COTY US INC, 10-K405, 1998-03-30

COTY US INC
10-K405, 1998-03-30
PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------

FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934

For the Fiscal Year Ended: December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Transition Period from to
--------------- ---------------------

Commission file number 1-13714

COTY US INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 06-1342491
- ------------------------------- --------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

237 Park Avenue, New York, New York 10017
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (212) 850-2300

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
- --------------------------------------------- --------------------------------

10 1/4% Senior Subordinated Notes Due 2005 New York Stock Exchange

- --------------------------------------------- --------------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes x No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

As of March 23, 1998, there were 100 shares of the Company's common stock
outstanding, all of which were held by Coty Inc., a subsidiary of Joh. A.
Benckiser GmbH .

<PAGE>
PART I

Item 1. Description of Business

Background

Coty US Inc. ("Coty US") along with its subsidiaries (collectively "the
Company"), is a wholly owned subsidiary of Coty Inc., a Delaware corporation
based in New York, which is a subsidiary of Joh. A Benckiser GmbH ("Benckiser"),
and operates Coty Inc.'s mass-market fragrance business in the United States.
With net sales in 1997 of approximately $1.6 billion, Coty Inc. is one of the
world's leading manufacturers and marketers of women's and men's fragrances,
color cosmetics and skin treatment products in the mass and prestige markets.
Coty Inc. is headquartered in New York and operates on a global basis, with
operations in 28 countries and sales in over 80 countries. Coty Inc.'s leading
brands include Vanilla Fields, Jovan, Stetson, adidas, Yue-Sai, Rimmel and
Margaret Astor in mass distribution; and Davidoff, Joop, Jil Sander, Chopard and
Lancaster in selective distribution. The financial and other information
contained herein relates solely to Coty US and its mass-market fragrance
business and does not include information relating to Coty Inc. or the other
businesses and operations conducted by Coty Inc. For the year ended December 31,
1997, Coty US represented approximately 25% of Coty Inc.'s total revenues and
approximately 33% of Coty Inc.'s total assets.

The Company is the leading manufacturer and marketer of brand name women's
and men's fragrances in the United States mass-fragrance market with net sales
in 1997 of $405.5 million. The Company's principal executive offices are located
at 237 Park Avenue, New York, New York 10017 and the Company's telephone number
is 212-850-2300.

Coty US's principal products are women's and men's fragrances, which
accounted for approximately 83% and 90% of net sales for 1997 and 1996,
respectively. Core fragrance products include perfume, cologne, eau de toilette,
body sprays, after-shave and gift sets. Related fragrance products include skin
lotions, skin powders, deodorants and sachets. The Company's portfolio of
fragrance brands includes such recognized names as Stetson, Jovan Musk, Vanilla
Fields, Aspen, !Exclamation, and Preferred Stock. The Company also markets a
line of bath and body products under the Calgon brand name and a line of
aromatherapy products under The Healing Garden brand name. The Company has
achieved and maintained its leading market share by supporting its existing
brands with successful advertising and promotional strategies, by continuing to
develop and introduce new products and by working with major mass-market
retailers in their own fragrance marketing efforts.

In 1991, Benckiser Consumer Products, Inc. ("BCPI"), a Delaware
corporation and wholly owned subsidiary of Benckiser, acquired all of the
outstanding capital stock of Quintessence Incorporated ("Quintessence"). In
January 1994, BCPI contributed all of the outstanding capital stock of
Quintessence to QHI Group Holdings, Inc., ("QHIG"), a Delaware corporation and a
subsidiary of Coty US, in exchange for 1,000 shares of the Series A Preferred
Stock of QHIG (the "Series A Preferred Stock") having an aggregate liquidation
preference of $68.0 million, the fair market value of Quintessence at the date
of the exchange (the "Quintessence Transaction"). Contemporaneously with this

exchange, Coty US contributed $1.0 million to QHIG in return for 100 shares of
QHIG's Common Stock. On June 30, 1995, BCPI transferred the Series A Preferred
Stock to Coty Inc.

In December 1994, Coty US entered into an unsecured bank credit facility
(the "Credit Facility") pursuant to which it refinanced certain indebtedness,
including indebtedness owed to affiliates of the Company which was originally
incurred in connection with the acquisition of the Coty US and Quintessence
businesses. The Credit Facility matures on March 31, 2000. At the same time, the
Company entered into a subordinated loan agreement with Benckiser pursuant to
which it refinanced certain indebtedness totaling $130.0 million owing to
Benckiser and its affiliates. The Credit Facility provided the Company with a
term loan of $70.0 million (the "Term Loan") and a revolving loan facility of up
to $160.0 million (the "Revolving Loan Facility"). The Company repaid the
remaining outstanding balance of the Term Loan in December 1996. At March 23,
1998, the Company had borrowings of $29.0 million under the Revolving Loan
Facility. Margins on the applicable borrowing rates under the Credit Facility
vary depending upon the Company's operating performance. At March 23, 1998, the
Company was borrowing at a blended interest rate of 7.29% under the Revolving
Loan Facility. The Credit Facility contains certain restrictive covenants,
including the maintenance of certain financial ratios and, among other things,
limitations on the ability of the Company to incur additional indebtedness, to
create liens, to pay dividends on or repurchase shares of capital stock and to
make certain loans, investments or guarantees. The Company is in compliance with
the respective covenants detailed in the Credit Facility.

<PAGE>

In January 1995, pursuant to an agreement, BCPI contributed the license
rights to produce, market and distribute in the United States and its
territories and possessions the U.S. bath products line of the Calgon brand to
QHIG, in exchange for 100 shares of QHIG's Series B Preferred Stock (the "Series
B Preferred Stock") having an aggregate liquidation preference of $7.0 million
(the "Calgon Transaction").

In March 1995, Benckiser contributed to the predecessor of Coty Inc. all
of the capital stock of the Company in exchange for all of the common stock of
Coty Inc. On such date, BCPI contributed to Coty Inc. all of the capital stock
of Lancaster Group (USA) Inc., a Delaware corporation (subsequently merged with
and into Lancaster Group US LLC, a Delaware limited liability company) in
exchange for all of the preferred stock (non-voting) of Coty Inc. In 1996, Coty
Inc. purchased all its preferred stock from BCPI. The Company has entered into a
tax-sharing agreement with Coty Inc. pursuant to which the Company has agreed to
pay to Coty Inc. its share of the consolidated income taxes of Coty Inc. and its
subsidiaries, based on the taxes that would be payable by the Company and its
subsidiaries if the Company and its subsidiaries were an independent
consolidated group.

In April 1995, the Company consummated a public offering for $135.0
million of 10.25% Senior Subordinated Notes maturing May 1, 2005 (the "Notes").
The proceeds, net of underwriting discounts and offering expenses, were used to
refinance the Company's $130.0 million aggregate principal amount of outstanding

subordinated indebtedness to Benckiser and its affiliates. The indenture for the
Notes (the "Indenture") contains certain covenants including provisions that
place restrictions (subject to certain exceptions) on the Company with respect
to guarantees, loans and advances, indebtedness, sale of certain assets, mergers
and consolidations, issuance and sale of subsidiary stock and certain
transactions with affiliates, including capital stock dividend payments. The
Notes are general unsecured obligations of the Company, and are senior in right
of payment to all existing and future indebtedness of the Company which is made
expressly junior thereto and are subordinate in right of payment to all senior
debt of the Company, including indebtedness under the Credit Facility. The
Company is in compliance with the covenants specified in the Indenture for the
Notes.

Coty Inc. and Benckiser are not guarantors of the Company's obligations
under the Notes or the Credit Facility.

The Company has entered into certain agreements with Benckiser and its
affiliates including agreements related to services to be provided in connection
with the Calgon bath products line in the United States, manufacturing and
various intercompany services to be provided in the ordinary course of business.
See "Certain Relationships and Related Transactions".

Statements in this Annual Report on Form 10-K which are not historical
facts, so-called "forward-looking statements," are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, including those detailed in the Company's filings with the
Securities and Exchange Commission. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
that May Affect Future Results".

Products

Fragrances. The Company's principal products are women's and men's
fragrances, which accounted for 83% and 90% of the Company's 1997 and 1996 net
sales, respectively. Women's fragrance products include perfume, cologne, eau de
toilette, gift sets, body sprays, lotions and powders. Men's fragrance products
include cologne, after-shave, gift sets and pre-shave products. For each
fragrance brand, the Company offers up to fourteen different products (including
Christmas gift sets) appealing to a wide range of consumer preferences and price
points. Currently, there are approximately 40 fragrance brands in the Company's
portfolio. In 1997, Coty US introduced two new women's fragrances, Nokomis and
Gossip, and one new men's fragrance, Avatar.

Product Extensions. The Company has been successful at developing and
marketing brand extensions by capitalizing on the success of certain of its
existing brands. The Company has extended its !Exclamation brand by introducing
!Exclamation Blush in 1996 and more recently with the launch of !Exclamation
Noir, in the first quarter of 1998. Similarly, the Company extended its Stetson
brand by introducing the derivative brands Lady Stetson and Stetson Sierra. In
addition, the Company regularly introduces line extensions. For example, the
Company extended its fragrance product line for new and existing brands by
introducing fragrance-related products such as body sprays, scented candles and
potpourri. The Company believes it will continue to have opportunities to

leverage its current brand portfolio with similar derivative products and new
product categories.

3
<PAGE>

Calgon and The Healing Garden. The Company also markets a line of bath and
body products under the Calgon name and a line of aromatherapy products under
The Healing Garden brand name, which in aggregate accounted for 13% and 4% of
net sales in 1997 and 1996, respectively. The Calgon line of personal care bath
and body products includes body mists, body lotions, shower gels, and other bath
related products. See "Certain Relationships and Related Transactions". The
Healing Garden line includes lotions, shower gels, body soaks, candles, and
other related products which provide a variety of aromachological benefits.

Cosmetics. The Company's cosmetics line represents the remaining 4% and 6%
of 1997 and 1996 net sales, respectively. The cosmetics product line consists of
lipsticks, face powders and face makeup products which are marketed in mass
channels under the Coty brand name. The Company's cosmetic sales are primarily
from two brands: Airspun, a loose face powder introduced in 1925, and Coty '24,
a longwearing lipstick introduced in 1955.

Marketing

Coty US's marketing strategy is to create a distinct image for each
fragrance. In doing so, the Company avoids associating its fragrances with
individual spokespeople or major models and instead focuses on product images,
such as "rugged western" for Stetson and "simple and natural" for Vanilla
Fields.

The Company expends a significant portion of its revenues for the
advertising and promotion of its products, including the development of a unique
image for each of its products. In 1997, the Company spent $129.0 million, or
32% of 1997 net sales, for advertising and promotional purposes, and in 1996
spent $148.3 million, or 34% of 1996 net sales, on such activities. The Company
believes such expenditures are necessary to maintain and increase market share
in an industry highly dependent upon product image and consumer trends, and that
promotion creates brand awareness that is essential to supporting existing brand
franchises and in introducing new products.

The Company uses print and television media and point-of-sale
merchandising techniques, such as displays, testers and samples, to advertise
its products. Coty US also engages in co-operative print advertising with its
retailers, as well as the use of coupons and seasonal catalogs for insertion
into magazines.

Distribution

Coty US distributes its fragrance products nationwide to major domestic
mass-market retailers, and believes that it is the single largest fragrance
supplier to numerous mass-market retailers. The Company estimates that its
fragrance products are sold to over 2,400 mass-market retailers and are carried
in over 30,000 domestic retail outlets. The Company works closely with major
mass-market retail accounts to develop specialized advertising and promotional

campaigns and in-store presentation designs which are tailored to fit the
specific retailer's strategy and promotional plans.

In 1997 and 1996, net sales to the Company's two largest retailers
accounted for an aggregate of approximately 39% and 38% of total net sales of
the Company in each year, respectively. In 1997, net sales to the Company's five
largest retailers represented in the aggregate approximately 54% of the total
net sales of the Company as compared to approximately 50% in 1996. The loss of
sales to the Company's largest retailers would have a material adverse effect on
the business and operations of the Company.

Sales Force

The Company sells its products primarily through its direct sales force
and, to a lesser extent, through independent brokers. As of December 31, 1997,
the Company's direct sales force consisted of 89 Company-employed sales
personnel located throughout the United States. In addition, as of such date,
the Company employed 78 merchandisers to serve retailers who purchase the
Company's products. The Company utilizes a broker sales force to sell Calgon
products to the grocery/food market.

New Product Development

The Company believes that it is an industry leader in the development of
new fragrances and is continually engaged in research and formulation of new
products. The Company develops a marketing strategy for each of its new product
introductions and, generally, introduces its new products no later than
September to take advantage of the Christmas selling season. Based upon its
experience in new product development, the Company estimates that the time
required to develop and introduce a new Coty fragrance ranges anywhere from six
months to two years. In

<PAGE>

1997, Coty US introduced two new women's fragrances, Nokomis and Gossip, and one
new men's fragrance, Avatar. Also, in 1997, the Company introduced a line of
aromatherapy products under The Healing Garden brand name and a line of body
mists under the Calgon brand name.

The Company operates a product research and development facility
located in Morris Plains, New Jersey. Applied research for new Coty
products, ideas, concepts and packaging is performed at this facility.
Within this facility, chemists develop and test products and concepts for
Coty US. In addition, research and development services relating to
fragrances, cosmetics and related products for Coty Inc. and its
affiliates are performed at this facility for a fee equal to cost plus an
agreed-upon markup. See "Certain Relationships and Related Transactions".

Seasonality

The Company's business is seasonal by nature; a majority of its sales and
operating income are generated during the second half of the calendar year which

includes the back-to-school and Christmas selling seasons. Similarly, the
Company's working capital needs are highly seasonal. The Company's working
capital borrowings under the Credit Facility are generally expected to increase
throughout the calendar year and peak during the fourth quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

Raw Materials

The principal raw materials used by the Company in the manufacture of its
products are essential oils, alcohol and other processing components, as well as
glass and paper packaging. While all materials are purchased from outside
sources, the Company is not dependent upon a single supplier in any of its
operations for any materials that are either essential to its business or not
otherwise commercially available to the Company. The Company has been able to
obtain an adequate supply of raw materials, and does not believe that the loss
of any one supplier would have a material adverse effect on the business or
operations of the Company.

Manufacturing

The Company manufactures and distributes substantially all of its
fragrance products from an approximately 900,000 square foot manufacturing and
warehouse/distribution facility located in Sanford, North Carolina.
Approximately 40% of the facility space is used for manufacturing and 60% is
used for distribution and warehousing. The Company also leases additional space
for warehouse storage. As of December 31, 1997, the Company leased an additional
415,200 square feet of warehouse space in the general vicinity of its Sanford
facility.

In addition to manufacturing its fragrance products, Coty US manufactures
most of the Company's promotional materials supplied to retailers. Such
promotional materials include in-store displays, samples and testers.

Competition

The United States fragrance industry is a highly competitive market which
is sensitive to changing consumer preferences and demands. There are several
well known companies which manufacture and market fragrances through mass-market
distribution channels. The Company's principal competitors in the mass-market
channel include Parfums De Couer, Revlon Inc. and Unilever for women's
fragrances, and The Proctor & Gamble Company and Cosmair Inc. for men's
fragrances. The principal bases of competition in the fragrance business are
marketing, quality, selection of products and price. The Company competes
primarily on the basis of the high quality and diversity of its products
relative to that of other mass-market products, as well as on the customer
service capabilities it maintains for its mass-market retail customers.

While most fragrance brands are distributed exclusively in either the
prestige or mass market, the Company believes that some manufacturers of
prestige brands have permitted their products to be distributed in mass outlets.
Although not generally authorized by the manufacturer, the process of
distributing prestige products in mass outlets is known in the industry as
"diversion." Prestige products sold in mass outlets typically retail for less

than the price at which the same products are sold in prestige outlets. The
Company believes that prestige brands are becoming increasingly available in
mass outlets and that certain of the manufacturers and distributors of prestige
brands have become principal competitors in the mass-fragrance market.

<PAGE>

Trademarks And Patents

The Company and its subsidiaries own all of the rights to produce, market
and distribute products utilizing Coty US's principal trademarks in the United
States and its territories and possessions except the trademark rights for
Stetson, Lady Stetson and related trademarks, as well as Calgon. The Company has
an exclusive license to use the Stetson trademark in the United States and its
territories from the John B. Stetson Company pursuant to a license agreement
which was assigned to the Company by Pfizer in 1992. As of January 1, 1995, the
Company and its subsidiaries obtained an exclusive right to use the Calgon
trademark in connection with the Calgon bath products line in the United States.

The principal Coty US trademarks, including Airspun, Aspen, Coty,
Emeraude, !Exclamation, ghost myst, Gravity, The Healing Garden, ici, Jovan,
Preferred Stock, Sand & Sable, Vanilla Fields, Vanilla Musk by Coty and Wild
Musk, are registered in the United States. The Company considers protection of
its trademarks to be important to its business. In addition, the Company owns
various patents and licenses related to the design and manufacture of certain of
its products. While the Company considers such patents to be of some importance
to its business, no single patent is considered material to the conduct of the
Company's business.

The Company does not own the rights to produce, market and distribute
products utilizing Coty US trademarks outside of the United States and its
territories. Benckiser acquired all such rights from Pfizer when the Coty
business was acquired from Pfizer in 1992. In 1994, Benckiser acquired from the
Company all rights to produce, market and distribute products using Quintessence
trademarks outside of the United States and its territories. Benckiser
transferred all the foregoing rights to a Coty Inc. subsidiary in 1996.

Stetson License Agreement

The Company has an exclusive license to use the Stetson trademark in the
United States and its territories pursuant to the terms of a license agreement
with the John B. Stetson Company. The Company's license extends to all cosmetics
including fragrance products. The term of the Stetson license runs to 2005 and
is automatically extended for successive ten year periods provided minimum
annual royalty payments are made by the Company. The Stetson license also
provides for use of the Stetson trademark in conjunction with the Company's
Preferred Stock fragrance products.

adjusted for Consumer Price Index changes. The Stetson license requires the
Company to spend certain minimum amounts on advertising and promotion of Company
products bearing the Stetson trademark.

Pfizer obtained the John B. Stetson Company's consent to assign the
Stetson license to the Company and Benckiser at the time Benckiser acquired the
Coty business in 1992. The United States rights to the Stetson license were
assigned to the Company; the international territory rights were assigned to
Benckiser. The Company and Benckiser are jointly and severally liable for their
obligations under the Stetson license. Pursuant to the terms of the consent,
Pfizer guaranteed that annual worldwide royalties under the Stetson license
would not be less than $4.65 million for each year from 1993 through 2001.
Pursuant to the terms of a separate agreement, Benckiser agreed to reimburse
Pfizer for 50% of any payment due under such guarantee for 1997 and 100% of any
payment due under such guarantee for each year from 1998 through 2001. The
Company has agreed to reimburse Benckiser for a portion of any such payments
equal to the proportion that the United States Stetson business bears to the
worldwide Stetson business. On an annual basis since 1993, worldwide royalty
payments did not exceed $4.65 million, the guaranteed minimum required annual
worldwide royalty payment, and Pfizer paid to the John B. Stetson Company the
payment required as a result of the shortfall. The Company paid 50% of the
shortfall for the year ended December 31, 1997. In addition, pursuant to the
terms of the consent, Benckiser agreed to maintain direct or indirect ownership
of at least 51% of the Company's common stock and 51% of the Company's voting
securities and further agreed to maintain "control" of the Company.

Employees

As of December 31, 1997, Coty US had approximately 1,573 employees. None
of Coty US's employees are covered by a collective bargaining agreement. Coty US
employs a large number of seasonal employees during its peak manufacturing and
promotional season primarily at its manufacturing facility in Sanford, North
Carolina. Coty US believes its relationship with its employees is good.

<PAGE>

Management Information Systems

Approximately 84% of customer orders are transmitted on a "paperless"
basis through electronic data interchange ("EDI"). By transmitting order
information electronically, EDI reduces cost and chance of error for both the
Company and its customers. It also reduces the lag time between order entry and
shipment.

The Company is continuing to upgrade its management information systems
where opportunities exist for increased efficiency, cost savings and more timely
and useful information. During 1997, the Company initiated the implementation of
Oracle Enterprise Resource Planning software applications. The information
systems that will be replaced as part of this project include inventory
management, materials requirement planning, purchasing, accounts payable, and
general ledger. Anticipated benefits include enhancing the Company's inventory
planning and scheduling processes, reduction of paper processing, and increased

efficiency through the improvement and standardization of certain processes. The
project will be completed in 1998 and is expected to have a total cost of
approximately $7.0 million. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Computer Systems - Year 2000
Compliance".

Regulatory And Other Legal Matters

The Company believes that it is in substantial compliance with applicable
federal, state and local laws regulating the discharge of materials hazardous to
the environment. The Company does not expect to incur significant capital
expenditures for environmental control matters either in the current year or in
the near future.

The Company is subject to regulation by the United States Food and Drug
Administration and the Bureau of Alcohol, Tobacco and Firearms of the Treasury
Department, as generally are other manufacturers of cosmetic products. In
addition, the Company is subject to numerous federal, state and local laws
relating to marketing and to the content, labeling and packaging of its
products.

Item 2. Properties

In addition to its manufacturing, distribution and warehouse facilities in
Sanford, North Carolina, and research and development facility in Morris Plains,
New Jersey, the Company maintains sales offices located in Arlington, Texas;
Richmond, Virginia; Bloomington, Minnesota; Miami, Florida; and Schaumburg,
Illinois.

The Company maintains executive offices in approximately 55,400 square
feet of leased office space in New York City. The lease term expires in 2011,
unless terminated earlier or extended by the parties. In 1997, Lancaster Group
US LLC utilized approximately 20% of this space and paid a pro rata portion of
the respective rental charges. In January 1998, Lancaster Group US LLC moved out
of the Company's office space and, therefore, will no longer absorb a portion of
the rental charges after December 31, 1997.

Quintessence currently leases approximately 64,000 square feet of
executive office space in Chicago, Illinois, of which approximately 7,000 square
feet was used by the Company through December 31, 1997 and 17,000 square feet
was sublet. The remaining 40,000 square feet of space was unoccupied at December
31, 1997, as a result of the combination of the Coty US and Quintessence
businesses in January 1994. As of January 1, 1998, the Company is no longer
utilizing any of the lease space. The Company is seeking to sublease the space.
The lease term expires in 2003.

The Company's management considers its properties to be generally in good
condition and adequate and suitable to carry on the Company's business as
currently conducted.

Item 3. Legal Proceedings

The Company is involved in various routine legal proceedings arising in
the ordinary course of its business. The Company believes that the outcome of

all pending legal proceedings in the aggregate will not have a material adverse
effect on the financial condition or results of operations of the Company.

Item 4. Submission of Matters to a Vote of Security Holders

Not applicable.

<PAGE>
PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

All of the common stock of the Company is beneficially owned by Coty Inc.,
and there is no public market therefor. The Company did not pay a dividend to
Coty Inc. in 1997. A cash dividend of $5.9 million was paid to Coty Inc. in
December 1996.

Item 6. Selected Consolidated Financial Data

The selected consolidated financial data of the Company as of December 31,
1997, 1996 and 1995 and for the years then ended was derived from the
consolidated financial statements of the Company which were audited by Deloitte
& Touche LLP, independent public accountants. The selected consolidated
financial data of the Company as of December 31, 1994 and 1993 and for the years
then ended was derived from consolidated financial statements of the Company
which were audited by Arthur Andersen LLP, independent public accountants.
EBITDA represents income before income taxes less interest expense, minority
interest in preferred stocks, depreciation and amortization.

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales................... $405,458 $440,699 $452,885 $409,552 $394,596
Operating income............ 42,579 46,074 54,665 48,149 47,764
Interest expense............ 21,334 22,434 24,815 17,930 18,229
Other income, net........... (2,407) (2,247) (493) (1,572) (3,289)
Minority interest in
preferred stocks.......... 5,355 5,355 5,355 4,760 --
Net income.................. 7,187 8,102 9,983 11,593 19,103
Quintessence integration
costs.................... -- 6,000 -- 3,397 1,250
EBITDA...................... 68,835 72,739 79,115 73,768 77,296

December 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Intangible assets, net.................. $310,827 $327,358 $355,140 $374,595 $406,405
Total assets............................ 558,626 548,079 547,447 566,393 620,725
Short-term debt......................... -- -- -- 719 25,962
Long-term debt, including
current portion....................... 131,951 131,535 146,714 66,904 58,300
Debt to affiliates...................... -- -- -- 130,000 221,591
Preferred stocks of subsidiary.......... 95,825 90,470 85,115 72,760 --
Stockholder's equity.................... 83,371 76,184 74,003 84,520 66,107
Working capital surplus (deficiency).... 24,083 (6,009) (35,983) (4,848) 3,343
</TABLE>

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Management's discussion and analysis of the operating results of the
Company are based on amounts in the Consolidated Financial Statements appearing
elsewhere herein. Management's discussion and analysis of the operating results
of the Company should be read in conjunction with the Consolidated Financial
Statements and related notes.

Results of Operations

Year ended December 31, 1997 compared with year ended December 31, 1996

Net sales decreased by $35.2 million, or 8.0%, to $405.5 million for the
year ended December 31, 1997 from $440.7 million for the year ended December 31,
1996. The decrease was due to lower shipments and increased returns as compared
to the prior year caused by the overall weakness in the mass-fragrance market.
The Company is taking steps in response to the current market conditions. These
steps include improving the attractiveness of its promotional gift products in
an attempt to increase retail sales and expanding into "non-traditional"
fragrance items such as Calgon Body Mists and The Healing Garden aromachology
products. The Company expects to expand the range and distribution of these
product lines in 1998.

Gross profit was 63.6% and 65.3% of net sales for the years ended December
31, 1997 and 1996, respectively. Gross profit percentage for the year ended
December 31, 1997 was lower than the prior year due primarily to more expensive
packaging for Christmas 1997 promotional products as well as increased returns.

Selling, general and administrative expenses decreased by $20.5 million,
or 9.5%, to $195.6 million, or 48.3%, of net sales for the year ended December
31, 1997, from $216.1 million, or 49.0% of net sales, for the year ended
December 31, 1996. The decrease was primarily the result of lower advertising
and promotional spending. In 1997, the Company spent approximately $129.0
million, or 31.8% of net sales, for advertising and promotional purposes,
compared to approximately $148.3 million, or 33.7% of net sales, in 1996.
General and administrative expenses were also lower but represented a higher
percentage of net sales as a result of lower net sales for the year ended 1997
as compared to 1996.

Amortization expense of $19.5 million was recorded in the years ended
December 31, 1997 and 1996 representing the amortization of intangible assets
over their respective estimated useful lives.

Interest expense decreased by $1.1 million, or 4.9%, to $21.3 million for
the year ended December 31, 1997 from $22.4 million for the year ended December
31, 1996. The decrease is due to lower average outstanding borrowings resulting
from the repayment of the Term Loan in 1996.

Other income, net increased to $2.4 million for the year ended December

31, 1997 from $2.2 million for the year ended December 31, 1996. The increase in
other income, net is primarily derived from fees charged to an affiliated
company, Lancaster Group US LLC, in return for providing various administrative,
distribution and manufacturing services. The Company began providing such
services in February 1996.

Minority interest in preferred stocks was $5.4 million for both 1997 and
1996. Dividends recorded as minority interest in preferred stocks in 1997 and
1996, which were not declared, were accrued in-kind. Subject to certain
exceptions, the Credit Facility and the Indenture restrict the Company's ability
to pay dividends on the preferred stocks other than in-kind.

Income tax expense was $11.1 million and $12.4 million for the years ended
December 31, 1997 and 1996, respectively, representing an effective tax rate of
60.7% and 60.5%, respectively, for such periods. The effective tax rates differ
from the United States statutory federal income tax rate of 35.0% primarily due
to state income taxes, net of federal benefit, non-deductible amortization of
certain intangibles, and non-deductible minority interest in preferred stocks
dividends.

Year ended December 31, 1996 compared with year ended December 31, 1995

Net sales decreased by $12.2 million, or 2.7%, to $440.7 million for the
year ended December 31, 1996 from $452.9 million for the year ended December 31,
1995. The decrease was due to increased returns expense resulting primarily from
an increase in the accrual for anticipated returns of 1996 Christmas shipments.
Sales volume from new product launches amounted to $32.9 million. Incremental
volume from these new brands was

9
<PAGE>

offset by a decrease in net sales for certain continuing brands for the year
ended December 31, 1996 as compared to the year ended December 31, 1995.

Gross profit was 65.3% and 66.3% of net sales for the years ended December
31, 1996 and 1995, respectively. Gross profit percentage for the year ended
December 31, 1996 was unfavorably impacted by product mix. Lower margin
promotional items (e.g., gift sets) comprised a larger portion of total sales
for the year ended December 31, 1996 as compared to 1995. Gross profit as a
percentage of net sales was also unfavorably impacted by an increase in sales to
the Company's intercompany affiliates. Such sales are at a markup lower than
sales to third party retailers as the affiliates incur their own promotional
expenses.

Selling, general and administrative expenses as a percentage of net sales
decreased to 49.0% for the year ended December 31, 1996 from 49.9% for the year
ended December 31, 1995. The decrease was primarily the result of lower
advertising and promotional spending, offset partly by increased general and
administrative expenses as a percentage of net sales. The Company spent
approximately $148.3 million, or 33.7% of net sales, for advertising and
promotional purposes in 1996 compared to approximately $157.9 million, or 34.9%
of net sales, in 1995. The increase as a percentage of net sales in general and
administrative expenses is the result of lower net sales for the year ended

December 31, 1996 as compared to 1995.

Amortization expense of $19.5 million was recorded in the years ended
December 31, 1996 and 1995 representing the amortization of intangible assets
over their respective estimated useful lives.

Quintessence leases office space in Chicago, Illinois, a portion of which
has been sublet. The remaining space, which was vacated by the Company in
connection with the relocation of Quintessence's headquarters to New York, is
vacant. The Company decided in 1994 to sublet the facility and at that time
recorded an accrual equal to the present value of the minimum lease payments,
less anticipated future sub-rental income. During 1996, the Company recorded an
additional provision of $6.0 million for the idle lease space based upon
management's latest estimate of future sub-rental income. The accrual for idle
lease space requires management to make certain estimates and assumptions
regarding, among other things, its ability to locate a tenant and the strength
of the local real estate market. Actual results may differ from these estimates.

Interest expense decreased by $2.4 million, or 9.6%, to $22.4 million for
the year ended December 31, 1996 from $24.8 million for the year ended December
31, 1995. The decrease was due to lower average outstanding borrowings under the
Term Loan, offset partly by higher average Revolving Loan Facility borrowings,
as well as lower interest rates.

Other income, net increased to $2.2 million for the year ended December
31, 1996 from $0.5 million for the year ended December 31, 1995. This increase
is due primarily to fees from an affiliated company, Lancaster Group US LLC, of
$2.0 million recorded by the Company in 1996 in return for providing various
administrative, distribution and manufacturing services.

Minority interest in preferred stocks was $5.4 million for both 1996 and
1995. Dividends recorded as minority interest in preferred stocks in 1996 and
1995, which were not declared, were accrued in-kind. Subject to certain
exceptions, the Credit Facility and the Indenture restrict the Company's ability
to pay dividends on the preferred stocks other than in-kind.

Income tax expense was $12.4 million and $15.0 million for the years ended
December 31, 1996 and 1995, respectively, representing an effective tax rate of
60.5% and 60.0%, respectively, for such periods. The effective tax rates differ
from the United States statutory federal income tax rate of 35.0% primarily due
to state income taxes, net of federal benefit, non-deductible amortization of
certain intangibles, and non-deductible minority interest in preferred stocks
dividends.

Financial Condition, Liquidity And Capital Resources

The Company's business is seasonal in nature. During the first six months
of the year working capital borrowings generally increase as payments are made
for the prior Christmas season's advertising and promotional costs, credits are
given on returns and inventory purchases are made. These borrowing requirements
are partly offset by significant cash collections received in the first quarter
related to prior year Christmas sales. Borrowings continue to increase during
the third quarter, primarily to finance the build up of accounts receivable
related to the back-to-school and Christmas selling seasons. During the fourth

quarter, significant cash is generated as customer payments on Christmas orders
are received. The magnitude and timing of the Company's borrowing requirements
can vary from year to year due to timing of customer receipts and payment of
vendor invoices, as well as other

<PAGE>

events which impact the Company's aggregate borrowing needs. For the years ended
December 31, 1997, 1996 and 1995, the Company's average month-end working
capital borrowings were $69.3 million, $66.1 million and $44.0 million,
respectively. The Company's peak working capital borrowing needs for the years
ended December 31, 1997, 1996 and 1995 were $126.8 million, $128.1 million and
$91.0 million, respectively. These results are not necessarily indicative of
future borrowing requirements.

In December 1994, the Company entered into the Credit Facility which
provided the Company with (i) a Term Loan of $70.0 million and (ii) a Revolving
Loan Facility of up to $160.0 million. Up to $10.0 million of the Revolving Loan
Facility may be used to issue standby and/or commercial letters of credit.
During late 1995, the Company repaid $56.0 million of the Term Loan using cash
provided by operating activities. During 1996, the Company repaid the remaining
$14.0 million outstanding under the Term Loan. As of December 31, 1997, there
were no outstanding borrowings under the Revolving Loan Facility.

As of March 23, 1998, $29.0 million was outstanding under the Revolving
Loan Facility. At such date, borrowings under the Revolving Loan Facility had a
blended interest rate of 7.29% per annum. The Company entered into interest rate
swap agreements in order to effectively fix the interest rate exposure on its
average borrowings under the Credit Facility at approximately 7.28% for periods
varying from 5 to 30 months from December 31, 1997.

Subject to certain exceptions, the Credit Facility restricts the Company's
ability to pay dividends on the Series A and Series B Preferred Stocks other
than in-kind. The Credit Facility also contains certain covenants that place
restrictions (subject to certain exceptions) on the Company (and its
subsidiaries) with respect to guarantees, sale of certain assets, consolidations
and mergers, loans and advances, indebtedness, issuance of stock and change of
control. Additionally, the Credit Facility contains certain restrictive
covenants which require the Company to maintain a minimum net worth of $140.0
million (including preferred stocks of subsidiary held by affiliate) as of
December 31, 1994 and $140.0 million plus 50% of Adjusted Net Income (as
defined), for each succeeding fiscal year. The Company is also required to
maintain specific leverage, interest expense coverage and debt to capitalization
ratios. These ratios become more restrictive in 1998.

On April 27, 1995, the Company consummated a public offering for $135.0
million of aggregate principal amount 10.25% Notes, maturing May 1, 2005. The
proceeds, net of underwriting discounts and offering expenses amounting to $4.2
million, were used to refinance the Company's $130.0 million aggregate principal
amount of outstanding subordinated indebtedness to Benckiser and its affiliates
plus accrued interest thereon through the closing date. The Notes contain
certain covenants including provisions that place restrictions (subject to
certain exceptions) on the Company with respect to guarantees, loans and
advances, indebtedness, sale of certain assets, mergers and consolidations,
issuance and sale of subsidiary stock and certain transactions with affiliates,
including capital stock dividend payments.

The Company's principal future uses of funds are operating expenses,
working capital requirements, debt service, income taxes and, subject to
limitations under the Credit Facility and the Notes, dividend payments to Coty
Inc. In 1996, the Company paid dividends to Coty Inc. in the amount of $5.9
million, using cash from operating activities. No such dividends were declared
or paid in 1997.

The Company's primary sources of funds are expected to be cash from
operations and borrowings under the Revolving Loan Facility. Management believes
that the Company's cash on hand, anticipated funds from operations and
borrowings under the Revolving Loan Facility will be sufficient to cover the
Company's working capital, debt service and capital expenditure requirements for
a period of at least twelve months.

During the years ended December 31, 1997, 1996 and 1995, net cash provided
by operating activities amounted to $15.7 million, $34.1 million and $66.8
million, respectively. For the full-year 1997, cash provided by operations of
$15.7 million was generated primarily by net income before non-cash charges of
$45.4 million, and a net decrease of $16.8 million in accounts receivable,
partly offset by an increase in inventories of $29.9 million and a $10.1 million
decrease in accrued liabilities and accounts payable. Inventory increased to
support first quarter 1998 product introductions and due to increased returns
and shipments below expectation for certain promotions in 1997. Cash used in
investing activities of $7.9 million represented investment in property, plant
and equipment. Capital expenditures are not expected to be significant in 1998.

<PAGE>

Computer Systems - Year 2000 Compliance

The Company has conducted a comprehensive review of its computer systems
to determine the potential exposure to the Year 2000 problem. The necessary
changes to the Company's programs and hardware began in 1996 and are expected to
be completed by the end of 1998. The changes include: replacing existing
financial and manufacturing systems with Oracle Financial and Enterprise
Resource Planning Applications; upgrading customer order processing system to a
millennium compliant version; and replacing network and PC software packages.
The Company is also in the process of surveying critical suppliers and customers
to determine the status of their Year 2000 compliance programs. Based upon the
work to date, and the assumption that the project can be implemented as planned,

the Company does not expect that future costs relating to the Year 2000 issue
will have a material impact on its financial position, results of operations or
cash flows.

Inflation

The effects of inflation have not been significant to the overall
operating results of the Company in recent years. Generally, the Company has
been able to increase selling prices sufficiently to offset cost increases,
which have been moderate.

Change in Fiscal Year-End

The Company will change its fiscal year-end from December 31 to June 30,
effective for the period ending June 30, 1998.

Recent Accounting Pronouncements

In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information". These statements, which are effective for fiscal years
beginning after December 15, 1997, expand or modify disclosures and will have no
impact on the Company's financial position, results of operations or cash flows.

Certain Factors that May Affect Future Results

From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Annual Report on Form 10-K) may contain
statements which are not historical facts, so-called "forward-looking
statements," which involve risks and uncertainties. In particular, statements in
"Description of Business" relating to the Company's market share position,
marketing strategy and the Company's ability to compete with competitors, and in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" relating to the sufficiency of capital to meet working capital and
capital expenditure requirements may be forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the
Securities and Exchange Commission.

The Company's future results are subject to substantial risks and
uncertainties. The Company's business is seasonal by nature; a majority of its
sales and operating income are generated during the second half of the calendar
year which includes the back-to-school and Christmas selling seasons. Any
substantial decrease in sales during such period would have a material adverse
effect on the financial condition and results of operations of the Company.
Although the Company is the leading manufacturer and marketer of fragrances and
related products in the United States mass-fragrance market, the Company
competes against numerous other companies, some of which are larger and have
greater resources than the Company. In addition, over the past several years,
some of the manufacturers which have traditionally distributed fragrances

exclusively through prestige outlets have allowed their products to be
distributed in mass outlets through diversion strategies.

The Company continues to respond to this market development by positioning
certain of its products to compete with diverted prestige products. The Company
is a wholly owned subsidiary of Coty Inc. Due to its ownership of all the
capital stock of the Company, Coty Inc. is able to direct and control the
management and policies of the Company, and can force or block mergers, sales of
all or substantially all of the Company's assets and similar transactions. The
Company's Board of Directors has been, and is expected to continue to be,
comprised entirely of designees of Coty Inc. Coty Inc. and Benckiser are not,
however, guarantors of the Notes or the Credit Facility and have no obligation
to pay, or to make any payments on, the Notes or the Credit Facility. In

<PAGE>

addition, because of the Company's ownership by Coty Inc., it is unlikely that
the Company would be able to develop sales of its products outside of the United
States, other than through agreements with Coty Inc.

The Company has a significant amount of outstanding indebtedness. In
addition, the Company has seasonal working capital needs which are expected to
be funded largely through borrowings under the Revolving Loan Facility. Each of
the Indenture and the Credit Facility contain financial and other covenants that
restrict, among other things, the ability of the Company and its subsidiaries to
incur additional indebtedness, create liens, pay dividends on or repurchase
shares of capital stock, and make certain loans, investments or guarantees. Such
restrictions may limit the Company's operating and financial flexibility,
including, among other things, the Company's ability to obtain additional
financing in the future. The Company's ability to make scheduled payments on or
to refinance its obligations with respect to the Notes and the Credit Facility
will be dependent on the Company's financial and operating performance, which is
in turn subject to prevailing industry and economic conditions and to financial,
business and other factors beyond its control. In the event the Company is
unable to meet its obligations with respect to its existing debt, it may be
required to refinance all or a portion of its existing debt or to obtain
additional financing. There can be no assurance, however, that the Company would
be able to effect any such refinancing or obtain any such additional financing.

The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices; the timing
and cancellation of customer orders; the loss of a significant customer; returns
from certain distributors; changes in product mix; the Company's ability to
introduce new products on a timely basis; introduction of products by the
Company's competitors; market acceptance of the Company's and its competitors'
products; the level of orders received which can be shipped in a quarter; the
Company's success in its marketing efforts; the timing of investments in
research and development; and the Company's ability and its suppliers' and
customers' ability to replace, modify, or upgrade computer programs in ways that
adequately address the Year 2000 issue. As a result of the foregoing and other
factors, the Company may experience material fluctuations in future operating

results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition and operating results.

Item 8. Financial Statements and Supplementary Data

Reference is made to the Index on page F-1 of the Consolidated Financial
Statements of the Company contained herein.

Item 9. Changes in and Disagreements with Accountants and Financial Disclosure

None.

<PAGE>
PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers of the Registrant

The executive officers of the Company, as of December 31, 1997,
were as follows:

Name Age Position
- ---- --- --------
<S> <C> <C>

Jean-Andre Rougeot................................. 39 President, Chief Executive Officer and Director
Jerry L. Abernathy................................. 61 Chairman and Director
James N. McDougald.................................. 64 Senior Vice President--Sales
Robert R. Clarke................................... 52 Senior Vice President--Manufacturing and Distribution
Mary C. Manning.................................... 51 Senior Vice President--Market Development
Daniel J. Finnegan ................................. 35 Vice President--Finance and Assistant Secretary
W. Howard Foote, Jr................................ 57 Secretary and General Counsel
</TABLE>

The other directors of the Company were as follows:

Name Age Position
- ---- --- --------
Peter Harf......................................... 51 Director
Ashok N. Bakhru..................................... 55 Director

Background Of Directors And Executive Officers

All of the Company's executive officers are elected annually by the Board
of Directors and serve until their successors are elected and qualified. The
Directors are elected annually by Coty Inc., the Company's sole stockholder, and
hold office until their respective successors are elected and qualified.

Jean-Andre Rougeot has been President of the Company since March 1, 1997
and a Director and the Chief Executive Officer since July 1993. From June 1991
to August 1993, Mr. Rougeot served as Director General of S.A. Camp Fabrica de
Jabones and from July 1992 through August 1993, Mr. Rougeot served as Director
General of Parera S.A., each a Spanish subsidiary of Benckiser. Since August
1993, Mr. Rougeot has been President of the Coty division of Coty Inc. and he
continues as Executive Vice President of Coty Inc.

Jerry L. Abernathy retired as Chairman and as a Director of the Company,
effective December 31, 1997. From June 1992 to February 1997, Mr. Abernathy
served as Director, President and Chief Operating Officer of the Company. His
employment agreement provides for him to render consulting services to the
Company through December 31, 1999.

James N. McDougald has been the Senior Vice President--Sales of the
Company since Benckiser's acquisition of the Coty business in June 1992. From
1988 through June 1992, Mr. McDougald served as Vice President--Sales of the
Coty division of Pfizer.

Robert R. Clarke has been Senior Vice President--Manufacturing and
Distribution of the Company since Benckiser's acquisition of the Coty business
in June 1992. From 1983 through June 1992, Mr. Clarke served as Vice
President--Manufacturing and Distribution of the Coty division of Pfizer.

Mary C. Manning has been Senior Vice President--Market Development of the
Company since April 1996. From June 1992 through March 1996, Ms. Manning served
as Vice President--Market Development of the Company. From October 1990 through
May 1992, Ms. Manning served as Vice President--Market Development of the Coty
division of Pfizer.

Daniel J. Finnegan has been Vice President--Finance and Assistant
Secretary of the Company since November 1996. From January 1994 to October 1996,
Mr. Finnegan served as Controller of the Company. From

<PAGE>

August 1984 to December 1993, Mr. Finnegan was an employee of KPMG Peat Marwick,
New York, New York, serving as a Senior Audit Manager since July 1991.

W. Howard Foote, Jr. has been Secretary and General Counsel of the Company
since January 1994. Mr. Foote served as Director of Legal Services of the Coty
Division of Pfizer from 1980 until June 1992 and as Director of Legal Services
of the Consumer Division of Pfizer from June 1992 until December 1993.

-----------------------------------

Peter Harf has been a Director of the Company since Benckiser's
acquisition of the Coty business in June 1992, and was Chairman from that date
until March 1, 1997. In addition, Mr. Harf has served as Chairman and Chief
Executive Officer of Benckiser since January 1988. Effective March 1, 1997, Mr.
Harf resigned his position as Chairman of the Board but remains a Director of
the Company. Mr. Harf continues to serve as Chairman of the Board of Coty Inc.
and is a Director of Brunswick Corporation.

Ashok N. Bakhru has been a Director of the Company since December 1996. In
addition, Mr. Bakhru has served as Executive Vice President--Finance and
Administration and Chief Financial Officer of Coty Inc. since April 1996. Prior
to joining Coty Inc., Mr. Bakhru was employed by Scott Paper Company as Senior
Vice President from 1991 to 1994. Mr. Bakhru is Chairman and Trustee of Goldman
Sachs Trust and Goldman Sachs Variable Insurance Trust.

Compensation of Directors

Directors are reimbursed by the Company for out-of-pocket expenses

incurred in attending meetings of the Board of Directors as part of the policy
of the Company and Coty Inc. to reimburse employees for such expenses. Directors
are not compensated for serving on the Board of Directors.

Directors are entitled to indemnification by Coty US, in accordance with
the terms of its Amended and Restated Certificate of Incorporation, for any
breach of fiduciary duty to the fullest extent permitted by Delaware law.

Directors who are also employees of Coty Inc. have been provided with an
additional indemnity by Coty Inc. for serving in the capacity of an officer
and/or director of the Company or any of the Company's subsidiaries. Pursuant to
an indemnification agreement, each such director is entitled to indemnification
for, among other things, claims against any such director if such director acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company or any of the Company's subsidiaries as the
case may be.

<PAGE>

Item 11. Executive Compensation

The following table sets forth the annual compensation for services in all
capacities to the Company for the years ended December 31, 1997, 1996 and 1995
of the Chief Executive Officer of the Company, and the other five most highly
compensated executive officers of the Company (the "Named Executive Officers").

Name and Principal Position Annual Compensation
- --------------------------- -------------------
All Other
Year Salary (2) Bonus (3) Compensation (4)
----- ---------- --------- ----------------
<S> <C> <C> <C> <C>

Jean-Andre Rougeot (1) 1997 $ -- $ -- $ --
President and CEO 1996 -- -- --
1995 -- -- --
-- --

Jerry L. Abernathy (1) 1997 437,625 250,000 4,750
Chairman 1996 352,800 416,789 4,500
1995 339,120 382,360 4,500

James N. McDougald 1997 272,454 24,640 4,750
Senior Vice President - Sales 1996 218,500 252,678 4,500
1995 210,000 212,405 4,500

Robert R. Clarke 1997 247,413 22,310 4,750
Senior Vice President - 1996 198,500 229,234 4,500
Manufacturing and Distribution 1995 190,500 192,697 4,500

Victor E. Zast (5) 1997 247,915 -- 4,750
President - Private Portfolio 1996 238,380 185,000 4,500
Division of Coty US Inc. 1995 231,420 173,000 4,500

Mary C. Manning 1997 233,673 21,280 4,750
Senior Vice President - 1996 182,000 208,394 4,500
Market Development 1995 172,200 171,501 4,500
</TABLE>

(1) Mr. Abernathy was President and Chief Operating Officer until March 1,
1997, when he became Chairman of the Company and Mr. Rougeot became
President. Mr. Rougeot also serves as Executive Vice President of Coty
Inc. and his compensation is paid by Coty Inc. Mr. Rougeot has never
received compensation from the Company. Mr. Abernathy retired as of
December 31, 1997.

(2) The amounts in the "Salary" column represent the annual base salary for

each of the Named Executive Officers.

(3) The amounts in the "Bonus" column represent the annual bonus amounts
earned for the years 1997, 1996 and 1995 by each of the Named Executive
Officers.

(4) The amounts in the "All Other Compensation" column represent the
matching contributions that the Company makes to the Company's
Incentive Savings Plan. See also "Certain Relationships and Related
Transactions - Coty Inc".

(5) Mr. Zast resigned from the Company, effective December 31, 1997.

<PAGE>

Pension Plan

Coty Inc. maintains a defined benefit pension plan (the "Pension Plan")
for the benefit of the Company which is designed to qualify under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
for its salaried employees (including its executive officers) who work 1,000
hours or more during a year of employment. As of January 1, 1998, approximately
1,435 employees of the Company and its subsidiaries participated in the Pension
Plan.

The Pension Plan provides covered employees a monthly retirement benefit
at normal retirement age (currently age 65) equal to six tenths of one percent
of the employee's compensation for each year of service to the Company (or to a
recognized predecessor Company) up to the "social security integration level",
plus one percent of the employee's compensation in excess of the "social
security integration level". "Social Security integration level," for each
Pension Plan year, is the average of the taxable wage bases in effect for each
year in the thirty-five year period ending with the year in which the
determination is made. The executive officers indicated below each have six
years of credited service under the Pension Plan as of January 1, 1998.

The projected benefits payable at normal retirement age (currently age 65)
for the Named Executive Officers, excluding Mr. Abernathy, who retired on
December 31, 1997 and Mr. Rougeot, who is not compensated by the Company, are as
follows:

Projected Annual Benefit
------------------------
Name
- ----

James N. McDougald..................................... $10,347
Robert R. Clarke....................................... 26,572
Victor E. Zast......................................... 28,316
Mary C. Manning........................................ 28,610

The projected benefits shown above assume no increase in future pay
levels, no future increases in the social security taxable wage base and no
future increases in limits provided for under Section 401(a)(17) of the Internal
Revenue Code.

Employment and Severance Agreements

In February 1997, the Company and Mr. Abernathy entered into an employment
agreement which amended an earlier agreement and which provided Mr. Abernathy
with a salary of $375,000 from March 1 through December 31, 1997, and a bonus
payable by March 31, 1998 with respect to 1997, and a fee for consulting
services to be rendered through December 31, 1999, amounting to $400,000 per
year, paid on a monthly basis. Mr. Abernathy has agreed not to compete with the
Company or Coty Inc. for a period extending for two years after the conclusion
of his consulting assignment.

As of August 1997, the Company entered into new employment agreements with
each of James N. McDougald, Robert R. Clarke and Mary C. Manning. Pursuant to
the terms of the agreements, Mr. McDougald is to receive an annual base salary
of not less than $274,800; Mr. Clarke is to receive an annual base salary of not
less than $249,540; Ms. Manning is to receive an annual base salary of not less
than $235,920; and each of these executive officers is entitled to receive an
additional annual compensation amount to be paid in accordance with a formula
which is tied to the Company's earnings, net sales, and working capital. The
agreements provide for severance benefits if any such executive officer is
terminated for reasons other than for "cause" (including termination resulting
from a change in control of the Company) or any such executive officer resigns
for "good reason". Upon the occurrence of either event, each such executive
officer is entitled to receive his or her base salary through August 2000 plus
any bonus amounts deemed earned and due. The agreements are for three years, but
are automatically renewed for successive one year terms, unless terminated by
either party upon six months notice. Each such executive officer has agreed not
to compete with the Company or Coty Inc. in the United States fragrance or
cosmetics business for a period of two years from the date of termination of
employment. Effective December 31, 1997, the Company entered into a separation
agreement with Mr. Zast. Such agreement provides Mr. Zast with semi-monthly
separation payments of $12,500 and medical benefits through June 30, 1999.

<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of the date of this filing, the number
and percentage of outstanding shares of Common Stock beneficially owned by each
person known by the Company to beneficially own more than 5% of such stock.

Name and Address Shares of Common Stock Percentage of Common
of Beneficial Owner Beneficially Owned Stock Outstanding
------------------- ---------------------- --------------------
<S> <C> <C>
Coty Inc.
1325 Avenue of the Americas
New York, New York 10019 100 100%
</TABLE>

Benckiser beneficially owns all of the issued and outstanding voting
capital stock of Coty Inc. In connection with a credit facility established by
Coty Inc. in October 1997 with several banks, Coty Inc. pledged the shares of
Coty US as collateral for the facility.

Item 13. Certain Relationships and Related Transactions

The Company is a wholly owned subsidiary of Coty Inc. Due to its ownership
of all the capital stock of the Company, Coty Inc. is able to direct and control
the management and policies of the Company, and can force or block mergers,
sales of all or substantially all the Company's assets and similar transactions.
The Company's Board of Directors has been, and is expected to continue to be,
comprised entirely of designees of Coty Inc. In addition, because of the
Company's ownership by Coty Inc., it is unlikely that the Company would be able
to develop sales of its products outside of the United States, other than
through agreements with Coty Inc.

Preferred Stocks Interest In QHI Group Holdings, Inc.

Quintessence Transaction. In 1991, BCPI acquired all of the outstanding
capital stock of Quintessence. In January 1994, BCPI contributed all of the
outstanding capital stock of Quintessence to QHIG in exchange for 1,000 shares
of the Series A Preferred Stock having an aggregate liquidation preference of
$68.0 million, the fair market value of Quintessence at the date of the
Quintessence Transaction. Contemporaneously with this exchange, Coty US
contributed $1.0 million to QHIG in return for 100 shares of QHIG's Common
Stock. On June 30, 1995, BCPI transferred the Series A Preferred Stock to Coty
Inc.

Coty Inc., as the holder of the Series A Preferred Stock, is entitled to
receive quarterly dividends which accrue at a rate per share per annum equal to
7.0% of the liquidation preference of such shares, as declared by the Board of
Directors of QHIG. At the sole discretion of the Board of Directors of QHIG, any

such dividend may be paid, in lieu of paying such dividend in cash, in
additional shares of Series A Preferred Stock, such additional shares having a
liquidation value equal to the amount of such dividends so paid in additional
shares. In the event of any liquidation, dissolution or winding up of QHIG, Coty
Inc., as the holder of the shares of Series A Preferred Stock, shall be entitled
to be paid $68.0 million plus an amount equal to the dividends accrued at such
time. At any time (i) after January 4, 1999, at the option of QHIG or (ii) after
January 4, 2007, at the option of Coty Inc., as the holder of the Series A
Preferred Stock, QHIG is required to redeem the Series A Preferred Stock.
Notwithstanding the foregoing, QHIG is not permitted to redeem any shares of
Series A Preferred Stock in the event that such redemption will violate the
terms of any loan agreement, mortgage, indenture or other similar document.
Subject to certain exceptions, the Credit Facility and the Indenture restrict
Coty US and its subsidiaries, including QHIG, from making certain dividend
payments, including dividend payments on the Series A Preferred Stock (other
than in-kind). QHIG has guaranteed the Company's obligations under the Credit
Facility and has also guaranteed on a senior subordinated basis, the Company's
obligations under the Notes.

Pursuant to an Option Agreement (the "Option Agreement") between Benckiser
and Coty Inc., Coty Inc. has granted an irrevocable right and option to
Benckiser to purchase from Coty Inc. all of the Series A Preferred Stock then
held by Coty Inc. for a purchase price equal to the fair market value of such
shares at the time of purchase. The option is exercisable only in the event that
the indebtedness under the Indenture or the Credit Facility has been accelerated
or not paid when due. In addition, Benckiser and Coty US have entered into an

<PAGE>

Equity Contribution Agreement (the "Equity Contribution Agreement") whereby
Benckiser has agreed (i) to exercise its purchase option on the Series A
Preferred Stock in the event of such acceleration and (ii) to contribute to the
common equity capital of Coty US all of the Series A Preferred Stock so
purchased.

Calgon Transaction. Pursuant to a licensing agreement with Calgon
Corporation, Benckiser has the exclusive right to produce, market and distribute
Calgon bath products in the United States and its territories and possessions.
Such licensing agreement is exclusive and royalty free to Benckiser and
terminates in April 2017. Benckiser initially assigned such license to BCPI. In
January 1995, BCPI contributed the license rights to produce, market and
distribute in the United States and its territories and possessions the U.S.
bath products line of the Calgon brand to QHIG in exchange for the Series B
Preferred Stock having an aggregate liquidation preference of $7.0 million. As a
result of such contribution, the Company has assumed the marketing
responsibilities for the Calgon bath products line in the United States. BCPI
provides to the Company certain services related to the Calgon bath products
line. The terms of the Series B Preferred Stock (other than the aggregate
liquidation preference of such shares) are identical to those of the Series A
Preferred Stock, except that (i) the quarterly dividend rate is equal to 8.5%
per annum per share and (ii) the Series B Preferred Stock may be redeemed at any
time after January 4, 2000 at the option of QHIG, subject to any restrictions

contained in debt instruments of the Company. On June 30, 1995, BCPI transferred
the Series B Preferred Stock to Coty Inc. The Option Agreement and Equity
Contribution Agreement also apply to the Series B Preferred Stock on like terms
as those described above in conjunction with the Series A Preferred Stock. See
"Coty Inc".

Master Intercompany Agreement

In October 1994, the Company entered into a Master Intercompany Agreement
with BCPI and Benckiser (on behalf of Benckiser and all of its subsidiaries
(other than Coty US and BCPI)) pursuant to which the parties formalized the
terms and conditions applicable to a number of existing and proposed
intercompany services and relationships, including the following:

Calgon. Beginning January 1, 1995, BCPI began providing to the Company
certain services relating to the Calgon bath products line in the United States,
including purchasing raw materials, manufacturing, packaging and warehousing
products and performing certain customer services. BCPI charges the Company a
fee of not more than 108% (subject to adjustment for certain tax events) of the
actual costs incurred (which costs shall include a reasonable allocation of
overhead and general administrative expenses) by BCPI in providing such
services. Such services will continue to be provided by BCPI unless otherwise
terminated by either the Company or BCPI on six months notice. In 1997, 1996 and
1995, the Company made purchases of Calgon bath products from BCPI in the amount
of $3.1 million, $6.9 million and $5.4 million, respectively. Calgon Body Mists
and related lotions and gels are produced at the Company's Sanford, North
Carolina facility or by third party contractors.

Research and Development. From January 1, 1994, the Company has provided
and will continue to provide to Coty Inc. and its various subsidiaries certain
research and development services relating to fragrances, cosmetics and related
products. The Company charges Coty Inc. (or the applicable Coty Inc. subsidiary)
a fee of not more than 108% (subject to adjustment for certain tax events) of
the actual costs incurred (which costs shall include a reasonable allocation of
overhead and general administrative expenses) by the Company in providing such
services. Such services will continue to be provided by the Company unless
otherwise terminated by either the Company or Coty Inc. on six months notice.
The fee charged by the Company to affiliates for the years ended December 1997,
1996 and 1995 amounted to $3.9 million, $3.2 million and $2.0 million,
respectively.

Manufacturing and Other Services. The Company and Coty Inc. or its
subsidiaries have historically provided and will continue to provide certain
product manufacturing services and, from time to time, will provide various
other operating services in the ordinary course of business. The parties will
charge each other a fee of not more than 108% (subject to adjustment for certain
tax events) of the actual costs incurred (which costs shall include a reasonable
allocation of overhead and general administrative expenses) in providing
manufacturing services. The fees for other services will also be negotiated by
the parties in good faith and on an arm's length basis. Such services will
continue to be provided by the Company unless otherwise terminated by either the
Company or Coty Inc. on six months notice. Net sales to affiliates and related
costs for the years ended December 31, 1997, 1996 and 1995 amounted to $13.3

million and $12.4 million, respectively; $15.7 million and $14.1 million,
respectively; and $12.2 million and $11.4 million, respectively.

Licensing. Coty US and its subsidiaries have entered into certain license
agreements, including sublicenses relating to the Calgon trademarks. Pursuant to
the Calgon sublicense, QHIG has the exclusive right to use and to sublicense to
its affiliates, including Coty US, the Calgon trademarks relating to bath
products in the United States

<PAGE>

and has agreed to pay Benckiser (now Coty Inc.) a monthly royalty of 5% of the
net sales of Calgon products. In addition, Coty Inc. and the Company have agreed
that Coty Inc. from time to time may license to the Company trademarks related
to fragrances, cosmetics and related products and that the Company will pay Coty
Inc. an annual royalty not to exceed 8% of net sales (except in the case of a
sublicense of a trademark licensed but not owned by Coty Inc. or any of its
subsidiaries, in which case the annual royalty may exceed 10% of net sales but
will not exceed the royalty payable by Coty Inc. itself). In 1997, 1996 and 1995
royalties relating to the Calgon trademarks, incurred by the Company, amounted
to $2.0 million, $0.9 million and $0.8 million, respectively.

Stetson. When Benckiser acquired the Coty business from Pfizer, Benckiser,
the Company and Pfizer entered into an agreement with the John B. Stetson
Company pursuant to which, among other things, Pfizer guaranteed that annual
royalties under the Stetson license would not be less than $4.65 million for
each year from 1993 through 2001. Pursuant to the terms of a separate agreement,
Benckiser agreed to reimburse Pfizer for 50% of any payment due under such
guarantee for 1997 and 100% of any payment due under such guarantee for each
year from 1998 through 2001. Pursuant to the Master Intercompany Agreement, the
Company has agreed to reimburse Benckiser for a portion of any such payments
equal to the proportion that the United States Stetson business bears to the
worldwide Stetson business. On an annual basis since 1993, the Company's
worldwide royalty payments did not exceed the $4.65 million minimum, and Pfizer
paid to the John B. Stetson Company the payment required as a result of the
shortfall. The Company paid 50% of the shortfall for the year ended December 31,
1997. For a description of the Stetson license, see "Description of Business -
Stetson License Agreement".

Quintessence Acquisition. When BCPI acquired Quintessence in 1991, it
received certain indemnification rights from the sellers of the Quintessence
business under the acquisition agreement. Coty US currently owns all of the
outstanding common stock of Quintessence. As a result, BCPI has agreed to take
such actions in respect of any claims for indemnity under the acquisition
agreement as Coty US may, from time to time, request.

Subsidiary Licensing. Coty US has entered into certain license agreements,
including licenses relating to the Jovan, Aspen and Calgon trademarks, with its
subsidiaries. Pursuant to the Jovan and Aspen sublicense, Coty US has the
exclusive right to use the Jovan and Aspen trademarks in the United States and
its territories and has agreed to pay its wholly owned subsidiary, Quintessence,
a quarterly royalty of 5% on Coty US's net sales of Jovan and Aspen products.

Pursuant to the Calgon sublicense, Coty US has the exclusive right to use the
Calgon trademarks relating to bath products in the United States and its
territories and has agreed to pay its wholly owned subsidiary, QHIG, a monthly
royalty of 5% of Coty US's net sales of Calgon products. QHIG in turn pays an
identical royalty to Benckiser (now Coty Inc.)

In addition, Coty US and its subsidiaries have agreed that they may from
time to time license to each other trademarks relating to fragrances, cosmetics
and related products and that the party receiving such license will pay to the
licensor an annual royalty not to exceed 8% of net sales (except in the case of
a sublicense of a trademark licensed but not owned by Coty US or one of its
subsidiaries, in which case the annual royalty may exceed 10% of net sales but
will not exceed the royalty payable by Coty US or such subsidiary itself).

Coty Barbados Services. Coty US and Coty Inc. (Barbados), a wholly owned
subsidiary of Coty US which is intended to qualify as a Foreign Sales
Corporation under Section 922 of the Internal Revenue Code ("Coty Barbados"),
have entered into a Commission Agreement and Service Agreement pursuant to which
(i) Coty US has appointed Coty Barbados to solicit, negotiate, and make
contracts for the provision of certain services for a commission to be
determined, on a case-by-case basis, in accordance with the Internal Revenue
Code and (ii) Coty Barbados has appointed Coty US to provide certain services,
including advertising and sales promotion and the processing of customer orders,
for a fee not to exceed the actual costs incurred in providing such services
(which costs shall include a reasonable allocation of overhead and general
administrative expenses).

Coty Inc.

On March 1, 1995, Benckiser contributed to the predecessor of Coty Inc.
all of the capital stock of the Company in exchange for all of the common stock
of Coty Inc. On such date, BCPI contributed to Coty Inc. all of the capital
stock of Lancaster Group (USA) Inc., a Delaware corporation, (subsequently
merged with and into Lancaster Group US LLC, a Delaware limited liability
company), in exchange for the preferred stock (non-voting) of Coty Inc. On June
30, 1995, BCPI transferred QHIG's Series A Preferred Stock and Series B
Preferred Stock to Coty Inc. Coty Inc. entered into an Option Agreement with
Benckiser, requiring Coty Inc. to sell the Series A Preferred Stock and the
Series B Preferred Stock to Benckiser upon the occurrence of certain events, on
the same terms as the Option Agreement between Benckiser and BCPI. In 1996, Coty
Inc. purchased its preferred stock from BCPI. The Company has entered into a
tax-sharing agreement with Coty Inc. pursuant to which the

<PAGE>

Company has agreed to bear a portion of the consolidated income taxes of Coty
Inc. and its subsidiaries, but in no event greater than the income taxes
otherwise payable by the Company and its subsidiaries if the Company and its
subsidiaries were an independent consolidated group. The Indenture restricts the
type of tax-sharing agreement into which the Company can enter. Although
management believes the Company will not be adversely affected as a result of
ownership by Coty Inc., under United States tax laws, the Company would be

liable jointly and severally for the federal income tax liability of any
corporation in the same consolidated group as the Company, including Coty Inc.
and any other corporation owned directly or indirectly by Coty Inc. In addition,
the Company is included in the Pension Plan of Coty Inc. and is jointly and
severally liable for the obligations of the Pension Plan.

Under an arrangement with Coty Inc., certain executive officers included
in the annual compensation table in "Executive Compensation" were each granted
Coty Inc. stock options as indicated, and 10,000 Coty Inc. restricted shares
under the Coty Inc. Long-Term Incentive Plan; James N. McDougald, 52,500
options; Robert R. Clarke, 40,000 options; and Mary C. Manning, 25,000 options.
The options become exercisable with the passage of time and the restrictions on
the restricted shares lapse with the attainment of certain performance targets
by Coty Inc. As of December 31, 1997, no options were exercisable and no
restrictions on the restricted shares had lapsed. Coty Inc. charged the Company
for such 1997 accrued compensation expense aggregating approximately $0.8
million.

Lancaster Group US LLC

Effective February 1, 1996, pursuant to the Master Intercompany Agreement,
the Company began providing various administrative and distribution services to
Lancaster Group US LLC. In addition, the Company provides certain manufacturing
services for Lancaster Group US LLC's promotional products such as gift sets.
The Company charges Lancaster Group US LLC a fee of not more than 108% (subject
to adjustment for certain tax events) of the actual costs incurred (which costs
shall include a reasonable allocation of overhead and general administrative
expenses) by the Company in providing such services. Such services will continue
to be provided by the Company unless terminated by either the Company or
Lancaster Group US LLC on six months notice. In 1997 and 1996, fees from
Lancaster Group US LLC totaled $2.2 million and $2.0 million, respectively. In
addition, from July 1996 until December 31, 1997, Lancaster Group US LLC
utilized approximately 20% of the Company's New York office space and paid a pro
rata portion of the annual rental charges. Such pro rata portion amounted to
$0.4 million and $0.2 million in 1997 and 1996, respectively. In January 1998,
Lancaster Group US LLC moved out of the Company's office space and, therefore,
will no longer absorb a portion of the rental charges after December 31, 1997.

<PAGE>
PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) List of documents filed as part of this Report:

(1) Consolidated Financial Statements and Independent Auditors'
Report included herein: See Index on page F-1

(2) Financial Statement Schedule: See Index on page F-1

(3) Index to and List of Exhibits: The exhibits which are filed
with this report or which are incorporated by reference are
set forth in the exhibit index hereto.

(b) Reports on Form 8-K:

None.

<PAGE>

COTY US INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

Page
----

Independent Auditors' Report............................................. F-2

Audited Financial Statements:

Consolidated Balance Sheets as of December 31, 1997 and 1996........ F-3

Consolidated Statements of Income for each of the years in
the three-year period ended December 31, 1997....................... F-4

Consolidated Statements of Stockholder's Equity for each of the
years in the three-year period ended December 31, 1997.............. F-5

Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1997....................... F-6

Notes to Consolidated Financial Statements.......................... F-7

Financial Statement Schedule:

Schedule VIII - Valuation and Qualifying Accounts for each of
the years in the three-year period ended December 31, 1997....... S-1

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholder of Coty US Inc.:

We have audited the accompanying consolidated balance sheets of Coty US
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996
and the related consolidated statements of income, stockholder's equity and cash
flows for the three years ended December 31, 1997. Our audit also included the
financial statement schedule as listed in the index on page F-1. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule based on our
audit.

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 audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Coty US Inc. and subsidiaries
as of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the three years ended December 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

\s\ Deloitte & Touche LLP

New York, New York
February 23, 1998

F-2

<PAGE>

COTY US INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)

<TABLE>
<CAPTION>
December 31,
------------
Assets 1997 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents.............................................. $ 17,678 $ 7,199
Trade accounts receivable, less allowances for doubtful
accounts of $5,344 and $5,270, respectively....................... 70,901 88,072
Inventories............................................................ 83,495 53,563
Due from affiliates, net............................................... 1,590 4,279
Deferred income taxes.................................................. 31,480 35,094
Prepaid expenses and other current assets.............................. 14,072 7,548
-------- --------
Total current assets.............................................. 219,216 195,755

Property, plant and equipment, net........................................... 28,583 24,966
Goodwill and other intangibles, net.......................................... 310,827 327,358
-------- --------
Total assets...................................................... $558,626 $548,079
======== ========

Liabilities and Stockholder's Equity
Current liabilities
Accounts payable....................................................... $ 41,701 $ 41,430
Income and other taxes payable......................................... 19,791 22,512
Accrued liabilities.................................................... 133,641 137,822
-------- --------
Total current liabilities......................................... 195,133 201,764

Long-term bank debt.......................................................... -- --
Senior subordinated notes.................................................... 131,951 131,535
Deferred income taxes........................................................ 21,098 19,829
Other long-term liabilities.................................................. 31,248 28,297
-------- --------
Total liabilities................................................. 379,430 381,425
-------- --------

Preferred stocks of subsidiary held by affiliate............................. 95,825 90,470
-------- --------

Stockholder's equity
Common stock, $1 par, 100 shares authorized, issued and
outstanding....................................................... -- --
Additional paid-in capital............................................. 36,809 36,809

Retained earnings...................................................... 46,562 39,375
-------- --------
Total stockholder's equity........................................ 83,371 76,184
-------- --------
Total liabilities and stockholder's equity........................ $558,626 $548,079
======== ========
</TABLE>

See notes to Consolidated Financial Statements.

F-3

<PAGE>

COTY US INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales.............................................................. $ 405,458 $ 440,699 $ 452,885

Cost of sales.......................................................... 147,708 153,072 152,759
--------- --------- -------
Gross profit..................................................... 257,750 287,627 300,126

Selling, general and administrative expenses........................... 195,640 216,097 226,006

Amortization of intangibles............................................ 19,531 19,456 19,455

Quintessence integration costs......................................... -- 6,000 --
--------- --------- --------

Operating income................................................. 42,579 46,074 54,665

Interest expense ...................................................... 21,334 22,434 24,815

Other income, net...................................................... (2,407) (2,247) (493)

Minority interest in preferred stocks.................................. 5,355 5,355 5,355
--------- --------- --------

Income before income taxes....................................... 18,297 20,532 24,988

Provision for income taxes............................................. 11,110 12,430 15,005
--------- --------- --------
Net income....................................................... $ 7,187 $ 8,102 $ 9,983
========= ========= ========
</TABLE>

See notes to Consolidated Financial Statements.

F-4

<PAGE>

COTY US INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands)

Common Stock Additional Total
----------------- Paid-in Retained Stockholder's
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995........................ 100 $ -- $ 43,809 $ 40,711 $ 84,520

Calgon Transaction (Note 1)..................... -- -- (7,000) -- (7,000)

Dividend to parent.............................. -- -- -- (13,500) (13,500)

Net income ..................................... -- -- -- 9,983 9,983
------- ------- ---------- ---------- ----------
Balance, December 31, 1995...................... 100 -- 36,809 37,194 74,003

Dividend to parent.............................. -- -- -- (5,921) (5,921)

Net income ..................................... -- -- -- 8,102 8,102
------- ------- ---------- ---------- ----------
Balance, December 31, 1996...................... 100 -- 36,809 39,375 76,184

Net income...................................... -- -- -- 7,187 7,187
------- ------- ---------- ---------- ----------
Balance, December 31, 1997...................... 100 $ -- $ 36,809 $ 46,562 $ 83,371
======= ======= ========== ========== ==========
</TABLE>

See notes to Consolidated Financial Statements.

F-5

<PAGE>

COTY US INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities

Net income ........................................................ $ 7,187 $ 8,102 $ 9,983
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 24,896 24,418 23,957
Minority interest in preferred stocks................... 5,355 5,355 5,355
Deferred income taxes................................... 4,883 (4,034) (1,644)
Provision for post-retirement benefits.................. 2,741 2,416 1,919
Provision for bad debts................................. 375 1,980 1,328
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.............. 16,796 (13,652) (3,689)
(Increase) decrease in inventories...................... (29,932) (4,193) 1,029
(Increase) decrease in prepaid expenses and other
current assets...................................... (6,524) 1,996 (2,955)
Increase (decrease) in accounts payable................. 271 (4,619) 10,502
Increase (decrease) in accrued liabilities and other.... (10,323) 16,285 21,024
---------- -------- --------
Net cash provided by operating activities............................ 15,725 34,054 66,809
--------- -------- --------

Cash flows from investing activities

Purchase of property, plant and equipment...................... (7,935) (2,822) (1,357)
---------- --------- --------
Cash used in investing activities.................................... (7,935) (2,822) (1,357)
--------- --------- --------

Cash flows from financing activities

Dividend to parent............................................. -- (5,921) (13,500)
Repayment of long-term bank debt............................... -- (15,596) (56,000)
Net proceeds from long-term bank debt.......................... -- -- 1,596
Net proceeds from senior subordinated notes.................... -- -- 130,788
Net repayment of debt to affiliates............................ -- -- (130,000)
Net repayment of short-term debt .............................. -- -- (719)
(Increase) decrease in due from affiliates, net................ 2,689 (2,961) 2,448
--------- -------- --------

Net cash provided by (used in) financing activities.................. 2,689 (24,478) (65,387)
--------- --------- --------

Net increase in cash and cash equivalents............................ 10,479 6,754 65

Cash and cash equivalents, beginning of year......................... 7,199 445 380
--------- -------- --------
Cash and cash equivalents, end of year............................... $ 17,678 $ 7,199 $ 445
========= ======== ========

Cash paid for:

Interest....................................................... $ 19,476 $ 20,116 $ 20,769
========= ======== ========
Income taxes.................................................. $ 8,998 $ 10,822 $ 16,740
========= ======== ========
</TABLE>

See notes to Consolidated Financial Statements.

F-6

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(1) The Company

Coty US Inc. ("Coty US") and its subsidiaries (collectively, the
"Company") is principally in the business of manufacturing and distributing
fragrances and other fragrance-related products. In addition, the Company also
manufactures and distributes the Calgon bath and body product line, cosmetics
and, commencing in October 1997, a line of aromatherapy products under The
Healing Garden brand name.

Coty US is a wholly owned subsidiary of Coty Inc., a subsidiary of Joh. A.
Benckiser GmbH ("Benckiser"). On June 5, 1992, pursuant to the Asset Purchase
Agreement between Pfizer Inc. ("Pfizer") and Benckiser, Coty US commenced
operations with the purchase of certain assets and the assumption of certain
liabilities of the Coty division of Pfizer. The acquisition was accounted for
using the purchase method. The excess of the purchase price and transaction
costs over the fair value of net assets acquired was allocated to goodwill. In
connection with a credit facility established by Coty Inc. in October 1997 with
several banks, Coty Inc. pledged the shares of Coty US as collateral for the
facility.

In connection with the purchase, Coty US was assigned the exclusive
license to the Stetson trademarks pursuant to an agreement (the "Stetson
Agreement") (Notes 3 and 6).

On January 4, 1994, Benckiser Consumer Products, Inc. ("BCPI"), a Delaware
corporation and wholly owned subsidiary of Benckiser, contributed all of the
outstanding capital stock of Quintessence Holdings, Inc. ("Q Holdings"), a
Delaware corporation and wholly owned subsidiary of BCPI, to QHI Group Holdings,
Inc. ("QHIG"), a Delaware corporation and a subsidiary of Coty US. In exchange
for BCPI's capital contribution, QHIG issued to BCPI 1,000 shares of its Series
A Preferred Stock, (the "Series A Preferred Stock") with an aggregate
liquidation preference of $68,000, representing the fair value of Q Holdings at
the date of exchange. As of December 31, 1997 and 1996, $19,040 and $14,280,
respectively, of dividends have been accrued cumulatively on an in-kind basis,
increasing the carrying value of the preferred stock of subsidiary.

In January 1995, BCPI contributed to QHIG the license rights to produce,
market and distribute in the United States and its territories and possessions
the U.S. bath products line of its Calgon brand in exchange for 100 shares of
QHIG's Series B Preferred Stock (the "Series B Preferred Stock") having an
aggregate liquidation preference of $7,000 (the "Calgon Transaction"). Since
this was a related party transaction, the fair value of the Calgon brand was
reflected as a reduction to additional paid-in capital. As of December 31, 1997
and 1996, $1,785 and $1,190, respectively, of dividends have been accrued
cumulatively on an in-kind basis, increasing the carrying value of the preferred
stock of subsidiary.

In March 1995, Benckiser contributed to the predecessor of Coty Inc. all
of the Company's capital stock in exchange for all of the common stock of Coty
Inc. On such date, BCPI contributed to Coty Inc. all of the capital stock of
Lancaster Group (USA) Inc., a Delaware corporation (subsequently merged with and
into Lancaster Group US LLC, a Delaware limited liability company), in exchange
for all of the preferred stock (non-voting) of Coty Inc. In 1996, Coty Inc.
purchased all its preferred stock from BCPI. The Company has entered into a
tax-sharing agreement with Coty Inc. pursuant to which the Company has agreed to
pay to Coty Inc. its share of the consolidated income taxes of Coty Inc. and its
subsidiaries, based on the taxes that would be payable by the Company and its
subsidiaries if the Company and its subsidiaries were an independent
consolidated group. Accordingly, the Company's consolidated financial statements
continue to reflect its tax provision and related tax balance sheet accounts as
though the Company were an independent taxpayer.

On June 30, 1995, BCPI transferred the Series A Preferred Stock and Series
B Preferred Stock (collectively, the "Preferred Stocks") to Coty Inc.

F-7

<PAGE>
COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(2) Summary Of Significant Accounting Policies

Principles of consolidation

The accompanying consolidated financial statements include the accounts of
Coty US and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated. Certain amounts in the prior
year consolidated financial statements have been reclassified to conform with
the 1997 presentation.

Use of estimates

The preparation of the consolidated 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. Estimates are used when accounting for allowance
for doubtful accounts, inventory obsolescence, sales returns, reserve for idle
lease space, contingencies and miscellaneous accruals. Actual results could
differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Inventories

Inventories are stated at the lower of cost, determined on a first-in
/first-out (FIFO) basis, or market.

Property, plant and equipment

Property, plant and equipment are stated at cost. The cost of renewals and
betterments are capitalized and depreciated; expenditures for maintenance and
repairs are charged to expense as incurred.

Depreciation is computed using the straight-line method over the following
estimated useful lives:

Description Years
----------- -----

Buildings..................................... 25
Leasehold improvements........................ Remaining Term of Lease
Machinery and equipment....................... 7
Furniture and fixtures........................ 7
Computer equipment............................ 5
Autos and trucks.............................. 5

Intangible assets

Intangible assets are amortized under the straight-line method over the
following estimated useful lives:

Descriptions Years
------------ -----
Goodwill...................................... 25-40
Stetson Agreement............................. 20
Trademarks.................................... 5-20

Recoverability of long-lived assets

The Company periodically evaluates the carrying amounts and periods over
which long-lived tangible and intangible assets are depreciated or amortized to
determine if events have occurred which would require modification to the useful
lives. In evaluating the potential usefulness and carrying values of long-lived
assets, the Company considers certain indicators of impairment, such as
undiscounted projected cash flows, brand profitability

F-8

<PAGE>
COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

and other factors such as its image, market share and business plans. In the
event that an impairment seems likely, the fair value of the related asset is
determined, and the Company would record a charge to income calculated by
comparing the asset's carrying value to the estimated fair value. The Company
estimates fair value based on the best information available, making whatever
estimates, judgments and projections are considered necessary.

Revenue recognition

The Company recognizes revenue upon shipment. Amounts recorded equal gross
sales less estimated returns of products recognized as revenue through the
balance sheet date. These estimates are based on historical information and
current estimates of products sold through to consumers.

Advertising and promotional costs

The Company expenses advertising and promotional costs as incurred.
Advertising and promotional costs were $129,045, $148,327 and $157,944
for the years ended December 31, 1997, 1996 and 1995, respectively.

Income taxes

The Company provides for income taxes under Statement of Financial
Accounting Standard ("SFAS") No. 109. Deferred income taxes result from
temporary differences between the financial reporting bases and tax bases of
assets and liabilities. Deferred taxes are recorded at enacted statutory rates
and are adjusted as enacted rates change. Classification of deferred tax assets
and liabilities corresponds with the classification of the underlying assets and
liabilities giving rise to the temporary differences.

Interest rate arrangements

When interest rate swaps effectively hedge interest rate exposures, the
differential to be paid or received is accrued and recognized in interest
expense and may change as market interest rates change. If an arrangement is
terminated or effectively terminated prior to maturity, then the realized or
unrealized gain or loss is effectively recognized over the remaining original
life of the agreement if the hedged item remains outstanding, or immediately, if
the underlying hedged instrument does not remain outstanding. If the arrangement
is not terminated or effectively terminated prior to maturity, but the
underlying hedged instrument is no longer outstanding, then the unrealized gain
or loss on the related interest rate swap is recognized immediately.

Change in fiscal year-end

The Company will change its fiscal year-end from December 31 to June 30,
effective for the period ending June 30, 1998.

Recent accounting pronouncements

In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information". These statements, which are effective
for fiscal years beginning after December 15, 1997, expand or modify disclosures
and will have no impact on the Company's financial position, results of
operations or cash flows.

(3) Stetson License Agreement

F-9

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

Pursuant to the Stetson license, the Company is obligated to pay annual
royalties on net sales of the Company's products bearing the Stetson trademark
(including Preferred Stock products whether or not they bear the Stetson
trademark). The Stetson license contains a minimum annual royalty which is
adjusted for Consumer Price Index changes. The Stetson license requires the
Company to spend certain minimum amounts on advertising and promotion of Company
products bearing the Stetson trademark.

Pfizer obtained the John B. Stetson Company's consent to assign the
Stetson license to the Company and Benckiser at the time Benckiser acquired the
Coty business in 1992. The United States rights to the Stetson license were
assigned to the Company; the international territory rights were assigned to
Benckiser. The Company and Benckiser are jointly and severally liable for their
obligations under the Stetson license. Pursuant to the terms of the consent,
Pfizer guaranteed that annual worldwide royalties under the Stetson license
would not be less than $4,650 for each year from 1993 through 2001. Pursuant to
the terms of a separate agreement, Benckiser agreed to reimburse Pfizer for 50%
of any payment due under such guarantee for 1997 and 100% of any payment due
under such guarantee for each year from 1998 through 2001. The Company has
agreed to reimburse Benckiser for a portion of any such payments equal to the
proportion that the United States Stetson business bears to the worldwide
Stetson business. On an annual basis since 1993, worldwide royalty payments did
not exceed $4,650, the minimum required annual worldwide royalty payment, and
Pfizer paid to the John B. Stetson Company the payment required as a result of
the shortfall. The Company paid 50% of the shortfall for the year ended December
31, 1997. In addition, pursuant to the terms of the consent, Benckiser agreed to
maintain direct or indirect ownership of at least 51% of the Company's common
stock and 51% of the Company's voting securities and further agreed to maintain
"control" of the Company.

(4) Inventories

Inventories consisted of the following:

December 31,
------------
1997 1996
---- ----
Raw materials..................... $29,652 $15,787
Work-in-process................... 17,786 10,388
Finished goods.................... 36,057 27,388
------- -------
$83,495 $53,563
======= =======

(5) Property, Plant And Equipment

Property, plant and equipment consisted of the following:
December 31,
------------
1997 1996
---- ----
Land.............................. $ 1,500 $ 1,500
Buildings......................... 15,526 15,491
Machinery and equipment........... 25,880 22,387
Construction in progress.......... 5,357 994
------- -------
48,263 40,372
Less accumulated depreciation..... (19,680) (15,406)
------- -------
$28,583 $24,966
======= =======

During 1997, the Company initiated the implementation of Oracle Enterprise
Resource Planning software applications. The information systems that will be
replaced as part of this project include inventory management, materials
requirement planning, purchasing, accounts payable, and general ledger.
Anticipated benefits include enhancing the Company's inventory planning and
scheduling processes, reduction of paper processing, and increased efficiency
through the improvement and standardization of certain processes. The project
will be completed in 1998 and is expected to have a total cost of approximately
$7,000.

F-10

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(6) Intangible Assets

Intangible assets consisted of the following:

<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Goodwill.................................................. $223,115 $220,115
Stetson Agreement......................................... 133,100 133,100
Trademarks................................................ 68,374 68,374
-------- --------
424,589 421,589
Less accumulated amortization............................. (113,762) (94,231)
-------- --------
$310,827 $327,358
======== ========
</TABLE>

(7) Income Taxes

The provision (benefit) for income taxes consisted of the
following:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.............................................. $ 4,790 $12,758 12,897
State................................................ 1,437 3,706 3,752
Deferred:
Federal.............................................. 3,757 (3,103) (1,112)
State................................................ 1,126 (931) (532)
------- ------- -------
$11,110 $12,430 $15,005
======= ======= =======
</TABLE>

During 1996, the Company reversed acquisition reserves amounting to $8,326
which were recorded as deferred income tax liabilities with a corresponding
credit recorded to goodwill. This non-cash transaction was excluded from the
accompanying consolidated statements of cash flows.

A reconciliation between the statutory tax rate and the effective rate is
as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate......................... 35.0% 35.0% 35.0%
State income taxes, net of federal benefit................ 6.2 6.2 6.2
Non-deductible amortization of intangibles................ 7.4 6.6 5.7
Non-deductible minority interest in preferred stocks...... 12.1 10.7 8.8
Other components.......................................... - 2.0 4.3
---- ---- ----
60.7% 60.5% 60.0%
==== ==== ====
</TABLE>

F-11

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

The primary components of the deferred tax asset (liability) were as
follows:

December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Deferred taxes current:
Accruals not currently deductible............................. $ 31,480 $ 35,094
======== ========

Deferred taxes non-current:
Accumulated depreciation and amortization..................... $(30,872) $(27,227)
Accruals not currently deductible............................. 9,774 7,398
-------- --------
$(21,098) $(19,829)
======== ========
</TABLE>

(8) Due From Affiliates, Net

At December 31, 1997 and 1996, due from affiliates, net consisted of
non-interest bearing receivables and payables which arose in the ordinary course
of business.

(9) Accrued Liabilities

Accrued liabilities consisted of the following:

<TABLE>
<CAPTION>
December 31,
------------
1997 1996
----- ----
<S> <C> <C>
Sales returns accrual............................................ $ 70,437 $ 74,638
Marketing and advertising accruals............................... 42,779 42,274
Employee benefit accruals........................................ 8,238 9,228
Other............................................................ 12,187 11,682
-------- --------
$133,641 $137,822
======== ========
</TABLE>

(10) Long-Term Debt

Long-term debt consisted of the following:

December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Senior subordinated notes........................................ $135,000 $135,000
Less: Unamortized debt issuance costs............................ 3,049 3,465
-------- --------
$131,951 $131,535
======== ========
</TABLE>

Long-term bank debt

On December 21, 1994, the Company entered into a credit facility (the
"Credit Facility") with the First National Bank of Chicago ("First Chicago"), as
administrative agent, and certain lenders that provides (i) a term loan facility
of $70,000 (the "Term Loan") and (ii) a revolving loan facility of up to
$160,000 (the "Revolving Loan Facility"). Up to $10,000 of the Revolving Loan
Facility may be used to issue standby and/or commercial letters of credit. Coty
US's subsidiaries, QHIG and Quintessence Incorporated ("Quintessence"), a
Delaware company and wholly owned subsidiary of Q Holdings, have provided an
unconditional guaranty of all amounts owing under the Credit Facility. Coty Inc.
and Benckiser are not guarantors for the Credit Facility. The Revolving Loan
Facility matures on March 31, 2000.

F-12

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

The Company is permitted, at its election and at any time, to reduce
permanently the amount available under the Credit Facility in whole or in part.
In late 1995, the Company repaid $56,000 of the Term Loan, leaving a balance of
$14,000 at December 31, 1995. In 1996, the Company repaid the remaining $14,000.
There were no borrowings under the Revolving Loan Facility at December 31, 1997
and 1996. For the years ended December 31, 1997, 1996 and 1995, the Company's
average month-end working capital borrowings were $69,300, $66,100 and $44,000,
respectively. The Company's peak working capital borrowing needs for the years
ended December 31, 1997, 1996 and 1995 were $126,775, $128,102 and $91,000,
respectively.

Revolving loans under the Revolving Loan Facility may be borrowed, repaid
and reborrowed by the Company in accordance with the terms of the Credit
Facility, provided that for a period of sixty consecutive days during each year
no more than $60,000 of revolving loans under the Revolving Loan Facility may be
outstanding. At the Company's option, interest on amounts borrowed under the
Credit Facility are payable either at (i) the greater of (x) the rate announced
as the corporate base rate of First Chicago and (y) the applicable federal funds
rate plus 1/2 of 1%, plus an applicable base rate margin (which applicable base
rate margin shall not be lower than 0% or exceed 0.25%) or (ii) the applicable
Eurodollar rate plus an applicable Eurodollar rate margin (which applicable
Eurodollar rate margin shall not be lower than 0.50% or exceed 1.25%). The
applicable margins referred to above vary (within the ranges referred to above)
in accordance with the Company's operating performance. At December 31, 1997 and
1996, there were no borrowings outstanding under the Credit Facility.
Unamortized debt issuance costs related to the Credit Facility of $1,261 and
$1,892 at December 31, 1997 and 1996, respectively, are shown net of other
long-term liabilities in the accompanying consolidated balance sheets. The
Credit Facility obligates the Company to pay a quarterly commitment fee equal to
the applicable commitment fee rate (which applicable commitment fee rate shall
not exceed 0.375% per annum) on the average daily unused portion of the
Revolving Loan Facility, as well as certain other customary fees and
commissions. The weighted average interest rates were approximately 6.7% and
6.3% on average month-end outstanding borrowings under the Credit Facility for
the years ended December 31, 1997 and 1996, respectively.

The Credit Facility contains restrictive covenants which require the
Company to maintain a minimum net worth of $140,000 (including Preferred Stocks
of subsidiary held by affiliate) as of December 31, 1994 and $140,000 plus 50%
of Adjusted Net Income (as defined), for each succeeding fiscal year. The
Company is also required to maintain specific leverage, interest expense
coverage and debt to capitalization ratios. These ratios become more restrictive
in 1998.

Subject to certain exceptions, the Credit Facility restricts the Company's
ability to pay dividends on the Preferred Stocks other than in-kind. The Credit
Facility also contains certain covenants that place restrictions (subject to

certain exceptions) on the Company (and its subsidiaries) with respect to
guarantees, sale of certain assets, consolidations and mergers, loans and
advances, indebtedness, issuance of stock, dividend payments and change of
control.

Senior subordinated notes

On April 27, 1995, the Company consummated a public offering for $135,000
of 10.25% Senior Subordinated Notes maturing May 1, 2005 (the "Notes"). The
proceeds, net of underwriting discounts and offering expenses of $4,212, were
used to refinance the Company's $130,000 aggregate principal amount of
outstanding subordinated indebtedness to affiliates plus accrued interest
thereon through the closing date. The Notes contain restrictive covenants
including provisions that place restrictions (subject to certain exceptions) on
the Company with respect to guarantees, loans and advances, indebtedness, sales
of certain assets, mergers and consolidations, issuance and sale of subsidiary
stock and certain transactions with affiliates, including dividend payments.

The Notes are general unsecured obligations of the Company, and are senior
in right of payment to all existing and future indebtedness of the Company which
is made expressly junior thereto and are subordinate in right of payment to all
senior debt of the Company, including indebtedness under the Credit Facility.
Coty Inc. and Benckiser are not guarantors of the Notes.

F-13

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(11) Preferred Stocks Of Subsidiary

The Series A and Series B Preferred Stocks of QHIG held by Coty Inc. are
non-voting and accrue cumulative dividends quarterly at 7.0% and 8.5%,
respectively, per annum. Dividends may be paid in cash or in-kind, only when and
if declared by the Company's Board of Directors. Dividends in-kind with a
liquidation value of $5,355 were accrued for both in 1997 and 1996. At any time
after January 4, 1999, QHIG may redeem the Series A Preferred Stock, subject to
certain restrictions, and at any time after January 4, 2007, the holder may
redeem the Series A Preferred Stock. The Series B Preferred Stock may be
redeemed any time after January 4, 2000 at the option of QHIG, subject to
certain restrictions, and at any time after January 4, 2007 by the holder.

Benckiser has acquired an option to purchase the Preferred Stocks from
Coty Inc. at fair market value. If the indebtedness under the Credit Facility is
accelerated or not paid when due, Benckiser is obligated to exercise the option,
acquire the Preferred Stocks of QHIG from Coty Inc., and contribute such
Preferred Stocks to the common equity of the Company.

(12) Employee Benefit Plans

Pension plan

The Company participates in a noncontributory defined benefit pension plan
(the "Pension Plan") with other U.S. subsidiaries (the "Subsidiaries") of Coty
Inc. covering substantially all full-time employees. The Pension Plan provides
pension benefits that are based on annual employee earnings and the Social
Security Integration Level as defined in the Pension Plan.

Funding for the Pension Plan is provided solely through contributions
from the Subsidiaries after consideration of recommendations from the
Pension Plan's independent actuary. Such recommendations are based on
actuarial valuations of benefits payable under the Pension Plan. The
Company's net periodic pension cost is summarized as follows:

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service costs.................................................... $1,289 $1,375 $1,070
Interest costs................................................... 432 324 215
Actual return on plan assets..................................... (995) (711) (637)
Deferred asset gain.............................................. 526 377 439
Other............................................................ (3) (3) (4)
------ ------ ------
$1,249 $1,362 $1,083
====== ====== ======
</TABLE>

The following table sets forth the funded status and the amounts
included in the accompanying consolidated balance sheets:

<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation................................ $ (5,368) $ (3,793)
Non-vested benefit obligation............................ (1,799) (763)
--------- --------
Accumulated benefit obligation................................... $ (7,167) $ (4,556)
========= =========

Projected benefit obligation..................................... $ (8,113) $ (5,768)
Plan assets at fair value........................................ 6,987 5,692
-------- --------
Funded status............................................ (1,126) (76)
Unrecognized prior service credit................................ (25) (28)

Unrecognized net loss............................................ (203) (427)
--------- --------
Accrued pension liability................................ $ (1,354) $ (531)
========= ========
</TABLE>

F-14

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

The assumptions used in developing the above amounts were as
follows:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate.................................................... 7.0% 7.5%
Expected long-term rate of return on plan assets................. 8.0% 8.0%
Average assumed rate of compensation increases................... 5.0% - 5.5% 5.0% - 5.5%
</TABLE>

At December 31, 1997 and 1996, substantially all of the Pension Plan
assets were invested in mutual funds which invest primarily in corporate bonds
and common stocks.

Post-retirement benefits

In addition to providing pension benefits, the Company provides certain
post-retirement health and life insurance benefits for substantially all
employees and spouses, provided certain age and service requirements are met.
Estimated benefits to be paid by the Company are expensed over the service
period of each employee based on calculations performed by an independent
actuary.

The Company's net periodic post-retirement cost was as follows:
<TABLE>
<CAPTION>

Year Ended December 31,
1997 1996 1995
----- ---- ----
<S> <C> <C> <C>
Service costs.................................................... $1,491 $1,431 $1,030
Interest costs................................................... 1,440 1,253 1,057
Amortization of unrecognized net loss (gain)..................... (2) 1 (168)
------ ------ ------
$2,929 $2,685 $1,919
====== ====== ======
</TABLE>

The following table sets forth the funded status and the amounts included
in the accompanying consolidated balance sheets:

December 31,
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated post-retirement
benefit obligation for:
Retired employees............................................. $ (1,724) $ (1,055)
Fully eligible active employees............................... (591) (302)
Partially eligible active employees........................... (3,312) (2,942)
Other active employees........................................ (19,149) (15,189)
--------- ---------
Accumulated post-retirement benefit obligation......................... (24,776) (19,488)
Unrecognized net (gain) loss........................................... 841 (1,708)
--------- ---------
Accrued post-retirement liability............................. $(23,935) $(21,196)
========= =========
</TABLE>

The accrual for post-retirement liability is included in other long-term
liabilities in the accompanying consolidated balance sheets.

For measurement purposes, per capita costs of covered health care benefits
were assumed to increase for 1997 by 10.2% and 9.6% for non-Medicare and
Medicare-covered employees, respectively. The rate of increase was assumed to
decrease gradually to 5.0% by 2007 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1 percentage point in each year would increase the accumulated post-retirement
benefit obligation as of December 31, 1997 by approximately $5,950 and the
post-retirement benefit cost for the year then ended by approximately $825.

The weighted-average discount rates used in determining the accumulated
post-retirement benefit obligation were 7.0% in 1997 and 7.5% in 1996.

F-15

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

Savings and investment plan

The Company maintains a voluntary savings and investment plan for its
employees. Within prescribed limits, the Company bases its contributions to the
plan on employee contributions. For 1997, 1996 and 1995, Company contributions
amounted to $1,983, $2,009 and $1,976, respectively.

(13) Commitments

The Company has entered into long-term lease agreements for office and
warehouse facilities. Rent expense was $1,987, $1,738 and $1,777 in 1997, 1996
and 1995, respectively.

The Company's future minimum lease payments, excluding the Chicago lease
described in Note 16, are the following:

Years Ending December 31,
- -------------------------
<S> <C>
1998.............................................................................. $ 3,666
1999.............................................................................. 3,332
2000.............................................................................. 2,792
2001.............................................................................. 1,920
2002.............................................................................. 1,828
Thereafter........................................................................ 2,590
--------
Total............................................................................. $ 16,128
========
</TABLE>

Rent expense for 1997 and 1996 is net of the pro rata portion allocated to
Lancaster Group US LLC in the amount of $360 and $150, respectively (see Note
14). In January 1998, Lancaster Group US LLC moved out of the Company's office
space and, therefore, will no longer absorb a portion of the rental charges
after December 31, 1997.

A group of executives of the Company are covered by employment contracts.
As of December 31, 1997, the Company's aggregate minimum compensation commitment
amounted to $1,964 through August 2000. In addition, the employment contracts
provide for bonuses to be paid in accordance with a formula which is tied to the
Company's earnings, net sales and working capital.

(14) Transactions With Affiliates

Transactions with affiliates not disclosed elsewhere in these consolidated
financial statements are set forth below.

The Company provides Coty Inc. and its various subsidiaries certain
research and development services. The Company charges Coty Inc. (or the
applicable Coty Inc. subsidiary) a fee equal to actual costs incurred plus an
agreed-upon markup. Such fees amounted to $3,877, $3,178 and $2,039 in 1997,
1996 and 1995, respectively.

The Company performs manufacturing services for certain affiliates in
return for a fee equal to actual costs incurred plus an agreed-upon markup.
During 1997, 1996 and 1995, the Company recorded net sales to these affiliates
of $13,332, $15,718 and $12,158, respectively, and costs of $12,448, $14,148 and
$11,427, respectively.

Pursuant to the Calgon Transaction, the Company buys certain manufactured
products from an affiliated manufacturing facility in Rockwood, Michigan for a
fee equal to actual costs incurred plus an agreed-upon markup. In 1997, 1996 and
1995, the Company made purchases of approximately $3,100, $6,900 and $5,400,
respectively, from such affiliate. Additionally, the Company has agreed to pay
Benckiser (now Coty Inc.) a monthly royalty of 5% of the net sales of Calgon
products. Such royalty expense amounted to $2,001, $886 and $806 for the years
ended December 31, 1997, 1996 and 1995, respectively.

F-16

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

the Company unless terminated by either the Company or Lancaster Group US
LLC on six months notice. In 1997 and 1996, fees from Lancaster Group US LLC
totaled $2,182 and $2,000, respectively. In addition, from July 1996 through
December 1997, Lancaster Group US LLC utilized approximately 20% of the
Company's New York office space and paid a pro rata portion of the annual rental
charges. Such pro rata portion amounted to $360 and $150 in 1997 and 1996,
respectively. In January 1998, Lancaster Group US LLC moved out of the Company's

office space and, therefore, will no longer absorb a portion of the rental
charges after December 31, 1997.

Under an arrangement with Coty Inc., certain executive officers were
granted in the aggregate 117,500 Coty Inc. stock options and 30,000 Coty Inc.
restricted shares under the Coty Inc. Long-Term Incentive Plan. The options
become exercisable with the passage of time and the restrictions on the
restricted shares lapse with the attainment of certain performance targets by
Coty Inc. As of December 31, 1997, no options were exercisable and no
restrictions on the restricted shares had lapsed. Coty Inc. charged the Company
for such 1997 accrued compensation expense aggregating approximately $840.

(15) Significant Customers

Sales to two customers accounted for approximately 29% and 10% of net
sales, respectively, in 1997; 28% and 10% of net sales, respectively, in 1996;
and 26% and 13% of net sales, respectively, in 1995. Sales to the Company's five
largest retailers represented in the aggregate approximately 54%, 50% and 50% of
net sales in 1997, 1996 and 1995, respectively.

(16) Quintessence Integration Costs

Of the 64,000 square feet of office space which the Company is currently
leasing in Chicago, 7,000 square feet was used by the Company through December
31, 1997 and 17,000 square feet had been sublet. The remaining 40,000 square
feet, which was vacated by the Company in connection with the late 1993
relocation of Quintessence's headquarters to New York, remain vacant. As of
January 1, 1998, the Company is no longer utilizing any of the lease space. The
Company is seeking to sublease all of the remaining space.

During 1996, the Company recorded an additional provision of $6,000 for
the idle lease space based upon management's latest estimate of future
sub-rental income. At December 31, 1997 and 1996, the reserve amounted to
$11,167 and $12,648, respectively. This reserve principally represents the
present value of the future minimum lease payments less anticipated future
sub-rental income. The accrual for idle lease space requires management to make
certain estimates and assumptions regarding, among other things, its ability to
locate a tenant and the strength of the local real estate market. Actual results
may differ from these estimates.

(17) Financial Instruments

The carrying amounts of cash equivalents, trade receivables, accounts
payable and bank debt approximate their fair market values. The market value of
the Notes, based on public market quotation, was $143,532 and $141,723 at
December 31, 1997 and 1996, respectively.

During 1995, the Company entered into interest rate swap agreements in
order to effectively fix its interest rate exposure on its average borrowings
under the Credit Facility. These swap agreements effectively fix the interest
rate exposure on the Company's average borrowings under the Credit Facility at

approximately 7.28% for periods varying from 5 to 30 months from December 31,
1997. At December 31, 1997 and 1996, the Company had outstanding fixed interest
rate swaps with an aggregate notional principal amount of $40,000 and $75,000,
respectively. The agreements outstanding at December 31, 1997 mature in May 1998
($20,000) and June 2000 ($20,000). The approximate cost to the Company to
terminate these agreements at December 31, 1997 and 1996 would have been $170
and $250, respectively. However, the agreements are not held for trading
purposes and the Company has no current intention to terminate such agreements.
At December 31, 1997, the Company believes that there was no significant credit
risk of non-performance by counterparties.

F-17

<PAGE>

COTY US INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)

(18) Parent Only Financial Information

Coty US's subsidiaries, QHIG and Quintessence, are guarantors under the
Notes. Substantially all operations, assets and liabilities of the Company are
those of Coty US. Summarized unconsolidated financial information of Coty US,
exclusive of intercompany balances between Coty US and its subsidiaries, is as
follows:

<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Balance Sheets:
Current assets................................................... $215,428 $189,802
Non-current assets............................................... 304,838 314,273
Current liabilities.............................................. 191,974 198,605
Non-current liabilities.......................................... 179,588 172,228

Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statements of Income:
Net sales........................................................ $ 405,458 $440,699 $452,885
Gross profit..................................................... 257,750 287,627 300,126
Operating income................................................. 46,057 55,552 58,511
Income before income taxes....................................... 27,948 32,710 35,249
Net income....................................................... 16,433 18,834 20,726

</TABLE>

(19) Quarterly Results of Operations (Unaudited)

The following is a summary of the unaudited quarterly results of
operations:

<TABLE>
<CAPTION>
Quarter Ended (Dollars in Quarterly Table in Millions)
-------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $54.5 $65.0 $129.8 $156.2 $64.6 $66.0 $170.0 $140.1
Gross profit............... 36.6 44.3 79.9 96.9 42.9 45.1 110.1 89.5
Operating income (loss).... (9.6) (7.5) 26.6 33.0 (4.7) (5.4) 38.0 18.2
Net income (loss).......... (6.7) (6.1) 9.3 10.7 (4.8) (5.4) 14.6 3.7
</TABLE>

Net sales for the fourth quarter 1997 are $16,111 higher than the fourth
quarter of 1996 primarily due to later shipments of certain Christmas orders in
1997 and the launch of The Healing Garden in the fourth quarter 1997. Gross
profit as a percentage of net sales in the fourth quarter 1997 as compared to
the fourth quarter 1996 was adversely impacted by product mix, as well as
increased returns. Operating income for the fourth quarter 1997 is significantly
higher than the fourth quarter 1996 due to increased net sales and reduced
advertising and promotional spending. Additionally, the fourth quarter 1996
operating income includes a charge of $4,500 for Quintessence integration costs.

F-18

<PAGE>

COTY US INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)

Balance at Charged to Balance
beginning cost and at end
of year expenses Deductions of year
---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Year end ed December 31, 1997:
Applied against asset accounts -
Reserve for doubtful accounts................. $5,270 $ 375 $ 301 $5,344

Year ended December 31, 1996:
Applied against asset accounts -
Reserve for doubtful accounts................. 6,236 1,980 2,946 5,270

Year ended December 31, 1995:
Applied against asset accounts -
Reserve for doubtful accounts................. 6,410 1,328 1,502 6,236
</TABLE>

This schedule should be read in conjunction with the
accompanying consolidated financial statements and notes thereto.

S-1

<PAGE>

SIGNATURES

Dated: March 27, 1998

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

COTY US INC.
------------
(Registrant)

By: /s/Jean-Andre Rougeot By: /s/Daniel J. Finnegan
------------------------------ ----------------------------
Jean-Andre Rougeot Daniel J. Finnegan
President Vice President, Finance
(Principal Executive Officer) (Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
March 27, 1998 and in the capacities indicated.

Signatures Title
---------- -----

/s/Jean-Andre Rougeot
----------------------------------------
(Jean-Andre Rougeot) Director

/s/Dr. Peter Harf
----------------------------------------
(Dr. Peter Harf) Director

/s/Ashok N. Bakhru
----------------------------------------
(Ashok N. Bakhru) Director

<PAGE>

INDEX TO EXHIBITS

Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
3.01 Amended and Restated Certificate of Incorporation of Coty US Inc. dated December 14, 1994
(Incorporated by reference to Exhibit 3.01 to the Company's Form S-1 Registration Statement
No. 33-89774)...............................................................................

3.02 Bylaws of Coty US Inc. (Incorporated by reference to Exhibit 3.02 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

3.03 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Coty
US Inc. dated May 22, 1996 (Incorporated by reference to Exhibit 3.02 to the Company's Form
8-K dated May 30, 1996).....................................................................

4.01 Indenture dated as of April 27, 1995 between Coty US Inc. and The First National Bank of
Boston, Trustee (Incorporated by reference to Exhibit 4.01 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

4.02 Form of Note (Incorporated by reference to Exhibit 4.02 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.01 License Agreement dated November 19, 1980 between John B. Stetson Company and Pfizer Inc.
(Incorporated by reference to Exhibit 10.01 to the Company's Form S-1 Registration
Statement No. 33-89774).....................................................................

10.02 First Amendment to License Agreement dated January 1, 1986 between John B. Stetson Company
and Pfizer Inc. (Incorporated by reference to Exhibit 10.02 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.03 Second Amendment to License Agreement dated August 14, 1990 between John B. Stetson Company
and Pfizer Inc. (Incorporated by reference to Exhibit 10.03 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.04 Consent and Agreement dated May 1, 1992 between John B. Stetson Company, Pfizer Inc., Joh
A. Benckiser GmbH, Coty US Inc. and Benckiser Consumer Products Inc. (Incorporate by
reference to Exhibit 10.04 to the Company's Form S-1 Registration Statement No. 33-89774)...

10.05 Credit Agreement dated as of December 21, 1994 between Coty US Inc. and The First National
Bank of Chicago, as Agent, and certain Lenders named therein, as amended (Incorporated by
reference to Exhibit 10.05 to the Company's Form S-1 Registration Statement No. 33-89774)...

10.06 Subsidiaries Guaranty dated as of December 21, 1994 among QHI Group Holdings, Inc.,
Quintessence Incorporated and The First National Bank of Chicago (Incorporated by reference
to Exhibit 10.06 to the Company's Form S-1 Registration Statement No. 33-89774).............
</TABLE>

43
<PAGE>
<TABLE>
<S> <C> <C>

10.07* Amended and Restated Incentive Savings Plan for Employees of Benckiser Consumer Products
Inc. dated November 24, 1993 (Incorporated by reference to Exhibit 10.07 to the Company's
Form S-1 Registration Statement No. 33-89774)...............................................

10.08 Sublease dated August 24, 1992 by and between Haythe & Curley, a New York partnership and
Coty US Inc. (Incorporated by reference to Exhibit 10.08 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.09 Loan Agreement dated as of December 21, 1994 among Joh. A. Benckiser GmbH and Coty US Inc.,
as amended (Incorporated by reference to Exhibit 10.09 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.10 Master Intercompany Agreement dated as of October 15, 1994 among Coty US Inc., Benckiser
Consumer Products Inc. and Joh. A Benckiser GmbH (Incorporated by reference to Exhibit
10.10 to the Company's Form S-1 Registration Statement No. 33-89774)........................

10.11 Lease Agreement dated October 29, 1982 between Jovan, Inc. (now known as Quintessence
Incorporated) and LaSalle National Bank, as Trustee under Trust No. 100049 (Incorporated by
reference to Exhibit 10.18 to the Company's Form S-1 Registration Statement No. 33-89774)...

10.12 First Amendment to Lease Agreement dated March 11, 1983 between LaSalle National Bank, as
Trustee under Trust No. 100049 and Jovan, Inc. (Incorporated by reference to Exhibit 10.19
to the Company's Form S-1 Registration Statement No. 33-89774)..............................

10.13 Second Amendment to Lease Agreement dated March 16, 1984 between LaSalle National Bank, as
Trustee under Trust No. 100049 and Beecham Cosmetics Inc. (now known as Quintessence
Incorporated) (Incorporated by reference to Exhibit 10.20 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.14 Third Amendment to Lease Agreement dated September 27, 1988 between LaSalle National Bank,
as Trustee under Trust No. 100049 and Quintessence Incorporated (formerly known as Jovan,
Inc.) (Incorporated by reference to Exhibit 10.21 to the Company's Form S-1 Registration
Statement No. 33-89774).....................................................................

10.15 * The Pension Plan for Employees of Benckiser Consumer Products Inc. dated July 1, 1987, as
amended (Incorporated by reference to Exhibit 10.22 to the Company's Form S-1 Registration
Statement No. 33-89774).....................................................................

10.16 Equity Contribution Agreement between Coty US Inc. and Joh. A. Benckiser GmbH (Incorporated
by reference to Exhibit 10.23 to the Company's Form S-1 Registration Statement No. 33-89774)

10.17 Indemnification Agreement dated October 15, 1994 between Joh. A. Benckiser GmbH and
Jean-Andre Rougeot (Incorporated by reference to Exhibit 10.24 to the Company's Form S-1
Registration Statement No. 33-89774)........................................................

10.18 Indemnification Agreement dated October 15, 1994 between Joh. A. Benckiser GmbH
</TABLE>
44
<PAGE>

and Mr.Peter Harf (Incorporated by reference to Exhibit 10.26 to the Company's
Form S-1 Registration Statement No. 33-89774...............................................

10.19 Coty Inc. and Subsidiaries Tax Sharing Agreement dated as of March 1, 1995 by and among
Coty Inc., Lancaster Group (USA) Inc., Coty US Inc., and any other direct domestic
subsidiaries of Coty Inc. (Incorporated by reference to Exhibit 10.27 to the Company's Form
S-1 Registration Statement No. 33-89774)....................................................

10.20 Option Agreement between Joh. A. Benckiser GmbH and Coty Inc. (Incorporated by reference to
Exhibit 10.28 of the Company's Form 10-K for the fiscal year ended December 31, 1995).......

10.21 First Amendment to Sublease Agreement dated August 24, 1992 by and between Haythe & Curley,
a New York Partnership and Coty US Inc. (Incorporated by reference to Exhibit 10.26 of the
Company's Form 10-K for the fiscal year ended December 31, 1996)............................

10.22 * Employment Agreement dated March 1, 1997 between Coty US Inc. and Jerry L. Abernathy
(Incorporated by reference to Exhibit 10.27 of the Company's Form 10-K for the fiscal year
ended December 31, 1996)....................................................................

10.23 * Employment Agreement dated August 1, 1997 between Coty US Inc., Coty Inc. and James N.
McDougald ..................................................................................

10.24 * Employment Agreement dated August 1, 1997 between Coty US Inc., Coty Inc., and Robert R.
Clarke......................................................................................

10.25 * Employment Agreement dated August 1, 1997 between Coty US Inc., Coty Inc. and Mary C.
Manning.....................................................................................

10.26 * Separation Agreement dated December 31, 1997 between Coty US Inc., Coty Inc. and Victor E.
Zast........................................................................................

10.27 Inter-Company Agreement for 1997 participation in Coty Inc. Long-Term Incentive Plan dated
February 1, 1998 between Coty US Inc. and Coty Inc. ........................................

10.28 Inter-Company Agreement for future participation in Coty Inc. Long-Term Incentive Plan
dated February 1, 1998 between Coty US Inc. and Coty Inc. ..................................

21.01 Subsidiaries of Coty US Inc. (Incorporated by reference to Exhibit 21.01 of the Company's
Form 10-K for the fiscal year ended December 31, 1995)......................................

27.01 Financial Data Schedule.....................................................................
</TABLE>

- -----------------------
* Indicates a management contract or compensatory plan or arrangement.

<PAGE>

Exhibit 10.23

EMPLOYMENT AGREEMENT
--------------------

This Employment Agreement ("Agreement"), made as of the 1st day of August
1997, by and between Coty US Inc., 237 Park Avenue, New York, N.Y. 10017
(hereinafter "Employer"), Coty Inc., 1325 Avenue of the Americas, New York, N.Y.
10019 ("Coty"), a Delaware corporation (hereinafter "Coty"), and James N.
McDougald, 5625 Cedar Creek, Houston, TX 77056 (hereinafter referred to as
"Executive").

WHEREAS, Employer is a wholly-owned subsidiary of Coty; and

WHEREAS, in furtherance of Coty's commitment to the continued success of
its fragrances and cosmetics business, and in recognition of the valuable
contributions to be made by Executive because of his experience, Employer has
agreed to employ Executive subject to certain terms and conditions as
hereinafter set forth, and Executive has indicated his willingness to accept
such employment;

Now, therefore, in consideration of the promises and covenants hereinafter
set forth, the parties agree as follows:

1. Effective August 1, 1997 and during the term of this Agreement
Executive will be employed by Employer as Vice President Sales and will be paid
an annual salary of not less than $274,800 ("Base Salary"). In December 1997 and
thereafter, Employer will review Executive's salary on an annual basis, in
accordance with Employer's policies, to determine appropriate increases, if any.
In addition to salary, Executive will be eligible to continue to participate in
Coty's Annual Performance Plan (the "Performance Plan"). Executive's Target
Award under the Performance Plan will be 40% of Base Salary. In addition,
Executive will be eligible to continue to participate in Coty's Long-Term
Incentive Plan (the "LTIP").

2. The term of this Agreement will commence on the date hereof (the
"Commencement Date") and shall terminate on the third anniversary of the
Commencement Date; provided, that the term of Executive's employment hereunder
shall be automatically extended for successive one-year periods, unless not
later than six (6) months prior to such third anniversary or any such automatic
extension, the Company or the Executive shall have given notice of termination.
The "Term" shall be the initial 3-year term or, if applicable, a successive
1-year term, as referenced above.

3. Employer will continue to provide retirement, employee benefit (pre-
and post-retirement) and fringe benefit plans to Executive no less favorable
than those made available to Employer's executive employees generally. Executive
will be entitled to the use of an executive class company car at Employer's
expense on terms no less favorable

<PAGE>

than those provided to Employer's executives generally. The Executive shall be
entitled to six (6) weeks paid vacation each year.

4. Executive agrees that he shall use his best efforts to promote and
protect the interests of Employer, its parent, subsidiaries and related
corporations, and to devote substantially all of his working time, attention and
energy to performing the duties of his position.

5. Executive will not either directly or indirectly use for his own
benefit, or disclose or make known to any person or company, any confidential
information in his possession, or which becomes known to him or is developed
while he has been or is employed by Employer (the "confidentiality provision").
In light of his position and the confidential information that necessarily will
be imparted to him, Executive agrees that he will not compete with Coty or the
Employer in the fragrance or color cosmetics business in the United States, or
solicit employees of Coty or the Employer during the period of his employment
hereunder and for a period of two (2) years from the date of Executive's
termination of employment (the "non-compete provision"). Notwithstanding the
preceding sentence, in the event Executive's employment terminates and Coty or
Employer enforces the "non-compete provision," and Executive is not receiving
any other payments from Employer or Coty as provided hereunder, Executive shall
be entitled to receive from Employer during the time, if any, the "non-compete
provision" is being enforced by Employer or Coty the Base Salary that Executive
was receiving at the time of such termination. The confidentiality provision
shall survive any termination of this Agreement.

6. (a) In the event that Employer terminates the employment of Executive
for reasons other than for Cause (as defined below) or Executive resigns for
Good Reason (as defined below), Executive shall be entitled to severance
benefits under Employer's policies. In addition, in such event Executive will be
paid his Base Salary through the end of the Term, plus any Awards deemed earned
and due and owing under the Performance Plan and less any severance payments
paid Executive pursuant to this Agreement.

(b) Executive shall be required to mitigate the amount of any payment
provided for pursuant to this Agreement by seeking other comparable employment
within a reasonable commuting distance of his home, taking into account the
provisions of Section 5 of this Agreement. Anything in this Agreement to the
contrary notwithstanding, in the event that Executive provides services for pay
to anyone other than Employer or any of its affiliates or subsidiaries from the
date Executive's employment hereunder is terminated until the end of the Term,
the amounts paid to Executive during such period pursuant to this Agreement
shall be reduced by the amounts of salary, bonus or other cash compensation
earned by Executive during such period as a result of Executive's performing
such services.

2
<PAGE>
(A) Intentional malicious destruction of Employer or Coty property;
intentional or deliberate misconduct; intentional or deliberate failure to act

in the best interests of Employer or Coty or a significant breach of reasonable
rules established by Employer or Coty; provided, that Employer or Coty has
advised Executive of the charges against Executive and given Executive a
reasonable period of time to correct his conduct, actions or breach and
Executive has failed to do so; or

(B) Executive shall commit acts constituting a felony involving (1)
moral turpitude materially adversely reflecting on the Employer or (2)
dishonesty having a material adverse effect on the financial performance of the
Employer or Coty, provided in each case that until any dispute concerning the
applicability of this Section 6 (c) (i) (B) is resolved, Executive shall be paid
his Base Salary and continue to participate in Employer's benefit plans.

(D) Anything herein to the contrary notwithstanding, termination shall
not be considered to have been for Cause if caused by an act or omission
believed by Executive in good faith to have been in or not opposed to the
interests of Employer, without intent of gaining therefrom directly or
indirectly a profit to which Executive was not legally entitled, and reasonably
believed by him not to have been improper or unlawful.

(ii) "Good Reason" shall mean termination at the election of Executive
based on any of the following:

(A) Without Executive's express written consent, the assignment of
Executive to a position other than Vice President - Sales with day-to-day
responsibility and authority over Employer's sales department relating to the
fragrance and color cosmetics business of Employer, except in connection with
the termination of this employment for Cause, or normal retirement, death, or by
the Executive other than for Good Reason; or

(B) A reduction in Executive's fringe or retirement benefits as in
effect on the date hereof that is not applied by Employer to executives
generally or a reduction by Employer in Executive's Base Salary;

(C) The merger or consolidation of Employer into or with any other
entity other than Coty or a majority-owned subsidiary of Coty or Employer,
unless the entity which survives such merger shall assume and agree to perform
the obligations of Employer hereunder pursuant to an instrument reasonably
acceptable to Executive.

any date of determination, unless Coty shall jointly and severally assume the
obligations of Employer hereunder pursuant to an instrument reasonably
acceptable to Executive.

(E) Separation of Executive's office location from the principal

corporate office of Employer or relocation outside the contiguous United States.

7. Employer shall have the right to terminate the Agreement immediately
with no further liability under the terms of this Agreement, should Executive
terminate his employment without Good Reason, or if Executive is discharged by
Employer for Cause, subject to payments that are due under this Agreement.

8. If Executive is required to seek judicial enforcement of his rights
under this Agreement and Executive prevails in such proceeding, Executive shall
be entitled to be reimbursed by Employer for his reasonable attorney fees.

9. This Agreement shall be construed under the laws of the State of New
York.

10. This Agreement supersedes all prior agreements, negotiations and
understandings of any kind with respect to the subject matter hereof and
contains all of the terms and provisions of agreement between the parties hereto
with respect to the subject matter hereof. Specifically, and not by way of
limitation, the Employment Agreement dated June 16, 1992 and the amendment dated
September 26, 1994 relating to Executive are superseded hereby. Any
representation, promise or condition, whether written or oral, not specifically
incorporated herein, shall be of no binding effect upon the parties.

11. (a) If any portion of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, that portion only
shall be deemed deleted as though it had never been included herein but
the remainder of this Agreement shall remain in full force and effect.

(b) Executive acknowledges and agrees that Employer's remedies at law
for a breach or threatened breach of any of the provisions of Section 5 would be
inadequate and, in recognition of this fact, Executive agrees that, in the event
of such a breach or threatened breach, in addition to any remedies at law,
Employer, without posting any bond, shall be entitled to obtain equitable relief
in the form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then be available.

12. No modification, termination or waiver of any provision of this
Agreement shall be valid unless it is in writing and signed by all parties
hereto.

<PAGE>

13. Employer and Coty represent that each has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
under this Agreement, and that this Agreement is enforceable against each in
accordance with its terms.

COTY INC.

By /s/ Jean-Andre Rougeot
-----------------------
Name: Jean-Andre Rougeot
Title: Executive Vice President

COTY US INC.
Employer

By /s/ Jean-Andre-Rougeot
----------------------
Name: Jean-Andre Rougeot
Title: President and Chief Executive Officer

Agreed to by:

/s/ James N. McDougald
- ----------------------
Executive

<PAGE>

Exhibit 10.24

EMPLOYMENT AGREEMENT
--------------------

This Employment Agreement ("Agreement"), made as of the 1st day of August
1997, by and between Coty US Inc. with offices at 237 Park Avenue, New York,
N.Y. 10017 (hereinafter "Employer"), Coty Inc., 1325 Avenue of the Americas, New
York, N.Y. 10019 ("Coty"), a Delaware corporation (hereinafter "Coty"), and
Robert Clarke, an individual residing at 1803 Windmill Drive, Sanford, NC 27330
(hereinafter referred to as "Executive").

WHEREAS, Employer is a wholly-owned subsidiary of Coty; and

Now, therefore, in consideration of the promises and covenants hereinafter
set forth, the parties agree as follows:

1. Effective August 1, 1997 and during the term of this Agreement Executive
will be employed by Employer as Senior Vice President, Manufacturing and
Distribution, and will be paid an annual salary of not less than $249,540 ("Base
Salary"). In December 1997 and thereafter, Employer will review Executive's
salary on an annual basis, in accordance with Employer's policies, to determine
appropriate increases, if any. In addition to salary, Executive will be eligible
to continue to participate in Coty's Annual Performance Plan (the "Performance
Plan"). Executive's Target Award under the Performance Plan will be 40% of Base
Salary. In addition, Executive will be eligible to continue to participate in
Coty's Long-Term Incentive Plan (the "LTIP").

3. Employer will continue to provide retirement, employee benefit (pre- and
post-retirement) and fringe benefit plans to Executive no less favorable than
those made available to Employer's executive employees generally. Executive will
be entitled to the use of an executive class company car at Employer's expense
on terms no less favorable

<PAGE>

than those provided to Employer's executives generally. The Executive shall be
entitled to twenty-five (25) days paid vacation each year.

<PAGE>

(A) Intentional malicious destruction of Employer or Coty property;
intentional or deliberate misconduct; intentional or deliberate failure to act
in the best interests of Employer or Coty or a significant breach of reasonable
rules established by Employer or Coty; provided, that Employer or Coty has
advised Executive of the charges against Executive and given Executive a
reasonable period of time to correct his conduct, actions or breach and
Executive has failed to do so; or

(ii) "Good Reason" shall mean termination at the election of Executive
based on any of the following:

(A) Without Executive's express written consent, the assignment of
Executive to a position other than Senior Vice President, Manufacturing and
Distribution with day-to-day responsibility and authority over Employer's US
manufacturing and distribution of fragrance and color cosmetics products, except
in connection with the termination of this employment for Cause, or normal
retirement, death, or by the Executive other than for Good Reason; or

(D) The sale, transfer or other disposition of more than 30% of the
assets of Employer to an entity other than Coty or a majority-owned subsidiary
of Coty or Employer during the period commencing with the date of this Agreement
and ending on any date of determination, unless Coty shall jointly and severally
assume the obligations of Employer hereunder pursuant to an instrument
reasonably acceptable to Executive.
3

<PAGE>

(E) Separation of Executive's office location from the production
facility of Employer located at Sanford, North Carolina or relocation outside
the contiguous United States.

9. This Agreement shall be construed under the laws of the State of New
York.

10. This Agreement supersedes all prior agreements, negotiations and
understandings of any kind with respect to the subject matter hereof and
contains all of the terms and provisions of agreement between the parties hereto
with respect to the subject matter hereof. Specifically, and not by way of
limitation, the Employment Agreement dated June l6, 1992, and the amendment
dated September 26,1994, relating to Executive are superseded hereby. Any
representation, promise or condition, whether written or oral, not specifically
incorporated herein, shall be of no binding effect upon the parties.

11. (a) If any portion of this Agreement is held invalid or unenforceable
by a court of competent jurisdiction, that portion only shall be deemed deleted
as though it had never been included herein but the remainder of this Agreement
shall remain in full force and effect.

12. No modification, termination or waiver of any provision of this
Agreement shall be valid unless it is in writing and signed by all parties
hereto.

13. Employer and Coty represent that each has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
under this

<PAGE>

Agreement, and that this Agreement is enforceable against each in accordance
with its terms.

COTY US INC.
Employer

By /s/ Jean-Andre-Rougeot
----------------------
Name: Jean-Andre Rougeot
Title: President and Chief Executive Officer

COTY INC.

By /s/ Jean-Andre Rougeot
----------------------
Name: Jean-Andre Rougeot
Title: Executive Vice President

Agreed to by:

/s/ Robert Clarke
- ------------------
Executive

<PAGE>

Exhibit 10.25

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement"), made as of the 1st day of August
1997, by and between Coty US Inc., 237 Park Avenue, New York, N.Y. 10017
(hereinafter "Employer"), Coty Inc., 1325 Avenue of the Americas, New York, N.Y.
10019 ("Coty"), a Delaware corporation (hereinafter "Coty"), and Mary Manning,
350 Beechmont Drive, New Rochelle, New York 10804 (hereinafter referred to as
"Executive").

WHEREAS, Employer is a wholly-owned subsidiary of Coty; and

WHEREAS, in furtherance of Coty's commitment to the continued success of
its fragrances and cosmetics business, and in recognition of the valuable
contributions to be made by Executive because of her experience, Employer has
agreed to continue to employ Executive subject to certain terms and conditions
as hereinafter set forth, and Executive has indicated her willingness to accept
such employment;

Now, therefore, in consideration of the promises and covenants hereinafter
set forth, the parties agree as follows:

1. Effective August 1, 1997 and during the term of this Agreement Executive
will be employed by Employer as Senior Vice President - Market Development and
will report to the President/General Manager of Employer and will be paid an
annual salary of not less than $235,920 ("Base Salary"). Employer will review
Executive's salary, on an annual or fiscal year basis and in accordance with
Employer's policies, to determine appropriate increases, if any. In addition to
salary, Executive will be eligible to continue to participate in Coty's Annual
Performance Plan (the "Performance Plan"). Executive's Target Award under the
Performance Plan will be 40% of Base Salary. In addition, Executive will be
eligible to continue to participate in Coty's Long-Term Incentive Plan (the
"LTIP").

2. The term of this Agreement will commence on the date hereof
(the "Commencement Date") and shall terminate on the third anniversary of
the Commencement Date; provided, that the term of Executive's employment
hereunder shall be automatically extended for successive one-year
periods, unless not later than six (6) months prior to such third
anniversary or any such automatic extension, the Company or the Executive
shall have given notice of termination. The "Term" shall be the initial
3-year term or, if applicable, a successive 1-year term, as referenced
above.

3. Employer will continue to provide retirement, employee benefit (pre- and
post-retirement) and fringe benefit plans to Executive no less favorable than
those made
<PAGE>

available to Employer's executive employees generally. Executive will be

credited for her actual years of service with Pfizer, Inc., for purposes of
eligibility and vesting under all such plans, and for purposes of calculating
benefits under all such plans but not for purposes of calculating the amount of
any benefit under Employer's defined benefit retirement plan. Executive will be
entitled to the use of an executive class company car at Employer's expense on
terms no less favorable than those provided to Employer's executives generally.
The Executive shall be entitled to four (4) weeks paid vacation each year.

4. Executive agrees that she shall use her best efforts to promote and
protect the interests of Employer, its parent, subsidiaries and related
corporations, and to devote substantially all of her working time, attention and
energy to performing the duties of her position.

5. Executive will not either directly or indirectly use for her own
benefit, or disclose or make known to any person or company, any confidential
information in her possession, or which becomes known to her or is developed
while she has been or is employed by Employer (the "confidentiality provision").
In light of her position and the confidential information that necessarily will
be imparted to her, Executive agrees that she will not compete with Coty or the
Employer in the fragrance or color cosmetics business in the United States, or
solicit employees of Coty or the Employer during the period of her employment
hereunder and for a period of two (2) years from the date of Executive's
termination of employment (the "non-compete provision"). Notwithstanding the
preceding sentence, in the event Executive's employment terminates and Coty or
Employer enforces the "non-compete provision," and Executive is not receiving
any other payments from Employer or Coty as provided hereunder, Executive shall
be entitled to receive from Employer during the time, if any, the "non-compete
provision" is being enforced by Employer or Coty the Base Salary that Executive
was receiving at the time of such termination. The confidentiality provision
shall survive any termination of this Agreement.

6. (a) In the event that Employer terminates the employment of Executive
for reasons other than for Cause (as defined below) or Executive resigns for
Good Reason (as defined below), Executive shall be entitled to severance
benefits under Employer's policies. In addition, in such event Executive will be
paid her Base Salary through the end of the Term, plus any Awards deemed earned
and due and owing under the Performance Plan and less any severance payments
paid Executive pursuant to this Agreement.

(b) Executive shall be required to mitigate the amount of any payment
provided for pursuant to this Agreement by seeking other comparable employment
within a reasonable commuting distance of her home, taking into account the
provisions of Section 5 of this Agreement. Anything in this Agreement to the
contrary notwithstanding, in the event that Executive provides services for pay
to anyone other than Employer or any of its affiliates or subsidiaries from the
date Executive's employment hereunder is terminated until the end of the Term,
the amounts paid to Executive during such period

<PAGE>

pursuant to this Agreement shall be reduced by the amounts of salary, bonus or
other cash compensation earned by Executive during such period as a result of

Executive's performing such services.

(A) Intentional malicious destruction of Employer or Coty property;
intentional or deliberate misconduct; intentional or deliberate failure to act
in the best interests of Employer or Coty or a significant breach of reasonable
rules established by Employer or Coty; provided, that Employer or Coty has
advised Executive of the charges against Executive and given Executive a
reasonable period of time to correct her conduct, actions or breach and
Executive has failed to do so; or

(B) Executive shall commit acts constituting a felony involving (1)
moral turpitude materially adversely reflecting on the Employer or (2)
dishonesty having a material adverse effect on the financial performance of the
Employer or Coty, provided in each case that until any dispute concerning the
applicability of this Section 6 (c) (i) (B) is resolved, Executive shall be paid
her Base Salary and continue to participate in Employer's benefit plans.

(ii) "Good Reason" shall mean termination at the election of Executive
based on any of the following:

(A) Without Executive's express written consent, the assignment of
Executive to a position other than Senior Vice President Market Development,
with day-to-day responsibility for, and authority over, the development and
introductory marketing of new products relating to the fragrance and color
cosmetics business of Employer or to a position not reporting to the
President/General Manager of Employer, except in connection with the termination
of this employment for Cause, or normal retirement, death, or by the Executive
other than for Good Reason; or

<PAGE>

(E) Separation of Executive's office location from the principal
corporate office of Employer or relocation outside the contiguous United States.

7. Employer shall have the right to terminate the Agreement immediately
with no further liability under the terms of this Agreement, should Executive
terminate her employment without Good Reason, or if Executive is discharged by
Employer for Cause, subject to payments that are due under this Agreement.

8. If Executive is required to seek judicial enforcement of her rights
under this Agreement and Executive prevails in such proceeding, Executive shall
be entitled to be reimbursed by Employer for her reasonable attorney fees.

9. This Agreement shall be construed under the laws of the State of New
York.

10. This Agreement supersedes all prior agreements, negotiations and
understandings of any kind with respect to the subject matter hereof and
contains all of the terms and provisions of agreement between the parties hereto
with respect to the subject matter hereof. Any representation, promise or
condition, whether written or oral, not specifically incorporated herein, shall
be of no binding effect upon the parties.

11. (a) If any portion of this Agreement is held invalid or unenforceable
by a court of competent jurisdiction, that portion only shall be deemed deleted
as though it had never been included herein but the remainder of this Agreement
shall remain in full force and effect.

<PAGE>

12. No modification, termination or waiver of any provision of
this Agreement shall be valid unless it is in writing and signed by all
parties hereto.

13. Employer and Coty represent that each has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations

under this Agreement, and that this Agreement is enforceable against each in
accordance with its terms.

COTY INC. Agreed to by:

By /s/Jean-Andre Rougeot /s/ Mary Manning
--------------------- ----------------
Name: Jean-Andre Rougeot Executive
Title: Executive Vice President

COTY US INC.
Employer

By /s/ Jean-Andre-Rougeot
----------------------
Name: Jean-Andre Rougeot
Title: President and Chief Executive Officer

<PAGE>

Exhibit 10.26

January 15, 1998

Mr. Victor E. Zast
1010 Miami Road
Willmette, IL 60091

Re: Separation Agreement

Dear Victor:

As we discussed, your employment with Coty US Inc. ("Coty") will
terminate on December 31, 1997 (the "Termination Date"). The following is
our agreement with you concerning the termination of your employment with
Coty.

1. (a) Effective December 31, 1997, your employment with Coty
terminated and you were paid your salary through your Termination Date. You will
be paid for any accrued unused vacation time. Under Coty's Severance Policy, you
are eligible to receive payments equal to ten (10) weeks base salary (the
"Severance Payments"), to be paid on regular payroll dates for the period
commencing January 1, 1998 through March 13, 1998 (the "Severance Period").
Under the Severance Policy, the Severance Payments are to be paid, subject to
the usual withholdings, and will be paid irrespective of whether you have
accepted employment with another company before that date. Your current Coty
group medical and dental health benefits will continue through the Severance
Period. Thereafter, you will qualify to continue your group health benefits at
your own expense pursuant to COBRA, and you will be receiving a separate letter
setting forth more fully your rights to such continuation coverage.

(b) In the alternative, and in lieu of your receiving any
Severance Payments, Coty will provide you with thirty-six (36) separation
payments, each in the gross amount of $12,500 (the "Separation Payments") in
consideration of your executing this agreement and general release ("Agreement
and Release"). The Separation Payments will be paid to you on regular
semi-monthly payroll dates immediately following the Termination Date
(commencing on or about January 15, 1998 and continuing through June 30, 1999),
also subject to the usual withholdings, and will be paid irrespective of whether
you have accepted employment with another company before that date.

2. (a) In further consideration of your executing this Agreement
and Release, until the earlier to occur of (i) or (ii) immediately below, you
will continue to be covered by the Coty group medical and dental plan to the
extent that you remain eligible under their terms:

(i) June 30, 1999;

<PAGE>

(ii) the date on which you become covered or become eligible
to be covered under the benefit plan of another employer.

(b) In consideration of this coverage, you will advise Coty
promptly, in writing, of your acceptance of employment with any new employer and
the date of commencement of your coverage under that employer's employee benefit
plans.

(c) As of the Termination Date, or, if you sign this
Agreement and Release, at the end of the Separation Payment Period, you will be
contacted concerning your entitlement to continue your health insurance coverage
through COBRA. The additional medical and dental benefits set forth in this
paragraph are hereinafter referred to as the "Additional Benefits". All other
benefits will cease as of the Termination Date.

3. Regardless of whether you execute this Agreement and Release,
Coty hereby waives compliance by you with any non-compete agreement which you
may have signed. Effective as of the Termination Date, you will be free to
accept employment with any other employer irrespective of whether that employer
is a competitor of ours. Notwithstanding the foregoing, you agree not to use or
disclose any confidential information of Coty, Coty Inc., Joh. A. Benckiser GmbH
or any of their affiliated companies. You also will continue to be bound by and
will comply with the terms and conditions of the confidentiality provisions of
any agreement which you may have signed, and your obligations not to use or
disclose confidential information shall survive your termination of employment
and any termination of this Agreement and Release.

4. You confirm that the Separation Payments and Additional
Benefits provided to you by Coty as set forth above are in addition to that to
which you would have been entitled absent this Agreement and Release, and as
such constitute good and valuable consideration. In consideration of the
Separation Payments and Additional Benefits, you hereby release Coty, Coty Inc.,
their parent, their ultimate parent, their respective subsidiaries and
affiliated companies, and each of their respective past and present officers,
directors, agents and employees ("Released Parties") from all claims (other than
claims for payments provided for under this Agreement and Release), including
attorneys' fees, which you, your heirs, legal representatives, executors or
administrators ever had, now have or hereafter can, shall or may, have for,
upon, or by reason of any matter, cause or thing whatsoever against the Released
Parties or any of them from the beginning of the world to the date of your
execution of this Agreement and Release, including but not limited to claims
arising from your employment with Coty or the termination thereof, claims of
discrimination under any federal, state or local law, rule or regulation, claims
under any express or implied contract, and claims of wrongful termination,
tortious conduct, libel, slander or defamation. You further waive and release
all rights, claims, complaints, causes of action, demands and administrative
proceedings which you have or may have against the Released Parties under the
Age Discrimination in Employment Act of 1967, codified at 29 U.S.C. ss. 621 et
seq., and all amendments thereto ("ADEA").

5. You represent that you have not filed any complaints or
charges against the Released Parties with any local, state or federal agency or
court, and that you will not at any time hereafter file any complaints or
charges arising from your employment or the termination thereof, and that if any
such agency or court assumes jurisdiction of any such complaint or charge
against the Released Parties on behalf of you, you will immediately request such
agency or court not to exercise such jurisdiction and will in no event
participate personally or otherwise in any such proceeding.

6. You agree that you will keep the terms, amount and facts of
this Agreement and Release completely confidential, and that you will not
hereafter disclose any information concerning this Agreement and Release to
anyone including, but not limited to, any past, present, or prospective
employees or applicants for employment with Coty, its parents, subsidiaries or
affiliated companies, except to your spouse, your attorney or in connection with
preparation of tax returns or other financial planning or as otherwise required
by law. You also agree not to make any disparaging statements concerning any of
the Released Parties. In the event you breach any obligation under this
Agreement

<PAGE>

and Release, including but not limited to breach of the terms of this paragraph,
you agree that you will forfeit all rights to the Separation Payments provided
to you pursuant to this Agreement and Release, that you will immediately repay
to Coty any Separation Payments received by you and that you will pay the
reasonable attorney's fees, expenses and costs of litigation incurred by Coty in
prosecuting or asserting any claim for damages it may have as a result of said
breach.

7. You agree to return forthwith to Coty all Coty property in
your possession, including but not limited to, any and all credit cards, Telzon
units, answering machines, facsimile machines, filing cabinets, samples, account
papers, travel letters, rapid drafts, papers, presentations, plans, documents,
files, price lists, product information, drawings, financial statements, notes,
whatsoever, including all photocopies thereof.

8. You understand and, by your signature below, you agree to all
of the terms and conditions of this Agreement and Release. You also acknowledge
that your signature and agreement are freely, voluntarily and knowingly given.
You further acknowledge that you have been provided a full and fair opportunity
to consult with legal counsel and to review and reflect on the terms of this
Agreement and Release.

9. You acknowledge that no representation, promise or inducement
has been made other than as set forth in this Agreement and Release and that you
do not enter into this Agreement and Release in reliance upon any
representation, promise, or inducement not set forth herein. Except with respect
to any outstanding agreements with regard to your status as a former shareholder
of Quintessence Holdings, Inc., this Agreement and Release sets forth the entire
agreement between you and us concerning the above subject matter and supersedes
any and all other agreements between you and us, whether written or oral, with

respect to the above subject matter. The terms of this Agreement and Release may
not be changed or modified except by an instrument in writing duly signed by you
and by an authorized representative of Coty. The parties agree that nothing
contained in this Agreement and Release shall constitute or be treated as an
admission by any party of liability, wrongdoing, or violation of law.

10. This Agreement and Release shall be governed by and construed
under the laws of the State of New York (without regard to New York conflicts of
laws principles).

11. If any portion of this Agreement and Release is held invalid
or unenforceable by a court of competent jurisdiction or any governmental
agency, that portion only shall be deemed deleted as though it had never been
included herein, but the remainder of this Agreement and Release shall remain in
full force and effect. However, if the release portion of the Agreement and
Release is held invalid or unenforceable by a court of competent jurisdiction or
any governmental agency, any Separation Payments accepted and retained by you
under this Agreement and Release shall be returned immediately to Coty, and Coty
shall have no further obligations under this Agreement and Release.

12. The parties agree that you may revoke this Agreement within
seven (7) days after your execution of the Agreement and Release. Any revocation
within this period must be submitted, in writing, to Mr. W. Patrick Lawrence,
Vice President of Human Resources at Coty Inc., 1325 Avenue of the Americas, New
York, New York 10019, stating "I hereby revoke my acceptance of our Agreement."
The revocation must be personally delivered to W. Patrick Lawrence or mailed to
him and postmarked within seven (7) days of your execution of the Agreement and
Release. If the last day of the revocation period is a Saturday, Sunday, or
legal holiday, the revocation period shall be extended to the following day
which is not a Saturday, Sunday, or legal holiday. The parties agree that this
Agreement and Release shall not become effective or enforceable until executed
by both parties and until the revocation period has expired. You agree that if
you do not execute the Agreement or in the event of revocation, you will
immediately return to Coty any of the Separation Payments paid to you by Coty
pursuant to this Agreement and Release.

13. As noted above, because we are offering you more than the
payments and benefits to which you are entitled, we are requiring you to sign
the Agreement and Release. Before signing the Agreement and Release we advise
you to talk to your attorney. You acknowledge that you were provided with a copy
of the Agreement and Release dated December 19, 1997 and that you are being
provided with 21

3
<PAGE>

days from the date you have received the Agreement and Release within which to
consider it, sign the Agreement and Release and return it to us.
COTY INC.

By: /s/ Jean-Andre Rougeot
----------------------
ACCEPTED AND AGREED TO: Jean Andre Rougeot
President, Coty Division

/s/ Victor E. Zast
- ------------------
Victor E. Zast

- ------------------------
Date

<PAGE>

Exhibit 10.27

INTER-COMPANY AGREEMENT

THIS AGREEMENT is made as of the 1st day of February 1998, BY AND BETWEEN Coty
US Inc. and its subsidiaries (the "Employer") and Coty Inc. (the "Company"),
whose principal office is at 1325 Avenue of the Americas, New York, NY 10019.

WITNESSETH
----------

WHEREAS, the Employer employs its own employees and in order to encourage and
reward their continued service as its employees has secured for selected
employees the opportunity to acquire a direct equity interest in the Company and
for those purposes has agreed with the Company that arrangements should be made
to grant these employees an opportunity to participate in any increase in the
value of the Company;

WHEREAS, the "Coty Inc. Long Term Incentive Plan" provides for the granting of
Company stock to employees of the Company and its affiliates, and the Employer
is an affiliate of the Company;

WHEREAS, the Company has arranged to facilitate the granting of Company stock to
employees of the Employer, and;

WHEREAS, the Company and the Employer have agreed that the costs incurred by
Company set out in this agreement relating to the prior grant of options to
selected employees of the Employer, and the exercise of those options by those
employees should be borne by the Employer as being beneficial in the furtherance
of Employer's business and as a condition of the Company allowing those
employees to continue to participate in the Plan;

NOW IT IS AGREED to record the terms of that agreement as follows:

PART I - DEFINITIONS
--------------------

1. Definitions

In this Agreement these terms shall have these meanings:

(1) "Affiliate" shall mean any corporation in which the Company
possesses directly or indirectly fifty per cent (50%) or more of the
total combined voting power of all classes of its stock or
partnership or other control interests, as the case may be.

(2) "Award" shall mean Company stock granted to Employees by the Company
or by one of its Affiliates pursuant to the Plan.

(3) "Employees" shall mean those directors and employees of the Employer
who are selected to receive an Award.

(4) "Plan" shall mean the Coty Inc. Long Term Incentive Plan.

1
<PAGE>

(5) "Valuation Date" means the date on which an Employee receives
Company stock under the terms of an Award made to him.

(6) "Value" means, with respect to each Employee, the fair market value
on the applicable Valuation Date of the Company stock awarded to
Employee reduced by any consideration paid by the Employee to the
Company upon purchase of the stock. The fair market value shall be
determined as provided in the Plan.

(7) In this Agreement any reference to the singular shall include the
plural and vice versa and any reference to the masculine gender
shall include a reference to all other genders.

2. Provision of Employee Awards

The Company hereby agrees with the Employer that it will arrange for the
provision of such Awards to such of the Employees as may from time to time be
agreed between them.

3. Consideration for Award Provision

In consideration of the undertaking by the Company to make or arrange for the
provision of Awards hereunder for the Employees, the Employer undertakes that,
after the relevant Valuation Date in respect of any Award, it will as soon as
reasonably practicable, after receipt by the Employer of a notice from the
Company specifying the Value, pay to the Company an amount equal to the Value of
the Awards granted to the Employees.

4. Governing Law

This Agreement shall be governed by and construed and enforced in accordance
with the law of the State of New York, United States of America. This Agreement
shall become binding upon the parties when executed by both parties.

5. Consent to Jurisdiction

With respect to any provision of this agreement or the Plan, the parties to this
agreement agree to submit to the exclusive jurisdiction of the courts of the
State of New York, United States of America, all disputes concerning the
interpretation or operation of the Plan and this Agreement.

6. Notice

Every notice or other communication relating to this Agreement shall be in
writing, and shall be mailed, delivered or sent by facsimile to the party for
whom it is intended at such address as may from time to time be designated by it
in a notice so mailed, delivered or sent to the other party; in accordance with
this Agreement; provided, that unless and until some other address is so
designated, all notices or communications by the Company to the Employer or by

the Employer to the Company shall be so mailed, delivered or sent to their
respective office addresses set out herein.

7. Entire Agreement

2
<PAGE>

This Agreement and the other related agreements referred to herein set forth the
entire agreement and understanding between the parties hereto and supersedes all
prior agreements relating to the subject matter hereof. Any amendment or
modification to this Agreement shall be in writing and must be signed by both
the Company and the Employer.

8. Severability

The invalidity or unenforceability of any one or more provisions of this
Agreement or any part or parts thereof shall not affect the validity or
enforceability of all or part of any other provision of this Agreement which
shall remain in full force and effect.

9. Counterparts

This Agreement may be executed in one or more counterparts, each of which when
executed shall be an original but which shall together constitute one and the
same agreement.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first before written.

Coty US Inc. and its subsidiaries

By: /s/Daniel J. Finnegan
(Signature)

Name: Daniel J. Finnegan
-----------------------------
Title: Vice President Finance
-----------------------------

COTY INC.

By: /s/ W. Patrick Lawrence, II
-------------------------------------
Name: W. Patrick Lawrence, II
-------------------------------------
Title: Vice President, Human Resources
-------------------------------------

<PAGE>

Exhibit 10.28

INTER-COMPANY AGREEMENT

WITNESSETH
----------

WHEREAS, the "Coty Inc. Long Term Incentive Plan" provides for the granting of
Company stock to employees of the Company and its affiliates, and the Employer
is an affiliate of the Company;

WHEREAS, the Company has arranged to facilitate the granting of Company stock to
employees of the Employer, and;

WHEREAS, the Company and the Employer have agreed that the costs incurred by
Company set out in this agreement relating to the future grant of options to
selected employees of the Employer, and the exercise of those options by those
employees should be borne by the Employer as being beneficial in the furtherance
of Employer's business and as a condition of the Company allowing those
employees to continue to participate in the Plan;

NOW IT IS AGREED to record the terms of that agreement as follows:

PART I - DEFINITIONS
--------------------

1. Definitions

In this Agreement these terms shall have these meanings:

(1) "Affiliate" shall mean any corporation, in which the Company
possesses directly or indirectly fifty per cent (50%) or more of the
total combined voting power of all classes of its stock or
partnership or other control interests, as the case may be.

(2) "Award" shall mean Company stock granted to Employees by the Company
or by one of its Affiliates pursuant to the Plan.

(3) "Employees" shall mean those directors and employees of the Employer
who are selected to receive an Award.

(4) "Plan" shall mean the Coty Inc. Long Term Incentive Plan.

(5) "Valuation Date" means the date on which an Employee receives
Company stock under the terms of an Award made to him.

<PAGE>

(7) In this Agreement any reference to the singular shall include the
plural and vice versa and any reference to the masculine gender
shall include a reference to all other genders.

2. Provision of Employee Awards

The Company hereby agrees with the Employer that it will arrange for the
provision of such Awards to such of the Employees as may from time to time be
agreed between them.

3. Consideration for Award Provision

4. Governing Law

5. Consent to Jurisdiction

6. Notice

this Agreement; provided, that unless and until some other address is so
designated, all notices or communications by the Company to the Employer or by
the Employer to the Company shall be so mailed, delivered or sent to their
respective office addresses set out herein.

7. Entire Agreement

<PAGE>

8. Severability

9. Counterparts

This Agreement may be executed in one or more counterparts, each of which when
executed shall be an original but which shall together constitute one and the
same agreement.

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first before written.

Coty US Inc. and its subsidiaries

By: /s/ Daniel J. Finnegan
-------------------------------------
(Signature)

Name: Daniel J. Finnegan
--------------------------------------
Title: Vice President Finance
--------------------------------------

COTY INC.

By: /s/ W. Patrick Lawrence, II
-------------------------------------

Name: W. Patrick Lawrence, II
---------------------------------------
Title: Vice President, Human Resources
---------------------------------------

<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 31, 1997, Statement of Operations and
Statement of Cash Flows for the period ended December 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 17,678
<SECURITIES> 0
<RECEIVABLES> 76,245
<ALLOWANCES> 5,344
<INVENTORY> 83,495
<CURRENT-ASSETS> 219,216
<PP&E> 48,263
<DEPRECIATION> 19,680
<TOTAL-ASSETS> 558,626
<CURRENT-LIABILITIES> 195,133
<BONDS> 131,951
0
95,825
<COMMON> 0
<OTHER-SE> 83,371
<TOTAL-LIABILITY-AND-EQUITY> 558,626
<SALES> 405,458
<TOTAL-REVENUES> 405,458
<CGS> 147,708
<TOTAL-COSTS> 147,708
<OTHER-EXPENSES> 215,171
<LOSS-PROVISION> 375
<INTEREST-EXPENSE> 21,334
<INCOME-PRETAX> 18,297
<INCOME-TAX> 11,110
<INCOME-CONTINUING> 7,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,187
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>