SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------
FORM 10-Q
( Mark One )
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
------------------
Or______
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number: 0-15491
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PARLUX FRAGRANCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
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DELAWARE 22-2562955
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
3725 S.W. 30th Avenue, Ft. Lauderdale, FL 33312
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( Address of principal executive offices ) (Zip code)
Registrant's telephone number, including area code 954-316-9008
-----------------------------
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Former name, former address and former fiscal year, if changed since last report
Indicate with an "X" whether the registrant ( 1 ) has filed all reports
required to be filed by Section 13 or 15( d ) of the Securities Exchange Act of
1934 during the preceding 12 months ( or for such shorter period that the
registrant was required to file such reports ), and ( 2 ) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate with an "X" whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15( d ) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 11, 1999, 11,980,418 shares of the issuer's common stock
were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See pages 9 to 19
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The Company may periodically release forward-looking statements pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements, including those in this Form 10-Q, involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or its industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks and
uncertainties include, among others, collectability of trade receivables, future
trends in sales and the Company's ability to introduce new products in a
cost-effective manner. Readers are cautioned not to place undue reliance on
these forward statements, which speak only as of the date thereof. The Company
undertakes no obligation to publicly release the result of any revisions to
those forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's ( the Company's ) financial
position and operating results during the periods included in the accompanying
financial statements and notes. This discussion and analysis should be read in
conjunction with such financial statements and notes.
Recent Developments
- -------------------
On August 20, 1999, the Company entered into an exclusive worldwide licensing
agreement with Ocean Pacific Apparel Corp. ("OP"), to manufacture and distribute
men's and women's fragrances and other related products under the OP label. The
Company anticipates launching the first OP fragrance for the Spring 2001 season.
The Company had net sales of $17,244,674 and $11,995,103 during the six-month
periods ended September 30, 1999 and September 30, 1998, respectively, to
Perfumania, Inc. (Perfumania), a company in which the Company's Chairman and
Chief Executive Officer has an ownership interest and holds identical management
positions. Net amounts due from Perfumania totaled $19,580,025 (including the
effect of the stock transaction discussed below) and $18,258,213 at September
30, 1999 and March 31, 1999, respectively. Amounts due from related parties are
non-interest bearing and are realizable in less than one year.
During the period from April 1, 1999 through September 30, 1999, the Company
collected $11.4 million or approximately 63% of the total of its outstanding
receivable at March 31, 1999, excluding the effect of the stock transaction
discussed below.
On July 1, 1999, Perfumania and the Company's Board of Directors approved the
transfer of 1,512,406 shares of Perfumania treasury stock to the Company in
consideration for a partial reduction of the outstanding trade receivable
balance in the amount of $4,506,970. The transfer price was based on a per share
price of $2.98, which approximated 90% of the closing price of Perfumania's
2
<PAGE>
common stock for the previous 20 business days. In connection with the transfer
of the shares, the parties executed a registration rights agreement whereby the
Company would be able to demand registration of the shares with the Securities
and Exchange Commission at any time after February 29, 2000. Both agreements
were consummated on August 31, 1999, and the transaction is reflected in the
accompanying September 30, 1999 balance sheet.
In addition, on October 4, 1999, the parties entered into an agreement which
converted $8 million of the outstanding trade receivable into a subordinated
secured note receivable. The note bears interest at prime plus one percent and
is repayable in installments of $3,000,000 in October 1999, six equal monthly
installments of $500,000 from November 1999 through April 2000, with the balance
of $2,000,000 due on May 31, 2000. This short-term note receivable transaction
is not reflected in the accompanying September 30, 1999 balance sheet.
During the period of October 1, 1999 through November 11, 1999, the Company
received cash payments of $4.5 million from Perfumania, including the initial $3
million installment due under the note receivable.
As indicated in various public press releases, Perfumania has reported both
aggregate and comparative store sales increases for each of the months during
the period February 1999 through October 1999, and its subsidiary,
perfumania.com, successfully completed a public offering in which Perfumania
also sold one million of its perfumania.com shares. Based on the factors
described above, management believes that the receivable from Perfumania is
fully collectible.
Results of Operations
- ---------------------
Comparison of the three-month period ended September 30, 1999 with the
- ----------------------------------------------------------------------
three-month period ended September 30, 1998.
- --------------------------------------------
During the quarter ended September 30, 1999, net sales increased 22% to
$19,701,502 as compared to $16,136,121 for the same period for the prior year.
The increase is primarily attributable to the continuing strength of the Perry
Ellis brand. Approximately $2,917,000 of the increase related to the initial
launch of the Perry Ellis "Portfolio for Men" fragrance, which is expected to
continue its rollout through the Spring of 2000. Total gross sales of all Perry
Ellis brands increased 43% compared to the same period in the prior year from
$9,817,096 to $14,077,486.
Sales to unrelated customers increased 4% to $10,763,338 in the current period,
compared to $10,364,161 in the same period in the prior year. Sales to related
parties increased 55% to $8,938,164 in the current quarter compared to
$5,771,960 during the comparable period.
Cost of goods sold increased as a percentage of net sales from 41% for the
quarter ended September 30, 1998 to 46% for the current quarter. The increase
was mainly attributable to the increase in the percentage of net sales to
related parties as compared to total net sales, coupled with the sale of certain
closeout merchandise to international customers at below cost. Cost of goods
3
<PAGE>
sold on sales to unrelated customers and related parties approximated 46% and
45%, respectively, during the quarter ended September 30, 1999, as compared to
39% and 45%, respectively, in the prior year comparable quarter.
Operating expenses for the current quarter decreased by 3% compared to the prior
fiscal year period from $7,990,429 to $7,763,826, decreasing as a percentage of
net sales from 50% to 39%. Advertising and promotional expenses decreased 11% to
$3,612,416 compared to $4,067,212 in the prior year period, reflecting a
decrease in print advertising and promotional expenses in connection with the
launch of Fred Hayman's "Hollywood for Women" which occurred in the same quarter
in the prior year. Selling and distribution costs decreased 7% to $1,489,014 in
the current quarter as compared to $1,608,594 in the same period of the prior
fiscal year, decreasing as a percentage of net sales from 10% to 8%. General and
administrative expenses decreased by 18% compared to the prior year period from
$1,202,289 to $983,923, decreasing as a percentage of net sales from 7% to 5%.
The above decreases reflect, for the most part, certain non-recurring
professional and consulting fees which were incurred during the prior year
period. Depreciation and amortization increased $373,869 as a result of
increased amortization of goodwill due to the cancellation of the Baryshnikov
license agreement. Royalties increased to $695,764 for the current period
compared to $503,494 in the prior year, and increased as a percentage of sales
from 3% to 4%, primarily due to the increase in sales of Perry Ellis brand
products as a percentage of total sales.
As a result of the above, the Company had operating income of $2,964,309 or 15%
of net sales for the three-month period ended September 30, 1999, compared to
$1,528,143 or 9% of net sales for the comparable period in the prior year. Net
interest expense decreased to $353,802 in the current quarter as compared to
$505,260 in the same period in the prior year, reflecting the continued
reduction in bank borrowings due to positive cash flow over the last 18-month
period. There were no exchange losses in the current quarter as compared to
losses of $105,577 in the same period in the prior year. Income before taxes for
the current quarter was $2,610,507 or 13% of net sales compared to $917,306 or
6% of net sales in the same period in the prior year.
Giving effect to the tax provision, net income amounted to $1,618,514 or 8% of
net sales for the current quarter ended September 30, 1999, as compared to
$568,729 or 4% of net sales for the same quarter in the prior fiscal year.
Comparison of the six-month period ended September 30, 1999 with the six-month
- ------------------------------------------------------------------------------
period ended September 30, 1998.
- --------------------------------
During the six months ended September 30, 1999, net sales increased 10% to
$34,631,335 as compared to $31,443,731 for the same period for the prior year.
The increase is mainly attributable to the continuing strength of Perry Ellis
brand products. Approximately $2,917,000 of the increase related to the initial
launch of the Perry Ellis "Portfolio for Men" fragrance, which is expected to
continue its roll-out through the Spring of 2000. Total sales of all Perry Ellis
brands increased 22% compared to the same period in the prior year from
$20,335,482 to $24,891,001.
4
<PAGE>
Sales to unrelated customers decreased 11% to $17,386,661 in the current period,
compared to $19,448,628 in the same period in the prior year, primarily due to
continuing international economic difficulties, which resulted in a 30% decrease
in international gross sales to $9,486,131 in the current period as compared to
$13,545,386 in the prior year period. Sales to related parties increased 44% to
$17,244,674 in the current period compared to $11,995,103 in the same period in
the prior fiscal year.
Cost of goods sold increased as a percentage of net sales from 41% for the six
months ended September 30, 1998 to 45% for the current period. The increase was
mainly attributable to the increase in the percentage of net sales to related
parties as compared to total net sales, coupled with the sale of certain
close-out merchandise to international customers at below price. Cost of goods
sold on sales to unrelated customers and related parties approximated 46% and
45%, respectively, during the six months ended September 30, 1999, as compared
to 38% and 46%, respectively, during the six months ended September 30, 1998.
Operating expenses for the current six-month period decreased by 7% compared to
the prior fiscal year period from $15,873,260 to $14,716,080 decreasing as a
percentage of net sales from 50% to 42%. Advertising and promotional expenses
decreased 16% to $7,066,536 compared to $8,376,614 in the prior year period,
reflecting a decrease in print advertising and promotional expenses in
connection with the launch of Fred Hayman's "Hollywood for Women" which occurred
during the same period in the prior year. Selling and distribution costs
decreased 7% to $2,866,176 in the current fiscal period as compared to
$3,067,019 in the same period of the prior fiscal year, decreasing as a
percentage of net sales from 10% to 8%. General and administrative expenses
decreased by 13% compared to the prior year period from $2,202,710 to
$1,914,152, decreasing as a percentage of net sales from 7% to 6%. The above
decreases reflect the effect of the Company's restructuring during the quarter
ended March 31, 1998, which was implemented during the quarter ended June 30,
1998, coupled with certain non-recurring professional and consulting fees which
were incurred during the prior year period. Depreciation and amortization
increased $360,555 as a result of the increased amortization of goodwill due to
the cancellation of the Baryshnikov license agreement. Royalties increased to
$1,266,277 for the current period compared to $984,533 in the prior year, and
increased as a percentage of sales from 3% to 4% primarily due to the increase
in sales of Perry Ellis brand products as a percentage of total sales.
As a result of the above, the Company had operating income of $4,291,316 or 12%
of net sales for the six-month period ended September 30, 1999, compared to
$2,697,899 or 9% of net sales for the comparable period in the prior year. Net
interest expense decreased to $586,577 in the current fiscal year as compared to
$1,009,719 in the same period in the prior year, reflecting the reduction in
average borrowings outstanding. There were no exchange losses in the current
year as compared to losses of $97,039 in the same period in the prior year.
Income before taxes for the current fiscal year was $3,704,739 or 11% of net
sales compared to $1,591,141 or 5% of net sales in the same period in the prior
year.
5
<PAGE>
Giving effect to the tax provision, net income amounted to $2,296,938 or 7% of
net sales for the six months ended September 30, 1999, as compared to $986,507
or 3% of net sales for the same period in the prior fiscal year.
Liquidity and Capital Resources
- -------------------------------
Working capital increased to $38,815,547 as of September 30, 1999, compared to
$38,616,032 at March 31, 1999, reflecting the current period's net income,
offset by the purchase of $2,565,596 in treasury stock as discussed below.
See "Recent Developments" for discussion of trade receivables from related
parties.
In September 1999, the Company completed the fourth phase of its common stock
buy-back program involving 2,000,000 shares. In connection therewith, the Board
of Directors authorized the repurchase of an additional 2,500,000 shares. As of
September 30, 1999, the Company had repurchased under all phases a total of
4,907,318 shares at a cost of $10,659,191. The accompanying consolidated balance
sheets also include an additional 39,000 shares of treasury stock purchased at a
cost of $133,472 prior to fiscal 1996.
In May 1997, the Company entered into a three-year loan and Security Agreement
(the Credit Agreement) with General Electric Capital Corporation (GECC). Under
the Credit Agreement, the Company is able to borrow, on a revolving basis,
depending on the availability of a borrowing base, up to $25,000,000 at an
interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal
prime rate, at the Company's option. Proceeds from the Credit Agreement were
used, in part, to repay the Company's previous $10,000,000 credit facility with
Finova Capital Corporation and Merrill Lynch Financial Services, Inc.
Substantially all of the domestic assets of the Company collateralize this
borrowing. 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 acquisitions without the prior consent of GECC. The Credit
Agreement also contains certain financial covenants relating to net worth,
interest coverage and other financial ratios. As of March 31, 1999, the Company
was not in compliance with financial covenants relating to "Earnings Before
Interest, Taxes, Depreciation and Amortization" (EBITDA), minimum fixed charge
coverage ratio, maximum accounts receivable from related parties and employees,
minimum unrelated customer net sales, as well as a restricted payment covenant
concerning the amount of treasury stock which can be purchased by the Company.
GECC waived the violations of these debt covenants for the year ended March 31,
1999 and through June 30, 1999, and amended the Credit Agreement to reflect
changes in certain covenants going forward.
As of September 30, 1999, the Company was not in compliance with the restrictive
payment covenants exceeding the amount of treasury stock which can be purchased
as well as advances to related parties and employees. Although the Company has
not requested a waiver, management anticipates negotiating a waiver of this
non-compliance and a modification of the covenants for future periods.
6
<PAGE>
The Credit Agreement is scheduled to expire during May 2000. Management believes
that, based on current circumstances, the Company will be able to amend the
restrictive payment covenants and either extend the Credit Agreement or obtain
sufficient financing from alternative sources. However, there can be no
assurance that such amendments or waivers will be obtained and alternative
financing will be available in the future.
Year 2000 ("Y2K") Issues
- ------------------------
As of September 30, 1999, the Company's management information system hardware
consisted of an IBM AS/400, coupled with networked personal computer
workstations. The Company has upgraded its JD Edwards software to the latest
release, which is Y2K compliant. JD Edwards released its final Y2K upgrade
during September 1999 which the Company recently implemented. In connection
therewith, a hardware upgrade has been completed on its 9406 processor from a
model 310 to a model 620, which more than doubles the commercial processing
workload (CPW) to support the new release and other business applications. In
addition, the upgrade of the Company's Pitney Bowes shipping system should be
completed by November 15, 1999. The new upgrade will interface fully with the
AS/400 and JD Edwards software. The costs incurred in connection with the
upgrades, including outside consultants, amounted to approximately $300,000.
The Company continues to devote the necessary internal resources to resolve all
significant Y2K issues in a timely manner. Internal modifications to all
personnel computer operating systems have been completed. Testing of electronic
data interchange (EDI) modifications with all major customers has also been
completed. Verification of Y2K compliance with major suppliers continues.
Management believes that such processing issues will be resolved. Nevertheless,
if the Company, its customers or suppliers are unable to resolve such processing
issues, it could result in material financial risks such as the inability to
produce and distribute the Company's products. Contingency plans for order
processing are already in place.
Impact of Currency Exchange
- ---------------------------
The Company has completed the centralization of manufacturing in the United
States and closed its French operations which eliminated the currency exchange
risk associated therewith.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
- ------- -----------------------------------------------------------
During the quarter ended September 30, 1999, there have been no material changes
in the information about the Company's market risks as of March 31, 1999, as set
forth in Item 7A of the 1999 Form 10-K.
7
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
There are no legal proceedings of any significance.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 12, 1999, the Company held its annual meeting. The following is a
summary of the proposals and corresponding votes.
Item No. 1 Nomination and Election of Directors
------------------------------------
The seven nominees named in the proxy statement were elected,
with each director receiving more than 98% of the votes cast.
Item No. 2 Ratification of PricewaterhouseCoopers LLP as Independent
---------------------------------------------------------
Accountants
-----------
Over 99% of the votes were cast in favor of the proposal.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit No. Description
-----------------------
10.48 Stock Purchase Agreement, dated as of August 31, 1999,
between the Company and Perfumania, Inc.
10.49 Registration Rights Agreement, dated as of August 31, 1999,
between the Company and Perfumania, Inc.
10.50 Subordinated Secured Note Agreement, dated October 4, 1999,
between the Company and Perfumania, Inc.
(b) There were no filings on Form 8-K during the period.
8
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
ASSETS 1999 1999
- ---------------------------------------------------------------- ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 153,058 $ 184,148
Receivables, net of allowance for doubtful accounts,
sales returns and advertising allowances of approximately
$3,442,000 and $2,113,000, respectively 10,317,034 7,649,397
Trade receivables from related parties 19,580,025 18,258,213
Inventories, net 23,281,308 20,947,256
Prepaid expenses and other current assets 7,988,531 9,596,478
Investment in affiliate 4,506,970 --
Income tax receivable 140,000 140,000
------------ ------------
TOTAL CURRENT ASSETS 65,966,926 56,775,492
Equipment and leasehold improvements, net 1,811,746 1,692,732
Trademarks, licenses and goodwill, net 22,850,422 23,926,073
Other 112,418 112,949
------------ ------------
TOTAL ASSETS $ 90,741,512 $ 82,507,246
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------
CURRENT LIABILITIES:
Borrowings, current portion $ 14,686,043 $ 10,885,068
Accounts payable 9,414,456 5,314,770
Accrued expenses 1,431,558 1,722,681
Income taxes payable 1,619,322 236,941
------------ ------------
TOTAL CURRENT LIABILITIES 27,151,379 18,159,460
Borrowings, less current portion 3,071,990 3,561,313
Deferred tax liability 505,783 505,783
------------ ------------
TOTAL LIABILITIES 30,729,152 22,226,556
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares authorized,
0 shares issued and outstanding at September 30 and March 31, 1999 -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 17,462,478 and 17,462,478 shares
issued at September 30 and March 31, 1999, respectively 174,625 174,625
Additional paid-in capital 73,030,586 73,030,586
Accumulated deficit (2,049,011) (4,345,949)
Accumulated other comprehensive income (351,177) (351,505)
------------ ------------
70,805,023 68,507,757
Less - 4,946,318 and 3,655,031 shares of common stock in
treasury, at cost, at September 30 and March 31, 1999, respectively (10,792,663) (8,227,067)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 60,012,360 60,280,690
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 90,741,512 $ 82,507,246
============ ============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Six months ended September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
Unrelated customers $10,763,338 $10,364,161 $17,386,661 $19,448,628
Related parties 8,938,164 5,771,960 17,244,674 11,995,103
----------- ----------- ----------- -----------
19,701,502 16,136,121 34,631,335 31,443,731
Cost of goods sold 8,973,367 6,617,549 15,623,939 12,872,572
----------- ----------- ----------- -----------
Gross margin 10,728,135 9,518,572 19,007,396 18,571,159
----------- ----------- ----------- -----------
Operating expenses:
Advertising and promotional 3,612,416 4,067,212 7,066,536 8,376,614
Selling and distribution 1,489,014 1,608,594 2,866,176 3,067,019
General and administrative, net of licensing
fees of $162,500 and $312,500 in 1999,
and $141,667 and $275,000 in 1998, for
the three and six-month periods, respectively 983,923 1,202,289 1,914,152 2,202,710
Depreciation and amortization 982,709 608,840 1,602,939 1,242,384
Royalties 695,764 503,494 1,266,277 984,533
----------- ----------- ----------- -----------
Total operating expenses 7,763,826 7,990,429 14,716,080 15,873,260
----------- ----------- ----------- -----------
Operating income 2,964,309 1,528,143 4,291,316 2,697,899
Interest expense and bank charges, net 353,802 505,260 586,577 1,009,719
Exchange losses -- 105,577 -- 97,039
----------- ----------- ----------- -----------
Income before income taxes 2,610,507 917,306 3,704,739 1,591,141
Income tax provision 991,993 348,577 1,407,801 604,634
----------- ----------- ----------- -----------
Net income $ 1,618,514 $ 568,729 $ 2,296,938 $ 986,507
=========== =========== =========== ===========
Income per common share:
Basic $ 0.12 $ 0.04 $ 0.17 $ 0.07
=========== =========== =========== ===========
Diluted $ 0.12 $ 0.04 $ 0.17 $ 0.07
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------------- ADDITIONAL EARNINGS
NUMBER PAR PAID-IN (ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT)
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE at April 1, 1997 17,447,478 $ 174,475 $73,007,949 $ 2,922,519
Comprehensive loss:
Net loss -- -- -- (8,686,923)
Foreign currency translation adjustment
Total comprehensive loss
Purchase of 2,069,700 shares of treasury stock, at cost
----------- ----------- ----------- -----------
BALANCE at March 31, 1998 17,447,478 174,475 73,007,949 (5,764,404)
Comprehensive income:
Net income -- -- -- 1,418,455
Foreign currency translation adjustment -- -- -- --
Total comprehensive income
Issuance of common stock upon exercise of employee options 15,000 150 22,637 --
Purchase of 1,165,276 shares of treasury stock, at cost -- -- -- --
----------- ----------- ----------- -----------
BALANCE at March 31, 1999 17,462,478 174,625 73,030,586 (4,345,949)
Comprehensive income:
Net income -- -- -- 2,296,938
Foreign currency translation adjustment -- -- -- --
Total comprehensive income
Purchase of 1,291,287 shares of treasury stock, at cost -- -- -- --
----------- ----------- ----------- -----------
BALANCE at September 30, 1999 17,462,478 $ 174,625 $73,030,586 $(2,049,011)
=========== =========== =========== ===========
</TABLE>
(1) Accumulated other comprehensive income (loss) includes foreign currency
translation adjustments.
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
INCOME (LOSS) (1) STOCK TOTAL
----------------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE at April 1, 1997 $ (103,562) $ (1,882,646) $ 74,118,735
Comprehensive loss:
Net loss -- -- (8,686,923)
Foreign currency translation adjustment (251,769) (251,769)
------------
Total comprehensive loss (8,938,692)
------------
Purchase of 2,069,700 shares of treasury stock, at cost (4,011,604) (4,011,604)
------------ ------------ ------------
BALANCE at March 31, 1998 (355,331) (5,894,250) 61,168,439
Comprehensive income:
Net income -- -- 1,418,455
Foreign currency translation adjustment 3,826 -- 3,826
------------
Total comprehensive income 1,422,281
------------
Issuance of common stock upon exercise of employee options -- -- 22,787
Purchase of 1,165,276 shares of treasury stock, at cost -- (2,332,817) (2,332,817)
------------ ------------ ------------
BALANCE at March 31, 1999 (351,505) (8,227,067) 60,280,690
Comprehensive income:
Net income -- -- 2,296,938
Foreign currency translation adjustment 328 -- 328
------------
Total comprehensive income 2,297,266
------------
Purchase of 1,291,287 shares of treasury stock, at cost -- (2,565,596) (2,565,596)
------------ ------------ ------------
BALANCE at September 30, 1999 $ (351,177) $(10,792,663) $ 60,012,360
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six months ended September 30,
---------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,296,938 $ 986,507
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,602,939 1,242,384
Provision for doubtful accounts 245,000 160,000
Reserve for prepaid promotional supplies and inventory obsolescence 700,000 604,974
Changes in assets and liabilities net of effect of sold brands:
Increase in trade receivables - customers (2,912,637) (42,707)
Increase in trade receivables - related parties (5,828,782) (5,380,354)
(Increase) decrease in inventories (2,634,052) 45,932
Decrease (increase) in prepaid expenses and other current assets 1,207,947 (843,442)
Decrease in income tax receivable -- 4,161,259
Decrease in other non-current assets 531 1,083,058
Increase (decrease) in accounts payable 4,099,686 (707,195)
(Decrease) increase in accrued expenses (291,123) 37,401
Increase in income taxes payable 1,382,381 292,005
----------- -----------
Total adjustments (2,428,110) 653,315
----------- -----------
Net cash (used in) provided by operating activities (131,172) 1,639,822
----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (594,878) (52,383)
Purchase of trademarks (51,424) (76,571)
Cash received from brand licensing:
Bal a Versailles -- 200,000
----------- -----------
Net cash (used in) provided by investing activities (646,302) 71,046
----------- -----------
Cash flows from financing activities:
Proceeds (payments) - note payable to GE Capital 3,779,055 (481,990)
Payments - note payable to Fred Hayman Beverly Hills (292,101) (271,733)
Payments - note payable to Lyon Credit Corp. (89,226) (79,916)
Payments - note payable to Bankers Capital Leasing (59,930) --
Payments - note payable to International Finance Bank -- (185,472)
Payments - other notes payable (26,146) (37,470)
Purchases of treasury stock (2,565,596) (748,944)
Proceeds from issuance of common stock -- 22,787
----------- -----------
Net cash provided by (used in) financing activities 746,056 (1,782,738)
----------- -----------
Effect of exchange rate changes on cash 328 (23,645)
----------- -----------
Net decrease in cash and cash equivalents (31,090) (95,515)
Cash and cash equivalents, beginning of period 184,148 205,760
----------- -----------
Cash and cash equivalents, end of period $ 153,058 $ 110,245
=========== ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
A. Basis of Presentation
The consolidated financial statements include the accounts of Parlux Fragrances,
Inc. and subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The financial
information presented herein, which is not necessarily indicative of results to
be expected for the current fiscal year, reflects all adjustments which, in the
opinion of management, are necessary for a fair presentation of the interim
unaudited consolidated financial statements. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's March 31, 1999 Form 10-K
as filed with the Securities and Exchange Commission on July 14, 1999.
Certain reclassifications were made to the September 30, 1998 financial
statements to conform with the presentation of the September 30, 1999 financial
statements.
B. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The components of inventories are as follows:
September 30, 1999 March 31, 1999
------------------ --------------
Finished products $12,626,994 $10,609,272
Components and packaging material 7,888,213 7,033,339
Raw material 2,766,100 3,304,645
--------- ---------
$23,281,308 $20,947,256
=========== ===========
The cost of inventories includes product costs and handling charges, including
allocation of the Company's applicable overhead in the amount of $1,760,000 and
$2,830,000 at September 30, 1999 and March 31, 1999, respectively. The above
amounts are net of
13
<PAGE>
reserves for potential inventory obsolescence of approximately $1,418,000 and
$976,000 at September 30, 1999 and March 31, 1999, respectively.
C. Trademarks, Licenses and Goodwill
Trademarks, licenses and goodwill are attributable to the following brands:
September 30, 1999 March 31, 1999
------------------ --------------
Owned Brands:
Alexandra de Markoff $11,191,171 $11,190,926
Fred Hayman Beverly Hills 2,778,216 2,753,027
Bal A Versailles 3,245,860 3,243,855
Animale 1,468,914 1,452,929
Other 215,225 243,431
Licensed Brands:
Perry Ellis 7,962,332 7,957,567
Baryshnikov 2,470,241 2,470,241
----------- -----------
29,331,959 29,311,976
Less: accumulated amortization (6,481,537) (5,385,903)
----------- -----------
$22,850,422 $23,926,073
=========== ===========
On March 2, 1998, the Company entered into an exclusive agreement to license the
Alexandra de Markoff (AdM) rights to Cosmetic Essence, Inc. for an annual fee of
$500,000. The initial term of the agreement is ten years, automatically
renewable for additional ten and five year terms. The annual fee reduces to
$100,000 after the third renewal. As part of the Agreement, the Company sold the
inventory, promotional material and molds relating to AdM which resulted in a
loss of approximately $923,000 which was reflected in the consolidated statement
of operations for the year ended March 31, 1998. At closing, the purchaser
provided as consideration, $202,000 in cash and a $4,000,000 non-interest
bearing receivable due in periodic installments based on the purchaser's use of
the inventory, with any remaining balance due on January 1, 2000. In accordance
with generally accepted accounting principles and based on the Company's current
borrowing cost of 9.25%, the note was reduced to a present value of $3,659,753.
On June 9, 1998, the Company entered into an exclusive agreement to license the
Bal A Versailles (BAV) rights to Genesis International Marketing Corporation for
an annual licensing fee of $100,000 during the initial year of the agreement,
increasing to $150,000 for subsequent years for the remainder of the initial
term, and to $200,000 each year thereafter. The initial term of the agreement is
for ten years, automatically renewable every five years. As part of the
agreement, the Company sold the inventory, promotional materials and molds
relating to BAV for its approximate book value. At closing, the purchaser
provided as consideration, $200,000 in cash and a $500,000 non-interest bearing
note due in quarterly installments of $83,333 through December 1999.
At September 30, 1999 and March 31, 1999, $1,378,012 and $2,413,990,
respectively, relating to the AdM and BAV receivables are included in other
current assets.
14
<PAGE>
D. Borrowings - Banks and Others
The composition of borrowings is as follows:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
Revolving credit facility payable to General Electric Capital
Corporation, interest at LIBOR (5.375% at September 30, 1999)
plus 2.50% or prime (8.25% at September 30, 1999) plus .75%, at
the Company's option, net of restricted cash of $1,028,913 and
$3,658,593, at September 30 and March 31, 1999, respectively $13,641,139 $9,862,084
Note payable to Fred Hayman Beverly Hills (FHBH), collateralized
by the acquired licensed trademarks, interest at 7.25%, payable
in equal monthly installments of $69,863, including interest,
through June 2004 3,334,259 3,626,360
Note payable to Lyon Credit Corporation, collateralized by
certain equipment, interest at 11%, payable in equal monthly
installments of $19,142, including interest, through September
2001 410,403 499,629
Capital lease payable to Bankers Leasing, collateralized by
certain computer hardware and software, payable in quarterly
installments of $36,378, including interest, through January
2002. 335,395 395,325
Other notes payable 36,837 62,983
---------- ----------
17,758,033 14,446,381
Less: long-term borrowings (3,071,990) (3,561,313)
---------- ----------
Short-term borrowings $14,686,043 $10,885,068
=========== ===========
</TABLE>
In May 1997, the Company entered into a Loan and Security Agreement (the Credit
Agreement) with General Electric Capital Corporation (GECC), pursuant to which
the Company is able to borrow, on a revolving basis for a three-year period,
depending on the availability of a borrowing base, up to $25,000,000 at an
interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal
prime rate, at the Company's option. Proceeds from the Credit Agreement were
used, in part, to repay the Company's previous $10,000,000 credit facility with
Finova Capital Corporation and Merrill Lynch Financial Services, Inc. At
September 30, 1999, based on the borrowing base at that date, the credit line
amounted to approximately $18,743,000, and accordingly, the Company had
approximately $4,073,000 available under the credit line, excluding the effect
of restricted cash of approximately $1,029,000.
Substantially all of the domestic assets of the Company collateralize this
borrowing. 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 acquisitions without the prior consent of GECC. The Credit
Agreement also contains certain financial covenants
15
<PAGE>
relating to net worth, interest coverage and other financial ratios. As of March
31, 1999, the Company was not in compliance with financial covenants relating to
"Earnings Before Interest, Taxes, Depreciation and Amortization" (EBITDA),
minimum fixed charge coverage ratio, maximum accounts receivable from related
parties and employees, minimum unrelated customer net sales, as well as a
restricted payment covenant concerning the amount of treasury stock which can be
purchased by the Company. GECC waived the violations of these debt covenants for
the year ended March 31, 1999 and through June 30, 1999, and amended the Credit
Agreement to reflect changes in certain covenants going forward.
As of September 30, 1999, the Company was not in compliance with the restrictive
payment covenants exceeding the amount of treasury stock which can be purchased
as well as advances to related parties and employees. Although the Company has
not requested a waiver, management anticipates negotiating a waiver of this
non-compliance and a modification of the covenants for future periods.
The Credit Agreement is scheduled to expire during May 2000. Management believes
that, based on current circumstances, the Company will be able to amend the
restrictive payment covenants and either extend the Credit Agreement or obtain
sufficient financing from alternative sources. However, there can be no
assurance that such amendments or waivers will be obtained and alternative
financing will be available in the future.
E. Related Parties Transactions
As of September 30, 1999, the Company had loaned a total of approximately
$1,004,000 ($390,000 at March 31, 1999) to its Chairman/CEO, which is included
in accounts receivable. Interest payments are current through June 30, 1999. The
composition of the notes is as follows:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
<S> <C> <C>
Note receivable, due on December 31, 1999 $ 379,287 $ 390,000
Note receivable, collateralized by 100,000 shares of the
Company's common stock, due on December 31, 1999 230,000 --
Note receivable, due May 31, 2000 395,000 --
---------- ----------
$1,004,287 $ 390,000
========== ==========
</TABLE>
All of the above notes bear interest at 10% per annum, and unless indicated, are
not collateralized.
The Company had net sales of $17,244,674 and $11,995,103 during the six-month
periods ended September 30, 1999 and September 30, 1998, respectively, to
Perfumania, Inc. (Perfumania), a company in which the Company's Chairman and
Chief Executive Officer has an ownership interest and holds identical management
positions. Net amounts due from Perfumania totaled $19,580,025 (including the
effect of the stock transaction discussed below) and $18,258,213 at September
30, 1999 and March 31, 1999, respectively. Amounts due from related parties are
non-interest bearing and are realizable in less than one year.
16
<PAGE>
During the period from April 1, 1999 through September 30, 1999, the Company
collected $11.4 million or approximately 63% of the total of its outstanding
receivable at March 31, 1999, excluding the effect of the stock transaction
discussed below.
On July 1, 1999, Perfumania and the Company's Board of Directors approved the
transfer of 1,512,406 shares of Perfumania treasury stock to the Company in
consideration for a partial reduction of the outstanding trade receivable
balance in the amount of $4,506,970. The transfer price was based on a per share
price of $2.98, which approximated 90% of the closing price of Perfumania's
common stock for the previous 20 business days. In connection with the transfer
of the shares, the parties executed a registration rights agreement whereby the
Company would be able to demand registration of the shares with the Securities
and Exchange Commission at any time after February 29, 2000. Both agreements
were consummated on August 31, 1999, and the transaction is reflected in the
accompanying September 30, 1999 balance sheet.
In addition, on October 4, 1999, the parties entered into an agreement which
converted $8 million of the outstanding trade receivable into a subordinated
secured note receivable. The note bears interest at prime plus one percent and
is repayable in installments of $3,000,000 in October 1999, six equal monthly
installments of $500,000 from November 1999 through April 2000, with the balance
of $2,000,000 due on May 31, 2000. This short-term note receivable transaction
is not reflected in the accompanying September 30, 1999 balance sheet.
During the period of October 1, 1999 through November 11, 1999, the Company
received cash payments of $4.5 million from Perfumania, including the initial $3
million installment due under the note receivable.
As indicated in various public press releases, Perfumania has reported both
aggregate and comparative store sales increases for each of the months during
the period February 1999 through October 1999, and its subsidiary,
perfumania.com, successfully completed a public offering in which Perfumania
also sold one million of its perfumania.com shares. Based on the factors
described above, management believes that the receivable from Perfumania is
fully collectible.
17
<PAGE>
F. Basic and Diluted Earnings Per Common Share
The following is the reconciliation of the numerators and denominators of the
basic and diluted net income per common share calculations:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 1,618,514 $ 568,729
=========== ===========
Weighted average number of shares outstanding used in basic
earnings per share calculation 12,981,594 14,722,421
=========== ===========
Basic net income per common share $0.12 $0.04
===== =====
Weighted average number of shares outstanding used in basic
earnings per share calculation 12,981,594 14,722,421
Affect of dilutive securities:
Stock options and warrants, net of treasury shares acquired 105,476 26,972
Weighted average number of shares outstanding used in diluted ----------- -----------
earnings per share calculation 13,087,069 14,749,393
=========== ===========
Diluted net income per common share $0.12 $0.04
===== =====
Antidilutive securities not included in diluted earnings
per share computation:
Options and warrants to purchase common stock 2,014,500 1,662,478
=========== ===========
Exercise Price $2.00-$8.00 $1.75-$8.11
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 2,296,938 $ 986,507
=========== ===========
Weighted average number of shares outstanding used in basic
earnings per share calculation 13,283,695 14,796,826
=========== ===========
Basic net income per common share $0.17 $0.07
===== =====
Weighted average number of shares outstanding used in basic
earnings per share calculation 13,283,695 14,796,826
Affect of dilutive securities:
Stock options and warrants, net of treasury shares acquired 81,156 64,358
----------- -----------
Weighted average number of shares outstanding used in diluted
earnings per share calculation 13,364,851 14,861,184
=========== ===========
Diluted net income per common share $0.17 $0.07
===== =====
Antidilutive securities not included in diluted earnings
per share computation:
Options and warrants to purchase common stock 2,565,032 1,068,478
=========== ===========
Exercise Price $1.88-$8.00 $2.00-$8.11
=========== ===========
</TABLE>
18
<PAGE>
G. Cash Flow Information
The Company considers temporary investments with an original maturity of three
months or less to be cash equivalents. Supplemental disclosures of cash flow
information are as follows:
Six months ended September 30,
-------------------------------
1999 1998
---- ----
Cash paid for:
Interest $577,893 $988,245
Income taxes $ 25,420 $152,594
In addition to the conversion of trade accounts receivable in the amount of
$4,506,970, discussed in Note E, the following non-cash transaction was entered
into during the six months ended September 30, 1998:
o The consideration received for the sale of inventory relating to the
license of the Bal a Versailles brand included a non-interest bearing
receivable from the licensee in the amount of $500,000.
H. Income Taxes
The provision for income taxes for the periods ended September 30, 1999 and 1998
reflects an effective tax rate of approximately 38%.
I. License and Distribution Agreements
As of September 30, 1999, the Company held exclusive worldwide licenses to
manufacture and sell fragrance and other related products under the trademarks
for Perry Ellis, Baryshnikov, Ocean Pacific ("OP") and Phantom. Under each of
these arrangements, the Company must pay royalties at various dates and are
subject to renewal.
As discussed above, the Company is required to pay royalties under the Perry
Ellis ("Licensor") license agreement. The Licensor had asserted, through its
legal counsel, that the Company was in default of the license agreement in that
the sales of Perry Ellis brand products by an affiliate of the Company were not
properly included in sales for the purposes of calculating royalties. On August
12, 1999, a settlement was reached between the Company and the Licensor amending
the license agreement to redefine net sales for royalty calculation purposes.
The Company paid the Licensor $500,000, which liability had been fully accrued
for as of March 31, 1999.
On October 13, 1999, the Company was notified by the Baryshnikov licensor of its
intent to terminate the license agreement with the Company due to the Company's
unwillingness to develop and distribute a new women's fragrance by October 31,
1999, as stipulated in the license agreement. Management believes that the
effect of this matter will not have a material adverse effect on the Company's
financial position or results of operations.
* * * * *
19
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARLUX FRAGRANCES, INC.
/s/ Ilia Lekach
- -----------------------------------------
Ilia Lekach, Chairman and Chief Executive Officer
/s/ Frank A. Buttacavoli
- -----------------------------------------
Frank A. Buttacavoli, Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director
Date: November 12, 1999
20
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of August
31, 1999, by and among PARLUX FRAGRANCES, INC., a Delaware corporation (the
"Purchaser"), and PERFUMANIA, INC., a Florida corporation (the "Seller").
WHEREAS, the Purchaser, desires to acquire from the Seller
1,512,406 shares of the Seller's common stock, par value $.01 per share, (the
"Stock"), and the Seller desires to sell the Stock to the Purchaser in
consideration for a partial reduction of outstanding trade indebtedness due from
the Seller to the Purchaser in the amount of $4,506,970;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, the Purchaser and the Seller agree as follows:
ARTICLE I
PURCHASE AND SALE
-----------------
1.1 The Purchase. (a) Upon satisfaction of all conditions precedent set
forth herein, on the Closing Date (as defined below), the Seller shall sell and
deliver the Stock to the Purchaser in consideration of a cancellation of the
amount of trade indebtedness owed by the Seller to the Purchaser in the amount
of $4,506,970.
(b) At the Closing, the Seller shall deliver to the Purchaser
a certificate representing the Stock which the Purchaser is purchasing and the
Purchaser shall deliver to the Seller an instrument executed by the Purchaser
cancelling $4,506,970 of trade indebtedness owed by the Seller to the Purchaser.
The certificate representing the Stock shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY STATE SECURITIES LAW. THE SECURITIES MAY NOT BE
OFFERED, SOLD OR OTHERWISE DISTRIBUTED IN THE UNITED STATES OR TO ANY
U.S. PERSONS UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS
ARE MADE PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND THOSE LAWS.
1
<PAGE>
(c) The Seller acknowledges and agrees that the trade
indebtedness to be canceled shall be comprised of the indebtedness which has
been outstanding for the longest period.
1.2 Closing. The Closing of the transactions described in Section 1.1
shall take place at the offices of the Seller, on September 3, 1999 (the
"Closing Date") or such other date, time, and place as may be agreed upon by the
Purchaser and the Seller.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller represents and warrants to the Purchaser that at the Closing
Date:
2.1 Due Incorporation; Organization. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Florida. Each of the Seller's significant subsidiaries (within the meaning of
Regulation S-X under the Securities Exchange Act of 1934, as amended, (the
"Significant Subsidiaries")) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
The Seller and each of the Significant Subsidiaries has the requisite corporate
power and authority to own, operate or lease its assets and properties and to
carry on its business as it is now being conducted, and is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction in which
the nature of its business or the properties owned, operated or leased by it
makes such qualification, licensing or good standing necessary, except where the
failure to have such power or authority, or the failure to be so qualified,
licensed or in good standing, would not have a Material Adverse Effect. The term
"Material Adverse Effect" as used in this Agreement, means any change in or
effect on the business, operations or financial condition of the Seller or any
of its subsidiaries that is materially adverse to the Seller and its
subsidiaries taken as a whole except for (i) any change or effect resulting from
general economic, financial or market conditions or (ii) any change or effect
resulting from conditions or circumstances generally effecting the fragrance and
cosmetics industry.
2.2 Certificate of Incorporation and By-Laws. The Seller has heretofore
made available to Purchaser a complete and correct copy of the certificate of
incorporation and the by-laws, each as amended to the date hereof, of the Seller
and no action to amend or modify either thereof has been taken.
2
<PAGE>
2.3 Capitalization; Shares. (a) The authorized capital stock of the
Seller consists of 25,000,000 common shares, par value $.01 per share. The
Seller has 7,644,028 shares of common stock outstanding and 1,512,406 shares of
common stock held as treasury stock as of July 31, 1999.
(b) The Stock when issued, sold and delivered in accordance
with the terms and for the consideration expressed in this Agreement, shall be
duly and validly issued, fully-paid and nonassessable.
2.4 Authority Relative to this Agreement. The Seller has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Seller and the consummation by the Seller of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Board of Directors of the Seller and no other corporate
proceedings on the part of the Seller are necessary to authorize or approve this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Seller and constitutes a
valid and binding obligation of the Seller enforceable against the Seller in
accordance with its terms, except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditor's rights generally and (ii) is subject to general
principles of equity.
2.5 No Conflict; Required Filings and Consents. (a) None of the
execution and delivery of this Agreement by the Seller, the consummation by the
Seller of the transactions contemplated hereby or compliance by the Seller with
any of the provisions hereof will (i) conflict with or violate the certificate
of incorporation or by-laws of the Seller or the comparable organizational
documents of any of its Significant Subsidiaries, (ii) conflict with or violate
any statute, ordinance, rule, regulation order, judgment or decree applicable to
the Seller or its Significant Subsidiaries, or by which any of them or any of
their respective properties or assets may be bound or affected, or (iii) result
in a violation or breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in any loss of any material benefit, or the creation of any lien on any of the
property or assets of the Seller or any of its Significant Subsidiaries (any of
the foregoing referred to in clause (ii) or this clause (iii) being a
"Violation") pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Seller or any of its Significant Subsidiaries is a party or by
which the Seller or any of its subsidiaries or any of their respective
properties may be bound or affected, except in the case of the foregoing clauses
(ii) or (iii) for any such Violations which would not have a Material Adverse
Effect.
3
<PAGE>
(b) None of the execution and delivery of this Agreement by
the Seller, the consummation by the Seller of the transactions contemplated
hereby or compliance by the Seller with any of the provisions hereof will
require any consent, waiver, approval, authorization or permit of, or
registration or filing with or notification to (any of the foregoing being a
"Consent"), any government or subdivision thereof, or any administrative,
governmental or regulatory authority, agency, commission, tribunal or body,
domestic, foreign or supranational (a "Governmental Entity"), except for (i)
compliance with any applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or (ii)
consents the failure of which to obtain or make would not have a Material
Adverse Effect or materially adversely effect the ability of the Seller to
consummate the transactions contemplated hereby.
2.6 SEC Reports and Financial Statements. (a) The Seller has filed with
the SEC all forms, reports, schedules, registration statements and definitive
proxy statements (the "SEC Reports") required to be filed by the Seller with the
Securities and Exchange Commission (the "SEC"). As of their respective dates,
the SEC Reports complied in all material respects with the requirements of the
Exchange Act or the Securities Act and the rules and regulations of the SEC
promulgated thereunder applicable, as the case may be, to such SEC Reports, and
none of the SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
(b) The consolidated balance sheets as of January 30, 1999 and
the related consolidated statements of operations, common shareholders' equity
and cash flows for each of the three fiscal years in the period ended January
30, 1999 (including the related notes and schedules thereto) of the Seller
contained in the Seller's Form 10-K for the year ended January 30, 1999 included
in the SEC Reports present fairly, in all material respects, the consolidated
financial position and the consolidated results of operations and cash flows of
the Seller and its consolidated subsidiaries as of the dates or for the periods
presented therein in conformity with United States generally accepted accounting
principles applied on a consistent basis ("GAAP") during the periods involved
except as otherwise noted therein, including the related notes.
(c) The consolidated balance sheets and the related statements
of operations and cash flows (including in each case the related notes thereto)
of the Seller contained in the Form 10-Q for the period ended May 1, 1999
included in the SEC Reports (collectively, the "Quarterly Financial Statement")
have been prepared in accordance with the requirements for interim financial
statements contained in Regulation S-X. The Quarterly Financial Statement
reflects all adjustments, which include only normal recurring adjustments,
necessary to present fairly, in all material respects, the consolidated
financial position, results of operations and cash flows of the Seller for the
period presented therein in conformity with GAAP except as otherwise noted
therein, including the related notes.
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2.7 Litigation. As of the date hereof, there is no suit, action or
proceeding pending or, to the knowledge of the Seller, threatened against or
affecting the Seller or any of its subsidiaries that, individually or in the
aggregate, would have a Material Adverse Effect, nor is there any judgment,
decree, injunction or order of any Governmental Entity or arbitrator outstanding
against the Seller or any of its subsidiaries that would have, individually or
in the aggregate, a Material Adverse Effect.
2.8 Compliance with Applicable Laws. To the knowledge of the Seller,
the Seller and its subsidiaries are in substantial compliance with all laws,
regulations and orders of any Governmental Entity applicable to it or such
subsidiaries, except for such failures so to comply which would not have a
Material Adverse Effect. To the knowledge of the Seller, the business operations
of the Seller and its subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity, except for possible
violations which, individually or in the aggregate, would not have a Material
Adverse Effect on the Seller.
2.9 Material Adverse Change. Between May 1, 1999 and the date hereof,
there has not been any change in the business, operations or financial condition
of the Seller or any of its subsidiaries that is materially adverse to the
Seller and its subsidiaries taken as a whole, except for (i) any change
resulting from general economic, financial or market conditions or (ii) any
change resulting from conditions or circumstances generally affecting the
perfume industry.
2.10 Solvency. As of the date of this Agreement the Seller is Solvent.
For the purposes of this Agreement, "Solvent" means with respect to the Seller
on a particular date, that on such date (i) the fair value of the property of
the Seller is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of the Seller, (ii) the present fair
saleable value of the assets of the Seller is not less than the amount that will
be required to pay the probable liability of the Seller on its debts as they
become absolute and matured, (iii) the Seller is able to realize upon its assets
and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (iv) the Seller
does not intend to, and does not believe that it will, incur debts or
liabilities beyond the Seller's ability to pay as such debts and liabilities
mature, and (v) the Seller is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which the Seller's
property would constitute unreasonably small capital after giving due
consideration to the prevailing practice in the industry in which the Seller is
engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount which, in light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability taking
into account any subrogation and contribution rights.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
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3.1 Due Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with all requisite power and authority to own and operate its assets and
properties as they are now being owned and operated.
3.2 Due Authorization. (a) Purchaser has duly and validly executed and
delivered this Agreement. This Agreement constitutes the legal, valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms.
(b) The Purchaser has full power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby.
3.3 Consents and Approvals; Authority Relative to This Agreement.
Neither the execution and delivery of this Agreement, nor the consummation of
the transactions contemplated hereby will (a) violate any provisions of the
certificate of incorporation or by-laws of the Purchaser, (b) with or without
the giving of notice or passage , or both, violate , or be in conflict with, or
constitute a default, or permit the termination of, or cause the acceleration of
the maturity of, any agreement, instrument, contract, debt or obligation of the
Purchaser, (c) require the consent of any party to any agreement or commitment
to which the Purchaser is a party, or by which the Purchaser or its properties
or assets is bound, or (d) violate any regulation or any judgment or decree of
any court or authority to which the Purchaser is subject. No consent, approval
or authorization of, or declaration, filing or registration with, any
Governmental Entity is required to be made or obtained by the Purchaser in
connection with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby or thereby.
3.4 No Registration, Etc. The Purchaser acknowledges that the offering
and sale of the Stock pursuant to this Agreement (i) has not been registered
under the Securities Act, or under the securities or "blue sky" laws, rules
or regulations of any State (collectively, the "Securities Laws") and (ii) is
intended to be exempt from registration under the Securities Act, by virtue of
Section 4(2) of the Act and the provisions of Rule 506 of Regulation D
promulgated thereunder by the SEC. In furtherance thereof, the Purchaser
represents and warrants to the Seller that it is an "accredited investor", as
defined in Rule 501 of Regulation D promulgated under the Securities Act. The
Purchaser has been afforded, prior to the execution of this Agreement, the
opportunity to ask questions of, and to receive answers from, the Seller and its
management, and it has had access to all documents and information which is
deemed material to an investment decision with respect to the purchase of the
Stock hereunder. The Stock is being purchased for its own account, for
investment and not for distribution or resale to others. The Purchaser agrees
that it will not transfer the Stock unless the Stock is registered under any
applicable Securities Laws or the transfer is otherwise exempt therefrom. The
Purchaser further acknowledges that it is aware that it may be considered an
"affiliate" of the Seller for purposes of the Securities Act and, accordingly,
that any public sales of the Securities by the Purchaser will be subject to Rule
144 promulgated under the Securities Act.
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ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
OF PURCHASER
------------
The obligations of the Purchaser to purchase the Stock and to
consummate at Closing the transactions contemplated hereby is subject to the
satisfaction or waiver by the Purchaser of the following conditions precedent on
or before the Closing Date:
4.1 Representations and Warranties. The representations and warranties
of the Seller contained in this Agreement shall be accurate, true and correct on
and as of the Closing Date.
4.2 Compliance with Agreements and Covenants. The Seller shall have
performed and complied in all material respects with all of the covenants,
obligations and agreements contained in this Agreement to be performed and
complied with by the Seller on or prior to the Closing Date.
4.3 Required Consents. All material consents, authorizations and
approvals from, and all material declarations, filings and registrations with,
Governmental Entities or third parties required to consummate the transactions
contemplated by this Agreement or permit the Seller to continue its business
consistent with its prior practice without a Material Adverse Effect shall have
been obtained or made and delivered to the Purchaser, in form and substance to
the reasonable satisfaction of the Purchaser.
4.4 No Prohibition. No action or proceeding by any Authority shall have
been instituted or threatened that would enjoin, restrain, or prohibit the
consummation of the transactions as contemplated by this Agreement, or that
would, in the reasonable judgment of the Purchaser, make it inadvisable to
consummate such transactions, and no court order shall have been entered in any
action or proceeding instituted by any party that enjoins, restrains or
prohibits this Agreement or the complete consummation of the transactions
contemplated by this Agreement.
4.5 No Material Adverse Change. There shall not have occurred any
material adverse change (taken together with all other developments) since the
date of this Agreement that would have a Material Adverse Effect.
4.6 Documents. The Purchaser shall receive in form and substance
satisfactory to it:
(a) A certificate, dated the Closing Date, of the Seller
substantially to the effect set forth in Sections 4.1 and 4.2 with respect to
the representations, warranties and covenants of the Seller; and
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(b) A legal opinion from counsel to the Seller, dated the Closing
Date, in substantially the form of Exhibit A hereto.
4.7 Registration Rights. The Purchaser and the Seller shall have
executed and delivered a Registration Rights Agreement in form and substance
satisfactory to the Purchaser.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF
--------------------------------------
THE SELLER
----------
The obligations of the Seller at the Closing Date under this Agreement
are subject to the satisfaction or waiver by the Seller of the following
conditions precedent on or before the Closing Date:
5.1 Representations and Warranties. The representations and warranties
of the Purchaser contained in this Agreement shall have been accurate, true and
correct in all material respects on and as of the date of this Agreement and
shall also be accurate, true and correct in all material respects on as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
5.2 Compliance with Agreements and Covenants. The Purchaser shall have
performed and complied in all material respects with all of the covenants,
obligations and agreements contained in this Agreement to be performed and
complied with by the Purchaser on or prior to the Closing Date.
5.3 Required Consents. All material consents, authorizations and
approvals from, and all material declarations, filings and registrations with,
Governmental Entities or third parties required to consummate the transactions
contemplated by this Agreement shall have been obtained or made and delivered to
the Seller, in form and substance to the reasonable satisfaction of the Seller.
5.4 No Prohibition. No action or proceeding by any authority shall have
been instituted or threatened that would enjoin, restrain, or prohibit the
consummation of the transactions as contemplated by this Agreement, or that
would, in the reasonable judgment of the Seller, make it inadvisable to
consummate such transactions, and no court order shall have entered in any
action or proceeding instituted by any party that enjoins, restrains or
prohibits this Agreement or the complete consummation of the transactions as
contemplated by this Agreement.
5.5 Documents. The Seller shall receive, in form and substance
satisfactory to them a certificate, dated the Closing Date, of Purchaser
substantially to the effect set forth in Sections 5.1 and 5.2.
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ARTICLE VI
MISCELLANEOUS
-------------
6.1 Termination. This Agreement may be terminated at any time on or
prior to the Closing Date:
(a) With the mutual consent of the Seller and the Purchaser;
(b) By written notice from the Seller or the Purchaser to the
other, if the Closing shall not have taken place on or before September 30,
1999; provided, however, that the right to terminate this Agreement under this
Section 6.1 shall not be available to any party whose failure to perform any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date;
(c) By the Purchaser, if there shall have been a material
breach of any covenant, representation or warranty of the Seller hereunder, and
such breach shall not have been remedied within thirty (30) business days after
receipt by the Seller of a notice in writing from the Purchaser specifying the
breach and requesting such be remedied;
(d) By the Seller, if there shall have been a material breach
of any covenant, representation or warranty of the Purchaser hereunder, and such
breach shall not have been remedied within thirty (30) business days after
receipt by the Purchaser of notice in writing from the Seller specifying the
breach and requesting such be remedied;
(e) By written notice from the Seller or the Purchaser to the
other, if any court of competent jurisdiction or other governmental body shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; or
(f) Effect of Termination. If this Agreement is terminated
pursuant to Section 6.1(a), or (e) all obligations of the parties hereunder
shall terminate without liability of any party (or any stockholder, affiliate,
director, officer, employee, agent, consultant or representative of any party).
No termination pursuant to Section 6.1(b), or (d) shall relieve any party from
liability for any willful breach of this Agreement prior to such termination,
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and the willfully breaching party shall be fully liable for any and all losses
sustained or incurred by any other party from such breach.
6.2 Public Announcements. So long as this Agreement is in effect, the
Purchaser and the Seller agree to use reasonable efforts to consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this Agreement.
6.3 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF FLORIDA
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
6.4 Amendment; Effective Date. This Agreement may be amended, modified
or supplemented but only in writing signed by the Seller and the Purchaser.
6.5 Notices. Any notice, request, instruction or other document to be
given hereunder by a party hereto shall be in writing and shall be deemed to
have been given, (a) when received if given in person or by courier or a courier
service, or (b) on the business day after deposit with a reputable overnight
delivery service for next business day delivery.
6.6 Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or
any breach of any term, covenant, representation or warranty contained in this
Agreement shall be effective unless in writing, and no waiver in any one or more
instances shall be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any other condition or
breach of any other term, covenant, representation or warranty.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PARLUX FRAGRANCES, INC.
By: /s/ Frank A. Buttacavoli
----------------------------
Name: Frank A. Buttacavoli
Title: Executive VP and CFO
PERFUMANIA, INC.
By: /s/ Jerome Falic
----------------------------
Name: Jerome Falic
Title: President
11
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
August 31, 1999 among PARLUX FRAGRANCES, INC., a Delaware corporation (the
"Purchaser") and PERFUMANIA, INC., a Florida corporation (the "Company").
WHEREAS, Purchaser and the Company are parties to a Stock Purchase
Agreement, dated as of August 31, 1999 pursuant to which the Purchaser has
agreed to purchase 1,512,406 shares of Common Stock of the Company (the "Stock")
and
WHEREAS, as condition to such purchase, the Company has agreed to grant
to the Purchaser certain registration rights with respect to the Stock.
NOW, THEREFORE, the parties hereto agree as follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time from and after February 29,
2000 the Purchaser may request registration under the Securities Act of all of
the Stock under the registration requirements of the Securities Act. The
registration requested pursuant to this paragraph 1(a) is referred to herein as
"Demand Registration." Such registration may be effected using any form that is
available to the Company for the purpose of effecting the Demand Registration.
The request for a Demand Registration shall specify the approximate number of
shares of the Stock requested to be registered and the requested per share price
range, if any, for such offering. Notwithstanding any registration request
pursuant to this Section 1(a), the Board of Directors of the Company can choose
to delay any registration in good faith for a period of sixty days. The Company
can only delay registration for one sixty day period.
(b) Long-Form Registration. The Purchaser will be entitled to request
one Demand Registration, in which the Company will pay all Registration Expenses
(as hereinafter defined) until all of the Stock has been distributed provided
that the Demand Registration requested was with respect to all of the Stock. The
Purchaser's demand registration right hereunder shall not be satisfied until one
or more registration statements under the Securities Act shall have been
declared effective with respect to all of the Stock and the requirements of
Section 3 hereof shall have been satisfied.
(c) Selection of Underwriters. The Purchaser will have the right to
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select the investment banker(s) and manager(s) to administer any future offering
of the Stock.
2. Holdback Agreements.
(a) The Purchaser agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period beginning on
the effective date of any underwritten Demand Registration in which the Stock is
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
to use reasonable efforts to cause each holder of at least 5% (on a
fully-diluted basis) of its common stock (other than the Purchaser), or any
securities convertible into or exchangeable or exercisable for common stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
3. Registration Procedures. Whenever the Purchaser has requested that
any Stock be registered pursuant to this Agreement, the Company will use its
best efforts to effect the registration and the sale of the Stock in accordance
with the intended method of disposition thereof and pursuant thereto the Company
will as expeditiously as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to the Stock and use its best efforts to
cause such registration statement to become effective (provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to the counsel selected by the Purchaser
copies of all such documents proposed to be filed, which documents will be
subject to the review and comment of such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of not less than six months and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
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(c) furnish to each seller and each underwriter of the Stock such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Stock owned by such seller
or to be disposed of by such underwriter;
(d) use its best efforts to register or qualify the Stock under blue
sky laws of such jurisdictions the Purchaser reasonably requests and do any and
all other acts and things which may be reasonably necessary or advisable to
enable the Purchaser to consummate the disposition in such jurisdictions of the
Stock; provided, that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) notify the Purchaser, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading, and, at the request of
any such seller, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of the Stock, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(f) cause all the Stock to be listed on each securities exchange on
which similar securities issued by the Company are then listed and, if not so
listed, to be listed on the NASD automated quotation system and, if listed on
the NASD automated quotation system, use its best efforts to secure designation
of all the Stock covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule 11Aa2-1 of the Securities and
Exchange Commission or, failing that, to secure NASDAQ authorization for the
Stock and, without limiting the generality of the foregoing, to arrange for at
least two market makers to register as such with respect to the Stock with the
NASD;
(g) provide a transfer agent and registrar for all the Stock not later
than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the Purchaser
may reasonably request in order to expedite or facilitate the disposition of the
Stock;
(i) make available for inspection by the Purchaser, any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such seller or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement;
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(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Securities and Exchange Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit the Purchaser when, in its judgment, it might be deemed to
be an underwriter or a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of the Purchaser and its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order;
(m) obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by cold comfort letters as the Purchaser, may reasonably request;
(n) obtain an opinion of counsel from the Company's independent counsel
in customary form and covering such matters, such as effectiveness of
registration statement, of the type customarily covered by an issuer's counsel
opinion.
4. Registration Expenses.
---------------------
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other persons retained by the Company
(all such expenses being herein called "Registration Expenses"), will be borne
as provided in this Agreement, except that the Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by the Company
are then listed or on the NASD automated quotation system.
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(b) In connection with the Demand Registration, the Company will
reimburse the Purchaser for the reasonable fees and disbursements of one counsel
chosen by the Purchaser.
5. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
the Purchaser, its officers and directors against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
the Purchaser expressly for use therein or by the Purchaser's failure to deliver
a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Purchaser.
(b) In connection with any registration statement in which the
Purchaser is participating, the Purchaser will furnish to the Company in writing
such powers of attorney, custody agreements and letters of direction and other
information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the extent
permitted by law, will only have to indemnify the Company, its directors and
officers against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in any information or affidavit so furnished in writing by such
holder; provided, that the obligation to indemnify will be limited to the net
amount of proceeds received by the Purchaser from the sale of the Stock pursuant
to such registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld or delayed). An indemnifying party who is not
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entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities described herein.
The Company also agrees to make such provisions, as are reasonably requested by
any indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
6. Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by the person or persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that shall
not be required to make any representations or warranties to the Company or the
underwriters other than representations and warranties regarding the Purchaser=s
intended method of distribution.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the Purchaser in this Agreement.
(b) Adjustments Affecting the Stock. The Company will not take any
action, or permit any change to occur, with respect to its securities which
would materially adversely affect the ability of the Purchaser to include the
Stock in a registration undertaken pursuant to this Agreement or which would
materially adversely affect the marketability of the Stock in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) Remedies. Any person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
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(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the Purchaser.
(e) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of the
Purchaser are also for the benefit of, and enforceable by, any subsequent holder
of the Stock.
(f) Entire Agreement. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
IN WITNESS WHEREOF the parties hereto have or have caused this
Agreement to be duly executed as of the date first above written.
PERFUMANIA, INC.
By: /s/ Jerome Falic
-------------------------
Name: Jerome Falic
Title: President
PARLUX FRAGRANCES, INC.
By: /s/ Frank A. Buttacavoli
----------------------------
Name: Frank A. Buttacavoli
Title: Executive VP and CFO
7
PERFUMANIA, INC.
SUBORDINATED SECURED NOTE
$8,000,000 October 4, 1999
FOR VALUE RECEIVED, Perfumania, Inc., a Florida corporation (the
"Company"), hereby unconditionally promises to pay to the order of Parlux
Fragrances, Inc., a Delaware corporation (the "Holder"), in immediately
available funds, the principal amount of Eight Million Dollars ($8,000,000), in
consideration of the partial discharge of Accounts Receivable due from the
Company to the Holder, and to pay interest on the unpaid principal amount hereof
at the rate set forth in Section 4. All amounts owed hereunder shall be paid in
lawful money of the United States of America.
This Note is subject to the following terms and conditions:
1. Security. This Note and the amounts payable hereunder, including
principal and accrued interest, is secured by that Security Agreement between
the Holder and the Company dated as of the date hereof ("Security Agreement").
2. Subordination. This Note and the amounts payable hereunder,
including principal and accrued interest shall be subordinate and junior to the
Senior Bank Loans. For the purpose of this Note, "Senior Bank Loans" shall mean
any and all obligations, liabilities and indebtedness of the Company to LaSalle
Bank N.A. (the "Senior Lender"), all obligations, liabilities and indebtedness
in connection with the refinancing of the indebtedness to the Senior Lender and
any other financing by a bank or lending institution obtained by the Company on
or after the date hereof, including new financial accommodations with the
Company's present bank or a new bank or lending institution.
3. Payment of Principal. The Company shall punctually pay or cause to
be paid to Holder, or its assigns the principal of this note in installments as
follows:
(i) the Company shall pay the principal sum of $3,000,000 on
October 6, 1999;
(ii) the Company shall pay six equal monthly installments in the
principal sum of $500,000, commencing on the last business day of
November 1999, and continuing on the last business day of each month
thereafter through and including April 2000; and
(iii) the Company shall pay the principal sum of $2,000,000 on May 31,
2000.
The outstanding principal balance of this Note may be prepaid by the Company at
any time and from time to time, without premium or penalty of any kind or nature
whatsoever. Prepayments shall be applied to the installments due hereunder in
order of maturity.
4. Payments of Interest. With each payment of principal made pursuant
to Section 3, the Company shall pay or cause to be paid to Holder interest on
the unpaid principal amount hereof at the then current Prime Rate plus one
percent. As used herein, the term "Prime Rate" shall mean for each calendar
month the prime rate listed in the Wall Street Journal in the "Money Rates"
column published on the date which is one Business Day (as defined below) prior
to the beginning of such calendar month for such calendar month. If the Prime
<PAGE>
Rate cannot be determined in accordance with the preceding sentence, then the
Company will notify Holder and instead determine the Prime Rate by using the
rates offered to prime banks by Citibank, N.A. (but in all other respects in
accordance with the preceding sentence).
5. Payments. Any payment hereunder which is stated to be due on a day
which is not a Business Day shall be made on the next succeeding Business Day
(and interest shall accrue for such extension of time). "Business Day" shall
mean any day other than a Saturday or Sunday or a day on which banks in Chicago,
Illinois are authorized or required by law to be closed.
6. Default.
(a) Default. The occurrence of any one or more of the following events
shall constitute an event of default (each an "Event of Default") hereunder:
(i) if the Company becomes insolvent or makes an assignment for the
benefit of creditors;
(ii) if there shall be filed by or against the Company any petition
for any relief under the bankruptcy laws of the United States now or hereafter
in effect or any proceeding shall be commenced with respect to the Company under
any insolvency, readjustment of debt, reorganization, dissolution, liquidation
or similar law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity), provided that in the case of any involuntary
filing or the commencement of any involuntary proceeding against the Company
such proceeding or petition shall have continued undismissed and unvacated for
30 days; or
(iii) if any petition or application to any court or tribunal, at
law or in equity, shall be filed by or against the Company for the appointment
of any receiver or Company for the Company or any material part of the property
of the Company, provided that in the case of any involuntary filing against the
Company, such proceeding or appointment shall have continued undismissed and
unvacated for 30 days; or
(iv) if the Company shall fail for any reason to make any payment of
principal and/or interest hereunder within 10 business days after such payment
is due; or
(v) if the Company shall fail for any reason to make any payment of
principal and interest under any Senior Bank Loan, within 30 days after such
payment is due.
(b) Remedies Upon Default; Default Interest.
(i) If any Event of Default shall occur for any reason, then and in any
such event, in addition to all rights and remedies of the Holder under
applicable law or otherwise, all such rights and remedies being cumulative, not
exclusive and enforceable alternatively, successively and concurrently, the
Holder may, at its option, declare any or all amounts owing under this Note to
be due and payable, whereupon the then unpaid balance hereof, together with all
accrued and unpaid interest thereon, shall forthwith become due and payable.
(ii) Upon the occurrence of an Event of Default, or upon the maturity
hereof (by acceleration or otherwise), the principal and any accrued but unpaid
interest owing on said principal sum (the "Obligations") shall bear interest
from the date of occurrence of such Event of Default or such maturity until
collection (including any period of time occurring after judgment), at the
"Default Rate," being the lower of (A) the highest rate allowed by applicable
2
<PAGE>
law, or (B) a simple interest rate per annum equal to 3% above the Prime Rate in
effect on the date of maturity (acceleration or otherwise). All default interest
charges (X) shall be in addition to, and not in lieu of, any other remedy
available to Holder; (Y) shall be added to the Obligations and secured by the
Security Agreement, and (Z) shall not be construed as an agreement or privilege
to extend the date of the payment of the Obligations, nor as a waiver of any
other right or remedy accruing to Holder by reason of the occurrence of any
Event of Default.
7. Lost, Stolen, Mutilated or Destroyed Note. If this Note shall be
mutilated, lost, stolen, or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated Note, or in
lieu of or in substitution for a lost, stolen, or destroyed Note, a new Note for
the principal amount of this Note so mutilated, lost, stolen, or destroyed but
only upon receipt of evidence (which may consist of a signed affidavit of the
Holder) of such loss, theft, or destruction of such Note, and of the ownership
thereof, and indemnity all reasonably satisfactory to the Company.
8. Other Matters
(a) Sale of Note; Assignment. This Note is negotiable, and this Note
may be sold, assigned, transferred or conveyed, by pledge or otherwise, without
the prior written consent of the Company.
(b) Modification; Waiver. This Note may be amended, modified,
superseded, canceled, renewed or extended, and the terms hereof may be waived,
only by a written instrument signed by the Company and the Holder. Any waiver by
the Company or the Holder of a breach of any provision of this Note shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Note. The failure of the Company
or the Holder to insist upon strict adherence to any term of this Note on one or
more occasions shall not be considered a waiver or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term
of this Note. No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof or hereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder
preclude any other or further exercise hereof or the exercise of any other
right, power or privilege hereunder. Any waiver must be in writing. The rights
and remedies provided herein are cumulative and are not exclusive of any rights
or remedies which any party may otherwise have at law or in equity.
(c) Notices. Any notice required or permitted to be given hereunder
("Notices") shall be in writing and delivered personally or mailed by registered
or certified mail, postage prepaid and return receipt requested, or by
telecopier, as follows: (i) if to the Company: 11701 N.W. 101st Road, Miami,
Florida 33178, Attn: President, telecopy no. (305) 888-0628, with a copy to:
Greenberg Traurig, P.A., 1221 Brickell Avenue, Miami, Florida 33131, Attn:
Kenneth C. Hoffman, telecopy no. (305) 579-0717; and (ii) if to the Holder: 3725
S.W. 30th Avenue, Fort Lauderdale, Florida 33312, Attn: President, telecopy no.
(954) 316-8155, with copy to Mayer, Brown & Platt, 1675 Broadway, New York, New
York 10019, Attn: Barry P. Biggar, telecopy no. (212) 262-1910, or such other
address as the either party hereto may designate by Notice to the other.
(d) Severability. If any provision of this Note is invalid, illegal, or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. The rate of interest
on this Note is subject to any limitations imposed by applicable usury laws.
3
<PAGE>
(e) Headings. The headings in this Note are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Note.
(f) Governing Law. This Note shall be governed by and construed in all
respects under the laws of the State of Florida, without reference to its
conflict of laws rules or principles.
(g) Saving Clause. This Note is subject to the express condition that
at no time shall the Company be obligated or required to pay interest on the
principal balance due hereunder at a rate which could subject Holder to either
civil or criminal liability as a result of being in excess of the maximum
interest rate which the Company is permitted by law to contract or agree to pay.
If by the terms of this Note, the Company is at any time required or obligated
to pay interest on the principal balance due hereunder, at a rate in excess of
such maximum rate, the interest rate shall be deemed to be immediately reduced
to such maximum rate and all previous payments in excess of the maximum rate
shall be deemed to have been payments in reduction of principal and not on
account of the interest due hereunder notwithstanding the other provisions
hereof.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by the undersigned officer thereunto duly authorized.
PERFUMANIA, INC.
By: /s/ Jerome Falic
-----------------
Name: Jerome Falic
Title: President
4
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