UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 31, 1996
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 1-6370
FRENCH FRAGRANCES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0914138
(State of incorporation) (IRS Employer
Identification No.)
14100 N.W. 60th Avenue
Miami Lakes, Florida 33014
(Address of principal (Zip code)
executive offices)
(305) 620-9090
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Outstanding at
Class September 12, 1996
Common stock, $.01 par value 13,127,715 shares
<PAGE>
FRENCH FRAGRANCES, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 31, 1996 and January 31, 1996
Unaudited Condensed Consolidated
Statements of Income - Three and Six-Months
Ended July 31, 1996 and 1995
Unaudited Condensed Consolidated
Statements of Cash Flows - Six-Months Ended
July 31, 1996 and 1995
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, 1996 January 31, 1996
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 945,415 $ 123,960
Accounts receivable, net of allowances
for doubtful accounts and returns of
$741,825 and $637,145, respectively 21,579,622 14,236,326
Inventories 49,032,850 25,850,669
Equipment held for sale -- 1,000,000
Advances on inventory purchases 1,407,278 --
Prepaid expenses and other current
assets 882,210 1,370,777
----------- ----------
Total current assets 73,847,375 42,581,732
INVESTMENT IN UNCONSOLIDATED AFFILIATE 1,950,671 1,708,235
----------- ----------
RESTRICTED CASH AND INVESTMENTS 2,000,000 --
PROPERTY AND EQUIPMENT, NET 12,442,380 11,099,492
----------- ----------
OTHER ASSETS
Exclusive brand licenses and
trademarks, net 46,391,831 14,671,875
Deferred income taxes, net 761,342 761,342
Other intangibles and other assets 938,448 561,138
----------- ----------
Total other assets 48,091,621 15,994,355
----------- ----------
TOTAL ASSETS $138,332,047 $71,383,814
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 35,386,649 $16,713,333
Accounts payable - trade 17,708,237 11,115,664
Other payables and accrued expenses 5,717,359 3,250,365
Current portion of capital lease,
installment loans and mortgage 285,594 201,630
Loans from shareholders -- 410,000
Convertible subordinated debentures 600,000 600,000
Due to affiliates, net 1,815,022 2,268,819
----------- ----------
Total current liabilities 61,512,861 34,559,811
LONG-TERM LIABILITIES
Secured subordinated debentures 10,829,788 11,681,500
Subordinated debentures 11,080,000 --
Convertible subordinated debentures 5,460,000 --
Mortgage note 5,876,251 --
Capital lease and installment loans 1,190,000 1,269,860
Term loans and HBI note 5,333,333 4,333,333
----------- ----------
Total liabilities 101,282,233 51,844,504
----------- ----------
COMMITMENTS
REDEEMABLE PREFERRED STOCK
Series A, $.01 par value; stated at
liquidation preference value of
$100 per share; 20,000 shares
authorized and outstanding at
January 31, 1996 -- 2,000,000
SHAREHOLDERS' EQUITY
Convertible, redeemable preferred
stock, Series B, $.01 par value
(liquidation preference of $.01
per share); 350,000 shares
authorized; 332,806 and 350,000
shares issued and outstanding,
respectively 3,328 3,500
Convertible, redeemable preferred
stock, Series C, $.01 par value
(liquidation preference of $.01
per share); 571,429 shares authorized,
issued and outstanding 5,714 --
Common stock, $.01 par value, 50,000,000
shares authorized; 13,127,715 and
9,641,290 shares issued and
outstanding, respectively 131,277 96,413
Additional paid-in capital 28,834,654 10,333,539
Retained earnings 8,074,841 7,105,858
----------- ----------
Total shareholders' equity 37,049,814 17,539,310
----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $138,332,047 $71,383,814
=========== ==========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Six Months
Ended Ended
July 31, July 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $23,802,106 $14,913,452 $43,118,599 $30,645,569
COST OF SALES 15,237,358 11,428,951 28,693,346 24,119,489
---------- ---------- ---------- ----------
Gross Profit 8,564,748 3,484,501 14,425,253 6,526,080
OPERATING EXPENSES
Warehouse and shipping 1,004,213 602,340 1,809,724 1,130,471
Selling 3,283,829 1,332,941 5,682,992 2,330,199
General and
administration 768,052 431,109 1,471,223 814,738
Depreciation and
amortization 994,935 305,955 1,527,236 591,862
---------- ---------- ---------- ----------
Total operating
expenses 6,051,029 2,672,345 10,491,175 4,867,270
INCOME FROM OPERATIONS 2,513,719 812,156 3,934,078 1,658,810
OTHER INCOME (EXPENSE)
Interest income 1,813 1,429 4,442 7,326
Interest expense (1,812,375) (1,028,710) (3,013,833) (1,823,975)
Other 186,164 2,210 325,710 (4,257)
---------- ---------- ---------- ----------
Other income
(expense), net (1,624,398) (1,025,071) (2,683,681) (1,820,906)
---------- ---------- ---------- ----------
INCOME BEFORE EQUITY IN
EARNINGS OF UNCONSOLI-
DATED AFFILIATE AND
PROVISIONS FOR INCOME
TAXES 889,321 (212,915) 1,250,397 (162,096)
EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATE,
50% OWNED 150,966 42,000 242,435 171,878
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES 1,040,287 (170,915) 1,492,832 9,782
PROVISION FOR (BENEFIT
FROM) INCOME TAXES 363,648 (61,831) 523,849 (29,190)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 676,639 $ (109,084) $ 968,983 $ 38,972
========== ========== ========== ==========
Earnings (loss) per
common share equivalent:
Primary $0.06 $(0.02) $0.08 $0.01
==== ===== ==== ====
Fully diluted $0.06 $(0.02) $0.08 $0.01 <PAGE>
==== ===== ==== ====
Weighted average number of
common share equivalents:
Primary 12,281,453 7,120,000 11,728,719 7,120,000
========== ========= ========== =========
Fully diluted 12,281,453 7,120,000 11,883,575 7,120,000
========== ========= ========== =========
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
July 31,
1996 1995
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income $ 968,983 $ 38,972
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation and amortization 1,527,236 591,862
Equity in earnings of unconsolidated
affiliate (242,435) (171,878)
Deferred tax benefit -- (96,000)
Change in assets and liabilities net
of effects from the acquisitions:
Increase in accounts receivable (7,343,295) (1,050,292)
(Increase) decrease in inventories (23,226,128) 1,025,150
Decrease (increase) in prepaid expenses
and other current assets 1,006,460 (355,276)
Increase (decrease) in accounts payable 6,592,573 (204,386)
(Decrease) increase in other payables and
accrued expenses (588,100) 1,230,717
(Decrease) increase in due to affiliate,
net (977,166) 942,372
----------- -----------
Net cash (used in) provided by operating
activities (22,281,872) 1,951,241
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash restricted for capital improvements (2,000,000) --
Cash portion of purchase of exclusive
brand license (18,974,638) (18,370,655)
Additions to property and equipment,
net of disposals (666,649) (171,917)
----------- -----------
Net cash used in investing activities (21,641,287) (18,542,572)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock offering 18,071,825 --
Proceeds from the grant of stock purchase
warrants 40,000 --
Proceeds from the issuance of preferred stock 5,714 3,500
Proceeds from the issuance of secured
subordinated debentures 3,000,035 8,221,500
Advances from unconsolidated affiliate, net 523,369 123,137
Proceeds from term loans 8,960,000 7,000,000
Payments on term loans (9,833,333) (333,333)
Net proceeds from short-term debt 18,506,649 1,122,025
Payments on capital lease and installment
loans (110,477) (109,557)
(Payment to) loans from shareholders (410,000) 250,000
Proceeds from bridge and inventory loans 7,000,000 --
Payment of bridge and inventory loans (7,000,000) --
Proceeds from mortgage 6,000,000 -- <PAGE>
Payments on mortgage (9,168) --
----------- -----------
Net cash provided by financing activities 44,744,614 16,277,272
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 821,455 (314,059)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 123,960 646,149
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 945,415 $ 332,090
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 2,354,167 $ 1,633,567
=========== ===========
Income taxes paid during the period $ 853,441 $ 575,000
=========== ===========
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND BUSINESS
French Fragrances, Inc. ("FFI") is a manufacturer,
distributor and marketer of prestige designer fragrances and
related cosmetic products, primarily to mass retailers in the
United States. FFI was formed in 1992 to acquire the net assets
of the fragrance and cosmetics distribution business of National
Trading Manufacturing, Inc. ("National Trading"). On November
30, 1995, FFI merged with Suave Shoe Corporation ("Suave") in a
reverse acquisition (the "Merger"). Following the Merger,
Suave, as the surviving corporation, changed its name to "French
Fragrances, Inc." The principal business operations following
the Merger consist of the fragrance business previously conducted
by FFI. In connection with the Merger, FFI has relocated its
fragrance distribution facilities to the larger facility formerly
occupied by Suave in Miami Lakes, Florida (the "Suave Facility").
All references to FFI in these condensed consolidated
financial statements and notes refer to the company organized in
1992 until the November 30, 1995 Merger and to the surviving
corporation following the Merger. The consolidated financial
statements also include the accounts of FFI's wholly-owned
subsidiaries GB Parfums, Inc. and Halston Parfums, Inc. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
The condensed consolidated financial statements included
herein have been prepared by FFI pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"Commission") for interim financial information. As such
financial statements do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements, they should be read in
conjunction with the financial statements and related footnotes
included in FFI's Form 10-K for the year ended January 31, 1996
and in FFI's Form 10-Q for the quarter ended April 30, 1996,
filed with the Commission.
The condensed consolidated balance sheet of FFI as of
January 31, 1996 is audited. The other condensed consolidated
financial statements are unaudited, but in the opinion of
management contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the condensed
consolidated balance sheet of FFI as of July 31, 1996 , the
condensed consolidated statements of income of FFI for the three
and six months ended July 31, 1996 and 1995, and the condensed
consolidated statements of cash flow for the six months ended
July 31, 1996 and 1995. Operating results for the three or six
months ended July 31, 1996 are not necessarily indicative of the
results for the full fiscal year.
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Long Lived Assets - FFI adopted the provisions of SFAS No.
121 effective for the six months ended July 31, 1996. Long lived
assets are reviewed on an ongoing basis for impairment.
Estimated fair value is calculated using discounted cash flow
methods and other valuation techniques, such as appraisals.
Earnings per Share - Earnings per share is based on the
weighted average number of common shares outstanding and includes
the effect of the issuance of shares in connection with the
assumed exercise of dilutive stock options and warrants and the
assumed conversion of dilutive convertible preferred stock.
Fully diluted earnings per share reflects additional dilution due
to the use of the market price at the end of the period when
higher than the average market price for the period, and does not
assume the conversion of the convertible subordinated debentures
with corresponding adjustments for interest expense, net of tax,
since the effect of such conversion is anti-dilutive. Earnings
per share for the three and six months ended July 31, 1995 were
computed using the number of common shares received by the
shareholders of FFI in connection with the Merger. Earnings per
share for the three and six months ended July 31, 1996 are
calculated based on the actual number of common shares and common
share equivalents outstanding.
Restricted Cash and Investments - Restricted cash and
investments consist of cash and investments held in trust
and committed for capital improvements on the Suave Facility.
NOTE 3. ACQUISITIONS
Halston Acquisition - In March 1996, FFI completed the
acquisition (the "Halston Acquisition") from Halston Borghese,
Inc. ("HBI") and its affiliates of certain assets relating to the
Halston fragrance brands including the trademarks and certain
inventory and tangible assets. The purchase price was
approximately $22,000,000 and was paid as follows: (i)
$19,000,000 in cash; and (ii) a $2,000,000 note issued to HBI
maturing March 20, 2000 (the "HBI Note"), which is to be
repaid on a quarterly basis in an amount equal to 5% of the net
sales revenues of FFI from the sale of the Halston brands,
provided that no payments are due until October 15, 1997 and that
the accrued amount bears interest at 8% per annum. FFI also
assumed approximately $1,000,000 in trade payables. The cash
portion of the purchase price was financed as follows: (a)
$3,000,000 from the issuance of 8% Secured Subordinated
Debentures, due 2005, Series II (the "8% Series II Debentures"),
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. ACQUISITIONS (Continued)
and 571,429 shares of Series C Convertible Preferred Stock, $.01
par value ("Series C Convertible Preferred"); and (b) $16,000,000
in term loans from the two banks which are parties to FFI's
credit facility. Each share of Series C Convertible Preferred is
convertible into one share of FFI's Common Stock, $.01 par value
("Common Stock"), upon the payment of a conversion price of $5.25
per share. The term loans consisted of the following: (1) a
$1,000,000 term loan from one of the banks due December 31, 1996,
bearing interest at 0.75% over prime (the "Halston Term Loan 1");
(2) $9,000,000 term loans from both banks on the credit facility
due December 31, 1998, bearing interest at 1.75% over prime
(collectively, the "Halston Term Loan 2"); and (3) a $6,000,000
term loan bearing interest at 2% over prime from one of the banks
due June 14, 1996 (the "Bridge Loan"). In June 1996, FFI issued
a mortgage in the amount of $6,000,000 on the Suave Facility to
repay the Bridge Loan. The mortgage note provides for interest
at 8.84%, a 20-year amortization schedule and a maturity date
eight years from issuance. Of the $6,000,000 mortgage note,
$2,000,000 is being held in escrow for the completion of the
capital improvements on the Suave Facility. In July 1996, with a
portion of the net proceeds received from the public offering
(the "Offering") of 3,364,000 shares of Common Stock, FFI repaid
the Halston Term Loan 1 and the Halston Term Loan 2. See Note 4.
FMG Acquisition - In May 1996, FFI completed the acquisition
(the "FMG Acquisition") of certain assets of Fragrance Marketing
Group, Inc. ("FMG"), including contract rights under certain
license and exclusive distribution agreements in the United
States for the Ombre Rose, Lapidus, Faconnable, Balenciaga,
Bogart, Chevignon and Niki de Saint Phalle fragrance brands,
inventory, accounts receivable and tangible assets. In addition,
FFI assumed approximately $3,100,000 of certain trade and other
payables of FMG and discharged approximately $600,000 of accounts
receivable due from FMG. In addition to the payables assumed and
the discharge of the receivable, the consideration for the assets
included approximately $4,300,000 in cash, $11,100,000 aggregate
principal amount of 8.5% Subordinated Debentures (the "8.5%
Debentures") and $900,000 of FFI inventory delivered to FMG. FFI
also issued to FMG (for assignment to its shareholders and senior
management) warrants for an aggregate of 1,075,000 shares of
Common Stock, which will be exercisable at $7.50 per share from
July 1997 to January 2002. The cash portion of the purchase
price was financed from FFI's revolving credit facility. The
8.5% Debentures consist of: (i) a $4,000,000 8.5% Debenture
which requires mandatory principal payments of $2,000,000 in May
1998 and 1999; (ii) a $7,000,000 8.5% Debenture which requires
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. ACQUISITIONS (Continued)
mandatory annual principal repayments of $2.33 million commencing
May 2002, with the remaining balance due May 2004; and (iii) a
$100,000 8.5% Debenture which requires mandatory annual principal
repayments of $33,000 commencing May 2002, with the remaining
balance due May 2004. In addition, warrants for 160,000 shares
of common stock, which will be exercisable at $7.50 per share
from July 1997 to January 2002, were issued to certain key
employees of FMG as an inducement to join FFI.
The following unaudited information presents FFI's pro forma
operating data for the six months ended July 31, 1996 and 1995 as
if the Halston Acquisition and the FMG Acquisition had been
consummated at the beginning of each of the periods presented and
include certain adjustments to the historical consolidated
statements of income of FFI to give effect to the acquisition of
intangible trademarks and associated rights, license and
distribution arrangements and other acquired net assets, the
payment of the purchase prices in such acquisitions, the
related issuances of additional indebtedness by FFI, and the
increased amortization of intangible assets. The Halston
fragrance brands acquired were not operated or accounted
for separately by HBI. In addition, HBI had never segregated
indirect operating cost information relative to these brands.
Accordingly, the pro forma adjustments reflect the historical net
sales, cost of sales and direct operating expenses of the Halston
fragrance brands for the period from January 1, 1996 through
March 20, 1996 and for the six months ended June 30, 1995.
Direct operating expenses consist principally of marketing,
advertising and demonstrator expenses and exclude selling,
general and administrative, research and development, interest,
income tax and amortization of intangible expenses. The
unaudited pro forma financial data are not indicative of the
results of operations that would have been achieved had the
transactions been consummated prior to the periods in which they
were completed, or that might be attained in the future.
<TABLE>
<CAPTION>
Pro Forma
Six Months Ended
July 31, 1996 July 31, 1995
------------- -------------
<S> <C> <C>
Net sales $46,542,000 $41,259,000
Net income (loss) $ 29,000 $(1,130,000)
Net income (loss)
per share(s) $ .-- $ (.16)
</TABLE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PUBLIC OFFERING OF COMMON STOCK
In July 1996, FFI completed the Offering of 3,364,000 shares
of Common Stock at a price of $6.00 per share. FFI realized
approximately $18,000,000 of net proceeds from the Offering.
Approximately $9,300,000 of the net proceeds were used to repay
the outstanding balance of the Halston Term Loan 1 and the
Halston Term Loan 2, and the balance of the net proceeds were
used to reduce outstanding borrowings under FFI's credit
facility. See Notes 3 and 7. In connection with the Offering,
FFI issued warrants for an aggregate of 162,500 shares of Common
Stock to the representatives of the underwriters, exercisable at
$7.20 per share from June 28, 1997 to June 28, 1999.
NOTE 5. EXCHANGE OFFER
In July 1996, FFI also consummated an exchange offer (the
"Exchange Offer"), pursuant to which FFI issued $5,460,000
principal amount of 7.5% Subordinated Convertible Debentures Due
2006 (the "7.5% Convertible Debentures") in exchange for the
20,000 outstanding shares of Series A Preferred Stock, $.01 par
value ("Series A Preferred"), and the $3,460,000 principal amount
of outstanding principal amount of 12.5% Secured Subordinated
Debentures Due 2002 (the "12.5% Debentures"). Pursuant to the
Exchange Offer, each share of Series A Preferred was exchanged
for $100 principal amount of 7.5% Convertible Debentures, and
each outstanding 12.5% Debenture was exchanged for the equivalent
principal amount of 7.5% Convertible Debentures. The 7.5%
Convertible Debentures (i) are unsecured, (ii) require interest
only payments at 7.5% per annum, payable semi-annually until
maturity ten years from the date of issue, at which time the
entire principal amount and any unpaid accrued interest is due
and payable, (iii) are convertible at any time, at the option of
the holder, into shares of Common Stock at $7.20 per share (the
"Conversion Price"), and (iv) are redeemable, at the option of
FFI, at their principal amount commencing three years from the
date of issue, but only in the event the Common Stock, at the
time the redemption notice is delivered by FFI, has been trading
at no less than 200% of the Conversion Price for 20 consecutive
trading days. The shares of Series A Preferred will be canceled.
NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE
The following represents condensed financial information of
Fine Fragrances, Inc. ("Fine Fragrances"), a fragrance
distribution company which is 50% owned by FFI; FFI's investment
in Fine Fragrances is accounted for under the equity method:
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE (Continued)
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
<S> <C> <C>
Current assets $3,746,810 $3,284,066
Other assets 1,465,145 742,265
--------- ---------
Total assets $5,211,955 $4,026,331
========= =========
Current liabilities $1,596,802 $ 970,716
Shareholders' equity 3,615,153 3,055,615
--------- ---------
Total liabilities and
shareholder's equity $5,211,955 $4,026,331
========= =========
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $1,984,079 $ 983,282 $3,458,203 $1,641,821
========= ======== ========= =========
Net Income $ 335,265 $ 127,586 $ 559,538 $ 418,423
========= ======== ========= =========
</TABLE>
FFI's equity in the net income of Fine Fragrances as
reflected in the accompanying statements of income has been
reduced for the amortization of the exclusive distribution
agreements of Fine Fragrances. The exclusive distribution
agreements are being amortized using the straight-line method
over six years, the term of the agreements.
The reconciliation of the investment in unconsolidated
affiliate is as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
<S> <C> <C>
Equity interest at 50% $1,807,560 $1,527,790
Unamortized exclusive
distribution agreements 143,111 180,445
--------- ---------
Carrying value $1,950,671 $1,708,235
========= =========
</TABLE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INVESTMENT IN UNCONSOLIDATED AFFILIATE (Continued)
Current liabilities primarily relate to a $2,000,000 secured
line of credit from a bank. The interest rate is prime rate plus
2.5% (prime rate was 8.25% at July 31, 1996). The line is
secured by receivables and inventories. The line is subject to
annual review and renewal by the bank in April. Amount
outstanding were $1,433,882 and $912,000 at July 31, 1996 and
January 31, 1996, respectively. There are no other material
commitments or contingencies for Fine Fragrances.
NOTE 7. SHORT-TERM DEBT
In March 1996, FFI entered into a new credit facility with
two banks to replace the existing credit facility. The new
credit facility provides for borrowings on a revolving basis of
up to $30,000,000 (which is increased to $40,000,000 from July 1
to December 31 as an over line for the holiday season).
Borrowings are limited to eligible accounts receivable and
inventories. Borrowings are also collateralized by FFI's shares
of common stock in its subsidiaries and in Fine Fragrances and
all other assets other than the Suave Facility, including
accounts receivable and inventories. The credit facility
contains several covenants, the more significant of which are
that FFI maintain a minimum level of equity and meet certain
debt-to-equity, interest coverage and liquidity ratios. The
credit facility also includes a prohibition on the payment of
dividends and other distributions to shareholders and
restrictions on the incurrence of additional indebtedness. The
new credit facility also includes the term loan issued in
connection with the Geoffrey Beene acquisition in March 1995 of
which $5,333,000 remained outstanding at July 31, 1996. In
connection with the new credit facility, FFI issued to the banks
warrants to purchase 50,000 shares of common stock exercisable at
$5.50 per share. In August 1996, the credit facility was amended
to increase the over line borrowings for the 1996 holiday season
from $40,000,000 to $55,000,000.
NOTE 8. RELATED PARTY TRANSACTIONS
FFI has various monitoring agreements with affiliates of FFI
pursuant to which such affiliates provide financial advisory
services to FFI. In consideration of the services provided, such
affiliates receive annual fees totaling $275,000 which are
payable in quarterly installments. In connection with the
Halston Acquisition, FFI paid one of its affiliates a management
services fee of $200,000 for management and financial advisory
services performed in connection with such acquisition.
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. RELATED PARTY TRANSACTIONS (Continued)
In the normal course of business or from time-to-time, FFI
and its affiliates, Fine Fragrances and National Trading, have
entered into transactions which are reflected on the balance
sheet as Due to affiliates, net. During the six months ended
July 31, 1996, such transactions are summarized as follows:
<TABLE>
<CAPTION>
Fine Due to Due to Total
Fragrances (from) (from) due to
Advances Management Fine National (from)
from Fine Fees and Fragrances, Trading, Affiliates,
Fragrances Other net net net
---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at
January 31, 1996 $1,863,160 $(1,151,436) $ 711,724 $1,557,095 $2,268,819
Advances, net 995,000 995,000 (2,500) 992,500
Management fee (8%) (282,619) (282,619) (282,619)
Interest (10%) 135,939 135,939 135,939
Repayments (324,951) (324,951) (974,666) (1,299,617)
--------- ---------- --------- --------- ---------
Balance at
July 31, 1996 $2,669,148 $(1,434,055) $1,235,093 $ 579,929 $1,815,022
========= ========== ========= ========= =========
</TABLE>
NOTE 9. INCOME TAXES
The provision for income taxes for the three and six months
ended July 31, 1996 was calculated based upon the estimated tax
rate of 39% for the full fiscal year ending January 31, 1997.
NOTE 10. STOCK OPTION PLANS
During the six months ended July 31, 1996, FFI granted
options for 20,000 shares at an exercise price of $5.25 per
share and for 45,000 shares at an exercise price of $6.50 per
share under the 1981 Employee Stock Option and Stock Appreciation
Plan. During the six months ended July 31, 1996, FFI also granted
options for 92,500 shares at an exercise price of $6.50 per share
under the 1995 Stock Option Plan. In addition, during the six
months ended July 31, 1996, FFI granted options for 7,000 shares
at an exercise price of $6.00 per share and for 37,500 shares at
an exercise price of $7.00 per share under FFI's Non-Employee
Director Stock Option Plan.
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES
FFI incurred the following non-cash financing and investing
activities for the six months ended July 31, 1996. During the six
months ended July 31, 1995, FFI incurred no such activities.
HBI Note issued in connection
with the Halston Acquisition $ 2,000,000
==========
7.5% Convertible Debentures issued
in connection with the Exchange Offer $ 5,460,000
==========
Redemption of 8% Debentures used to
pay for conversion of preferred stock $ 403,982
==========
ACQUISITION OF FMG ASSETS
Fair value of assets acquired, excluding
inventory $14,552,489
==========
8.5% Debentures issued, net of discount $11,080,000
==========
Warrants issued $ 20,000
==========
Liabilities assumed $ 3,107,328
==========
Discharge of receivable and inventory
transferred $ 1,544,489
==========
Inventory acquired for other than cash $ 1,199,332
==========
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the Notes
to Consolidated Financial Statements contained herein and
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company's Form 10-K for
the year ended January 31, 1996. The results of operations for
an interim period may not give a true indication of results for
the year. In the following discussions, all comparisons are with
the corresponding items in the prior year.
French Fragrances, Inc, a Florida corporation (the
"Company"), was known as Suave Shoe Corporation until the
November 30, 1995 merger of a privately-held Florida corporation
named French Fragrances, Inc. ("French") with and into the
Company (the "Merger"). Following the Merger, the Company, as
the surviving corporation in the Merger, changed its name to
"French Fragrances, Inc." In December 1994, the Company
permanently discontinued its shoe manufacturing and importing
operations and prior to the Merger was engaged primarily in
disposing of its property, plant and equipment. Following the
Merger, the Company's operations consist solely of the business
of French (the accounting acquiror in the Merger) which is the
manufacturing, distribution and marketing of prestige fragrances
and related cosmetic products. Therefore, the following
discussion and analysis of the results of operations of the
Company represents the discussion and analysis of the results of
operation of French until the Merger and the discussion and
analysis of the results of operation and financial condition of
the Company following the Merger.
RESULTS OF OPERATIONS
Three Months Ended July 31, 1996 Compared to the Three Months
Ended July 31, 1995
Net sales increased $8.9 million, or 60%, to $23.8 million
for the three months ended July 31, 1996 from $14.9 million for
the three months ended July 31, 1995. The increase in net sales
was primarily attributable to (i) the acquisition in March 1996
of the Halston fragrance brands (the "Halston Acquisition");
(ii) the acquisition in March 1995 of the Geoffrey Beene
fragrance brands (the "Geoffrey Beene Acquisition"); (iii) the
acquisition from Fragrance Marketing Group in May 1996 of the
exclusive distribution agreements for the Ombre Rose, Lapidus,
Faconnable, Balenciaga, Bogart, Chevignon and Niki de Saint
Phalle fragrance brands (the "FMG Acquisition"); (iv) the
Company's engagement to serve as the exclusive United States
distributor of the Benetton fragrance brands in December 1995;
and (v) the Company's focus on specially designed products for
the mass market. International sales increased to over
$1,000,000 for the three months ended July 31, 1996, compared to
<PAGE>
approximately $360,000 for the three months ended July 31, 1995,
primarily as a result of sales of Halston products following the
Halston Acquisition. The increase in net sales represents both
an increase in the volume of products sold to existing customers,
as well as sales to new customers. Management believes that the
increased sales have resulted from the Company's ability to
provide its customers with a continuous, direct supply of
product, a larger selection of products and the development and
growth of certain product categories.
Gross profit increased $5.1 million, or 146%, to $8.6
million for the three months ended July 31, 1996 from $3.5
million for the three months ended July 31, 1995. The increase
in gross profit and the increase in gross margin (from 23.4% to
36.0%) were primarily attributable to the addition of the product
sales from the Halston, Geoffrey Beene and Benetton brands,
as well as the brands formerly distributed by Fragrance Marketing
Group, all of which were at higher gross profit margins, and an
increase in the sale on a wholesale basis of certain product
categories with higher gross margins such as custom packaged
products.
Warehouse and shipping expenses increased $402,000, or 67%,
to $1,004,000 for the three months ended July 31, 1996 from
$602,000 for the three months ended July 31, 1995. The increase
resulted from the increase in net sales and higher customer
service expenses.
Selling, general and administrative expenses increased $2.3
million, or 130%, to $4.1 million for the three months ended July
31, 1996 from $1.8 million for the three months ended July 31,
1995. The increase in selling, general and administrative
expenses was primarily a result of an increase in sales
personnel following the FMG Acquisition, as well as an increase
in advertising and promotional expenses associated with
advertising campaigns for the Geoffrey Beene and Halston brands.
The Company expects its advertising and promotional expenses to
continue to grow as a result of the acquisition of the Halston
and Geoffrey Beene brands and the exclusive United States
distribution arrangements for other fragrance brands.
Depreciation and amortization increased $689,000, or 225%,
to $995,000 for the three months ended July 31, 1996 from
$306,000 for the three months ended July 31 1995. The increase
was primarily attributable to increased amortization of
intangibles arising from the acquisition of the Halston
trademarks in March 1996 and the acquisition of the exclusive
license agreements in the FMG Acquisition in May 1996.
Interest expense, net of interest and other income,
increased 59% to $1.6 million for the three months ended July 31,
1996 from $1.0 million for the three months ended July 31, 1995.
<PAGE>
This increase was primarily due to the increase in average debt
outstanding resulting from the Halston Acquisition and the FMG
Acquisition. The increase in interest expense also reflects
increased borrowings under the revolving portion of its bank
credit facility to accommodate increased working capital
requirements, including the increased wholesale inventory levels
needed to support higher net sales.
Equity in earnings of affiliates increased $109,000, or
259%, to $151,000 for the three months ended July 31, 1996 from
$42,000 for the three months ended July 31, 1995, as a result of
increases in net sales by Fine Fragrances, Inc. ("Fine
Fragrances") of fragrance products manufactured by COFCI, S.A.
Net income increased $786,000 to $677,000 for the three
months ended July 31, 1996, compared to a net loss of $109,000
for the three months ended July 31, 1995, primarily as a result
of the increase in net sales and gross profit which were
partially offset by increased interest and amortization expenses
resulting from the Halston Acquisition and the FMG Acquisition
and increased selling expenses.
Net income per share for the Company increased to $.06 for
the three months ended July 31, 1996, compared to a net loss per
share for French (on a pro forma basis using the 7.12 shares of
the Company to 1 share of French conversion rate in the Merger)
of $.02 per share for the three months ended July 31, 1995,
primarily as a result of the increase in net income, which was
partially offset by the increased number of outstanding shares to
give effect to the Merger in November 1995, as well as the
Company's public offering of 3,364,000 common shares in July
1996.
Six Months Ended July 31, 1996 Compared to the Six Months Ended
July 31, 1995
Net sales increased $12.5 million, or 41%, to $43.1 million
for the six months ended July 31, 1996 from $30.6 million for
the six months ended July 31, 1995. The increase in net sales
was primarily attributable to the Geoffrey Beene Acquisition, the
Halston Acquisition, the FMG Acquisition and the Company's
engagement to serve as the exclusive United States distributor of
the Benetton fragrance brands, as well as the Company's focus on
specially designed products for the mass market. International
sales increased to over $2,200,000 for the six months ended
July 31, 1996, compared to approximately $460,000 for the six
months ended July 31, 1995 as a result of both increased sales of
Geoffrey Beene products and the sales of Halston products since
the Halston Acquisition. The increase in net sales represents
both an increase in the volume of products sold to existing
customers, as well as sales to new customers.
<PAGE>
Management believes that the increased sales have resulted from
the Company's ability to provide its customers with a continuous,
direct supply of product, a larger selection of products and the
development and growth of certain product categories.
Gross profit increased $7.9 million, or 121%, to $14.4
million for the six months ended July 31, 1996 from $6.5 million
for the six months ended July 31, 1995. The increase in gross
profit and the increase in gross margin (from 21.3% to 33.5%)
were primarily attributable to the addition of the product sales
from the Halston, Geoffrey Beene and Benetton brands, as well as
the brands formerly distributed by Fragrance Marketing Group, all
of which were at higher gross profit margins, and an increase in
the sale on a wholesale basis of certain product categories with
higher gross margins such as custom packaged products.
Warehouse and shipping expenses increased $679,000, or 60%,
to $1,810,000 for the six months ended July 31, 1996 from
$1,130,000 for the six months ended July 31, 1995. The increase
resulted from the increase in net sales and higher customer
service expenses.
Selling, general and administrative expenses increased $4.0
million, or 128%, to $7.2 million for the six months ended
July 31, 1996 from $3.1 million for the six months ended July 31,
1995. The increase in selling, general and administrative
expenses was primarily a result of an increase in sales personnel
following the FMG Acquisition, as well as an increase in
advertising and promotional expenses associated with advertising
campaigns for the Geoffrey Beene and Halston brands.
Depreciation and amortization increased $935,000, or 158%,
to $1,527,000 for the six months ended July 31, 1996 from
$592,000 for the six months ended July 31, 1995. The increase
was primarily attributable to increased amortization of
intangibles arising from the acquisition of the Halston
trademarks in March 1996, the acquisition of the Geoffrey Beene
license and trademarks in March 1995 and the acquisition of the
exclusive license agreements in the FMG Acquisition in May 1996.
Interest expense, net of interest and other income,
increased 47% to $2.7 million for the six months ended July 31,
1996 from $1.8 million for the six months ended July 31, 1995.
This increase was primarily due to the increase in average
debt outstanding resulting from the Geoffrey Beene Acquisition,
the Halston Acquisition and the FMG Acquisition. The increase in
interest expense also reflects increased borrowings under the
revolving portion of its bank credit facility to accommodate
increased working capital requirements, including the increased
wholesale inventory levels needed to support higher net sales.
<PAGE>
Net income increased $930,000 to $969,000 for the six months
ended July 31, 1996, compared to $39,000 for the six months ended
July 31, 1995, primarily as a result of the increase in net sales
and gross profit which were partially offset by increased
interest and amortization expenses resulting from the Halston
Acquisition, the Geoffrey Beene Acquisition and the FMG
Acquisition and increased selling expenses.
Net income per share for the Company increased to $.08 for
the six months ended July 31, 1996, compared to $.01 per share
for French (on a pro forma basis using the 7.12 shares of the
Company to 1 share of French conversion rate in the Merger) for
the six months ended July 31, 1995, primarily as a result of the
increase in net income, which was partially offset by the
increased number of outstanding shares to give effect to the
Merger in November 1995, as well as the Company's public offering
of common shares in July 1996.
LIQUIDITY AND CAPITAL RESOURCES
In July 1996, the Company completed the public offering of
3,364,000 shares of Common Stock at a price of $6.00 per share
(the "Offering"). The Company realized approximately $18.0
million of net proceeds from the Offering. Approximately $9.3
million of the net proceeds were used to repay the outstanding
balance of the term loans issued by the banks under the Company's
credit facility (the "Credit Facility") which were used for the
Halston Acquisition in March 1996. The balance of the net
proceeds were used to reduce outstanding borrowings under the
revolving portion of the Credit Facility. See Notes 3 and 7 to
the Notes to Condensed Consolidated Financial Statements. In
connection with the Offering, the Company issued warrants for an
aggregate of 162,500 shares of common stock to the
representatives of the underwriters, exercisable at $7.20 per
share from June 28, 1997 to June 28, 1999.
In July 1996, the Company also consummated an exchange offer
(the "Exchange Offer"), pursuant to which it issued $5.46 million
principal amount of 7.5% Subordinated Convertible Debentures Due
2006 (the "7.5% Convertible Debentures") in exchange for the
20,000 outstanding shares of Series A Preferred Stock, $.01 par
value ("Series A Preferred"), and the $3.46 million outstanding
principal amount of 12.5% Secured Subordinated Debentures Due
2002 (the "12.5% Debentures"). Pursuant to the Exchange Offer,
each share of Series A Preferred was exchanged for $100 principal
amount of 7.5% Convertible Debentures, and each outstanding 12.5%
Debenture was exchanged for the equivalent principal amount of
7.5% Convertible Debentures. See Note 5 to the Notes to
Condensed Consolidated Financial Statements. No principal
payments are due on the 7.5% Convertible Debentures until
maturity in 2006. Total annual interest payments on the 7.5%
Convertible Debentures will be approximately $410,000.
<PAGE>
During the six months ended July 31,1996, the Company had a
net increase in its debt of approximately $41 million. The
increase in debt included (i) approximately $11 million of
remaining debt (following the repayment in July 1996 of $9.3
million of term loans from a portion of the net proceeds from the
Offering) which was used to finance the purchase price for the
Halston Acquisition in March 1996, (ii) approximately $15.4
million of debt which was used to finance the purchase price for
the FMG Acquisition in May 1996, (iii) $2 million of net increase
in subordinated debentures resulting from the Exchange Offer, and
(iv) the balance which represents increased borrowings under the
Credit Facility for working capital purposes.
The outstanding debt relating to the Halston Acquisition
includes $3 million of 8% Secured Subordinated Debentures, Series
II, Due 2005 (the "8% Series II Debentures"), a $2 million term
note maturing March 20, 2000 which was issued to the seller and
which is to be repaid on a quarterly basis in an amount equal to
5% of the net sales revenues derived from the sales of Halston
brand products (with initial payments due October 1997 and
accrued amounts earning interest at 8% per annum), and a $6
million mortgage (the "Mortgage") on the Miami Lakes facility
(the "Suave Facility"). The Mortgage note provides for interest
at 8.84%, a 20-year amortization schedule and a maturity date
eight years from issuance. In connection with the Halston
Acquisition, the Company also assumed trade payables from the
seller of approximately $1 million.
The Company also has outstanding $7.8 million of 8% Secured
Subordinated Debentures, Series I, Due 2005 (the "8% Series I
Debentures") which were issued in connection with the Geoffrey
Beene Acquisition. The 8% Series I Debentures and the 8% Series
II Debentures require aggregate mandatory annual principal
payments of $2,167,000 commencing January 31, 2001, with the
final payment due January 31, 2005.
The outstanding debt relating to the FMG Acquisition
includes $11.1 million of 8.5% Subordinated Debentures ("8.5%
Debentures") and $4.3 million of short term debt from the Credit
Facility. The 8.5% Debentures consist of: (i) a $4 million 8.5%
Debenture which requires mandatory principal payments of $2
million in May 1998 and 1999; (ii) a $7 million 8.5% Debenture
which requires mandatory annual principal repayments of $2.33
million commencing May 2002, with the remaining balance due May
2004; and (iii) a $100,000 8.5% Debenture which requires
mandatory annual principal repayments of $33,000 commencing May
2002, with the remaining balance due May 2004. As part of the
purchase price for the FMG Acquisition, the Company also issued
to FMG (for assignment to its shareholders and senior management)
warrants for an aggregate of 1,075,000 shares of the Company's
Common Stock, which will be exercisable at $7.50 per share from
July 1997 to January 2002. In connection with the FMG
Acquisition, the Company also assumed trade payables of
<PAGE>
approximately $3.1 million.
The Credit Facility was amended in August 1996 to increase
the borrowing over line for the holiday season (through December
31, 1996) from $40 million to $55 million, including up to $3
million in commercial letters of credit. Excluding the amendment
relating to the 1996 holiday season, the Credit Facility provides
for borrowings on a revolving basis of up to $30 million (which
is increased to $40 million from July 1 to December 31 as an over
line for future holiday seasons). Amounts borrowed on the
revolving portion of the Credit Facility mature on May 31, 1998.
The Credit Facility also includes the remaining balance ($5.3
million at July 31, 1996) of the $7 million term loan (the "Beene
Loan") which was used to finance a portion of the purchase price
for the Geoffrey Beene Acquisition. Principal and interest
payments on the Beene Loan are due on a monthly basis, and
principal payments are due: $1.83 million during the fiscal year
ended January 31, 1997, $2 million during the fiscal year ended
January 31, 1998, and the balance during the fiscal year ended
January 31, 1999. At July 31, 1996, the Company had outstanding
borrowings under the Credit Facility (including the Beene Loan)
of approximately $38.7 million. Loans under the revolving credit
portion of the Credit Facility bear interest at a floating rate
(currently 0.75% over Fleet's prime rate), while the Beene Loan
bears interest at a floating rate (currently 1.50% over Fleet's
prime rate). The Company's borrowing availability under the
revolving credit portion of the Credit Facility is limited to the
sum of between 80 to 85% of eligible accounts receivable and 50%
(60% from July 1 through October 31 of each year) of eligible
inventory.
The Credit Facility is secured by a first priority lien on
all of the Company's assets (other than the Suave Facility), as
well as by a security interest in the assets and the capital
stock of its wholly-owned subsidiaries Halston Parfums, Inc. and
G.B. Parfums, Inc. and its stock of Fine Fragrances and by
collateral assignment of brand licenses and trademarks. The
Credit Facility restricts the Company's ability to incur
additional debt or other obligations, to enter into certain
acquisitions, mergers, investments and affiliated transactions,
prohibits the declaration or payment of dividends on, or the
redemption of, the Company's capital stock, prohibits certain
payments on the subordinated debt and prohibits the sale of the
Company's interest in Fine Fragrances and its subsidiaries. The
Credit Facility also contains covenants requiring the Company to
maintain a minimum shareholders' equity, a maximum leverage
ratio, and minimum debt service and interest coverage ratios. In
addition, it is an event of default under the Credit Facility if
Rafael Kravec, the Company's President and Chief Executive
Officer, ceases to be actively involved in the Company's
management and a replacement satisfactory to Fleet does not
succeed him. Management of the Company believes that it is
currently in compliance with the covenants in the Credit
<PAGE>
Facility. As long as the Credit Facility is outstanding, the
Company will need the consent of the banks to enter into future
acquisition or financing activities.
As a result of the Merger, the Company assumed French's
obligations to repay certain loans and advances from French's
shareholders and affiliates. At July 31, 1996, the Company had
outstanding balances owed to National Trading Manufacturing,
Inc., a company controlled by Mr. Kravec, and Fine Fragrances in
the principal amounts of $580,000 and $1,235,000, respectively.
These loans or advances generally bear interest at prime and are
short-term in nature.
The characteristics of the Company's business do not
generally require it to make significant ongoing capital
expenditures. In connection with renovation of the Suave
Facility which is to occur prior to the Company's relocation of
its executive offices, the Company expects to incur construction
costs approximating $2 million during fiscal 1997. The Company
will finance these construction costs from Mortgage note.
During the six months ended July 31, 1996, the Company used
$22.3 million in net cash in operations, primarily as a result
of an increase in inventory and accounts receivable, partially
offset by an increase in accounts payable. During the six months
ended July 31, 1995, the Company generated $1.9 million in cash
from operations. During the six months ended July 31, 1996, the
Company received cash from financing activities of approximately
$44.7 million (including $18 million from the Offering) which was
used to fund the Halston Acquisition, the FMG Acquisition and for
working capital purposes. During the six months ended July 31,
1995, the Company received cash from financing activities of
approximately $16.3 million primarily to fund the Geoffrey Beene
Acquisition. The Company financed these investments primarily
through the use of subordinated debentures and term loans, as
well as from the revolving portion of the Credit Facility. In
July 1996, approximately $9.3 million of term loans for the
Halston Acquisition were repaid from the net proceeds of the
Offering.
<PAGE>
PART II. OTHER INFORMATION
Item 1 - 3. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders of the Company
was held on June 25, 1996 in Miami Lakes, Florida.
(b) The following directors were elected at the meeting
effective June 25, 1996: J. W. Nevil Thomas, E.
Scott Beattie, Rafael Kravec, Fred Berens, Richard
C. W. Mauran and George Dooley.
(c) The shareholders voted at the Meeting on the
following matters. There were no broker non-votes
received on any of the matters voted.
1. The vote on the election of directors to serve
until the next annual meeting of shareholders
or until their successors are duly elected and
qualified.
Votes Cast
Against or
For Withheld
--------- ------------
J. W. Nevil Thomas 8,246,821 9,248
E. Scott Beattie 8,246,821 9,248
Rafael Kravec 8,246,821 9,248
Fred Berens 8,246,821 9,248
Richard C. W. Mauran 8,246,821 9,248
George Dooley 8,246,821 9,248
2. The vote on approval of an amendment to the
Company's 1995 Stock Option Plan was 8,227,451
for, 26,513 against and 2,105 withheld.
3. The vote on approval of amendments to the
Company's Non-Employee Director Stock Option
Plan was 8,225,858 for, 27,063 against and
3,418 withheld.
4. The vote on the ratification of the appointment
of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year
ending January 31, 1997 was 8,252,589 for,
1,925 against and 1,555 withheld.
(d) Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Reference is made to Item 1. Business - Operations of the
Company Following the Merger in the Company's Form 10-K for the
year ended January 31, 1996.
The Company is exploring the creation and launch of new
fragrance brands for both the Geoffrey Beene and Halston
fragrance lines. The Company's strategy would be to launch in
select United States prestige department stores and
internationally. There is no assurance as to the timing,
occurrence or ultimate success, of such new product launches.
From time to time, as favorable buying opportunities arise,
the Company may purchase limited amounts of fragrance products
from secondary sources, which sources may sell the Company
trademarked or copyrighted products manufactured in foreign
countries and trademarked or copyrighted products manufactured in
the United States for foreign distribution. In certain
instances, United States trademark or copyright holders and their
licensees have initiated legal action seeking to halt the
importation into, or sale in, the United States of these
trademarked or copyrighted products. The courts remain divided
on the extent to which trademark, copyright and other laws
restrict such importation or sale without the consent of the
trademark or copyright holder. There can be no assurance that
these sources of product will be available in the future or that
the Company may not become the subject of legal action arising
from its buying activities with respect to these products.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Description
------- ----------------------------------------
2.1 Agreement and Plan of Merger, dated as
of May 19, 1995, by and between the
Company and French (incorporated herein
by reference to Exhibit 2.1 filed as a
part of the Company's Form 8-K dated
November 30, 1995 (Commission File No.
1-6370)).
3.1 Amended and Restated Articles of
Incorporation of the Company dated
March 6, 1996 (incorporated herein by
reference to Exhibit 3.1 filed as a part
of the Company's Form 10-K for the
fiscal year ended January 31, 1996
(Commission File No. 1-6370)).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
3.2 By-Laws of the Company (incorporated
herein by reference to Exhibit 3.2 filed
as a part of the Company's Form 10-K for
the fiscal year ended January 31, 1996
(Commission File No. 1-6370)).
4.1 Credit Agreement, dated as of March 14,
1996, among the Company, Fleet National
Bank and Bank of America Illinois
(incorporated herein by reference to
Exhibit 4.1 filed as a part of the
Company's Form 8-K dated March 20, 1996
(Commission File No. 1-6370)).
4.2 First Amendment to Credit Agreement and
Other Transaction Documents dated as of
May 10, 1996, among the Company, Fleet
National Bank and Bank of America
Illinois (incorporated herein by
reference to Exhibit 4.1 filed as a part
of the Company's Form 8-K dated May 14,
1996 (Commission File No. 1-6370)).
4.3 Letter Agreement, dated May 29, 1996,
regarding the Credit Agreement dated as
of March 14, 1996, as amended, among the
Company, Fleet National Bank and Bank of
America Illinois (incorporated herein by
reference to Exhibit 4.4(c) filed as a
part of the Company's Amendment No. 1
to Registration Statement on Form S-1
dated June 7, 1996 (Registration
Statement No. 333-4588)).
4.4 Second Amendment to Credit Agreement and
Other Transaction Documents dated as of
August 28, 1996, among the Company, Fleet
National Bank and Bank of America
Illinois.
10.1 Registration Rights Agreement dated as of
November 30, 1995, among the Company,
Bedford, Fred Berens, Rafael Kravec and
Eugene Ramos (incorporated herein by
reference to Exhibit 10.1 filed as a part
of the Company's Form 10-K for the fiscal
year ended September 30, 1995 (Commission
File No. 1-6370)).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
10.2 Amendment dated as of March 20, 1996 to
Registration Rights Agreement dated as of
November 30, 1995, among the Company,
Bedford, Fred Berens, Rafael Kravec and
Eugene Ramos (incorporated herein by
reference to Exhibit 10.2 filed as a part
of the Company's Form 10-K for the year
ended January 31, 1996 (Commission File
No. 1-6370)).
10.3 Second Amendment dated as of July 22,
1996 to Registration Rights Agreement
dated as of November 30, 1995, among the
Company, Bedford, Fred Berens, Rafael
Kravec and the Estate of Eugene Ramos.
10.4 Employment Agreement dated as of July 2,
1992, between French and Rafael Kravec,
as amended on July 2, 1995 (incorporated
herein by reference to the exhibit filed
as a part of the Company's Form 10-K for
the fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.5 Amendment to Employment Agreement dated
as of May 2, 1996, between the Company
and Rafael Kravec (incorporated herein
by reference to Exhibit 10.22 filed as a
part of the Company's Registration
Statement on Form S-1 dated May 3, 1996
(Registration Statement No. 333-4588)).
10.6 Non-Employee Director Stock Option Plan
(incorporated herein by reference to
Exhibit 10.4 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.7 1995 Stock Option Plan (incorporated
herein by reference to Exhibit 10.5 filed
as a part of the Company's Form 10-K for
the fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
10.8 Monitoring Agreement dated as of July 2,
1992, between French and Bedford, as
amended as of February 14, 1995
(incorporated herein by reference to
Exhibit 10.7 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.9 Monitoring Agreement dated as of
February 14, 1995, between French and
Bedford (incorporated herein by reference
to Exhibit 10.8 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.10 Monitoring Agreement dated as of July 2,
1992, between French and Nevcorp, Inc.,
as amended as of February 14, 1995
(incorporated herein by reference to
Exhibit 10.9 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.11 Monitoring Agreement dated as of July 2,
1992, between French and ESB Consultants,
Inc., as amended as of February 14, 1995
(incorporated herein by reference to
Exhibit 10.10 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission
File No. 1-6370)).
10.12 Monitoring Agreement dated as of
February 14, 1995, between French and
Nevcorp, Inc. (incorporated herein by
reference to Exhibit 10.11 filed as a
part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
10.13 Monitoring Agreement dated as of
February 14, 1995, between French and ESB
Consultants, Inc. (incorporated herein by
reference to Exhibit 10.12 filed as a
part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.14 Lease Agreement, dated as of July 2,1992,
between French and National Trading
(incorporated herein by reference to
Exhibit 10.13 filed as a part of the
Company's Form 10-K for the fiscal year
ended September 30, 1995 (Commission File
No. 1-6370)).
10.15 Option Agreement, dated July 2, 1992,
between French and National Trading and
Memorandum of Lease and Option Agreement
related thereto (incorporated herein by
reference to Exhibit 10.14 filed as a
part of the Company's Form 10-K for the
fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.16 Amended and Restated Exclusive Trademark
License Agreement, dated February 29,
1980, between Geoffrey Beene, Inc.
(formerly Geoffrey Beene Interim Corp.),
a New York corporation, and Epocha
Distributors, Inc.(now known as Sanofi
Beaute, Inc.) as amended July 29, 1992
and February 13, 1995 (incorporated
herein by reference to Exhibit 10.15
filed as a part of the Company's Form
10-K for the fiscal year ended
September 30, 1995 (Commission File No.
1-6370)).
10.17 Asset Purchase Agreement dated as of
February 13, 1995, by and between Sanofi
Beaute, Inc. and Bedford Capital
Financial Corporation, as assigned to and
assumed by French (incorporated herein by
reference to Exhibit 10.19 filed as part
of the Company's Form 10-K for the fiscal
year ended January 31, 1996 (Commission
File No. 1-6370)).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
10.18 Asset Purchase Agreement dated as of
February 1, 1996, by and between the
Company and Halston-Borghese
(incorporated herein by reference to
Exhibit 2.1 filed as a part of the
Company's Form 8-K dated March 20, 1996
(Commission File No. 1-6370)).
10.19 Asset Purchase Agreement dated as of
April 17, 1996, by and between the
Company and Fragrance Marketing Group,
Inc. and Rene Garcia and Jose Miguel
Norona, including the forms of
Debentures and Seller's Warrant related
thereto (incorporated herein by
reference to Exhibit 10.21(a) filed as
a part of the Company's Registration
Statement on Form S-1 dated May 3, 1996
(Registration Statement No. 333-4588)).
10.20 Amendment to Asset Purchase Agreement
dated as of May 14, 1996, by and between
the Company and Fragrance Marketing
Group, Inc. and Rene Garcia and Jose
Miguel Norona (incorporated herein by
reference to Exhibit 2.2 filed as a part
of the Company's Form 8-K dated May 14,
1996 (Commission File No. 1-6370)).
27.0 Financial Data Schedule.
99.1 Agreement Among Bedford Interests, dated
February 14, 1995 (incorporated herein by
reference to Exhibit 99.2 filed as a part
of the Company's Form 8-K dated
November 30, 1995 (Commission File No.
1-6370)).
99.2 Amendment dated as of February 23, 1996
to Agreement Among Bedford Interests,
dated February 14, 1995 (incorporated
herein by reference to Exhibit 99.2 filed
as a part of the Company's Form 10-K for
the fiscal year ended January 31, 1996
(Commission File No. 1-6370)).
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(a) Exhibit Description
------- ----------------------------------------
99.3 Second Shareholders Agreement, dated
July 2, 1992, among Bedford and certain
members of the Bedford Group, as amended
(incorporated herein by reference to
Exhibit 99.3 filed as a part of the
Company's Form 8-K dated November 30,
1995 (Commission File No. 1-6370)).
--------------
The foregoing list omits instruments defining the rights of
holders of long term debt of the Company where the total amount
of securities authorized thereunder does not exceed 10% of the
total assets of the Company. The Company hereby agrees to
furnish a copy of each such instrument or agreement to the
Commission upon request.
(b) Reports on Form 8-K.
(1) A Current Report on Form 8-K dated May 14,
1996 was filed on May 29, 1996 reporting on
the FMG Acquisition under Item 2. Acquisition
or Disposition of Assets and setting forth
historical financial statements for Fragrance
Marketing Group, Inc. and pro forma financial
data for the Company in connection with the FMG
Acquisition under Item 7. Financial Statements
and Exhibits.
(2) A Current Report on Form 8-K dteedd MMay 31, 1996
was filed on May 31, 16 sseettting forth
historical brand contribution statements for the
Halston fragrance brands and pro forma financial
data for the Company in connection with the
Halston Acquisition under Item 5. Other Events.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FRENCH FRAGRANCES, INC.
Date: September 13, 1996 /s/ Rafael Kravec
------------------ -----------------------------
Rafael Kravec
President and Chief Executive
Officer (Principal Executive
Officer)
Date: September 13, 1996 /s/ William J. Mueller
------------------ -----------------------------
William J. Mueller
Vice President-Operations,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
SECOND AMENDMENT TO CREDIT AGREEMENT
AND OTHER TRANSACTION DOCUMENTS
This Second Amendment to Credit Agreement and Other
Transaction Documents (the "Agreement"), made as of the 28th day
of August, 1996, by and among FLEET NATIONAL BANK, a national
banking association with its principal office at 111 Westminster
Street, Providence, Rhode Island 02903, in its capacity as agent
and as a lender ("Fleet"), BANK OF AMERICA ILLINOIS, an Illinois
banking company, as a lender ("Bank of America"; and together
with Fleet, collectively, the "Lenders") and FRENCH FRAGRANCES,
INC., a Florida corporation with its principal place of business
at 14100 N.W. 60th Avenue, Miami Lakes, Florida 33014
("Borrower").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and conditions of that
certain Credit Agreement dated March 14, 1996 among Borrower and
Lenders, as amended by a First Amendment to Credit Agreement and
Other Transaction Documents dated as of May 10, 1996 (as amended,
the "Credit Agreement"), Lenders agreed to make term loans and
revolving credit loans available to Borrower, subject to the
terms and conditions of the Credit Agreement; and
WHEREAS, the parties have agreed to certain modifications to
the Credit Agreement which will allow for an increase in
availability under the Revolving Credit Facility; and
WHEREAS, pursuant to the terms of that certain Security
Agreement dated March 14, 1996 between Borrower and Fleet, as
agent for the ratable benefit of the Lenders (the "Security
Agreement"), Borrower granted to Fleet, as agent for the ratable
benefit of the Lenders a security interest in all fixtures and
tangible and intangible assets of Borrower whether now owned or
hereafter acquired; and
WHEREAS, Lenders are willing to amend the Credit Agreement
and the Security Agreement subject to the terms and conditions
hereinafter set forth
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants set forth herein, and for good and valuable
other consideration, receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Defined Terms.
All capitalized terms not defined herein shall have the same
meaning ascribed to such terms as provided in the Credit
Agreement.
<PAGE>
Section 2. Representations and Warranties.
Borrower hereby represents and warrants to Lenders and each
of them that:
(a) Borrower is duly organized, validly existing and in
good standing as a corporation in the state of its incorporation,
and is in good standing and is qualified to do business as a
foreign corporation in all other jurisdictions where it is
required to be so qualified, except such jurisdictions, if any,
in which the failure to be so qualified will not have a material
adverse effect on the financial condition, business, assets,
operations or properties of Borrower. Borrower has all requisite
power and authority to own and lease its assets and properties
and to conduct its business in the manner presently conducted by
it.
(b) Borrower has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement
and the Security Documents, as applicable, and the execution,
delivery and performance by Borrower of this Agreement and the
Security Documents, as applicable have been duly authorized by
all requisite action. This Agreement and the Security Documents,
as applicable have been duly executed and delivered by Borrower,
and are valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms.
(c) The execution, delivery and performance by Borrower of
this Agreement and the Security Documents, as applicable, will
not violate or contravene (i) the articles of incorporation or
by-laws of Borrower, (ii) any provision of any law, rule or
regulation applicable to Borrower, (iii) any order, writ,
judgment, injunction, decree, determination or award of any court
or other agency of government to which Borrower is bound, or (iv)
any other agreement, lease, indenture or instrument to which
Borrower is a party or by which Borrower is bound, or be in
conflict with, result in a breach of, or constitute (with due
notice or lapse of time or both) a default under, or result in
the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever, upon any properties or assets of Borrower
pursuant to any such other agreement, lease, indenture or
instrument.
(d) There is no action, suit or proceeding at law or in
equity or by or before any court, governmental instrumentality or
other agency pending, or to Borrower's knowledge, threatened
against, or in any way affecting Borrower which, if adversely
determined, would have a material adverse effect on the business,
operations, properties, assets or condition, financial or
otherwise, of Borrower.
<PAGE>
(e) No consent, approval or authorization from, or filing
of any declaration or statement with, any court, governmental
instrumentality or other agency is required in connection with or
as a condition to the execution, delivery or performance of this
Agreement, by Borrower.
(f) Except as set forth in Schedule I attached hereto,
Borrower hereby reaffirms and restates, as of the date hereof,
all of the representations and warranties made by it in the
Credit Agreement, as amended by this Agreement, except to the
extent altered by actions permitted pursuant to the terms thereof
or expressly contemplated pursuant to the terms hereof, or to the
extent Lenders have been advised in writing of any inaccuracy
with respect to such representations or warranties and have
waived the same in writing.
(g) No Event of Default exists under the Credit Agreement,
or any event which, with the giving of notice or passage of time
or both, would constitute such an Event of Default, has occurred
which has not been waived in writing by Lenders or which will not
be cured upon the execution and delivery by Borrower of this
Agreement.
Section 3. Amendments to Credit Agreement.
The Credit Agreement is hereby amended, effective as of the
date hereof, as follows:
Section 3.01. Amendments to Definitions.
The definitions of "Borrowing Base" and "Funded Debt" set
forth in Section 1.01 of the Credit Agreement are hereby amended
to read in their entireties as follows:
"Borrowing Base" shall mean, as of any date, the sum of,
without duplication, (i) eighty-five percent (85%) of Insured
Eligible Accounts Receivable determined as of such date, plus
(ii) eighty-five percent (85%) of Approved Eligible Accounts
Receivable determined as of such date, plus, (iii) eighty percent
(80%) of Eligible Accounts Receivable (other than Insured
Eligible Accounts Receivable or Approved Eligible Accounts
Receivable) determined as of such date, plus (iv) the lesser of
sixty percent (60%) of Eligible In-House Inventory (for the
period from May 10, 1996 through October 31, 1996 and for each
fiscal year thereafter for the period from July 1 through October
31) or fifty percent (50%) of Eligible In-House Inventory
(for the period from November 1, 1996 through June 30, 1997 and
for each fiscal year thereafter for the period from November 1
through June 30); provided that the portion of the Borrowing Base
derived from clause (iv) shall be capped at the lesser of (A) for
<PAGE>
the period from December 1 through June 30 at Fifteen Million
Dollars ($15,000,000); for the period from July 1 through October
31 at Thirty Million Dollars ($30,000,000) and for the
period November 1 through November 30 at Twenty Million Dollars
($20,000,000) or (B) one hundred sixty percent (160%) of
Accounts Receivable Availability from January 1 through June 30
of each year; two hundred twenty percent (220%) of Accounts
Receivable Availability for the period from July 1, 1996 through
August 31, 1996 and for each fiscal year thereafter for the
period from July 1 through August 31; one hundred sixty percent
(160%) of Accounts Receivable Availability for the period from
September 1, 1996 through September 30, 1996 and for each fiscal
year thereafter for the period from September 1 through September
30 and one hundred twenty percent (120%) of Accounts Receivable
Availability for the period from October 1, 1996 through December
31, 1996 and for each fiscal year thereafter, and provided
further there shall be a reserve against total Eligible In-House
Inventory of One Million Two Hundred Thousand Dollars
($1,200,000). The foregoing definition of "Borrowing Base",
including the respective percentages set forth therein, may be
amended from time to time by the execution and delivery of an
Amendment Letter or other written instrument executed by Borrower
and Lenders. For purposes of the Borrowing Base "Accounts
Receivable Availability" shall mean the sum of subsections (i),
(ii) and (iii) above.
"Funded Debt" shall mean, as of the date of any
determination thereof, the total of all Indebtedness of Borrower
including, without limitation, the Subordinated Debentures, the
Loans and the Mortgage Indebtedness, but excluding the Halston
Royalty Note. For the purpose of determining Funded Debt, the
Revolving Credit Commitment shall be deemed to be the annual
maximum availability during any fiscal year.
Section 3.03. Amendment to Section 2.03(a).
Section 2.03(a) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"Section 2.03. The Revolving Credit Commitment.
(a) The Revolving Credit Commitment shall be equal to the
lesser of:
(i) the Borrowing Base or the Net Borrowing Base (as
applicable) as in effect from time to time, or
(ii) Forty Million Dollars ($40,000,000); provided,
however, that the maximum Revolving Credit Commitment
contemplated by this clause (ii) shall be adjusted in accordance
with the following schedule:
<TABLE>
<CAPTION>
Revolving Credit
Commitment
After Giving
Date of Amount of Effect to
Adjustment Adjustment Adjustment
<S> <C> <C>
January 1, 1996
through May 10, 1996 $10,000,000 $30,000,000
May 11, 1996
through May 31, 1996 $5,000,000 $35,000,000
August 28, 1996
through December 31, 1996 $15,000,000 $55,000,000
January 1 , 1997 through
June 30, 1997 and each
January 1 through June 30
of each year thereafter $10,000,000 $30,000,000".
</TABLE>
Section 3.04. Amendment to Section 4.11. Section 4.11(b)
of the Credit Agreement is hereby amended to read in its entirety
as follows:
"(b) the aggregate outstanding amount of all Letters
of Credit issued pursuant hereto shall at no time exceed a face
amount equal to Three Million Dollars ($3,000,000)."
Section 3.05. Security Documents.
(a) Borrower and Lenders each hereby confirm that all
references to the "Credit Agreement" or the "Agreement" in any of
the Security Documents shall be deemed to be references to the
Credit Agreement as amended hereby; that the obligations of
Borrower under the Credit Agreement, as amended hereby, and fees
and expenses in connection therewith constitute additional
indebtedness, liabilities and obligations of Borrower to Lenders,
all of which are secured by the Security Documents, and that all
references to "indebtedness" and/or "obligations" secured by such
instruments shall be deemed amended to include all obligations of
Borrower in respect of the Credit Agreement as amended hereby.
(b) Borrower hereby ratifies and reaffirms its grant and
conveyance to Agent for the ratable benefit of the Lenders of a
security interest in and lien upo aalll collateral covered by any
of the Security Documents. Nothing herein shall be deemed to
contravene the release by the Lenders of the Assignment of Life
Insurance as Collateral as a Security Document or the release of
any claim or right by the Lenders to shares of Data Technology,
Inc. held by Borrower.
<PAGE>
(c) Borrower and Lenders each hereby confirm that nothing
contained herein or done pursuant hereto shall limit or be
construed to limit the security interest or lien previously
granted by Borrower to Agent for the ratable benefit of the
Lenders under any of the Security Documents, or the priority
thereof over other liens, encumbrances and security interests.
Except as amended hereby, the Security Documents shall remain in
full force and effect and Borrower hereby ratifies and confirms
the Security Documents in all other respects, including, without
limitation, the continuing grant of a lien on and interest in the
collateral covered thereby.
Section 4. Conditions Precedent to Second Amendment.
The effectiveness of the transactions described herein shall
be subject to the following conditions:
(a) This Agreement shall have been executed and delivered
by Borrower and Lenders, and consented to and confirmed by the
parties to the Subordination Agreement and the Subordination
Agreement II.
(b) Lenders shall have received payment of the fees
described in Section 9 hereof in immediately available funds.
(c) The fees and disbursements of Lenders' counsel shall be
paid in full on the Effective Date.
(d) Borrower shall have executed and/or delivered to Agent
the following:
(i) Certificate of the Secretary or Assistant
Secretary of Borrower certifying as to the due authorization,
execution and delivery by Borrower of this Agreement; and
(ii) Certificate of the Secretary or Assistant
Secretary of Borrower certifying as to corporate charter and
by-laws and the names of the officers of Borrower authorized to
sign this Agreement, and any other documents or certificates to
be delivered pursuant to this Agreement, together with the true
signatures of such officers. Lenders may conclusively rely on
such certificates until Agent shall receive a further certificate
of the Secretary or an Assistant Secretary of Borrower canceling
or amending the prior certificate and submitting the signatures
of the officers named in such further certificate.
(e) All legal matters relating to this Agreement shall be
satisfactory to Lenders and their counsel.
<PAGE>
Section 5. Ratification.
Borrower hereby ratifies and confirms all of its
obligations, covenants, duties and agreements set forth in the
Credit Agreement, as amended by the terms hereof. All references
to the "Credit Agreement" or the "Agreement" contained in the
Credit Agreement, the Notes, the Security Documents and all other
documents and instruments evidencing obligations of Borrower
under or in connection with the Credit Agreement, the Notes or
the Security Documents, shall be deemed to be amended to refer to
the Credit Agreement, as amended by the terms hereof.
Section 6. Expenses.
All costs and expenses, including reasonable attorneys'
fees, relating to the negotiation, preparation, execution and
delivery of this Agreement and all instruments, agreements and
documents contemplated hereby shall be the responsibility of
Borrower.
Section 7. Miscellaneous.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Rhode Island applicable
to contracts made and to be performed within such State. This
Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument. The headings of
the Articles and Sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
Section 8. Consent of Subordinated Lenders.
By their signature hereon, each of the parties to the
Subordination Agreement (other than Fleet), and the Subordination
Agreement II hereby (a) consent to the amendments of the Credit
Agreement and other Transaction Documents pursuant to this
Agreement, (b) confirm that the term "Senior Indebtedness" under
the Subordination Agreement and the Subordination Agreement II
shall include all amounts outstanding under the Credit Agreement,
as amended by this Agreement, including all amounts outstanding
under the Notes, and (c) ratify and confirm their respective
agreements in all respects.
Section 9. Facility Fee.
In consideration of Lenders' commitment to enter into this
Agreement, Borrower hereby agrees to pay to Agent, for the
ratable benefit of the Lenders a facility fee equal to Eighty
Thousand Dollars ($80,000) (the "Facility Fee"), payable in full
on the date hereof.
<PAGE>
Section 10. No Defenses.
Borrower hereby acknowledges and agrees that the Credit
Agreement, as amended by the terms hereof, and the other
Transaction Documents are not subject as of the date hereof to
any defenses, rights of setoff, claims or counterclaims that
might limit the enforceability thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed by their respective officers hereunto duly
authorized, all as of the day and year first above written.
LENDERS:
FLEET NATIONAL BANK
By: /s/ Robert T.P. Storer
----------------------
Robert T.P. Storer
Vice President
BANK OF AMERICA ILLINOIS
By: /s/ Randolph T. Kohler
----------------------
Randolph T. Kohler
Vice President
AGENT:
FLEET NATIONAL BANK
By: /s/ Robert T.P. Storer
----------------------
Robert T.P. Storer
Vice President
BORROWER:
FRENCH FRAGRANCES, INC.
By: /s/ E. Scott Beattie
------------------------
E. Scott Beatie
Vice Chairman
(SIGNATURES CONTINUED ON NEXT PAGE)
<PAGE>
CONSENTED AND AGREED:
NATIONAL TRADING MANUFACTURING, INC.
By: /s/ Rafael Kravec
----------------------
Rafael Kravec
President
BEDFORD CAPITAL CORPORATION
By: /s/ E. Scott Beattie
----------------------
E. Scott Beattie
Executive Vice President
By: /s/ Fred Berens
----------------------
Fred Berens
By: /s/ Rafael Kravec
----------------------
Rafael Kravec
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT, dated as of
July 22, 1996 (the "Amendment"), is among French Fragrances,
Inc., a Florida corporation (the "Company"), Bedford Capital
Corporation, a corporation organized under the laws of the
Province of Ontario, Canada ("Bedford"), for itself and on behalf
of the holders of the Registrable Shares identified in Schedule A
(the "Holders"), The Estate of Eugene Ramos ("Ramos"), Rafael
Kravec ("Kravec"), and Fred Berens ("Berens") (each of Bedford,
Ramos, Kravec and Berens individually a "Shareholder" and
collectively, the "Shareholders"), and is an amendment to that
certain Registration Rights Agreement dated as of November 30,
1995, as amended as of March 20, 1996 among the Company and the
Shareholders dated as of November 30, 1995 as amended (the
"Agreement"). Capitalized terms used herein shall have the
meanings set forth in the Agreement unless otherwise defined
herein.
W I T N E S S E T H:
WHEREAS, the Company has consummated on the date hereof an
exchange offer, pursuant to which the Company issued 7.5%
Subordinated Convertible Debentures Due 2006 (the "7.5%
Debentures") to Kravec, Berens and certain of the Holders, which
7.5% Debentures are convertible into shares of Common Stock (the
"Debenture Shares") by dividing the principal amount of 7.5%
Debentures converted by $7.20. As an integral part of such
transaction, the Company and the Shareholders desire to grant to
Bedford, on behalf of the Holders, Kravec and Berens the
registration rights set forth in the Agreement with respect to
the Debenture Shares.
NOW THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as
follows:
Section 1. Amendment to Certain Terms and Exhibit A. The
parties hereto hereby agree that the defined term "Registrable
Shares" in the Agreement shall mean collectively, the shares of
Common Stock owned by certain of the Holders or issuable to the
Holders upon the conversion of the Series B Preferred Stock, the
Series C Preferred Stock and the Debenture Shares as specified in
the Exhibit A, plus the Common Stock owned by Kravec, Berens and
Ramos. Exhibit A which is attached hereto and made a part hereof
shall supersede and replace Exhibit A to the Agreement.
<PAGE>
Section 2. Limited Modification of Agreement; Ratification.
Except as expressly modified hereby, all other covenants, terms
and conditions contained in the Agreement which have not
previously been deleted by amendment shall remain unchanged and
in full force and effect. Each of the parties hereto hereby
further ratifies, assumes and confirms each of its respective
obligations under the Agreement, as amended hereby.
Section 3. Counterparts. This Amendment may be executed
in any number of counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first written above.
FRENCH FRAGRANCES, INC.
By: /s/ Rafael Kravec
----------------------
Rafael Kravec
President and Chief
Executive Officer
BEDFORD CAPITAL CORPORATION, for
itself and on behalf of the
shareholders identified on
Schedule A hereto
By: /s/ J. W. Nevil Thomas
----------------------
J. W. Nevil Thomas
Chairman
ESTATE OF EUGENE RAMOS
By: /s/ Fred Berens
----------------------
Fred Berens
Personal Representative
By: /s/ Rafael Kravec
----------------------
Rafael Krave
By: /s/ Fred Berens
----------------------
Fred Berens
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
Number of Number of Number of
Number of Shares of Shares of Shares of
Shares of Common Stock Common Stock Common Stock
Common Received Received Received Total
Stock Upon Upon Upon Number
which have Conversion Conversion Conversion of
not been of Series B of Series C of 7.5% Registr-
Registered Preferred Preferred Convertible able
for Resale Stock Stock Debentures Shares
<S> <C> <C> <C> <C> <C>
1003749 Ontario
Inc. 0 38,583 8,835 0 47,418
Apex Investment
Fund Limited 0 38,583 8,835 0 47,418
Atkinson, Robert 0 3,859 883 0 4,742
Atkinson, William 0 11,577 2,650 0 14,227
B No. 1 Inc. 46,978 0 0 18,499 65,477
Bedford Capital
Financial Corp. 417,801 419,603 101,344 0 938,748
Cairn Capital,
Inc. 38,939 0 0 18,499 57,438
Canmerge
Consultants
Limited 116,889 54,019 11,682 3,462 186,052
Cola Capital
Corporation 0 38,583 8,835 0 47,418
Compagnie
D'assurance Du
Quebec 0 23,154 5,301 0 28,455
Connor, Gerald 22,640 69,456 15,900 9,249 117,245
Devonshire
Holdings 0 0 0 0 0
Devonshire Trust 111,413 110,680 23,264 0 245,357
Ennis, Edith 0 38,583 8,835 0 47,418
Euro Credit
Investments, Ltd. 0 489,051 0 0 489,051
E.S.B. Consultants,
Inc. 64,201 42,442 9,185 1,163 116,991
First Marathon
Capital Corp. 90,578 38,583 8,835 18,499 156,495
Gray Capital
Corporation 45,478 38,583 8,835 18,499 111,395
Guernroy Limited 0 19,295 4,417 0 23,712
Imperial Life
Assurance Company
of Canada 67,918 0 0 27,748 95,666
Jalger Limited 0 38,583 8,835 0 47,418
James Wallace
McCutcheon
Foundation 0 0 0 11,721 11,721
John & Anne Clark
Family Trust 0 19,295 4,417 0 23,712
Marbe Consultants,
Inc. 0 38,583 8,835 0 47,418
Mauran, Richard
C. W. 893,446 0 108,254 110,964 1,129,278
McCutcheon,
Douglas 3 55,102 13,252 6,778 75,134
Merchant Private
Ltd. 89,650 0 0 36,983 126,633
Morgan Trust
Company of
The Bahamas 0 38,583 8,835 0 47,418
Nevcorp Inc. 0 54,019 11,682 0 65,701
North Simcoe
Investments
Limited 0 38,583 8,835 0 47,418
Peller, Dr.
Joseph 86,028 0 0 18,499 104,527
R & R Partnership 0 38,583 8,835 0 47,418
Rosart, Patsy 45,478 0 0 18,499 63,977
Royal Insurance
Company Of
Canada 0 135,052 30,921 0 165,973
Tayhold Corp. 0 38,583 8,835 0 47,418
The GAN Company
of Canada
Limited 0 0 8,835 18,499 27,334
The Manufacturers
Life Insurance
Company 7 121,873 44,173 36,983 203,037
Trustees of Royal
Insur. Co. Of
Canada 0 34,724 7,951 0 42,675
Veldon, Peter
Van Der 0 0 2,591 0 2,591
Ward, Fred 33,969 0 0 4,625 38,594
Weldon, David &
Heaslip, William 0 28,580 8,835 0 37,415
Wijler Holding NV 0 38,583 8,835 0 47,418
Workers'
Compensation Board 0 137,630 32,202 0 169,832
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 945,415
<SECURITIES> 0
<RECEIVABLES> 22,321,447
<ALLOWANCES> 741,825
<INVENTORY> 50,440,128
<CURRENT-ASSETS> 73,847,375
<PP&E> 13,505,166
<DEPRECIATION> 1,062,786
<TOTAL-ASSETS> 138,332,047
<CURRENT-LIABILITIES> 61,512,861
<BONDS> 39,769,372
0
9,042
<COMMON> 28,965,931
<OTHER-SE> 8,074,841
<TOTAL-LIABILITY-AND-EQUITY> 138,332,047
<SALES> 43,118,599
<TOTAL-REVENUES> 43,118,599
<CGS> 28,693,346
<TOTAL-COSTS> 10,401,175
<OTHER-EXPENSES> 3,013,833
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 3,013,833
<INCOME-PRETAX> 1,250,397
<INCOME-TAX> 523,849
<INCOME-CONTINUING> 968,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 968,983
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
