SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): MAY 14, 1996
FRENCH FRAGRANCES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 1-6370 59-0914138
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
14100 NW 60TH AVENUE
MIAMI LAKES, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 620-9090
------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On May 14, 1996, French Fragrances, Inc. (the "Company"),
consummated the acquisition (the "FMG Acquisition") of certain assets of
Fragrance Marketing Group, Inc. ("FMG"), including contract rights (the
"Contract Rights") under certain license and exclusive distribution agreements
in the United States for the OMBRE ROSE, FACONNABLE, BALENCIAGA, LAPIDUS,
BOGART, CHEVIGNON and NIKI DE SAINT PHALLE fragrance brands, inventory, returns,
accounts receivable, tangible assets, claims and books and records
(collectively, the "Acquired Assets"). In addition, the Company assumed
approximately $3.1 million of certain trade and other payables of FMG and
discharged approximately $600,000 of an accounts receivable from FMG. In
addition to the payables and write-off of the receivable, the consideration for
the Acquired Assets included approximately $4.3 million in cash, $11.1 million
aggregate principal amount of 8.5% Subordinated Debentures ("8.5% Debentures")
and $900,000 in Company inventory delivered to FMG (valued at the Company's
cost). 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. The purchase price for the FMG Acquisition was based on
negotiations between the Company and FMG. The Company's determination of the
purchase price was based on a value of $13.9 million for the Contract Rights,
$5.5 million for FMG's inventory and $600,000 for FMG's accounts receivable. The
cash portion of the purchase price was financed from the Company's revolving
credit facility with Fleet National Bank and Bank of America Illinois. The 8.5%
Debentures consist of: (i) a $4 million 8.5% Debenture which requires mandatory
principal payments of $2 million in May 2000 and 2001 (such payments are subject
to acceleration to May 1998 and 1999 if the Company raises a minimum of $10
million of new capital from a public offering of equity securities (the
"Financing Condition"); provided that if the Financing Condition is satisfied
after May 1998, payment of the entire balance will be due on the later to occur
of May 1999, or 30 days after the Financing Condition is satisfied); (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. The Company intends to use the physical property acquired from FMG
(consisting primarily of office equipment) in the same manner as FMG used such
property.
Included as Exhibit 2.1 is the Asset Purchase Agreement, and as
such, the foregoing description is qualified in its entirety by reference to and
incorporation of the terms and provisions thereof.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(1) Financial Statements of FMG
(a) Report of Independent Certified Public Accountants
(b) Balance Sheet as of December 31, 1995.
(c) Statement of Earnings and Retained Earnings for the years
ended December 31, 1995 and 1994.
(d) Statement of Cash Flows for the years ended December 31,
1995 and 1994.
(e) Notes to Financial Statements
(2) Pro Forma Financial Data of the Company
(a) Pro Forma Condensed Balance Sheet as of January 31, 1996.
(b) Pro Forma Condensed Income Statement for the Year Ended
January 31, 1996.
(c) Pro Forma Condensed Income Statement for the Twelve
Months Ended January 31, 1995.
(d) Notes to Pro Forma Condensed Financial Statements.
3
<PAGE>
(1)(a) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
and Stockholders of
Fragrance Marketing Group, Inc.
We have audited the balance sheets of Fragrance Marketing Group, Inc. (a
Florida corporation), as of December 31, 1995 and 1994 and the related
statements of income and retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fragrance Marketing Group,
Inc., as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note B to the
financial statements, the Company subsequent to December 31, 1995, sold a
significant portion of its assets and operations and terminated its line of
credit arrangement. In addition, at December 31, 1995 the Company has a deficit
in stockholders' equity of approximately $500,000. Those conditions raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include adjustments that might be necessary
should the Company be unable to continue in existence.
SANSON, KLINE, JACOMINO
Miami, Florida
May 3, 1996 (except for Notes B,
D and G for which the date is
May 14, 1996)
4
<PAGE>
<TABLE>
<CAPTION>
(1)(b) FRAGRANCE MARKETING GROUP, INC.
BALANCE SHEETS
December 31,
ASSETS (Notes D and G) 1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash ..................................................................... $ 70,816 $ 12,255
Accounts receivable -trade, net of allowance
for doubtful accounts and sales returns
(Notes A-1, A-6)......................................................... 1,118,674 3,598,810
Accounts receivable - affiliates (Note C).................................. - 3,461,493
Due from insurance claims.................................................. 224,419 222,221
Inventories (Notes A-2 and D).............................................. 7,788,318 8,317,328
Prepaid expenses........................................................... - 7,300
-------------- --------------
Total current assets................................................. 9,202,227 15,619,407
EQUIPMENT - AT COST, less accumulated
depreciation of $35,966 in 1995 and $10,828
in 1994 (Note A-3 and E)................................................... 160,495 44,208
OTHER ASSETS
Deposits................................................................... 1,075 12,600
Unamortized contract rights (Note A-4)..................................... 148,816 178,576
----------- ------------
149,891 191,176
----------- ------------
$9,512,613 $15,854,791
=========== ============
LIABILITIES
CURRENT LIABILITIES
Note payable - bank (Note D).............................................. $5,135,933 $ 7,375,957
Current maturities of long-term debt (Note E)............................. 18,603 -
Accounts payable and accrued liabilities.................................. 4,779,971 7,286,699
---------- -----------
Total current liabilities........................................... 9,934,507 14,662,656
LONG-TERM DEBT, less current maturities (Note E)............................... 81,972 -
COMMITMENTS AND CONTINGENCIES
(Notes A-6, F and G)...................................................... - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - authorized 25,000,000 shares,
issued and outstanding 100 shares of
$.01 par value.......................................................... 1 1
Retained earnings......................................................... 359,291 1,192,134
----------- -----------
359,292 1,192,135
Less accounts receivable-trade associated
with affiliates (Note C)............................................... (863,158) -
----------- ---------------
(503,866) 1.192.135
----------- -----------
$9,512,613 $15,854,791
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
(1)(c) FRAGRANCE MARKETING GROUP, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the year ended December 31,
1995 1994
-------- ------
<S> <C> <C>
NET SALES (Notes A-6 and C).............................................. $19,429,834 $13,245,821
COST OF SALES............................................................ 12,136,747 8,197,540
---------- -----------
Gross profit.................................................. 7,293,087 5,048,281
OPERATING EXPENSES
Warehouse and shipping.............................................. 446,119 159,936
Selling............................................................. 1,637,919 1,179,300
General and administration (Note C)................................. 3,333,935 2,250,280
Depreciation and amortization....................................... 54,897 47,256
------------- -------------
Total operating expenses...................................... 5,472,870 3,636,772
----------- -----------
Income from operations........................................ 1,820,217 1,411,509
OTHER INCOME (EXPENSE)
Interest expense.................................................... (863,131) (301,904)
Commission income (Note C).......................................... 69,740 -
------------- ---------------
(793,391) (301,904)
------------ ------------
NET INCOME (Note A-5)......................................... 1,026,826 1,109,605
Retained earnings at January 1,.......................................... 1,192,134 82,529
Distribution to stockholders............................................. (1,859,669) -
----------- ---------------
Retained earnings at December 31,........................................ $ 359,291 $ 1,192,134
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
(1)(d) FRAGRANCE MARKETING GROUP, INC.
STATEMENTS OF CASH FLOWS
For the year ended December 31,
1995 1994
-------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................. $ 1,026,826 $ 1,109,605
Adjustments to reconcile net income to
net cash provided by (used in) operating activities
Depreciation....................................................... 25,138 8,567
Provision for losses on accounts receivable........................ 129,865 152,574
Contract rights amortization....................................... 29,760 38,688
Change in assets and liabilities
Increase in due from insurance claims............................ (2,198) (222,221)
Decrease (increase) in accounts receivable-trade................. 1,487,113 (2,422,089)
Decrease (increase) in inventories............................... 529,010 (6,230,436)
Decrease in prepaid expenses..................................... 7,300 1,150
Decrease (increase) in deposits.................................. 11,525 (12,000)
(Decrease) increase in accounts payable and
accrued liabilities........................................... (2,506,728) 5,287,345
----------- ----------
Net cash provided by (used in) operating activities......... 737,611 (2,288,817)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment............................................... (29,137) (13,571)
(Increase) decrease in accounts receivable-affiliates.................. 1,881,824 (3,233,253)
---------- ----------
Net cash provided by (used in) investing activities........... 1,852,687 (3,246,824)
CASH FLOWS FROM FINANCING ACTIVITIES
Net short-term borrowings under line of credit......................... (2,240,024) 5,537,030
Principal payments of long-term debt................................... (11,713) -
Distributions to stockholders.......................................... (280,000) -
----------- ------------
Net cash provided by (used in) financing activities........... (2,531,737) 5,537,030
---------- ---------
INCREASE IN CASH.............................................. 58,561 1,389
CASH AT JANUARY 1,.......................................................... 12,255 10,866
----------- -----------
CASH AT DECEMBER 31,........................................................ $ 70,816 $ 12,255
=========== ===========
CASH PAID DURING THE YEAR FOR:
Interest ............................................................ $ 863,131 $ 301,904
========== ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
TheCompany acquired equipment under equipment installment loan obligations
of $112,288 in 1995.
TheCompany distributed non-cash assets (accounts receivable-affiliates) of
$1,579,669 to its stockholders in 1995.
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
(1)(e) FRAGRANCE MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE A - GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company was incorporated in the State of Florida in May, 1992. Its main
activity consists of the exclusive representation and distribution of
several fragrances and related products throughout the United States,
Canada, Puerto Rico and the Caribbean. Since the fragrance business is
seasonal, a significant portion of sales occur in the last two quarters of
the calendar year.
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements
follows:
1. ACCOUNTS RECEIVABLE
A provision has been made and an allowance established for potential losses
from receivables and estimated sales returns in the normal course of
business. Since these allowances are based on estimates, there is no
assurance that such allowances will be sufficient to cover unforeseen
losses or returns. The activity for these allowance accounts are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Beginning balance $ 50,000 $ 5,000
Provision 129,865 152,574
Write-offs, net of recoveries (79,865) (107,574)
--------- --------
Ending balance $100,000 $ 50,000
======= =========
ALLOWANCE FOR SALES RETURNS
Beginning balance $ 35,856 $ -
Provision 2,583,652 1,132,397
Actual returns (2,557,270) (1,096,541)
----------- ----------
Ending balance $ 62,238 $ 35,856
============= ============
</TABLE>
2. INVENTORIES
Inventories consist of fragrances and related products and are carried at
the lower of cost or market, cost being determined on a moving average
basis.
8
<PAGE>
FRAGRANCE MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
3. EQUIPMENT AND DEPRECIATION
Equipment is stated at cost. Expenditures for major betterments and
additions are recorded to the asset accounts while replacements,
maintenance and repairs which do not improve or extend the lives of the
respective assets are charged to expense. Depreciation is provided over the
estimated useful lives of the assets using the straight-line method, as
follows:
CATEGORY YEARS
-------- -----
Furniture and fixtures 7
Machinery and equipment 5
Vehicles 5
4. UNAMORTIZED CONTRACT RIGHTS
In February, 1993, the Company acquired certain contractual rights for the
exclusive distributorship of a fragrance brand. The cost of these rights
was $250,000 which is being amortized over the life of the contract which
is seven (7) years.
5. INCOME TAXES
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under these provisions the Company does not pay
federal corporate income taxes on its taxable income. Instead, the
shareholders are liable for individual income taxes on their respective
share of the Company's taxable income.
6. REVENUE RECOGNITION
Sales are recognized upon shipment. Sales to one major customer represented
9% and 15% of the total sales for the year ended December 31, 1995 and
1994, respectively. Accounts receivable from this major customer
represented 8% and 6% of the total accounts receivable trade at December
31, 1995 and 1994, respectively.
7. NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used, and for long-lived assets
9
<PAGE>
FRAGRANCE MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE A-7 - CONTINUED
and certain identifiable intangibles held and used by an entity, be
reviewed for impairment whenever events or changes in circumstance indicate
that the carrying amounts of an asset may not be recoverable. SFAS No. 121
will apply to the Company for the year ended December 31, 1996. The Company
has not assessed the impact of adopting this pronouncement.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The following conditions raise
substantial doubt about the Company's ability to continue as a going
concern:
/bullet/ Sale of a significant portion of the Company's assets and
operations, including contract rights under license and
exclusive distribution agreements in the United States for
certain prestige fragrance brands, subsequent to December 31,
1995 (see Note G).
/bullet/ Termination of line of credit arrangement subsequent to
December 31, 1995 (see Note D).
/bullet/ Deficit in stockholders' equity of approximately $500,000 at
December 31, 1995 (see Note C).
The financial statements do not include adjustments that might be necessary
should the Company be unable to continue in existence.
NOTE C - RELATED PARTY TRANSACTIONS
The Company is related to four corporations through common management and
ownership. During the years ended December 31, 1995 and 1994, the Company
had the following transactions with these affiliates:
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
/bullet/ Purchases of merchandise $165,543 -
/bullet/ Sales $539,822 $162,562
/bullet/ Management fee expense, which includes
the use of the warehouse facilities
(THE AFFILIATE WAIVED THE MANAGEMENT FEE
EXPENSE IN 1995) $402,292 -
/bullet/ Commissions income $ 69,740 $ -
</TABLE>
During the year ended December 31, 1995, the Company distributed $1,579,699
in accounts receivable-affiliates to its stockholders.
10
<PAGE>
FRAGRANCE MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE C - CONTINUED
At December 31, 1995 approximately $863,000 of the Company's accounts
receivable-trade have not been collected due to balances that the
affiliates owe these trade customers. The Company has recorded the accounts
receivable-trade associated with affiliates as a reduction of the
stockholders' equity resulting in a deficit in stockholders' equity of
approximately $500,000 at December 31, 1995.
NOTE D - NOTE PAYABLE-BANK
The Company, jointly with an affiliate, has available a line of credit
totaling $25,000,000. Borrowings under the line of credit are
collateralized by substantially all the assets of the Company and
personally guaranteed by the Company's stockholders. At December 31, 1995
and 1994, the agreement allowed borrowing up to 85% of the outstanding
eligible accounts receivable and 60% of eligible inventory at an interest
rate of 1.25% over the bank's prime rate. The unused line of credit at
December 31, 1995 was $27,403.
The note is subject to the provisions of the loan agreement. Covenants of
this agreement provide, among other things, for requirements as to working
capital levels and for the subordination of amounts due to affiliates and
stockholders.
On May 14, 1996, the Company and the affiliate reached an agreement with
the bank terminating the $25,000,000 line of credit arrangement. As a
result of the agreement, the bank agreed to release all UCC financing
statements held by the bank against the Company in consideration of
approximately $4.3 million in cash and $4 million in 8.5% subordinated
debentures of French Fragrance, Inc. (See Note G).
NOTE E - LONG-TERM DEBT
Long-term debt at December 31, 1995 consists of installment notes payable
in monthly installments of $2,825, including interest ranging from 11.5% to
17.5% per year through November 2000. The maturities of long-term debt at
December 31, 1995 are as follows:
YEAR AMOUNT
---- ------
1996 $ 18,603
1997 21,963
1998 25,939
1999 30,645
2000 3,425
---------
$ 100,575
==========
11
<PAGE>
FRAGRANCE MARKETING GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE F - COMMITMENTS AND CONTINGENCIES
1. The Company is committed to a minimum annual royalty fee of $250,000
according to one of its distributorship agreements. These distribution
rights were not included in the sale of assets described in Note G.
2. The Company is engaged as a defendant in litigation involving an
alleged breach of an exclusive distribution contract. The plaintiff has
alleged damages in excess of $1,500,000. Management expects to obtain a
favorable judgment in the litigation. However, the ultimate outcome of
the litigation cannot presently be determined. Accordingly, no
provision for any liability that may result upon adjudication has been
made in the Company's financial statements.
3. The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when finally concluded and determined, will
not, in the opinion of Management, have a material adverse effect upon
the financial position of the Company.
NOTE G - SUBSEQUENT EVENT
On May 14, 1996, the Company consummated the sale of certain assets with a
cost of approximately $6.1 million to French Fragrances, Inc. (FFI). These
assets included accounts receivable-trade, inventory, equipment and
contract rights under certain license and exclusive distribution agreements
in the United States for the Ombre Rose, Faconnable, Balenciaga, Lapidus,
Bogart, Chevignon and Nicki de Saint Phalle fragrance brands. The
consideration for the assets sold consisted of the following:
/bullet/ Assumption of approximately $3.1 million of the Company's
accounts payable and accrued liabilities.
/bullet/ Forgiveness of approximately $600,000 payable to FFI by an
affiliate of the Company.
/bullet/ Cash of approximately $4.3 million used by the Company in
settlement of the line of credit outstanding balance and
commitment (see Note D).
/bullet/ FFI 8.5% secured subordinated debentures totaling $11.1
million, $4 million used by the Company in the settlement of the
line of credit outstanding balance and commitment (see Note D)
and $7 million used by the Company to settle outstanding bank
debt of its affiliates.
/bullet/ Warrants to purchase 1,075,000 shares of FFI common stock at
$7.50 per share from July 1997 to January 2002.
/bullet/ Inventory of FFI valued by FMG at approximately $1,000,000.
12
<PAGE>
(2) PRO FORMA FINANCIAL DATA
On May 14, 1996, the Company completed the FMG Acquisition, which was
accounted for using the purchase method of accounting. The following unaudited
pro forma condensed consolidated income statements and other operating data for
the year ended January 31, 1996 and the twelve months ended January 31, 1995
assume that the FMG Acquisition was consummated as of the beginning of each of
the periods presented and include certain adjustments to the historical
consolidated income statements of the Company to give effect to the acquisition
of license and sales representative arrangements, other intangible assets and
other acquired net assets, the payment of the purchase price in such
acquisition, the related issuance of additional indebtedness by the Company, and
increased amortization of intangible assets. The following unaudited pro forma
condensed consolidated balance sheet as of January 31, 1996, reflects the FMG
Acquisition, the payment of the purchase price in such acquisition and the
related issuance of additional indebtedness by the Company, as if such
transaction had occurred on January 31, 1996.
The unaudited pro forma financial data should be read in conjunction with the
notes thereto and the historical Consolidated Financial Statements of the
Company (including the notes thereto) and the other historical financial
information included in the Company's Annual Report on Form 10-K for the fiscal
year ended January 31, 1996. The pro forma results of operations for the year
ended January 31, 1996 and the twelve months ended January 31, 1995 are not
necessarily indicative of the results of operations that would have been
achieved had the transaction reflected therein been consummated prior to the
periods in which they were completed, or that might be attained in the future.
13
<PAGE>
<TABLE>
<CAPTION>
(2)(a) PRO FORMA CONDENSED BALANCE SHEET
JANUARY 31, 1996
(IN THOUSANDS)
HISTORICAL ADJUSTMENTS (1) PRO FORMA
---------- --------------- ---------
<S> <C> <C> <C>
Current assets other than inventories.............. $16,731 $ (60) $16,671
Inventories........................................ 25,851 4,614 30,465
Property and equipment, net........................ 11,099 69 11,168
Exclusive brand license, net....................... 14,672 13,908 28,580
Other assets....................................... 3,031 - 3,031
------- -------- -------
Total assets.................................. $71,384 $18,531 $89,915
====== ====== ======
Short-term debt.................................... $16,713 $ 4,324 $21,037
All other current liabilities...................... 17,846 3,107 20,953
Long-term liabilities.............................. 17,285 11,080 28,365
Redeemable preferred stock......................... 2,000 - 2,000
Convertible redeemable preferred stock............. 4 - 4
Common stock....................................... 96 - 96
Additional paid-in capital......................... 10,334 20 10,354
Retained earnings.................................. 7,106 - 7,106
-------- -------- -------
Total liabilities and shareholders'
equity........................................... $71,384 $18,531 $89,915
====== ====== ======
</TABLE>
See Notes to Pro Forma Condensed Financial Statements
14
<PAGE>
<TABLE>
<CAPTION>
(2)(b) PRO FORMA CONDENSED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL YEARS ENDED
----------------------
COMPANY FMG
------- ---
JANUARY 31, DECEMBER 31,
1996 1995 COMBINED ADJUSTMENTS PRO FORMA
-------------- --------------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................ $87,979 $19,430 $107,409 $107,409
Cost of sales.................... 66,340 12,137 78,477 78,477
------- ------ -------- ------------ --------
Gross profit..................... 21,639 7,293 28,932 - 28,932
Operating expenses............... 13,220 5,403 18,623 927(2) 19,550
------- ------- -------- --------- --------
Income from operations........... 8,419 1,890 10,309 (927) 9,382
Interest expense, net............ (4,142) (863) (5,005) (944)(3) (5,949)
Other income..................... 661 - 661 - 661
--------- -------- ---------- --------- ----------
Income before taxes.............. 4,938 1,027 5,965 (1,871) 4,094
Income taxes..................... 1,931 - 1,931 (293)(4) 1,638
-------- -------- --------- ------- ---------
Net income....................... $ 3,007 $ 1,027 $ 4,034 $(1,578) $ 2,456
======= ======= ========= ====== =========
Earnings per share
(primary) (5)................. $ 0.35 $ 0.29
======== ===========
OTHER OPERATING DATA:
EBITDA (6)....................... $ 9,738 $ 11,628
======= ========
</TABLE>
See Notes to Pro Forma Condensed Financial Statements
15
<PAGE>
<TABLE>
<CAPTION>
(2)(c) PRO FORMA CONDENSED INCOME STATEMENT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL YEARS ENDED
----------------------
COMPANY FMG
------- ---
JANUARY 31, DECEMBER 31,
1995 1994 COMBINED ADJUSTMENTS PRO FORMA
-------------- --------------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................ $69,612 $13,246 $82,858 - $82,858
Cost of sales.................... 56,108 8,198 64,306 - 64,306
------- ------- ------- ------- -------
Gross profit..................... 13,504 5,048 18,552 - 18,552
Operating expenses............... 7,281 3,637 10,918 927(2) 11,845
-------- ------- ------- ------- -------
Income from operations........... 6,223 1,411 7,634 (927) 6,707
Interest expense, net............ (2,119) (302) (2,421) (944)(3) (3,365)
Other income..................... 430 - 430 - 430
--------- -------- --------- ------- ---------
Income before taxes.............. 4,534 1,109 5,643 (1,871) 3,772
Income taxes..................... 1,672 - 1,672 (163)(4) 1,509
-------- -------- ------- ------- --------
Net income....................... $ 2,862 $ 1,109 $ 3,971 $(1,708) $ 2,263
======= ====== ======= ====== ========
Earnings per share
(primary) (5)................. $ 0.40 $ 0.31
======== =========
OTHER OPERATING DATA:
EBITDA (6)....................... $ 6,562 $ 7,974
======= ========
</TABLE>
See Notes to Pro Forma Condensed Financial Statements
16
<PAGE>
(2) (d) NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
(1) To record the fair value of assets to be acquired and liabilities to be
assumed in the FMG Acquisition. The purchase price included approximately
$4.3 million in cash (financed from the Company's revolving credit
facility), $11.1 million aggregate principal amount of 8.5% Secured
Subordinated Debentures, $900,000 in inventory (valued at the Company's
cost) and warrants for 1,075,000 shares of the Company's Common Stock. In
addition, the Company assumed trade payables of $3.1 million and discharged
$600,000 of accounts receivable.
(2) To record amortization for the exclusive brand licenses acquired in the
FMG Acquisition ($927,000 annually) over their estimated useful lives of 15
years.
(3) To record interest expense on the debt incurred in the FMG Acquisition
(see Note 1 above).
(4) To record the aggregate tax effect of the FMG Acquisition at an assumed
rate of 40%.
(5) Per share amounts were determined based on the number of the Company's
common shares outstanding for each period (8,518,000 for the year ended
January 31, 1996 and 7,120,000 for the twelve months ended January 31,
1995) as if the FMG Acquisition was consummated as of the beginning of each
period.
(6) "EBITDA" is defined as operating income, plus depreciation and
amortization. EBITDA should not be considered as an alternative to
operating income (loss) or net income (loss) (as determined in accordance
with generally accepted accounting principles) as a measure of the
Company's operating performance or to net cash provided by operating,
investing and financing activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity or
ability to meet cash needs. The Company believes that EBITDA is a measure
commonly reported and widely used by analysts, investors and other
interested parties as a measure of a fragrance company's operating
performance and debt servicing ability because it assists in comparing
performance on a consistent basis without regard to depreciation and
amortization, which can vary significantly depending upon accounting
methods (particularly when acquisitions are involved) or nonoperating
factors (such as historical cost). Accordingly, this information has been
disclosed herein to permit a more complete comparative analysis of the
Company's operating performance relative to other companies in the
fragrance industry and of the Company's debt servicing ability. However,
EBITDA may not be comparable in all instances to other similar types of
measures used in the fragrance industry. The Company's bank credit facility
contains certain covenants incorporating the same definition of EBITDA.
17
<PAGE>
EXHIBITS
2.1* Asset Purchase Agreement dated as of April 17, 1996, among the Company,
FMG, Rene Garcia and Jose Miguel Norona, including the forms of 8.5%
Debentures and the form of FMG Warrant (incorporated herein by reference
to Exhibit 10.21 filed as part of the Company's Registration Statement
on Form S-1 (Registration No. 333-4588)).
2.2 Amendment dated as of May 14, 1996 to Asset Purchase Agreement among
the Company, FMG, Rene Garcia and Jose Miguel Norona including form of
8.5% Debenture II and form of FMG Warrant.
4.1 First Amendment dated as of May 10, 1996, to Credit Agreement dated as
of March 14, 1996, among the Company, Fleet National Bank and Bank of
America Illinois.
- -------------------
*The exhibits (consisting primarily of conveyance and instruments
representing the consideration paid by the Company) and disclosure
schedules to this Agreement setting forth information relating to the
representations, warranties and covenants have been omitted. The
registrant agrees to furnish supplementally copies of these documents to
the Commission upon request.
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 registrant agrees to furnish a copy of such instrument or
agreement to the Commission upon request.
18
<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 hereunto duly authorized.
FRENCH FRAGRANCES, INC.
/S/ WILLIAM J, MUELLER
Date: May 29, 1996 William J. Mueller
Vice President - Operations and
Chief Financial Officer
19
Exhibit 2.2 AMENDMENT TO
ASSET PURCHASE AGREEMENT
This AMENDMENT TO ASSET PURCHASE AGREEMENT (the "AMENDMENT") is entered
into this 14th day of May, 1996, by and among French Fragrances, Inc., a Florida
corporation (the "Buyer"), and Fragrance Marketing Group, Inc., a Florida
corporation (the "Seller"), and Rene Garcia and Jose Miguel Norona, the sole
shareholders of the Seller (collectively, the "Shareholders"), and amends that
certain Asset Purchase Agreement (the "Purchase Agreement") among the Seller,
the Buyer and the Shareholders dated April 17, 1996. All capitalized terms not
otherwise defined herein shall have the meanings set forth in the Purchase
Agreement.
WHEREAS, the parties entered into the Purchase Agreement, and, pursuant to
Section 14.2 thereof, desire to amend the Purchase Agreement;
NOW, THEREFORE, in consideration of the covenants and promises contained
herein and such other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. The Purchase Agreement is hereby amended as follows:
(a) Exhibit C to the Purchase Agreement is hereby deleted in its
entirety and replaced with Exhibit C attached hereto.
(b) Exhibit E to the Purchase Agreement is hereby deleted in its
entirety and replaced with Exhibit E attached hereto.
(c) Section 2.1(a)(d) of the Purchase Agreement is deleted
in its entirety and replaced with the following:
"(d) a warrant exercisable for 1,075,000 shares of the Buyer's
common stock, par value $0.01 per share (the "Warrant Stock"), in
the form of Exhibit E hereto (the "Warrant" and collectively with
the Cash Purchase Price, Inventory Purchase Price, Debenture
Price, the "Purchase Price"); provided that, the Seller hereby
authorizes and directs the Buyer that the Warrant be issued to
the Seller for 1,064,250 shares of Warrant Stock and that a
Warrant in the form of Exhibit E be issued to David Alfin for
10,750 shares of Warrant Stock and which additional Warrant and
Warrant Stock shall be subject to the same terms and conditions
contained in this Agreement, as amended, as are applicable to the
Seller's Warrant and the shares issuable upon exercise of the
Seller's Warrant, including, without limitation, the provisions
of Section 12.5, "Offset; Security Interest", on a pro rata basis
with the Seller's Warrant, and treated for all purposes as if
they were the Seller's Warrant, and upon exercise, Warrant Stock
under, this Agreement, as amended.
(d) The first sentence of Section 5.4 of the Purchase
Agreement is deleted in its entirety and replaced with the following:
"The authorized capital stock of the Buyer consists of 50,000,000
shares of Common Stock, par value $0.01 per share, of which
9,641,290 shares are issued and outstanding; and 20,000 shares of
Series A Preferred Stock, par value $.01 per share,
<PAGE>
all of which are issued and outstanding; 350,000 shares of Series
B Convertible Preferred Stock, par value $.01 per share, all of
which are issued and outstanding; 571,429 shares of Series C
Convertible Preferred Stock, par value $.01 per share, all of
which are issued and outstanding; and 4,428,571 shares of Serial
Preferred Stock, par value $.01 per share, none of which is
issued and outstanding."
(e) Section 9.3 of the Purchase Agreement is hereby deleted
in its entirety and replaced with the following:
"Section 9.3 OPINION OF COUNSEL. The Buyer shall have received an
opinion dated the Closing Date from Stroock & Stroock & Lavan,
counsel to the Seller, in the form attached hereto as Exhibit H,
and, a separate opinion of Stroock & Stroock & Lavan with respect
to the assignment or other transfer of any of the Debentures as
contemplated by the Seller, in form and substance satisfactory to
the Buyer and its counsel, in connection with any such issuance,
assignment or other transfer of any of the Debentures permitted
by the terms hereof or thereof."
(f) Section 13.1(a) of the Purchase Agreement is amended by
deleting the first sentence of the paragraph commencing after subsection (iii)
of Section 13.1(a) and replacing it with the following:
"Notwithstanding the foregoing, the parties acknowledge and agree
that (A) the Seller's affiliates' continued operation of C&C
Beauty Supply, Inc., a Florida corporation ("C&C") or General
Perfumes & Cosmetics, Inc, a Florida corporation ("GPC"), solely
as currently conducted, or any merger or combination between or
among any of the Seller, C&C or GPC, shall not be a violation of
the provisions of this Section 13.1(a)(i), provided that, under
no circumstances shall C&C, GPC or any such other entity (x) seek
or enter into any exclusive distributorship or licensing
agreements with respect to any perfume or fragrance products now
or hereafter being manufactured, marketed or distributed by the
Buyer during such five-year period or with respect to which the
Buyer is in active negotiations, or (y) otherwise breach or
violate the provisions of this Section 13.(a)(ii) or (iii); and
(B) the Seller's affiliates' continued operation of PMG and FMG
solely in connection with its arrangements with Versace Profumi
USA, Ltd. and affiliates thereof, as in effect from time-to-time,
shall not be a violation of the provisions of this Section
13.1(a)(i) or (iii).
2. Pursuant to Section 3.1 of the Purchase Agreement, the parties
hereby agree that the Closing Date is the date hereof and the Closing Time for
all purposes of the Purchase Agreement shall be as of 11:59 p.m. on
May 13, 1996.
3. The Purchase Agreement is hereby amended to provide that all of the
Seller's Inventory of Versace products shall not constitute a part of the
Subject Assets.
4. Schedule 1.1(b) to the Purchase Agreement is hereby amended to delete
that certain computer lease agreement; and Schedule 1.1(k) to the Purchase
Agreement is hereby amended to delete the Mark "Ombre Rose" and "Prestige
Marketing Group" therefrom.
5. Schedule 10.4 to the Purchase Agreement is deleted in its
entirety and replaced with the attached Schedule 10.4.
6. The Buyer hereby waives the provisions of Section 9.12 of the Purchase
Agreement and agrees that the Versace Contract and PMG Mark shall not constitute
part of the Subject Assets.
<PAGE>
7. The parties acknowledge and agree that, pursuant to Section 2.1(b) of
the Purchase Agreement, the principal amount of Debenture III is reduced to
$100,034.00, and is subject to further adjustment as provided in the Purchase
Agreement. The parties further acknowledge that such reduction is based upon the
Closing Acquisition Balance Sheet delivered by the Seller as of even date
herewith and dated as of May 10, 1996, and that nothing contained herein shall
be deemed to waive, nor do any of the parties waive, any rights that the parties
may have under the Purchase Agreement, including, without limitation, those
relating to the Acquisition Audit.
8. (a) Except as amended hereby, the Purchase Agreement
remains in full force and effect in accordance with its terms and conditions
and is reaffirmed for all purposes.
(b) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original. Delivery of executed signature pages
hereof by facsimile transmission shall constitute effective and binding
execution and delivery hereof.
(c) This Amendment shall be shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed in Florida, without regard to conflicts of law principles
thereunder.
(d) This Amendment shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors, assigns, heirs,
beneficiaries, estates, executors and personal representatives.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
FRENCH FRAGRANCES, INC.
By: /s/ E. SCOTT BEATTIE
----------------------------------------
Name: E. Scott Beattie
Title: Vice Chairman
FRAGRANCE MARKETING GROUP, INC.
By: /s/ RENE GARCIA
----------------------------------------
Name: Rene Garcia
Title: President
/s/ RENE GARCIA
-----------------------------------------
Rene Garcia
/s/ JOSE MIGUEL NORONA
------------------------------------------
Jose Miguel Norona
<PAGE>
FMG WARRANT
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ACQUIRED UPON THE EXERCISE
OF THIS WARRANT (1) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, NOR UNDER ANY STATE OR OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE OR
OTHER SECURITIES LAWS BUT ONLY UPON THE HOLDER HEREOF FIRST HAVING OBTAINED THE
WRITTEN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS NUMBER OF SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT IS SUBJECT TO
REDUCTION PURSUANT TO CERTAIN OFFSET RIGHTS SET FORTH IN AN ASSET PURCHASE
AGREEMENT, DATED AS OF APRIL 17, 1996, BY AND AMONG FRENCH FRAGRANCES, INC.,
FRAGRANCE MARKETING GROUP, INC. ("FMG"), RENE GARCIA AND JOSE MIGUEL NORONA, AS
AMENDED (THE "AGREEMENT"), WHICH ARE INCORPORATED BY REFERENCE HEREIN, AND, IN
ADDITION, THIS WARRANT MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED PRIOR TO MAY 13,
1997.
WARRANT
To Subscribe for and Purchase Common Stock
of
FRENCH FRAGRANCES, INC.
THIS CERTIFIES THAT, for value received, FRAGRANCE MARKETING GROUP,
INC., a Florida corporation with its principal business office at 7445 N.W. 12th
Street, Miami, Florida 33126 ("FMG"), or its assigns, is entitled to subscribe
for and purchase from FRENCH FRAGRANCES, INC., a corporation organized and
existing under the laws of the State of Florida with its principal business
office at 14100 N.W. 60th Avenue, Miami Lakes, Florida 33014 (the "Company"), at
the Exercise Price (as defined below) and during the Exercise Period (as set
forth in Section I below), 1,064,250 fully paid and nonassessable shares (the
"Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), subject to the terms, conditions and adjustments contained herein.
The warrant purchase price (subject to adjustment as set forth in
Section V below) shall be $7.50 per share (the "Exercise Price").
This Warrant is subject to the following provisions, terms and
conditions:
SECTION I. EXERCISE OF WARRANT. The rights represented by this Warrant
may be exercised by the holder hereof in whole at any time or in part from time
to time, during the period commencing on July 13, 1997 and expiring at 5:00
p.m., New York time on January 13, 2002 (the "Exercise Period").
1
<PAGE>
No fractional shares of Common Stock will be issued under this
Warrant. The holder hereof may exercise this Warrant by surrendering it
(properly endorsed) at the offices of the Company set forth above (or at such
other location which the Company may designate by notice in writing to the
holder hereof at the address of such holder appearing on the books of the
Corporation), and by payment to the Company of the Exercise Price in cash or by
official bank or certified check in next day funds for each share of Common
Stock being purchased. In the event of any exercise of the rights represented by
this Warrant and subject to the provisions of Section VII hereof, certificates
for the shares of Common Stock so purchased, registered in the name of the
person entitled to receive the same, shall be delivered to the holder hereof
within a reasonable time, not exceeding ten days after the rights represented by
this Warrant shall have been so exercised; and, unless this Warrant has expired,
a new Warrant representing the number of shares (except a remaining fractional
share of Common Stock), if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the holder hereof within such
time. The person in whose name any certificates for shares of Common Stock is
issued upon exercise of this Warrant shall for all purposes be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price and any applicable taxes was made,
irrespective of the date of delivery of such certificates, except that, if the
date of such surrender and payment is a date when the stock transfer books of
the Corporation are closed, such person shall be deemed to have become the
holder of record of such shares at the close of business on the next succeeding
date on which the stock transfer books are open. Upon the exercise of this
Warrant, each certificate issued representing the shares of Common Stock
underlying this Warrant shall bear a transfer legend to the same effect as set
forth above if in the reasonable opinion of counsel to the Company such legend
is legally required or advisable.
SECTION II. COVENANTS AS TO COMMON STOCK. The Company covenants and
agrees that all shares of Common Stock which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully-paid and non-assessable. The Company covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved for the
purpose of issuance upon the exercise of this Warrant, a sufficient number of
shares of Common Stock to provide for the exercise of the rights represented by
this Warrant at the time of exercise.
SECTION III. NO STOCKHOLDER RIGHTS. This Warrant shall not entitle the
holder hereof to any voting rights or other rights as a shareholder of the
Company.
SECTION IV. TRANSFER OF WARRANT AND THE SHARES. Subject to compliance
with applicable federal, state and foreign securities laws and with the terms of
this Warrant, including, without limitation, the restrictive legend set forth on
the first page hereof, this Warrant and the Shares are transferable, in whole or
in part, at the agency or office of the Company referred to above, by the holder
hereof, in person or by duly authorized attorney, upon surrender of this Warrant
properly endorsed. Notwithstanding the foregoing, the parties acknowledge and
agree that if the holder of this Warrant after the whole or partial exercise
thereof proposes to sell all or part of the Shares (such portion, the "Offered
Shares"), in a privately negotiated transaction, it may do so only pursuant to a
bona fide offer (a "Private Sale"), and in the event of a proposed Private Sale,
then the holder of the Shares shall first deliver to the Company a written
notice of intention to sell setting forth (a) the number of Offered Shares, (b)
the intended transferee, and (c) the sale price. The Company shall have the
right and option (the "Right of First Refusal"), for a period of 10 business
days after its receipt of the notice of intention to sell, to accept the offer
as to all, but not less than all, of the Offered Shares at the purchase price
set forth in the
2
<PAGE>
notice of intention to sell. Such acceptance shall be made by delivering a
written notice of acceptance which is to be received by the holder hereof within
the 10 business day period. The closing on the purchase by the Company of the
Offered Shares shall be made at the offices of the Company on a mutually
satisfactory business day within 10 business days after the holder's receipt of
the Company's written notice of acceptance. If a written notice of acceptance to
the holder hereof is not received within the 10 business day period, the Offered
Shares may be sold to the intended transferee in accordance with the terms of
the intended transferee's bona fide offer. The Shares issued upon exercise of
this Warrant shall bear the following restrictive legend:
"The sale, assignment and/or transfer of the shares represented by this
certificate is restricted by the terms of the Warrant to Subscribe for and
Purchase Common Stock, dated May 13, 1996 (the "Warrant"), pursuant to which the
shares were issued. A copy of the Warrant is available for inspection during
normal business hours at the principal executive office of this corporation."
Notwithstanding the Right of First Refusal, but subject to compliance
with applicable federal, state and foreign securities laws and with the terms of
this Warrant, including, without limitation, the restrictive legend set forth on
the first page hereof, all or any portion of this Warrant and the Shares may be
transferred, sold or assigned by the holder hereof on and after May 13, 1997,
(a) if such holder is a corporation, to its shareholders, or (b) if such holder
is a natural person, to such holder's spouse or children, or to a trust
established for the benefit of such spouse, children or the holder, provided,
however, that any such transferee shall thereafter be bound by the terms and
provisions of this Warrant, including, without limitation, the Right of First
Refusal.
SECTION V. ADJUSTMENT OF EXERCISE PRICE. The Exercise Price shall, from
and after the date of issuance of this Warrant, be subject to adjustment from
time to time as hereinafter provided. Upon each adjustment of the Exercise
Price, the holder of this Warrant shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares of
Common Stock obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(a) Except (i) in the case of Common Stock issued as a dividend or
other distribution payable in respect of Common Stock, (ii) upon the exercise of
a Convertible Security (as hereinafter defined) or any right or option to
purchase Common Stock or Convertible Securities of the Company issued as a
dividend or other distribution payable in respect of Common Stock, (iii) upon
the exercise of the Company's Series B Convertible Preferred Stock, $.01 par
value per share ("Series B Preferred"), and the Company's Series C Convertible
Preferred Stock, $.01 par value per share ("Series C Preferred"), (iv) in the
case of the issuance or sale of any shares of Common Stock, stock options,
warrants or other rights to employee, officers and directors of the Company
pursuant to any employee benefit or pension plan, or (v) in the case of an
underwritten public offering of Common Stock consummated on or before October
30, 1996, in the event the Company shall at any time issue or sell any shares of
Common Stock without consideration or for a consideration per share less than
the lesser of the market price per share or the Exercise Price in effect
immediately prior to the time of such issue or sale, the Exercise Price shall be
reduced concurrently with such issue or sale, to an amount calculated by:
(A) dividing a sum equal to (1) the total number of
shares of Common Stock outstanding at the date of
this Warrant, multiplied by the Exercise Price at the
3
<PAGE>
date of adjustment, plus (2) the aggregate of the
amounts of all consideration received by the Company
upon the issuance of Additional Shares of Common
Stock, by
(B) the sum of (x) the total number of shares of Common
Stock outstanding at the date of this Warrant, and
(y) the number of Additional Shares of Common Stock
which shall have been issued.
For purposes of this Section V(a), "Additional Shares of Common Stock" shall
mean any and all shares of Common Stock issued or sold by the Company subsequent
to the date of this Warrant other than as described in Section V(a)(i) through
(v). A "Convertible Security" shall refer to any obligations or shares of
capital stock of the Company that are convertible into or exchangeable for
Common Stock. The "market price" per share of Common Stock shall mean, if the
Common Stock is traded on a securities exchange or the Nasdaq National Market
System, the closing price of the Common Stock on such exchange or the Nasdaq
National Market System, or if the Common Stock is otherwise traded in the
over-the-counter market, the closing bid price, in each case averaged over a
period of 20 consecutive business days prior to the date as of which the "market
price" is determined. If the Common Stock is not traded on the over-the-counter
market, the market price shall be deemed to be the fair value thereof determined
by the Board of Directors of the Company.
(b) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares or issue a dividend or
distribution payable in shares of Common Stock, the Exercise Price in effect
immediately prior to such subdivision shall be reduced to a price determined by
dividing (i) the number of shares of Common Stock outstanding immediately prior
to such subdivision or distribution, multiplied by the Exercise Price per share
in effect immediately prior to such subdivision or distribution by (ii) the
number of shares of Common Stock outstanding immediately after such subdivision
or distribution.
(c) In case the Company shall at any time combine its outstanding
shares of Common Stock into a lesser number of shares of Common Stock, the
Exercise Price in effect immediately prior to such combination shall be
increased to a price determined by dividing (i) the number of shares of Common
Stock outstanding immediately prior to such combination, multiplied by the
Exercise Price per share in effect immediately prior to such combination by (ii)
the number of shares of Common Stock outstanding immediately after such
combination.
(e) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, lawful and adequate provision shall be made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provision shall
be made
4
<PAGE>
with respect to the rights and interests of the holder of this Warrant to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price) shall thereafter be applicable, as nearly as
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
Upon any adjustment of the Exercise Price, then and in each such case
the Company shall give written notice thereof, by first-class mail, postage
prepaid, addressed to the registered holder of this Warrant which shall be as
set forth above, which notice shall state the Exercise Price resulting from such
adjustment setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
SECTION VI. REGISTRATION RIGHTS. The holder of this Warrant and of the
Common Stock issuable upon the exercise hereof shall be entitled to the
registration rights set forth in Exhibit "A" attached hereto and incorporated
herein by this reference.
SECTION VII. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this
Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated
or destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Company whether or not the allegedly lost, stole, mutilated or
destroyed Warrant shall be at any time enforceable by anyone.
SECTION VIII. INVESTMENT PURPOSE. If the Company in its good faith
discretion determines that as a matter of law such procedure is or may be
desirable, it may require a holder of this Warrant, upon any acquisition of
Common Stock pursuant to the exercise of this Warrant and as a condition to the
Company's obligation to deliver certificates representing such shares, to
execute and deliver to the Company a written statement, in form satisfactory to
the Company, representing and warranting that such the holder's acquisition of
shares of Common Stock pursuant to the exercise hereof shall be for such
person's own account, for investment and not with a view to the resale or
distribution thereof and that any subsequent offer for sale or sale of any such
shares shall be made either pursuant to (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
respect to the shares being offered and sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the holder shall, prior to any offer for sale or sale of such shares,
obtain a favorable written opinion from counsel for or approved by the Company
as to the availability of such exemption. The Company may endorse an appropriate
legend referring to the foregoing restriction upon the certificate or
certificates representing any shares of Common Stock issued to the holder
pursuant to the exercise hereof.
SECTION IX. MISCELLANEOUS.
(a) Neither this Warrant nor any term hereof may be changed,
waived, discharged, or terminated except by a written instrument executed by the
parties hereto.
(b) This Warrant shall be governed and interpreted and
enforced in accordance with the internal laws of the State of Florida, without
regard to principles of conflicts of laws thereof.
5
<PAGE>
(c) Each provision of this Warrant shall be interpreted in
such a manner as to be effective, valid and enforceable under applicable law,
but if any provision of this Warrant is held to be invalid, illegal or
unenforceable under any applicable law or rule in any jurisdiction, such
provision will be ineffective only to the extent of such invalidity, illegality
or unenforceability in such jurisdiction, without invalidating the remainder of
this Warrant in such jurisdiction or any provision hereof in any other
jurisdiction.
(d) Any notice, demand or delivery to be made pursuant to the
provisions of this Warrant shall be sufficiently given or made if sent by first
class mail, postage prepaid, addressed to (i) the registered holder hereof at
the address set forth above for FMG or to such other address of the holder as
shown on the books of the Company, or (ii) the Company at its principal office
and addressed to the attention of Oscar E. Marina, Vice President and General
Counsel. The holder and the Company may each designate a different address by
written notice to the other.
(e) This Warrant and the rights evidenced hereby shall inure
to the benefit of and be binding upon the successors and assigns of the Company
and the holder hereof.
(f) Except as otherwise specifically provided herein, the
holder hereof shall pay its own expenses incident to the performance or
enforcement of this Warrant, including all fees and expenses of its counsel for
all activities of counsel undertaken pursuant hereto.
IN WITNESS WHEREOF, FRENCH FRAGRANCES, INC., has caused this Warrant to
be executed by its duly authorized officer as of May 14, 1996.
FRENCH FRAGRANCES, INC.
By:
-------------------------------------
Name:
Title:
6
<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, as signs and
transfers unto ___________, the rights represented by the within Warrant to
purchase _______ shares of Common Stock, $.01 par value per share, of
FRENCH FRAGRANCES, INC., to which the within Warrant relates, and appoints
_________________________ attorney to transfer such right on the books of
FRENCH FRAGRANCES, INC. with full power of substitution in the premises.
Date:___________________ _______________________________
(Signature)
_______________________________
_______________________________
(Address)
Signed in the presence of:
__________________________
<PAGE>
FORM OF SUBSCRIPTION
[To be signed only upon transfer of Warrant]
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and
to purchase thereunder, ____________________ shares of Common Stock, $.01
par value per share, of FRENCH FRAGRANCES, INC. and herewith tenders payment of
$_______________ in full payment of the purchase price for such shares, and
requests that the certificates for such shares be issued in the name of,
and be delivered to _____________________________________, whose address is
____________________________________________.
Date:______________________ __________________________________
(Signature)
__________________________________
__________________________________
(Address)
Signed in the presence of:
______________________________________
<PAGE>
EXHIBIT A TO WARRANT
REGISTRATION RIGHTS
1. DEMAND REGISTRATION OF REGISTRABLE SHARES BY COMPANY. At any time
commencing on July 13, 1997 and expiring January 13, 2002 (the "Demand Period"),
upon the written request (the "Request") of the Holders of 50% or more of the
Registrable Shares, the Company will:
(a) promptly give written notice of the proposed registration to
all other Holders; and
(b) as soon as practicable and subject to the provisions of Section 3
hereof, use its best efforts to effect the registration for resale under
the Securities Act of 1933, as amended (the "Securities Act") of the
Registrable Shares specified in the Request, together with all or such
portion of the Registrable Shares of any other Holder joining in such
Request as are specified in a written request received by the Company
within 20 days after the written notice of the Company is mailed or
delivered;
PROVIDED, that:
(i) if, in the sole opinion of the Company's counsel, the Company
is eligible to use a registration statement on Form S-3, the Company shall file
a registration statement on Form S-3 with respect to such Registrable Shares
within 60 days of the Request and shall use its best efforts to effect the
registration of the Registrable Shares on such form such that the Registrable
Shares may be sold during the Effectiveness Period (as defined in Section 3(a)
hereof) by the Shareholders on a delayed or continuous basis in accordance with
Rule 415 under the Securities Act;
(ii) if, in the good faith judgment of the of the Board of
Directors of the Company, such registration would have a materially adverse
effect on the Company at such time and the Board of Directors of the Company
concludes in its sole discretion, that as a result it is in the best interest of
the Company to defer the filing of such registration statement at such time, and
the Company shall furnish to such Holders a certificate signed by an executive
officer of the Company certifying thereto, then the Company shall have the right
to defer such filing for the period during which such registration would have
such materially adverse effect, PROVIDED that (A) the Company may not defer the
filing for a period of more than 120 days after receipt of the Request, (B) the
Company shall not defer its obligation in this manner more than once in any
twelve-month period, and (C) if the period of deferral ends after the last day
of the Demand Period, then the Demand Period shall be extended by the number of
days of such deferral period;
(iii) the Company shall be entitled to include in such
registration statement (A) securities of the Company held by any other security
holder or (B) securities of the Company to be sold by the Company for its own
account; except that to the extent that in the reasonable opinion of the
managing underwriter, if the offering is to be underwritten, such inclusion
would materially adversely affect the marketing or the selling price of the
Registrable Shares to be sold by the Holders pursuant to their intended plan of
distribution, then the aggregate amount of securities to be offered by the
Company or such other security holder shall be reduced pro rata so as to permit
the offering of all of the Registrable Shares requested by the Holder without
such adverse effect; and
(iv) the Company shall not be obligated to take any action to
effect a registration requested by a Holder pursuant to this Section 1 (A) after
the Company has effected one such registration pursuant to this Section
(counting for these purposes only registrations which have been declared or
ordered effective and
<PAGE>
EXHIBIT A TO WARRANT
registrations which have been withdrawn by the Holders where such Holders
participating in the registration have not elected to bear the registration
expenses of the Company set forth in Section 3(k) herein), or (B) within 120
days after the effective date of a Company initiated registration involving a
registration of an underwritten offering of equity or debt securities
convertible into equity securities of the Company, in which the Holders had the
right pursuant to Section 2 to register Registrable Shares.
2. INCIDENTAL REGISTRATION OF REGISTRABLE SHARES BY COMPANY. If at any time
prior to May 14, 2000 and prior to the registration of all of the Registrable
Shares pursuant to Section 1 hereof, the Company proposes for its own account to
register any shares of Common Stock under the Securities Act for public offering
and sale, the Company shall give written notice to the Holders who have not sold
their Registrable Shares through an earlier registration or whose Registrable
Shares are not then registered for resale pursuant to an effective registration
statement (the "Remaining Shareholders") of its intention to do so, specifying
the form and manner and the other relevant facts involved in such proposed
registration, and upon the written request of a Remaining Shareholder delivered
to the Company within 15 days after the Company's giving of such notice (which
request shall specify the number of Registrable Shares intended to be disposed
of by the Remaining Shareholders giving notice, and the proposed manner of sale
or transfer thereof), the Company shall effect the registration under the
Securities Act of all Registrable Shares which the Company has been so requested
to register by the Remaining Shareholders, to the extent requisite to permit the
disposition of the Registrable Shares to be registered, PROVIDED that:
(a) if, at any time after giving such notice of its intention to
register any of its Common Stock and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register such Common Stock, the Company
may, at its election, give notice of such determination to the Remaining
Shareholders and thereupon shall be relieved of its obligation to register any
Registrable Shares in connection with such registration (but not from its
obligation to pay the registration expenses in connection therewith);
(b) if the registration so proposed by the Company shall be an
underwritten offering of Common Stock, in whole or in part, the Company may
require the Registrable Shares requested for inclusion pursuant to this Section
2 to be included in the underwriting on the same terms and conditions as the
securities otherwise being sold by the underwriters and Holders selling
Registrable Shares pursuant to such registration will be responsible for payment
of their pro rata portion of underwriting discounts and commissions, and
PROVIDED, FURTHER, that, in the event the managing underwriter of such
underwritten offering shall advise the Company by letter that, in its good faith
judgment, the distribution of all or a specified portion of the Registrable
Shares which the holders of Registrable Securities have requested the Company to
register in accordance with this Section 2 concurrently with Common Stock being
distributed by such underwriters would reduce the number of shares to be offered
by the Company or interfere with the successful marketing of the shares of stock
offered by the Company, then the Company will promptly furnish the Remaining
Shareholders with a copy of such letter and may deny, by written notice to the
Remaining Shareholder, the registration of all or a specified portion of such
Registrable Shares (in case of a denial as to a portion of such Registrable
Shares, such portion to be allocated pro rata among all shareholders
participating in such registration including the Holders);
(c) the Company shall not be obligated to effect any registration
of Registrable Shares under this Section 2 on a Form S-8 or S-4, or their
successors, or any other form of registration statement for a similar
<PAGE>
EXHIBIT A TO WARRANT
limited purpose, filed to register any of its Common Stock in connection with a
merger, exchange offer or consolidation with another company, any acquisition,
or dividend reinvestment plans or stock option or other employee benefit plans;
and
The right in this Section 2, once offered with respect to a particular
registration and rejected by a Holder, shall not be reoffered with respect to
such registration.
3. REGISTRATION PROCEDURES. In connection with the registration
of the Registrable Shares under Sections 1 and 2, the parties agree as follows:
(a) the Company shall prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement with respect to
such Registrable Shares and use its best efforts to cause such registration
statement to become and remain effective for a period (the "Effectiveness
Period") of not less than (i) one year in the case of the registration statement
filed pursuant to Section 1 of this Agreement, and (ii) 180 days in the case of
a registration statement filed pursuant to Section 2 of this Agreement; or in
the case of (i) and (ii), such shorter period which will terminate when (A) all
securities covered by such registration statement have been sold (but not before
the expiration of the requirements of Section 4(3) of the Securities Act and
Rule 174 promulgated thereunder, if applicable) or (B) counsel for the Company
has in writing advised the Company and each Holder who continues to own
Registrable Shares that such counsel is of the opinion that such Holder has no
further obligation to comply with the registration requirements of the
Securities Act or to deliver a prospectus meeting the requirements of Section
10(a) of the Securities Act in connection with further sales of Registrable
Shares by such Holder; provided however, that if the Company files a
registration statement on Form S-3 pursuant to Section 1 of this Agreement, then
the Effectiveness Period shall continue until the earlier of the occurrence of
the events described in clause (A) above and the occurrence of the events
described in clause (B) above.
(b) the Company shall prepare and file with the Commission such
amendments and supplements to the registration statement and the prospectus
(including documents incorporated by reference therein) used in connection
therewith (the "prospectus," which term shall for all purposes of this Agreement
include any amendments or supplements to the prospectus) as may be necessary to
keep such registration statement effective for the applicable Effectiveness
Period;
(c) the Company shall furnish to each Holder participating in the
registration statement and to the underwriters, if any, of securities being
registered such reasonable number of copies of the registration statement, each
related amendment and supplement, preliminary prospectus, final prospectus and
such other documents as such Holder or underwriter reasonably requests to
facilitate the public offering of such Registrable Shares;
(d) the Company shall use its best efforts to register or qualify
the Registrable Shares under the securities or blue sky laws of those
jurisdictions within the United States which each Holder (or in an underwritten
offer, the managing underwriter) reasonably requests, except that the Company
shall not be required to file a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so qualified, or to subject itself to taxation in any jurisdiction, and
provided that the Company reserves the right, in its sole discretion, not to
register or qualify the Registrable Shares in any jurisdiction where the
Registrable Shares do not meet such jurisdiction's requirements for registration
or qualification;
<PAGE>
EXHIBIT A TO WARRANT
(e) the Company shall notify promptly each Holder, at any time
when the prospectus is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances in which they were made, not misleading, and
file with the Commission and furnish to such Holder a reasonable number of
copies of a supplement to or an amendment of the prospectus, so that, as
thereafter delivered to the purchasers of such Registrable Shares, the
prospectus does not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading;
(f) upon receipt of any notice from the Company of the happening
of any event of the type described in Section 3(e) of this Warrant, each Holder
shall discontinue disposition of the Registrable Shares pursuant to the
registration statement covering such Registrable Shares until the receipt by
such Holders of copies of the supplemented or amended prospectus contemplated by
Section 3(e);
(g) the Holders shall furnish the Company in a timely manner with
all information required by the applicable rules and regulations of the
Commission, including, without limitation, the proposed method of sale or other
disposition of the Registrable Shares, the identity of and compensation to be
paid to any person to be employed in connection therewith, and all other
information as the Company may reasonably require and shall complete and execute
all questionnaires, powers of attorney, underwriting agreements and other
documents reasonably required under the terms of any underwriting arrangement;
(h) all Holders who desire to sell and distribute Registrable
Shares over a period of time, or from time to time, at then prevailing market
prices, shall execute and deliver to the Company those written undertakings
which the Company and its counsel may reasonably require in order to assure full
compliance with relevant provisions of the Securities Act and the Securities
Exchange Act of 1934, as amended;
(i) to the extent not inconsistent with applicable law, the
Holders each agree, for so long as such Holder's Registrable Shares constitute
more than one percent (1%) of the outstanding Common Stock of the Company (on a
fully diluted basis) in the aggregate, not to effect any public sale or
distribution of the Registrable Shares during the 15 days prior to, and during
the 90-day period beginning on, the effective date of any registration statement
in respect of an underwritten offering of securities of the Company (except as
part of such registration, if permitted), if and to the extent notified in
writing by the underwriters with respect to the filing of such registration
statement;
(j) the Company will furnish to counsel selected by the Holders
(but not more than one counsel) copies of all documents proposed to be filed in
connection with the preparation and filing of the registration statement and any
amendments or supplements thereto, which documents will be subject to the review
and reasonable approval of such counsel with respect to any information
contained therein concerning such Holders;
(k) the Company will pay all expenses of the registration,
including, without limitation, legal and accounting fees and disbursements, blue
sky fees and expenses, printing costs and related expenses arising out of the
preparation, filing, amending and supplementing of the registration statement
and any prospectus a part thereof, other than fees and disbursements of counsel,
accountants and other advisors of the Holders, underwriting
<PAGE>
EXHIBIT A TO WARRANT
commissions and discounts, brokerage commissions, agents' fees and transfer
taxes relating to the offer and sale of the Registrable Shares.
4. INDEMNIFICATION.
(a) The Company shall, to the extent permitted by law, indemnify
and hold harmless each Holder who is the seller of Registrable Shares, officers,
directors, employees and affiliates of such Holder, each other person, if any,
who participates as an underwriter, broker or dealer in the offering or sale of
the Registrable Shares and each other person, if any, who controls such Holder
(within the meaning of the Securities Act), from and against any losses, claims,
demands, damages or liabilities, joint or several, to which such indemnified
person may become subject under the Securities Act or otherwise, insofar as the
losses, claims, demands, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained or incorporated by
reference in the registration statement, the prospectus contained therein, any
amendment or supplement thereto, or any document (or part thereof) incorporated
by reference therein, or (b) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and the Company will reimburse each indemnified person for all legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, demand, damage, liability, action or
proceeding; PROVIDED, HOWEVER, that the Company will not be liable in any such
case to the extent that the loss, claim, demand, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made or incorporated by reference in the registration
statement, the prospectus, or an amendment or supplement in reliance upon and in
conformity with information furnished or omitted to be furnished to the Company
by the indemnified person in writing specifically for use in the preparation
thereof.
(b) each Holder included in a registration statement pursuant to
the provisions of this Warrant will, to the extent permitted by law, indemnify
and hold harmless the Company, its directors, officers, employees, affiliates
and each other person, if any, who controls the Company (within the meaning of
the Securities Act) and any underwriter, from and against any losses, claims,
demands, damages or liabilities, joint or several, to which such indemnified
person may become subject under the Securities Act or otherwise, insofar as the
losses, claims, demands, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (a) any untrue statement or
alleged untrue statement of any material fact contained or incorporated by
reference in the registration statement, the prospectus or any amendment or
supplement thereto, or any document (or part thereof) incorporated by reference
therein, or (b) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading; which
untrue statement or alleged untrue statement or omission or alleged omission has
been made or incorporated therein in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
in preparation thereof, and will reimburse each indemnified person for all legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, demand, damage, liability, action or
proceeding.
(c) Promptly after receipt by an indemnified party of a demand or
notice of the commencement of any action or proceeding involving losses, claims,
demands, damages or liabilities referred to in this Section 4 (each, an
"Indemnified Claim"), the indemnified party will, if a claim for indemnification
is to be made against
<PAGE>
EXHIBIT A TO WARRANT
an indemnifying party, give written notice to the latter of the Indemnified
Claim, PROVIDED THAT the failure of any indemnified party to give notice as
provided herein shall not relieve the indemnifying party of its obligations
under this Section 4, except to the extent that the indemnifying party is
actually prejudiced by the failure to give notice. Unless, in the reasonable
judgment of the indemnified party, a conflict of interest may exist between the
indemnified party and the indemnifying party with respect to the Indemnified
Claim, each indemnified party agrees to permit the indemnifying party to assume
the defense of the Indemnified Claim with counsel reasonably satisfactory to the
indemnified party. If the indemnifying party is not entitled to, or elects not
to, assume the defense of an Indemnified Claim, it will not be obligated to pay
the fees and expenses of more than one counsel for the indemnified party with
respect to the Indemnified Claim.
(d) If the indemnification provided for in Section 4 of this
Agreement from the indemnifying party is unavailable to an indemnified party in
respect of any losses, claims, demands, damages or liabilities referred to
therein, then the indemnifying party, in lieu of indemnifying the indemnified
party, shall contribute to the amount paid or payable by the indemnified party
as a result of such losses, claims, demands, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of such indemnifying
party and indemnified parties in connection with the actions which resulted in
the losses, claims, demands, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by the indemnifying party or
indemnified parties and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by an indemnified party as a result of the losses, claims, demands,
damages and liabilities referred to above shall be deemed to include, subject to
the limitations set forth in this Section 4, all legal or other fees or expenses
reasonably incurred by such indemnified party in connection with any
investigation or action or proceeding relating thereto. The parties agree that
it would not be just and equitable if contribution pursuant to this Section 4
were determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
5. CERTAIN DEFINITIONS. The term "Registrable Shares" shall mean all of the
shares of the Company's Common Stock issuable upon exercise of the Warrant of
which this Exhibit A is a part and each other warrant of even date herewith
issued by the Company in connection with the consummation of the transactions
contemplated by that certain Asset Purchase Agreement dated as of April 17,
1996, by and between the Company and Fragrance Marketing Group, Inc., and shall
include securities issued to holders of Common Stock in exchange or substitution
for such shares of Common Stock or in connection with a stock split,
reclassification, stock dividend or other distribution, or in a merger of
consolidation involving the Company or a sale of substantially all of the
Company's assets; PROVIDED, HOWEVER, that Registrable Shares shall exclude any
shares of Common Stock acquired by the holder thereof in connection with an
offering registered under the Securities Act or pursuant to a sale or sales made
in accordance with Rule 144 (or any successor rule or regulation or statute in
substitution therefor) or which are eligible for sale in accordance with Rule
144(k) (or any successor rule or regulation or statute in substitution
therefor). The term "Holder" shall mean the holder of the Warrant of which this
Exhibit A is a part or of the shares of Common Stock issued upon exercise
thereof, and each such "Holder" shall be
<PAGE>
EXHIBIT A TO WARRANT
deemed to hold that number of Registrable Shares issuable to such Holder upon
exercise of the Warrant of which this Exhibit A is a part.
<PAGE>
DEBENTURE II
THIS JUNIOR SUBORDINATED DEBENTURE IS SUBJECT TO A SUBORDINATION AGREEMENT,
DATED AS OF MAY 10, 1996 BY AND AMONG FRENCH FRAGRANCES, INC., GENERAL PERFUMES
& COSMETICS, INC., HAMILTON BANK, FLEET NATIONAL BANK, AS AGENT, FLEET NATIONAL
BANK, AS LENDER AND BANK OF AMERICA ILLINOIS, AS LENDER.
THIS JUNIOR SUBORDINATED DEBENTURE IS SUBJECT TO THE TERMS OF THAT CERTAIN
SUBORDINATION AGREEMENT, DATED AS OF THE DATE HEREOF, BY AND AMONG BEDFORD
CAPITAL CORPORATION, NATIONAL TRADING MANUFACTURING, INC., FRED BERENS, FRENCH
FRAGRANCES, INC., GENERAL PERFUMES & COSMETICS, INC. AND HAMILTON BANK, TO WHICH
REFERENCE IS MADE FOR A FULLER STATEMENT THEREOF.
THIS JUNIOR SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE NEGOTIATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND EXCEPT IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS.
8.5% JUNIOR SUBORDINATED DEBENTURE DUE 2004
$7,000,000.00 May 10, 1996
French Fragrances, Inc., a Florida corporation (the "Company"), for value
received, hereby promises to pay to Fragrance Marketing Group, Inc., a Florida
corporation (the "Holder"), the principal amount of Seven Million and No/100
Dollars (US$7,000,000.00) on May 14, 2004, or on such earlier date on which such
amount is required to be paid as set forth herein, with interest on the unpaid
balance of such principal amount at the rate of eight and one-half of one
percent (8.5%) per annum from May 14, 1996, payable on August 14, November 14,
February 14 and May 14 of each year, commencing August 14, 1996, or on any
accelerated maturity date hereof, until the principal hereof shall have been
paid. Interest on this Debenture shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
The principal of this Debenture shall be due and payable in three (3)
installments of principal, on the following respective dates and in the
following respective amounts:
PAYMENT DATE AMOUNT
------------ ------
May 14, 2002 $2,333,333.33
May 14, 2003 $2,333,333.33
May 14, 2004 $2,333,333.34
Total $7,000,000.00
=============
The Company may prepay this Debenture in whole or in part at any time
and from time to time without premium or penalty. This Debenture is not
negotiable, and is transferable only on the books of the Company by the
registered Holder hereof or his duly authorized agent or attorney.
All sums payable under this Debenture shall be made without setoff,
deduction or counterclaim.
ARTICLE ONE
SUBORDINATION
<PAGE>
Section 1.1 SUBORDINATION TO OTHER INDEBTEDNESS OF THE COMPANY.
The payment of the principal of, and interest on, this Debenture is
subordinated, to the extent and in the manner provided in this Debenture, to the
prior payment in full of all Senior Indebtedness. The payment of the principal
of, and interest on, this Debenture is PARI PASSU to the Company's 8.5% Junior
Subordinated Debenture, Due 2001, dated of even date herewith, made by the
Company payable to the order of the Holder in the original principal amount of
$4,000,000.00, and Company's 8.5% Junior Subordinated Debenture, Due 2004, dated
of even date herewith, made by the Company payable to the order of the Holder in
the original principal amount of $100,034.00 (collectively, the "Parity
Debentures").
"SENIOR INDEBTEDNESS" means (a) any indebtedness of the Company for
money borrowed, whether outstanding on the date of execution of this Debenture
or thereafter created, assumed, or incurred (except the obligations evidenced by
the Parity Debentures), and (b) any deferrals, renewals or extensions of any
such Senior Indebtedness. Without limiting the generality of the foregoing,
"Senior Indebtedness" shall include any and all obligations and indebtedness of
the Company under:
(i) any bank credit agreement whether outstanding at the date of
original execution of this Debenture or thereafter incurred,
created or assumed,
(ii) the Lease between National Trading Manufacturing, Inc., and
the Company dated July 2, 1992,
(iii) the Company's 12.5% Secured Subordinated Debentures, Series I
and Series II,
(iv) the Company's 8.0% Secured Subordinated Debentures due 2005,
Series I,
(v) the Company's 8.0% Secured Subordinated Debentures due 2005,
Series II, and
(vi) the Company's Promissory Note, dated March 20, 1996, made by
the Company payable to the order of Halston Borghese, Inc.
in the original principal amount of $2,000,000.00.
This Article One shall constitute a continuing offer to all persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders or each of them may enforce such
provisions.
Section 1.2 COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO THIS DEBENTURE
IN CERTAIN CIRCUMSTANCES.
(a) Upon the maturity of the principal of the Senior Indebtedness, or
any portion thereof, by acceleration or otherwise, all principal thereof and
interest thereon shall first be paid in full, or such payment duly provided for
in cash in a manner satisfactory to the holders of such Senior Indebtedness
before any payment is made on account of the principal or interest on this
Debenture or to acquire this Debenture.
(b) Upon the occurrence of an event of default (or if an event of
default would result upon any payment with respect to this Debenture) with
respect to any portion of the Senior Indebtedness, as such event of default is
defined in the instrument under which any such Senior Indebtedness is
outstanding, permitting the holders to accelerate the maturity thereof, and, if
the default is other than a default in payment of any principal or interest due
on such Senior Indebtedness, upon written notice thereof given to the Company by
the holders of such Senior Indebtedness or their representative, unless and
until such event of default shall have been cured or waived or shall have ceased
to exist, no payment shall be made by the Company with respect to the principal
or interest on this Debenture or to acquire this Debenture.
<PAGE>
(c) If, notwithstanding the provisions of this Section 1.2, the Company
shall make any payment to the Holder on account of the principal or interest on
this Debenture after the occurrence of a default in payment of any principal or
interest due on any Senior Indebtedness or after receipt by the Company of
written notice as provided in this Section 1.2 of an event of default with
respect to any Senior Indebtedness, then, unless and until such default or event
of default shall have been cured or waived or shall have ceased to exist, such
payment shall be held by the Holder in trust for the benefit of, and shall be
paid over and delivered to, the holders of the Senior Indebtedness or their
representative for application to the payment of the Senior Indebtedness
remaining unpaid to the extent necessary to pay the Senior Indebtedness in full
in accordance with its terms, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of the Senior Indebtedness.
The Company shall give prompt written notice to the Holder as soon as it
receives written notice of any default under any of the Senior Indebtedness.
Section 1.3 THIS DEBENTURE SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION
OF COMPANY.
Upon any distribution of assets of the Company in connection with any
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of the Company:
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payment in full of all principal and interest due thereunder before the
Holder is entitled to receive any payment of principal or interest on this
Debenture;
(b) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to which the Holder would be
entitled but for the provisions of this Article One, shall be paid by the
liquidating trustee or agent or other person making such payment or distribution
directly to the holders of Senior Indebtedness or their representative to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution or
provision therefor to the holders of such Senior Indebtedness; and
(c) if, notwithstanding the foregoing provisions of this Section 1.3,
the Holder shall receive any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities, on account of
principal or interest on this Debenture before all Senior Indebtedness is paid
in full, or effective provision made for its payment, then such payment or
distribution shall be received and held in trust for and shall be paid over to
the holders of the Senior Indebtedness remaining unpaid or unprovided for or
their representative, or to the trustee under any indenture under which such
Senior Indebtedness may have been issued, for application to the payment of such
Senior Indebtedness until all such Senior Indebtedness shall have been paid in
full, after giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Holder of any
dissolution, winding up, liquidation or reorganization of the Company.
Section 1.4 THE HOLDER TO BE SUBROGATED TO RIGHTS OF HOLDERS OF THE
SENIOR INDEBTEDNESS.
Subject to the payment in full of the Senior Indebtedness, the Holder
shall be subrogated to the rights of the holders of the Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until all amounts owing on this Debenture shall be paid in
full, and for the purpose of such subrogation no payments or distributions to
the holders of the Senior Indebtedness by or on behalf of the
<PAGE>
Company or by or on behalf of the Holder by virtue of this Article One which
otherwise would have been made to the Holder shall, as between the Company and
the Holder, be deemed to be payment by the Company to or on account of the
Debenture, it being understood that the provisions of this Article One are
intended solely for the purpose of defining the relative rights of the Holder,
on the one hand, and the holders of the Senior Indebtedness, on the other hand.
Section 1.5 OBLIGATION OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article One or elsewhere in this Debenture is
intended to or shall impair, as between the Company and the Holder, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holder the principal and interest on this Debenture as and when the same shall
become due and payable in accordance with its terms, or is intended to or shall
affect the relative rights of the Holder and creditors of the Company other than
the holders of the Senior Indebtedness, nor shall anything herein or therein
prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Debenture, subject to the rights, if any,
under this Article One of the holders of the Senior Indebtedness in respect of
property, cash or securities of the Company received upon the exercise of any
such remedy.
Section 1.6 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
COMPANY OR HOLDERS OF THE SENIOR INDEBTEDNESS.
No right of any present or future holders of any of the Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Debenture
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with.
Section 1.7 ARTICLE ONE NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal or interest by
reason of any provision of this Article One shall not be construed as preventing
the occurrence of an Event of Default under Section 2.1.
ARTICLE TWO
DEFAULT AND REMEDY
Section 2.1 EVENTS OR DEFAULT.
An "Event of Default" shall be deemed to have occurred if:
(1) the Company fails to pay any interest on this Debenture when
the same becomes due and payable and such failure continues for a period of
120 days;
(2) the Company fails to pay any installment of principal of this
Debenture when the same becomes due and payable, whether at maturity or
otherwise;
(3) the Company fails to observe or perform any of its covenants and
agreements under this Debenture other than as set forth in clauses (1) and (2)
above, and such failure continues for a period of 30 days;
(4) there occurs an event of default under any Senior
Indebtedness or under the terms of either of the Parity Debentures of the
Company;
<PAGE>
(5) the Company shall (a) make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver or trustee, or commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect, or any such petition or application shall have been filed,
or (b) any such proceeding shall have been commenced against the Company in
which an order for relief is entered or which remains undismissed for a period
of thirty (30) days or more;
(6) the Company shall generally not pay its debts as such debts
become due or admit in writing its inability to pay its debts as they become
due; or
(7) any substantial property of the Company is taken possession
of or seized at the instance of any governmental authority.
Section 2.2 ACCELERATION.
If an Event of Default under Section 2.1 occurs, the entire outstanding
principal balance of, and all accrued and unpaid interest on, this Debenture
shall immediately become due and payable.
Section 2.3 NOTICE.
The Company shall promptly give notice to the Holder of the occurrence
of an Event of Default.
ARTICLE THREE
MISCELLANEOUS
Section 3.1 LIMITATION ON OBLIGATION OF COMPANY.
Anything herein to the contrary notwithstanding, the obligations of the
Company under this Debenture shall be subject to the limitation that payments of
interest to the Holder shall not be required to the extent that receipt of any
such payment by such Holder would be contrary to provisions of law applicable to
such Holder (if any) which limit the maximum rate of interest which may be
charged or collected by such Holder. In the event that the Company makes any
payment of interest, fees, or other charges, however denominated, which payment
results in interest paid by the Company exceeding the maximum rate of interest
permitted by applicable law, any excess over such maximum shall be applied in
reduction of the principal balance owed to the Holder as of the date of such
payment, or if such excess exceeds the amount of principal owed to the Holder as
of the date of such payment, the difference shall be paid by the Holder to the
Company.
Section 3.2 COST OF ENFORCEMENT.
The Company shall pay all costs incurred by any holder of this
Debenture, including reasonable attorney's fees (including those for appellate
proceedings), in connection with the collection or attempted collection or
enforcement of this Debenture, whether or not legal proceedings may have been
instituted.
Section 3.3 WAIVER BY COMPANY.
The Company waives presentment for payment, demand, protest, notice of
dishonor, notice of acceleration of maturity, and all defenses on the ground of
extension of time for payment hereof, and agrees to continue and remain bound
for the payment of principal, interest, and all other sums payable hereunder,
<PAGE>
notwithstanding any change or changes by way of release, surrender, exchange, or
substitution of any security for this Debenture or by way of any extension or
extensions of time for payment of principal and interest; and the Company waives
all and every kind of notice of such change or changes and agrees that the same
may be made without notice to or consent of the Company.
Section 3.4 NO WAIVER BY HOLDER.
No course of dealing between the Company and the Holder and no delay or
omission on the part of such Holder in exercising any rights under this
Debenture shall operate as a waiver of the rights of the Holder. No failure to
insist upon the strict provisions of any covenant, term, condition or other
provision of this Debenture or to exercise any right or remedy thereunder shall
constitute a waiver by the Holder of any such covenant, term, condition or other
provision or of any default or Event of Default in connection therewith. The
waiver of any covenant, term, condition or other provision hereof or default or
Event of Default hereunder on one occasion shall not be construed as a bar to or
a waiver of any right or remedy on any future occasion and shall not affect or
alter this Debenture except to the extent specifically provided in the
instruments setting forth such waiver, and every covenant, term, condition and
other provision of this Debenture shall, in such event, continue in full force
and effect.
Section 3.5 CUMULATIVE REMEDIES.
The rights and remedies of the Holder as provided herein shall be
cumulative and concurrent and may be pursued singularly, successively or
together at the sole discretion of the Holder, and may be exercised as often as
occasion therefor shall occur, and the failure to exercise any such right or
remedy shall in no event be construed as a waiver or release of the same.
Section 3.6 GOVERNING LAW.
This Debenture shall be governed by the laws of the State of Florida,
without regard to its conflict of law doctrine.
FRENCH FRAGRANCES, INC., a
Florida corporation
By:
------------------------------------
Rafael Kravec
President
STATE of )
)
COUNTY of )
The foregoing instrument was acknowledged before me this _______ day of
________, 1996 by _______________, the _______________________ of FRENCH
FRAGRANCES, INC., a Florida corporation, on behalf of the corporation. He/she
is personally known to me or has produced __________________ as identification.
--------------------------------------------
Notary Public
My Commission Expires:
<PAGE>
ASSIGNMENT
Pay to the order of Rene Garcia and Jose Miguel Narona,
without recourse, representation or warranty. The parties acknowledge
that this assignment has been executed p ior to the execution and
delivery of the foregoing Debenture and, accordingly, such assignment
shall be effective upon, and only upon, the execution and delivery of
such Debenture by French Fragrances, Inc.
Dated: April , 1996 FRAGRANCE MARKETING GROUP, INC.,
------------ a Florida corporation
By:
----------------------------
Its:
<PAGE>
ASSIGNMENT
Pay to the order of General Perfumes & Cosmetics, Inc., a
Florida corporation, without recourse, representation or warranty. The
parties acknowledge that this assignment has been executed prior to the
execution and delivery of the foregoing Debenture and, accordingly,
such assignment shall be effective upon, and only upon, the execution
and delivery of such Debenture by French Fragrances, Inc.
Dated: April , 1996
--------------------------------
Rene Garcia
---------------------------------
Jose Miguel Narona
Exhibit 4.1
FIRST AMENDMENT TO CREDIT AGREEMENT
AND OTHER TRANSACTION DOCUMENTS
This First Amendment to Credit Agreement and Other Transaction
Documents (the "Agreement"), made as of the 10th day of May, 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 NW 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 (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 the acquisition of certain assets of Fragrance
Marketing Group, Inc. ("FMG"); 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.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants to Lenders and each of them
(taking into account the FMG Acquisition) that:
(a) Borrower is duly organized, validly existing and in good standing
as a corporation in the
<PAGE>
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.
(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.
<PAGE>
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", "Employment Agreement",
"Subordinated Creditors" and "Subordinated Debentures" 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 the period from May 10, 1996 through May 14, 1996 at Twenty
Million Dollars ($20,000,000); for the period from May 15, 1996 through October
31, 1996 and for each fiscal year thereafter for the period from July 1 through
October 31 at Twenty-Five Million Dollars ($25,000,000); and 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 at Fifteen Million Dollars
($15,000,000) 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 from July 1 through August 31
of each year and one hundred twenty percent (120%) of Accounts Receivable
Availability from September 1 through December 31 of each year, and provided
further there shall be a reserve against total Eligible In-House Inventory of
Five Hundred Thousand Dollars ($500,000). 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.
"Employment Agreement" shall mean that certain Employment Agreement
dated July 2, 1992 between Borrower and Rafael Kravec, as amended by amendment
dated July 2, 1995 and as further amended by an Amendment to Employment
Agreement dated as of May 6, 1996.
"Subordinated Creditors" shall mean Bedford, NTM, Fred Berens, FMG,
LaSalle National Bank, General Perfumes & Cosmetics, Inc., Hamilton Bank, N.A.
and the holders of the 7.5% Convertible Debentures.
"Subordinated Debentures" shall mean the Bedford Subordinated
Debentures, the NTM Subordinated Debentures, the Bedford Subordinated Debentures
II, the Bedford Subordinated
<PAGE>
Debentures III, the 5% Subordinated Debentures, the FMG Subordinated Debentures
and the 7.5% Convertible Debentures.
SECTION 3.02. ADDITIONAL DEFINITIONS.
The following definitions are hereby added to Section 1.01 of the
Credit Agreement to read as follows:
"FMG Acquisition" shall mean the acquisition by Borrower of the Subject
Assets (as defined in the FMG Asset Purchase Agreement).
"FMG Asset Purchase Agreement" shall mean that certain Asset Purchase
Agreement among Borrower, FMG, Rene Garcia and Jose Miguel Norona.
"FMG" shall mean Fragrance Marketing Group, Inc., a Florida
corporation.
"FMG Consulting Agreement" shall mean that certain Consulting
Agreement dated as of May 10, 1996 between the Borrower and Rene A. Garcia.
"FMG Subordinated Debentures" shall mean those certain 8.5% Junior
Subordinated Debentures I, II and III due 2001, 2004 and 2004, respectively and
in the original principal amounts of $4,000,000, $7,000,000 and $100,034,
respectively.
"FMG Subordination Agreements" shall mean those certain Subordination
Agreements each dated as of May 10, 1996 among Lenders, Borrower and each of
FMG, LaSalle National Bank, and General Perfumes & Cosmetics, Inc. and Hamilton
Bank, respectively.
"7.5% Convertible Debentures" shall mean 7.5% Subordinated Convertible
Debentures Due 2006 in form and substance satisfactory to the Lenders to be
issued by the Borrower to redeem the Bedford Subordinated Debentures, the NTM
Subordinated Debentures and the Borrower's issued and outstanding Series A
Preferred Stock, $.01 par value.
"7.5% Debenture Subordination Agreement" shall mean, in the case of
each 7.5% Convertible Debenture, a subordination agreement, substantially in the
form of the Subordination Agreement and containing terms satisfactory to the
Lenders, executed and delivered by the Borrower and the holder of such 7.5%
Convertible Debenture in favor of the Lenders.
"Subordination Agreements" shall mean collectively the Subordination
Agreement, the Subordination Agreement II, the FMG Subordination Agreements and
the 7.5% Debenture Subordination Agreement.
"Versace Consent" shall mean the consent of Versace Profumi USA,
S.P.A. to the assignment of that certain Sales Representative and Warehousing
Agreement dated August 10, 1995 between Versace Profumi USA, S.P.A. and Prestige
Marketing Group, Inc. by Prestige Marketing Group, Inc. to FMG and by FMG to the
Borrower.
<PAGE>
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"
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 8.01.
Section 8.01 of the Credit Agreement is hereby amended by adding the
following new subsection:
"and (n) Indebtedness in an aggregate principal amount of not
to exceed $5,460,000 owed to the holders of the 7.5% Convertible Debentures;
provided that prior to or contemporaneous with the issuance of any such 7.5%
Convertible Debentures, the holder or holders thereof shall have executed a 7.5%
Debenture Subordination Agreement and the proceeds of such 7.5% Convertible
Debentures shall be applied to the redemption of the Bedford Subordinated
Debentures, the NTM Subordinated Debentures and the Borrower's issued and
outstanding Series A Preferred Stock."
SECTION 3.05. AMENDMENTS TO SECTION 8.09.
Clause (a) of Section 8.09 of the Credit Agreement is hereby deleted in
its entirety and replaced with the following subsection:
"(a) to the holders of the Bedford Subordinated Debentures,
the Subordinated Debentures
<PAGE>
II, the Bedford Subordinated Debentures III, the NTM Subordinated Debentures,
the FMG Subordinated Debentures, the 7.5% Convertible Debentures, the Halston
Royalty Note and the Additional Subordinated Notes to the extent such payments
are not prohibited under Section 8.12 hereof,".
and
Section 8.09 is hereby further amended by deleting subsection (i) in
its entirety and replacing it with the following and by adding a new subsection:
"(i) to Rene Garcia in accordance with the terms of the FMG
Consulting Agreement; and"
and
"(j) additional Restricted Distributions (exclusive of those set forth
in subsections (a) through (i) hereof) in an amount not to exceed $50,000 in the
aggregate per annum".
SECTION 3.06. AMENDMENT TO SECTION 8.12.
Section 8.12 of the Credit Agreement shall be amended by adding the
following new subsections:
"(c) accelerate the amortization schedule as set forth in Debenture I
of the FMG Subordinated Debentures prior to the Borrower raising in the
aggregate $10,000,000 in net proceeds from one or more Public Offerings,
(d) make any payment of regularly scheduled principal to the holders of
the FMG Subordinated Debentures unless the Borrower is maintaining a Debt
Service Coverage (as required by Section 7.10 hereof) of at least 1.50:1.0, and
(e) make any payment of regularly scheduled interest to the holders of
the FMG Subordinated Debentures unless Borrower is maintaining an interest
coverage (as required by Section 7.11 hereof) of 1.75:1.0."
SECTION 3.07. AMENDMENTS TO SECTION 8.13.
Section 8.13 of the Credit Agreement is hereby amended by adding the
phrase "the FMG Consulting Agreement" after the phrase "the Employment
Agreement" in the sixth line and is further amended by adding the following
phrase at the end of the section:
"and the issuance of the 7.5% Convertible Debentures in exchange for
the Bedford Subordinated Debentures, the NTM Subordinated Debentures and the
Borrower's issued and outstanding Series A Preferred Stock".
<PAGE>
SECTION 3.08. AMENDMENT TO SECTION 8.16.
Section 8.16 of the Credit Agreement is hereby amended by (i) changing
the heading by deleting the word "Leases" and replacing it with the phrase
"Amendments; Modifications" and (ii) adding a new subsection (iv) to subsection
(a) as follows: "(iv) the FMG Consulting Agreement".
SECTION 3.09. AMENDMENT TO ARTICLE IX.
Article IX (p) of the Credit Agreement is hereby deleted in its
entirety.
SECTION 3.10. 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
upon all collateral covered by any of the Security Documents.
(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 FIRST 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) Borrower shall have delivered to Agent true and complete copies of
the FMG Asset Purchase Agreement, the FMG Subordinated Debentures and all other
documents attached as exhibits and/or schedules to, and contemplated by, such
documents, each such document to be acceptable in form and substance to Agent.
(c) All conditions to the closing under the FMG Asset Purchase
Agreement (but for the
<PAGE>
funding of the purchase price) shall have been satisfied (including where
conditions are to be met to the satisfaction of Borrower, that such conditions
also are met to the satisfaction of Lenders) or waived with Lenders' consent,
except for receipt of the Versace Consent and the contemplated assignment of the
name "Prestige Marketing Group, Inc." to the Borrower.
(d) All third party consents to transactions contemplated hereby and
contemplated by the FMG Asset Purchase Agreement shall have been obtained except
for Versace Consent.
(e) FMG, LaSalle National Bank, Hamilton Bank, N.A. and General
Perfumes & Cosmetics, Inc. shall have each executed and delivered subordination
agreements on such terms and conditions satisfactory to the Lenders.
(f) Lenders shall have received payment of the fees described in
Section 9 hereof in immediately available funds.
(g) The fees and disbursements of Lenders' counsel shall be paid in
full on the Effective Date.
(h) 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.
(i) Lender shall have received the certificate of the Secretary of
State of the State of Florida, dated reasonably near the date hereof, stating
that Borrower is duly organized and in good standing in the State of Florida.
(j) All legal matters relating to this Agreement shall be satisfactory
to Lenders and their counsel.
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.
<PAGE>
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
and its processing and review of matters relating to the acquisition of the
assets of Fragrance Marketing Group, Inc. and the purposes thereof, Borrower
hereby agrees to pay to Agent, for the ratable benefit of the Lenders a facility
fee equal to Thirty Thousand Dollars ($30,000) (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.
<PAGE>
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
By _____________________________
Title:
BANK OF AMERICA ILLINOIS
By /S/ RANDOLPH T. KOHLER
------------------------------
Title: Senior Vice President
AGENT:
FLEET NATIONAL BANK
By /S/ ROBERT T.P. STORER
------------------------------------
Robert T. P. Storer
Vice President
By_______________________________
Title:_______________________
BORROWER:
FRENCH FRAGRANCES, INC.
By /S/ RAFAEL KRAVEC
---------------------------------------
Title: President
(SIGNATURES CONTINUED ON NEXT PAGE)
CONSENTED AND AGREED:
<PAGE>
NATIONAL TRADING MANUFACTURING, INC.
By /S/ RAFAEL KRAVEC
----------------------------------
Title: President
BEDFORD CAPITAL CORPORATION
By /S/ E. SCOTT BEATTIE
-----------------------------------
Title: Vice President
/S/ FRED BERENS
----------------------------------------
Fred Berens
