UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended June 30, 1996
------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 1-10320
FBR CAPITAL CORPORATION
(Name of small business issuer in its charter)
Nevada 13-3465289
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
14988 N. 78th Way, Suite 203, Scottsdale, Arizona 85260
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (602) 922-5213
------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common Stock, par value $.005 per share
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best of
issuer's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $7,583,494
As of September 30, 1996, the aggregate market value of the Registrant's
Common Stock (based on the reported last sale price on the OTC Bulletin Board)
held by non-affiliates of the Registrant was $2,315,302.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
As of September 30, 1996, 4,636,705 shares of Registrant's Common Stock
were outstanding.
<PAGE>
PART I
ITEM 1. BUSINESS.
Historical Overview
The Company was incorporated under the laws of Nevada in 1988. Until June
28, 1996, it was engaged in the business of developing and marketing fragrances,
cosmetics, skin treatment and personal care products.
Sale of Assets. On June 28, 1996, effective for accounting purposes as of
June 30, 1996, the Company sold to Parlux Fragrances, Inc. ("Parlux"), pursuant
to the Asset Purchase Agreement dated January 31, 1996 between the Company and
Parlux, virtually all of the assets, properties and rights owned by the Company
in connection with its business ("Asset Sale") in consideration for (i) $750,000
in cash, (ii) 370,000 shares of the Common Stock of Parlux ("Parlux Stock"), and
(iii) the assumption by Parlux of (a) liabilities under certain leases for
periods from and after the closing date, (b) liabilities of the Company set
forth on the Company's balance sheet dated September 30, 1995 (but expressly
excluding any liability with respect to the Company's 10% Convertible
Subordinated Promissory Notes due January 15, 1996 ("Notes")) to the extent such
liabilities existed on the closing date, (c) additional liabilities of the
Company of the types reflected on the balance sheet as the same arose in the
ordinary course of the business between September 30, 1995 and the closing date
and which are reflected on the Company's closing date balance sheet, and (d) all
obligations under contracts, customer orders, purchase orders, and other
agreements and commitments that were included in the assets acquired by Parlux.
Parlux did not assume the following liabilities of the Company: (i) liabilities
and obligations to the Company's employees, (ii) legal, accounting and other
fees, taxes and other expenses incurred in connection with the sale of assets,
(iii) taxes (other than income taxes) for periods prior to the closing date and
income taxes for all periods, (iv) liabilities and obligations with respect to
assets not acquired and (v) liabilities and obligations arising from pending or
threatened litigation or claims against the Company. Pursuant to the Asset
Purchase Agreement, the Company agreed to indemnify Parlux with respect to any
claims caused by or arising from (i) any misrepresentation, breach of warranty
or breach of any term or provision of the Asset Purchase Agreement by the
Company to a maximum amount of $3,700,000 (which amount, at September 30, 1996,
was in excess of the value of the Company's assets), provided such claim is made
in writing within two years after the closing, (ii) any liabilities not assumed
by Parlux or (iii) liabilities (other than assumed liabilities) arising from the
operation of the Company's business prior to the closing. Conversely, Parlux
agreed to indemnify the Company with respect to claims caused by or arising from
(i) any misrepresentation, breach of warranty or breach of any term or provision
of the Asset Purchase Agreement by Parlux, provided such claim is made in
writing within two years after the closing, (ii) any liabilities assumed by
Parlux, or (iii) any liability arising from the operation of the business of the
Company by Parlux after the closing. No indemnification rights are enforceable
until the aggregate amounts of claims subject to such rights in favor of a party
exceeds $10,000.
In connection with the transaction, Parlux entered into a Registration
Rights Agreement in favor of the Company pursuant to which Parlux agreed to use
its best efforts to register the Parlux Stock under the Securities Act of 1933,
as amended, on demand and at any time Parlux proposed to register any of its
equity securities under the Securities Act, without cost to the Company. On July
1, 1996, the Company made a demand on Parlux to register the Parlux Stock and it
was registered in August 1996.
Completion of Exchange Offer. Simultaneously with the closing of the Asset
Sale, the Company completed an exchange offer with the holders of the Company's
Notes ("Exchange Offer"), pursuant to which the holders of $5,040,750 aggregate
principal amount (97.7% of the principal amount outstanding) tendered their
Notes in exchange for an aggregate of 594,550 shares of the Company's Common
Stock, par value $.005 per share, and 517 shares of the Company's
newly-authorized Series A Preferred Stock ("Preferred Stock"), at an exchange
ratio of 2,300 shares of the Company's Common Stock and two shares of Series A
Preferred Stock for each $19,500 principal amount Note. The total amount of debt
(including principal and unpaid but accrued interest) discharged pursuant to the
exchange amounted to $5,970,472.
2
<PAGE>
Change in Management. In connection with the completion of the Exchange
Offer, all of the officers and directors of the Company resigned and Charles D.
Snead, Jr. and Stephen T. Meadow assumed their positions as directors of the
Company, to which they had been elected at the Special Meeting of
Stockholders,of the Company held on May 31, 1996. Simultaneously with the
closing of the Exchange Offer, Mr. Snead was appointed President and Treasurer
(and principal executive, accounting and financial officer) and Mr. Meadow was
appointed Secretary of the Company.
Change in Name. On July 1, 1996, the Company filed a Certificate of
Amendment to its Articles of Incorporation to change its name from "Richard
Barrie Fragrances, Inc." to "FBR Capital Corporation."
Description of Present Business.
Description of Present Business
Since the Asset Sale, the Company's operations have been limited to the
conduct of administrative activities such as moving its principal place of
business, establishing new bank accounts, paying indebtedness remaining after
the Asset Sale and other general corporate activities. It has also begun to
identify and conduct discussions with respect to a possible business combination
with one or more entities interested in acquiring or being acquired by the
Company. The Company is free to investigate businesses of essentially any kind
or nature, including but not limited to, finance, technology, manufacturing,
service, research and development, healthcare, communications, insurance or
transportation. While the company has not chosen any particular area of business
in which it may propose to engage and has not conducted any market studies with
respect to any business, property or industry, the directors of the Company have
considered the strengths and weaknesses of the Company and established certain
initial criteria for its search. The Company will first seek a business
combination with a company having a business or line of products with good
prospects for future profits and growth. In view of the Company's small size and
book value, the appropriate candidate is expected to be an emerging or
developing company. The prospective candidate should desire to become a publicly
listed company through utilization of the quotation of the Company's Common
Stock on the NASD's OTC Bulletin Board. It should also have an interest in
acquiring the Company's cash and should qualify to use the Company's net
operating loss carryforwards ("NOLs"). Subject to possible limitations, the NOLs
might be available to reduce taxes on future income, provided that the combined
business continues in the same line of business in which the Company was
formerly engaged. Utilization of the NOLs may be a value enhancing element for
the Company but may be very difficult to accomplish. Accordingly, this criterion
will not limit the types of businesses included in the Company's search.
Several companies have been identified which appear to meet the criteria
set forth above and discussions are in progress with one of them. There is no
assurance of the availability, viability or success of any acquisition or the
results of operations of the Company in connection with any acquisition or
business venture. Even if a suitable candidate for a business combination is
found and negotiations are successfully completed, there is no assurance of
successful operations after the combination has been effected or that existing
stockholders of the Company will not suffer substantial dilution of their equity
position, either upon the business combination itself or upon the completion of
any additional financing which may be necessary.
The Company does not believe that it is an investment company required to
register as such under the Investment Company Act of 1940, as amended. The
Company intends to take such steps as may be necessary to avoid such
registration. If the Company has not concluded a business combination before
June 28, 1997, that is, one year after the Asset Sale, and if, because of its
continued ownership of the Parlux Stock or other securities, it would be
required to register or seek an exemption from such registration, the Company
anticipates that it will sell, transfer or otherwise divest itself of its
ownership thereof, redeem any outstanding Preferred Stock and make a
determination as to whether to liquidate and distribute its assets or to
continue to seek out viable business combinations.
The Company continues to hold the Parlux Stock and on September 30, 1996,
it had approximately $180,000 in cash in banks and approximately $400,000 in
U.S. Government Treasury bills maturing in February, 1997. The Parlux Stock may
be sold to the public pursuant to a currently effective Registration Statement
under the Securities Act of 1933, covering those shares, as well as other shares
3
<PAGE>
of Parlux held by parties unrelated to the Company. Under the terms of the
Company's outstanding Preferred Shares, however, no sale of the Company's assets
having a fair market value of $250,000 or more, either alone or in the aggregate
with all other sales of Company assets, may be sold without the prior consent of
the holders of a majority of the Preferred Stock unless the net proceeds of the
sale are applied to the payment of the Redemption Price ($5,600 per share) of
the Preferred Stock. The aggregate Redemption Price of the 517 shares of
Preferred Stock outstanding is $2,895,200 and the holders of the Preferred Stock
have a liquidation preference in that amount. The Company is obligated to redeem
all of the Preferred Stock by June 27, 1997. If such redemption is not effected,
the holders of a majority of the Preferred Stock have the right to demand the
liquidation of the Company and the application of its assets to satisfy their
liquidation preference.
On June 28, 1996, the market value of the Parlux Stock was $8.00 per share,
and the aggregate value would have been sufficient to pay the aggregate
Redemption Price. At that time, however, the Parlux Stock had not been
registered for resale under the Securities Act of 1933 and, accordingly,
transfer thereof was restricted. The Parlux Stock was registered on August 12,
1996, on which date the last sale price had declined to $7.625 per share. On
September 30, 1996, the last sale price was $4.75 per share. If, by June 27,
1997, the mandatory redemption date for the Preferred Shares, the market price
of the Parlux Stock has not substantially recovered, or if some accommodation
cannot be reached between the Company and the holders of the Preferred Stock,
the Company will probably be required to pay substantially all of its cash, in
addition to the proceeds of any sale of the Parlux Stock, to fulfill its
obligation to pay the Redemption Price. Any significant reduction in the amount
of its available cash will probably reduce the Company's value as an acquisition
candidate for other businesses and the Company's opportunities to effect a
favorable acquisition transaction will be substantially reduced.
Employees
In connection with the Asset Sale, all employees of the Company were
terminated and the Company has no employees. The Company's two executive
officers provide certain services to the Company on a part-time consultancy
basis.
ITEM 2. PROPERTIES
Since July 1, 1996, the Company's activities have been conducted by its
directors at offices maintained or made available to them for other work
unrelated to the Company. The Company's current executive office is located in
an office made available to Mr. Snead at no expense. Although the Company has
not been required to pay any rent for this office to date, in the future the
Company may be required to pay fair market rent for its executive office. The
Company believes that this office arrangement is adequate for the Company's
needs.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The information required by Item 4 was previously reported in Item 5 to the
Company's Current Report on Form 8-K, dated July 15, 1996, filed in connection
with the Asset Sale which occurred on June 28, 1996.
4
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock was traded on the Pacific Stock Exchange under the
symbol "RBF" until April 3, 1996, when trading was suspended pending delisting
of the Common Stock because of the Company's failure to meet the financial
requirements for continued listing. After delisting, the Common Stock was traded
on the NASD's OTC Bulletin Board, where it is quoted under the symbol "FBRR."
Set forth below are the high and low sales prices of the Company's Common Stock
for the periods indicated as reported by the Pacific Stock Exchange (for periods
prior to the fourth quarter of fiscal 1996), and as reported by the OTC Bulletin
Board (for the fourth quarter of fiscal 1996):
Period High($) Low($)
- ------ ------- ------
Fiscal 1996
Fourth Quarter 0.5625 0.2525
Third Quarter 0.25 0.15625
Second Quarter 0.50 0.125
First Quarter 1.125 0.3125
Fiscal 1995
Fourth Quarter 1.875 0.875
Third Quarter 1.875 1.00
Second Quarter 2.75 1.75
First Quarter 2.125 1.50
As of September 30, 1996, there were 302 holders of record of the Company's
Common Stock.
The Company has never paid any cash dividends. Because of the status of the
Company's business described in Item 1, it is highly unlikely that any cash
dividends will be paid on the Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Plan of Operations
The Company has not conducted any operations in the normal course since the
Asset Sale on June 28, 1996. Accordingly, the results of its previous operations
are not material. The reasons for the Asset Sale and the discontinuance of the
Company's business were previously reported in the Company's Proxy Statement,
dated April 22, 1996, with respect to the Special Meeting of Stockholders held
on May 31, 1996, for the purpose of approving, among other things, the Asset
Sale.
Upon the consummation of the Asset Sale and Exchange Offer and payment of
certain previously billed related expenses, the Company had approximately
$680,000 in cash. Of that amount, approximately $56,000 was applied to discharge
certain accounts payable, including legal fees for June 1996 and accounting and
consulting fees previously incurred. On September 30, 1996, the Company had
approximately $180,000 in cash and approximately $400,000 in U.S. Government
Treasury Bills. The Company expects that it will earn approximately $22,000 from
interest during the remainder of the current (1997) fiscal year.
5
<PAGE>
Corporate and administrative expenses for the current fiscal year are
expected to be approximately $165,000; including $82,000 in fees and expense
reimbursement to the directors, $55,000 for accounting fees for audit and tax
returns, $5,000 for office and telephone expense, $20,000 for liability
insurance and approximately $3,000 for miscellaneous expense. Funds to pay those
expenses are expected to be derived from interest income earned during the year
and from the Company's cash on hand.
Pursuant to the Exchange Offer, the Company settled its obligations under
all outstanding Notes, excluding obligations to three holders not participating
in the Exchange Offer, who hold Notes in the aggregate principal amount of
$117,000. After threatening litigation, two of the three holders, with Notes in
the aggregate principal amount of $97,500, have agreed to settle, collectively,
for $62,000 in cash, 11,500 shares of the Company's Common Stock and three-year
warrants to purchase 12,500 shares of the Company's Common Stock for $2.00 per
share. The Company believes that the remaining holder of the last Note, in the
principal amount of $19,500, will also accept a settlement of the Company's
obligations on terms not requiring the full cash payment of the amount due on
the Note. Funds for these settlements are expected to be taken from the
Company's cash on hand.
The Preferred Stock has a liquidation preference of $5,600 per share, or
$2,895,200 in the aggregate. The Company is obligated to redeem the Preferred
Stock by June 27, 1997 at a Redemption Price equal to the liquidation
preference. While it was anticipated, at the time of the Asset Sale, that that
price could be paid out of the proceeds of the contemplated sale of the Parlux
Stock, the market value of that stock has substantially declined since the Asset
Sale and there is no assurance that the Company will not be required to apply
all of its cash and the proceeds of the disposition of all of its Government
securities to meet the redemption requirement, in which case the Company will
have no assets. If the Company does not effect a mandatory redemption by June
27, 1996, the holders of a majority of the Preferred Stock will have the right
to demand liquidation of the Company and receive their liquidation preference.
Holders of the Series A Preferred Stock have no voting rights except the right
to vote as a class with respect to (i) any sale of Company assets having a fair
market value of $250,000 or more, alone or in the aggregate with all of the
sales of the Company's assets, unless all of the net proceeds of such sale are
applied to the payment of the redemption price of the Series A Preferred Stock;
(ii) any amendments to the Company's Articles of Incorporation; and (iii) the
issuance of any shares of the Company's capital stock (other than any issuance
pursuant to outstanding rights or options) unless the Series A Preferred Stock
will be redeemed in connection with the transaction pursuant to which such
shares are to be issued. For all matters on which the holders of the Series A
Preferred Stock are entitled to vote as a class, the affirmative vote of holders
holding a majority of the Series A Preferred Stock outstanding is required for
approval of such matter. The Series A Preferred Stock has no right to dividends.
ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Statements:
Report of Independent Public Accountants..................................F-1
Balance Sheets at June 30, 1996 and 1995..................................F-2
Statements of Operations --
Years ended June 30, 1996 and 1995.....................................F-3
Statements of Stockholders' Equity --
Years ended June 30, 1996 and 1995.....................................F-4
Statements of Cash Flows --
Years ended June 30, 1996 and 1995.....................................F-5
Notes to Financial Statements.....................................F-6 to F-13
6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FBR Capital Corporation:
We have audited the accompanying balance sheets of FBR Capital Corporation
(formerly Richard Barrie Fragrances, Inc.) (a Nevada corporation) as of June 30,
1996 and 1995, and the related statements of operations, stockholders' equity
and cash flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FBR Capital Corporation
(formerly Richard Barrie Fragrances, Inc.) as of June 30, 1996 and 1995, and the
results of its operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 4 to the
financial statements, the holders of the Company's preferred stock have a
liquidation preference of $5,600 per share, or $2,895,200 in the aggregate. The
Company is obligated to redeem the preferred stock by June 27, 1997 at a
redemption price equal to the liquidation preference. There is no assurance that
the Company will not be required to apply all of its assets (due to recent
decreases in the market value of the Company's investment in common stock of
Parlux Fragrances, Inc.) to meet the redemption requirements, in which case the
Company could have no assets. If the Company does not effect a mandatory
redemption by June 27, 1997, the holders of a majority of the preferred stock
will have the right to demand liquidation of the Company and receive this
liquidation preference. This condition raises substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability or classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
Melville, New York
September 20, 1996
F-1
<PAGE>
FBR CAPITAL CORPORATION
(formerly Richard Barrie Fragrances, Inc.)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
ASSETS 1996 1995
- ------ ------ ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 61,871 $ 339,715
Investment in common stock of Parlux Fragrances, Inc. (Note 2) 3,746,250 -
Accounts receivable, net - 1,770,190
Amount receivable from acquiror of discontinued operations (Note 2) 750,000 -
Inventory - 2,415,000
Promotional merchandise - 325,721
Other current assets 6,991 354,067
--------- ---------
Total current assets 4,565,112 5,204,693
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $538,031 at June 30, 1995 - 1,174,102
DEBT ISSUANCE COSTS, at cost, less accumulated amortization of
$313,000 and $231,068, respectively - 81,932
OTHER ASSETS - 1,825,404
--------- ---------
Total assets $4,565,112 $8,286,131
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 121,789 $ 389,033
Accrued expenses 180,417 2,016,585
Convertible notes payable - current portion 117,000 5,157,750
--------- ---------
Total current liabilities 419,206 7,563,368
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 8)
SERIES A PREFERRED STOCK:
$.01 par value, 529 shares authorized, 517 and 0 shares issued
and outstanding, respectively, at liquidation value of $5,600
per share (Note 4) 2,895,200 -
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares
outstanding except 517 shares issued as Series A Preferred Stock - -
Common stock, $.005 par value, 16,666,667 shares authorized, 4,636,698
and 4,419,548 shares issued and outstanding, respectively 23,183 22,097
Additional paid-in capital 7,241,768 6,982,738
Accumulated deficit (6,014,245) (6,282,072)
--------- ---------
Total stockholders' equity 1,250,706 722,763
--------- ---------
Total liabilities and stockholders' equity $4,565,112 $8,286,131
========= =========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
F-2
<PAGE>
FBR CAPITAL CORPORATION
(formerly Richard Barrie Fragrances, Inc.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended June 30,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Loss from the operations of discontinued
operations (Notes 1 and 2) $(4,828,165) $ (876,400)
Gain on disposal of assets of discontinued
operations (Notes 1 and 2) 2,280,836 -
---------
Loss before extraordinary item (2,547,329) (876,400)
Gain on extinguishment of debt (Note 4) 2,815,156 -
--------- ---------
Net income (loss) $ 267,827 $ (876,400)
======== =========
Earnings (loss) per share:
Loss per share from discontinued operations $ (0.58) $ (0.20)
Earnings per share from extraordinary item 0.64 -
--------- ---------
Net earnings (loss) per share $ 0.06 $ (0.20)
========= =========
Weighted Average Common Shares Outstanding 4,420,738 4,419,548
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
<PAGE>
FBR CAPITAL CORPORATION
(formerly Richard Barrie Fragrances, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock
($.005 par) Additional
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, July 1, 1994 4,419,548 $ 22,097 $7,003,988 $(5,405,672) $1,620,413
Additional costs related to issuance of
shares through private placement offering - - (21,250) - (21,250)
Net loss for the year ended June 30, 1995 - - - (876,400) (876,400)
--------- ------- --------- ---------- ---------
BALANCES, June 30, 1995 4,419,548 22,097 6,982,738 (6,282,072) 722,763
Contribution of common stock by former
President (Note 4) (377,400) (1,887) 1,887 - -
Issuance of common stock to convertible
note holders (Note 4) 594,550 2,973 257,143 - 260,116
Net income for the year ended June 30, 1996 - - - 267,827 267,827
--------- ------- --------- ------- -------
BALANCES, June 30, 1996 4,636,698 $ 23,183 $7,241,768 $(6,014,245) $1,250,706
========= ======= ========= ========== =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
FBR CAPITAL CORPORATION
(formerly Richard Barrie Fragrances, Inc.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended June 30,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 267,827 $ (876,400)
----------- ----------
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Gain on termination agreement (Note 1) - (876,712)
Gain on disposal of assets of discontinued operations (Note 2) (2,280,836) -
Gain on extinguishment of debt (Note 4) (2,815,156) -
Write-off of other assets 1,025,404 -
Depreciation and amortization 428,065 483,164
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,394,232 (599,507)
Decrease (increase) in inventory and promotional merchandise 856,247 (2,697,379)
Decrease (increase) in other current assets 326,380 (117,644)
Decrease (increase) in other assets 800,000 (201,792)
(Decrease) increase in accounts payable and accrued expenses (32,806) 3,022,474
--------- ----------
Total adjustments (298,470) (987,396)
--------- ----------
Net cash used in operating activities (30,643) (1,863,796)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments in connection with sale of assets (Note 2) (178,511) -
Purchase of property, plant and equipment (68,690) (35,899)
Proceeds from sale of property, plant and equipment - 1,845
--------- ----------
Net cash used in investing activities (247,201) (34,054)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable to Muelhens Inc. - (1,123,883)
Net proceeds from private placement of shares, net of share issuance costs - (21,250)
--------- ----------
Net cash used in financing activities - (1,145,133)
--------- ----------
Net decrease in cash and cash equivalents (277,844) (3,042,983)
CASH AND CASH EQUIVALENTS, beginning of year 339,715 3,382,698
--------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 61,871 $ 339,715
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ - $ 561,792
========= ==========
Income taxes $ - $ -
========= ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of investment shares in sale transaction (Note 2) $3,746,250 -
Amount receivable from Parlux on sale transaction (Note 2) 750,000 -
Issuance of Series A mandatory redeemable preferred stock in debt
extinguishment transaction (Note 4) 2,895,200 -
Issuance of common stock in debt extinguishment transaction (Note 4) 260,116 -
Contribution of common stock by former President in debt extinguishment
transaction (Note 4) 1,887 -
Extinguishment of convertible notes payable and accrued interest (Note 4) 5,970,472 -
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
FBR CAPITOL CORPORATION
(formerly Richard Barrie Fragrances, Inc.)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
1. ORGANIZATION AND BUSINESS:
FBR Capital Corporation (formerly Richard Barrie Fragrances, Inc.) (the
"Company") was incorporated in the state of Nevada on June 6, 1988, for the
original purpose of developing, manufacturing and marketing fragrances,
cosmetics, skin treatment and personal care products sold primarily through
department and specialty stores and drugstores. On July 1, 1996, following the
sale transaction described in Note 2, the Company filed a Certificate of
Amendment to its Articles of Incorporation to change its name from "Richard
Barrie Fragrances, Inc." to "FBR Capital Corporation" as authorized by the
stockholders of the Company. The Company is now a publicly held "shell"
corporation with no specific business operations.
Prior to December 1993, all of the Company's products were marketed under a
licensing agreement with Mikhail Baryshnikov (the "Baryshnikov License").
Effective December 14, 1993, the Company entered into distribution agreements
with Muelhens KG ("Muelhens"), a worldwide marketer of fragrance, cosmetic and
skin treatment products, and one of Muelhens' subsidiaries, Laboratories Dr.
N.G. Payot, S.A. ("Payot"). Pursuant to these agreements, the Company was
appointed the exclusive United States distributor for the fragrance brands
Moments and Experiences by Priscilla Presley, Sabatini and Magnetic by Gabriela
Sabatini, 4711 Original Eau de Cologne, and the Payot cosmetic and skin
treatment line. In addition, the Company purchased from Muelhens Inc.
("Muelhens-USA"), another subsidiary of Muelhens KG, certain inventory,
promotional merchandise and fixed assets.
On June 6, 1995, the parties to the distribution agreements described above
agreed to terminate the distribution agreements, effective June 30, 1995, and
Muelhens-USA agreed to repurchase from the Company, effective June 30, 1995,
inventory and related materials held by the Company related to the products
under the distribution agreements. In addition, Muelhens-USA agreed to establish
in favor of the Company an $876,712 credit in consideration for credits given by
the Company to retailers for returns accepted by the Company of products sold by
Muelhens-USA prior to December 14, 1993. The Company was permitted to offset
against any amounts owed by the Company to Muelhens-affiliated parties the
amount owed by Muelhens-USA to the Company pursuant to the repurchase
arrangement, as well as the amount of the credit established in favor of the
Company. The effect of the transaction was that the Company was relieved of
approximately $5,211,718 in debt obligations to the Muelhens-affiliated
companies at June 30, 1995.
Based on the structure of this termination transaction, it was the intent of the
parties that no cash payment was to be exchanged for such amounts due to and
from the parties to the termination agreement and, accordingly, these amounts
have been presented net in the accompanying balance sheet as of June 30, 1995.
The Company's gain of $876,712 under the termination agreement has been offset
against the sales returns to which the amount related in the accompanying
statement of operations for fiscal 1995.
F-6
<PAGE>
2. DISPOSITION OF ASSETS AND DISCONTINUED OPERATIONS:
Effective June 30, 1996, the Company sold virtually all of the assets,
properties and rights owned by the Company in connection with its business to
Parlux Fragrances, Inc. ("Parlux") in consideration for (i) $750,000 in cash,
(ii) 370,000 shares of the common stock of Parlux, and (iii) the assumption by
Parlux of certain liabilities, excluding any liability with respect to the
Company's 10% Convertible Subordinated Promissory Notes due January 15, 1996.
The cash received from the sale transaction was remitted to the Company on July
1, 1996. Accordingly, this amount is reflected as a receivable in the
accompanying balance sheet as of June 30, 1996. The common stock of Parlux
received from the sale transaction is reflected, at its fair market value, as an
investment in the accompanying balance sheet as of June 30, 1996.
In connection with the transaction, Parlux entered into a Registration Rights
Agreement in favor of the Company pursuant to which Parlux agreed to use its
best efforts to register the shares of Parlux stock paid to the Company under
the Securities Act of 1933, on demand and at any time Parlux proposes to
register any of its equity securities under the Securities Act, without cost to
the Company. Parlux registered the Parlux stock in August 1996.
As a result of this transaction, the Company's primary operations have ceased,
and the Company has changed its name (Note 1) and is now a publicly held "shell"
corporation with no specific business operations. Accordingly, the statements of
operations have been presented on a basis which reflects the Company's prior
business as discontinued operations in each of the years presented.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks, as well as certain highly
liquid investments with original maturities of less than three months.
Investments
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", which requires that marketable equity securities, other than
equity securities accounted for by the equity method, be reported at fair value.
For those securities which are classified as trading securities, unrealized
gains and losses are reported in the statement of income. Unrealized gains and
losses from those securities which are classified as available-for-sale will be
reported as a separate component of stockholders' equity. The Company's
investment in Parlux common stock (Note 2) was acquired as of June 30, 1996, and
valued based on the closing price on June 28, 1996, the last trading date of the
fiscal year. Accordingly, the investment in Parlux stock is presented in the
accompanying balance sheet at its fair market value, and there are no unrealized
gains or losses associated with changes in the fair market value of this
investment. Subsequent to June 30, 1996, the fair market value of Parlux common
stock, based on quoted market prices, decreased significantly. At September 20,
1996, this decrease would have resulted in an unrealized loss of approximately
$1,850,000, which would be presented as a component of stockholders' equity.
Doubtful Accounts and Sales Returns
Prior to the sale transaction described in Note 2, the Company had established
reserves for doubtful accounts and sales returns on its balance sheet.
F-7
<PAGE>
Accounts receivable, net, consisted of:
June 30, 1995
-------------
Accounts receivable $1,887,542
Less-
Allowance for doubtful accounts (67,352)
Allowance for sales returns and chargebacks (50,000)
---------
Accounts receivable, net $1,770,190
=========
Inventory and Promotional Merchandise
- -------------------------------------
Inventory and promotional merchandise included only
those items which were salable or usable in future
periods and were stated at the lower of cost
(first-in, first-out) or market.
Inventory consisted of:
June 30, 1995
-------------
Raw materials $1,105,653
Work-in-progress 313,646
Finished goods 995,701
---------
$2,415,000
=========
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment consisted of:
June 30, 1995
-------------
Machinery and equipment $ 964,752
Leasehold improvements 374,284
Furniture and fixtures 192,911
Computer and office equipment 180,186
---------
1,712,133
Less: Accumulated depreciation and amortization (538,031)
---------
Property, plant and equipment, net $1,174,102
=========
Depreciation charges were computed on a straight-line basis over the estimated
useful lives of the assets, which ranges from four to seven years. Leasehold
improvements were amortized on a straight-line basis over the lesser of the
term of the lease or the useful lives of the assets, generally five years.
Accrued Expenses
Included in accrued expenses as of June 30, 1996 and 1995 is $21,596 and
$237,096 of accrued interest due on the Convertible Notes (see Note 4).
F-8
<PAGE>
Earnings (Loss) Per Share
Earnings (loss) per share was computed by dividing the Company's net income
(loss) from discontinued operations and from extraordinary items by the weighted
average number of common shares outstanding during the period. The impact of
outstanding warrants and stock options has not been included in the calculation
as such effect, if included, would be antidilutive for both fiscal 1996 and
1995.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recently Issued Accounting Standards
During March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This
statement establishes financial accounting and reporting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. This statement is effective
for financial statements for fiscal years beginning after December 15, 1995,
although earlier application is encouraged. It is the Company's policy to
account for these assets at the lower of amortized cost or fair value. As part
of an ongoing review of the valuation and amortization of such assets,
management will assess the carrying value of such assets on a continuing basis.
If this review indicates that the assets will not be recoverable as determined
by a nondiscounted cash flow analysis over the remaining amortization period,
the carrying value of these assets would be reduced to their estimated fair
market values. The Company does not expect the impact of the adoption of this
pronouncement to be material to its financial position or results of operations.
During October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock Based Compensation." This statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages entities to adopt a fair value based
method of accounting for stock compensation plans. However, SFAS No. 123 also
permits the Company to continue to measure compensation costs under pre-existing
accounting pronouncements. If the fair value based method of accounting is not
adopted, SFAS No. 123 requires pro forma disclosures of net income (loss) and
net income (loss) per common share in the notes to financial statements. The
accounting requirements of SFAS No. 123 are effective for transactions entered
into in fiscal years that begin after December 15, 1995, though they may be
adopted on issuance. The disclosure requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which SFAS No. 123 is initially adopted for
recognizing compensation cost. The Company has not yet quantified the expected
impact of the adoption of this pronouncement.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year
presentation, including the presentation of all revenues and expenses of its
prior business (see Note 2) as discontinued operations.
F-9
<PAGE>
4. PRIVATE PLACEMENT AND EXTINGUISHMENT OF RELATED DEBT:
Private Placement
On December 14, 1993, the Company consummated an initial closing of a private
placement of its securities, selling 221.5 Units ("Units") at $25,125 per Unit,
yielding gross proceeds to the Company of $5,565,187.50. On January 13, 1994,
the Company consummated a second and final closing of its private placement,
selling an additional 43 Units and yielding gross proceeds to the Company of
$1,080,375. Accordingly, at the two closings, the Company sold an aggregate of
264.5 Units, derived total gross proceeds of $6,645,562.50 and derived net
proceeds of $5,915,180.50.
Each Unit consisted of a $19,500 principal amount 10% Convertible Subordinated
Promissory Note (the "Convertible Notes") due January 15, 1996, 2,500 shares of
common stock and 1,667 Common Stock Purchase Warrants (the "Warrants") expiring
January 15, 1996. The Convertible Notes are convertible into shares of common
stock at a conversion price of $4.50 per share, which was reduced by their terms
to $2.25 per share effective August 13, 1994. The Warrants are exercisable at
$10.50 per share.
In connection with this private placement, on January 13, 1994, the Company
issued to the Placement Agent five-year Warrants to purchase up to 26.45 Units
at an exercise price of $30,150 per Unit ("Placement Agent Warrants"). Effective
as of February 3, 1994, the Placement Agent Warrants were exchanged by the
Placement Agent for warrants issued to its designees as follows: (a) warrants to
purchase 66,225 shares at $2.70 per share; (b) warrants to purchase 114,617
shares at $5.40 per share; and (c) warrants to purchase 44,083 shares at $9.00
per share. The holders of the Placement Agent Warrants were granted both demand
and "piggy-back" registration rights with respect to the common stock underlying
the Placement Agent Warrants.
Extinguishment of Debt in Exchange Offer
Simultaneously with the closing of the sale of assets described in Note 2, the
Company completed an exchange offer with certain holders of the Convertible
Notes pursuant to which the holders of 258.5 Units, or $5,040,750 aggregate
principal amount of Convertible Notes, tendered their Convertible Notes, in
exchange for an aggregate of 594,550 shares of the Company's Common Stock and
517 shares of the Company's newly-authorized Series A Mandatory Redeemable
Preferred Stock, at an exchange rate of 2,300 shares of the Company's Common
Stock and two shares of Series A Mandatory Redeemable Preferred Stock for each
$19,500 principal amount Convertible Note. The total amount of debt (including
principal and accrued but unpaid interest) extinguished pursuant to the exchange
aggregated $5,970,472. This amount, less the value of the common stock
($260,116) and the Series A Mandatory Redeemable Preferred Stock ($2,895,200)
issued in the exchange offer, resulting in an extraordinary gain on
extinguishment of debt in the amount of $2,815,156.
Issuance of Series A Preferred Stock in Exchange Offer
The Series A Preferred Stock described above has a liquidation preference of
$5,600 per share, or $2,895,200 in the aggregate. The Company is obligated to
redeem the Series A Preferred Stock one year from the date of issuance (June 27,
1997). If the Company does not effect a mandatory redemption within such one
year period, the holders of a majority of the Series A Preferred Stock will have
the right to demand liquidation of the Company and receive their liquidation
preference. The Company has the right to call the Series A Preferred Stock for
redemption at any time at the redemption price. Holders of the Series A
Preferred Stock have no voting rights except the right to vote as a class with
respect to (i) any sale of Company assets having a fair market value of $250,000
or more, alone or in the aggregate with all of the sales of the Company's
assets, unless all of the net proceeds of such sale are applied to the payment
of the redemption price of the Series A Preferred Stock; (ii) any amendments to
F-10
<PAGE>
the Company's Articles of Incorporation; and (iii) the issuance of any shares of
the Company's capital stock (other than any issuance pursuant to outstanding
rights or options) unless the Series A Preferred Stock will be redeemed in
connection with the transaction pursuant to which such shares are to be issued.
For all matters on which the holders of the Series A Preferred Stock are
entitled to vote as a class, the affirmative vote of holders of a majority of
the Series A Preferred Stock outstanding is required for approval of such
matter. The Series A Preferred Stock has no right to dividends.
As described above, the holders of the Company's preferred stock have a
liquidation preference of $5,600 per share, or $2,895,200 in the aggregate. The
Company is obligated to redeem the preferred stock by June 27, 1997 at a
redemption price equal to the liquidation preference. There is no assurance that
the Company will not be required to apply all of its assets (due to recent
decreases in the market value of the Company's investment in common stock of
Parlux Fragrances, Inc.; see Note 3) to meet the redemption requirements, in
which case the Company could have no assets. If the Company does not effect a
mandatory redemption by June 27, 1997, the holders of a majority of the
preferred stock will have the right to demand liquidation of the Company and
receive this liquidation preference. This condition raises substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability or
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
Contribution to Capital
In connection with the completion of the exchange offer described above, Richard
Barrie, formerly President and a director of the Company (Note 5), contributed
377,400 shares of the Company's Common Stock owned by him to the capital of the
Company. These shares resumed the status of authorized, but unissued, shares of
the Company's Common Stock and were re-issued in the exchange offer to
Convertible Noteholders.
5. CHANGE IN MANAGEMENT:
In connection with the completion of the exchange offer, all of the officers and
directors of the Company resigned and Charles D. Snead, Jr. and Stephen T.
Meadow assumed their positions as directors of the Company, to which they were
elected at a Special Meeting of Stockholders of the Company held on May 31,
1996. Simultaneously with the closing of the exchange offer described in Note 4,
Mr. Snead was appointed President and Treasurer (and principal executive,
accounting and financial officer) and Mr. Meadow was appointed Secretary of the
Company.
6. STOCK OPTION PLANS AND OUTSTANDING OPTIONS:
1988 Stock Option Plan
In November 1988, the Company adopted the 1988 Stock Option Plan ("1988 Stock
Option Plan"). The 1988 Stock Option Plan provides for the granting of options
to purchase up to 66,667 shares of common stock to the Company's employees,
directors and consultants. Options under the 1988 Stock Option Plan may be
incentive options which are intended to qualify under Section 422A of the
Internal Revenue Code of 1986, as amended, and non-qualified stock options. The
1988 Stock Option Plan is administered by the Board of Directors, which
determines the persons to whom options will be granted, the number to be granted
and the specific terms of each option, including the vesting and exercisability
thereof.
F-11
<PAGE>
Options granted may not have terms exceeding ten years (five years for incentive
stock options granted to a holder of 10% or more of the total voting power of
common stock) and may not provide for an option exercise price of less than 100%
of the fair market value (110% of the fair market value for incentive options
granted to a holder of 10% or more of the total voting power of common stock) of
the Company's common stock on the date of grant. Options are neither assignable
nor transferable. The 1988 Stock Option Plan terminates in November 1998 unless
terminated earlier by the Company's Board of Directors.
Transactions involving the 1988 Stock Option Plan are summarized as follows:
For the Years Ended June 30,
----------------------------
1996 1995
---- ----
Outstanding at beginning of period 19,333 36,000
Granted - -
Exercised - -
Canceled - (16,667)
------ ------
Outstanding at end of period 19,333 19,333
====== ======
Exercisable ($0.75 - $1.125 per share) 19,333 17,666
====== ======
In connection with the change in management described in Note 5, all of the
outstanding options issued pursuant to this plan expired in July 1996.
Non-Employee Director Compensation Plan
On September 20, 1993, the Company adopted the Non-Employee Director
Compensation Plan, pursuant to which the Company granted to each of four
directors ten-year options to purchase 15,000 shares of common stock at an
exercise price of $2.25 per share (the closing price of the common stock on the
Pacific Stock Exchange on the date of grant). The options are exercisable as
follows: 33 1/3% immediately as of the grant of the option; 33 1/3% on and after
the first anniversary of the grant; and the remaining 33 1/3% on and after the
second anniversary. On April 17, 1995, the Company reduced the exercise price of
these outstanding options to three of such directors (with respect to options to
purchase an aggregate of 45,000 shares) to $1.4375 (the closing price of the
common stock on the Pacific Stock Exchange on the date of the reduction). The
exercise price of outstanding options to purchase the remaining 15,000 shares
(which are held by a director who resigned in February 1995) was not reduced. On
April 17, 1995, the Company also granted options to another director to purchase
15,000 shares of common stock at an exercise price of $1.4375. These options
expired upon such director's resignation on August 28, 1995.
In connection with the change in management described in Note 5, all of the
outstanding options issued pursuant to this plan expired in July 1996, except
for options to purchase 15,000 shares at $2.25 per share held by a former
director, who resigned in February 1995. The holder of these options was granted
"piggy-back" registration rights with respect to the common stock underlying
such options.
Other Employee Options
On April 17, 1995, the Company granted, outside of the 1988 Stock Option Plan
and the Non-Employee Director Compensation Plan, to six employees ten-year
options to purchase an aggregate of 65,000 shares of common stock at an exercise
price of $1.4375. These options were exercisable as follows: 50% on and after
the first anniversary of the grant, and the remaining 50% on and after the
second anniversary. All of these options were voluntarily surrendered by the
option holders in October 1995.
F-12
<PAGE>
Effective June 28, 1996, the Company granted, outside of the 1988 Stock Option
Plan and the Non-Employee Director Compensation Plan, to its two new directors
and officers (Note 5) ten-year options to purchase, respectively, 30,000 and
10,000 shares of common stock at an exercise price of $.4375. These options are
immediately exercisable, and "piggy-back" registration rights were granted to
the option holders with respect to the common stock underlying such options.
7. INCOME TAXES:
The Company is in an accumulated loss position for both financial reporting and
income tax purposes. Historically, no federal tax benefit has been recorded due
to the uncertainty of the Company's ability to realize benefits by generating
taxable income in the future. The Company had a tax loss carryforward of
approximately $6 million for financial reporting purposes and approximately $6.4
million for tax purposes at June 30, 1996. These carryforwards expire through
2011. Due to the change in control of the Company resulting from the Company's
various equity transactions, certain restrictions exist as to the use of the net
operating loss carryforwards to offset future taxable income.
Although the Company has significant net operating loss carryforwards available
to offset future book and taxable income, due to the uncertainty as to the
Company's future earnings and the annual restrictions which exist relating to
the utilization of the tax operating loss carryforwards previously incurred, a
full valuation allowance has been provided to offset any deferred tax assets
which would arise.
8. COMMITMENTS AND CONTINGENCIES:
Licensing Agreement
The Company had been engaged in license agreements with Mikhail Baryshnikov (the
"Baryshnikov license") and Worldvision, a subsidiary of Spelling Entertainment,
Inc. (the "Melrose license") which granted the Company the right to use the
licenser's name or characters in the promotion of its production of its
products. The Company paid royalties based on a percentage of net sales.
Concurrent with the sale of assets (Notes 1 and 2), the Company is no longer a
party to such license agreements.
Consulting Agreement
The Company has entered into consulting agreements with its two new principal
officers (Note 5), pursuant to which they will receive annual compensation,
ranging from $36,000 to $60,000 per year and from $18,000 to $24,000 per year,
respectively, depending on time devoted to the affairs of the Company. Both of
these consulting agreements are in effect until the next annual meeting of
shareholders and until their respective successors are elected and qualified.
F-13
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Concerning Directors and Executive Officers
Name Age Position
- ---- --- --------
Charles D. Snead, Jr. 64 President (and principal executive,
financial and accounting officer)
and Director
Stephen T. Meadow 69 Secretary and Director
Stephen T. Meadow has, since 1962, been an attorney in the private
practice of law in Phoenix, Arizona, specializing in the fields of corporate and
securities law.
Charles D. Snead is an attorney and a business and mining consultant.
From October 1991 through June 1994, Mr. Snead was Chairman of the Board of
Siskon Gold Corporation, of which he has since continued to be a Director. Prior
to October, 1991, he was Chairman, President and Chief Executive Officer of
Callahan Mining Corporation, then located in Phoenix, Arizona.
Directors hold office until the next annual meeting of the Company's
stockholders and until their successors are elected and qualified. Officers are
elected annually by the Board of Directors and serve at the discretion of the
Board.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who beneficially own more
than ten percent of the Company's Common Stock to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the Pacific
Stock Exchange. These reporting persons also are required to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely on its review of the copies of such forms furnished to it and
representations that no other reports were required, the Company believes that
all Section 16(a) reporting requirements were complied with during the fiscal
year ended June 30, 1996, except that Richard and Lynn Barrie, formerly
executive officers and directors of the Company, filed one report late that
reflected Mr. Barrie's contribution to the capital of the Company of certain
shares owned by him on June 28, 1996, and Ronald Stein, formerly an executive
officer of the Company, filed one report late that reflected his receipt of
shares of Common Stock in exchange for his Note pursuant to the Exchange Offer
on June 28, 1996.
ITEM 10. EXECUTIVE COMPENSATION
The Company has no executive employees. Its two directors, who are also
its only officers, perform their duties on a consulting basis and are paid
20
<PAGE>
consulting fees, in addition to reimbursement of reasonable expenses incurred in
the performance of duties for the Company. Messrs. Snead and Meadow each receive
consulting fees calculated at the rate of $75 per hour, with Mr. Snead receiving
a minimum fee of $3,000 per month and a maximum fee of $5,000 and Mr. Meadow
receiving a minimum fee of $1,500 per month and a maximum fee of $2,000 per
month. Mr. Snead's consultancy arrangement commenced in March 1996 in connection
with the Asset Sale. In fiscal 1996, Mr. Snead received consulting fees of
$7,575. In addition, in March 1996, Messrs. Snead and Meadow were granted,
effective upon the closing of the Asset Sale, ten-year options to purchase,
respectively, 30,000 and 10,000 shares of Common Stock at an exercise price
equal to the market price on the closing date of the Asset Sale (or $.4375 per
share). These options are immediately exercisable and "piggyback" registration
rights were granted to each of them with respect to the Common Stock underlying
such options.
Compensation for Former Executive. The following table sets forth
information concerning compensation for fiscal 1996, 1995 and 1994 earned by or
paid to the Company's former chief executive officer, Richard Barrie, the only
executive officer whose compensation exceeded $100,000 in fiscal 1996:
- -------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Annual Compensation
--------------------------------------
Other Annual
Name and Salary Bonus Compensation(1)
Principal Occupation Year ($) ($) ($)
- -------------------------------------------------------------------------------
Richard Barrie, 1996 234,150 -0- 5,490
President and 1995 227,950 -0- 1,922
Chief Executive Officer 1994 198,125 16,000 66,500(2)
- -------------------------------------------------------------------------------
(1) Mr. Barrie routinely received other benefits from the Company, the
aggregate amounts of which during the years indicated did not exceed 10%
of the salary and bonus set forth above.
(2) For fiscal 1996 and 1995 represents the imputed economic benefit to Mr.
Barrie of premiums paid for a "split dollar" insurance policy (discussed
below) insuring his life. For fiscal 1994, represents reimbursement for
premiums paid on insurance policies insuring his life for the benefit of
his family. In fiscal 1994 also represents reimbursement of $58,500 in
personal relocation expenses.
Compensation Arrangements for Former Chief Executive Officer. Effective October
1, 1993, the Company entered into a three-year employment agreement with Richard
Barrie pursuant to which he would be paid an annual salary of $180,000 per year,
which increased to $225,000 effective December 15, 1994, with annual cost of
living adjustments based upon the consumer price index. The agreement also
provided for the Company to reimburse Mr. Barrie (up to $8,000 per year) for the
cost of private life insurance through June 30, 1994. In August 1994 the Company
purchased for Mr. Barrie a $6,000,000 "split dollar" insurance policy on his
life, which provides a $3,000,000 "key man" death benefit payable to the Company
and a $3,000,000 death benefit payable to Mr. Barrie's designated beneficiaries.
The policy was structured to provide for repayment of the premiums to the
Company upon the earlier of Mr. Barrie's death or attainment of the age of 67.
The policy was further structured to provide Mr. Barrie with a retirement
benefit from the cash surrender value of the policy. In connection with the
Exchange Offer, this agreement was terminated upon Mr. Barrie's resignation on
June 28, 1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of
September 30, 1996 with respect to (i) those person or groups known to the
Company to beneficially own more than 5% of the Company's Common Stock, (ii)
21
<PAGE>
each director, (iii) each former executive officer whose compensation exceeded
$100,000 in fiscal 1996, and (iv) all current directors and officers as a group.
The information is determined in accordance with Rule 13d-3 promulgated under
the Securities Exchange Act of 1934 based upon information furnished by the
persons listed or contained in filings made by them with the Securities Exchange
Commission. Except as indicated below, the stockholders listed possess sole
voting and investment power with respect to their shares.
Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
Stephen T. Meadow...................16,100(1) *
Charles D. Snead, Jr................30,000(2) *
Richard Barrie.....................104,823(3) 2.3%
All Directors and Executive
Officers as a Group (2 persons).... 46,100(4) *
- ---------------------------------
* Less than one percent.
(1) Includes 1,500 shares owned by Mr. Meadow's spouse and 10,000 shares
issuable upon exercise of presently exercisable options.
(2) Includes 30,000 shares issuable upon the exercise of presently
exercisable options.
(3) Includes 4,823 shares owned by Lynn Barrie, Mr. Barrie's wife, who
possesses sole voting and investment power with respect to such shares.
(4) Includes an aggregate of 40,000 shares issuable upon exercise of
presently exercisable options. See Notes (1) and (2).
PART IV
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In connection with the completion of the Exchange Offer, on June 28,
1996, Richard Barrie, formerly President and a director of the Company,
contributed to the capital of the Company 377,400 shares of the Company's Common
Stock owned by him.
In the Exchange Offer, on June 28, 1996, Stephen T. Meadow, currently an
officer and director of the Company, and a pension trust of which Ronald Stein,
formerly an officer of the Company was the beneficiary, each tendered for
exchange, respectively, Notes in the principal amount of $39,000 and $19,500.
Pursuant to the terms of the Exchange Offer, they received, respectively, 4,600
and 2,300 shares of Common Stock and four and two shares of Preferred Stock.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Filed
See Exhibit Index appearing later in this Report.
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K, dated July 15,
1996, to report, among other things, an Acquisition or
Disposition of Assets under Item 2 thereof occurring on
June 28, 1996.
22
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FBR CAPITAL CORPORATION
(Registrant)
Dated: October 11, 1996 By: /s/ Charles D. Snead, Jr.
--------------------------------
Charles D. Snead, Jr., President
In accordance with the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Stephen T. Meadow Director October 11, 1996
- ----------------------------
Stephen T. Meadow
/s/ Charles D. Snead, Jr. President (Principal
- ---------------------------- Executive Financial October 11, 1996
Charles D. Snead, Jr. and Accounting Officer)
and Director
23
<PAGE>
EXHIBIT INDEX
Exhibit By Reference No. in
Number Description from Document Document
- ------ ----------- -------------- --------
3.1 Registrant's Article of Incorporation A 3.1
3.1.1 Registrant's Amendment to its Articles of A 3.1.1
Incorporation, dated November 7, 1988
3.1.2 Registrant's Amendment to its Articles of B 3.1.2
Incorporation, dated June 25, 1991
3.1.3 Registrant's Certificate of Reverse Stock C 3.1.3
Split, dated February 15, 1994
3.1.4 Registrant's Certificate of Designation of D 3.1.4
Series A Preferred Stock, dated June 27, 1996
3.1.5 Registrant's Amendment to Articles of D 3.15
Incorporation, dated June 25, 1996
3.2 Amended By-Laws of the Registrant C 3.2
4.1 Registrant's Form of Common Stock A 4.1
Certificate
4.6 Registrant's Form of 10% Convertible E 4.7
Subordinated Promissory Note issued to
purchasers of the Registrant's securities in
a private placement of the Registrant's
securities which closed on December 14,
1993 and January 13, 1994.
4.7 Registrant's Form of Warrant to purchase E 4.8
shares of Registrant's Common Stock at an
exercise price of $.90 per share dated
February 3, 1994.
4.7.1 Schedule of omitted documents in the form E 4.8.1
of Exhibit 4.7, including material detail in
which such documents differ from Exhibit 4.7.
10.1 Registrant's 1988 Stock Option Plan A 10.1
10.2 Stock Option Agreement, dated September E 10.17
20, 1993, between Registrant and Patrick
McEnany.
10.2.1 Amendment to Stock Option Agreement, [filed herewith] --
dated February 21, 1995, between
Registrant and Patrick McEnany
10.3 Asset Purchase Agreement between the F 10.17
Company and Parlux Fragrances, Inc.,
dated January 31, 1996
23
<PAGE>
Exhibit By Reference No. in
Number Description from Document Document
- ------ ----------- -------------- --------
10.4 Registration Rights Agreement between the F 10.18
Company and Parlux Fragrances, Inc.,
dated June 28, 1996
27 Financial Data Schedule (6/30/96) [filed herewith] --
- -------------------------------
A Form S-18 Registration Statement No. 33-25704-NY.
B Form 10-K Annual Report of the Registrant for the fiscal year ended
June 30, 1991.
C Form 10-KSB Annual Report of the Registrant for the fiscal year ended
June 30, 1994.
D Form 8-K Current Report reporting event on June 28, 1996.
E Form 10-QSB Quarterly Report of the Registrant for the fiscal quarter
ended December 31, 1993.
F Form 10-QSB Quarterly Report of the Registrant for the fiscal quarter
ended December 31, 1995.
24
<PAGE>
EXHIBIT 10.2.1
AMENDMENT TO STOCK OPTION AGREEMENT
AND REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO STOCK OPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT ("Agreement") is made as of this 21st day of February, 1995, between
RICHARD BARRIE FRAGRANCES, a Nevada corporation ("Company), and PATRICK McENANY
("Holder").
WHEREAS, the Company granted options to Holder to purchase 45,000
shares of the authorized but unissued shares of Common Stock of the Company,
$.005 par value (the "Common Stock") at $.75 per share as evidenced by a Stock
Option Agreement dated September 20, 1993 (the "Stock Option Agreement");
WHEREAS, the Company effected a 1-for-3 reverse stock split of the
Common Stock in 1994;
WHEREAS, the such options to purchase are now for 15,000 shares at
$2.25 per share because of the reverse split;
WHEREAS, Section 3(b) of the Option Agreement stated that such options
would terminate if Holder's directorship ceased;
WHEREAS, the Company acknowledges Holder's services and contributions
as a director and desires to amend such Section 3(b) to provide that such
options not terminate in the event Holder's directorship ceases;
WHEREAS, the Company desires to provide certain registration rights
under the Securities Act of 1933, as amended, and the rules and regulations
thereunder (collectively, the "Act"), with respect to the Common Shares, in
accordance with the terms and conditions set forth in this Agreement;
IT IS AGREED:
1. Registration Rights.
1.1 Certain Definitions.
As used in this Agreement, the following terms shall have the
following respective meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Act.
(b) The terms "Register," "Registered" and "Registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act ("Registration Statement"), and the
declaration or ordering by the Commission of the effectiveness of such
Registration Statement.
<PAGE>
(c) "Registrable Securities" shall mean the Common Shares
issued or issuable to Holder upon exercise of the options evidenced by the Stock
Option Agreement (including shares received from the Company with respect to or
in replacement of such shares by reason of stock splits, reverse splits, stock
dividends or similar events).
(d) "Registration Expenses" shall mean all expenses incurred
by the Company in complying with Section 1 hereof, including, without
limitation, all federal and state registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, and the expense of any special audits incident to or required
by any such Registration.
(e) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities by the
Holder pursuant to this Agreement and shall include the fees and costs of any
counsel, accountant or other agent engaged by the Holder.
1.2 "Piggy-Back" Registration Rights.
(a) If, at any time when Holder owns Registrable Securities,
the Company prepares and files a Registration Statement (other than Registration
Statements on Forms S-8 (if not permitted by Commission regulations), S-4, or
similar forms), with respect to a public offering of equity or debt securities
of the Company, or any of such securities held by its stockholders, the Company
will include in such Registration Statement such number of the Registrable
Securities as may be requested by the Holder; provided, however, that if, in the
written opinion of the Company's managing underwriter or underwriters, if any,
for such offering, the inclusion of the Registrable Securities, when added to
the securities being registered by the Company or the selling stockholders, will
exceed the maximum amount of the Company's securities that can be marketed (i)
at a price reasonably related to their then current market value or (ii) without
materially and adversely affecting the entire offering, then the Company may
exclude from such offering all or any portion of the Registrable Securities
requested to be so registered. If any of the Registrable Securities are so
excluded, then the number of securities to be sold by all stockholders in such
public offering will be apportioned pro rata among all such selling
stockholders, including the Holder, according to the total amount of securities
of the Company owned by such selling stockholders, including the Holder.
(b) In the event of such a proposed Registration, the Company
will furnish the Holder with not less than twenty days' written notice prior to
the proposed date of filing the Registration Statement. If the Holder desires to
exercise the "piggy-back" registration rights provided in this Section 1.2, it
must, within ten days after his or its receipt of the Company's notice, give
written notice of such exercise to the Company.
(c) Notwithstanding the foregoing, (i) the Company will have
no obligation hereunder in connection with any Registration Statement unless the
Holder provides to the Company information and documents with respect to its
ownership of Registrable Securities, compliance with the law, manner of proposed
disposition and such other matters as the Company may reasonably require for
disclosure in the Registration Statement; (ii) the Company will not be obligated
to register any Registrable Securities unless such registration is then
permitted by law and the policy of the Commission; and (iii) the foregoing
registration rights are non-assignable except as provided in Section 3.3 hereof
and are exercisable only at such time as the Holder cannot publicly sell any of
the Registrable Securities under an exemption from the registration requirements
of the Act.
2
<PAGE>
1.3 Blue Sky. In the event of any Registration pursuant to this
Agreement, the Company will exercise its best efforts to Register and qualify
the Registrable Securities covered by the Registration Statement under such
other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holder for the distribution of such securities; provided,
however, that the Company shall not be required to qualify to do business, or to
subject itself to taxation in any state or jurisdiction in which it is not now
qualified. The Company will furnish to the Holder written advice of its counsel
with respect to registration or exemption of such Registrable Securities in such
jurisdictions.
1.4 Expenses of Registration. All Registration Expenses incurred
in connection with a Registration pursuant to this Agreement shall be borne by
the Company. All Selling Expenses shall be borne by the Holder.
1.5 Registration Procedures.
1.5.1 Advice by Company. The Company will keep the Holder
advised as to the initiation and completion of such Registration. At its
expense, the Company will (i) use its reasonable efforts to cause the
Registration Statement to become effective; (ii) use its reasonable efforts to
keep such Registration effective until the earlier of the date on which the
Holder has completed the distribution described in the Registration Statement or
the date which is six months after the effective date of the Registration
Statement; and (iii) furnish such number of prospectuses (including preliminary
prospectuses) and other documents as the Holder from time to time may reasonably
request.
1.5.2 Amendments. The Company will promptly prepare and file
with the Commission such amendments and prospectus supplements, including
post-effective amendments, to the Registration Statement as the Company
determines may be necessary or appropriate, and use its best efforts to have
such post-effective amendments declared effective as promptly as practicable;
cause the related prospectus to be supplemented by any prospectus supplement,
and as so supplemented, to be filed with the Commission; and notify the Holder
of any securities included in such Registration Statement and the underwriter
thereof, if any, promptly when a prospectus, any prospectus supplement or
post-effective amendment must be filed or has been filed and, with respect to
any post-effective amendment, when the same has become effective.
1.6 Indemnification.
1.6.1 Company's Indemnification of the Holder. The Company
will indemnify the Holder and each person controlling the Holder within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), with respect to which Registration,
qualification or compliance of Registrable Securities has been effected pursuant
to this Agreement, against all claims, losses, damages or liabilities (or
actions in respect thereof) to the extent such claim, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or any related
Registration Statement incident to any such Registration, qualification or
compliance, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Act applicable to the Company and relating to action or
inaction required of the Company in connection with any such Registration; and
the Company will reimburse the Holder, and each person who controls the Holder,
for any legal and any other expenses reasonably incurred in connection with
3
<PAGE>
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained in this Section 1.6.1 shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if settlement is effected without the consent of the Company (which
consent shall not unreasonably be withheld or delayed); and provided, further,
that the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based upon any
untrue statement or omission based upon written information furnished to the
Company by the Holder or controlling person specifically for use in the
Registration Statement. Notwithstanding the above, the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus, such indemnity agreement shall not inure to the
benefit of the Holder, if a copy of the final prospectus was not furnished to
the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Act if the final prospectus corrected the
untrue statement or omission or alleged untrue statement or omission.
1.6.2 Holder's Indemnification of Company. The Holder will,
if Registrable Securities held by the Holder are included in the securities as
to which a Registration is being effected pursuant to this Agreement, indemnify
the Company, each of its directors and officers and each person who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, and all other holders of securities who are required to use the
Registration Statement to sell their securities of the Company, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement (or alleged untrue statement) of a
material fact contained in any such Registration Statement or related
prospectus, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; and will reimburse the Company, such directors, officers or
control persons for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement or prospectus in reliance upon
and in conformity with written information furnished to the Company by the
Holder specifically for use in the Registration Statement; provided, however,
that the Holder's liability under this Section 1.6.2 shall not exceed the gross
proceeds generated from the sale by the Holder of Registrable Securities made in
connection with such Registration.
1.6.3 Indemnification Procedure. Promptly after receipt by
an indemnified party under this Section 1.6 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 1.6, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim and shall be entitled to select counsel for the
defense of such claim with the approval of any parties entitled to
indemnification, which approval shall not be unreasonably withheld.
Notwithstanding the foregoing, the parties entitled to indemnification shall
have the right to employ separate counsel (reasonably satisfactory to the
indemnifying party) to participate in the defense thereof, but the fees and
expenses of such counsel shall be the expense of such indemnified parties unless
the named parties to such action or proceedings include both the indemnifying
party and the indemnified parties and the indemnifying party or such indemnified
parties shall have been advised by counsel that there are one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case, if the indemnified party
notifies the indemnifying party in writing that it elects to employ separate
counsel at the reasonable expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action or
4
<PAGE>
proceeding on behalf of the indemnified party, as the case may be, it being
understood, however, that the indemnifying party shall not, in connection with
any such action or proceeding or separate or substantially similar or related
action or proceeding in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate counsel at any time for the indemnifying party and all
indemnified parties, which counsel shall be designated in writing by the Holder.
If the indemnifying party withholds consent to a settlement or proposed
settlement by the indemnified party, it shall acknowledge to the indemnified
party its indemnification obligations hereunder.
1.6.4 Contribution. If the indemnification provided for in
this Section 1.6 from an indemnifying party is unavailable to an indemnified
party hereunder in respect to any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and indemnified party in connection
with the statements or omissions which result in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such indemnifying party or
indemnified party and the parties' relative intent, knowledge, access to
information supplied by such indemnifying party or indemnified party and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action, suit, proceeding or claim. In no event shall the amount of
any such contribution payable by the Holder exceed the amount payable by the
Holder under Section 1.6.2 hereunder.
2. Covenants of the Company. In connection with the Registration of
the Registrable Securities pursuant to this Agreement, the Company agrees to:
(a) Notify the Holder, at any time when a prospectus relating to
Registrable Securities covered by the Registration Statement is required to be
delivered under the Act, of the happening of any event as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing. The Company shall use
its reasonable efforts to promptly amend or supplement the Registration
Statement to correct any such untrue statement or omission.
(b) Notify the Holder of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible time.
(c) Make available for inspection by the Holder and the counsel,
accountants or other agents retained by the Holder, all pertinent financial and
other records, corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by the Holder in connection with the Registration Statement, subject
5
<PAGE>
in each case to reasonable confidentiality restrictions imposed by the Company
and to the Company's right to refuse access to any agent of Holder who is
reasonably unacceptable to the Company.
(d) If the Common Stock is then listed on a national securities
exchange, use its best efforts to cause the Registrable Securities to be listed
on such exchange if the listing of such Registrable Securities is then permitted
under the rules of such exchange.
(e) Take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be sold pursuant to the Registration
Statement and to enable such certificates to be in such denominations and
registered in such names as the Holder or any underwriter may reasonably
request.
(f) With the view to making the benefits of Rule 144 promulgated
under the Act ("Rule 144") available to the Holder, until such time that the
Company shall have no obligation under Section 1 hereunder, the Company shall
use its reasonable efforts to: (i) make and keep available adequate current
public information with the meaning of Rule 144; and (ii) promptly furnish to
the Holder upon request (a) a written statement by the Company that it has
complied with the provisions of Section 2(f)(i) hereunder, (b) a copy of the
most recent annual or other quarterly report of the Company, and (c) such other
reports and documents so filed by the Company with the SEC as may reasonably be
requested by the Holder.
3. Amendment to Section 3(b) of Stock Option Agreement. Notwithstanding
any provision of the Stock Option Agreement, Section 3(b) of the Stock Option
Agreement is hereby amended to provide that if the Holder ceases to be a
director of the Company, the options granted under the Stock Option Agreement
shall not expire or terminate, and shall continue in full force and effect
during the exercise period and shall become and remain exercisable pursuant to
the schedule provided in Section 3(a) of the Stock Option Agreement.
6
<PAGE>
4. Miscellaneous.
4.1 Notices. Notices required or permitted to be given
hereunder shall be in writing and shall be deemed to be sufficiently given when
personally delivered or sent by certified mail, return receipt requested,
addressed (i) if to the Company, at Richard Barrie Fragrances, Inc., 15
Executive Boulevard, Orange, Connecticut 06477, Attention: President; (ii) if to
Holder, at 16600 N.W. 54th Avenue, Miami, Florida 33015, c/o Royce Laboratories,
or at such other address as each such party furnishes by notice given in
accordance with this Section 4.1.
4.2 Waiver. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, will not operate as a waiver thereof. No waiver will be
effective unless and until it is in writing and signed by the party giving the
waiver.
4.3 Assignability. The Holder shall not be permitted to
assign any of its rights or obligations under this Agreement except to a
successor trust or trusts of the Holder or its beneficiaries.
4.4 Governing Law. This Agreement shall be enforced, governed
and construed in all respects in accordance with the laws of the State of New
York. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
4.5 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof.
Any provision of this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only by a writing executed by the Company and the Holder. Any
amendment or waiver effected in accordance with this Section 4.5 shall be
binding upon the Holder and the Company.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
RICHARD BARRIE FRAGRANCES
By: /s/ Richard Barrie
------------------------------
Name: Richard Barrie
Title: President
HOLDER:
By: /s/ Patrick McEnany
------------------------------
Patrick McEnany
7
<PAGE>
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<PERIOD-START> Jul-01-1995
<PERIOD-END> Jun-30-1996
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2,895
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