 $6,482,612 (1) $2,121,245
Reserve for inventory
shrinkage and obsolescence $ 685,629 688,626 (3) 174,255 $1,200,000
Year ended
March 31, 1995
- --------------
Reserve for doubtful
accounts and sales
returns &
allowances $ 741,951 $2,001,601 $ 688,139 (2) $2,055,413
Reserve for inventory
shrinkage and obsolescence $ 200,000 $ 485,629 (4) $ 685,629
Year ended
March 31, 1994
- --------------
Reserve for doubtful
accounts and sales
returns & allowances $ 772,857 $1,288,688 $1,319,594 $ 741,951
</TABLE>
(1) Net of reserves of $1,500,000 recorded in connection with the AdM
acquisition.
(2) Net of reserves of $1,556,275 recorded in connection with the FHBH
acquisition.
(3) Includes $600,000 recorded in connection with the AdM acquisition
(4) Includes $303,665 recorded in connection with the FHBH and Perry Ellis
acquisitions
F-28
<PAGE> 48
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BANK BORROWINGS
<TABLE>
<CAPTION>
Col. A Col. B. Col.C Col.D Col.E Col.F
Category of Balance at end of Weighted Maximum Average Weighted
aggregate period average amount amount average
short-term interest outstanding outstanding interest
borrowings rate (4) during the during the during the
period period period (5)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1996
Notes Payable
Banks (1) $6,939,014 10.2% $7,823,478 $7,361,251 12.1%
March 31, 1995
Notes Payable
Banks (2) $6,773,394 10.3% $6,773,394 $5,932,300 12.1%
March 31, 1994
Notes Payable
Banks (3) $5,127,715 8.7% $6,294,599 $4,803,080 11.5%
</TABLE>
(1) Loans of $3,888,378 from Finova, $482,392 from Eagle National Bank, as
well as overdraft and receivable facilities of $2,568,244 granted by
French banks.
(2) Loans of $4,289,316 from Finova, $560,000 from the National Bank of
Kuwait, $81,014 from Eagle National Bank, as well as overdraft and
receivable facilities of $1,843,074 granted by French banks.
(3) Aggregate revolving credit loan from the National Bank of Kuwait of
$2,600,000 and overdraft and receivable facilities granted by French banks
of $2,527,715. The loan was re-classified from long-term borrowings as
of July 31, 1994 reflecting the proposed repayment date of July 31, 1995.
(4) The weighted average interest rate was computed by dividing the annual
interest costs based on March 31, 1996 rates by the short-term bank
borrowings outstanding at March 31, 1996.
(5) The weighted average interest rate during the period was computed by
dividing the actual interest expense for the year by the average short-term
bank borrowings outstanding during the year.
F-29
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PARLUX FRAGRANCES, INC.
/s/Ilia Lekach
- -------------------------------------------------
Ilia Lekach, Chief Executive Officer and Chairman
Dated: June 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
/s/Zalman Lekach
- -------------------------------------------------
Zalman Lekach, President, Chief Operating Officer and Director
/s/Frank A. Buttacavoli
- -------------------------------------------------
Frank A. Buttacavoli, Executive Vice President, Chief Financial Officer and
Director
/s/Frederick E. Purches
- -------------------------------------------------
Frederick E. Purches, Vice Chairman and Director
/s/Albert F. Vercillo
- -------------------------------------------------
Albert F. Vercillo, Director
/s/Mayi de la Vega
- -------------------------------------------------
Mayi de la Vega, Director
/s/Glenn Gopman
- -------------------------------------------------
Glenn Gopman, Director
<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.16
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
No. R1-5 $2,500,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE MARCH 1, 1997.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due March 1, 1997, in an aggregate principal amount not exceeding
Five Million Dollars (U.S. $5,000,000).
FOR VALUE RECEIVED, The Company promises to pay to Karle Limited, the
registered holder hereof (the "Holder"), the principal sum of US $2,500,000, on
March 1, 1997, (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears on the Maturity Date or, if earlier,
on each Conversion Date (as hereinafter defined) at the rate of 5% per annum,
computed on the basis of the actual number of days elapsed in a 365-day year.
Accrual of the interest shall commence on the date hereof until payment in full
of the principal sum has been made or duly provided for. All accrued and unpaid
interest shall bear interest at the same rate from and after the due date of
the interest payment until so paid. The interest so payable, less any amounts
required by law to be deducted or withheld, will be paid on the Maturity Date
or, if earlier, on the Conversion Date, to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register") on the Conversion Date or tenth day prior to the Maturity
Date, as the case may be; provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Regulation S Subscription Agreement executed by the original Holder in
connection with the purchase of this Debenture (the "Subscription Agreement").
The principal of, and interest on,
1
<PAGE> 2
this Debenture are payable in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts, at the address last appearing on the Debenture Register of the
Company as designated in writing by the Holder from time to time. The
forwarding of the Company's check shall, subject to collection, constitute a
payment of interest and principal thereunder and shall satisfy and discharge
the liability for principal and interest on this Debenture to the extent of the
sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Two Hundred and Fifty
Thousand Dollars ($250,000 U.S.) and integral multiples thereof. The Debentures
are exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holders surrendering
the same. No service charge will be made for such registration or transfer or
exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933 as amended (the "Act").
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) The Holder of the Debenture shall, at any time during the period
commencing on and after April 30, 1996 and expiring on the Maturity Date,
convert up to One Hundred Percent (100%) of the principal amount of this
Debenture (in increments of not less than Two Hundred Fifty Thousand Dollars
($250,000)) into shares of common stock, par value $0.01 per share (the "Common
Stock"), of the Company at a conversion price for each share of Common Stock
equal to Eighty Five Percent (85%) of the
2
<PAGE> 3
Market Price of the Company's Common Stock; provided however, that in
no event will the conversion price be greater than $9.00 per share of Common
Stock. For purposes of this Section 4, the Market Price shall be the average
closing bid prices of the Common Stock over the five consecutive trading days
ending on the Conversion Date, as reported by the National Association of
Securities Dealer's Automated Quotation System ("NASDAQ"), or the average of
the closing bid prices of the Common Stock in the over-the-counter market over
the five consecutive trading days ending on the Conversion Date or, in the
event the Common Stock is listed on a national stock exchange, the Market Price
shall be the average of the closing prices of the Common Stock on such
exchange, as reported in The Wall Street Journal, over the five consecutive
trading days ending on the Conversion Date. Such conversion shall be
effectuated by surrendering the Debentures to be converted to the Company, with
the form of conversion notice attached hereto as Exhibit A, executed by the
Holder of the Debenture evidencing such Holder's intention to convert
this Debenture or a specified portion (as above provided) hereof. The amount of
accrued but unpaid interest as of the Conversion Date shall be subject to
conversion and paid in shares of Common Stock valued at the Market Price. No
fractional shares of the Common Stock or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. The date on which notice of conversion is
given shall be deemed to be the date on which the Holder has delivered this
Debenture, with the conversion notice duly executed, to the Company, or if
earlier, the date set forth in such notice of conversion if the Debenture is
received by the Company within three business days thereafter. Such date is
referred to herein as the "Conversion Date". Facsimile delivery of the
conversion notice shall be accepted by the Company. Certificates representing
Common Stock upon conversion will be delivered to the Holder within three (3)
business days from the date the notice of conversion is delivered to the
Company.
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of
principal or interest on this Debenture as and when the same
shall be due and payable and such default shall continue for
five (5) business days after the due date thereof; or
(b) Any of the representations or warranties made
by the Company herein, in the Subscription Agreement, or in
any certificate or financial or other
3
<PAGE> 4
written statements heretofore or hereafter furnished by
or on behalf of the Company in connection with the execution
and delivery of this Debenture or the Subscription Agreement
shall be false or misleading in any material respect at the
time made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or obligation
of the Company under this Debenture or the Subscription
Agreement and such failure shall continue uncured for a
period of five (5) business days after the first date on
which such failure arises (it being understood that in the
case of defaults which can not reasonably be cured within a
5-day period no grace period shall be necessary as a
precondition to the failure to perform such covenant
constituting an Event of Default; or
(d) The Company shall(1) make an assignment for the
benefit of creditors or commence proceedings for its
dissolution; or (2) apply for or consent to the appointment
of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be
appointed for the Company or for a substantial part of its
property or business without its consent and shall not be
discharged within sixty (60) days after such appointment; or
f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company, and if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding;
or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from
4
<PAGE> 5
trading thereon, and shall not have its Common Stock relisted
or have such suspension lifted, as the case may be, within
five (5) days; or
(h) The Company shall default on the payment of any
material indebtedness for borrowed money beyond any
applicable grace period; or
(i) Any judgment, levy or attachment, shall be
rendered against the Company or any of its assets or
properties in an amount in excess of $100,000 and such
judgment, levy or attachment shall not be dismissed, stayed,
bonded, or discharged within thirty (30) days of the date of
entry thereof; or
(j) The Company shall be a party to any merger or
consolidation or shall dispose of all or substantially all of
its assets in one or more transactions or shall redeem more
than a de minimus amount of its outstanding shares of capital
stock.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder and in the
Holder's sole discretion, the Holder may, upon written notice to the Company,
consider this Debenture immediately due and payable in an amount equal
to the product of (x)the number of shares of Common Stock into which this
Debenture is then convertible and (y) the Market Price of the Common Stock,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies afforded by law.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with
5
<PAGE> 6
all other Debentures now or hereafter issued under the terms set forth herein.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
8. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the choice of law
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
March 1, 1996
Parlux Fragrances, Inc.
By: /s/Frank A. Buttacavoli
-----------------------
Title: Vice-President & CFO
-----------------------
6
<PAGE> 7
EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, and is not
converting the Debenture on behalf of any U.S. Person
----------------------------------
Date of Conversion*
----------------------------------
Applicable Conversion Price
----------------------------------
Signature
----------------------------------
Name
----------------------------------
Address
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
7
<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.17
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
No. R6-10 $2,500,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE MARCH 1, 1997.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due March 1, 1997, in an aggregate principal amount not exceeding
Five Million Dollars (U.S. $5,000,000).
FOR VALUE RECEIVED, The Company promises to pay to Newsun Limited, the
registered holder hereof (the "Holder"), the principal sum of US $2,500,000, on
March 1, 1997, (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears on the Maturity Date or, if earlier,
on each Conversion Date (as hereinafter defined) at the rate of 5% per annum,
computed on the basis of the actual number of days elapsed in a 365-day year.
Accrual of the interest shall commence on the date hereof until payment in full
of the principal sum has been made or duly provided for. All accrued and unpaid
interest shall bear interest at the same rate from and after the due date of
the interest payment until so paid. The interest so payable, less any amounts
required by law to be deducted or withheld, will be paid on the Maturity Date
or, if earlier, on the Conversion Date, to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register")on the Conversion Date or tenth day prior to the Maturity
Date, as the case may be; provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Regulation S Subscription Agreement executed by the original Holder in
connection with the purchase of this Debenture(the "Subscription Agreement").
The principal of, and interest on, this Debenture are payable in such
coin or currency of the United
1
<PAGE> 2
States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time. The forwarding of the Company's check shall, subject to collection,
constitute a payment of interest and principal hereunder and shall satisfy and
discharge the liability for principal and interest on this Debenture to the
extent of the sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Two Hundred and Fifty
Thousand Dollars ($250,000 U.S.) and integral multiples thereof. The Debentures
are exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holders surrendering
the same. No service charge will be made for such registration or transfer or
exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933 as amended (the "Act").
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) The Holder of the Debenture shall, at any time during the period
commencing on and after April 30, 1996 and expiring on the Maturity Date,
convert up to One Hundred Percent (100%) of the principal amount of this
Debenture (in increments of not less than Two Hundred Fifty Thousand Dollars
($250,000)) into shares of common stock, par value $0.01 per share (the "Common
Stock"), of the Company at a conversion price for each share of Common Stock
equal to Eighty Five Percent (85%) of the Market Price of the Company's Common
Stock; provided however, that in no event will the conversion price be greater
than $9.00 per share of Common Stock. For purposes of this Section 4, the
2
<PAGE> 3
Market Price shall be the average closing bid prices of the Common Stock over
the five consecutive trading days ending on the Conversion Date, as reported by
the National Association of Securities Dealer's Automated Quotation System
("NASDAQ"), or the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
Conversion Date or, in the event the Common Stock is listed on a national stock
exchange, the Market Price shall be the average of the closing prices of the
Common Stock on such exchange, as reported in The Wall Street Journal, over the
five consecutive trading days ending on the Conversion Date. Such conversion
shall be effectuated by surrendering the Debentures to be converted to
the Company, with the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof. The
amount of accrued but unpaid interest as of the Conversion Date shall be
subject to conversion and paid in shares of Common Stock valued at the Market
Price. No fractional shares of the Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given shall be deemed to be the date on which the Holder has
delivered this Debenture, with the conversion notice duly executed, to the
Company, or if earlier, the date set forth in such notice of conversion if the
Debenture is received by the Company within three business days thereafter.
Such date is referred to herein as the "Conversion Date". Facsimile delivery
of the conversion notice shall be accepted by the Company. Certificates
representing Common Stock upon conversion will be delivered to the Holder
within three (3) business days from the date the notice of conversion is
delivered to the Company.
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of
principal or interest on this Debenture as and when the same
shall be due and payable and such default shall continue for
five (5) business days after the due date thereof; or
(b) Any of the representations or warranties made
by the Company herein, in the Subscription Agreement, or in
any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the
Company in connection with the execution and delivery of this
Debenture or the Subscription Agreement shall be
3
<PAGE> 4
false or misleading in any material respect at the time made;
or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture or the
Subscription Agreement and such failure shall continue
uncured for a period of five(5) business days after the first
date on which such failure arises (it being understood that
in the case of defaults which can not reasonably be cured
within a 5-day period no grace period shall be necessary as a
precondition to the failure to perform such covenant
constituting an Event of Default; or
(d) The Company shall(1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty
(60) days after such appointment; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company, and if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding;
or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from trading thereon,
and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5) days;
or
4
<PAGE> 5
(h) The Company shall default on the payment of any
material indebtedness for borrowed money beyond any
applicable grace period; or
(i) Any judgment, levy or attachment, shall be rendered against
the Company or any of its assets or properties in an amount
in excess of $100,000 and such judgment, levy or attachment
shall not be dismissed, stayed, bonded, or discharged within
thirty (30) days of the date of entry thereof; or
(j) The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets
in one or more transactions or shall redeem more than a de
minimus amount of its outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent Event of Default) at the option of the Holder and in
the Holder's sole discretion, the Holder may, upon written notice to the
Company, consider this Debenture immediately due and payable in an amount equal
to the product of (x) the number of shares of Common Stock into which this
Debenture is then convertible and (y) the Market Price of the Common Stock,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies afforded by law.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past,
5
<PAGE> 6
present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
8. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the choice of law
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
March 4, 1996
Parlux Fragrances, Inc.
By: /s/ Frank A. Buttacavoli
--------------------------
Title: Vice-President & CFO
-----------------------
6
<PAGE> 7
EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, and is not
converting the Debenture on behalf of any U.S. Person
------------------------------------
Date of Conversion*
------------------------------------
Applicable Conversion Price
------------------------------------
Signature
------------------------------------
Name
------------------------------------
Address
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
7
<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.18
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
No. R1-3 $1,500,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE APRIL 1, 1997.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due April 1, 1997, in an aggregate principal amount not exceeding
One Million Five Hundred Thousand Dollars (U.S. $1,500,000).
FOR VALUE RECEIVED, The Company promises to pay to Kempton Investments
Ltd., the registered holder hereof (the "Holder"), the principal sum of US
$1,500,000, on April 1, 1997, (the "Maturity Date") and to pay interest on the
principal sum outstanding from time to time in arrears on the Maturity Date or,
if earlier, on each Conversion Date (as hereinafter defined) at the rate of
5% per annum, computed on the basis of the actual number of days elapsed in a
365-day year. Accrual of the interest shall commence on the date hereof until
payment in full of the principal sum has been made or duly provided for. All
accrued and unpaid interest shall bear interest at the same rate from and after
the due date of the interest payment until so paid. The interest so payable,
less any amounts required by law to be deducted or withheld, will be paid on
the Maturity Date or, if earlier, on the Conversion Date, to the person in
whose name this Debenture (or one or more predecessor Debentures) is registered
on the records of the Company regarding registration and transfers of the
Debentures (the "Debenture Register")on the Conversion Date or tenth day prior
to the Maturity Date, as the case may be; provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of the
Regulation S Subscription Agreement executed by the original Holder in
connection with the purchase of this Debenture(the "Subscription Agreement").
The principal of, and interest on, this Debenture are payable in such coin or
currency
1
<PAGE> 2
of the United States of America as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder from
time to time. The forwarding of the Company's check shall, subject to
collection, constitute a payment of interest and principal hereunder and shall
satisfy and discharge the liability for principal and interest on this
Debenture to the extent of the sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Five Hundred Thousand
Dollars ($500,000 U.S.) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933 as amended (the "Act").
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) The Holder of this Debenture shall, at any time during the period
commencing on and after May 13, 1996 and expiring on the Maturity Date, convert
up to One Hundred Percent (100%) of the principal amount of this Debenture (in
increments of not less than Two Hundred Fifty Thousand Dollars ($250,000)) into
shares of common stock, par value $0.01 per share (the "Common Stock"), of the
Company at a conversion price for each share of Common Stock equal to Eighty
Five Percent (85%) of the Market Price of the Company's Common Stock; provided
however, that in no event will the conversion price be greater than $10.00 per
share of Common Stock. For
2
<PAGE> 3
per share of Common Stock. For purposes of this Section 4, the Market
Price shall be the average closing bid prices of the Common Stock over the
five consecutive trading days ending on the Conversion Date, as reported by the
National Association of Securities Dealer's Automated Quotation System
("NASDAQ"), or the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
Conversion Date or, in the event the Common Stock is listed on a national stock
exchange, the Market Price shall be the average of the closing prices of the
Common Stock on such exchange, as reported in The Wall Street Journal, over the
five consecutive trading days ending on the Conversion Date. Such conversion
shall be effectuated by surrendering the Debentures to be converted to the
Company, with the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof. The
amount of accrued but unpaid interest as of the Conversion Date shall be
subject to conversion and paid in shares of Common Stock valued at the Market
Price. No fractional shares of the Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given shall be deemed to be the date on which the Holder has
delivered this Debenture, with the conversion notice duly executed, to the
Company, or if earlier, the date set forth in such notice of conversion if the
Debenture is received by the Company within three business days thereafter.
Such date is referred to herein as the "Conversion Date". Facsimile delivery
of the conversion notice shall be accepted by the Company. Certificates
representing Common Stock upon conversion will be delivered to the Holder
within three (3) business days from the date the notice of conversion is
delivered to the Company.
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of principal or
interest on this Debenture as and when the same shall be due
and payable and such default shall continue for five (5)
business days after the due date thereof; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this
3
<PAGE> 4
Debenture or the Subscription Agreement shall be false or
misleading in any material respect at the time made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or obligation
of the Company under this Debenture or the Subscription
Agreement and such failure shall continue uncured for a
period of five(5) business days after the first date on which
such failure arises (it being understood that in the case of
defaults which can not reasonably be cured within a 5-day
period no grace period shall be necessary as a precondition
to the failure to perform such covenant constituting an Event
of Default); or
(d) The Company shall(1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty
(60) days after such appointment; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Company, and if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding;
or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from trading thereon,
and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5) days;
or
4
<PAGE> 5
(h) The Company shall default on the payment of any material
indebtedness for borrowed money beyond any applicable grace
period; or
(i) Any judgment, levy or attachment, shall be rendered against
the Company or any of its assets or properties in an amount
in excess of $100,000 and such judgment, levy or attachment
shall not be dismissed, stayed, bonded, or discharged within
thirty (30) days of the date of entry thereof; or
(j) The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimus amount of its outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent Event of Default) at the option of the Holder and in
the Holder's sole discretion, the Holder may, upon written notice to the
Company, consider this Debenture immediately due and payable in an amount equal
to the product of (x) the number of shares of Common Stock into which this
Debenture is then convertible and (y) the Market Price of the Common Stock,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies afforded by law.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past,
5
<PAGE> 6
present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
8. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the choice of law
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
March 11, 1996
Parlux Fragrances, Inc.
By: /s/Frank A. Buttacavoli
-------------------------
Title: Vice-President & CFO
----------------------
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EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, and is not
converting the Debenture on behalf of any U.S. Person
----------------------------------
Date of Conversion*
----------------------------------
Applicable Conversion Price
----------------------------------
Signature
----------------------------------
Name
----------------------------------
Address
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
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<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.19
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
No. R4-6 $1,500,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE APRIL 1, 1997.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due April 1, 1997, in an aggregate principal amount not exceeding
One Million Five Hundred Thousand Dollars (U.S. $1,500,000).
FOR VALUE RECEIVED, The Company promises to pay to Newsun Limited, the
registered holder hereof (the "Holder"), the principal sum of US $1,500,000, on
April 1, 1997, (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears on the Maturity Date or, if earlier,
on each Conversion Date (as hereinafter defined) at the rate of 5% per annum,
computed on the basis of the actual number of days elapsed in a 365-day year.
Accrual of the interest shall commence on the date hereof until payment in full
of the principal sum has been made or duly provided for. All accrued and unpaid
interest shall bear interest at the same rate from and after the due date of
the interest payment until so paid. The interest so payable, less any amounts
required by law to be deducted or withheld, will be paid on the Maturity Date
or, if earlier, on the Conversion Date, to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register")on the Conversion Date or tenth day prior to the Maturity
Date, as the case may be; provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Regulation S Subscription Agreement executed by the original Holder in
connection with the purchase of this Debenture (the "Subscription Agreement").
The principal of, and interest on, this Debenture are payable in such coin or
currency of the United
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<PAGE> 2
States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time. The forwarding of the Company's check shall, subject to collection,
constitute a payment of interest and principal hereunder and shall satisfy and
discharge the liability for principal and interest on this Debenture to the
extent of the sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Five Hundred Thousand
Dollars ($500,000 U.S.) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933 as amended (the "Act").
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) The Holder of this Debenture shall, at any time during the period
commencing on and after May 13, 1996, convert up to One Hundred Percent (100%)
of the principal amount of this Debenture (in increments of not less than Two
Hundred Fifty Thousand Dollars ($250,000)) into shares of common stock, par
value $0.01 per share (the "Common Stock"), of the Company at a conversion
price for each share of Common Stock equal to Eighty Five Percent (85%) of the
Market Price of the Company's Common Stock; provided however, that in no event
will the conversion price be greater than $10.00 per share of Common Stock. For
purposes of this Section 4, the Market Price shall be the average
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<PAGE> 3
closing bid prices of the Common Stock over the five consecutive
trading days ending on the Conversion Date, as reported by the National
Association of Securities Dealer's Automated Quotation System ("NASDAQ"), or
the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
Conversion Date or, in the event the Common Stock is listed on a national stock
exchange, the Market Price shall be the average of the closing prices of the
Common Stock on such exchange, as reported in The Wall Street Journal, over the
five consecutive trading days ending on the Conversion Date. Such
conversion shall be effectuated by surrendering the Debentures to be converted
to the Company, with the form of conversion notice attached hereto as Exhibit
A, executed by the Holder of the Debenture evidencing such Holder's intention
to convert this Debenture or a specified portion (as above provided) hereof.
The amount of accrued but unpaid interest as of the Conversion Date shall be
subject to conversion and paid in shares of Common Stock valued at the Market
Price. No fractional shares of the Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given shall be deemed to be the date on which the Holder has
delivered this Debenture, with the conversion notice duly executed, to the
Company, or if earlier, the date set forth in such notice of conversion if the
Debenture is received by the Company within three business days thereafter.
Such date is referred to herein as the "Conversion Date". Facsimile delivery
of the conversion notice shall be accepted by the Company. Certificates
representing Common Stock upon conversion will be delivered to the Holder
within three (3) business days from the date the notice of conversion is
delivered to the Company.
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of
principal or interest on this Debenture as and when the same
shall be due and payable and such default shall continue for
five (5) business days after the due date thereof; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture
or the Subscription Agreement shall be
3
<PAGE> 4
false or misleading in any material respect at the time
made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or obligation
of the Company under this Debenture or the Subscription
Agreement and such failure shall continue uncured for a
period of five (5) business days after the first date on which
such failure arises (it being understood that in the case of
defaults which can not reasonably be cured within a 5-day
period no grace period shall be necessary as a precondition
to the failure to perform such covenant constituting an Event
of Default); or
(d) The Company shall(1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty
(60) days after such appointment; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company, and if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding;
or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from trading thereon,
and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5) days;
or
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<PAGE> 5
(h) The Company shall default on the payment of any material
indebtedness for borrowed money beyond any applicable grace
period; or
(i) Any judgment, levy or attachment, shall be rendered against
the Company or any of its assets or properties in an amount
in excess of $100,000 and such judgment, levy or attachment
shall not be dismissed, stayed, bonded, or discharged within
thirty (30) days of the date of entry thereof; or
(j) The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets in
one or more transactions or shall redeem more than a de
minimus amount of its outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent Event of Default) at the option of the Holder and in
the Holder's sole discretion, the Holder may, upon written notice to the
Company, consider this Debenture immediately due and payable in an amount equal
to the product of (x) the number of shares of Common Stock into which this
Debenture is then convertible and (y) the Market Price of the Common Stock,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies afforded by law.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past,
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<PAGE> 6
present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
8. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the choice of law
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
March 11, 1996
Parlux Fragrances, Inc.
By: /s/Ilia Lekach
--------------------------
Title: Chairman & CEO
-----------------------
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EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No. into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, and is not
converting the Debenture on behalf of any U.S. Person
---------------------------------
Date of Conversion*
---------------------------------
Applicable Conversion Price
---------------------------------
Signature
---------------------------------
Name
---------------------------------
Address
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
7
<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.20
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
No. R4-6 $1,500,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE MAY 1, 1997.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due May 1, 1997, in an aggregate principal amount not exceeding
Three Million Dollars (U.S. $3,000,000).
FOR VALUE RECEIVED, The Company promises to pay to Kempton Investments
Ltd., the registered holder hereof (the "Holder"), the principal sum of US
$1,500,000, on May 1, 1997, (the "Maturity Date") and to pay interest on the
principal sum outstanding from time to time in arrears on the Maturity Date or,
if earlier, on each Conversion Date (as hereinafter defined) at the rate of
5% per annum, computed on the basis of the actual number of days elapsed in a
365-day year. Accrual of the interest shall commence on the date hereof until
payment in full of the principal sum has been made or duly provided for. All
accrued and unpaid interest shall bear interest at the same rate from and after
the due date of the interest payment until so paid. The interest so payable,
less any amounts required by law to be deducted or withheld, will be paid on
the Maturity Date or, if earlier, on the Conversion Date, to the person in
whose name this Debenture (or one or more predecessor Debentures) is registered
on the records of the Company regarding registration and transfers of the
Debentures (the "Debenture Register")on the Conversion Date or tenth day prior
to the Maturity Date, as the case may be; provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of the
Regulation S Subscription Agreement executed by the original Holder in
connection with the purchase of this Debenture(the "Subscription Agreement").
The principal of, and interest on, this Debenture are payable in such
coin or currency
1
<PAGE> 2
of the United States of America as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the
Debenture Register of the Company as designated in writing by the Holder from
time to time. The forwarding of the Company's check shall, subject to
collection, constitute a payment of interest and principal hereunder and shall
satisfy and discharge the liability for principal and interest on this
Debenture to the extent of the sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Five Hundred Thousand
Dollars ($500,000 U.S.) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933 as amended (the "Act").
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) The Holder of this Debenture shall, at any time during the period
commencing on and after May 27, 1996, convert up to One Hundred Percent (100%)
of the principal amount of this Debenture (in increments of not less than Two
Hundred Fifty Thousand Dollars ($250,000)) into shares of common stock, par
value $0.01 per share (the "Common Stock"), of the Company at a conversion
price for each share of Common Stock equal to Eighty Five Percent (85%) of the
Market Price of the Company's Common Stock; provided however, that in no event
will the conversion price be greater than $12.00 per share of Common Stock. For
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<PAGE> 3
purposes of this Section 4, the Market Price shall be the average closing bid
prices of the Common Stock over the five consecutive trading days ending on the
Conversion Date, as reported by the National Association of Securities Dealer's
Automated Quotation System ("NASDAQ"), or the average of the closing bid prices
of the Common Stock in the over-the-counter market over the five consecutive
trading days ending on the Conversion Date or, in the event the Common Stock is
listed on a national stock exchange, the Market Price shall be the average of
the closing prices of the Common Stock on such exchange, as reported in The
Wall Street Journal, over the five consecutive trading days ending on the
Conversion Date. Such conversion shall be effectuated by surrendering the
Debentures to be converted to the Company, with the form of conversion
notice attached hereto as Exhibit A, executed by the Holder of the Debenture
evidencing such Holder's intention to convert this Debenture or a specified
portion (as above provided) hereof. The amount of accrued but unpaid interest
as of the Conversion Date shall be subject to conversion and paid in shares of
Common Stock valued at the Market Price. No fractional shares of the Common
Stock or scrip representing fractions of shares will be issued on conversion,
but the number of shares issuable shall be rounded to the nearest whole share.
The date on which notice of conversion is given shall be deemed to be the date
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company, or if earlier, the date set forth in such notice
of conversion if the Debenture is received by the Company within three business
days thereafter. Such date is referred to herein as the "Conversion Date".
Facsimile delivery of the conversion notice shall be accepted by the Company.
Certificates representing Common Stock upon conversion will be delivered to the
Holder within three (3) business days from the date the notice of conversion is
delivered to the Company.
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of principal or
interest on this Debenture as and when the same shall be due
and payable and such default shall continue for five (5)
business days after the due date thereof; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this
3
<PAGE> 4
Debenture or the Subscription Agreement shall be false or
misleading in any material respect at the time made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture or the
Subscription Agreement and such failure shall continue
uncured for a period of five(5) business days after the first
date on which such failure arises (it being understood that
in the case of defaults which can not reasonably be cured
within a 5-day period no grace period shall be necessary as a
precondition to the failure to perform such covenant
constituting an Event of Default; or
(d) The Company shall(1) make an assignment for the
benefit of creditors or commence proceedings for its
dissolution; or (2) apply for or consent to the appointment
of a trustee, liquidator or receiver for its or for a
substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company, and if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding;
or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from trading thereon,
and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5) days;
or
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<PAGE> 5
(h) The Company shall default on the payment of any
material indebtedness for borrowed money beyond any
applicable grace period; or
(i) Any judgment, levy or attachment, shall be rendered against
the Company or any of its assets or properties in an amount
in excess of $100,000 and such judgment, levy or attachment
shall not be dismissed, stayed, bonded, or discharged within
thirty (30) days of the date of entry thereof; or
(j) The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets
in one or more transactions or shall redeem more than a de
minimus amount of its outstanding shares of capital
stock.
Upon the occurrence of any Event of Default or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a
waiver of any subsequent Event of Default) at the option of the Holder and in
the Holder's sole discretion, the Holder may, upon written notice to the
Company, consider this Debenture immediately due and payable in an amount equal
to the product of (x)the number of shares of Common Stock into which this
Debenture is then convertible and (y) the Market Price of the Common Stock,
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and the Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies afforded by law.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past,
5
<PAGE> 6
present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
8. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the choice of law
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
April 16, 1996
Parlux Fragrances, Inc.
By: /s/Frank A. Buttacavoli
------------------------
Title: Vice-President & CFO
------------------------
6
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EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, and is not
converting the Debenture on behalf of any U.S. Person
------------------------------------
Date of Conversion*
------------------------------------
Applicable Conversion Price
------------------------------------
Signature
------------------------------------
Name
------------------------------------
Address
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
7
<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.21
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE BECAUSE THEY ARE
BELIEVED TO BE EXEMPT FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE ACT PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM.
No. R1-3 $1,500,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE MAY 1, 1997.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due May 1, 1997, in an aggregate principal amount not exceeding
Three Million Dollars (U.S. $3,000,000).
FOR VALUE RECEIVED, The Company promises to pay to Newsun Limited, the
registered holder hereof (the "Holder"), the principal sum of US $1,500,000, on
May 1, 1997, (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears on the Maturity Date or, if earlier,
on each Conversion Date (as hereinafter defined) at the rate of 5% per annum,
computed on the basis of the actual number of days elapsed in a 365-day year.
Accrual of the interest shall commence on the date hereof until payment in full
of the principal sum has been made or duly provided for. All accrued and unpaid
interest shall bear interest at the same rate from and after the due date of
the interest payment until so paid. The interest so payable, less any amounts
required by law to be deducted or withheld, will be paid on the Maturity Date
or, if earlier, on the Conversion Date, to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register")on the Conversion Date or tenth day prior to the Maturity
Date, as the case may be; provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
Regulation S Subscription Agreement executed by the original Holder in
connection with the purchase of this Debenture(the "Subscription Agreement").
The principal of, and interest on, this Debenture are payable in such coin or
currency of the United
1
<PAGE> 2
States of America as at the time of payment is legal tender for payment
of public and private debts, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time. The forwarding of the Company's check shall, subject to collection,
constitute a payment of interest and principal hereunder and shall satisfy and
discharge the liability for principal and interest on this Debenture to the
extent of the sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Five Hundred Thousand
Dollars ($500,000 U.S.) and integral multiples thereof. The Debentures are
exchangeable for an equal aggregate principal amount of Debentures of different
authorized denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged in the U.S.
only in compliance with the Securities Act of 1933 as amended (the "Act").
Prior to due presentment for transfer of this Debenture, the Company and any
agent of the Company may treat the person in whose name this Debenture is duly
registered on the Debenture Register as the owner hereof for the purpose of
receiving payment as herein provided and for all other purposes, whether or not
this Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) The Holder of this Debenture shall, at any time during the period
commencing on and after May 27, 1996, convert up to One Hundred Percent (100%)
of the principal amount of this Debenture (in increments of not less than Two
Hundred Fifty Thousand Dollars ($250,000)) into shares of common stock, par
value $0.01 per share (the "Common Stock"), of the Company at a conversion
price for each share of Common Stock equal to Eighty Five Percent (85%) of the
Market Price of the Company's Common Stock; provided however, that in no event
will the conversion price be greater than $12.00 per share of Common Stock. For
purposes of this Section 4, the Market Price shall be the average
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<PAGE> 3
closing bid prices of the Common Stock over the five consecutive trading
days ending on the Conversion Date, as reported by the National Association of
Securities Dealer's Automated Quotation System ("NASDAQ"), or the average of the
closing bid prices of the Common Stock in the over-the-counter market over the
five consecutive trading days ending on the Conversion Date or, in the event the
Common Stock is listed on a national stock exchange, the Market Price shall be
the average of the closing prices of the Common Stock on such exchange, as
reported in The Wall Street Journal, over the five consecutive trading days
ending on the Conversion Date. Such conversion shall be effectuated by
surrendering the Debentures to be converted to the Company, with the form of
conversion notice attached hereto as Exhibit A, executed by the Holder of the
Debenture evidencing such Holder's intention to convert this Debenture or a
specified portion (as above provided) hereof. The amount of accrued but unpaid
interest as of the Conversion Date shall be subject to conversion and paid in
shares of Common Stock valued at the Market Price. No fractional shares of the
Common Stock or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share. The date on which notice of conversion is given shall be deemed to
be the date on which the Holder has delivered this Debenture, with the
conversion notice duly executed, to the Company, or if earlier, the date set
forth in such notice of conversion if the Debenture is received by the Company
within three business days thereafter. Such date is referred to herein as the
"Conversion Date". Facsimile delivery of the conversion notice shall be
accepted by the Company. Certificates representing Common Stock upon conversion
will be delivered to the Holder within three (3) business days from the date the
notice of conversion is delivered to the Company.
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of principal or
interest on this Debenture as and when the same shall be due
and payable and such default shall continue for five (5)
business days after the due date thereof; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture
or the Subscription Agreement shall be
3
<PAGE> 4
false or misleading in any material respect at the time made;
or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture or the
Subscription Agreement and such failure shall continue
uncured for a period of five(5) business days after the first
date on which such failure arises (it being understood that
in the case of defaults which can not reasonably be cured
within a 5-day period no grace period shall be necessary as a
precondition to the failure to perform such covenant
constituting an Event of Default; or
(d) The Company shall(1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (2)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or against the Company, and if instituted
against the Company, shall not be dismissed within sixty (60)
days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations of, or
default in answering a petition filed in any such proceeding;
or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from trading thereon,
and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within five (5) days;
or
4
<PAGE> 5
(h) The Company shall default on the payment of any material
indebtedness for borrowed money beyond any applicable grace
period; or
(i) Any judgment, levy or attachment, shall be rendered against
the Company or any of its assets or properties in an amount
in excess of $100,000 and such judgment, levy or attachment
shall not be dismissed, stayed, bonded, or discharged within
thirty (30) days of the date of entry thereof; or
(j) The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets
in one or more transactions or shall redeem more than a de
minimus amount of its outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a waiver
of any subsequent Event of Default) at the option of the Holder and in the
Holder's sole discretion, the Holder may, upon written notice to the Company,
consider this Debenture immediately due and payable in an amount equal to the
product of (x) the number of shares of Common Stock into which this Debenture is
then convertible and (y) the Market Price of the Common Stock, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and the Holder may immediately, and without
expiration of any period of grace, enforce any and all of the Holder's rights
and remedies afforded by law.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past,
5
<PAGE> 6
present or future, of the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
8. This Debenture shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the choice of law
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
April 16, 1996
Parlux Fragrances, Inc.
By: /s/Frank A. Buttacavoli
-----------------------
Title: Vice-President & CFO
-----------------------
6
<PAGE> 7
EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933, and is not
converting the Debenture on behalf of any U.S. Person
----------------------------------
Date of Conversion*
----------------------------------
Applicable Conversion Price
----------------------------------
Signature
----------------------------------
Name
----------------------------------
Address
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
7
<PAGE> 1
Parlux Fragrances, Inc. EXHIBIT 4.22
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND WERE ISSUED PURSUANT TO
AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE ACT UNDER REGULATION D.
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH
SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THE
SECURITIES, REASONABLY ACCEPTABLE TO THE ISSUER, TO THE EFFECT THAT SUCH SALE,
TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE ACT.
No. R1-10 $10,000,000 U.S.
PARLUX FRAGRANCES, INC.
5% CONVERTIBLE DEBENTURE DUE MAY 1, 1998.
THIS DEBENTURE is one of a duly authorized issue of Debentures of Parlux
Fragrances, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (the "Company") designated as its 5% Convertible
Debentures Due May 1, 1998, in an aggregate principal amount not exceeding Ten
Million Dollars (U.S. $10,000,000).
FOR VALUE RECEIVED, The Company promises to pay to Newsun Limited, the
registered holder hereof (the "Holder"), the principal sum of US $5,000,000, on
May 1, 1998, (the "Maturity Date") and to pay interest on the principal sum
outstanding from time to time in arrears on the Maturity Date or, if earlier,
on each Conversion Date (as hereinafter defined) at the rate of 5% per annum,
computed on the basis of the actual number of days elapsed in a 365-day year.
Accrual of interest shall commence on the date hereof until payment in full of
the principal sum has been made or duly provided for. All accrued and unpaid
interest shall bear interest at the same rate from and after the due date of
the interest payment until so paid. The interest so payable, less any amounts
required by law to be deducted or withheld, will be paid on the Maturity Date
or, if earlier, on the Conversion Date, to the person in whose name this
Debenture (or one or more predecessor Debentures) is registered on the records
of the Company regarding registration and transfers of the Debentures (the
"Debenture Register")on the Conversion Date or tenth day prior to the Maturity
Date, as the case may be; provided, however, that the Company's obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions of the
1
<PAGE> 2
Subscription Agreement dated the date hereof, executed by the original Holder
in connection with the purchase of this Debenture(the "Subscription
Agreement"). The principal of, and interest on, this Debenture are
payable in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts, at the
address last appearing on the Debenture Register of the Company as designated in
writing by the Holder from time to time. The forwarding of the Company's check
shall, subject to collection, constitute a payment of interest and principal
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by such check.
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of Two Hundred and Fifty
Thousand Dollars ($250,000 U.S.) and integral multiples thereof. The Debentures
are exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holders surrendering
the same. No service charge will be made for such registration or transfer or
exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment representations of
the original purchaser hereof set forth in the Subscription Agreement and may
be transferred or exchanged only in compliance with the Securities Act of 1933
as amended (the "Act"). Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Debenture Register as the
owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
4. In accordance with the provisions of Sections 4(c), 11(b) and 16 of the
Subscription Agreement, the Holder of this Debenture may, at any time after the
earliest to occur of (i) the date that the Registration Statement (referred to
in and defined in Section 4(c) of the Subscription Agreement) is declared
effective by the Securities and Exchange Commission, (ii) the
2
<PAGE> 3
180th day after the date hereof or (iii) a "change-in control" of the Company
(as defined in the Subscription Agreement), convert up to One Hundred Percent
(100%) of the principal amount of this Debenture (in increments of not less
than Two Hundred Fifty Thousand Dollars ($250,000)) into shares of common
stock, par value $.01 per share (the "Common Stock"), of the Company at a
conversion price for each share of Common Stock equal to Eighty Five Percent
(85%) of the Market Price of the Company's Common Stock (the difference between
One Hundred Percent (100%) of the Market Price of the Common Stock and the
conversion price of Common Stock hereunder is refereed to as the "Discount");
provided, however, that in no event will the conversion price be greater than
$11.75 per share of Common Stock; and, provided, further, that the Discount may
be increased in certain circumstances as provided in Section 11(a) of the
Subscription Agreement. For purposes of this Section 4, the Market Price shall
be the average closing bid prices of the Common Stock over the five consecutive
trading days ending on the Conversion Date, as reported by the National
Association of Securities Dealer's Automated Quotation System ("NASDAQ"), or
the average of the closing bid prices of the Common Stock in the
over-the-counter market over the five consecutive trading days ending on the
Conversion Date or, in the event the Common Stock is listed on a national stock
exchange, the Market Price shall be the average of the closing prices of the
Common Stock on such exchange, as reported in The Wall Street Journal, over the
five consecutive trading days ending on the Conversion Date. Such conversion
shall be effectuated by surrendering the Debentures to be converted to the
Company, with the form of conversion notice attached hereto as Exhibit A,
executed by the Holder of the Debenture evidencing such Holder's intention to
convert this Debenture or a specified portion (as above provided) hereof. The
amount of accrued but unpaid interest as of the Conversion Date shall be
subject to conversion and paid in shares of Common Stock valued at the Market
Price. No fractional shares of the Common Stock or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given shall be deemed to be the date on which the Holder has
delivered this Debenture, with the conversion notice duly executed, to the
Company, or if earlier, the date set forth in such notice of conversion if the
Debenture is received by the Company within three business days thereafter.
Such date is referred to herein as the "Conversion Date". Facsimile delivery
of the conversion notice shall be accepted by the Company. Certificates
representing Common Stock upon conversion will be delivered to the Holder
within three (3) business days from the date the notice of conversion is
delivered to the Company.
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<PAGE> 4
5. Any of the following shall constitute an "Event of Default":
(a) The Company shall default in the payment of principal or
interest on this Debenture as and when the same shall be due
and payable and such default shall continue for five (5)
business days after the due date thereof; or
(b) Any of the representations or warranties made by the Company
herein, in the Subscription Agreement, or in any certificate
or financial or other written statements heretofore or
hereafter furnished by or on behalf of the Company in
connection with the execution and delivery of this Debenture
or the Subscription Agreement shall be false or misleading
in any material respect at the time made; or
(c) The Company shall fail to perform or observe any other
covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture or the
Subscription Agreement and such failure shall continue
uncured for a period of five(5) business days after the
first date on which such failure arises (it being understood
that in the case of defaults which can not reasonably be
cured within a 5-day period no grace period shall be
necessary as a precondition to the failure to perform such
covenant constituting an Event of Default; or
(d) The Company shall(1) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or
(2) apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial part of
its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or
business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
(f) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall
be instituted by or
4
<PAGE> 5
against the Company, and if instituted against the
Company, shall not be dismissed within sixty (60) days after
such institution or the Company shall by any action or answer
approve of, consent to, or acquiesce in any such proceedings
or admit the material allegations of, or default in answering
a petition filed in any such proceeding; or
(g) The Company shall have its Common Stock delisted from the
NASDAQ Small Cap Market or suspended from trading thereon,
and shall not have its Common Stock relisted or have such
suspension lifted, as the case may be, within ten (10) days;
or
(h) The Company shall default on the payment of any material
indebtedness for borrowed money beyond any applicable grace
period; or
(i) Any judgment, levy or attachment, shall be rendered against
the Company or any of its assets or properties in an amount
in excess of $100,000 and such judgment, levy or attachment
shall not be dismissed, stayed, bonded, or discharged within
thirty (30) days of the date of entry thereof; or
(j) The Company shall be a party to any merger or consolidation
or shall dispose of all or substantially all of its assets
in one or more transactions or shall redeem more than a de
minimus amount of its outstanding shares of capital stock.
Upon the occurrence of any Event of Default or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of
any subsequent Event of Default) at the option of the Holder and in the
Holder's sole discretion, the Holder may, upon written notice to the Company,
consider this Debenture immediately due and payable in an amount equal to the
product of (x) the number of shares of Common Stock into which this Debenture is
then convertible and (y) the Market Price of the Common Stock, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and the Holder may immediately, and without
expiration of any period of grace, enforce any and all of the Holder's rights
and remedies afforded by law.
5
<PAGE> 6
6. The Holder shall, in the event that the closing bid price for the
Common Stock of the Company shall exceed $17.00 for a period of five
consecutive trading days at any time after the 180th day following the
Effective Date, at the option of and on notice from the Company,
surrender the Debenture for conversion in its entirety. The Company
shall provide the Holder with five (5) days notice of its intent to
exercise its option to demand the conversion of the Debenture. The
mandatory conversion price for the Debenture shall be calculated in
accordance with the provisions of Section 4 of the Debenture assuming for
purposes of Section 4 that the date fixed by the Company for conversion
is the Conversion Date. In the event the Holder does not convert or
submit the Debenture for conversion by the Conversion Date set forth in
the Company's notice, then, and without any further notice or action on
the part of the Company, the Debentures will be deemed canceled upon such
conversion and of no further force and effect and from and after such
date the Holder shall have no rights thereunder except the right to
receive the number of shares of Common Stock issuable upon such
conversion upon the surrender of this Debenture.
7. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the coin or
currency, herein prescribed. This Debenture and all other Debentures now or
hereafter issued of similar terms are direct obligations of the Company. This
Debenture ranks equally with all other Debentures now or hereafter issued under
the terms set forth herein.
8. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, officer or director, as
such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
6
<PAGE> 7
9. This Debenture will be construed and enforced in accordance with and
governed by the laws of the State of New York, except for matters arising under
the Act, without reference to principles of conflicts of law. Each of the
parties consents to the jurisdiction of the federal courts whose districts
encompass any part of the State of New York or the state courts of the State of
New York in connection with any dispute arising under this Debenture and hereby
waives, to the maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions. Each party hereby agrees that if another party to this
Debenture obtains a judgment against it in such a proceeding, the party which
obtained such judgment may enforce same by summary judgment in the courts of
any country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Debenture irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
10. This Debenture shall be binding upon the Company and its successors,
including, but not limited to, a successor to the Company by consolidation or
merger or a transferee of all or substantially all of its assets.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
May 8, 1996
Parlux Fragrances, Inc.
By: /s/Frank A. Buttacavoli
---------------------------
Title: Vice-President & CFO
------------------------
7
<PAGE> 8
EXHIBIT A
NOTICE OF CONVERSIONS
(To be Executed by Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture No.
into shares of Common Stock of Parlux Fragrances, Inc. (the "Company")
according to the conditions hereof, as of the date written below.
--------------------------------
Date of Conversion*
--------------------------------
Applicable Conversion Price
NEWSUN LIMITED
--------------------------------
Signature
--------------------------------
Address:
Newsun Limited
C/O ABN AMRO Trust Company
80 Rue due Rhone
1204 Geneva, Switzerland
*This original Debenture and Notice of Conversion must be received by the
Company by the third business day following the Date of Conversion.
8
<PAGE> 1
EXHIBIT 4.23
PARLUX FRAGRANCES, INC.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL, IN FORM, SCOPE AND SUBSTANCE
REASONABLY ACCEPTABLE TO THE BORROWER, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT.
5% CONVERTIBLE DEBENTURE DUE MAY 1, 1998
Fort Lauderdale, Florida $5,000,000.00
May 17, 1996
FOR VALUE RECEIVED, PARLUX FRAGRANCES, INC., a Delaware corporation (the
"BORROWER"), hereby promises to pay to GFL PERFORMANCE FUND LTD. or registered
assigns (the "HOLDER") or order, the sum of Five Million Dollars
($5,000,000.00) on May 1, 1998, and to pay interest on the unpaid principal
balance hereof at the rate of five percent (5%) per annum from the date hereof
until the same becomes due and payable, whether at maturity, upon acceleration
or otherwise. Interest shall commence accruing on the date hereof and shall be
payable on the 1st day of each August, November, February and May, commencing
August 1, 1996, and at maturity. Any amount of principal of or interest on
this Debenture which is not paid when due shall bear interest at the rate of
ten percent (10%) per annum from the due date thereof until the same is paid.
All payments of principal shall be made in lawful money of the United States of
America, and all payments of interest shall be made in lawful money of the
United States of America or, at the option of the Borrower and subject to the
provisions of this Debenture, in whole or in part in fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Borrower as such
stock exists on the date of issuance of this Debenture, or any shares of
capital stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "COMMON STOCK"). All payments shall be made by wire transfer
of immediately available funds to such account as the Holder shall specify from
time to time to the Borrower by written notice given in accordance with the
provisions of this Debenture.
The following terms shall apply to this Debenture:
<PAGE> 2
1. ISSUANCE OF COMMON STOCK IN LIEU OF CASH INTEREST
(a) If the Borrower desires to exercise its option to make a payment of
interest on this Debenture wholly or partly in shares of Common Stock
(hereinafter sometimes called the "STOCK PAYMENT OPTION"), the issuance of
shares of Common Stock upon such exercise of the Stock Payment Option shall
have been authorized by the Board of Directors of the Borrower.
(b) The Borrower shall not be permitted to exercise the Stock Payment
Option with respect to any payment of interest on this Debenture if:
(i) the number of shares of Common Stock authorized, unissued and
unreserved for all purposes, or held in the Borrower's treasury, is
insufficient to pay the portion of such interest to be paid in Common Stock;
(ii) the issuance or delivery of shares of Common Stock pursuant to the
Stock Payment Option or the public resale of such shares by the Holder would
require registration with or approval of any governmental authority, under any
law or regulation, and such registration or approval has not been effected or
obtained or sales pursuant to such registration cannot then be made for any
reason; provided however, that with respect to compliance with the securities
or blue sky laws of the states of the United States, the requirements of this
clause (ii) shall be deemed satisfied if at the applicable time the Borrower is
in compliance with Section 3(e) of the Registration Rights Agreement of even
date herewith by and among the Borrower and the investor named therein (the
"REGISTRATION RIGHTS AGREEMENT").
(iii) the shares of Common Stock to be issued upon exercise of the Stock
Payment Option have not been authorized for listing, upon official notice of
issuance, on any national or regional securities exchange on which the Common
Stock is then listed; or have not been approved for quotation if traded in the
over-the-counter market;
(iv) the Average Market Price (as defined herein) is less than the par
value of the Common Stock;
(v) an Event of Default (as defined herein) has occurred and is continuing
or has not been waived; or
(vi) the Common Stock is neither (i) listed or admitted for trading on the
New York Stock Exchange ("NYSE") or the American Stock Exchange ("AMEX") nor
(ii) quoted on the National Market of the National Association of Securities
Dealers Automated Quotation System ("NASDAQ-NM");
provided, however, that in no event shall the Borrower be permitted to exercise
the Stock Payment Option and issue shares of Common Stock pursuant thereto if,
after giving effect to
2
<PAGE> 3
such issuance, the number of shares of Common Stock issued on conversion of
this Debenture and otherwise beneficially owned by such holder and all other
holders whose holdings would be aggregated with such holder for purposes of
calculating beneficial ownership in accordance with Sections 13(d) and 16 of
the Securities Exchange Act of 1934, as amended, and the regulations thereunder
("SECTIONS 13(D) AND 16"), including, without limitation, any person serving as
an adviser to any holder (collectively, the "RELATED PERSONS"), would exceed
four and nine-tenths percent (4.9%) of the outstanding shares of Common Stock
(calculated in accordance with Sections 13(d) and 16); and cash shall be paid
in lieu of any shares which cannot be issued pursuant to this proviso. Common
Stock issuable upon conversion of this Debenture by such holder or the Related
Persons shall not be deemed to be beneficially owned by such holder or the
Related Persons for this purpose.
(c) If the Stock Payment Option is properly elected, the Borrower shall
issue and dispatch or cause to be dispatched to the Holder one or more
certificates for the aggregate number of whole shares of Common Stock
determined by dividing the per share Average Market Price (as herein defined)
for the Common Stock for the five (5) consecutive trading days ending one
trading day prior to the applicable payment date into the total amount of
lawful money of the United States of America which the Holder would receive if
the aggregate amount of interest on this Debenture which is being paid in
shares of Common Stock were being paid in such lawful money. No fractional
shares will be issued in payment of interest on this Debenture. In lieu
thereof, the Borrower may issue a number of shares of Common Stock which
reflects a rounding up to the next whole number or may pay lawful money of the
United States of America in an amount representing such fractional shares. The
shares of Common Stock issued or to be issued by the Borrower in payment of
interest on this Debenture are sometimes referred to hereinafter as the
"INTEREST SHARES."
(d) If the Borrower exercises the Stock Payment Option with respect to a
payment of interest on this Debenture, the Borrower shall deliver to the
Holder, on or prior to the date on which Interest Shares for such payment of
interest on this Debenture are to be dispatched to the Holder, an Officers'
Certificate (as hereinafter defined) setting forth (i) the total amount of the
interest payment to which the Holder is entitled, (ii) the portion of the
interest payment being made in Interest Shares, (iii) the number of Interest
Shares allocable to such payment, as calculated pursuant to this Section, (iv)
any rounding adjustment to such number or any payment necessary to be made
pursuant to Section 2(c), (v) a brief statement of the facts requiring such
adjustment, and (vi) a brief statement that none of the conditions set forth in
Section 2(b) has occurred and is existing. Such Officer's Certificate shall be
accompanied by the certificates and instruments, each duly issued in the name
of the Holder, representing the Interest Shares. Such Officers' Certificate
shall be conclusive evidence of the correctness of the calculation of the
number of Interest Shares allocable to the payments to which such Officers'
Certificate relates and of any adjustments to such number made pursuant to this
Section. In addition, on or before the pertinent payment date, the Borrower
shall cause the transfer agent for the Common Stock to prepare and issue the
certificates representing the Interest Shares in the name of the Holder before
being so delivered by the Borrower.
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<PAGE> 4
(e) The Interest Shares, when dispatched pursuant to and in compliance
with this Section, shall be, and for all purposes shall be deemed to be, duly
authorized, validly issued, fully paid and nonassessable shares of Common
Stock;
(f) As used in this Debenture, the following terms shall have the
following meanings:
"AVERAGE MARKET PRICE" of any security for any period shall be computed as
the arithmetic average of the closing quotations for such security for each
trading day in such period on NYSE or AMEX, or, if NYSE or AMEX is not the
principal trading market for such security, of the closing bid prices on the
principal trading market (including any automated quotations system) for such
security, or, if market value cannot be calculated for such period on any of
the foregoing bases, the average fair market value during such period as
reasonably determined in good faith by the Board of Directors of the Borrower.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman or Vice
Chairman of the Board, the President or the Chief Financial Officer.
2. CONVERSION AT THE OPTION OF THE HOLDER
(a) Conversion Right. The Holder shall have the right any time after the
date the Registration Statement (the "REGISTRATION STATEMENT") required to be
filed by the Borrower pursuant to Section 2(a) of the Registration Rights
Agreement is declared effective (the "EFFECTIVE DATE") by the Securities and
Exchange Commission (the "SEC") and then at any time on or prior to the day
this Debenture is paid in full, to convert at any time all, or from time to
time any part of, the outstanding and unpaid principal amount of this Debenture
into fully paid and nonassessable shares of Common Stock at the conversion
price determined as provided herein (the "CONVERSION PRICE"); provided,
however, that in no event shall any Holder be entitled to convert any portion
of the principal amount of this Debenture if, after giving effect to such
conversion, the number of shares issued on conversion and otherwise
beneficially owned by such holder and all Related Persons would exceed four and
nine-tenths percent (4.9%) of the outstanding shares of Common Stock
(calculated in accordance with Sections 13(d) and 16). Common Stock issuable
upon conversion as to any portion of the outstanding and unpaid principal
amount of this Debenture as to which the Holder has not exercised its right of
conversion shall not be deemed to be beneficially owned by such holder or
Related Persons for this purpose. Notwithstanding that the Borrower shall have
given the Holder a Mandatory Conversion Notice (as defined herein), the Holder
shall have the right to convert as provided herein at any time up to the date
fixed for such conversion. Upon the surrender of this Debenture, accompanied
by a Notice of Conversion of Convertible Debenture in the form attached hereto
as Exhibit A, properly completed and duly executed by the Holder (a "CONVERSION
NOTICE"), the Borrower shall issue and, within three (3) business days after
such surrender of this Debenture with the Conversion Notice, deliver to or upon
the order of
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<PAGE> 5
the Holder (1) that number of shares of Common Stock for the portion of the
Debenture converted as shall be determined in accordance herewith, (2) a new
Debenture in the form hereof for the balance of the principal amount hereof, if
any, and (3) payment of the accrued and unpaid interest on the portion of the
principal amount of this Debenture so converted (which payment of interest may
be made in accordance with Section 1 of this Debenture if the Borrower
satisfies the requirements thereof). The number of shares of Common Stock to be
issued upon each conversion of this Debenture shall be determined by dividing
that portion of the principal amount of the Debenture to be converted by the
Conversion Price in effect on the date the Conversion Notice is delivered to
the Borrower by the Holder.
(b) Conversion Price. The Conversion Price shall be the lesser of (i)
eighty five percent (85%) (the "CONVERSION PERCENTAGE") of the Average Market
Price for the Common Stock for the five (5) consecutive trading days ending one
trading day prior to the date of the Conversion Notice, subject to adjustment
as provided herein, or (ii) $12.00 (the "FIXED CONVERSION PRICE").
(c) Adjustment to Conversion Percentage. If the Registration Statement
has not been declared effective by the SEC within ninety (90) days after the
date hereof, or if, after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the Registration
Statement by reason of issuance of a stop order, the Borrower's failure to
update the Registration Statement or otherwise, or if the Common Stock is not
listed or included for quotation on the NASDAQ-NM, NYSE, or AMEX, then, as
partial relief for the damages to the Holder by reason of any such delay in or
reduction of its ability to sell the shares of Common Stock (which remedy shall
not be exclusive of any other remedies available at law or in equity), the
Conversion Percentage shall be reduced by a number of percentage points equal
to the Discount Amount, as hereinafter defined, times the sum of: (i) the
number of months (prorated for partial months) after the end of such 90 day
period and prior to the date the Registration Statement is declared effective
by the SEC, (ii) the number of months (prorated for partial months) that sales
cannot be made pursuant to the Registration Statement (by reason of stop order,
the Borrower's failure to update the Registration or otherwise) after the
Registration Statement has been declared effective; and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the NASDAQ-NM, NYSE or AMEX after the Registration
Statement has been declared effective. The "DISCOUNT AMOUNT" for the first two
months during which adjustment is required by this Section shall be one (1);
for the third month, two (2); and for the fourth month and each month
thereafter, three (3). (For example, if the Registration Statement becomes
effective one and one-half (1 1/2) months after the end of such 90 day period,
the Conversion Percentage would be 83.5% until any subsequent adjustment; if
thereafter sales could not be made pursuant to the Registration Statement for a
period of two (2) months, the Conversion Percentage would then be 79.5%.) If
the Holder converts this Debenture, or any portion thereof, into Common Stock
and an adjustment to the Conversion Percentage is required subsequent to such
conversion, but prior to the sale of such Common Stock by such Holder, the
Borrower shall pay to such Holder, within five (5) days after receipt of a
notice of
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<PAGE> 6
the sale of such Common Stock from such Holder, an amount equal to the Average
Market Price of the Common Stock obtained upon conversion for the five (5)
trading days ending one (1) trading day prior to the date of conversion
multiplied by a fraction, the numerator of which shall be the applicable
Discount Amount and the denominator of which shall be one hundred (100), times
the number of months (prorated for partial months) for which an adjustment was
required. Such amount may be paid at the Borrower's option in cash or Common
Stock valued based on the Average Market Price of the Common Stock for the
period of five (5) consecutive trading days ending on the date of the sale of
such Common Stock (the "DAMAGE SHARES"); provided, however, that any amounts
due as to that period during which the shares are not traded or included for
quotation on the NASDAQ-NM, NYSE or AMEX shall be paid in cash only; provided,
further, however, that in no event shall the Damage Shares be issued hereunder
if, after giving effect to such issuance, the number of shares of Common Stock
issued as Damage Shares and otherwise beneficially owned by such holder and all
Related Persons would exceed four and nine-tenths percent (4.9%) of the
outstanding shares of Common Stock (calculated in accordance with Sections
13(d) and 16); and cash shall be paid in lieu of any shares which cannot be
issued pursuant to this second proviso. Common Stock issuable upon conversion
of this Debenture by such holder or the Related Persons shall not be deemed to
be beneficially owned by such holder or the Related Persons for this purpose.
(For example, if the Conversion Percentage was 83.5% at the time of conversion
of $1,000,000 in unpaid principal of this Debenture (such that that amount was
converted into Common Stock having an Average Market Price for the applicable
period in aggregate of $1,197,604.70) and subsequent to conversion there was a
further two (2) month delay in the Registration Statement's being declared
effective, and such Common Stock was sold at the end of such two (2) month
period, the Borrower would pay to the Holder $47,904.19 in cash or Common
Stock.)
(d) Authorized Shares. The Borrower covenants that during the period the
conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full conversion of this Debenture, to pay interest
hereunder, and to pay any damages pursuant to Section 2(c). The Borrower
represents that, upon issuance, such shares will be duly authorized, validly
issued, fully paid and non-assessable. The Borrower agrees that its issuance
of this Debenture shall constitute full authority to its officers and agents
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of Common Stock as required
hereunder.
(e) Concerning the Shares. The shares of Common Stock issuable upon
conversion of, or in payment of interest under, this Debenture (or pursuant to
Section 2(c)) may not be sold or transferred unless (i) they first shall have
been registered under the 1933 Act and applicable state securities laws or (ii)
the Borrower shall have been furnished with an opinion of legal counsel, in
form, scope and substance reasonably satisfactory to the Borrower, to the
effect that such sale or transfer is exempt from the registration requirements
of the Securities Act of 1933, as amended, and all rules and regulations
promulgated thereunder (collectively,
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<PAGE> 7
the "1933 ACT") or (iii) sold pursuant to Rule 144 under the 1933 Act. Each
certificate for shares of Common Stock issuable upon conversion of, or in
payment of interest under, this Debenture (or pursuant to Section 2(c)) that
have not been so registered and that have not been sold pursuant to an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN
FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE BORROWER
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SAID ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY
WITH APPLICABLE STATE SECURITIES LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Debenture or issuable pursuant hereto,
the Borrower shall remove the foregoing legend from the certificate or issue to
such holder a new certificate therefor free of any transfer legend, if (i) with
such request, the Borrower shall have received either (A) an opinion of
counsel, in form, scope and substance reasonably satisfactory to the Borrower,
to the effect that any such legend may be removed from such certificate, or (B)
satisfactory representations from the holder that such holder is eligible to
sell immediately all of the Common Stock issuable upon conversion of this
Debenture or issuable pursuant hereto pursuant to Rule 144 (or successor
thereto) or (ii) a Registration Statement covering such securities is in
effect. Nothing in this Debenture shall (i) limit the Borrower's obligations
under the Registration Rights Agreement or (ii) affect in any way the Holder's
obligations to comply with applicable securities laws upon the resale of the
securities referred to herein.
(f) Effect of Merger, Consolidation, etc. If at any time when this
Debenture is issued and outstanding, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event,
as a result of which shares of Common Stock of the Borrower shall be changed
into the same or a different number of shares of another class or classes of
stock or securities of the Borrower or another entity, or in case of any sale
or conveyance of all or substantially all of the assets of the Borrower other
than in connection with a plan of complete liquidation of the Borrower, then
the Holder of this Debenture shall thereafter have the right to receive upon
conversion of this Debenture, upon the bases and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or
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<PAGE> 8
assets which the Holder would have been entitled to receive in such transaction
had this Debenture been converted in full immediately prior to such
transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder of this Debenture to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Percentage and of the number of shares issuable
upon conversion of the Debenture) shall thereafter be applicable, as nearly as
maybe practicable in relation to any securities or assets thereafter
deliverable upon the exercise hereof. The Borrower shall not effect any
transaction described in this Section 2(f) unless (a) it first gives, to the
extent practical, thirty (30) days prior written notice (but in any event at
least fifteen (15) business days prior written notice) of such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled
to convert this Debenture) and (b) the resulting successor or acquiring entity
(if not the Borrower) assumes by written instrument the obligations of this
Section 2(f).
(g) Taxes. The Borrower shall pay any and all taxes which may be imposed
upon it with respect to the issuance and delivery of Common Stock upon the
conversion of this Debenture as herein provided. The Borrower shall not be
required in any event to pay any transfer or other taxes by reason of the
issuance of such Common Stock in names other than those in which the Debenture
surrendered for conversion is registered on the Borrower's records, and no such
conversion or issuance of Common Stock shall be made unless and until the
person requesting such issuance has paid to the Borrower the amount of any such
tax, or has established to the satisfaction of the Borrower and its transfer
agent, if any, that such tax has been paid.
3. CONVERSION AT THE OPTION OF THE BORROWER
The Borrower may, at any time subsequent to one hundred eighty (180) days
after the Effective Date and so long as no Event of Default shall have occurred
or be continuing and so long as the Average Market Price for the Common Stock
for the five (5) consecutive trading days ending one day prior to the date of
any notice of mandatory conversion (a "MANDATORY CONVERSION NOTICE") has been
greater than twenty dollars ($20) per share, require the Holder to convert some
or all of the unpaid and outstanding principal of this Debenture into Common
Stock in accordance with the terms hereof; provided, however, that in no event
shall the Borrower be entitled to require any holder to convert any portion of
this Debenture if, and no such conversion shall be effective to the extent
that, after giving effect to such conversion, the number of shares of Common
Stock issued in such conversion and otherwise beneficially owned by such holder
and all Related Persons, would exceed four and nine-tenths percent (4.9%) of
the outstanding shares of Common Stock (calculated in accordance with Sections
13(d) and 16). The Conversion Price for the purposes of this Section 3 shall
be the lesser of (i) the product obtained by multiplying the Average Market
Price for the Common Stock for the five (5) consecutive trading days ending one
day prior to the conversion date specified in the Mandatory Conversion Notice
by the then applicable Conversion Percentage, or (ii) the Fixed Conversion
Price. Any Mandatory Conversion Notice shall be given by mail to the
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<PAGE> 9
Holder at least fifteen (15) trading days prior to the date fixed as the date
for the conversion thereof and shall state that the specified portion of the
Debenture shall be converted at the Conversion Price in effect on the date
fixed for the conversion, upon the surrender, at the time and place designated
in such notice, of the Debenture. Within two (2) business days after the date
fixed for conversion, the Borrower shall deliver to the Holder (1) that number
of shares of Common Stock for the portion of the Debenture converted as shall
be determined in accordance herewith, (2) a new Debenture in the form hereof
for the balance of the principal amount hereof, if any, and (3) payment of the
accrued and unpaid interest on the portion of the principal amount of this
Debenture so converted (which payment of interest may be made in accordance
with Section 1 of this Debenture if the Borrower satisfies the requirements
thereof). Notwithstanding the foregoing, if, at the time fixed for such
conversion, the Common Stock is not listed or included for quotation on the
NASDAQ-NM, NYSE, or AMEX, then the Mandatory Conversion Notice shall be null
and void.
4. EVENTS OF DEFAULT
If any of the following events of default (each, an "EVENT OF DEFAULT")
shall occur:
(a) The Borrower fails (i) to pay the principal hereof when due, whether
at maturity, upon redemption, upon acceleration or otherwise or (ii) to pay any
installment of interest hereon when due and, in the case of this clause (ii)
only, such failure continues for a period of five (5) days after the due date
thereof;
(b) The Borrower fails to issue shares of Common Stock to the Holder upon
exercise by the Holder of the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer any certificate for shares
of Common Stock issued to the Holder upon conversion of this Debenture and when
required by this Debenture or the Registration Rights Agreement, or fails to
remove any restrictive legend on any certificate or any shares of Common Stock
issued to the Holder upon conversion of this Debenture as and when required by
this Debenture or the Registration Rights Agreement;
(c) The Borrower breaches any material covenant or other material term or
condition of this Debenture, the Note Purchase Agreement of even date herewith
by and between the Borrower and the investor named therein (the "NOTE PURCHASE
AGREEMENT") or the Registration Rights Agreement and such breach continues for
a period of ten business (10) days after written notice thereof to the Borrower
from the Holder;
(d) Any representation or warranty of the Borrower made herein or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith (including, without limitation, the Note Purchase Agreement
and the Registration Rights Agreement), shall be false or misleading in any
material respect when made and, in the case of any such false or misleading
representation or warranty as to which the facts or events underlying such
falsehood or misleading nature are reasonably capable of cure without
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<PAGE> 10
material adverse effect on the Holder, the same shall not have not have been
cured within ten business days;
(e) The Borrower, pursuant to or within the meaning of Title 11, U.S. Code
or any similar federal or state law for the relief of debtors (each, a
"BANKRUPTCY LAW") (i) admits in writing its inability to pay its debts
generally as they become due, (ii) commences a voluntary case or proceeding,
(iii) consents to the entry of a judgment, decree or order for relief against
it in an involuntary case or proceeding, (iv) consents to the appointment of a
custodian, receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law (each, a "CUSTODIAN") of it or for all or
substantially all of its property, (v) consents to the institution of
bankruptcy or insolvency proceedings against it, (vi) applies for, consents to
or acquiesces in the appointment of or taking possession by a Custodian of the
Borrower or for any substantial part of its property, (vii) makes a general
assignment for the benefit of its creditors, or (viii) takes any corporate
action in furtherance of any of the foregoing;
(f) Any money judgment, writ or similar process shall be entered or filed
against the Borrower or any subsidiary of the Borrower or any of its or their
property or other assets for more than $250,000, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise
consented to by the Holder, which consent will not be unreasonably withheld; or
(g) A court of competent jurisdiction enters a judgment, decree or order
for relief in respect of the Borrower in an involuntary case or proceeding
under any Bankruptcy Law which shall (i) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in respect of
the Borrower, (ii) appoint a Custodian of the Borrower or for any substantial
part of its property or (iii) order the winding-up or liquidation of its
affairs; and such judgment, decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or any bankruptcy or insolvency petition
or application is filed, or any bankruptcy or insolvency proceeding is
commenced, against the Borrower and such petition, application or proceeding is
not dismissed within 60 days;
then upon the occurrence and during the continuation of any Event of Default,
at the option of the Holder hereof, the Borrower shall, pay to the Holder an
amount equal to the sum of (x) the unpaid principal amount of this Debenture
plus (y) an amount equal to seventeen and sixty four-hundredths (17.64%) of the
unpaid principal amount of this Debenture, plus accrued and unpaid interest on
the unpaid principal amount of this Debenture to the date of payment, and all
other amounts payable hereunder shall immediately become due and payable, all
without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, legal fees and
expenses of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity. If prior to or after the
occurrence of any event which would be an Event of Default the Holder shall
have waived the same in writing, such event shall not be deemed an Event of
Default for any purpose.
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<PAGE> 11
5. MISCELLANEOUS
(a) Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
(b) Notices. Any notices required or permitted to be given under the
terms of this Debenture shall be sent by registered or certified mail, return
receipt requested, or delivered personally or by courier or telefacsimile and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt, if delivered personally or by courier, in each case addressed to a
party. The addresses for such communications shall be:
If to the Borrower:
3725 S.W. 30th St.
Fort Lauderdale, FL 33312
Telephone: (954) 316-9008
Telecopy: (954) 316-8155
Attention: Ilia Lekach
If to the Holder, at the addresses on the signature page.
With copy to:
Genesee Advisers
11921 Freedom Drive, Suite 550
Reston, VA 22090
Telephone: (703) 904-4349
Telecopy: (703) 834-6627
Attention: Neil T. Chau
And:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Telephone: (215) 568-6060
Telecopy: (215) 568-6603
Attention: Stephen T. Burdumy, Esq.
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<PAGE> 12
Each party shall provide notice to the other party of any change in address.
(c) Amendment Provision. The term "DEBENTURE" and all references thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
(d) Assignability. This Debenture shall be binding upon the Borrower and
its successors and assigns, and shall inure to be the benefit of the Holder and
its successors and assigns.
(e) Cost of Collection. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including attorneys' fees and costs.
(f) Governing Law. This Debenture shall be governed by the internal laws
of the State of Delaware, without regard to the principles of conflict of laws.
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<PAGE> 13
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its
name by its duly authorized officer on the day and in the year first above
written.
PARLUX FRAGRANCES, INC.
By:/S/Frank A. Buttacavoli
---------------------------
Title: Vice President/C.F.O.
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<PAGE> 14
EXHIBIT A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: PARLUX FRAGRANCES, INC.
(1) Pursuant to the terms of the attached Convertible Debenture (the
"DEBENTURE"), the undersigned hereby elects to convert: $_______ principal
amount of the Debenture into shares of Common Stock of PARLUX FRAGRANCES, INC.,
a Delaware corporation (the "BORROWER"). Capitalized terms used herein and not
otherwise defined herein have the respective meanings provided in the
Debenture.
(2) Please issue a certificate or certificates for the number of shares of
Common Stock into which such principal amount of the Debenture is convertible
in the name(s) specified immediately below or, if additional space is
necessary, on an attachment hereto:
------------------- -------------------
Name Name
------------------- -------------------
Address Address
------------------- -------------------
SS or Tax ID Number SS or Tax ID Number
(3) In the event of partial exercise, please reissue an appropriate
Debenture for the principal balance which shall not have been converted.
Capitalized terms used in this Notice of Conversion and not otherwise defined
herein shall have the respective meanings provided in the Debenture.
(4) If the shares of Common Stock issuable upon conversion of the
Debenture have not been registered under the Securities Act of 1933, as amended
(the "ACT"), the undersigned represents and warrants that such shares of
Common Stock are being acquired for the account of the undersigned for
investment, and not with a view to, or for resale in connection with, the
distribution thereof, except pursuant to sales registered under the 1933 Act
and (ii) the undersigned is an "ACCREDITED INVESTOR" as defined in Regulation D
under the 1933 Act. The undersigned further agrees that (A) such shares shall
not be sold or transferred unless either (i) they first shall have been
registered under the 1933 Act and applicable state securities laws or (ii) the
Borrower first shall have been furnished with an opinion of legal counsel, in
form,
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scope and substance reasonably satisfactory to the Borrower, to the effect that
such sale or transfer is exempt from the registration requirements of the 1933
Act and (B) the Borrower may place a legend on the certificates) for the shares
to that effect and place a stop-transfer restriction in its records relating to
shares.
Date:
----------------------- ---------------------------------------
Signature of Registered Holder (must be
signed exactly as name appears in the
Debenture)
2
<PAGE> 1
EXHIBIT 23.
PARLUX FRAGRANCES, INC
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-49884) of Parlux Fragrances, Inc. of our report
dated June 28, 1996 appearing on page F-2 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Miami, Florida
June 28, 1996
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