U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- Exchange Act of 1934
For the quarterly period ended March 31, 1996
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File number 1-10320
Richard Barrie Fragrances, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 13-3465289
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15 Executive Boulevard, Orange, Connecticut 06477
(Address of Principal Executive Offices)
(203) 795-5300
(Issuer's Telephone Number Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At May 8, 1996, Issuer had
outstanding 4,419,548 shares of Common Stock, par value $.005 per share.
Page 1 of 41 Total Pages
Exhibit Index on Page 14
-1-
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Richard Barrie Fragrances, Inc.
Balance Sheets
March June
31, 1996 30, 1995
(unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $495,269 $339,715
Accounts Receivable - Net 1,119,546 1,770,190
Inventory & Promotional Merchandise 2,487,697 2,740,721
Other Current Assets 298,072 354,067
Total Current Assets 4,400,584 5,204,693
Fixed Assets
(At Cost, Less Accumulated
Depreciation of $796,971 and
$538,031, Respectively) 963,555 1,174,102
Debt Issuance Cost
(At Cost, Less Accumulated Amor-
tization of $313,000 and $231,068,
Respectively) 0 81,932
Other Long Term Assets 0 1,825,404
Total Assets $5,364,139 $8,286,131
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Convertible Notes Payable $5,157,750 $5,157,750
Accounts Payable 365,248 389,033
Accrued Expenses 2,178,116 2,016,585
Total Current Liabilities 7,701,114 7,563,368
Total Liabilities 7,701,114 7,563,368
Stockholders' Equity / (Deficit):
Preferred Stock, $0.01 Par Value,
10,000,000 Shares Authorized,
No Shares Outstanding 0 0
Common Stock, $0.005 Par Value,
16,666,667 Shares Authorized,
4,419,548 and 4,419,548 Shares
Issued and Outstanding,
Respectively 22,097 22,097
Additional Paid-In Capital 6,982,738 6,982,738
Accumulated Deficit (9,341,810) (6,282,072)
Total Stockholders' Equity / (Deficit) (2,336,975) 722,763
Total Liabilities and Stockholders'
Equity / (Deficit) $5,364,139 $8,286,131
The accompanying notes are an integral part of these balance sheets.
-2-
<PAGE>
Richard Barrie Fragrances, Inc.
Statements of Operations
For the Nine Months Ended March 31, 1996 and 1995
1996 1995
(unaudited)
Net Sales $7,205,787 $14,911,435
Cost of Sales 2,531,598 4,543,076
Gross Profit 4,674,189 10,368,359
Operating Expenses:
Advertising & Promotion 4,032,835 6,903,835
Selling, General and
Administrative 3,233,273 4,060,799
Royalties 452,502 219,042
Total Operating Expenses 7,718,610 11,183,676
Operating Income/(Loss) (3,044,421) (815,317)
Other Income / (Expense):
Interest Expense - Net (518,771) (353,974)
Miscellaneous Income - Net 503,454 132,628
Total Other Income / (Expense) (15,317) (221,346)
Income/(Loss) Before
Provision for Income Taxes (3,059,738) (1,036,663)
Provision for Income Taxes 0 0
Net Income/(Loss) $(3,059,738) $(1,036,663)
Net Income/(Loss) Per Share $(0.69) $(0.23)
Weighted Average Shares Outstanding 4,419,548 4,419,548
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
Richard Barrie Fragrances, Inc.
Statements of Operations
For the Three Months Ended March 31, 1996 and 1995
1996 1995
(unaudited)
Net Sales $973,540 $3,957,503
Cost of Sales 557,496 1,017,751
Gross Profit 416,044 2,939,752
Operating Expenses:
Advertising & Promotion 868,574 1,740,157
Selling, General and
Administrative 1,030,831 1,229,469
Royalties 86,071 85,814
Total Operating Expenses 1,985,476 3,055,440
Operating Income/(Loss) (1,569,432) (115,688)
Other Income/(Expense):
Interest Expense - Net (254,212) (124,090)
Miscellaneous Income - Net (499,087) 7,695
Total Other Income/(Expense) (753,299) (116,395)
Income/(Loss) Before
Provision for Income Taxes (2,322,731) (232,083)
Provision for Income Taxes 0 0
Net Income/(Loss) $(2,322,731) $(232,083)
Net Income/(Loss) Per Share $(0.53) $(0.05)
Weighted Average Shares
Outstanding 4,419,548 4,419,548
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
Richard Barrie Fragrances, Inc.
Statement of Stockholders' Equity / (Deficit)
For the Nine Months Ended March 31, 1996
<TABLE>
Common Stock Additional Accumulated Total
($0.005 Par) Paid-In Deficit
Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1995 4,419,548 $22,097 $6,982,738 $(6,282,072) $722,763
Net Income/(Loss)for the
Nine Months Ended
March 31, 1995 0 0 0 (3,059,738) (3,059,738)
Balances, March 31, 1996 4,419,548 $22,097 $6,982,738 $(9,341,810) $(2,336,975)
(unaudited)
</TABLE>
The accompanying notes are an integral part of this statement.
-5-
<PAGE>
Richard Barrie Fragrances, Inc.
Statments of Cash Flows
For the Nine Months Ended March 31, 1996 and 1995
1996 1995
(unaudited)
Cash Flows From Operating Activities:
Net Income/(Loss) $(3,059,738) $(1,036,663)
Adjustments to Reconcile Net
Income/(Loss) to:
Net Cash Provided by/(Used in)
Operating Activities:
Depreciation and Amortization 340,872 362,419
(Increase)/Decrease in:
Accounts Receivable 650,644 (128,623)
Inventory and Promo-
tional Merchandise 253,024 (1,668,651)
Other Assets 1,881,399 (400,088)
Increase/(Decrease) in:
Accounts Payable (23,785) 1,537,507
Accrued Expenses 161,531 125,010
Total Adjustments 3,263,685 (172,426)
Net Cash Provided by/(Used in)
Operating Activities 203,947 (1,209,089)
Cash Flows from Investing Activities:
Purchase of Property, Plant
and Equipment (48,393) (4,204)
Net Cash Used in Investing
Activities (48,393) (4,204)
Cash Flows from Financing Activities:
Repayment of Notes Payable to
Muelhens Inc. 0 (1,094,982)
Net Proceeds from Private Placement
of Shares, net of Share
Issuance Costs 0 (21,250)
Net Cash Used in Financing Activities 0 (1,116,232)
Net Change in Cash and Cash Equivalents 155,554 (2,329,525)
Cash and Cash Equivalents at
June 30, 1995 and 1994 339,715 3,382,698
Cash and Cash Equivalents at
March 31, 1996 and 1995 $495,269 $1,053,173
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
Richard Barrie Fragrances, Inc.
Notes to Financial Statements
(unaudited)
1. The financial statements reflect all adjustments which, in management's
opinion, are necessary to make the financial statements not misleading. Results
of operations for the nine month period ended March 31, 1996 are not
representative of results to be expected for the full year.
2. Net income / (loss) per share was computed by dividing the Company's net
income / (loss) by the weighted average number of shares outstanding during the
period. The impact of outstanding warrants and stock options were not included
in the calculation of net loss per share, as such effect, if included, would
have an anti-dilutive effect on net income / (loss) per share.
3. 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
for financial reporting purposes of approximately $9,300,000 and approximately
$8,800,000 for tax purposes at March 31, 1996. These carryforwards expire
through fiscal year 2011. Due to the changes in control of the Company as
determined by the Internal Revenue Code resulting from various equity offerings,
certain restrictions exist as to the use of 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, a full valuation allowance has been provided to
offset any deferred tax assets which would arise. No income taxes have been
provided for either of the interim periods presented based on the Company's best
estimate of the effective tax rate expected to be applicable for the full fiscal
year.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Significant Events
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 KG's subsidiaries, Laboratoires 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, Gabriela Sabatini and Magnetic by
Gabriela Sabatini and 4711 Original Eau de Cologne, and the cosmetic and skin
treatment line of Payot. In addition, on December 14, 1993 the Company purchased
from Muelhens Inc. ("Muelhens-USA"), another subsidiary of Muelhens, certain
inventory and promotional merchandise totaling approximately $3,750,377 and
fixed assets totaling approximately $1,600,000. Under the terms of the asset
purchase agreement, $1,305,000 was paid at closing for the inventory and
promotional merchandise with the balance to be paid in defined installments over
the next eighteen months, and $800,000 was paid at closing for the fixed assets
with the balance to be paid in twelve equal quarterly installments. In
connection with these transactions, the Company hired certain key Muelhens-USA
personnel to permit the Company to perform its own warehousing and
administrative functions for these products, and the Company entered into a five
year lease, with renewal terms, for approximately 90,000 square feet of office
and warehouse space previously used by Muelhens Inc. in Orange, Connecticut. In
order to partially finance these transactions and to provide working capital, on
December 14, 1993 and January 13, 1994 the Company completed a private placement
of its securities, including $5,157,750 of principal amount 10% Convertible
Subordinated Promissory Notes due January 15, 1996, from which it derived net
proceeds of $5,580,930.
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,
approximately $4,360,305 in 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 $5,237,017 in debt obligations to the
Muelhens affiliated companies at June 30, 1995.
On June 6, 1995, the Company entered into an Administration, Selling and
Warehousing Agreement (the "AS&W Agreement") with Muelhens-USA pursuant to which
the Company was appointed the exclusive selling and marketing agent for
Muelhens-USA in the United States for the products formerly the subject of the
Muelhens distribution agreement and the Payot distribution agreement, and the
Company will perform certain administrative and warehousing services for
Muelhens-USA. The AS&W Agreement became effective July 1, 1995 and expires on
December 31, 1998, subject to automatic and successive two year renewal terms
unless either party gives notice not to renew six months prior to expiration of
the then current term. Pursuant to the AS&W Agreement, Muelhens-USA will pay to
the Company monthly in the first contract period (July 1 to March 31, 1996) 50%
of the Company's budgeted fixed costs (as defined in the AS&W Agreement), but
not in excess of 50% of the Company actual fixed costs. In future years,
Muelhens-USA will pay monthly to the Company a percentage of the Company's
budgeted fixed costs based upon the relationship between budgeted net sales of
the products pursuant to the AS&W Agreement and the budgeted net sales of all
products sold by the Company. In addition, the Company
-8-
<PAGE>
will be paid a monthly service fee at the rate of $100,000 per annum. If
Muelhens-USA net operating results attain a level projected in the annual budget
for such year, the Company will receive incentive compensation equal to 1% of
the net sales of the products sold pursuant to the AS&W Agreement for such year.
In addition, if Muelhens-USA attains the "stretch" net operating goal for such
year, the Company will be paid additional incentive compensation equal to 1% of
net sales of such products during such year. Under the AS&W Agreement,
Muelhens-USA is responsible for financing all inventory, advertising and
promotion, manufacturer's representative commissions and other costs directly
related to the Muelhens and Payot brands.
On March 23, 1996, the Company and Muelhens-USA signed an Amendment to
Administration, Selling and Warehousing Agreement (the "AAS&W Agreement") which
modified certain terms of the original AS&W Agreement. Under the new AAS&W
Agreement, the Company's entire compensation, for the 1996 contract year, will
be a monthly service fee of $158,333, and in return the Company will provide
fewer functions than covered in the original AS&W Agreement. Also, commencing
January 1, 1997, Muelhens-USA will no longer be obligated to pay the Company the
annual service fee of $100,000 per contract year.
As a result of the Company restructuring its relationship with the Muelhens
affiliated companies, the Company can no longer record sales of the Muelhens
products in its financial statements and, accordingly, recorded net sales have
declined dramatically in fiscal 1996. For the fiscal year ended June 30, 1995,
net sales of the Muelhens products constituted 69.9% of total net sales for the
Company. Correspondingly, Muelhens-USA must now finance its own inventory,
advertising and promotion, and direct sales and distribution expenses, as well
as pay fees to the Company for its services under the AS&W Agreement.
The Company failed to pay the July 15, 1995 interest payment of $257,887 due on
its $5,157,750 principal amount of 10% Convertible Subordinated Promissory Notes
due January 15, 1996. Due to this, holders of 51% of the aggregate principal
amount outstanding of the Notes have demanded accelerated payment of the
principal amount, and accordingly, at March 31, 1996, the principal amount of
$5,157,750, along with accrued but unpaid interest of $755,754, is due and
payable.
On January 31, 1996, the Company and Parlux Fragrances, Inc. ("Parlux") signed
an Asset Purchase Agreement under which Parlux would purchase all the assets of
the Company and would assume most of the liabilities of the Company with the
significant exception of the Company's obligations under its $5,157,750
principal amount 10% Convertible Subordinated Promissory Notes ("Notes"). The
purchase price is (i) the issuance to the Company of 370,000 shares of newly
issued Common Stock of Parlux, and (ii) $750,000 in cash. The closing of this
transaction, presently anticipated to occur on or about May 31, 1996, is subject
to the approvals by the stockholders and Noteholders of the Company.
Results of Operations
Net sales for the three and nine months ended March 31, 1996 were $973,540 and
$7,205,787, respectively, a 75.4% and 51.7% decrease from the corresponding
periods of the previous year. These decreases are mostly attributable to the
termination of the Muelhens and Payot distribution agreements described above,
whose net sales totaled $2,120,239 and $9,876,534, respectively, from the prior
year periods.
Net sales on the non-Muelhens brands decreased by $863,724, or 47.0%, from the
corresponding three month period of the prior fiscal year. This decrease was
primarily attributable to (1) Melrose Place which had negative net sales of
$118,791 due to slow demand for the product at the retail level leading to
higher levels of returns than anticipated, and (2) the Baryshnikov brands
decreased by $744,933 primarily because initial sales of Baryshnikov pour femme,
which launched in the three months ended March 31, 1995, were $769,314 greater
than initial sales of Baryshnikov Sport, which launched in the three months
-9-
<PAGE>
ended March 31, 1996, due to Baryshnikov Sport having a more limited launch.
Net sales on the non-Muelhens brands increased by $2,170,886, or 43.1%, from the
corresponding nine month period of the prior fiscal year. Melrose Place, which
launched in the summer of 1995, accounted for $1,959,292 of this increase.
Baryshnikov net sales increased by $211,594 during this nine month period
primarily due to the continued rollout of Baryshnikov pour femme and the launch
of Baryshnikov Sport, offset by the continued decline of Misha whose net sales
decreased by $839,543, due to the brand being at the end of its lifecycle.
Cost of sales were 57.3% and 35.1% of net sales for the three and nine months
ended March 31, 1996, as compared to 25.7% and 30.5% for the corresponding
periods of the prior fiscal year. The cost of sales percentage for the current
three and nine month periods were impacted by the Company's decision to reserve
approximately $200,000 and $540,000, respectively, to write-down certain
inventory items, mostly associated with the Misha brand, to their estimated net
realizable value.
Advertising and promotion expenses decreased by $871,583 and $2,871,000 in the
three and nine months ended March 31, 1996, a 50.1% and 41.6% decrease from the
corresponding periods of the prior fiscal year. The decrease in advertising and
promotion expenses resulted from the lower level of net sales. As a percentage
of sales, advertising and promotion expenses were 89.2% and 56.0% for the three
and nine months ended March 31, 1996, as compared to 44.0% and 46.3% in the
prior fiscal year. The increase in advertising and promotion expenses, as a
percentage of sales, was caused by greater sales returns than anticipated,
primarily with Melrose Place, while maintaining necessary advertising and
promotion levels.
Selling, general and administrative ("S,G&A") expenses decreased by $198,638 and
$827,526 in the three and nine months ended March 31, 1996. This decrease was
primarily due to variable selling and distribution costs that were lower as a
result of the net sales decreases.
Royalties were 8.8% and 6.3% of net sales for the three and nine months ended
March 31, 1996, as compared to 2.2% and 1.5% of net sales for the corresponding
periods of the prior fiscal year. The Muelhens brands had no royalty costs for
the calendar year ending December 31, 1994, while the Baryshnikov and Melrose
Place brands both have 5% royalty rates. However, due to minimum royalty payment
requirements, the effective royalty rates rose above 5% for the three and nine
months ended March 31, 1996.
Net interest expense increased by $130,122 and $164,797 during the three and
nine months ended March 31, 1996, due to a provision in the Convertible
Subordinated Promissory Notes agreement under which the interest rate on the
Notes immediately increased from 10% to 15% on the date, October 10, 1995, that
the noteholders demanded accelerated payment of the principal amount, along with
all accrued but unpaid interest.
Miscellaneous income decreased by $506,782 during the three months ended March
31, 1996, but increased by $370,826 during the nine months ended March 31, 1996,
as compared to the corresponding periods of the prior fiscal year. The three
months decrease was due to a $1,025,404 loss on the sale of the barter
advertising time to Intercosmetics, Inc., partially offset by $520,918 in
service fees income provided for under AS&W, and modified AAS&W, agreements with
Muelhens-USA. The nine month increase was due to $1,325,820 in service fees
income provided for under AS&W, and modified AAS&W, agreements with Muelhens-USA
and a $70,410 increase in production and warehousing work done on behalf of
other companies, partially offset by the $1,025,404 loss on the sale of the
barter advertising time to Intercosmetics, Inc..
Net losses for the three and nine months ended March 31, 1996 were $2,322,731
and $3,059,738,
-10-
<PAGE>
respectively, as compared to net losses of $232,083 and $1,036,663 for the
corresponding periods of the prior fiscal year. The primary reasons for the
increase in the three and nine month net losses were (1) the net sales of
Melrose Place being less than anticipated, (2) writing down certain inventory
items, mostly with the Misha brand, by approximately $540,000, (3) the loss of
$1,025,404 on the sale of the barter advertising time, and (4) the additional
interest expense due to the interest rate on the Notes increasing from 10% to
15% on October 10, 1995.
Liquidity and Capital Resources
Cash and cash equivalents at March 31, 1996 were $495,269, as compared to
$339,715 at June 30, 1995.
Accounts receivable decreased to $1,119,546 at March 31, 1996 from $1,770,190 at
June 30, 1995 primarily due to the decrease in net sales.
Inventory and promotional merchandise decreased to $2,487,697 at March 31, 1996
from $2,740,721 at June 30, 1995. The decrease of $253,024 was primarily due to
writing down the value of certain inventory items, mostly with the Misha brand,
to more properly reflect current estimated net realizable values, offset by
inventory received back from customer returns.
Other current assets decreased to $298,072 at March 31, 1996 from $354,067 at
June 30, 1995. The decrease of $55,995 was primarily due to expensing prepaid
print media advertising run during the nine months ended March 31, 1996 that was
included in other current assets at June 30, 1995.
Other assets consisted of amounts from barter transactions, in which a barter
agent exchanges the Company's products for advertising time. The Company sold
its entire ownership of advertising time, on the Company's books for $1,825,404,
to Intercosmetics, Inc. for $800,000 cash on March 23, 1996.
The combination of accounts payable and accrued expenses increased to $2,543,364
at March 31, 1996 from $2,405,618 at June 30, 1995. The increase of $137,746 was
primarily because of a general slowdown of payments to made to inventory
suppliers and professional agencies due to cashflow concerns.
At March 31, 1996, the Company had negative working capital of $3,300,530, and a
current ratio of 0.6 to 1, principally due to the convertible notes payable, and
accrued interest thereon, totaling $5,913,504 (discussed below). The Company has
no bank lines of credit or long term borrowing from banks.
The Company's operating activities provided net cash of $203,947 in the nine
months ended March 31, 1996, as compared to net cash used in operations of
$1,209,089 for the corresponding period of the prior fiscal year. The $1,413,036
increase of net cash provided by operations was primarily due to (1) the
$800,000 received from the sale of advertising time to Intercosmetics, Inc., (2)
the Company was much closer to projections with the launch of Melrose Place and
the expanded distribution of Baryshnikov pour femme this year than the Company
was last year with the relaunch of 4711 Eau de Cologne and Moments by Priscilla
Presley which had led to the Company purchasing a much greater amount of
inventory than was shipped to customers, and (3) an general slowdown on payments
made to inventory suppliers and professional agencies. The Company is uncertain,
even if the principal and interest amounts due on Convertible Notes Payable
(discussed below) were not included, that its current working capital combined
with cash generated from continuing operations will be sufficient to meet all
other foreseeable short term operating requirements.
The only debt is the Notes totaling $5,157,750, which are convertible into
shares of Common Stock at a conversion price of $2.25 per share. The Company
failed to pay the July 15, 1995 interest payment of $257,887 due on its
$5,157,750 principal amount of Notes. As a result, holders of 51% of the
aggregate
-11-
<PAGE>
principal amount outstanding of the Notes have demanded accelerated payment of
the principal amount, and accordingly, at this time the principal amount of
$5,157,750 is due and payable. The Company does not have the ability to repay
the Notes and related interest.
As previously discussed, the Company has signed an asset purchase agreement to
sell its business to Parlux. Such sale is conditioned upon the approval of the
stockholders and Noteholders of the Company. The sale price will not be
sufficient to repay the Notes in full, and accordingly, the Company anticipates
that stockholder and Noteholder approval will require modification of the
Company's debt obligations under the Notes. In connection with soliciting the
consent of the stockholders and Noteholders, the Company has proposed to
exchange for each $19,500 principal amount Note two shares of the Company's
Series A Preferred Stock (a new issue) and 2,300 shares of the Company's Common
Stock. The Series A Preferred Stock is intended to have a liquidation preference
equal to $5,600 per share and will be subject to mandatory redemption by the
Company one year after issuance. This exchange offer is conditioned upon the
holders of approximately 97% of the outstanding Notes accepting such exchange.
If, for whatever reason, the transaction with Parlux is not approved, the
Company's most likely alternative would be to seek protection and reorganize
under Chapter 11 of the United States bankruptcy code.
The Company does not have any specific additional capital requirements, either
short term or long term, except as discussed above and except for general
working capital purposes. If the sale to Parlux is not completed, and provided
that the Company has the necessary resources, the Company anticipates that it
will spend approximately $150,000 on research and development during the next
twelve months. The Company is currently developing a new women's line called
Baryshnikov Sport for Women, that it plans to introduce in the spring of 1997,
if the sale to Parlux is not completed.
It is the Company's practice, as is common in the fragrance industry, to accept
returns of the Company's products from retailers with which the Company has an
ongoing relationship in order to obtain continuing orders from retailers for
other products of the Company that the retailer believes achieve a greater
"sell-through" to its customers. In accepting these returns, the Company
typically provides a credit to the retailer with respect to accounts receivable
from that retailer on a dollar-for-dollar basis, In recognition of this
practice, the Company establishes a reserve for anticipated returns that is
reflected in the net sales reported by the Company each fiscal quarter. The
amount of such reserve is based on several factors, including the Company's
sales level during that quarter, the Company's historical level of returns, and
the seasonality of the fragrances business in general. A less than anticipated
"sell-through" of the Company's products can have an adverse affect on the
Company's operating results and liquidity.
Under the Baryshnikov license agreement, certain minimum annual net sales levels
must be achieved. The minimum net sales level is $7,250,000 for the 1995 and
1996 calendar years. The Company is also obligated to spend a certain minimum
amount annually for the advertising and promotion of the Baryshnikov products,
this amount being the greater of (i) 22% of net sales in the United States
during the preceding calendar year or (ii) $1,500,000, with at least $250,000
expended for media buys for national advertising in the United States. The
Company did not achieve the minimum net sales requirements under the Baryshnikov
agreement for the 1995 calendar year, but Mr. Baryshnikov has waived this
requirement for such year. In the future, the Company anticipates that it will
meet all the minimum requirements under the Baryshnikov agreement.
Under the Melrose Place license, the Company must achieve minimum net sales
levels of the Melrose Place products of $2,000,000 in the 1995 calendar year and
$4,000,000 in the 1996 calendar year. The Company is also obligated to spend a
certain minimum amount annually for the advertising and promotion of the Melrose
Place products, this amount being at least 20% of net sales each calendar year.
If the Company fails to meet such expenditure level, the Company must either
expend such shortfall within six months after such calendar year or pay directly
to the licensor 50% of such shortfall. The Company has met all the 1995 calendar
year requirements, but it is not anticipated that the Company will meet the 1996
minimum net sales requirements.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.16.1 Amendment to Administration, Selling and Warehousing
Agreement, dated March 23, 1996, between Registrant
and Intercosmetics, Inc. (formerly Muelhens Inc.)
27 Financial Data Schedule (3/31/96)
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Richard Barrie Fragrances, Inc.
(Registrant)
Dated: May 9, 1996 By: /s/ Richard Barrie
---------------------------
Richard Barrie, President
Dated: May 9, 1996 By: /s/ Joseph Buvel
-----------------
Joseph Buvel, Chief Financial Officer
-13-
<PAGE>
Exhibit Index
Exhibit No. Description Page
10.16.1 Amendment to Administration, Selling and Warehousing
Agreement, dated March 23, 1996, between Registrant
and Intercosmetics, Inc. (formerly Muelhens Inc.)
27 Financial data schedule (3/31/96)
-14-
<PAGE>
AMENDED AND RESTATED
ADMINISTRATION, SELLING AND WAREHOUSING AGREEMENT
AGREEMENT dated as of March 22, 1996 between INTERCOSMETICS INC., a
corporation organized under the laws of Connecticut (formerly known as Muelhens
Inc.), having its principal office at 655 Madison Avenue, New York, New York
10021 - U.S.A., represented by Spencer Kanis, its Chief Operating Officer and
Chief Financial Officer,
The said company being hereafter referred to as "Muelhens,"
ON THE ONE HAND,
AND
RICHARD BARRIE FRAGRANCES, INC., a corporation organized under the laws
of Nevada, having its principal office at 15 Executive Boulevard, Orange,
Connecticut 06477 - U.S.A., represented by Mr. Richard Barrie, its President and
Chief Executive Officer.
The said company being hereafter referred to as "RBFI,"
ON THE OTHER HAND.
WITNESSETH
WHEREAS, RBFI and Muelhens entered into an Administration, Selling and
Warehousing Agreement, dated June 6, 1995, as amended by an Amendment of even
date herewith (the "1995 Agreement");
WHEREAS, RBFI has informed Muelhens that RBFI has entered into an Asset
Purchase Agreement (the "Asset Purchase Agreement"), dated January 31, 1996,
with Parlux Fragrances, Inc., a corporation organized under the laws of Delaware
("Parlux"), pursuant to which RBFI intends to sell substantially all of its
assets to Parlux and Parlux intends to assume the obligations of RBFI associated
with such assets on and after the closing of the transactions contemplated by
the Asset Purchase Agreement (the "Parlux Closing");
WHEREAS, RBFI's rights and obligations under the 1995 Agreement may not
be transferred to Parlux without the consent of Muelhens;
WHEREAS, Muelhens has informed RBFI that it will not consent to RBFI's
proposed transfer to Parlux of RBFI's rights and obligations under the 1995
Agreement unless certain modifications thereto are made;
1
<PAGE>
WHEREAS, pursuant to the Amendment to the 1995 Agreement of even date
herewith, RBFI and Muelhens desire to amend and restate the 1995 Agreement to
incorporate such modifications; and
WHEREAS, pursuant to the Amendment to the 1995 Agreement of even date
herewith, RBFI and Muelhens desire that this Agreement shall be effective if and
only if the Parlux Closing shall have occurred, in which case this Agreement for
all purposes shall be deemed to be effective immediately prior to the Parlux
Closing and shall replace and supersede the 1995 Agreement in its entirety.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1. DEFINITIONS
1.1 The following terms shall, unless the context clearly indicates to the
contrary, have the meanings set forth below.
The term "Product Lines" shall mean the seven following product lines:
Gabriela Sabatini, Magnetic (Sabatini), Moments, Experiences and Indian
Summer by Priscilla Presley, 4711 and Payot.
The term "Fragrance Products" shall mean extract, spray, toilet water
(eau de cologne), splashes, fragrances of the same perfume within the Product
Lines.
The term "Cosmetic Products" shall mean men's and women's cosmetics and
toiletries (excluding Fragrance Products), including but not limited to, creams,
oils, toners, masks, astringents, face lotions. skin lotions, personal
deodorants, antiperspirants, soaps, shaving sets, bath products, sun tanning
and/or screening products and other articles or preparations used in making
one's toilet within the Product Lines.
The term "Products" shall mean Fragrance Products and Cosmetic Products
(each a "Product").
The term "Budgets" shall mean the various budgets and supporting
schedules thereto referred to in Section 3.1.
The term "Collateral Material" shall mean any Product used for a
purpose other than direct retail sale.
The term "Basic Line Products" shall mean products other than the
Promotional Products.
The term "Promotional Products" shall mean products sold in gift sets,
promotional sets and/or special sets and/or in special sizes and/or at special
prices and/or promoted and marketed
2
<PAGE>
in a special manner in connection with holidays, including but not limited to,
Christmas, Mother's Day and Father's Day and other special promotions.
The term "Territory" shall mean the continental United States, plus
Alaska and Hawaii, including all bases of the armed forces located in the
continental United States, plus Alaska and Hawaii, but excluding all United
States territories and possessions, such as the United States Virgin Islands,
Guam, the Marshall Islands and Puerto Rico, and excluding airline companies,
airports duty free and other duty free shops, embassies and maritime companies
in the Territory.
The term "Trademarks" shall mean the trademarks used for the Product
Lines.
The term "Other Intellectual Property Rights" shall mean any designs,
symbols, logos, devices or insignia which have been heretofore developed and
used, or shall be developed and used at any time during the term of this
Agreement by Muelhens and/or its affiliates in connection with the Trademarks.
The term "Affiliate" shall mean any company or other entity which
directly or indirectly (i) is owned or controlled by that party, or (ii) owns or
controls that party, or (iii) is owned or controlled by any company or other
entity which directly or indirectly owns or controls that party.
The term "Contract Year" shall mean the period commencing immediately
prior to the Parlux Closing through December 31, 1996.
ARTICLE 2. GENERAL ENGAGEMENT
2.1 Engagement. During the Term (as defined in Article 7) of this Agreement,
Muelhens agrees to utilize, on a non-exclusive basis, the administrative and
other services herein described to be provided by RBFI, and RBFI agrees to
render such services to Muelhens. RBFI shall perform those services, subject at
all times to the general policy guidelines and budget approvals prescribed by
Muelhens. The parties hereto agree that the business administered by RBFI shall
be limited to the distribution and sale of the Products in the Territory.
2.2 Best Efforts. RBFI covenants and agrees to use its best efforts and skills
to promote the business of Muelhens, comply with all laws to which Muelhens is
subject, and comply with all ordinary course contractual obligations of Muelhens
to third Parties, provided that RBFI has been given prior notice of such
contractual obligations.
2.3 Funding of Budgets. Muelhens and RBFI agree to fund their respective
obligations under the Budgets.
3
<PAGE>
2.4 Access to Records. Muelhens shall be entitled to full and free access, at
reasonable times and upon reasonable notice, to all business records of RBFI
relating to the Products and this Agreement maintained by RBFI pursuant to the
terms of this Agreement. In the event that Muelhens and RBFI shall disagree with
respect to any financial accounting matter under this Agreement, RBFI and
Muelhens agree to the appointment of an independent, external auditor to resolve
such disagreement. Muelhens shall pay the cost of such auditor unless RBFI is
found to have materially misstated any financial accounting matter, in which
event the cost of such auditor shall be paid by RBFI.
ARTICLE 3. BUDGETS
3.1 Budgets. RBFI shall assist Muelhens in preparing a budget of profit and
losses for Muelhens, together with accompanying budgets by Product Line of
sales, cost of goods sold and marketing expenses, for calendar year 1996.
ARTICLE 4. SALES, ADMINISTRATION AND HANDLING SERVICES
4.1 Sales. RBFI shall provide to Muelhens product sales services, including
account sales calls and order writing, account business development planning,
store management presentations, beauty advisor contact and product
familiarization, training and sale implementation. In connection with the
foregoing, RBFI shall perform, either itself or through independent sales
representatives, the following activities for Muelhens:
(a) collecting orders and paying regular visits to the retail stores in order to
check the stock of products at the stores;
(b) reviewing the position of the Products on the shelves and in the
windows of the stores;
(c) contacting the stores to stimulate the sell in and sell through,
and more generally to enhance the presence and image of the Products in the
Territory;
(d) subject to the written authorization of Muelhens, opening new accounts
(Muelhens has the right to open new accounts directly, and accordingly may
deny RBFI the right to sell to a particular new account);
(e) informing Muelhens promptly (within 3 business days) of each closing of
an account;
(f) recommending to Muelhens that Muelhens change the wholesale prices of the
Products if in the judgment of RBFI such changes are appropriate (all
decisions on pricing to be made by Muelhens, which retains title to the
Products); and
4
<PAGE>
(g) engaging independent sales representatives with the prior
consent of Muelhens.
All cost and expenses associated with the product sales services,
including but not limited to, salaries and traveling expenses, but excluding
commissions paid to independent sales representatives and allowances for coop
advertising (except as set forth herein), will be funded by RBFI, subject to
Muelhens' payment of the monthly service fee as provided in section 6. Muelhens
shall pay directly the commissions of independent sales representatives
exclusively relating to sales of the Products.
Commissions paid to individual independent sales representatives shall
not exceed 7% of Net Sales and allowances for coop advertising and demos shall
not exceed 18% and 5%, respectively, of Net Sales without the prior written
consent of Muelhens. Any excess commissions or allowances not approved by
Muelhens shall be funded by RBFI. Notwithstanding RBFI's general obligation to
fund excess commissions or allowances, if Muelhens, pursuant to clause (d) of
this Section 4.1, opens a new account and permits such account a coop
advertising allowance in excess of budgeted amounts, RBFI shall not be
responsible for such excess allowance.
4.2 Administration Services. RBFI shall provide to Muelhens such general
and administrative support services as Muelhens may from time to time reasonably
require to meet its general administrative needs, including but not limited to:
(a) processing customers orders and receipts on behalf of Muelhens;
(b) invoicing and preparation of shipping documents on Muelhens letterhead;
(c) preparation of monthly and quarterly reports of sales by retail outlet, and
preparation of periodic budgets and management reports;
(d) submitting reports on total monthly Net Sales of the Products to Muelhens,
no later than the fifth (5th) business day of the following month;
(e) accounts receivable collections and collections of bad debts (subject to
the limitations set forth hereinafter in this Section 4.2);
(f) conducting the daily management of Muelhens bank account in accordance with
the procedures and controls to be established by Muelhens;
(g) accounting and bookkeeping services including, but not limited to:
(i) maintenance of a general ledger detailing all expenses and income,
(ii) preparation of unaudited monthly profit and loss statements (including
a comparison to the related budget and prior year figures) which will
5
<PAGE>
be delivered to Muelhens according to the reporting calendar as
attached on Appendix B hereto,
(iii) preparation of monthly treasury reports including actual cash position
and forecast for the following six (6) months,
(iv) assistance in arranging for an audit of the financial
statements of Muelhens; provided, however, that all
external audits and auditors and any work done in
connection with the preparation of tax returns for
Muelhens will be done on behalf of and at the expense
of Muelhens, and
(v) other financial reports as reasonably requested by Muelhens, with the
format to be determined prior to each request, and
(h) sharing information compiled by RBFI with respect to United States
requirements as to customs and legal labelling.
If any report required under clauses (g)(ii), (g)(iii) or (g)(v) of
this Section 4.2 is requested to be in the hyperion format, RBFI will not be
required to present the report in such format but RBFI will provide the raw data
for such report to a Muelhens' designated representative two business days prior
to the due date.
Nothing contained in clause (d) of this Section 4.2. shall impose any
obligation on RBFI to institute or defend (whether at its expense or Muelhens')
any litigation relating to the collection of Muelhens' accounts receivable. The
parties acknowledge that the ultimate responsibility to collect accounts
receivable is that of Muelhens. If RBFI is unable to collect any account
receivable, it will notify Muelhens, which will have the right, in its sole
discretion, to take such action as it decides. RBFI agrees to cooperate with
Muelhens, at Muelhens' expense, in connection with its attempt to collect any
such accounts receivable.
ARTICLE 5. STORAGE AND HANDLING SERVICES
5.1 RBFI hereby agrees to provide to Muelhens:
(a) warehouse space, in square footage and physical condition
adequate to meet Muelhens reasonable inventory and storage
requirements for the Products; and
(b) inventory shipment and handling services for the Products.
5.2 In the course of providing inventory shipment and handling services
hereunder, RBFI will endeavor to comply with the terms of shipment orders
(including delayed delivery) which have been mutually determined by Muelhens and
RBFI for each customer of Muelhens. The inventory handling services provided by
RBFI to Muelhens shall include assisting brokerage
6
<PAGE>
houses with import customs entries, suggesting carriers for all inbound freight
and providing space and assistance to United States customs authorities for
inspection of shipments.
5.3 All expenses relating to storage, shipment and handling will be the
responsibility of, and are to be funded by RBFI, subject to Muelhens' payment of
the monthly service fee as provided in Section 6, except for duty, customs
brokerage fees, freight-in and freight-out, all transportation insurance and
shipping supplies, which expenses will be the responsibility of, and are to be
paid directly, by Muelhens; provided, however, that all such expenses in the
Contract Year in excess of amounts set forth in the approved budget for the
Contract Year shall be the obligation of RBFI. Muelhens agrees that during the
Term, and for a period of not less that three (3) years thereafter, it shall
maintain product liability insurance covering the Products for sale in the
Territory in an amount not less than U.S. $2,000,000 per occurrence, and shall
have RBFI included as a named insured under such policy. Notwithstanding the
assignment by RBFI of any or all of its rights under this Agreement, Muelhens
agrees to continue to maintain such product liability insurance for the benefit
of RBFI as well as its assignee and to continue to include RBFI as well as its
assignee as a named insured under such policy for the period specified.
5.4 RBFI agrees to obtain and pay multiple peril product insurance covering
Product inventory in scope and in an amount reasonably satisfactory to Muelhens,
and RBFI agrees to obtain for Muelhens, at Muelhens' expense, Product liability
insurance covering all Products in scope and in an amount reasonably
satisfactory to Muelhens and as required by this Agreement.
5.5 RBFI will refurbish all merchandise returns requested by Muelhens and shall
provide Muelhens with a notice as to the quantity and types of items which have
be refurbished and the estimated cost of refurbishment. Muelhens will supply at
its expense all packaging materials necessary to refurbish returned merchandise,
and will pay RBFI a refurbishment fee at an hourly rate to be mutually agreed
upon. If at any time Muelhens determines that it wishes to mark any Products,
RBFI will undertake such marking on Muelhens behalf and will be paid additional
compensation for such service in such amount as shall be agreed by Muelhens and
RBFI from time to time.
5.6 RBFI will provide Muelhens with monthly statements of inventory. In
addition, at Muelhens' request RBFI shall cause a physical inventory of the
Products stored at RBFI's warehouse to be taken prior to December 31, 1996
(with, if Muelhens so wishes, a Muelhens' representative presence) and shall
deliver to Muelhens promptly thereafter a report on such physical inventory.
5.7 RBFI will be responsible for any stock shrinkage or losses in inventory and
will make payment to Muelhens therefore based upon the landed cost of the
Products within thirty (30) days from receipt of Muelhens' invoice therefore.
5.8 Muelhens has the right to remove from the premises of RBFI the Products with
full support and cooperation of RBFI so that invoicing and shipping delays will
be kept to a minimum from the date of removal.
7
<PAGE>
5.9 Muelhens shall be entitled to full and free access at reasonable times and
upon reasonable notice to its inventory on the premises of RBFI. Muelhens and
its representatives (including, but not limited to, any consultant that Muelhens
may decide to employ), in respect to the paragraph 5.8, shall have the absolute
right to remove its Inventory from RBFI's premises, notwithstanding any
arbitrable or other dispute between the Parties. RBFI acknowledges that any
attempt by RBFI to obstruct Muelhens access to its inventory at reasonable times
and upon reasonable notice, will cause irreparable harm to Muelhens, which must
be in a position to take all necessary steps to protect its interests and
customer relations in the event of a default by RBFI herewithin. It is
understood that all Muelhens inventory stored is the sole and exclusive property
of Muelhens. RBFI will not grant to any third party, including RBFI's creditors,
any security or other interest in any Muelhens inventory.
5.10 Until the earlier to occur of the expiration of the Term or the removal of
the Products from the RBFI premises, RBFI will endeavor to comply with the terms
from the paragraphs 5.1 to 5.9. If Muelhens removes its inventory of Products
from the RBFI premises prior to the expiration of the Term, RBFI's obligations
under this Article 5 shall thereupon terminate.
ARTICLE 6. MONTHLY SERVICE FEE
In consideration of the services rendered to Muelhens pursuant to this
Agreement, Muelhens shall, during the Term of this Agreement, pay to RBFI a
monthly service fee equal to U.S. $158,333, payable monthly.
ARTICLE 7. TERM
7.1 Basic Term. This Agreement shall be effective for the fixed period
commencing on the date that the Parlux Closing occurs (and shall be deemed
effective immediately prior to the Parlux Closing) and ending on December 31,
1996 (such period, the "Term").
7.2 Early Termination.
7.2.1 This Agreement may be terminated by either party hereto upon 30
days' written notice and demand to cure, if the other party shall default in the
performance of any material obligation under this Agreement; provided, however,
that if the defaulting party fully cures the default described in the notice
within the 30 days notice period, then the termination shall not take effect and
the Agreement shall continue to bind the Parties.
7.2.2 In the event that either party shall make an assignment for the
benefit of creditors, or a trustee, receiver or liquidator shall be appointed
for either party or for any of their property, of the commencement of any
proceedings by either party under any bankruptcy, reorganization, arrangement of
debt, insolvency, readjustment of debt, receivership, liquidation, dissolution
or similar law or statute, or the commencement of any such proceedings against
either party without the consent of such party, as the case may be, and such
proceeding or such
8
<PAGE>
appointment shall continue undischarged for a period of 30 days, then the other
party may terminate this Agreement upon 30 days' written notice.
7.3 Obligations Following Termination. Upon expiration of the Term or upon
earlier termination of this Agreement pursuant to Section 7.2, the following
rights and obligations shall apply (together with such other obligations as are
expressly stated to survive expiration or termination):
7.3.1 Each party's obligation to make payments hereunder prior to
expiration or termination shall continue if not yet then paid.
7.3.2 Muelhens' inventory of Products and related materials shall be
transferred to another location to be designated by Muelhens. Muelhens shall pay
all expenses in connection with such transfer of inventory. If this Agreement is
terminated by a party, such location shall be designated by Muelhens within 30
days of the effective date of such termination. If this Agreement shall expire
at the end of the Term, Muelhens shall designate such location and notify its
customers of such location not later than November 1, 1996 and all inventory
shall be removed from RBFI's premises not later than January 31, 1997.
7.3.3 RBFI agrees to physically accept returns from stores that are
inadvertently returned to RBFI and to ship them to a location to be designated
by Muelhens, at Muelhens' expense. Muelhens shall promptly notify any such store
of the correct location to which returns should be sent.
7.3.4 Both parties shall cooperate with the other with respect to
accounts payable and accounts receivable that are received or collected
subsequent to expiration or termination so that (i) there is an orderly
transition; (ii) invoices, correspondence and other communications will be
forwarded to the appropriate party; and (iii) proper investigation and
calculations may be made to determine whether payments or credits should be made
or provided to the other party as provided in Section 7.3.5.
7.3.5 Each party shall remit to the other such monies as shall be
properly due the other under this Agreement or otherwise. For example, and not
by way of limitation, (i) RBFI shall remit to Muelhens an account receivable
that is collected by RBFI for a sale of Product, (ii) Muelhens shall remit to
RBFI an account receivable collected by Muelhens for a sale of goods by RBFI
unrelated to the Products, (iii) RBFI shall pay to Muelhens the amount of any
credits that a store deducts from a Muelhens invoice and such deduction relates
to an RBFI good unrelated to a Product; and (iv) Muelhens shall pay to RBFI the
amount of any credits that a store deducts from an RBFI invoice and such
deduction relates to a Product.
7.3.6 Muelhens shall pay RBFI for its services under Sections 7.3.2 and
7.3.3 subsequent to the expiration or termination of this Agreement at an hourly
rate of $7.65, and shall reimburse RBFI for its actual expenses (excluding labor
costs) incurred hereunder subsequent to the expiration or termination of this
Agreement.
9
<PAGE>
ARTICLE 8. REPRESENTATIONS BY RBFI
8.1 Avoidance of Conflicting Obligations.
8.1.1 RBFI hereby represents that any officers or employees of RBFI who
may undertake in the future any responsibility for an entity or product that
competes with Muelhens or with the Products will be individuals who have not
had, and will not be allowed to have access to any information concerning
Muelhens or the Products. Any officers or employees who have had, or are allowed
to have access to any information concerning Muelhens or the Products, shall not
be allowed, while employed or engaged by RBFI, to represent or act on behalf of
any entity or product that competes with Muelhens or with the Products. For all
purposes of this Agreement, neither Parlux nor its products shall be deemed to
compete with Muelhens or the Products. Any breach by RBFI or any officers or
employees of this provision shall be a conflict of interest giving Muelhens the
right to terminate this Agreement under article 7.2.1. hereof.
8.1.2 RBFI hereby represents to Muelhens that, if RBFI or any officers
or employees of RBFI should take on the representation of an entity or product
that competes with Muelhens or with the Products, or if RBFI should become
affiliated with, or if a majority of the assets or a majority ownership interest
in RBFI is acquired by any entity that competes with Muelhens or whose products
competes with the Products then RBFI shall notify Muelhens providing the
particulars of such event within 24 hours of its occurrence. Failure by RBFI to
provide Muelhens this notice shall constitute a conflict of interest giving
Muelhens the right to terminate this Agreement pursuant to article 7.2.1.
hereof.
8.2 Authority. RBFI hereby represents to Muelhens that RBFI is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction under which is it incorporated. RBFI has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. All corporate acts and other
proceedings required to be taken by RBFI to authorize the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby, including authorization by the Board of Directors of RBFI,
have been duly and properly taken. This Agreement has been duly executed and
delivered by RBFI and constitutes the legal, valid and binding obligations of
RBFI, enforceable against RBFI in accordance with its terms. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and the compliance with the terms thereof will not conflict with, or
result in any violation of:
(a) any provision of the Certificate of Incorporation or By-laws of RBFI,
(b) any material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, Agreement or arrangement to which RBFI is a party, or
(c) any judgment, order or decree, or material statute, law,
ordinance, rule or regulation applicable to RBFI or the
property or assets of RBFI.
10
<PAGE>
No material consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required to be obtained or made by or with respect to RBFI in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, other than such consents, approvals,
licenses, permits, orders, authorizations, registrations, declarations or filing
the lack of which, individually or in the aggregate, would not have a material
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of RBFI.
ARTICLE 9. REPRESENTATIONS BY MUELHENS
9.1 Ownership. Muelhens hereby represents to RBFI that Muelhens is the exclusive
owner of the right to distribute the Products in the Territory. Muelhens further
represents that it shall be at the time Muelhens participates in the
distribution of any other fragrance products in the Territory, the exclusive
owner of the right to distribute such other products in the Territory.
9.2 Authority. Muelhens hereby represents to RBFI that Muelhens is a corporation
duly organized, validly existing, and in good standing under the laws of the
jurisdiction under which is it incorporated. Muelhens has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. All corporate acts and other
proceedings required to be taken by Muelhens to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, including authorization by the Board of
Directors of Muelhens, if necessary, have been duly and properly taken. This
Agreement has been duly executed and delivered by Muelhens and constitutes the
legal, valid end binding obligations of Muelhens, enforceable against Muelhens
in accordance with its terms. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby and the compliance with
the terms hereof will not conflict with, or result in any violation of:
(a) any provision of the Certificate of Incorporation or By-laws of Muelhens,
(b) any material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, Agreement or arrangement to which Muelhens is a party,
or
(c) any judgment, order or decree, or material statute, law,
ordinance, rule or regulation applicable to Muelhens or the
property or assets of Muelhens.
No material consent, approval, license, permit, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, is required to be obtained or made by or with respect to Muelhens in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, other than such consents, approvals,
licenses, permits, orders, authorizations, registrations, declarations or filing
the lack of which,
11
<PAGE>
individually or in the aggregate, would not have a material adverse effect on
the business, assets, condition (financial or otherwise) or results of
operations of Muelhens.
ARTICLE 10. MISCELLANEOUS
10.1 Notices. All notices required or permitted to be given hereunder shall be
in writing and shall be sent by registered or certified air mail, return receipt
requested, telex or telecopier, addressed as follows:
If to Muelhens:
Intercosmetics Inc.
Attn: Mr, Spencer Kanis
655 Madison Avenue
New York, New York 10021
U.S.A.
Fax: (212) 980-2711
with a copy to:
Wella AG
Attn: Mr. Werner Hofmann
Berliner Allee 65
64274 Darmstadt
GERMANY
Fax: 49.6151.34.29.56
If to RBFI:
Richard Barrie Fragrances, Inc.
Attn: Mr. Richard Barrie
15 Executive Boulevard
Orange, Connecticut 06477
U.S.A.
Fax: (203)799-4567
12
<PAGE>
with a copy to:
Graubard Mollen & Miller
Attn: Mr. Peter M. Ziemba, Esq.
600 Third Avenue
New York, New York 10016-2097
U.S.A.
Fax: (212) 687-6989
Either party may designate another address for notice hereunder by written
notice to the other party. All notices hereunder shall be deemed to be given 10
days after its mailing, if given by registered or certified air mail, or, if
sent by such other means set forth above, on the date on which such notice shall
have been received by the entity to which it shall be addressed.
10.2 Assignment. This Agreement is personal in nature and neither party hereto
shall, without the prior consent of the other, assign or transfer this Agreement
or any rights or obligations hereunder. Muelhens hereby consents to the
assignment by RBFI of all of its rights (other than those additional rights
granted to RBFI that arise solely upon the occurrence of the Parlux Closing as
provided in Section 5.4 and 10.3) hereunder to Parlux and the assumption by
Parlux of all of the obligations of RBFI hereunder pursuant to the Asset
Purchase Agreement, and upon such assignment and assumption by Parlux, Muelhens
hereby releases RBFI from all further obligations under this Agreement.
10.3 Indemnification.
10.3.1 Muelhens shall indemnify and hold harmless RBFI end its
officers, directors and employees against and in respect of any and all damages,
losses, liabilities, costs and expenses (including reasonable legal fees and
disbursements) incurred by RBFI or other indemnified Parties to third Parties
that result from, related to or arise out of the public's use of the Products or
the actions of RBFI in the performance of its duties under the Agreement in
accordance with the provisions of this Agreement, except where such damages,
losses, liabilities, costs and expenses are a result of the negligence, willful
misconduct or default of RBFI in the performance of its duties under this
Agreement.
10.3.2 RBFI shall indemnify and hold harmless Muelhens and its
officers, directors and employees against and in respect of any and all damages,
losses, liabilities, costs and expenses (including reasonable legal fees and
disbursements) incurred by Muelhens or other indemnified Parties to third
Parties that result from the negligence, willful misconduct or default of RBFI
in the performance of its duties under this Agreement.
10.3.3 The indemnified party under Section 10.3 as the case may be,
shall promptly notify the other of any claim, action of proceeding and the
indemnifying party shall take such actions necessary to defend any such claim,
action or proceeding. In the event appropriate action is not taken by the
indemnifying party within 30 days after its receipt of
13
<PAGE>
notice of any claim, action or proceeding, the indemnified party shall have the
right to defend such claim, action or proceeding at the expense of the
indemnifying party, but no settlement thereof may be made without the written
approval of the indemnifying party, which approval shall not be unreasonably
withheld. In connection with any claim, action or proceeding describes in this
Section 10.3, each party shall keep the other party fully advised of all
developments, shall provide each other with copies of all documents exchanged in
court, and shall assist and cooperate fully with each other in all respects in
any such defense.
10.3.4 The indemnifications set forth in Section 10.3 shall survive the
expiration or termination of this Agreement. Notwithstanding the assignment of
any or all rights of RBFI under this Agreement, Muelhens' obligation to
indemnify RBFI under this Agreement shall continue for the benefit of RBFI as
well as its assignee.
10.4 Confidentiality and Conflict of Interest. Muelhens and RBFI agree that this
Agreement and all non-public information, trade secrets, customers lists or
innovations of any kind relating to the respective business of Muelhens and RBFI
are confidential. Muelhens and RBFI further agree that they (i) shall not at any
time disclose any such information, trade secrets, customers lists or
innovations relating to the business of the other party to any person other than
to their employees, attorneys or agents, and then only to the extent such
disclosure is necessary for the performances of the duties or responsibilities
of such persons and (ii) shall take all reasonable steps to prevent their
employees, attorneys or agents, from making any such disclosure at any time.
Nothing contained in this Section shall prevent RBFI or its assignee (i) from
disclosing any of the terms and conditions of this Agreement in a filing with
the Securities and Exchange Commission, (ii) filing a copy of this Agreement
with Securities and Exchange Commission, the Pacific Stock Exchange or the
Nasdaq Stock Market, or (iii) disclosing the existence of this Agreement and
RBFI's or its assignee's relationship with Muelhens in such press releases as
may be required by the United States securities laws.
10.5 Infringement. RBFI will inform Muelhens promptly upon its learning of any
potential infringements of Muelhens' trademarks and agrees to assist Muelhens,
if so requested and under Muelhens direction and control, and at Muelhens sole
cost and expense, in connection with any suit or proceeding relating to such
infringement. RBFI recognizes and agrees that the trademarks of Muelhens are the
exclusive property of Muelhens and that RBFI has and shall have no right in such
trademarks.
10.6 Status of RBFI. RBFI has been engaged by Muelhens to provide services to
Muelhens hereunder. RBFI is an independent contractor and shall not as a result
of this Agreement or its engagement hereunder be deemed to be a partner, joint
venturer or agent of Muelhens. The Parties acknowledge that RBFI personnel
working on behalf of RBFI in the performance or its obligations hereunder shall
not be considered employees or officers of Muelhens.
10.7 Cumulative Remedies. The specific remedies to which the parties may resort
under the terms of this Agreement are cumulative, and are not intended to be
exclusive of any other remedies or means of redress to which the parties are
lawfully entitled in case of any breach or threatened breach by either of them
of any provision of this Agreement.
14
<PAGE>
10.8 Amendments; Waivers. This Agreement may only be amended by a written
instrument executed by both parties. The failure of either party at any time to
require performance by the other party of any provision hereof shall not affect
in any way the right to require such performance at any later time nor shall the
written waiver by either party of a breach of any provision hereof be taken or
held to be a waiver of any provision.
10.9 Entire Agreement. This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter contained herein. There are no
restrictions, promises, warranties, covenants or undertakings, other then those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties, including the 1995 Agreement, which shall be
considered as null and void.
10.10 Severability. In case any one or more provisions contained in this
Agreement should be found to be invalid, illegal or unenforceable in any
respect, then either party may elect to terminate the Agreement upon 60 days'
notice. Absent such notice, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired.
10.11 Governing Law: Jurisdiction. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the internal laws of the State of New York without regard to principles of
conflicts of law. The parties hereto agree that all disputes, controversies or
differences which may arise among the Parties during the Term of this Agreement,
or following its termination by one of the Parties pursuant to the termination
provisions hereof, will be finally settled by submission to binding arbitration
in New York, New York in accordance with the rules of the American Arbitration
Association. The award of the arbitrator may be enforced in any court having
proper jurisdiction.
10.12 Counterparts. This Agreement maybe executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same instrument.
10.13 Clause Headings. Clause headings are for ease of reference and shall not
effect construction or interpretation of this Agreement.
10.14 Independent Sales Representatives. RBFI confirms to Muelhens that RBFI has
no objection to Muelhens' use, in its discretion, of the current network of
sales representatives selling the Products subsequent to the expiration or
termination of this Agreement. RBFI will cooperate with Muelhens in this regard
and will furnish to Muelhens such information that it possesses concerning these
sales representatives, including, without limitation, names, addresses and
telephone numbers, and copies of any written contracts or other documents
concerning RBFI's relationship with them. Muelhens shall be permitted to
communicate with these representatives prior to the expiration or termination of
this Agreement so that it may coordinate with them their services, if any, and
sales strategies subsequent to expiration or termination of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
INTERCOSMETICS INC. RICHARD BARRIE FRAGRANCES, INC.
By:_______________________________ By:__________________________________
Spencer Kanis Richard Barrie
Chief Operating Officer and President
Chief Financial Officer and
Pursuant to Power of Attorney
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> MAR-31-1996
<CASH> 495,269
<SECURITIES> 0
<RECEIVABLES> 1,119,546
<ALLOWANCES> 0
<INVENTORY> 2,487,697
<CURRENT-ASSETS> 4,400,584
<PP&E> 963,555
<DEPRECIATION> 796,971
<TOTAL-ASSETS> 5,364,139
<CURRENT-LIABILITIES> 7,701,114
<BONDS> 0
<COMMON> 22,097
0
0
<OTHER-SE> 6,982,738
<TOTAL-LIABILITY-AND-EQUITY> 5,364,139
<SALES> 973,540
<TOTAL-REVENUES> 973,540
<CGS> 557,496
<TOTAL-COSTS> 1,985,476
<OTHER-EXPENSES> (499,087)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (254,212)
<INCOME-PRETAX> (2,322,731)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,322,731)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
