AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRENCH FRAGRANCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 5122 59-0914138
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
OSCAR E. MARINA, ESQ.
14100 N.W. 60TH AVENUE 14100 N.W. 60TH AVENUE
MIAMI, FLORIDA 33014 MIAMI, FLORIDA 33014
(305) 818-8000 (305) 818-8000
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) OF AGENT FOR SERVICE)
</TABLE>
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COPIES TO:
BEATRIZ LLORENS KOLTIS, ESQ.
STEEL HECTOR & DAVIS LLP
200 S. BISCAYNE BLVD., SUITE 4000
MIAMI, FLORIDA 33131-2398
(305) 577-2903
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APPROXIMATE DATE OF PROPOSED COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED NOTE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
103/8% Senior Notes due 2007,
Series B ..................... $115,000,000 100%(1) $115,000,000(1) $34,849
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<FN>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(2) under the Securities Act of 1933, as amended.
</FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
The information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 6, 1997
PROSPECTUS
FRENCH FRAGRANCES, INC.
OFFER TO EXCHANGE ITS 10 3/8% SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING 10 3/8% SENIOR NOTES DUE 2007, SERIES A
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997, UNLESS EXTENDED.
French Fragrances, Inc., a Florida corporation (the "Company") hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal" and together with this Prospectus, the "Exchange Offer"), to
exchange its 10 3/8% Senior Notes due 2007, Series B (the "Exchange Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act") pursuant to a Registration Statement (as defined herein) of
which this Prospectus constitutes a part, for any and all outstanding 10 3/8%
Senior Notes due 2007, Series A (the "Initial Notes," and, together with the
Exchange Notes, the "Senior Notes"), of which $115,000,000 principal amount is
outstanding. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Initial Notes being tendered for exchange. However, the
Exchange Offer is subject to the absence of certain conditions which may be
waived by the Company. See "The Exchange Offer--Certain Conditions to the
Exchange Offer." Subject to the absence or waiver of such conditions, the
Company will accept for exchange any and all Initial Notes validly tendered on
or prior to 5:00 p.m., New York City time, on , 1997, unless the Exchange
Offer is extended (the "Expiration Date"). Initial Notes may be tendered only in
integral multiples of $1,000. The date of acceptance and exchange of the Initial
Notes (the "Exchange Date") will be the fourth business day following the
Expiration Date, unless an earlier date is selected by the Company. Initial
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the Expiration Date; otherwise such tenders
are irrevocable. The Exchange Notes will be issued and delivered promptly after
the Exchange Date.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Initial Notes, except that the Exchange Notes have been
registered under the Securities Act and are generally freely transferable by
holders thereof and are issued without any covenant upon the Company regarding
registration under the Securities Act. See "The Exchange Offer--
Resale of Exchange Notes." The Exchange Notes will evidence the same debt as the
Initial Notes and will be issued under and be entitled to the benefits of the
Indenture (as defined herein). For a complete description of the terms of the
Exchange Notes, see "Description of the Senior Notes." There will be no cash
proceeds to the Company from this Exchange Offer.
The Exchange Notes are unsecured senior obligations of the Company, will
rank senior in right of payment to all existing and future Subordinated
Indebtedness (as defined herein) of the Company and will rank PARI PASSU in
right of payment with all existing and future Senior Indebtedness (as defined
herein) of the Company, including indebtedness under the New Credit Facility.
The Company's obligations under the New Credit Facility (as defined herein) are,
however, secured by a first priority lien on all of the Company's accounts
receivable and inventory, and, accordingly, such indebtedness effectively will
rank prior to the Exchange Notes with respect to such assets. The Indenture
permits the Company and any Subsidiary (as defined herein) to incur additional
debt, including secured debt, subject to certain limitations. See "Description
of the Senior Notes."
The Initial Notes were originally issued and sold on May 13, 1997 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act. Accordingly, the
Initial Notes may not be reoffered, resold, or otherwise pledged, hypothecated
or transferred in the United States unless so registered or unless an applicable
exemption from the registration requirements of the Securities Act is available.
Based upon interpretations by the staff of the Securities and Exchange
Commission (the "SEC") issued to third parties, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Initial
Notes may be offered for resale, resold and otherwise transferred by holders
thereof (other than any holder which is a broker-dealer or an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with a resale of
such Exchange Notes. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such broker-dealers in connection with such
resales. See "The Exchange Offer--Resale of Exchange Notes."
The Exchange Notes will constitute a new issue of securities with no
established trading market. The Company does not intend to list any Senior Notes
on a national securities exchange or to apply for quotation of any Senior Notes
through the National Association of Securities Dealers Automated Quotation
System. Any Initial Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Initial Notes are tendered and accepted
in the Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Initial Notes could be adversely affected. Following consummation of
the Exchange Offer, the holders of Initial Notes will continue to be subject to
the existing restrictions on transfers thereof, and the Company will have no
further obligation to such holders to provide for the registration under the
Securities Act of the Initial Notes held by them. No assurance can be given as
to the liquidity of the trading market for either the Initial Notes or the
Exchange Notes.
SEE "RISK FACTORS" ON THE BEGINNING ON PAGE 16 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is June , 1997.
<PAGE>
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
WILLIAM J. MUELLER, CHIEF FINANCIAL OFFICER, AT 14100 N.W. 60TH AVENUE, MIAMI
LAKES, FLORIDA 33014, TELEPHONE NUMBER (305) 818-8000. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information can be inspected and copied
at the Public Reference Section of the SEC's office at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices in New
York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago
(Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661).
Copies of such reports, proxy statements and information may be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the SEC maintains a Web site
that contains reports, proxy statements and other information regarding
registrants (such as the Company) that file electronically with the SEC. The
address of such site is http://www.sec.gov. In addition, copies of such
information may also be inspected and copied at the library of the Nasdaq
National Market, 1735 K Street, 4th Floor, Washington, D.C. 20006, upon which
the Company's Common Stock is authorized for trading.
The Company has filed with the SEC a Registration Statement on Form S-4
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act with respect to the Exchange Notes offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Statements contained in this Prospectus relating to the
contents of any contract or other document referred to herein are not
necessarily complete, and reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement. For further
information, reference is hereby made to the Registration Statement and the
documents incorporated herein by reference, which may be examined without charge
at the pubic reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies thereof may be obtained from the
SEC upon payment of the prescribed fees. While any Senior Notes remain
outstanding, the Company will make available, upon request, to any holder and
any prospective purchaser of Senior Notes the information required pursuant to
Rule 144A(d)(4) under the Securities Act during any period in which the Company
is not subject to Section 13 or 15(d) of the Exchange Act. Any such request
should be directed to William J. Mueller, Chief Financial Officer, French
Fragrances, Inc., 14100 N.W. 60th Avenue, Miami, Florida 33014, telephone number
(305) 818-8000.
The Indenture provides that the Company will furnish to the Trustee and the
holders of the Senior Notes copies of all periodic reports required to be filed
with the SEC under the Exchange Act and shall mail such periodic reports to the
holders of the Senior Notes within 15 days of filing with the SEC. If the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company must nonetheless continue to submit to the Trustee and
the holders of the Senior Notes (i) the annual and quarterly financial
statements, including any notes thereto (and, with respect to annual reports, an
auditors' report by an accounting firm of established national practice),
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations," comparable to that which would have been required to
appear in annual or quarterly reports filed under Section 13 or 15(d) of the
Exchange Act and (ii) all current reports that would be required to be filed
with the SEC on Form 8-K if the Company were required to file such reports. The
Indenture provides that the Company will file a copy of such information and
reports with the SEC for public availability (unless the Commission will not
accept such a filing). The Company must provide copies of such information and
reports to the holders of the Senior Notes within 120 days of the Company's
fiscal year end in the case of annual reports, and within 60 days of the end of
each of the Company's first three fiscal quarters in the case of quarterly
reports.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the SEC
pursuant to the Exchange Act (Commission File No. 1-6370) and are hereby
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1997; and
(2) the Company's Proxy Statement dated May 21, 1997, relating to its 1997
Annual Meeting of Shareholders; and
(3) the Company's Current Report on Form 8-K dated May 13, 1997 filed on
May 21, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act (i) subsequent to the date of the initial Registration
Statement of which this Prospectus is a part and prior to the effectiveness of
such Registration Statement, or (ii) subsequent to the date of this Prospectus
and prior to the termination of the offering made by this Prospectus, shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing thereof.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other document subsequently filed with the SEC which is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to William J. Mueller, Chief Financial Officer, at 14100 N.W. 60th
Avenue, Miami Lakes, Florida 33014, telephone number (305) 818-8000.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH
TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
3
<PAGE>
forward-looking statements (as such term is defined in the Reform Act) made in
this Prospectus. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, through the use of words or phrases such as
"will likely result," "are expected to," "will continue," "is anticipated,"
"estimated," "intends," "plans," "projection" and "outlook") are not historical
facts and may be forward-looking and, accordingly, such statements involve
estimates, assumptions, and uncertainties which could cause actual results to
differ materially from those expressed in the forward-looking statements.
Accordingly, any such statements are qualified in their entirety by reference
to, and are accompanied by, the factors discussed throughout this Prospectus,
and particularly in the risk factors set forth herein under "Risk Factors."
Among the key factors that have a direct bearing on the Company's results of
operations are the substantial indebtedness and significant debt service
obligations of the Company, the Company's ability to fund future capital
requirements, the Company's ability to implement its business and acquisition
strategy and to successfully integrate acquired companies and fragrance brands
into the Company, changes in the retail industry, the availability of key
personnel and general economic and business conditions. These and other factors
are discussed herein under "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and elsewhere in this
Prospectus.
The Company cautions that the risk factors described herein could cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company
and that investors should not place undue reliance on any such forward-
looking statements. Further, any forward-looking statement speaks only as of the
date on which such statement is made, and the Company undertakes no obligation
to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all of such factors. Further,
management cannot assess the impact of each such factor on the Company's
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE
CONTEXT OTHERWISE REQUIRES, "THE COMPANY" REFERS TO FRENCH FRAGRANCES, INC. AND
ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AND THE FRAGRANCE MARKETING AND
DISTRIBUTION BUSINESSES CONDUCTED BY ITS PREDECESSOR. PRO FORMA DATA FOR FISCAL
YEAR END 1997 GIVE EFFECT TO THE FINE FRAGRANCES ACQUISITION (AS DEFINED HEREIN)
AND THE ISSUANCE OF $115,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF THE INITIAL
NOTES BY THE COMPANY IN MAY 1997 (THE "OFFERING"). REFERENCES HEREIN TO FISCAL
YEARS REFER TO THE COMPANY'S FISCAL YEAR ENDING JANUARY 31 IN THE YEAR
REFERENCED, UNLESS OTHERWISE NOTED.
THE COMPANY
The Company is a leading marketer of prestige fragrances and related
cosmetic products in the United States. The brands distributed by the Company
include approximately 50 for which it has exclusive marketing and distribution
rights, including the Geoffrey Beene brands of GREY FLANNEL and BOWLING GREEN,
the Halston brands of HALSTON, CATALYST, 1-12 and Z-14, and the brands COLORS OF
BENETTON, OMBRE ROSE, LAPIDUS and FACONNABLE (collectively, the "Controlled
Brands") and over 100 other brands that are distributed by the Company on a
non-exclusive basis ("Distributed Brands"). The Company distributes its products
to more than 27,500 separate retail locations, including department stores such
as J.C. Penney, Sears, Macy's, Dayton Hudson and Nordstrom's, mass merchants
such as Wal-Mart, Target, Kmart and T.J. Maxx, drug stores such as CVS,
Walgreens, Drug Emporium and Eckerd Drugs and independent fragrance, cosmetic
and other stores such as Cosmetics Plus, Cosmetic Center and Ulta 3. In fiscal
1997, sales to mass merchants, drug stores, independent fragrance, cosmetic and
other stores (collectively, "mass-market retailers") constituted approximately
79% of net sales, sales to department stores constituted approximately 17% of
net sales, and the balance of the Company's net sales was comprised of
international sales.
Over the past three years, the Company has emerged as a premier fragrance
marketer by (i) providing mass-market retailers a wide selection and reliable
source of prestige products, (ii) increasing and diversifying the Company's
market penetration by growing its distribution base to more than 27,500 separate
retail locations from approximately 7,000 in 1993, (iii) consummating several
acquisitions of Controlled Brands in fiscal 1996 and 1997, and (iv) enhancing
the overall performance of its Controlled Brands through the Company's marketing
and distribution expertise. As a result, the Company's net sales have grown at a
compound annual rate of 50.9% to approximately $147.8 million for fiscal 1997 on
a pro forma basis from approximately $33.9 million for fiscal 1993. Over the
same period, the Company's EBITDA (as defined herein) increased at a compound
annual rate of 98.8% to approximately $23.3 million on a pro forma basis from
approximately $2.0 million. In addition, the Company has increased its
percentage of revenue from Controlled Brands, which typically carry a higher
margin than Distributed Brands, to 36% for fiscal 1997 on a pro forma basis as
compared to 12% for fiscal 1993.
BUSINESS STRATEGY
The Company's objective is to maintain and enhance its position as a
leading exclusive licensee and marketer of prestige fragrances and related
cosmetic products, principally to mass-market retailers. The Company's strategy
to achieve this objective includes the following:
ACQUIRE CONTROL OF ADDITIONAL PRESTIGE BRANDS. The Company continues to
focus on acquiring ownership of, or exclusive distribution rights to, classic
prestige fragrance brands that enjoy established consumer loyalty. These
exclusive control positions allow the Company to actively manage the brand so as
to enhance the brand's prestige value in the market and at the same time
implement strategies
5
<PAGE>
intended to increase the brand's overall long-term profit contribution. In
fiscal 1996, the Company acquired from Sanofi Beaute, Inc. a long-term license
to manufacture and distribute worldwide the Geoffrey Beene fragrance brands,
including GREY FLANNEL, BOWLING GREEN and CHANCE (the "Geoffrey Beene
Acquisition"), and obtained the exclusive United States distribution rights for
the Galenic Elancyl skin care products and the Benetton fragrance and cosmetic
brands, including COLORS OF BENETTON and TRIBU. In fiscal 1997, the Company
completed the purchase of the Halston fragrance brands, including HALSTON,
CATALYST, 1-12 and Z-14 (the "Halston Acquisition") and acquired the principal
assets of Fragrance Marketing Group, Inc. ("FMG"), including exclusive United
States distribution rights to OMBRE ROSE, FACONNABLE, BALENCIAGA, LAPIDUS, and
several other brands (the "FMG Acquisition"). Management believes that the
Company's strong market position and reputation in the prestige fragrance
industry have assisted the Company in acquiring ownership of prestige fragrance
brands, particularly when, as with the Geoffrey Beene and Halston brands, the
Company has already served as a direct distributor of the brand.
IMPROVE BRAND PERFORMANCE THROUGH FOCUSED MARKETING. The Company seeks to
utilize its marketing expertise and its extensive distribution network to
successfully position, or reposition, its brands in the marketplace to enhance
their value. Such strategies typically include managing sales volumes, channels
of distribution, pricing, advertising and promotions, packaging and gift set
design, international marketing and other factors in a manner intended to best
position the brand in each of its different distribution channels. For example,
upon its acquisition of the Halston brands, the Company eliminated low-margin
sales to international distributors (particularly to distributors who resold the
product into the United States market) and repositioned the brand's image with
the first national advertising campaign for Halston in a number of years. The
Company also implemented a policy of product differentiation among distribution
channels to enhance the brand's prestige image.
STRENGTHEN AND EXPAND RELATIONSHIPS WITH RETAILERS THROUGH PROVIDING
VALUE-ADDED SERVICES. The Company continues to increase the number of retail
locations to which it distributes its products and currently serves more than
27,500 separate retail locations, up from approximately 7,000 in 1993. The
Company attributes its growing distribution network to its ability to provide
retailers with a consistent supply of product as well as its ability to provide
retailers, especially mass-market retailers, with a level of service typically
not provided by its competitors. For example, in many cases the Company's sales
and marketing professionals work closely with major retailers to act as category
managers by, among other things, (i) developing merchandising programs that are
designed to improve sales and profitability and that are specific to the
customers' business and marketing strategies, (ii) creating regularly planned
promotional campaigns and in-store displays designed to increase sales and (iii)
designing model stock assortments and planograms for the effective layout of
customers' fragrance and cosmetics departments. The Company believes that the
provision of such services both creates a partnership between the Company and
the retailer and increases the absolute amount of the Company's products sold
through such retailers.
DEVELOP LOW-RISK BRAND EXTENSIONS. The Company's strategy is to
opportunistically exploit existing brand awareness by introducing product line
extensions to new consumer groups, rather than launching new fragrance brands.
Since the costs of developing a product line extension generally are not
material to the Company, the Company's brand extension strategy can provide a
significant increase in profitability to the Company with limited capital risk.
For example, in response to requests from retailers, the Company recently
introduced into a limited market an extension to the Geoffrey Beene brand GREY
FLANNEL, named EAU DE GREY FLANNEL, which is positioned as a lighter, more
everyday fragrance targeted to a younger market. In addition, the Company is
exploring the introduction of a new Halston women's fragrance following a major
national advertising campaign by an unaffiliated company that holds the Halston
apparel license.
EXPLOIT OPERATING LEVERAGE TO FURTHER ENHANCE PROFITABILITY. The Company
is near completion of a comprehensive upgrade of its distribution facility
intended to increase significantly its distribution
6
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capacity and enhance operational efficiency. As a result of this upgrade, the
Company believes it will be able to increase the volumes distributed without a
commensurate increase in operating costs. Since its sales are characterized by a
relatively large number of orders (approximately 82,000 in fiscal 1997) with a
relatively low average order size (approximately $1,800 in fiscal 1997), the
Company believes that by increasing the average order size through the
introduction of additional brands or increasing the volume of existing brands
sold to existing customers, it can further enhance its operating margins.
FINE FRAGRANCES ACQUISITION
On May 13, 1997, the Company acquired the remaining 50.01% of the common
stock of Fine Fragrances, Inc. ("Fine Fragrances") that it did not already own,
concurrently with the consummation of the Offering (the "Fine Fragrances
Acquisition"). Upon the consummation of such transaction, Fine Fragrances became
a wholly owned subsidiary of the Company, and its operations will be
consolidated with those of the Company. Fine Fragrances has been the exclusive
distributor in North America for approximately six years of fragrances
manufactured by Cofci, S.A. ("Cofci"), including SALVADOR DALI, SALVADOR,
LAGUNA, DALISSIME, CAFE, TAXI and WATT, and recently entered into ten-year
exclusive distribution agreements with Cofci with respect to those brands. See
"Business--Fine Fragrances Acquisition."
On a pro forma basis for fiscal 1997, the Fine Fragrances Acquisition would
have increased the Company's revenues and EBITDA by approximately $7.3 million
and approximately $1.4 million, respectively. The purchase price for the Fine
Fragrances Acquisition was $2.0 million in cash financed with a portion of the
net proceeds of the Offering, plus an additional payment of $1.0 million to be
paid over time based on 5% of the net sales of Cofci products, with any unpaid
balance due 30 days after the third anniversary of the closing (the "Fine
Fragrances Additional Payment"). In addition, the Company used approximately
$2.2 million of the net proceeds of the Offering to repay amounts outstanding
under Fine Fragrances' existing credit line (the "Fine Fragrances Credit Line").
The Fine Fragrances Credit Line was terminated in connection with the
consummation of the Fine Fragrances Acquisition. See "Pro Forma Financial Data."
COMPANY BACKGROUND
Rafael Kravec, the Company's Chairman of the Board and Chief Executive
Officer, founded the Company in 1992, in partnership with Bedford Capital
Corporation, a Toronto, Canada based merchant banking firm ("Bedford"), to
exploit opportunities in the marketing and distribution of prestige fragrances.
Mr. Kravec has over 20 years of fragrance marketing experience, and the
Company's other top sales and marketing managers have an average of over 15
years of fragrance marketing experience. As of April 15, 1997, Mr. Kravec and
the officers and directors of the Company beneficially owned 6,102,728 shares,
or approximately 40%, of the common stock, par value $.01 per share (the "Common
Stock") of the Company.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "FRAG." The closing sales price of the Common Stock on June 5, 1997
was $9.875 per share.
7
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER ............ The Company is offering to exchange pursuant
to the Exchange Offer up to $115,000,000
aggregate principal amount of the Exchange
Notes for any and all of its outstanding
Initial Notes. The terms of the Exchange Notes
are identical in all material respects
(including principal amount, interest rate and
maturity) to the terms of the Initial Notes
for which they may be exchanged pursuant to
the Exchange Offer, except that the Exchange
Notes have been registered under the
Securities Act and are freely transferrable by
holders thereof (other than as provided
herein), and are not subject to any covenant
regarding registration under the Securities
Act. See "The Exchange Offer."
EXPIRATION DATE; WITHDRAWAL OF
TENDER ..................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on , 1997, unless the
Exchange Offer is extended by the Company, in
which case the term "Expiration Date" means
the latest date and time to which the Exchange
Offer is extended. See "The Exchange
Offer--Expiration Date; Extension;
Termination; Amendment." Tenders may be
withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. See
"The Exchange Offer--Withdrawal Rights."
INTEREST PAYMENTS ............ Interest on the Exchange Notes shall accrue
from the last interest payment date (May 15 or
November 15, each an "Interest Payment Date")
on which interest was paid on the Initial
Notes so surrendered or, if no interest has
been paid on such Initial Notes, from May 13,
1997.
NO MINIMUM CONDITION ......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Initial
Notes being tendered for exchange.
EXCHANGE DATE ............... The date of acceptance and exchange (the
"Exchange Date") of the Initial Notes will be
the fourth business day following the
Expiration Date, unless an earlier date is
selected by the Company and the Company
notifies the Exchange Agent (as defined
herein) of such earlier date.
CONDITIONS TO THE EXCHANGE
OFFER ........................ The Company shall not be required to accept
for exchange, or to issue Exchange Notes in
exchange for, any Initial Notes and may
terminate or amend the Exchange Offer, if any
of certain customary conditions exist, the
occurrence of which may be waived by the
Company. The Company currently expects that
each of the conditions will be satisfied and
that no waivers will be necessary. See "The
Exchange Offer--Certain Conditions to the
Exchange Offer."
8
<PAGE>
PROCEDURES FOR TENDERING INITIAL
NOTES ........................ Each holder of Initial Notes wishing to tender
such notes must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Initial Notes and
any other required documentation to the
Exchange Agent (as defined) at the address set
forth in the Letter of Transmittal. See "The
Exchange Offer--Procedures for Tendering
Initial Notes" and "Plan of Distribution."
USE OF PROCEEDS ............... There will be no proceeds to the Company from
the exchange of Senior Notes pursuant to the
Exchange Offer. For a discussion of the use of
the net proceeds received by the Company from
the issuance of the Initial Notes see "Use of
Proceeds."
FEDERAL INCOME TAX
CONSEQUENCES ............... The exchange of Senior Notes pursuant to the
Exchange Offer should not be a taxable event
for federal income tax purposes. See "Certain
Federal Income Tax Consequences."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS ............ Any beneficial owner whose Initial Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on
such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing
the Letter of Transmittal and delivering the
Initial Notes, either make appropriate
arrangements to register ownership of the
Initial Notes in such beneficial owner's name
or obtain a properly completed bond power from
the registered holder. The transfer of
registered ownership may take considerable
time. See "The Exchange Offer--Procedures for
Tendering Initial Notes."
GUARANTEED DELIVERY
PROCEDURES .................. Holders of Initial Notes who wish to tender
their Initial Notes and whose Initial Notes
are not immediately available or who cannot
deliver their Initial Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date must tender
their Initial Notes according to the
guaranteed delivery procedures set forth in
"The Exchange Offer--Procedures for Tendering
Initial Notes."
ACCEPTANCE OF INITIAL NOTES AND
DELIVERY OF EXCHANGE NOTES ... On the Exchange Date, the Company will accept
for exchange any and all Initial Notes which
are properly
9
<PAGE>
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Exchange Date. See "The Exchange
Offer--Acceptance of Initial Notes for
Exchange; Delivery of Exchange Notes."
CONSEQUENCES OF FAILURE TO
EXCHANGE ..................... Holders of the Initial Notes who do not tender
their Initial Notes in the Exchange Offer will
continue to hold such Initial Notes and will
be entitled to all the rights and limitations
applicable thereto under the Indenture dated
as of May 13, 1997 between the Company and
Marine Midland Bank relating to the Initial
Notes and the Exchange Notes (the
"Indenture"), except for any such rights under
the Registration Rights Agreement (as defined
herein) that by their terms terminate or cease
to have further effectiveness as a result of
the making of, and the acceptance for exchange
of all validly tendered Initial Notes pursuant
to, the Exchange Offer.
Holders of Initial Notes who do not exchange
their Initial Notes for Exchange Notes
pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer
of such Initial Notes as set forth in the
legend thereon as a consequence of the offer
or sale of the Initial Notes pursuant to an
exemption from, or in a transaction not
subject to, the registration requirements of
the Securities Act and applicable state
securities laws. In general, the Initial Notes
may not be offered or sold, unless registered
under the Securities Act, except pursuant to
an exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. The Company does not
currently anticipate that it will register the
Initial Notes under the Securities Act. To the
extent that Initial Notes are tendered and
accepted in the Exchange Offer, the trading
market for untendered or tendered but
unaccepted Initial Notes could be adversely
affected. See "The Exchange
Offer--Consequences of Failure to Exchange."
REGISTRATION RIGHTS ......... The Company entered into a Registration Rights
Agreement dated as of May 13, 1997 (the
"Registration Rights Agreement") with
Donaldson Lufkin & Jenrette Securities
Corporation and TD Securities (USA) Inc.,
(collectively, the "Initial Purchasers"), for
the benefit of all holders of Initial Notes,
in which it agreed to make the Exchange Offer.
The Registration Rights Agreement provides
that if the Company fails to consummate the
Exchange Offer on or prior to November 9,
1997, the Company will file a shelf
registration statement (the "Shelf
Registration Statement") to cover resales of
Senior Notes by holders who provide certain
information required for
10
<PAGE>
inclusion in the Shelf Registration Statement,
and who agree to be bound by the terms of the
Registration Rights Agreement. Upon a
Registration Default (as defined herein), the
Company will be required to pay certain
Liquidated Damages to the affected holders of
Senior Notes. See "Exchange Offer;
Registration Rights."
EXCHANGE AGENT .............. Marine Midland Bank is serving as exchange
agent (the "Exchange Agent") in connection
with the Exchange Offer. See "The Exchange
Offer--Exchange Agent."
RESALE OF EXCHANGE NOTES ...... Based upon interpretations by the staff of the
SEC issued to third parties, the Company
believes that Exchange Notes issued pursuant
to the Exchange Offer in exchange for Initial
Notes may be offered for resale, resold and
otherwise transferred by holders thereof
(other than any holder which is a
broker-dealer or an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act provided that
such Exchange Notes are acquired in the
ordinary course of business and such holders
have no arrangement with any person to
participate in the distribution of such
Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account
pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus
in connection with a resale of such Exchange
Notes. This Prospectus, as it may be amended
or supplemented from time to time, may be used
by such broker-dealers in connection with such
resales. See "The Exchange Offer--Resale of
Exchange Notes."
THE EXCHANGE NOTES
ISSUER ........................ French Fragrances, Inc.
SECURITIES OFFERED ............ $115 million in aggregate principal amount of
10 3/8% Senior Notes due 2007, Series B.
MATURITY DATE ............... May 15, 2007.
INTEREST PAYMENT DATES ...... Interest on the Exchange Notes is payable
semi-annually on each May 15 and November 15,
commencing November 15, 1997.
RANKING ..................... The Exchange Notes will be senior unsecured
obligations of the Company and will rank
senior in right of payment to all existing and
future Subordinated Indebtedness of the
Company and PARI PASSU in right of payment
with all existing and future Senior
Indebtedness of the Company, including
indebtedness under the New Credit Facility.
The
11
<PAGE>
New Credit Facility is secured by a first
priority lien on all of the Company's accounts
receivable and inventory and, accordingly,
such indebtedness effectively will rank prior
to the Exchange Notes with respect to such
assets. See "Description of the Senior
Notes--General," "Description of Certain
Indebtedness" and "Description of the New
Credit Facility."
MANDATORY REDEMPTION ......... None, except as otherwise described below
under the captions "Change of Control" and
"Asset Sale Proceeds."
OPTIONAL REDEMPTION ......... The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, at
any time on or after May 15, 2002, in cash, at
the redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon
to the redemption date. In addition, at any
time prior to May 15, 2000, the Company, at
its option, may redeem up to 35% of the
initially outstanding aggregate principal
amount of the Senior Notes at a redemption
price equal to 109 3/8% of the principal
amount thereof, plus accrued and unpaid
interest, if any, thereon to the redemption
date, with the net proceeds of one or more
public equity offerings generating in each
case net proceeds of at least $15.0 million,
PROVIDED, among other things, that at least
65% of the initially outstanding aggregate
principal amount of the Senior Notes remains
outstanding immediately after any such
redemption. See "Description of the Senior
Notes--Optional Redemption."
CHANGE OF CONTROL ............ Upon a Change of Control, each holder of
Exchange Notes will have the right to require
the Company to repurchase all or any part of
such holder's Exchange Notes at a price in
cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid
interest, if any, thereon to the purchase
date. See "Description of the Senior
Notes--Repurchase at the Option of Holders--
Change of Control."
ASSET SALE PROCEEDS ......... The Company will be obligated in certain
circumstances to make an offer to purchase the
Exchange Notes at a purchase price equal to
100% of the principal amount thereof plus
accrued and unpaid interest, if any, thereon
to the purchase date with the Net Proceeds of
Asset Sales. See "Description of the Senior
Notes--Repurchase at the Option of
Holders--Asset Sales."
CERTAIN COVENANTS ............ The Indenture will govern the Exchange Notes
and contains certain covenants that, among
other things, limit the ability of the Company
and its Subsidiaries to: (i) incur additional
Indebtedness or issue preferred Equity
Interests (each as defined herein); (ii) pay
dividends or make certain other restricted
payments or investments;
12
<PAGE>
(iii) create liens; (iv) enter into certain
transactions with affiliates; (v) enter into
agreements restricting the ability of such
Subsidiaries to pay dividends and make
distributions; (vi) merge or consolidate; or
(vii) transfer or sell assets. See
"Description of the Senior Notes--Certain
Covenants."
SUBSIDIARY GUARANTEES ......... The Indenture provides that, as a condition of
a Subsidiary incurring Indebtedness under
certain circumstances, such Subsidiary will
guarantee the Company's payment obligations
under the Exchange Notes. Each Subsidiary
Guarantee (as defined herein) will be a senior
unsecured obligation of the Subsidiary
Guarantor (as defined herein) issuing such
Subsidiary Guarantee and will rank PARI PASSU
in right of payment with all Guarantor Senior
Indebtedness (as defined herein) of such
Subsidiary Guarantor. As of the Exchange Date,
none of the Subsidiaries will be Subsidiary
Guarantors. See "Description of the Senior
Notes--Certain Covenants-- Subsidiary
Guarantees."
ABSENCE OF PUBLIC MARKET ...... There is no public market for the Exchange
Notes, and the Exchange Notes will not be
listed on any securities exchange. The Company
has been advised by the Initial Purchasers
that, following consummation of the Exchange
Offer, the Initial Purchasers intend to make a
market in the Exchange Notes; however, any
market making may be discontinued at any time
without notice. If an active public market
does not develop, the market price and
liquidity of the Exchange Notes may be
adversely affected. See "Risk Factors."
For definitions of certain capitalized terms used herein, see "Description of
the Senior Notes."
RISK FACTORS
Prospective investors in the Exchange Notes should carefully consider
the matters set forth under "Risk Factors" beginning on page 16.
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The summary historical financial data presented below have been derived
from the consolidated financial statements of the Company. The summary pro forma
financial data for the year ended January 31, 1997 and as of January 31, 1997
are pro forma for (i) the Offering, (ii) the application of the net proceeds
therefrom and (iii) the Fine Fragrances Acquisition. The pro forma adjustments
are based upon available information and certain assumptions that management of
the Company believes are reasonable. The pro forma results of operations are not
necessarily indicative of the results of operations that would have been
achieved had the transactions reflected therein been consummated prior to the
period presented or that might be attained in the future. The following summary
data should be read in conjunction with "Use of Proceeds," "Capitalization,"
"Pro Forma Financial Data," "Selected Historical and Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and the
Financial Statements of Fine Fragrances, and the notes related thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA(2)
------------------------------------------------------------------ --------------
TWELVE
MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, JANUARY 31, FISCAL YEAR ENDED JANUARY 31,
----------------------- ----------------- ---------------------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
1993 1994 1995 1996 1997 1997
---------- ---------- ----------------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................... $ 33,854 $ 46,105 $69,612 $ 87,979 $ 140,482 $ 147,762
Gross profit ........................ 5,346 8,152 13,504 21,639 46,078 49,267
Operating expenses .................. 3,604 5,254 7,281 13,220 27,856 29,680
Income from operations ............... 1,742 2,898 6,222 8,419 18,222 19,587
Ratio of earnings to fixed charges(3) . 1.7x 2.0x 3.1x 2.2x 2.9x 1.5x
OTHER DATA:
EBITDA(4) ........................... $ 1,990 $ 3,233 $ 6,562 $ 9,738 $ 21,885 $ 23,325
Depreciation and amortization ......... 248 335 340 1,320 3,663 3,738
Capital expenditures .................. 114 374 247 149 2,487 2,487
Net sales growth ..................... --% 36.2% 62.1%(5) 26.4% 59.7% 68.0%
Gross margin(6) ..................... 15.8% 17.7% 19.4% 24.6% 32.8% 33.3%
EBITDA margin(7) ..................... 5.9% 7.0% 9.4% 11.1% 15.6% 15.8%
Cash flows from (used in):
Operating activities .................. $ (3,022) $ (2,593) $(4,893) $ 5,179 $ (23,221)
Investing activities .................. (2,414) (374) (247) (17,983) (21,117)
Financing activities .................. 5,448 3,231 5,245 12,282 45,070
PRO FORMA DATA:
Cash interest expense(8) ............. $ 13,448
Ratio of EBITDA to cash
interest expense ..................... 1.7x
Ratio of net debt to EBITDA(9) ....... 3.6
</TABLE>
AS OF JANUARY 31, 1997
---------------------------
ACTUAL PRO FORMA(10)
--------- ---------------
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 856 $ 52,573
Working capital ............... 17,734 112,630
Total assets .................. 172,378 231,749
Total debt(11) .................. 78,155 136,755
Shareholders' equity ............ 44,680 44,740
(FOOTNOTES ON FOLLOWING PAGE)
14
<PAGE>
(1) Effective January 31, 1995, the Company changed its fiscal year end to
January 31 from June 30 to conform to its business year.
(2) Pro forma financial data are adjusted to give effect to (i) the Offering,
(ii) the application of the net proceeds therefrom and (iii) the Fine
Fragrances Acquisition as if such transactions had occurred as of February
1, 1996. See "Pro Forma Financial Data" and "Use of Proceeds."
(3) Earnings consist of income before taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the portion of rent expense that is representative of interest expense.
(4) 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 its ability to meet cash needs. The Company
believes that EBITDA is a measure commonly reported and widely used by
investors and other interested parties in the fragrance industry 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.
(5) Represents the increase in net sales over net sales of $43.0 million in the
twelve months ended January 31, 1994.
(6) Gross profit as a percentage of net sales for the period indicated.
(7) EBITDA as a percentage of net sales for the period indicated.
(8) Cash interest expense is defined as total interest expense less non-cash
amortization of deferred financing fees.
(9) Net debt is defined as total debt less cash and cash equivalents.
(10) Pro forma balance sheet data are adjusted to give effect to (i) the
Offering, (ii) the application of the net proceeds therefrom and (iii) the
Fine Fragrances Acquisition as if such transactions had occurred as of
January 31, 1997. See "Use of Proceeds" and "Capitalization."
(11) Includes short-term and long-term debt, but excludes amounts due to
affiliates, net.
15
<PAGE>
RISK FACTORS
IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES BEING OFFERED HEREBY,
INVESTORS SHOULD CONSIDER CAREFULLY, AMONG OTHER THINGS, THE FOLLOWING RISK
FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the issuance of the Initial Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Notes may not be offered or sold unless registered under
the Securities Act and applicable state laws, or pursuant to an exemption
therefrom. The Company does not intend to register the Initial Notes under the
Securities Act, other than in the limited circumstances contemplated by the
Registration Rights Agreement. In addition, any holder of Initial Notes who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Exchange Notes may be deemed to have received restricted securities and,
if so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent that Initial Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered or tendered but unaccepted Initial Notes could
be adversely affected. See "The Exchange Offer" and "Exchange Offer;
Registration Rights."
SUBSTANTIAL INDEBTEDNESS
The Company has substantial indebtedness and significant debt service
obligations. As of January 31, 1997, after giving effect to the Offering and the
application of the estimated net proceeds therefrom to repay indebtedness under
the Company's then existing bank credit facility (the "Existing Credit
Facility") with Fleet National Bank ("Fleet") and certain other indebtedness
outstanding on that date, the Company would have had outstanding indebtedness of
approximately $136.8 million. See "Capitalization" and "Description of Certain
Indebtedness." The Indenture permits the Company to incur substantial additional
indebtedness, including secured indebtedness, subject to certain limitations.
See "Description of the Senior Notes--Certain Covenants." Concurrently with the
consummation of the Offering, the Company entered into a new credit facility
with Fleet providing for revolving loans of up to $40.0 million (the "New Credit
Facility"), which is secured by a first priority lien on all of the Company's
accounts receivable and inventory, which constitute a substantial portion of the
Company's assets. On a pro forma basis for fiscal 1997, the Company would have
had a ratio of earnings to fixed charges of 1.5.
The Company's significant leverage could have important consequences to
holders of Senior Notes, including (i) the Company's increased vulnerability to
adverse general and economic conditions, (ii) the Company's ability to
withstand competitive pressures may be limited, (iii) the Company's ability to
obtain additional financing on satisfactory terms may be limited, (iv) the
dedication of a substantial portion of the Company's cash flow to service its
indebtedness, thereby reducing the amount of funds available for operations and
future business opportunities, (v) the extent to which the New Credit Facility
and future borrowings are at variable rates of interest, which would cause the
Company to be more vulnerable to increases in interest rates and (vi) the
Company's financial and operating flexibility may be limited to the extent its
indebtedness contains restrictive covenants. See "--Restrictive Debt Covenants,"
"Capitalization" and "Description of the New Credit Facility."
The ability of the Company to make scheduled payments in respect of its
present and future indebtedness, including the Senior Notes, may depend on,
among other things, the Company's ability to successfully execute its current
business plans on a timely and cost effective basis and the Company's future
operating performance, which, to a large extent, may depend upon factors beyond
the Company's control, such as business, economic and competitive factors.
16
<PAGE>
ABSENCE OF CONTRACTS WITH SUPPLIERS AND CUSTOMERS
As is typical in the fragrance industry, the Company does not have
long-term or exclusive contracts with any of its customers. Except for exclusive
distribution contracts for Controlled Brands, the Company does not have
long-term or exclusive contracts with its fragrance suppliers. The Company's
suppliers of Distributed Brands can, at any time, elect to supply fragrance
products to the Company's customers directly or through another distributor, or
elect to reduce or eliminate the volume of their products distributed by the
Company. Sales to customers and purchases from suppliers that do not have
exclusive distribution contracts with the Company are generally made pursuant to
purchase orders. The Company's ten largest suppliers of Distributed Brands
accounted for approximately 75% of the Company's cost of sales for the fiscal
year ended January 31, 1997. The Company's ten largest customers accounted for
approximately 41% of net sales for the fiscal year ended January 31, 1997. The
loss of, or a significant change in, the relationship between the Company and
any of its key fragrance suppliers or customers could have a material adverse
effect on the business, financial condition and results of operations of the
Company. See "Business--Products" and "--Distribution."
The Company does not own or operate any manufacturing facilities and is
dependent on third-party manufacturers and suppliers for all of its supply of
Halston and Geoffrey Beene fragrances and related products and packaging
materials. The Company currently obtains its materials for these products from a
limited number of manufacturers and other suppliers. Delays in the delivery of
raw materials, components or finished products from manufacturers or suppliers
could have a material adverse effect on the business, financial condition and
results of operations of the Company. See "Business--Products" and
"--Distribution."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND INTEGRATION OF ACQUISITIONS
In order for the Company to continue to expand successfully, the Company's
management will be required to anticipate the changing and increasing demands of
the Company's growing operations and to implement appropriate operating
procedures and systems. There can be no assurance that management will correctly
anticipate these demands or successfully implement these procedures and systems
on a timely basis. The Company's success will also depend, in part, upon its
ability to identify, acquire and integrate effectively into its operations new
brands and relationships with new suppliers and new customers, including those
associated with recent or future acquisitions. The Company believes but cannot
assure that it will be able to achieve such integration. The Company will also
need to review continually the adequacy of its management information systems,
including its inventory and distribution systems. Failure to upgrade its
information systems, or unexpected difficulties encountered with these systems
during expansion or otherwise, could have a material adverse effect on the
business, financial condition and results of operations of the Company.
NO ASSURANCE OF FUTURE GROWTH OR ACQUISITIONS
The Company's strategy is to continue to increase both its Controlled Brand
and Distributed Brand operations. Currently, the Company has no agreements or
commitments for the acquisition of additional brands or exclusive or
non-exclusive distribution arrangements. There can be no assurance that the
Company will be successful in identifying, negotiating and consummating such
acquisitions or arrangements, or that such acquisitions or arrangements that may
be available, if at all, will be on terms acceptable to the Company.
FUTURE CAPITAL REQUIREMENTS; POSSIBLE INABILITY TO OBTAIN ADDITIONAL FINANCING
The Company's capital requirements have been and will continue to be
significant. To date, the Company has financed its capital requirements
principally through cash flow from operations and bank and other borrowings,
including loans and advances from shareholders and affiliates. The Company's
future expansion, if any, will be dependent upon the capital resources available
to the Company. Excluding any additional working capital requirements that may
result from acquisitions, including
17
<PAGE>
brand acquisitions, management believes that internally generated funds,
available financing under the New Credit Facility and the net proceeds from the
Offering will be sufficient to fund the Company's operations for the foreseeable
future. The Company's future growth and acquisitions of additional fragrance
brands or exclusive distribution rights may be dependent on the Company's
ability to obtain future equity or debt financing. There can be no assurance
that the Company will be able to obtain additional financing for such purposes
or that any additional financing will be available in amounts required or on
terms satisfactory to the Company. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SEASONALITY; FLUCTUATIONS IN QUARTERLY SALES
The Company's business is seasonal, with a majority of its sales and income
from operations generated during the second half of its fiscal year as a result
of increased demand by retailers in anticipation of and during the holiday
season. For example, in fiscal 1997, 69% of the Company's net sales were made
during the second half of the fiscal year. Any substantial decrease in sales
during such period would likely have a material adverse effect on the business,
financial condition and results of operations of the Company. Similarly, the
Company's working capital needs are greater during the second half of the fiscal
year. In addition, the Company's sales and profitability may vary from quarter
to quarter as a result of a variety of factors, including the timing of customer
orders, additions or losses of brands or distribution rights and competitive
pricing pressures.
COMPETITION
The fragrance industry is highly competitive and at times subject to
rapidly changing consumer preferences and industry trends. The Company competes
with a large number of distributors and manufacturers, many of which have
significantly greater financial, marketing, distribution, personnel and other
resources than the Company, thereby permitting such companies to implement
extensive advertising, pricing and promotional programs. The Company's products
compete for consumer recognition and shelf space with fragrance products that
have achieved significant international, national and regional brand name
recognition and consumer loyalty. The Company's products also compete with new
products, which are regularly introduced and accompanied by substantial
promotional campaigns. These factors, as well as demographic trends,
international, national, regional and local economic conditions, discount
pricing strategies by competitors and direct sales by manufacturers to the
Company's customers could result in increased competition for the Company and
could have a material adverse effect on the business, financial condition and
results of operations of the Company. See "Business--Competition."
RESTRICTIVE DEBT COVENANTS
The New Credit Facility contains, and any refinancing thereof will likely
contain, a number of covenants that, among other things, limit the Company's
ability to incur additional indebtedness, pay certain dividends, prepay
indebtedness, dispose of certain assets, create liens, make capital
expenditures, make certain investments or acquisitions and otherwise restrict
corporate activities. The New Credit Facility requires, and any refinancing
thereof will likely require, the Company to comply with certain financial ratios
and tests, under which the Company would be required to achieve certain
financial and operating results. In addition, the New Credit Facility is secured
by a first priority lien on the Company's accounts receivable and inventory. The
ability of the Company to comply with the provisions of the New Credit Facility
may be affected by events beyond its control, including prevailing economic
conditions, changes in consumer preferences and changes in the competitive
environment, which could impair the Company's operating performance. A breach of
any of the covenants under the New Credit Facility would result in a default
under the New Credit Facility, in which event, the lender under the New Credit
Facility could elect to declare all outstanding amounts borrowed thereunder,
together with accrued interest thereon, to be due and payable. A payment default
or an acceleration of amounts due under the New Credit Facility would likely
cause a default under the Indenture. Moreover, as a result of the security
afforded to the New Credit Facility, there can be no assurance that, in the
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event of such a default or an acceleration, the Company would have sufficient
funds to pay indebtedness outstanding under the Senior Notes after the
collateral has been applied to the obligations under the New Credit Facility.
Acceleration of such indebtedness would have a material adverse effect on the
Company. Further, the Indenture also contains provisions that limit the
Company's activities. See "Description of the New Credit Facility" and
"Description of the Senior Notes."
INABILITY TO REPURCHASE SENIOR NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, at any time, the Company is
required to offer to repurchase each holder's Senior Notes at a repurchase price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, thereon. There can be no assurance that the Company will have
the financial resources to effect any such repurchase. In addition, such a
repurchase would likely cause a default under the New Credit Facility. See
"Description of the New Credit Facility" and "Description of the Senior
Notes--Repurchase at the Option of the Holders--Change of Control."
CONTROL BY OFFICERS, DIRECTORS AND THEIR AFFILIATES
As of April 15, 1997, the officers and directors of the Company (including
companies under their control) beneficially owned 6,102,728 shares, or
approximately 40%, of the Company's Common Stock. The aggregate beneficial
ownership of such persons permits them to have effective control of the Company
and to direct the management and affairs of the Company. See "Management,"
"Principal Shareholders" and "Certain Transactions."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the performance
of its management team. The Company's future operations could be materially
adversely affected if the services of any of the Company's senior executives
were to cease to be available to the Company. In particular, the Company is
dependent on Rafael Kravec, its Chairman of the Board and Chief Executive
Officer, who has extensive experience in the fragrance distribution business.
The Company has an employment agreement with Mr. Kravec that extends through
April 2000. See "Management."
MANAGEMENT DISCRETION REGARDING PROCEEDS OF THE OFFERING
Approximately $43.6 million of the net proceeds of the Offering are
available for general corporate purposes, including working capital support and
acquisitions. Management has broad discretion as to the specific uses and the
timing of application of such portion of the Offering proceeds, to the extent
permitted by the Indenture. Pending the Company's use of such proceeds for
general corporate purposes and possible acquisitions, such proceeds will be
placed in short-term, interest-bearing, investment-grade debt securities,
certificates of deposit or direct or guaranteed obligations of the United
States, to the extent permitted by the Indenture. See "Use of Proceeds."
CHANGES IN THE RETAIL INDUSTRY
From time to time, major retailers, including certain of the Company's
customers, have suffered financial difficulties. While no material adverse
effect on the Company's business or financial condition has resulted from the
financial difficulties of any of its customers, there can be no assurance that
this will continue to be the case. In addition, the retail industry has
periodically experienced consolidation and other ownership changes. Major
retailers in the United States and in foreign markets may in the future
consolidate, undergo restructuring or realign their affiliations, which could
decrease the number of stores that sell the Company's products or increase the
ownership concentration within the retail industry. While such changes in the
retail industry to date have not had a material adverse effect on the Company's
business or financial condition, there can be no assurance as to the future
effect of any such changes.
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FRAUDULENT CONVEYANCE
The incurrence by the Company of indebtedness under the Senior Notes to
repay its existing debt, and the issuance of any Subsidiary Guarantee of the
Senior Notes by any Subsidiary Guarantor, may be subject to review under
relevant federal and state fraudulent conveyance laws in a bankruptcy case
involving, or a lawsuit commenced by or on behalf of unpaid creditors of, the
Company or any Subsidiary Guarantor. Under such laws, if a court were to find
that (i)(a) at the time the Senior Notes were issued, the Company or (b) at the
time any Subsidiary Guarantee was issued, the respective Subsidiary Guarantor,
had incurred the indebtedness under the Senior Notes or the Subsidiary
Guarantee, as the case may be, with the intent of delaying or defrauding
creditors or (ii) the Company or the respective Subsidiary Guarantor, as the
case may be, received less than reasonably equivalent value or fair
consideration for the Senior Notes or the Subsidiary Guarantee, as the case may
be, and (x) was insolvent or rendered insolvent by reason of such transaction,
(y) was engaged in a business or transaction for which the assets remaining with
the Company or the respective Subsidiary Guarantor, as the case may be,
constituted unreasonably small capital, or (z) intended to incur, or believed
that it would incur, debts that it would be unable to pay when due, such court
could subordinate the Senior Notes or the Subsidiary Guarantee, as the case may
be, to present or future indebtedness of the Company or the respective
Subsidiary Guarantor, as the case may be, avoid the issuance of some or all of
the debt under the Senior Notes or the Subsidiary Guarantee, as the case may be,
direct the repayment of any amounts paid thereunder to the Company or the
respective Subsidiary Guarantor, as the case may be, or to a fund for the
benefit of the creditors of the Company or the respective Subsidiary Guarantor,
as the case may be, or take other action which would be detrimental to the
holders of the Senior Notes.
The Company believes that the indebtedness represented by the Senior Notes
is being incurred for proper purposes and in good faith, that the Company is
receiving reasonably equivalent value or fair consideration for incurring such
indebtedness, that the Company was, is and will be solvent under the foregoing
standards and that it had, has and will have sufficient capital for carrying on
its business and was, is, and will be able to pay its debts as they mature.
There can be no assurance, however, that a court would reach the same
conclusions.
ABSENCE OF A PUBLIC MARKET FOR EXCHANGE NOTES
The Exchange Notes will constitute a new issue of securities for which
there is no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or to seek the admission of
the Senior Notes for quotation through the National Association of Securities
Dealers Automated Quotation System. Although the Initial Purchasers have advised
the Company that they currently intend to make a market in the Exchange Notes,
they are not obligated to do so and may discontinue such market making at any
time without notice. In addition, such market making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act, and may be
limited during the pendency of any Shelf Registration Statement. See "Exchange
Offer; Registration Rights." There can be no assurance as to the development or
liquidity of any market for the Exchange Notes, the ability of the holders of
the Exchange Notes to sell their Exchange Notes or the price at which the
holders would be able to sell their Exchange Notes. Future trading prices of the
Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $115 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of Initial Notes properly tendered on or prior to the Expiration Date and
not withdrawn as permitted pursuant to the procedures described below. The
Exchange Offer is being made with respect to any and all of the Initial Notes.
As of the date of this Prospectus, $115 million aggregate principal amount
of the Initial Notes is outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about , 1997, to all holders of
Initial Notes registered on the note register of the Company. The Company's
obligation to accept Initial Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions set forth under "Certain Conditions to the
Exchange Offer" below. The Company currently expects that each of the conditions
will be satisfied and that no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The Initial Notes were issued on May 13, 1997 in a transaction exempt from
the registration requirements of the Securities Act. Accordingly, the Initial
Notes may not be reoffered, resold, or otherwise transferred unless so
registered or unless an applicable exemption from the registration and
prospectus delivery requirements of the Securities Act is available.
In connection with the issuance and sale of the Initial Notes, the Company
entered into the Registration Rights Agreement, which requires the Company to
file with the Commission a registration statement relating to the Exchange Offer
not later than 30 days after the date of issuance of the Initial Notes, and to
use its reasonable best efforts to cause the registration statement relating to
the Exchange Offer to become effective under the Securities Act not later than
150 days after the date of issuance of the Initial Notes and the Exchange Offer
to be consummated not later than 30 business days after the date of the
effectiveness of the Registration Statement (or use its reasonable best efforts
to cause to become effective a shelf registration statement with respect to
resales of the Initial Notes by the 150th calendar day after the date on which
the Company becomes obligated to file such shelf registration statement). A copy
of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement.
The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Initial Notes are
registered on the note register of the Company or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Initial Notes are held of record by The Depository Trust Company.
Other than pursuant to the Registration Rights Agreement, the Company is not
required to file any registration statement to register any outstanding Initial
Notes. Holders of Initial Notes who do not tender their Initial Notes or whose
Initial Notes are tendered but not accepted would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act, if they wish to sell their Initial Notes.
The Company is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes may be offered for resale, resold
and otherwise transferred by a holder (other than any holder who is a
broker-dealer or an
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"affiliate" of the Company within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and that such holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Exchange Notes. See "--Resale of Exchange Notes." Each broker-dealer that
receives Exchange Notes for its own account in exchange for Initial Notes, where
such Initial Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution."
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Initial Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Initial Notes for which they may be exchanged
pursuant to this Exchange Offer, except that the Exchange Notes will generally
be freely transferable by holders thereof and will not be subject to any
covenant regarding registration under the Securities Act. The Exchange Notes
will evidence the same indebtedness as the Initial Notes and will be entitled to
the benefits of the Indenture. See "Description of the Senior Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the SEC with respect to whether the Exchange
Notes issued pursuant to the Exchange Offer in exchange for the Initial Notes
may be offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on an interpretation by the staff of the SEC set
forth in a series of no-action letters issued to third parties, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Initial Notes may be offered for sale, resold and otherwise transferred by
any holder of such Exchange Notes (other than any such holder that is a
broker-dealer or is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such
Exchange Notes. Since the SEC has not considered the Exchange Offer in the
context of a no-action letter, there can be no assurance that the staff of the
SEC would make a similar determination with respect to the Exchange Offer. Any
holder who is an affiliate of the Company or who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Exchange Notes may be
deemed to have received restricted securities and cannot rely on such
interpretation by the staff of the SEC and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each holder, other than a broker-dealer, must acknowledge
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Initial Notes, where such Initial Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Interest on the Exchange Notes will accrue from the last Interest Payment
Date on which interest was paid on the Initial Notes so surrendered or, if no
interest has been paid on such Initial Notes, from May 13, 1997.
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Tendering holders of the Initial Notes shall not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Initial Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997, unless the Company, has extended the period of time for which the Exchange
Offer is open (such date, as it may be extended, is referred to herein as the
"Expiration Date"). The Expiration Date will be at least 20 business days after
the commencement of the Exchange Offer in accordance with Rule 14e-1(a) under
the Exchange Act. The Company expressly reserves the right, at any time or from
time to time, in its sole discretion, to extend the period of time during which
the Exchange Offer is open, and thereby delay acceptance for exchange of any
Initial Notes, by giving oral or written notice to the Exchange Agent and by
timely public announcement no later than 9:00 a.m. New York City time, on the
next business day after the previously scheduled Expiration Date. During any
such extension, all Initial Notes previously tendered will remain subject to the
Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Initial Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "Certain Conditions to the Exchange Offer" which have not been waived by
the Company and (ii) amend the terms of the Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Initial Notes,
whether before or after any tender of the Initial Notes. If any such termination
or amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the
Initial Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will, subject to the conditions described under
"--Certain Conditions to the Exchange Offer," exchange the Exchange Notes for
the Initial Notes on the Exchange Date.
PROCEDURES FOR TENDERING INITIAL NOTES
The tender to the Company of Initial Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Initial Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Initial Notes being tendered and any required
signature guarantees and any other documents required by the Letter of
Transmittal, to the Exchange Agent at its address set forth below on or prior to
the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
Any beneficial owner whose Initial Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering the Initial Notes, either make appropriate
arrangements to register ownership of the Initial Notes in such beneficial
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
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THE METHOD OF DELIVERY OF INITIAL NOTES, LETTERS OF TRANSMITTAL AND ALL OF
THE REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO INITIAL NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
If tendered Initial Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Initial Notes are to be reissued) in the
name of the registered holder (which term, for the purposes described herein,
shall include any participant in The Depository Trust Company (the "Book-Entry
Transfer Facility") whose name appears on a security listing as the owner of
Initial Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Initial Notes must be endorsed or accompanied by
written instruments of transfer in form satisfactory to the Company and duly
executed by the registered holder, and the signature on the endorsement or
instrument of transfer must be guaranteed by a bank, broker, dealer, credit
union, savings association, clearing agency or other institution (each an
"Eligible Institution") that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. If
the Exchange Notes and/or Initial Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the Initial Notes, the signature in the Letter of Transmittal must be
guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Initial Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Initial Notes by causing such
Book-Entry Transfer Facility to transfer such Initial Notes into the Exchange
Agent's account with respect to the Initial Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of Initial Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures.
If a holder desires to tender Initial Notes in the Exchange Offer and time
will not permit a Letter of Transmittal or Initial Notes to reach the Exchange
Agent before the Expiration Date or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if the Exchange Agent
has received at its address set forth below on or prior to the Expiration Date,
a letter, telegram or facsimile transmission (receipt confirmed by telephone and
an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Initial Notes are registered and, if possible, the
certificate numbers of the Initial Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that within three business days
after the Expiration Date, the Initial Notes in proper form for transfer (or a
confirmation of book-entry transfer of such Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), will be delivered by such
Eligible Institution together with a properly completed and duly executed Letter
of Transmittal (and any other required documents). Unless Initial Notes being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of the notice of guaranteed
delivery ("Notice of Guaranteed Delivery") which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Initial Notes (or a confirmation of book-entry transfer of
such Initial Notes into the Exchange Agent's account at the
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Book-Entry Transfer Facility) is received by the Exchange Agent, or (ii) a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) from an Eligible Institution is received by
the Exchange Agent. Issuances of Exchange Notes in exchange for Initial Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Initial Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Initial Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding on all parties. The Company reserves the absolute right to
reject any and all tenders of any particular Initial Notes not properly tendered
or not to accept any particular Initial Notes which acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Initial Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Initial Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer (including the Letter of
Transmittal and the instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Initial
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Initial Notes, such Initial Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Initial Notes.
If the Letter of Transmittal or any Initial Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, that neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the Company, or if it is an affiliate, it
will comply with the registration and prospectus requirements of the Securities
Act to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company) must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Initial Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Initial Notes to the Company and
irrevocably constitutes and appoints the Exchange Agent as the
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Transferor's agent and attorney-in-fact to cause the Initial Notes to be
assigned, transferred and exchanged. The Transferor represents and warrants that
it has full power and authority to tender, exchange, assign and transfer the
Initial Notes and to acquire Exchange Notes issuable upon the exchange of such
tendered Initial Notes, and that, when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered Initial Notes,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim. The Transferor also warrants that it will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the exchange,
assignment and transfer of tendered Initial Notes or transfer ownership of such
Initial Notes on the account books maintained by a Book-Entry Transfer Facility.
The Transferor further agrees that acceptance of any tendered Initial Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of certain of its obligations
under the Registration Rights Agreement. All authority conferred by the
Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act and that it is acquiring
the Exchange Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such Exchange Notes. Each holder, other than
a broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in, a distribution of Exchange Notes. Each Transferor which is a
broker-dealer receiving Exchange Notes for its own account must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. By so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Initial Notes where such Initial Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company will, for a period of one year after the
Exchange Date, make copies of this Prospectus available to any broker-
dealer for use in connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Initial Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Initial Notes to be withdrawn (the "Depositor"), (ii)
identify the Initial Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Initial Notes), (iii) specify the principal
amount of Initial Notes to be withdrawn, (iv) include a statement that such
holder is withdrawing his election to have such Initial Notes exchanged, (v) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Initial Notes were tendered or as otherwise
described above (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Initial Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Initial Notes
are to be registered, if different from that of the Depositor. The Exchange
Agent will return the properly withdrawn Initial Notes promptly following
receipt of notice of withdrawal. If Initial Notes have been tendered pursuant to
the procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Initial Notes or otherwise comply with the
Book-Entry Transfer Facility's procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Company in its sole discretion and such determination will be final and binding
on all parties.
26
<PAGE>
Any Initial Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Initial Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Initial Notes will be credited to an account
with such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Initial Notes may be retendered by following one of
the procedures described under "Procedures for Tendering Initial Notes" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Initial Notes
properly tendered and will issue the Exchange Notes promptly after such
acceptance. See "Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Initial Notes for exchange when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
For each Initial Note accepted for exchange, the holder of such Initial
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Initial Note.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Initial Notes or a
timely book-entry confirmation of such Initial Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Initial Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Initial Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Initial Notes will be returned without expense to the tendering
holder thereof (or, in the case of Initial Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such non-exchanged
Initial Notes will be credited to an account maintained with such Book-Entry
Transfer Facility) as promptly as practicable after the Exchange Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue Exchange Notes in exchange for, any Initial Notes and may terminate
or amend the Exchange Offer (by oral or written notice to the Exchange Agent or
by a timely press release) if at any time before the acceptance of such Initial
Notes for exchange or the exchange of the Exchange Notes for such Initial Notes,
any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or
any injunction, order or decree is issued with respect to the
Exchange Offer which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer or have a material adverse effect on the
contemplated benefits of the Exchange Offer to the Company; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties,
assets, liabilities, financial condition, operations, results of
operations or prospects of the Company that is or may be adverse
to the
27
<PAGE>
Company, or the Company shall have become aware of facts that have or
may have adverse significance with respect to the value of the Initial
Notes or the Exchange Notes or that may materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(c) any law, rule or regulation or applicable interpretations of the staff
of the SEC is issued or promulgated which, in the good faith
determination of the Company, do not permit the Company to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation
of the Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law statute, rule
or regulation) which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer or have a material adverse effect on the contemplated
benefits of the Exchange Offer to the Company; or
(f) there shall occur a change in the current interpretation by the staff
of the SEC which permits the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any
such holder that is a broker-dealer or an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such
Exchange Notes; or
(g) there shall have occurred (i) any general suspension of, shortening of
hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market
(whether or not mandatory), (ii) any limitation by any governmental
agency or authority which may adversely affect the ability of the
Company to complete the transactions contemplated by the Exchange
Offer, (iii) a declaration of a banking moratorium or any suspension
of payments in respect of banks by Federal or state authorities in the
United States (whether or not mandatory), (iv) a commencement of a
war, armed hostilities or other international or national crisis
directly or indirectly involving the United States, (v) any limitation
(whether or not mandatory) by any governmental authority on, or other
event having a reasonable likelihood of affecting, the extension of
credit by banks or other leading institutions in the United States, or
(vi) in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or
worsening thereof.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Initial Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Initial Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the
Initial Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from
28
<PAGE>
time to time. If the Company waives or amends the foregoing conditions, it will,
if required by law, extend the Exchange Offer for a minimum of five business
days from the date that the Company first gives notice, by public announcement
or otherwise, of such waiver or amendment, if the Expiration Date would
otherwise occur within such five business-day period. Any determination by the
Company concerning the events described above will be final and binding upon all
parties.
In addition, the Company will not accept for exchange any Initial Notes
tendered, and no Exchange Notes will be issued in exchange for any such Initial
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Notes being tendered for exchange.
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL:
Marine Midland Bank (INSURED OR REGISTERED RECOMMENDED)
Attention: Corporate Trust Operations Marine Midland Bank
140 Broadway, Level A Attention: Corporate Trust Operations
New York, New York 10005-1180 140 Broadway, Level A
New York, New York 10005-1180
</TABLE>
BY FACSIMILE: (212) 658-2292
Attention: Paulette Shaw
Telephone: (212) 658-5931
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH IN THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH IN THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this and other related documents to the beneficial owners of the
Initial Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $150,000, which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
29
<PAGE>
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Initial Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, the
Company may, at its discretion, take such action as it may deem necessary to
make the Exchange Offer in any such jurisdiction and extend the Exchange Offer
to holders of Initial Notes in such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Initial Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Initial Notes tendered,
or if tendered Initial Notes are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of Initial Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the carrying value of the Initial
Notes as reflected in the Company's accounting records on the Exchange Date.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of Exchange Notes for Initial Notes. Expenses incurred
in connection with the issuance of the Exchange Notes will be amortized over the
term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not tender their Initial Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon. Initial Notes not exchanged pursuant to the Exchange Offer will
continue to remain outstanding in accordance with their terms. In general, the
Initial Notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Initial Notes under the
Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Initial
Notes should carefully consider whether to participate. Holders of Initial Notes
are urged to consult their financial and tax advisors in making their own
decision whether or not to tender their Initial Notes. See "Certain Federal
Income Tax Consequences."
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreement. Holders of Initial Notes who do not tender their Initial Notes in the
Exchange Offer will continue to hold such Initial Notes and will be entitled to
all the rights and limitations applicable thereto under the Indenture, except
for any such rights under the Registration
30
<PAGE>
Rights Agreement that by their terms terminate or cease to have further
effectiveness as a result of the making of this Exchange Offer. All untendered
Initial Notes will continue to be subject to the restrictions on transfer set
forth in the legend thereon. To the extent that Initial Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered Initial Notes
could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Initial Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Initial Notes which are not tendered in the
Exchange Offer.
RESALE OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes may be offered for resale, resold
and otherwise transferred by a holder (other than any holder who is a
broker-dealer or an "affiliate" of the Company within the meaning of Rule 405 of
the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business and
that such holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such Exchange Notes. However, any holder who is an
"affiliate" of the Company or who has an arrangement or understanding with
respect to the distribution of the Exchange Notes to be acquired pursuant to the
Exchange Offer, or any broker-dealer who purchased Initial Notes from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act (i) cannot rely on the applicable interpretations of the
staff and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act. A broker-dealer who holds Initial Notes that
were acquired for its own account as a result of market-
making or other trading activities may be deemed to be an "underwriter" within
the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
Exchange Notes. Each such broker-dealer that receives Exchange Notes for its own
account in exchange for Initial Notes, where such Initial Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company) must
acknowledge in the Letter of Transmittal that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by such broker-dealers in
connection with such resales. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Exchange Notes.
31
<PAGE>
THE COMPANY
French Fragrances, Inc. ("FFI") was formed as a privately held Florida
corporation on June 26, 1992 by Rafael Kravec and a group of investors
represented by Bedford in order to acquire the fragrance-related net assets of
National Trading Manufacturing, Inc. ("National Trading"). National Trading, a
privately held Florida corporation controlled by Rafael Kravec, the Company's
Chairman of the Board and Chief Executive Officer, had been engaged in the
manufacture and distribution of gold jewelry and other gift items and, beginning
in 1981, had also been engaged in the purchase and United States mass-market
distribution of prestige perfumes and other fragrance products. In 1992, Rafael
Kravec determined to acquire the interests of National Trading's three other
shareholders, to cease National Trading's jewelry and gift items business and,
with the financial investment and managerial support of Bedford and the
investors it represented, to concentrate on expanding the fragrance distribution
business, which was acquired from National Trading by FFI on July 2, 1992.
After the acquisition, the Company experienced significant growth as a
distributor of prestige fragrances to the United States mass market. To further
enhance its distribution relationships, profitability and industry position, the
Company began acquiring ownership of or exclusive United States distribution
rights to a selection of prestige fragrance and cosmetic brands. As a result of
its growth, the Company determined that its then existing physical facilities
had become inadequate. On November 30, 1995, it acquired its present
distribution facility in Miami Lakes, Florida (the "Miami Lakes Facility") and
became a publicly held company through the merger of FFI with and into Suave
Shoe Corporation ("Suave"), a publicly held company that had previously
discontinued its shoe manufacturing and distribution operations (the "Merger").
Following the Merger, Suave, as the surviving corporation, changed its name to
French Fragrances, Inc., and its operations consist entirely of the fragrance
business of FFI, which was the acquiror in the Merger for financial reporting
purposes.
The Company's principal executive offices are located at 14100 N.W. 60th
Avenue, Miami Lakes, Florida 33014, and its telephone number is (305) 818-8000.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "FRAG." The closing sales price of the Common Stock on June 5, 1997
was $9.875 per share.
32
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds or incur any additional
indebtedness as a result of the issuance of the Exchange Notes pursuant to the
Exchange Offer.
The estimated net proceeds to the Company from the Offering were
approximately $110.9 million (after deducting fees and expenses estimated to be
$4.1 million). The following table summarizes the uses of the proceeds of the
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Repayment of:
Outstanding borrowings under the Existing Credit Facility ...... $ 48,700
8.0% Secured Subordinated Debentures Series I Due 2005 ......... 7,400
8.0% Secured Subordinated Debentures Series II Due 2005 ......... 3,000
8.5% Subordinated Debentures Due 1999(1) ........................ 4,000
Fine Fragrances Credit Line .................................... 2,200
Fine Fragrances Acquisition cash purchase price(2) ............... 2,000
General corporate purposes(3) .................................... 43,600
----------
Total uses ................................................... $110,900
==========
<FN>
- ----------------
(1) An aggregate of $4.0 million principal amount of 8.5% Subordinated
Debentures Due 1999 ("8.5% Subordinated Debentures") was retired at an
aggregate discount to par of $0.1 million, plus accrued interest to May 13,
1997.
(2) Does not include the Fine Fragrances Additional Payment. See "Business--Fine
Fragrances Acquisition."
(3) Includes working capital support and acquisitions to the extent permitted
under the Indenture.
</FN>
</TABLE>
33
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
as of January 31, 1997, and pro forma for (i) the Offering, (ii) the application
of the net proceeds therefrom and (iii) the Fine Fragrances Acquisition as if
such transactions had occurred as of January 31, 1997. The following table
should be read in conjunction with the Company's Consolidated Financial
Statements (including the related notes) and the other historical and pro forma
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997
------------------------
ACTUAL PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents ................................................... $ 856 $ 52,573
========= =========
Total debt (1):
Senior Notes ............................................................... $ -- $115,000
Existing Credit Facility ................................................... 41,965 --
New Credit Facility(2) ...................................................... -- 0
8.0% Series I Debentures ................................................... 7,435 --
8.0% Series II Debentures ................................................... 3,000 --
Halston Note(3) ............................................................ 2,000 2,000
Mortgage Note(4) ............................................................ 5,944 5,944
Capital lease and installment loans .......................................... 1,271 1,271
8.5% Subordinated Debentures(5) ............................................. 11,080 7,080
7.5% Convertible Subordinated Debentures(6) ................................. 5,460 5,460
--------- ---------
Total debt ............................................................... 78,155 136,755
Shareholders' equity:
Convertible, redeemable preferred stock:
Series B, $.01 par value (liquidation preference $.01 per share); 350,000
shares authorized; 316,005 shares issued and outstanding actual and pro
forma ........................................................................ 3 3
Series C, $.01 par value (liquidation preference $.01 per share); 571,429
shares authorized, issued and outstanding actual and pro forma ............... 6 6
--------- ---------
Total convertible, redeemable preferred stock ................................ 9 9
Common stock, $.01 par value; 50,000,000 shares authorized; 13,249,152 shares
issued and outstanding actual and pro forma ................................. 132 132
Additional paid-in capital ................................................... 29,185 29,185
Retained earnings(7) ......................................................... 15,354 15,414
--------- ---------
Total shareholders' equity ................................................ 44,680 44,740
--------- ---------
Total capitalization ...................................................... $122,835 $181,495
========= =========
<FN>
- ----------------
(1) Includes short-term and long-term debt, but excludes amounts due to
affiliates, net.
(2) The New Credit Facility provides for borrowings on a revolving basis of up
to $40.0 million for general corporate purposes, including working capital
needs and acquisitions, subject to certain borrowing base limitations. See
"Description of the New Credit Facility."
(3) In connection with the Halston Acquisition, the Company issued to Halston
Borghese, Inc. a $2.0 million term note (the "Halston Note") which matures
March 20, 2000. See "Description of Certain Indebtedness."
(4) In June 1996, the Company obtained a $6.0 million mortgage on the Miami
Lakes Facility due in June 2004 (the "Mortgage Note") which provides for
monthly payments of interest at 8.84%, and a 20-year amortization schedule.
See "Description of Certain Indebtedness."
(5) In connection with the FMG Acquisition, the Company issued approximately
$11.1 million aggregate principal amount of 8.5% Subordinated Debentures.
See "Description of Certain Indebtedness."
(6) The Company's 7.5% Convertible Subordinated Debentures Due 2006 (the "7.5%
Convertible Debentures") are due in June 2006, and require interest only
payments payable semi-annually until maturity. See "Description of Certain
Indebtedness."
(7) The increase in retained earnings represents the gain, net of tax, on the
early retirement of $4.0 million principal amount of the 8.5% Subordinated
Debentures.
</FN>
</TABLE>
34
<PAGE>
PRO FORMA FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements are based upon the historical financial statements of French
Fragrances, Inc. and Fine Fragrances, Inc., and the notes related thereto,
contained elsewhere in this Prospectus.
The Unaudited Pro Forma Condensed Consolidated Statement of Income for the
year ended January 31, 1997 is pro forma for, and the Unaudited Pro Forma
Condensed Consolidated Balance Sheet as of January 31, 1997 is adjusted to give
effect to, (i) the Offering, (ii) the application of the net proceeds therefrom
and (iii) the Fine Fragrances Acquisition, as if such transactions had occurred
as of February 1, 1996, with respect to the Unaudited Pro Forma Condensed
Consolidated Statement of Income, and as of January 31, 1997, with respect to
the Unaudited Pro Forma Condensed Consolidated Balance Sheet. See "Use of
Proceeds."
The unaudited pro forma adjustments are based upon available information
and certain assumptions which management believes are factually supportable. The
Unaudited Pro Forma Condensed Consolidated Financial Statements do not purport
to represent what the Company's consolidated results of operations or
consolidated financial position would have been had the transactions described
above actually occurred at the beginning of the relevant period. In addition,
the Unaudited Pro Forma Condensed Consolidated Financial Statements do not
purport to project the Company's consolidated results of operations or
consolidated financial position for the current year or any future date or
period.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1997
---------------------------------------------------------------------------------
HISTORICAL
HISTORICAL FINE ACQUISITION OFFERING
COMPANY FRAGRANCES ADJUSTMENTS(1) ADJUSTMENTS(2) PRO FORMA
------------- ------------- ------------------- -------------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............... $ 856 $ 68 $ (2,000) (a) $ 53,649 (a) $ 52,573
Accounts receivable ..................... 35,021 1,452 36,473
Inventories .............................. 67,989 2,724 70,713
Advances on inventory purchases ......... 3,441 3,441
Prepaid expenses and other assets ......... 909 83 992
--------- ------- ---------
Total current assets .................. 108,216 4,327 (2,000) 53,649 164,192
Property and equipment, net ............... 13,817 8 13,825
Exclusive brand licenses and
trademarks, net ........................... 45,126 1,107 (b) 46,233
Due from affiliates, net .................. 1,304 (1,095) (c) 209
Other assets .............................. 5,219 75 (2,104) (d) 4,100 (b) 7,290
--------- ------- ----------------- ------------------ ---------
Total assets ........................... $172,378 $5,714 $ (4,092) $ 57,749 $231,749
========= ======= ============ ============= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ........................... $ 39,631 $ 952 $ -- $ (40,583) (c)$ 0
Accounts payable-trade .................. 37,330 48 37,378
Other payables and
accrued expenses ........................ 10,600 717 1,000 (b) 40 (d) 12,357
Current portion of capital lease,
installment loans, mortgage
and term note ........................... 1,308 1,308
Due to affiliates, net .................. 1,614 (1,095) (c) 519
--------- ----------------- ---------
Total current liabilities ............ 90,483 1,717 (95) (40,543) 51,562
Long-term obligations:
Senior Notes .............................. 115,000 (e) 115,000
Secured subordinated debentures ......... 10,435 (10,435) (c) --
Subordinated debentures .................. 11,080 (4,000) (c) 7,080
Convertible subordinated debentures ...... 5,460 5,460
Mortgage note ........................... 5,824 5,824
Term notes .............................. 3,286 (2,333) (c) 953
Capital lease and installment loans ...... 1,130 1,130
--------- ---------
Total long-term obligations ............ 37,215 0 0 98,232 135,447
--------- ------- ------------ ------------- ---------
Total liabilities ..................... 127,698 1,717 (95) 57,689 187,009
Shareholders' equity:
Convertible, redeemable preferred
stock .................................... 9 9
Common stock .............................. 132 132
Additional paid-in capital ............... 29,185 500 (500) (e) 29,185
Retained earnings ........................ 15,354 3,497 (3,497) (f) 60 (f) 15,414
--------- ------- ----------------- ------------------ ---------
Total shareholders' equity ............ 44,680 3,997 (3,997) 60 44,740
--------- ------- ------------ ------------- ---------
Total liabilities and
shareholders' equity ..................... $172,378 $5,714 $ (4,092) $ 57,749 $231,749
========= ======= ============ ============= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JANUARY 31, 1997
(IN THOUSANDS)
(1) Adjustments to reflect the Fine Fragrances Acquisition:
(a) Represents the cash purchase price for the Fine Fragrances Acquisition.
(b) Represents the excess of purchase price over net assets acquired:
Cash purchase price ................................. $ 2,000
Fine Fragrances Additional Payment .................. 1,000
Net assets acquired ................................. (1,999)
--------
Excess of purchase price ........................ 1,001
Unamortized exclusive distribution agreements ...... 106
--------
Exclusive brand licenses, net ..................... $ 1,107
========
(c) Represents the elimination of intercompany debt.
(d) Represents the elimination of French Fragrances' investment in Fine
Fragrances.
(e) Represents the elimination of Fine Fragrances' common stock.
(f) Represents the elimination of Fine Fragrances' retained earnings.
(2) Adjustments to reflect the Offering:
(a) Represents the cash proceeds received from the sale of the Initial Notes
available for general corporate purposes and to purchase Fine Fragrances.
(b) Represents the capitalization of deferred financing fees related to the
sale of the Initial Notes.
(c) Represents the repayment of existing indebtedness with a portion of the
proceeds of the Offering.
(d) Represents income taxes payable related to the gain on the early
retirement of $4.0 million principal amount of the 8.5% Subordinated
Debentures.
(e) Represents the issuance of the Initial Notes.
(f) Represents the gain, net of tax, on the early retirement of $4.0 million
principal amount of the 8.5% Subordinated Debentures.
37
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1997
-----------------------------------------------------------------------------------
HISTORICAL
HISTORICAL FINE ACQUISITION OFFERING
COMPANY FRAGRANCES ADJUSTMENTS(1) ADJUSTMENTS(2) PRO FORMA
------------- ------------- ----------------- ----------------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................... $ 140,482 $ 7,280 $ -- $ -- $ 147,762
Cost of sales ..................... 94,404 4,091 98,495
--------- -------- ---------
Gross profit ..................... 46,078 3,189 49,267
Operating expenses .................. 27,856 1,750 74 (a) 29,680
--------- -------- --------------- ---------
Income from operations ............ 18,222 1,439 (74) 19,587
Interest expense .................. (6,853) (91) 154 (b) (7,068)(a) (13,858)
Interest income ..................... 27 156 (154) (c) 29
Other income and equity in earnings
of unconsolidated affiliate ...... 1,504 5 (396) (d) 100 (b) 1,213
--------- -------- --------------- --------------- ---------
Income before income taxes ......... 12,900 1,509 (470) (6,968) 6,971
Provision for income taxes ......... 4,652 568 (60) (e) (2,787)(c) 2,373
--------- -------- --------------- ---------- ---------
Net income ........................ $ 8,248 $ 941 $ (410) $ (4,181) $ 4,598
========= ======== =========== ========== =========
OTHER DATA:
EBITDA (3) ........................ $ 21,885 $ 1,440 $ -- $ -- $ 23,325
Depreciation and amortization ...... 3,663 1 74 3,738
Capital expenditures ............... 2,487 0 2,487
Cash interest expense (4) ......... 6,853 91 (154) 6,658 13,448
Ratio of EBITDA to cash
interest expense ..................... 1.7x
Ratio of net debt to EBITDA (5) ...... 3.6
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Income
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS)
(1) Adjustments to reflect the Fine Fragrances Acquisition:
(a) Represents increased amortization expense related to the Fine Fragrances'
exclusive brand licenses. The management fee paid to French Fragrances
from Fine Fragrances is eliminated as a reduction of operating expenses
of French Fragrances and is eliminated as an operating expense of Fine
Fragrances.
(b) Represents the elimination of interest expense on intercompany debt.
(c) Represents the elimination of interest income on intercompany debt.
(d) Represents the elimination of French Fragrances' equity in earnings of
Fine Fragrances.
(e) Represents the income tax effect of the acquisition adjustments at an
assumed tax rate of 40.0%. French Fragrances' equity in earnings of Fine
Fragrances is treated as an intercompany dividend, of which only 20% is
taxable. The tax effect of such intercompany dividend is based on an
assumed tax rate of 38.5%.
(2) Adjustments to reflect the Offering:
(a) Represents the repayment of existing indebtedness with a portion of the
proceeds of the sale of the Initial Notes as follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE INTEREST
------------ ---------------- -------------
<S> <C> <C> <C>
Short-term debt .............................. $ (40,583) 9.000% $ (3,939)
Secured subordinated debentures ............... (10,435) 8.000% (862)
Subordinated debentures ..................... (4,000) 8.500% (245)
Term note .................................... (2,333) 9.750% (227)
----------- ----------
Elimination of existing debt ............... (57,351) $ (5,273)
Senior Notes ................................. 115,000 10.375% 11,931
Amortization of deferred financing fees ...... 410
----------
Net change .................................... $ 57,649 $ 7,068
=========== ==========
</TABLE>
The 9.0% interest rate on the short-term debt represents the interest rate
as of January 31, 1997, on the credit line portion of the Existing Credit
Facility. The $2.0 million current portion of the term note issued in the
Geoffrey Beene Acquisition included in short-term debt bore interest at
9.75%.
(b) Represents the gain on the early retirement of $4.0 million principal
amount of 8.5% Subordinated Debentures.
(c) Represents the income tax effect of the Offering adjustments at an
assumed tax rate of 40.0%.
(3) 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 its ability to meet cash needs. The Company believes that EBITDA
is a measure commonly reported and widely used by investors and other
interested parties in the fragrance industry 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.
(4) Cash interest expense is defined as total interest expense less non-cash
amortization of deferred financing fees.
(5) Net debt is defined as total debt less cash and cash equivalents.
39
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data presented below have been derived
from the audited consolidated financial statements of the Company, unless
otherwise indicated. The selected pro forma financial data for the year ended
January 31, 1997 and as of January 31, 1997 are pro forma for (i) the Offering,
(ii) the application of the net proceeds therefrom and (iii) the Fine Fragrances
Acquisition. The following selected historical and pro forma financial data
should be read in conjunction with "Use of Proceeds," "Capitalization," "Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and the Financial Statements of Fine Fragrances, and the notes
related thereto, included elsewhere in this Prospectus.
Effective January 31, 1995, the Company changed its fiscal year end to
January 31 from June 30. For this reason, the seven months ended January 31,
1994 and 1995 are presented.
<TABLE>
<CAPTION>
HISTORICAL(1)
-----------------------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS
JUNE 30, ENDED JANUARY 31,
----------------------- -----------------------------
1993 1994 1994 1995
----------- ----------- ----------------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................ $ 33,854 $ 46,105 $27,415 $ 50,922
Cost of sales .................. 28,508 37,953 22,693 40,822
-------- -------- -------- ---------
Gross profit ..................... 5,346 8,152 4,723 10,100
Operating expenses ............... 3,604 5,254 2,960 4,940
-------- -------- -------- ---------
Income from operations ............ 1,742 2,898 1,763 5,160
Interest expense, net of interest
and other income ............... 1,091 1,522 819 1,362
Equity in earnings of
unconsolidated affiliate ......... 176 166 46 183
Provision for income taxes ...... 232 531 349 1,490
-------- -------- -------- ---------
Net income ..................... $ 595 $ 1,011 $ 641 $ 2,492
======== ======== ======== =========
Ratio of earnings
to fixed charges (3) ............ 1.7x 2.0x 2.2x 3.8x
OTHER DATA:
EBITDA (4) ..................... $ 1,990 $ 3,233 $1,964 $ 5,366
Depreciation and amortization . 248 335 201 206
Capital expenditures ............ 114 374 240 81
Net sales growth .................. --% 36.2% 50.4%(5) 85.7%
Gross margin (7) ............... 15.8% 17.7% 17.2% 19.8%
EBITDA margin (8) ............... 5.9% 7.0% 7.2% 10.5%
Cash flows from (used in):
Operating activities ............ $ (3,022) $ (2,593) $(1,690) $ (3,917)
Investing activities ............ (2,414) (374) (240) (81)
Financing activities ............ 5,448 3,231 2,458 4,368
<CAPTION>
HISTORICAL(1) PRO FORMA(2)
------------------------------------------ --------------
TWELVE
MONTHS
ENDED
JANUARY 31, FISCAL YEAR ENDED JANUARY 31,
----------------- ---------------------------------------
1995 1996 1997 1997
----------------- ------------ ----------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................ $69,612 $ 87,979 $ 140,482 $ 147,762
Cost of sales .................. 56,108 66,340 94,404 98,495
-------- --------- ---------- ---------
Gross profit ..................... 13,504 21,639 46,078 49,267
Operating expenses ............... 7,281 13,220 27,856 29,680
-------- --------- ---------- ---------
Income from operations ............ 6,222 8,419 18,222 19,587
Interest expense, net of interest
and other income ............... 1,992 3,768 5,718 12,616
Equity in earnings of
unconsolidated affiliate ......... 303 288 396 --
Provision for income taxes ...... 1,672 1,931 4,652 2,373
-------- --------- ---------- ---------
Net income ..................... $2,862 $ 3,007 $ 8,248 $ 4,598
======== ========= ========== =========
Ratio of earnings
to fixed charges (3) ............ 3.1x 2.2x 2.9x 1.5x
OTHER DATA:
EBITDA (4) ..................... $6,562 $ 9,738 $ 21,885 $ 23,325
Depreciation and amortization . 340 1,320 3,663 3,738
Capital expenditures ............ 247 149 2,487 2,487
Net sales growth .................. 62.1%(6) 26.4% 59.7% 68.0%
Gross margin (7) ............... 19.4% 24.6% 32.8% 33.3%
EBITDA margin (8) ............... 9.4% 11.1% 15.6% 15.8%
Cash flows from (used in):
Operating activities ............ $(4,893) $ 5,179 $ (23,221)
Investing activities ............ (247) (17,983) (21,117)
Financing activities ............ 5,245 12,282 45,070
PRO FORMA DATA:
Cash interest expense (9) ...... $13,448
Ratio of EBITDA to cash
interest expense ............... 1.7x
Ratio of net debt to EBITDA (10) .. 3.6
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF JANUARY 31,
------------------- -------------------------------------------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- --------- ---------------
ACTUAL PRO FORMA(11)
--------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $ 12 $ 277 $ 646 $ 124 $ 856 $ 52,573
Working capital .................. 3,972 4,747 6,874 8,022 17,734 112,630
Total assets ..................... 19,419 30,589 38,378 71,384 172,378 231,749
Total debt (12) .................. 13,980 16,450 21,153 34,800 78,155 136,755
Redeemable preferred stock ...... 2,000 2,000 2,000 2,000 -- --
Shareholders' equity ............ 875 1,887 4,379 17,539 44,680 44,740
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
40
<PAGE>
(1) Effective January 31, 1995, the Company changed its fiscal year end to
January 31 from June 30 to conform to its business year.
(2) Pro forma financial data are adjusted to give effect to (i) the Offering,
(ii) the application of the net proceeds therefrom and (iii) the Fine
Fragrances Acquisition as if such transactions had occurred as of February
1, 1996. See "Pro Forma Financial Data" and "Use of Proceeds."
(3) Earnings consist of income before taxes plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
the portion of rent expense that is representative of interest expense.
(4) 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 its ability to meet cash needs. The Company
believes that EBITDA is a measure commonly reported and widely used by
investors and other interested parties in the fragrance industry 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.
(5) Represents the increase in net sales over net sales of $18.2 million in the
seven months ended January 31, 1993.
(6) Represents the increase in net sales over net sales of $43.0 million in the
twelve months ended January 31, 1994.
(7) Gross profit as a percentage of net sales for the period indicated.
(8) EBITDA as a percentage of net sales for the period indicated.
(9) Cash interest expense is defined as total interest expense less non-cash
amortization of deferred financing fees.
(10) Net debt is defined as total debt less cash and cash equivalents.
(11) Pro forma balance sheet data are adjusted to give effect to (i) the
Offering, (ii) the application of the net proceeds therefrom and (iii) the
Fine Fragrances Acquisition as if such transactions had occurred as of
January 31, 1997. See "Use of Proceeds" and "Capitalization."
(12) Includes short-term and long-term debt, but excludes amounts due to
affiliates, net, and loans from shareholders.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements. The Company's
actual results could differ materially from those discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this Prospectus, particularly in "Risk Factors." See "Cautionary Note
Regarding Forward-Looking Statements" and "Risk Factors." The following
discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and the notes thereto which appear elsewhere in this
Prospectus.
OVERVIEW
The Company's business is the manufacturing, distribution and marketing of
prestige fragrances and related cosmetic products. The Company distributes and
markets on an exclusive basis in the United States to both department stores and
mass-market retailers the Controlled Brands, including, among others, the
Geoffrey Beene brands of GREY FLANNEL and BOWLING GREEN, the Halston brands of
HALSTON, CATALYST, 1-12 and Z-14, and the brands COLORS OF BENETTON, TRIBU,
OMBRE ROSE, OMBRE D'OR, OMBRE BLEUE, FACONNABLE, BALENCIAGA, TALISMAN, RUMBA, LE
DIX, LAPIDUS, CREATION, FANTASME, BOGART, WITNESS, ONE MAN SHOW, CHEVIGNON and
NIKI DE SAINT PHALLE, as well as the Galenic Elancyl skin care products. In the
case of the Halston and Geoffrey Beene fragrance brands, the Company also
controls the manufacturing and exclusive worldwide distribution of such brands.
In addition to the Controlled Brand operations, the Company also
distributes, primarily to mass-market retailers, Distributed Brands it obtains
from manufacturers and other sources. The Company also owns Fine Fragrances
which distributes on an exclusive basis in North America fragrances manufactured
by Cofci, including the SALVADOR DALI, SALVADOR, LAGUNA, DALISSIME, DALIMIX,
CAFE, TAXI and WATT brands. Prior to the consummation of the Fine Fragrances
Acquisition on May 13, 1997, the Company accounted for its investment in Fine
Fragrances under the equity method of accounting, whereby its initial investment
is recorded at cost, adjusted by its share of the Fine Fragrances' operating
results and reduced by distributions received. Upon consummation of the Fine
Fragrances Acquisition, Fine Fragrances became a wholly owned subsidiary of the
Company, and the Company will account for Fine Fragrances on a consolidated
basis. See "Business--Fine Fragrances Acquisition."
The Controlled Brand operations have somewhat different financial
characteristics than the Distributed Brand operations. As a percentage of net
sales, the Controlled Brand operations tend to have higher gross margins, as
well as higher marketing and selling, general and administrative expenses, than
the Distributed Brand operations. The higher gross profits have been greater
than the higher marketing and selling, general and administrative expenses
associated with the Controlled Brand operations. The acquisition of the licenses
and trademarks associated with the Controlled Brand operations also increases
amortization expense. Overall, brand contribution margin (operating income after
amortization of acquisition costs and amortization of exclusive brand licenses,
as a percentage of net sales) of Controlled Brands is greater than that of
Distributed Brands.
Effective with the period ended January 31, 1995, the Company changed its
fiscal year end to January 31 from June 30 to conform to its business year. The
following discussion of the Company's results of operations is presented for the
fiscal years ended January 31, 1997 and January 31, 1996, for the twelve months
ended January 31, 1995, for the seven months ended January 31, 1995 and 1994,
and for the fiscal years ended June 30, 1994 and 1993.
42
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for each of the periods indicated, certain
information relating to the Company's operations expressed as percentages of net
sales for the period (percentages may not add due to rounding):
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR SEVEN MONTHS MONTHS FISCAL YEAR
ENDED ENDED ENDED ENDED
JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31,
--------------------- ------------------------- -------------- -----------------------
1993 1994 1994 1995 1995 1996 1997
---------- ---------- -------------- ---------- -------------- ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales ........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................ 84.2 82.3 82.8 80.2 80.6 75.4 67.2
-------- -------- -------- -------- -------- -------- --------
Gross profit ........................ 15.8 17.7 17.2 19.8 19.4 24.6 32.8
Warehouse and shipping expense ...... 2.4 3.0 2.6 2.8 2.9 3.1 3.2
Selling, general and administrative
expenses ........................... 7.5 7.7 7.4 6.5 7.0 10.5 14.0
Depreciation and amortization ...... 0.7 0.7 0.7 0.4 0.5 1.5 2.6
-------- -------- -------- -------- -------- -------- --------
Income from operations ............ 5.1 6.3 6.4 10.1 9.0 9.6 13.0
Interest expense, net of interest and
other income ........................ 3.2 3.3 3.0 2.7 2.9 4.3 4.1
-------- -------- -------- -------- -------- -------- --------
Income before equity in earnings
of unconsolidated affiliate and
income taxes ........................ 1.9 3.0 3.4 7.5 6.1 5.3 8.9
Equity in earnings of
unconsolidated affiliate ............ 0.5 0.4 0.2 0.4 0.4 0.3 0.3
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ......... 2.4 3.3 3.6 7.8 6.5 5.6 9.2
Provision for income taxes ......... 0.7 1.2 1.3 2.9 2.4 2.2 3.3
-------- -------- -------- -------- -------- -------- --------
Net income ........................ 1.8% 2.2% 2.3% 4.9% 4.1% 3.4% 5.9%
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(1) ........................... 5.9% 7.0% 7.2% 10.5% 9.4% 11.1% 15.6%
<FN>
- ----------------
(1) 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 its ability to meet cash needs. The Company believes that EBITDA
is a measure commonly reported and widely used by investors and other
interested parties in the fragrance industry 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.
</FN>
</TABLE>
43
<PAGE>
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO THE FISCAL YEAR ENDED JANUARY
31, 1996
NET SALES. Net sales increased $52.5 million, or 60%, to $140.5 million
for the fiscal year ended January 31, 1997 from $88.0 million for the fiscal
year ended January 31, 1996. Of the increase in net sales, (i) approximately
$28.0 million was attributable to an increase in sales of Controlled Brands
resulting primarily from the Halston Acquisition, the FMG Acquisition, the
Company's engagement to serve as the exclusive United States distributor of the
Benetton fragrance brands and increased sales of the Geoffrey Beene fragrance
brands, and (ii) the balance was attributable to an increase in sales of
Distributed Brands, including specially designed products, for the mass market.
International sales increased to approximately $5.1 million for the fiscal year
ended January 31, 1997, compared to approximately $1.2 million for the fiscal
year ended January 31, 1996, as a result of both increased sales of Geoffrey
Beene products and sales of Halston products since the Halston Acquisition. The
increase in net sales represents both an increase in the volume of products sold
to existing customers, as well as sales to new customers. Management believes
that the increased sales resulted primarily from the Company's ability to
provide its customers with a larger selection of products and a continuous,
direct supply of product, and the growth in sales of customized gift sets.
GROSS PROFIT. Gross profit increased $24.5 million, or 113%, to $46.1
million for the fiscal year ended January 31, 1997 from $21.6 million for the
fiscal year ended January 31, 1996. The increase in gross profit and gross
margin (from 24.6% to 32.8%) was primarily attributable to the increase in
product sales of the Controlled Brands, including the Halston, Geoffrey Beene
and Benetton brands, as well as the brands formerly distributed by FMG (all of
which were at higher gross margins) and an increase in the sale of certain
product categories with higher gross margins such as holiday fragrance sets. The
increase in gross margin was partially offset by an increase in sales of certain
Distributed Brands which typically sell at lower margins.
WAREHOUSE AND SHIPPING EXPENSE. Warehouse and shipping expenses increased
$1.8 million, or 67%, to $4.5 million for the fiscal year ended January 31,
1997, from $2.7 million for the fiscal year ended January 31, 1996. The increase
resulted from both the increase in net sales and higher customer service
expenses.
SG&A. Selling, general and administrative expenses increased $10.5
million, or 114%, to $19.7 million for the fiscal year ended January 31, 1997
from $9.2 million for the fiscal year ended January 31, 1996. The increase in
selling, general and administrative expenses (which increased as a percentage of
net sales from 10.5% to 14.0%) was primarily a result of an increase in
advertising and promotional expenses for the Halston and Geoffrey Beene brands,
an increase in sales commissions associated with the increase in net sales and
the addition of sales, marketing and administrative personnel since the FMG
Acquisition in May 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$2.4 million, or 185%, to $3.7 million for the fiscal year ended January 31,
1997 from $1.3 million for the fiscal year ended January 31, 1996. The increase
was primarily attributable to increased amortization of intangibles arising from
the acquisition of the Halston trademarks in March 1996 and the acquisition of
the exclusive license agreements in the FMG Acquisition in May 1996.
INTEREST EXPENSE, NET. Interest expense, net of interest income, increased
$2.7 million, or 66%, to $6.8 million for the fiscal year ended January 31, 1997
from $4.1 million for the fiscal year ended January 31, 1996. This increase was
primarily due to the increase in average debt outstanding resulting from the
Halston Acquisition and the FMG Acquisition and increased borrowings under the
revolving portion of the Existing Credit Facility to accommodate increased
working capital requirements, including the increased inventory levels needed to
support higher net sales.
OTHER INCOME. Other income primarily reflects the receipt by the Company
of $0.5 million from the September 1996 sale of the common stock of a company
engaged in an unrelated business which
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Suave had held since 1984, as well as approximately $0.1 million from the sale
of shoe products and equipment held by the Company from before the Merger.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of unconsolidated
affiliate increased $0.1 million, or 33%, to $0.4 million for the fiscal year
ended January 31, 1997 from $0.3 million for the fiscal year ended January 31,
1996, as a result of increases in net sales by Fine Fragrances of fragrance
products manufactured by Cofci, partially offset by an increase in the
management fee paid to the Company.
NET INCOME. Net income increased $5.2 million, or 173%, to $8.2 million
for the fiscal year ended January 31, 1997, from $3.0 million for the fiscal
year ended January 31, 1996, primarily as a result of the increase in net sales
and gross profit which were partially offset by increased amortization expenses
resulting from the Halston Acquisition and the FMG Acquisition, increased
interest expense and increased selling expenses.
EBITDA. EBITDA increased $12.2 million, or 126%, to $21.9 million for the
fiscal year ended January 31, 1997 from $9.7 million for the fiscal year ended
January 31, 1996. The EBITDA margin increased to 15.6% for the fiscal year ended
January 31, 1997 from 11.1% for the fiscal year ended January 31, 1996. The
increase was primarily attributable to the increase in gross profit discussed
above, partially offset by the increase in selling, general and administrative
expenses.
FISCAL YEAR ENDED JANUARY 31, 1996 COMPARED TO TWELVE MONTHS ENDED JANUARY 31,
1995
NET SALES. Net sales increased $18.4 million, or 26%, to $88.0 million for
the fiscal year ended January 31, 1996 from $69.6 million for the twelve months
ended January 31, 1995. Management estimates that approximately $9.6 million of
the increase in net sales was attributable to new customers and approximately
$8.8 million was attributable to increased sales to existing customers.
Approximately $4.3 million of the net sales increase represented an increase in
net sales of Geoffrey Beene products over the prior year due to the Company's
acquisition of that brand in March 1995. Management believes that increased
sales to existing customers and sales to new customers resulted from both the
Company's ability to provide these accounts with a continuous, direct supply of
product and a larger selection of products.
GROSS PROFIT. Gross profit increased $8.1 million, or 60%, to $21.6
million for the fiscal year ended January 31, 1996 from $13.5 million for the
twelve months ended January 31, 1995. The increases in gross profit and gross
margin (from 19.4% to 24.6%) were primarily attributable to an increase in the
sale of certain products with higher gross margins such as custom packaged
products, and additional Geoffrey Beene product sales which were also at higher
gross margins.
WAREHOUSE AND SHIPPING EXPENSE. Warehouse and shipping expenses increased
$0.7 million, or 33%, to $2.7 million for the fiscal year ended January 31,
1996, from $2.0 million for the twelve months ended January 31, 1995. The
increase resulted from the increase in net sales.
SG&A. Selling, general and administrative expenses increased $4.3 million,
or 87%, to $9.2 million for the fiscal year ended January 31, 1996 from $4.9
million for the twelve months ended January 31, 1995. The increase in selling,
general and administrative expenses (which increased as a percentage of net
sales from 7.0% to 10.5%) was primarily a result of increases in sales and
marketing costs attributable to the higher level of sales, the Geoffrey Beene
Acquisition and higher marketing expenses (including approximately $1.3 million
of national media advertising related to Geoffrey Beene products and
approximately $2.3 million of additional sales and marketing expenses resulting
from increased sales volumes).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$1.0 million, or 289%, to $1.3 million for the fiscal year ended January 31,
1996 from $0.3 million for the twelve months ended
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January 31, 1995. The increase was attributable to increased amortization of
intangibles arising from the acquisition of the Geoffrey Beene license in March
1995.
INTEREST EXPENSE, NET. Interest expense, net of interest and other income,
increased 89% to $3.8 million for the fiscal year ended January 31, 1996 from
$2.0 million for the twelve months ended January 31, 1995. This increase was
primarily due to the increase in average debt outstanding as a result of the
Geoffrey Beene Acquisition in which the Company issued $8.2 million aggregate
principal amount of subordinated debentures and a $7.0 million term note under
the Existing Credit Facility. The increase in interest expense also reflected
higher interest rates in 1996 and increased borrowings under the revolving
portion of the Existing Credit Facility to accommodate increased working capital
requirements, including the increased inventory levels needed to support higher
net sales. See "--Liquidity and Capital Resources."
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of unconsolidated
affiliate decreased $16,000, or 5%, to $288,000 for the fiscal year ended
January 31, 1996 from $303,000 for the twelve months ended January 31, 1995, as
a result of increases in sales and marketing expenses incurred by Fine
Fragrances relating to products manufactured by Cofci.
NET INCOME. Net income increased $0.1 million, or 5%, to $3.0 million for
the fiscal year ended January 31, 1996, compared to net income of $2.9 million
for the twelve months ended January 31, 1995, primarily as a result of the
increase in net sales and gross profit which were partially offset by higher
sales, marketing, interest and amortization expenses.
EBITDA. EBITDA increased $3.1 million, or 47%, to $9.7 million for the
fiscal year ended January 31, 1996 from $6.6 million for the twelve months ended
January 31, 1995. The EBITDA margin increased to 11.1% for the fiscal year ended
January 31, 1996 from 9.4% for the twelve months ended January 31, 1995. The
increase was primarily attributable to the increase in gross profit discussed
above, partially offset by the increase in selling, general and administrative
expenses.
SEVEN MONTHS ENDED JANUARY 31, 1995 COMPARED TO SEVEN MONTHS ENDED JANUARY 31,
1994
NET SALES. Net sales increased $23.5 million, or 86%, to $50.9 million for
the seven months ended January 31, 1995 from $27.4 million for the seven months
ended January 31, 1994, as a result of additional distribution sales. Management
believes that the increase in distribution sales resulted primarily from
significant increases in sales to certain mass-market customers due to the
Company's ability to provide these accounts with continuous, direct supply of
product, and the ongoing development and growth of certain product categories
such as custom packaged products. Management also believes that sales levels
were aided by an increased emphasis on marketing activities to mass-
market customers.
GROSS PROFIT. Gross profit increased $5.4 million, or 114%, to $10.1
million for the seven months ended January 31, 1995 from $4.7 million for the
seven months ended January 31, 1994. The increases in gross profit and in gross
margin (from 17.2% to 19.8%) were primarily attributable to favorable product
purchases during the seven months ended January 31, 1995, as well as an increase
in sales of certain product categories, such as custom packaged products, with
higher gross margins.
WAREHOUSE AND SHIPPING EXPENSE. Warehouse and shipping expenses increased
$0.7 million, or 94%, to $1.4 million for the seven months ended January 31,
1995 from $0.7 million for the seven months ended January 31, 1994. The increase
resulted from the increase in net sales.
SG&A. Selling, general and administrative expenses increased $1.3 million,
or 64%, to $3.3 million for the seven months ended January 31, 1995 from $2.0
million for the seven months ended January 31, 1994. The increase in selling,
general and administrative expenses was primarily a result of increases in sales
and marketing costs, including sales commissions resulting from higher net
sales,
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increases in sales and marketing personnel, as well as increases in
administrative costs resulting from management bonuses, increased audit costs
due to the change in the Company's fiscal year end and increases in credit
insurance expenses due to the increase in net sales and accounts receivable.
INTEREST EXPENSE, NET. Interest expense, net of interest and other income,
increased $0.6 million, or 66%, to $1.4 million for the seven months ended
January 31, 1995 as compared to $0.8 million for the seven months ended January
31, 1994. This increase was primarily attributable to increased short-term debt
to accommodate the Company's working capital needs, including the increased
inventory levels needed to support higher net sales.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of unconsolidated
affiliate increased $0.1 million, or 300%, to $0.2 million for the seven months
ended January 31, 1995 from $46,000 for the seven months ended January 31, 1994
as a result of increases in net sales by Fine Fragrances of products
manufactured by Cofci.
NET INCOME. Net income for the seven months ended January 31, 1995 was
$2.5 million compared to $0.6 million for the seven months ended January 31,
1994, primarily as a result of higher net sales.
EBITDA. EBITDA increased $3.4 million, or 170%, to $5.4 million for the
seven months ended January 31, 1995 from $2.0 million for the seven months ended
January 31, 1994. The EBITDA margin increased to 10.5% for the seven months
ended January 31, 1995 from 7.2% for the seven months ended January 31, 1994.
The increase was primarily attributable to the increase in gross profit
discussed above, partially offset by the increase in warehouse and shipping and
selling, general and administrative expenses.
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1993
NET SALES. Net sales increased $12.3 million, or 36%, to $46.1 million for
the fiscal year ended June 30, 1994 from $33.9 million for the fiscal year ended
June 30, 1993. This increase was attributable to additional distribution sales,
which resulted primarily from increases in sales to certain mass-market
customers commencing in the second calendar quarter of 1994 as a result of the
Company's ability to offer these accounts a continuous, direct supply of
product. Management believes that sales levels were aided by an increased
emphasis on marketing activities with mass-market customers.
GROSS PROFIT. Gross profit increased $2.8 million, or 52%, to $8.2 million
for the fiscal year ended June 30, 1994 from $5.3 million for the fiscal year
ended June 30, 1993. The increases in gross profit and in gross margin (from
15.8% to 17.7%) were primarily attributable to the Company's elimination of
certain low margin products and slow turning inventory items through a
significant reduction in the number of fragrance and cosmetic brand items from
approximately 3,500 to 1,200.
SG&A. Selling, general and administrative expenses increased $1.0 million,
or 40%, to $3.5 million for the fiscal year ended June 30, 1994 from $2.5
million for the fiscal year ended June 30, 1993. The increase in selling,
general and administrative expenses was primarily a result of increases in sales
and marketing costs, including sales commissions resulting from higher net
sales, advertising costs and increases in sales and marketing personnel, as well
as increases in administrative costs resulting from increases in management
salaries and the leasing of an additional warehouse facility.
INTEREST EXPENSE, NET. Interest expense, net of interest and other income,
increased 40% to $1.5 million for the fiscal year ended June 30, 1994 as
compared to $1.1 million for the fiscal year ended June 30, 1993. This increase
was primarily attributable to the increase in short-term debt to accommodate
working capital needs, including the increased inventory levels needed to
support higher net sales.
EQUITY IN EARNINGS OF AFFILIATE. Equity in earnings of unconsolidated
affiliate decreased $10,000, or 6%, to $166,000 for the fiscal year ended June
30, 1994 from $176,000 for the year ended June 30, 1993.
NET INCOME. Net income for the fiscal year ended June 30, 1994 was $1.0
million compared to $0.6 million for the fiscal year ended June 30, 1993,
primarily as a result of higher net sales.
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EBITDA. EBITDA increased $1.2 million, or 60%, to $3.2 million for the
fiscal year ended June 30, 1994 from $2.0 million for the fiscal year ended June
30, 1994. The EBITDA margin increased to 7.0% for the fiscal year ended June 30,
1994 from 5.9% for the fiscal year ended June 30, 1993. The increase was
primarily attributable to the increase in gross profit discussed above,
partially offset by the increase in selling, general and administrative
expenses.
SEASONALITY
The fragrance operations of the Company have historically been seasonal,
with higher sales generally occurring in the second half of the fiscal year as a
result of increased demand by retailers in anticipation of and during the
holiday season. For example, in fiscal 1997, 69% of the Company's net sales were
made during the second half of the fiscal year. Due to the size and timing of
certain orders from its customers, sales and results of operations can vary
significantly between quarters of the same and different years. As a result, the
Company expects to experience variability in net sales and net income on a
quarterly basis.
The Company's working capital borrowings are also seasonal, and are
normally highest in the months of September and October. During the fourth
fiscal quarter ending January 31, significant cash is normally generated as
customer payments on holiday orders are received.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $23.2 million of net cash in operations
during the fiscal year ended January 31, 1997, compared to generating $5.2
million of net cash from operations during the fiscal year ended January 31,
1996, primarily as a result of a significant increase in inventory and accounts
receivable, partially offset by an increase in accounts payable. The increase in
inventory resulted primarily from opportunity buying of certain Distributed
Brand products on favorable pricing and credit terms, as well as advanced
purchases of customized gift sets for the calendar year 1997 Father's
Day/Mother's Day promotions on favorable pricing terms. The increase in accounts
receivable is directly related to the increase in net sales. The Company used
net cash in investing activities of approximately $21.1 million during the
fiscal year ended January 31, 1997, compared to approximately $18.0 million
during the fiscal year ended January 31, 1996, primarily as a result of
additions to the Miami Lakes Facility. During the fiscal year ended January 31,
1997, the Company received approximately $45.1 million of net cash from
financing activities, primarily to fund the Halston Acquisition, the FMG
Acquisition and for working capital purposes. The Company financed these
activities through the public offering of Common Stock in July 1996, the
issuance of subordinated debentures, the mortgage on the Miami Lakes Facility
and the revolving portion of the Existing Credit Facility. During the fiscal
year ended January 31, 1996, the Company received approximately $12.3 million of
net cash from financing activities, primarily to fund the Geoffrey Beene
Acquisition. The Company financed this transaction through the issuance of
subordinated debentures and a term note under the Existing Credit Facility. See
"Description of Certain Indebtedness."
The Company has historically financed its internal growth and acquisitions
primarily through the Existing Credit Facility, external financing and
internally generated funds. The Company expects to finance future growth and
acquisitions primarily from the proceeds of the Offering and borrowings under
the New Credit Facility, as well as from internally generated funds and other
external financing. The Company's principal future uses of funds are for working
capital requirements, debt service and additional brand acquisitions or product
distribution arrangements. As a result of the Halston Acquisition and the FMG
Acquisition, the growth in direct distribution relationships for additional
fragrance brands and certain favorable buying opportunities, the Company's
working capital needs have increased significantly and are expected to continue
to increase.
Concurrently with the consummation of the Offering, the Company entered
into the New Credit Facility with Fleet which provides for borrowing on a
revolving basis of up to $40.0 million to finance general corporate purposes,
including working capital needs and acquisitions, subject to certain
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borrowing base limitations. All borrowings under the New Credit Facility will
mature and be due and payable on May 31, 1999. The Company's borrowings under
the New Credit Facility are secured by a first priority lien on all of the
Company's accounts receivable and inventory. Loans under the revolving portion
of the New Credit Facility bear interest at floating rates ranging from, at the
Company's option, either (i) 1.75% over LIBOR to 2.25% over LIBOR or (ii) the
Prime Rate as quoted by Fleet to 0.5% over such Prime Rate, and combinations
thereof, in each case depending upon the Company's total funded debt to equity
ratio as calculated pursuant to the terms of the New Credit Facility. As of the
date of this Prospectus, there are no amounts outstanding under the New Credit
Facility. See "Description of the New Credit Facility."
Following the Offering, the Company has substantial indebtedness and
significant debt service obligations. As of January 31, 1997, after giving
effect to the Offering and the application of the estimated net proceeds
therefrom to repay indebtedness under the Existing Credit Facility and certain
other indebtedness outstanding on that date, the Company would have had
outstanding indebtedness of approximately $136.8 million. See "Description of
Certain Indebtedness." The Indenture permits the Company to incur substantial
additional indebtedness, including secured indebtedness, subject to certain
limitations. On a pro forma basis for fiscal 1997, the Company would have had a
ratio of earnings to fixed charges of 1.5.
The Company's significant leverage could have important consequences to
holders of Senior Notes, including (i) the Company's increased vulnerability to
adverse general and economic conditions, (ii) the Company's ability to withstand
competitive pressures may be limited, (iii) the Company's ability to obtain
additional financing on satisfactory terms may be limited, (iv) the dedication
of a substantial portion of the Company's cash flow to service its indebtedness,
thereby reducing the amount of funds available for operations and future
business opportunities, (v) the extent to which the Company's New Credit
Facility and future borrowings are at variable rates of interest, which would
cause the Company to be more vulnerable to increases in interest rates and (vi)
the Company's financial and operating flexibility may be limited to the extent
its indebtedness contains restrictive covenants. See "Risk Factors--Restrictive
Debt Covenants," "Capitalization" and "Description of the New Credit Facility."
The Company's future liquidity will continue to be dependent upon its
relative amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally short-
term debt, accrued expenses and accounts payable). Additional inventory
requirements and accounts receivable can have a significant impact on the
Company's liquidity, particularly during expansion. To date, the Company
generally has not experienced any material adverse problems with the collection
of accounts receivable relating to its fragrance operations. A portion of the
Company's accounts receivable relating to its fragrance operations is insured by
a third party to cover the risk of uncollectibility. However, there can be no
assurance that refusals to pay or delays in payment would not have a material
adverse effect on the Company's liquidity, results of operations and general
financial condition in the future. In addition, as a result of increased sales
to department stores of products subject to return rights, the Company expects
that it may incur higher levels of returns. The Company establishes reserves and
provides allowances for returns at the time of sale, but there can be no
assurance that such reserves and allowances will be adequate.
Further expansion of the Company's operations, including through additional
brand acquisitions or the acquisition of exclusive distribution rights to
additional fragrance brands, will require increased investment in accounts
receivable and inventories, which may negatively impact the Company's cash flow
from operations. The Company has discussions from time to time with
manufacturers of prestige fragrance brands and with other wholesalers that hold
exclusive distribution rights regarding possible acquisitions by the Company of
additional exclusive manufacturing and/or distribution rights. The Company
currently has no agreements or commitments with respect to any such acquisition,
although it periodically executes routine agreements to maintain the
confidentiality of information obtained during the course of discussions with
such persons. There is no assurance that the Company will be able to negotiate
successfully for any such future acquisitions or that it will be able to obtain
acquisition financing or additional working capital financing on satisfactory
terms for further expansion of its
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operations. Excluding any additional working capital requirements which may
result from acquisitions, including brand acquisitions, management believes that
internally generated funds, available financing under the New Credit Facility
and the net proceeds from the Offering will be sufficient to cover the Company's
working capital and debt service requirements for the foreseeable future.
The characteristics of the Company's business do not generally require it
to make significant ongoing capital expenditures. During fiscal 1997, the
Company incurred approximately $2.5 million in capital expenditures, primarily
for renovation of the Miami Lakes Facility. See "Business--Properties." In
connection with the renovation of the Miami Lakes Facility, the Company expects
to incur renovation costs estimated at $2.5 million for fiscal year 1998.
Approximately $1.3 million of these amounts will be funded from escrowed funds
held by the mortgage company from the mortgage on the Miami Lakes Facility.
Following the renovation of the Miami Lakes Facility, the Company anticipates
that its annual capital expenditures will be less than $1.0 million for the
foreseeable future.
The Company also has a lease on a facility, including a 55,000 square-foot
building, in Miami, Florida, that it used for its fragrance operations prior to
the Merger (the "National Trading Facility"). The lessor of the National Trading
Facility is National Trading, and the property has been mortgaged by National
Trading as security for its obligations for industrial development revenue bonds
issued through Dade County, Florida which mature on December 1, 2011. Future
lease obligations of the Company through 2011 under this lease are approximately
$2.2 million, including interest. Pending completion of the renovation of the
Miami Lakes Facility, the Company is continuing to occupy the National Trading
Facility as its corporate headquarters. Subsequent to relocation of the
corporate headquarters, the Company and National Trading will pursue a potential
sale or lease of the National Trading Facility to a third party that would
discharge the Company from the lease obligation. There is no assurance that any
such sale or lease will be consummated.
IMPACT OF INFLATION AND FOREIGN EXCHANGE FLUCTUATIONS
The Company believes that although inflation has not had a material impact
on its results of operations, inflation would likely increase the interest rates
that the Company pays on its floating rate indebtedness. Although large
fluctuations in foreign exchange rates could have a material effect on the
prices the Company pays for certain products it purchases from outside of the
United States, the prices obtainable for sales denominated in foreign currencies
and wholesale sales to foreign customers, such fluctuations have not been
material to the Company's results of operations to date.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 128 "Earnings per Share" ("SFAS 128")
which changes the method of calculating earnings per share. SFAS 128 requires
the presentation of "basic" earnings per share and "diluted" earnings per share
on the face of the income statement. Basic earnings per share is computed by
dividing the net income available to common shareholders by the weighted average
shares of outstanding common stock. The calculation of diluted earnings per
share is similar to basic earnings per share except that the denominator
includes dilutive common stock equivalents such as stock options and warrants.
The statement is effective for financial statements for periods ending after
December 31, 1997. The Company will adopt SFAS 128 in the fourth quarter of the
fiscal year ending January 31, 1998, as early adoption is not permitted. The pro
forma basic earnings per share and diluted earnings per share calculated in
accordance with SFAS 128 for the fiscal years ended January 31, 1996 and 1997
are as follows:
YEAR ENDED JANUARY 31,
--------------------
1996 1997
-------- -------
Pro forma basic earnings per share ......... $0.40 $0.71
Pro forma diluted earnings per share ...... $0.35 $0.61
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BUSINESS
GENERAL
The Company is a leading marketer of prestige fragrances and related
cosmetic products in the United States. The brands distributed by the Company
include approximately 50 Controlled Brands, including the Geoffrey Beene brands
of GREY FLANNEL and BOWLING GREEN, the Halston brands of HALSTON, CATALYST, 1-12
and Z-14 and the brands COLORS OF BENETTON, OMBRE ROSE, LAPIDUS and FACONNABLE
and over 100 Distributed Brands. The Company distributes its products to more
than 27,500 separate retail locations, including department stores such as J.C.
Penney, Sears, Macy's, Dayton Hudson and Nordstrom's, mass merchants such as
Wal-Mart, Target, Kmart and T.J. Maxx, drug stores such as CVS, Walgreens, Drug
Emporium and Eckerd Drugs and independent fragrance, cosmetic and other stores
such as Cosmetics Plus, Cosmetic Center and Ulta 3. In fiscal 1997, sales to
mass-market retailers constituted approximately 79% of net sales, sales to
department stores constituted approximately 17% of net sales, and the balance of
the Company's net sales was comprised of international sales.
Over the past three years, the Company has emerged as a premier fragrance
marketer by (i) providing mass-market retailers a wide selection and reliable
source of prestige products, (ii) increasing and diversifying the Company's
market penetration by growing its distribution base to more than 27,500 separate
retail locations from approximately 7,000 in 1993, (iii) consummating several
acquisitions of Controlled Brands in fiscal 1996 and 1997, and (iv) enhancing
the overall performance of its Controlled Brands through the Company's marketing
and distribution expertise. As a result, the Company's net sales have grown at a
compound annual rate of 50.9% to approximately $147.8 million for fiscal 1997 on
a pro forma basis from approximately $33.9 million for fiscal 1993. Over the
same period, the Company's EBITDA increased at a compound annual rate of 98.8%
to approximately $23.3 million on a pro forma basis from approximately $2.0
million. In addition, the Company has increased its percentage of revenue from
Controlled Brands, which typically carry a higher margin than Distributed
Brands, to 36% for fiscal 1997 on a pro forma basis as compared to 12% for
fiscal 1993.
BUSINESS STRATEGY
The Company's objective is to maintain and enhance its position as a
leading exclusive licensee and marketer of prestige fragrances and related
cosmetic products, principally to mass-market retailers. The Company's strategy
to achieve this objective includes the following:
ACQUIRE CONTROL OF ADDITIONAL PRESTIGE BRANDS. The Company continues to
focus on acquiring ownership of, or exclusive distribution rights to, classic
prestige fragrance brands that enjoy established consumer loyalty. These
exclusive control positions allow the Company to actively manage the brand so as
to enhance the brand's prestige value in the market and at the same time
implement strategies intended to increase the brand's overall long-term profit
contribution. In fiscal 1996, the Company acquired from Sanofi Beaute, Inc. a
long-term license to manufacture and distribute worldwide the Geoffrey Beene
fragrance brands, including GREY FLANNEL, BOWLING GREEN and CHANCE, and obtained
the exclusive United States distribution rights for the Galenic Elancyl skin
care products and the Benetton fragrance and cosmetic brands, including COLORS
OF BENETTON and TRIBU. In fiscal 1997, the Company completed the purchase of the
Halston fragrance brands, including HALSTON, CATALYST, 1-12 AND Z-14 and
acquired the principal assets of FMG, including exclusive United States
distribution rights to OMBRE ROSE, FACONNABLE, BALENCIAGA, LAPIDUS, and several
other brands. Management believes that the Company's strong market position and
reputation in the prestige fragrance industry have assisted the Company in
acquiring ownership of prestige fragrance brands, particularly when, as with the
Geoffrey Beene and Halston brands, the Company has already served as a direct
distributor of the brand.
IMPROVE BRAND PERFORMANCE THROUGH FOCUSED MARKETING. The Company seeks to
utilize its marketing expertise and its extensive distribution network to
successfully position, or reposition, its brands in the marketplace to enhance
their value. Such strategies typically include managing sales
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volumes, channels of distribution, pricing, advertising and promotions,
packaging and gift set design, international marketing and other factors in a
manner intended to best position the brand in each of its different distribution
channels. For example, upon its acquisition of the Halston brands, the Company
eliminated low-margin sales to international distributors (particularly to
distributors who resold the product into the United States market) and
repositioned the brand's image with the first national advertising campaign for
Halston in a number of years. The Company also implemented a policy of product
differentiation among distribution channels to enhance the brand's prestige
image.
STRENGTHEN AND EXPAND RELATIONSHIPS WITH RETAILERS THROUGH PROVIDING
VALUE-ADDED SERVICES. The Company continues to increase the number of retail
locations to which it distributes its products and currently serves more than
27,500 separate retail locations, up from approximately 7,000 in 1993. The
Company attributes its growing distribution network to its ability to provide
retailers with a consistent supply of product as well as its ability to provide
retailers, especially mass-market retailers, with a level of service typically
not provided by its competitors. For example, in many cases the Company's sales
and marketing professionals work closely with major retailers to act as category
managers by, among other things, (i) developing merchandising programs that are
designed to improve sales and profitability and that are specific to the
customers' business and marketing strategies, (ii) creating regularly planned
promotional campaigns and in-store displays designed to increase sales and (iii)
designing model stock assortments and planograms for the effective layout of
customers' fragrance and cosmetics departments. The Company believes that the
provision of such services both creates a partnership between the Company and
the retailer and increases the absolute amount of the Company's products sold
through such retailers.
DEVELOP LOW-RISK BRAND EXTENSIONS. The Company's strategy is to
opportunistically exploit existing brand awareness by introducing product line
extensions to new consumer groups, rather than launching new fragrance brands.
Since the costs of developing a product line extension generally are not
material to the Company, the Company's brand extension strategy can provide a
significant increase in profitability to the Company with limited capital risk.
For example, in response to requests from retailers, the Company recently
introduced into a limited market an extension to the Geoffrey Beene brand GREY
FLANNEL, named EAU DE GREY FLANNEL, which is positioned as a lighter, more
everyday fragrance targeted to a younger market. In addition, the Company is
exploring the introduction of a new Halston women's fragrance following a major
national advertising campaign by an unaffiliated company that holds the Halston
apparel license.
EXPLOIT OPERATING LEVERAGE TO FURTHER ENHANCE PROFITABILITY. The Company is
near completion of a comprehensive upgrade of its Miami Lakes Facility intended
to increase significantly its distribution capacity and enhance operational
efficiency. As a result of this upgrade, the Company believes it will be able to
increase the volumes distributed without a commensurate increase in operating
costs. Since its sales are characterized by a relatively large number of orders
(approximately 82,000 in fiscal 1997) with a relatively low average order size
(approximately $1,800 in fiscal 1997), the Company believes that by increasing
the average order size through the introduction of additional brands or
increasing the volume of existing brands sold to existing customers, it can
further enhance its operating margins.
FINE FRAGRANCES ACQUISITION
On May 13, 1997, the Company acquired the remaining 50.01% of the Fine
Fragrances Common Stock that the Company did not already own, and Fine
Fragrances became a wholly owned subsidiary of the Company, and its operations
will be consolidated with those of the Company. Fine Fragrances has been the
exclusive distributor in North America for approximately six years of fragrances
manufactured by Cofci, including SALVADOR DALI, SALVADOR, LAGUNA, DALISSIME,
CAFE, TAXI AND WATT, and recently entered into ten-year exclusive distribution
agreements with respect to those brands.
On a pro forma basis for fiscal 1997, the Fine Fragrances Acquisition would
have increased the Company's revenues and EBITDA by approximately $7.3 million
and approximately $1.4 million, respectively. The purchase price for the Fine
Fragrances Acquisition was $2.0 million in cash financed
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<PAGE>
with a portion of the net proceeds of the Offering, plus the Fine Fragrances
Additional Payment. In addition, the Company used approximately $2.2 million of
the net proceeds of the Offering to repay amounts outstanding under the Fine
Fragrances Credit Line. The Fine Fragrances Credit Line was terminated in
connection with the consummation of the Fine Fragrances Acquisition. See "Use of
Proceeds" and "Pro Forma Financial Data."
INDUSTRY OVERVIEW
According to the United States Department of Commerce, fragrance and
related product sales in the United States were approximately $5 billion in
1995. The United States market for fragrances and related products continues to
grow moderately. The growth is generally attributed to new product introductions
appealing to a broader segment of the market, population growth, increasing
numbers of mature consumers and product innovation such as special sizes and new
product formulations.
Fragrance products are generally distributed through two channels of
distribution: (i) department stores; and (ii) the mass market, which includes
mass-market retailers, food stores and direct selling firms including
house-to-house and home television shopping companies. In recent years, the
market has experienced a significant shift in the purchasing habits of consumers
away from higher priced department stores to mass-market retailers. The Company
believes that this trend is indicative of an increasing desire among United
States consumers to acquire prestige fragrance products at the best value.
Nevertheless, the Company believes that successful launching and continued
marketing support of a brand in the prestige distribution channel is essential
to establish and maintain the brand's prestige status and marketability in the
mass market.
The Company believes there are a number of significant trends currently
impacting the mass-market segment that the Company expects will contribute to
its continued growth, including: (i) increasing acceptance of self-service
shopping; (ii) increasing desire by retailers to purchase more efficiently and
to buy more products from fewer vendors; (iii) sustained and, in some instances,
increasing demand for classic, prestige fragrances; and (iv) more upscale images
communicated by certain mass-market retailers in their advertising.
Manufacturers of prestige fragrances have historically restricted direct
sales of their products in the United States primarily to prestige department
stores and specialty stores. As a result, mass-market retailers have
traditionally obtained prestige products from secondary sources. Historically,
the secondary sources available to the mass market have been limited to (i)
direct distributors such as the Company, which receive products directly from
perfume manufacturers, and (ii) distributors of prestige products manufactured
by, or distributed to, foreign sources for foreign distribution, which are
diverted to the United States ("Diverted Sources"). Under existing court
decisions, there are variations in the extent to which trademark laws, copyright
laws and customs regulations may restrict the importation of trademarked or
copyrighted fragrance products through Diverted Sources without the consent of
the trademark or copyright owner. From time to time, the Company may take
advantage of favorable buying opportunities and purchase limited amounts of
fragrance products from sources which may purchase fragrance products from
Diverted Sources. There can be no assurance that these sources of product will
be available in the future or that the Company may not become the subject of
legal action arising from its buying activities with respect to these products.
To date, the Company has not been the subject of any such legal action.
PRODUCTS
The Company sells prestige fragrances and related cosmetic products,
including perfume, cologne, eau de toilette, body spray, men's cologne and
after-shave, and gift sets. Each fragrance is distributed in a variety of sizes
and packaging arrangements. In addition, each fragrance line may be complemented
by body products, such as soaps, deodorants, body lotions, cremes and dusting
powders. The Company's products generally retail at prices ranging from $20 to
$100 per item.
The Company currently stocks approximately 60 Halston and Geoffrey Beene
brand name items which it manufactures and approximately 240 brand name items of
other Controlled Brands which it
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<PAGE>
purchases from fragrance manufacturers. The Company currently stocks, in
addition to its Controlled Brand products, approximately 600 different brand
name items purchased from various fragrance manufacturers and other sources. The
Company seeks to continue to expand its base of direct purchase relationships
with fragrance manufacturers.
The Company uses third-party contract manufacturers in the United States
and Europe to obtain substantially all raw materials, components and packaging
products and for the manufacture of finished products relating to the Halston
and Geoffrey Beene fragrance products. The Company currently obtains its
materials for these products from a limited number of manufacturers and other
suppliers. Management believes that the Company's relationships with these
manufacturers are good and that there are sufficient alternatives should one or
more of these manufacturers become unavailable. Distributed Brands are supplied
to the Company in finished goods form and are generally acquired directly from
major international fragrance manufacturers as well as from other sources.
Except as to Controlled Brands, the Company, as is customary in its
industry, does not have long-term or exclusive contracts with manufacturers or
suppliers. Purchases from manufacturers or suppliers that do not have exclusive
distribution contracts with the Company are generally made pursuant to purchase
orders. The Company's ten largest suppliers of Distributed Brands accounted for
approximately 75% of the Company's cost of sales for the fiscal year ended
January 31, 1997. The loss of, or a significant adverse change in, the
relationship between the Company and any of its major suppliers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LICENSING AND EXCLUSIVE DISTRIBUTION AGREEMENTS
Except for its Halston and Geoffrey Beene products, substantially all of
the Company's products are covered by trademarks owned by others. Management
does not believe that its business, other than with respect to the Halston and
Geoffrey Beene fragrance products, is dependent upon any particular trademark,
license or similar property. Management believes that the Halston trademarks and
the Geoffrey Beene license and trademarks are important to its business.
HALSTON. In March 1996, the Company, directly and through its subsidiary
Halston Parfums, Inc. ("Halston Parfums"), acquired from Halston Borghese, Inc.
and its affiliates certain assets, including trademark registrations in the
United States and trademark registrations and applications in numerous other
countries for the Halston fragrance brands, including HALSTON, CATALYST, 1-12
and Z-14. The Company had been a direct distributor since 1993 of the Halston
fragrance brands in the United States. The Company also has patent registrations
in the United States for bottle designs associated with certain of the Halston
fragrance products.
GEOFFREY BEENE. The Company, through its subsidiary G.B. Parfums, Inc.
("G.B. Parfums"), acquired in March 1995 certain assets from Sanofi Beaute,
Inc., including an exclusive worldwide license from Geoffrey Beene, Inc. to
manufacture and sell Geoffrey Beene fragrance and related products, including
the GREY FLANNEL, BOWLING GREEN and CHANCE brands. The Company had been a direct
distributor since 1989 of the Geoffrey Beene brands in the United States. G.B.
Parfums has trademark registrations and applications in the United States and in
numerous other countries for these brands. The license agreement has an initial
term of 30 years from February 1995, subject to automatic extensions for
successive ten-year periods unless earlier terminated by G.B. Parfums in
accordance with the agreement. In addition to certain consulting and other
payments required to be made by G.B. Parfums, G.B. Parfums is obligated to pay
royalties based on 3% of net sales of Geoffrey Beene fragrance products, which
royalty payments decrease if Mr. Geoffrey Beene ceases to design apparel in the
field of high fashion using his own name.
COFCI. Since 1990, Fine Fragrances has had agreements with Cofci for the
exclusive North American distribution of fragrances and related products,
including the SALVADOR DALI, LAGUNA, SALVADOR, DALISSIME, DALIMIX, CAFE, TAXI
and WATT brands. The agreements expire in April 2007, subject
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<PAGE>
to earlier termination by Cofci if Fine Fragrances were to cease to purchase
certain minimum levels of product. Upon consummation of the Fine Fragrances
Acquisition, Fine Fragrances became a wholly owned subsidiary of the Company.
See "--Fine Fragrances Acquisition."
GALENIC ELANCYL. In October 1995, the Company entered into a five-year
agreement (which is automatically renewable for successive three-year terms
unless either party gives written notice prior to the applicable term) with
Pierre Fabre Dermo-Cosmetique, a large French skin care manufacturer, pursuant
to which the Company serves as the exclusive distributor in the United States of
Galenic Elancyl skin care products.
BENETTON. In December 1995, the Company entered into an agreement with
S.A.B. USA Corp., with an initial term through December 1, 2000 (which is
automatically renewable for successive three-
year terms unless either party gives written notice prior to the applicable
term) pursuant to which the Company serves as the exclusive distributor in the
United States of the Benetton fragrance lines, including the COLORS OF BENETTON
and TRIBU brands.
FACONNABLE. In May 1996, in connection with the FMG Acquisition, the
Company acquired a distribution agreement with Fairtrade Sarl having an initial
term through June 1999, pursuant to which the Company serves as the exclusive
distributor in the United States of the FACONNABLE fragrance lines. The
distribution agreement automatically renews for two successive five-year terms
unless the Company terminates the agreement at the end of the initial term.
LAPIDUS. In May 1996, in connection with the FMG Acquisition, the Company
acquired a distribution agreement with Les Parfums Ted Lapidus, S.A. having an
initial term through June 1999, pursuant to which the Company serves as the
exclusive distributor in the United States of the LAPIDUS, FANTASME and CREATION
fragrance lines. The distribution agreement automatically renews for two
successive five-year terms unless the Company terminates the agreement at the
end of the initial term.
OMBRE ROSE. In May 1996, in connection with the FMG Acquisition, the
Company acquired a distribution agreement with Inter Parfums, S.A. with a
minimum term through December 31, 2003, pursuant to which the Company serves as
the exclusive distributor in the United States of the OMBRE ROSE, OMBRE D'OR and
OMBRE BLEUE fragrance lines.
OTHERS. In May 1996, in connection with the FMG Acquisition, the Company
acquired a number of exclusive distribution agreements pursuant to which the
Company serves as the exclusive distributor in the United States for a number of
additional prestige fragrance brands, including BALENCIAGA POUR HOMME,
CHEVIGNON, TALISMAN, WITNESS, NIKI DE SAINT PHALLE, BOGART, RUMBA, LE DIX,
PRELUDE and ONE MAN SHOW. These agreements generally extend through 1998 or 1999
and are generally automatically renewable for successive five-year terms unless
either party gives written notice prior to the end of the applicable term.
MARKETING AND SALES
In the United States and Canada, the Company has established its own sales
and marketing staff and also utilizes independent sales representatives. As a
result of the Halston Acquisition and the FMG Acquisition, the Company
significantly increased its sales and marketing force. As of April 15, 1997, the
Company's sales and marketing force consisted of approximately 25 sales and
marketing employees and approximately 70 independent sales representatives. In
general, each sales employee and representative is assigned sales responsibility
for a customer or territory. The Company's sales and marketing employees and
representatives routinely visit retailers to assist in the merchandising, layout
and stocking of selling areas. As a result of increased use of electronic data
interchange ("EDI") by the Company's customers, which reduces the administrative
time and costs associated with processing orders, the Company has refocused its
sales and marketing force to increase in-store sales promotion.
The Company's senior sales and marketing personnel support the efforts of
its sales employees and representatives by working with the merchandise
managers, lead buyers and marketing departments of
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<PAGE>
its major retailer customers to develop advertising and promotional plans
tailored to these customers' retail needs. The Company's sales and marketing
personnel frequently work with customers as category managers to (i) assist in
the development of merchandising and promotional programs and budgets for
specific products or selling seasons, (ii) design model schematic planograms for
the budgeting of the customer's fragrance and cosmetics departments, (iii)
identify trends in consumer preferences and (iv) conduct training programs for
the retailers' sales personnel.
The Company nationally advertises its Controlled Brand products directly in
leading men's and women's magazines, through radio advertising in key markets
and through cooperative advertising in association with major retailers. The
Company also promotes the sale of its products through the use of
gift-with-purchase programs, sales personnel incentive commissions and
purchase-with-purchase programs.
It has been an industry practice for businesses that market fragrances and
cosmetics to prestige department stores to provide the department stores with
rights to return merchandise. The Company limits return rights to certain
promotional items offered in its Halston, Geoffrey Beene and Galenic Elancyl
lines to prestige department stores. The Company generally does not offer any
other return rights and seeks to limit sales of such promotional products to
each retailer to volumes that the Company believes can be sold through to the
retailer's customer base. The Company establishes reserves and provides
allowances for returns of such products at the time of sale. As a percentage of
gross sales (net sales plus returns, reserves and allowances), returns were
approximately 2.6%, 1.4%, 1.8% and 1.9%, for the fiscal year ended June 30,
1994, for the seven-month fiscal year ended January 31, 1995 and for the fiscal
years ended January 31, 1996 and 1997, respectively. To date, the Company's
returns have not exceeded its reserves and allowances, although there can be no
assurance that such reserves and allowances will be adequate in the future.
Marketing and sales activities outside the United States and Canada relate
primarily to Geoffrey Beene and Halston products and are conducted through
arrangements with independent distributors. The Company's export sales
department coordinates the Company's relationship with various international
fragrance distributors and assists them in developing promotional campaigns and
marketing budgets for individual foreign markets. Revenues related to export
sales were not material during the Company's last three fiscal years.
DISTRIBUTION
The Company distributes its products to more than 27,500 separate retail
locations in the United States, including department stores such as J.C. Penney,
Sears, Macy's, Dayton Hudson and Nordstrom's, mass merchants such as Wal-Mart,
Target, Kmart and T.J. Maxx, drug stores such as CVS, Walgreens, Drug Emporium
and Eckerd Drugs and independent fragrance, cosmetic and other stores such as
Cosmetics Plus, Cosmetic Center and Ulta 3. In addition, with respect to the
Halston and Geoffrey Beene fragrance products, the Company intends to continue
to expand the distribution of these products worldwide.
A majority of the Company's customers require rapid shipment of products.
Because the Company generally attempts to fill orders within two days from the
receipt of a purchase order, and because all orders are subject to cancellation
without penalty by the customer until shipment, management does not consider
backlog to be a significant indication of future sales activities. All orders
are packaged by Company employees and most merchandise is shipped to customers
by common carriers. In addition to expedient delivery, the Company addresses its
individual customer needs by offering its customers U.P.C. coding, advance price
ticketing, case packing, drop ship programs (direct to store), shrink-wrap,
electronic service/anti-theft tagging and EDI capabilities. As an example of the
importance of these services to retailers, approximately 70% of the Company's
purchase orders in fiscal 1997 were received via EDI.
As is customary in the fragrance industry, the Company does not have
long-term or exclusive contracts with any of its customers. Sales to customers
are generally made pursuant to purchase orders.
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The Company believes that its continuing relationships with its customers are
based upon its ability to provide a wide selection and reliable source of
prestige products as well as its ability to provide value-
added services to its customers, especially mass-market retailers. The Company's
ten largest customers accounted for approximately 41% of net sales for the
fiscal year ended January 31, 1997. No single customer accounted for more than
10% of net sales for the same period. The loss of, or a significant adverse
change in, the relationship between the Company and any of its key customers
could have a material adverse effect on the Company's business, financial
condition and results of operations.
SEASONALITY
The Company generally has significantly higher sales in the second half of
its fiscal year as a result of increased demand by retailers in anticipation of,
and during, the holiday season. For example, in fiscal 1997, 69% of the
Company's net sales were made during the second half of the fiscal year.
MANAGEMENT INFORMATION SYSTEM
The Company's management information system provides on-line, real-time,
fully integrated information for its sales, purchasing, warehouse and financial
departments. The order entry portion of the system is designed around EDI to
provide enhanced turnaround and reduced opportunity for errors in orders and
invoicing for both the Company and its customers. The system forms the basis for
a number of the value-added services that the Company provides to its customers,
including inventory replenishment, customer billing, sales analysis, product
availability and pricing information, and expedited order processing. This
system has been enhanced, and the Company intends to continue to enhance the
system on an ongoing basis, to provide improved service to the Company's
customers through quicker response times in shipments, customer service, and
sales information and to provide the Company's management the ability to
identify opportunities for increased efficiencies and cost savings.
COMPETITION
The fragrance industry is highly competitive and at times subject to
rapidly changing consumer preferences and industry trends. The Company competes
with other distributors, Diverted Sources, manufacturers of mass-market
fragrances and other manufacturers of prestige fragrances. Competition is
generally a function of assortment and continuity of merchandise selection,
price, timely delivery and level of in-store customer support. The Company
believes that it competes primarily on the basis of (i) its established
relationships with its fragrance manufacturer suppliers and, in particular, its
ability to offer mass-market retail accounts a reliable, direct supply of
prestige fragrances and related cosmetic products at competitive prices, and
(ii) its emphasis on providing value-added customer services to its mass-market
retail customers. There are products which are better known than the products
produced for or distributed by the Company. Many of the Company's competitors
are substantially larger and more diversified, and have substantially greater
financial and marketing resources, than the Company, as well as greater name
recognition and the ability to develop and market products similar to and
competitive with those distributed by the Company.
EMPLOYEES; LEASING ARRANGEMENT
As a result of the Company's recent growth, management reviewed the
Company's human resource needs and concluded that the most cost-effective method
of meeting the Company's needs was to outsource a portion of the human resource
function. Accordingly, the Company entered into an employee leasing agreement
with The Vincam Group, Inc. ("Vincam"), and, effective as of January 1, 1997,
the Company's existing employees became employees of Vincam and were leased to
the Company. Under the terms of the Company's employee leasing contract, Vincam
is the employer of record and assumes all payroll obligations and certain
employee benefits administration with respect to the personnel of the Company,
while allowing the Company to retain management control of these persons.
References herein to "employees" or "personnel" of the Company include
individuals whose
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services are leased. None of the Company's employees are covered by a collective
bargaining agreement, and the Company believes that its relationship with its
employees is satisfactory. The Company also uses the services of independent
contractors in various capacities, including sales representatives and
information systems personnel. As of April 15, 1997, the Company leased the
services of approximately 170 full-time employees. The Company also contracts
with a temporary personnel agency for temporary or seasonal labor.
PROPERTIES
The Company's Miami Lakes Facility is located at 14100 N.W. 60th Avenue,
Miami Lakes, Florida 33014 in a building owned by the Company on a tract of land
comprising approximately 13 acres. The Miami Lakes Facility contains
approximately 200,000 square feet of assembly, distribution, shipping and
storage space and approximately 30,000 square feet of office space. The Company
has issued a mortgage on the Miami Lakes Facility. See "Description of Certain
Indebtedness." The Company also leases from National Trading the National
Trading Facility, which had housed the Company's executive offices and
distribution center prior to their relocation to the Miami Lakes Facility. The
Company and National Trading currently intend to pursue a potential sale or
lease of the National Trading Facility to a third party that would discharge the
Company from the lease obligation. There is no assurance that any such sale or
lease will be consummated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."
LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings that are
believed by management to be material to the Company's business, financial
condition or results of operations.
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MANAGEMENT
The following table sets forth information regarding the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Rafael Kravec ............ 65 Chairman of the Board and Chief Executive
Officer
E. Scott Beattie ......... 38 President, Chief Operating Officer and
Director
Gretchen Cuzydlo ......... 36 Vice President-Marketing
Joseph M. Gilfarb ......... 47 Vice President-Sales
Saul Kravec ............... 33 Vice President-Sales
Oscar E. Marina ......... 37 Vice President, General Counsel and Secretary
William J. Mueller ...... 50 Vice President-Operations, Chief Financial
Officer and Treasurer
J.W. Nevil Thomas ......... 59 Vice Chairman
Fred Berens ............... 54 Director
Richard C.W. Mauran ...... 63 Director
George Dooley ............ 64 Director
</TABLE>
The business experience, principal occupations and employment as well as
the periods of service of each of the directors and executive officers of the
Company during the last five years are set forth below.
RAFAEL KRAVEC has served as Chairman of the Board since April 1997 and has
served as Chief Executive Officer and as a director of the Company since its
formation in July 1992. Mr. Kravec served as the President of the Company from
July 1992 until April 1997. Mr. Kravec has also served as President and Chief
Executive Officer and as a director of (i) G.B. Parfums since its formation in
March 1995, (ii) Halston Parfums since its formation in March 1996, (iii) Fine
Fragrances since March 1990, (iv) FRM Services, Inc., a wholly owned subsidiary
of the Company ("FRM"), since December 1996, and (v) National Trading, a company
controlled by Mr. Kravec, since 1981. Rafael Kravec is the father of Saul
Kravec.
E. SCOTT BEATTIE has served as President and Chief Operating Officer since
April 1997, and has been a director of the Company since July 1992. From January
1995 until April 1997, Mr. Beattie served as Vice Chairman of the Board and
Assistant Secretary of the Company. Since September 1989, Mr. Beattie has served
as President of ESB Consultants, Inc. ("ESB"), a financial and management
consulting firm that is controlled by Mr. Beattie. Mr. Beattie has also served
as Executive Vice President of Bedford, a Toronto, Canada based firm that is
engaged in the business of providing merchant banking services through two
private pools of capital (the "Bedford Funds") to middle-market companies, since
March 1995 and as Vice President of Bedford from September 1989 to March 1995.
Mr. Beattie is a director of BCFC, which is publicly traded on the Toronto Stock
Exchange, and is the parent of Bedford. Mr. Beattie also serves as a director of
Bedford, Microbix Biosystems, Inc., a biotechnology company, Cash Converters,
Inc., a specialty retailer, and Janna Systems Inc., an applications software
company.
GRETCHEN CUZYDLO has served as Vice President-Marketing of the Company
since May 1993. Ms. Cuzydlo has also served as Vice President-Marketing of Fine
Fragrances since May 1993. From August 1991 to May 1993, Ms. Cuzydlo was Vice
President-Marketing of Cosmyl Corporation, a cosmetics company.
JOSEPH M. GILFARB has served as Vice President-Sales of the Company since
December 1992. Mr. Gilfarb started with the Company as a sales representative in
April 1991 and was promoted to Sales Manager in May 1992 before serving as Vice
President-Sales.
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SAUL KRAVEC has served as Vice President-Sales of the Company since March
1996. Prior to that time, he had served as Vice President, General Counsel and
Secretary of the Company since its formation in July 1992. From October 1989
until July 1992, Mr. Kravec served as General Counsel and Sales Manager of
National Trading, working primarily in the perfume division which was acquired
by the Company in July 1992. Saul Kravec is the son of Rafael Kravec.
OSCAR E. MARINA has served as Vice President, General Counsel and Secretary
of the Company and Fine Fragrances since March 1996. Mr. Marina has also served
as Secretary of G.B. Parfums and Halston Parfums since March 1996 and as a
director and Assistant Secretary of FRM since December 1996. From October 1988
until March 1996, Mr. Marina was an attorney with the law firm of Steel Hector &
Davis LLP in Miami, Florida, becoming a partner of the firm in January 1995.
WILLIAM J. MUELLER has served as Vice President-Operations, Chief Financial
Officer and Treasurer of the Company since April 1993. Mr. Mueller has also
served as Vice President-Finance and Chief Financial Officer of Fine Fragrances
since April 1993 and Treasurer of G.B. Parfums and Halston Parfums since March
1996. From May 1991 to August 1992, Mr. Mueller was Vice President, Chief
Financial Officer and Treasurer of Homeowners Group, a real estate marketing
company.
J.W. NEVIL THOMAS has served as Vice Chairman of the Board since April 1997
and previously served as Chairman of the Board of the Company since its
formation in July 1992. Since 1970, Mr. Thomas has served as President of
Nevcorp Inc. ("Nevcorp"), a financial and management consulting firm which is
controlled by Mr. Thomas. Mr. Thomas is Chairman of the Board of Bedford. Mr.
Thomas is also a director of BCFC, Pet Valu, Inc., a pet food retailer, and PMC
International, Inc., an investment management company.
FRED BERENS has served as a director of the Company since its formation in
July 1992. Mr. Berens has served as Senior Vice President-Investments of
Prudential Securities, Inc., an investment banking firm, since March 1965. Mr.
Berens previously served as a director of Suave until December 1994.
RICHARD C.W. MAURAN has served as a director of the Company since its
formation in July 1992. Mr. Mauran is a private investor and serves as Chairman
and Chief Executive Officer of BCFC and as a director of Bedford, Microbix
Biosystems, Inc., Pet Valu, Inc. and US Physical Therapy, Inc., which owns and
operates physiotherapy centers.
GEORGE DOOLEY has served as a director of the Company since March 1996. Mr.
Dooley has served as President and Chief Executive Officer of (i) Community
Television Foundation of South Florida, Inc., a not-for-profit corporation
supporting, and a licensee of, a Miami, Florida public television station, WPBT
Channel 2, since 1972, (ii) WPBT Communications Foundation, Inc., a
not-for-profit corporation supporting public television station WPBT Channel 2,
since 1981 and (iii) Comtel, Inc., a company providing television facilities to
television producers, since 1981.
All directors of the Company are elected annually and serve until the next
annual meeting of the shareholders or until their successors have been duly
elected and qualified. Officers are elected annually by the Board of Directors
of the Company (the "Board") and serve at the discretion of the Board.
COMMITTEES OF THE BOARD
The Board has a Compensation Committee consisting of Messrs. Berens and
Dooley to determine the compensation of the Company's executive officers and to
administer the Company's Stock Option Plans. See "--Stock Option Plans" and
"Certain Transactions." In addition, the Board has an Audit Committee consisting
of Messrs. Thomas, Berens and Dooley to oversee the procedures, scope and
results of the annual audit and review the services provided by the Company's
independent public accountants.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
by the Company for the fiscal years ended January 31, 1997 and January 31, 1996,
for the seven months ended January 31, 1995 and for the fiscal year ended June
30, 1994, respectively, to the Company's Chief Executive Officer and the four
other most highly compensated executive officers of the Company whose
compensation exceeded $100,000 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ --------------
STOCK
NAME AND FISCAL OTHER ANNUAL OPTION
PRINCIPAL POSITIONS PERIOD(1) SALARY BONUS(2) COMPENSATION(3) AWARDS(#)
- -------------------------------------------- ------------ ----------- ----------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
1/31/97 $296,624 $120,000 $ -- --
Rafael Kravec 1/31/96 250,000 90,000 -- --
Chairman of the Board and Chief Executive 1/31/95 134,692 125,000 -- 106,800
Officer 6/30/94 174,308 35,000 -- --
William J. Mueller 1/31/97 $166,502 $70,000 $ -- 10,000
Vice President-- Operations and Chief 1/31/96 130,000 40,000 -- --
Financial Officer 1/31/95 76,060 40,000 -- 53,400
6/30/94 113,173 25,000 -- --
Joseph M. Gilfarb 1/31/97 $165,453 $70,000 $ -- 10,000
Vice President-- Sales 1/31/96 130,000 25,000 -- --
1/31/95 52,500 97,746 -- 53,400
6/30/94 90,000 69,130 -- --
Gretchen Cuzydlo 1/31/97 $165,384 $70,000 $ -- 10,000
Vice President-- Marketing 1/31/96 123,077 40,000 -- --
1/31/95 52,500 20,000 -- 53,400
6/30/94 58,327 5,000 -- --
Saul Kravec 1/31/97 $165,089 $70,000 $ -- 10,000
Vice President-- Sales 1/31/96 130,000 40,000 -- --
1/31/95 77,500 40,000 -- 53,400
6/30/94 99,462 20,000 -- --
<FN>
- ----------------
(1) The amounts shown for "1/31/95" are for the seven months ended January 31,
1995; the amounts shown for "1/31/97," "1/31/96," and "6/30/94" are for the
fiscal years ended January 31, 1997, January 31, 1996, and June 30, 1994,
respectively. Effective January 31, 1995, the Company changed its fiscal
year end from June 30 to January 31.
(2) The Company creates an annual bonus pool for Mr. Kravec and the other
members of senior management equal to 6% of the pre-tax profit of the
Company (the "6% Bonus Pool"). On an annual basis, the Compensation
Committee approves the allocation of the 6% Bonus Pool among Mr. Kravec and
the other members of the Company's senior management. For Mr. Gilfarb, the
amounts set forth under the "Bonus" column for the 1/31/95 and 6/30/94
periods represent sales commissions.
(3) The amounts reflected in the above table do not include any amounts for
perquisites and other personal benefits. The aggregate amount of such
compensation for each Named Executive did not exceed 10% of the total annual
salary and bonus of such Named Executive.
</FN>
</TABLE>
61
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted during
the fiscal year ended January 31, 1997 by the Company to the Named Executives.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL RATE OF
STOCK
PERCENT OF TOTAL PRICE APPRECIATION FOR
OPTIONS GRANTED EXERCISE MARKET PRICE OPTION TERM(1)
OPTIONS TO EMPLOYEES IN OR BASE ON DATE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR PRICE(2) OF GRANT DATE 0%($) 5%($) 10%($)
- --------------------------- ---------- ------------------ ----------- -------------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rafael Kravec ............ 0 --% $ -- $ -- -- $ -- $ -- $ --
William J. Mueller ...... 10,000 4.95 6.50 6.75 5/2/01 2,500 21,149 43,709
Joseph M. Gilfarb ...... 10,000 4.95 6.50 6.75 5/2/01 2,500 21,149 43,709
Gretchen Cuzydlo ......... 10,000 4.95 6.50 6.75 5/2/01 2,500 21,149 43,709
Saul Kravec ............ 10,000 4.95 6.50 6.75 5/2/01 2,500 21,149 43,709
<FN>
- ----------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 0%, 5% and 10%
compounded annually from the date the respective options were granted to
their expiration dates. Hypothetical gains are calculated based on rules
promulgated by the SEC and do not represent an estimate by the Company of
its future stock price growth. This table does not take into account any
appreciation in the price of the Common Stock to date. Actual gains, if any,
on stock option exercises and Common Stock holdings are dependent on the
timing of such exercises and the future performance of the Common Stock.
There can be no assurances that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
Named Executives.
(2) The exercise price for the options granted was based upon the average
closing sales price of the Common Stock on the Nasdaq National Market for
the 30 trading days prior to the date of grant, calculated in accordance
with the terms of the Company's 1981 Employee Stock Option and Stock
Appreciation Plan (the "1981 Plan").
</FN>
</TABLE>
AGGREGATED FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth certain information concerning unexercised
stock options held by the Named Executives at January 31, 1997. There were no
exercises of stock options by the Named Executives during the fiscal year ended
January 31, 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT JANUARY 31, 1997(#) JANUARY 31, 1997($)(1)
--------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- -------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Rafael Kravec ............ 80,100 26,700 $ 366,458 $122,153
William J. Mueller ...... 56,734 6,666 248,889 9,166
Joseph M. Gilfarb ...... 56,734 6,666 248,889 9,166
Gretchen Cuzydlo ......... 56,734 6,666 248,889 9,166
Saul Kravec ............ 56,734 6,666 248,889 9,166
<FN>
- ----------------
(1) Value is based on the difference between the option exercise price and the
fair market value per share on January 31, 1997 ($7.875 per share which
represents the closing sales price of the Common Stock on the Nasdaq
National Market) multiplied by the number of shares underlying the option.
</FN>
</TABLE>
62
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are employees of the Company or officers or employees of
Bedford do not receive any compensation for serving on the Board or any of its
committees. Directors who are not employees of the Company and are not employees
or officers of Bedford receive an annual retainer of $3,000 and a fee of $500
for each meeting of the Board or a committee of the Board attended. The Board
also reimburses all directors for all expenses incurred in connection with their
activities as directors. Non-employee directors receive stock options under the
Directors' Plan (as defined herein). For information on agreements and
transactions which the Company has entered into with Bedford and its affiliates
and companies affiliated with Messrs. Thomas, Beattie and Mauran, see "Certain
Transactions."
EMPLOYMENT AGREEMENT
The Company has an employment agreement (the "Employment Agreement") with
Rafael Kravec, its Chairman of the Board and Chief Executive Officer, whereby he
agrees to devote a majority of his business time and energies to the business
and affairs of the Company. The term of the Employment Agreement extends to
April 2000. The Employment Agreement is automatically renewable for successive
one-year periods unless either party gives written notice at least 90 days prior
to the end of a term of his or its intention not to renew. The Employment
Agreement provides for a base annual salary to be determined by the Board or the
Compensation Committee thereof. Mr. Kravec is also entitled to participate in
the Company's other employee benefits, including, without limitation, the
Company's stock option plans and the 6% Bonus Pool. The Employment Agreement
provides that Mr. Kravec shall not engage or have an interest in any business
competitive with or similar to that engaged by the Company during the term of
the agreement and for a period of five years after its termination in the State
of Florida or any other geographic area where the Company does business or in
which its products are marketed. The Company has no other employment agreements.
STOCK OPTION PLANS
1995 STOCK OPTION PLAN. In January 1995, the Company's Board of Directors
adopted and its shareholders approved the Company's 1995 Stock Option Plan (the
"1995 Plan") under which 1,500,000 shares of Common Stock are currently reserved
for issuance upon exercise of stock options. As of April 15, 1997, there were
outstanding under the 1995 Plan options to purchase an aggregate of 649,540
shares of Common Stock at exercise prices ranging from $3.30 to $8.38 per share.
The 1995 Plan provides for the grant of both incentive stock options intended to
qualify as such under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and nonqualified stock options to key employees, officers,
directors and other persons who provide services for the Company or its
subsidiaries. The exercise price per share for incentive stock options may not
be less than the fair market value (as defined in the 1995 Plan) of the Common
Stock at the time the option is granted and, for nonqualified stock options, the
exercise price may not be less than the par value of the Common Stock. The 1995
Plan will expire on, and no options may be granted thereunder after, January 26,
2005, subject to the right of the Board to terminate the 1995 Plan earlier.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. Directors who are not employees
of the Company are eligible to participate in the Non-Employee Director Stock
Option Plan (the "Directors' Plan"), under which 200,000 shares of Common Stock
are reserved for issuance. Currently Messrs. Thomas, Berens, Mauran and Dooley
are eligible for the grant of stock options under the Directors' Plan. Under the
Directors' Plan, each eligible director elected to the Board will be granted an
option to purchase 7,000 shares of Common Stock. In addition, each year on the
date of the annual meeting of shareholders, if such person has continued to
serve as a director until that date, there will automatically be granted to each
eligible director who is reelected to the Board an option to purchase 7,500
shares of Common Stock exercisable at the next annual meeting date. As of April
15, 1997, options for 7,000 shares of Common Stock exercisable at $6.00 per
share and options for 37,500 shares of Common Stock exercisable at $7.00 per
share are currently outstanding under the Directors' Plan.
63
<PAGE>
OTHER PLANS. The Company had two stock option plans, the 1981 Plan and the
1993 Stock Option Plan, which were established by Suave prior to the Merger, and
which were terminated by the Company in June 1996. As of April 15, 1997, options
to purchase 20,000 shares of Common Stock at $5.25 per share and 45,000 shares
at $6.50 per share were outstanding under the 1981 Plan. No additional options
may be granted under these plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Fred Berens served as a member of the Compensation Committee of the
Board for the fiscal year ended January 31, 1997. Mr. Berens owns $546,000 in
aggregate principal amount of the Company's outstanding 7.5% Convertible
Debentures. See "Certain Transactions--Borrowings from Affiliates" and
"Description of Certain Indebtedness."
64
<PAGE>
PRINCIPAL SHAREHOLDERS
As of May 30, 1997, the Company's authorized capital stock consists of (i)
50,000,000 shares of Common Stock, of which 13,258,311 shares are issued and
outstanding, (ii) 350,000 shares of Series B Convertible Preferred, of which
315,463 shares are issued and outstanding, (iii) 571,429 shares of Series C
Convertible Preferred, of which 566,129 shares are issued and outstanding and
(iv) 4,428,571 shares of Serial Preferred, $.01 par value, none of which are
issued and outstanding. The Series B Convertible Preferred and the Series C
Convertible Preferred have no voting rights on matters submitted to a vote of
the Company's shareholders, except as required by law.
The following table sets forth, as of April 15, 1997: (i) the ownership of
Common Stock by all persons known by the Company to own beneficially more than
5% of the outstanding shares of Common Stock; and (ii) the beneficial ownership
of Common Stock, Series B Convertible Preferred and Series C Convertible
Preferred by (a) directors and nominees (listed by name) of the Company, (b) the
Company's Chief Executive Officer and the Named Executives, and (c) all
directors and executive officers of the Company as a group, without naming them.
<TABLE>
<CAPTION>
SERIES B SERIES C
COMMON STOCK CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
----------------------------- --------------------------- --------------------------
AMOUNT AND AMOUNT AND AMOUNT AND
NATURE OF NATURE OF NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER (1) OWNERSHIP(2) CLASS(2) OWNERSHIP CLASS OWNERSHIP CLASS
- ----------------------------------- --------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Rafael Kravec(3) ............... 2,779,851 20.3% 5,419 1.9% 8,835 1.5%
E. Scott Beattie(4)(5) ......... 251,225 1.9 5,961 2.0 9,185 1.6
Gretchen Cuzydlo(6) ............ 57,970 * -- -- -- --
Joseph M. Gilfarb(6) ............ 58,734 * -- -- -- --
Saul Kravec(6) .................. 56,734 * -- -- -- --
William J. Mueller(6) ............ 61,734 * -- -- -- --
J.W. Nevil Thomas(4)(7) ......... 119,101 * 7,587 2.6 11,682 2.0
Fred Berens(8) .................. 812,753 6.1 -- -- -- --
Richard C.W. Mauran (9) ......... 1,871,992 13.3 84,232 29.0 131,518 23.0
George Dooley(10) ............... 16,000 * -- -- -- --
Estate of Eugene Ramos(11) ...... 987,290 7.5
Bedford Capital
Financial Corporation(4)(12) ... 713,251 5.3
All directors and executive
officers as a group
(11 persons)(10)(13) ............ 6,102,728 40.1 103,199 35.5 161,220 12.8
<FN>
- ----------------
* Less than one percent of the class.
(1) The address of each of the persons shown in the above table other than BCFC
and Messrs. Thomas, Beattie and Mauran is c/o French Fragrances, Inc.,
14100 N.W. 60th Avenue, Miami Lakes, Florida 33014. The address of BCFC is
Charlotte House, Second Floor, Shirley Street, P.O. Box N964, Nassau,
Bahamas. The address of Messrs. Thomas and Mauran is Scotia Plaza, Suite
4712, Toronto, Canada M5H 3Y2.
(2) Includes shares of Common Stock issuable upon the conversion of Series B
Convertible Preferred and the Series C Convertible Preferred, and upon the
exercise of options to acquire Common Stock ("Options"), held by such
persons which may be converted or exercised within 60 days after April 15,
1997. A total of 7.12 shares of Common Stock are issuable upon conversion
of one share of Series B Convertible Preferred. One share of Common Stock
is issuable upon conversion of one share of Series C Convertible Preferred.
Unless otherwise indicated, the Company believes that all persons named in
the table above have sole voting power and investment power with respect to
all shares of Common Stock, Series B Convertible Preferred and Series C
Convertible Preferred beneficially owned by them.
65
<PAGE>
(3) The information relating to the Common Stock is based on Amendment No. 1 to
Schedule 13D, dated August 14, 1996, which was filed by Mr. Kravec. The
Common Stock includes (i) 2,349,000 shares of Common Stock owned by Mr.
Kravec, including 1,000 shares which are owned by Mr. Kravec's daughter and
as to which he disclaims beneficial ownership, (ii) 38,583 shares of Common
Stock issuable upon the conversion of Series B Convertible Preferred owned
by National Trading, (iii) 8,835 shares of Common Stock issuable upon the
conversion of Series C Convertible Preferred owned by National Trading,
(iv) 80,100 shares of Common Stock issuable upon the exercise of Options
held by Mr. Kravec, (v) 68,750 shares of Common Stock issuable upon
conversion of 7.5% Convertible Debentures held by Mr. Kravec, and (vi)
234,583 shares of Common Stock issuable upon conversion of 7.5% Convertible
Debentures owned by National Trading.
(4) The information relating to the Common Stock is based on a Schedule 13D,
dated March 15, 1997, which was filed by BCFC.
(5) The Common Stock includes (i) 134,234 shares of Common Stock issuable upon
the exercise of Options held by Mr. Beattie, (ii) 64,201 shares of Common
Stock owned by ESB, (iii) 42,442 shares of Common Stock issuable upon the
conversion of Series B Convertible Preferred owned by ESB, (iv) 9,185
shares of Common Stock issuable upon the conversion of Series C Convertible
Preferred owned by ESB, and (v) 1,163 shares of Common Stock issuable upon
conversion of 7.5% Convertible Debentures held by ESB.
(6) Includes 56,734 shares of Common Stock issuable upon the exercise of
Options.
(7) The Common Stock includes (i) 53,400 shares of Common Stock issuable upon
the exercise of Options held by Mr. Thomas, (ii) 54,019 shares of Common
Stock issuable upon the conversion of Series B Convertible Preferred owned
by Nevcorp, and (iii) 11,682 shares of Common Stock issuable upon the
conversion of Series C Convertible Preferred owned by Nevcorp.
(8) The information relating to the Common Stock is based on Amendment No. 1 to
Schedule 13D, dated July 26, 1996, which was filed by Mr. Berens. The
Common Stock includes (i) 712,000 shares of Common Stock owned by Mr.
Berens, (ii) 24,920 shares of Common Stock issuable upon the exercise of
Options held by Mr. Berens, and (iii) 75,833 shares of Common Stock
issuable upon conversion of 7.5% Convertible Debentures owned by Mr.
Berens. Does not include 987,290 shares of Common Stock held by the Estate
of Eugene Ramos, as to which Mr. Berens serves as a personal
representative.
(9) The Common Stock includes (i) 879,859 shares of Common Stock owned by Mr.
Mauran, (ii) 125,000 shares of Common Stock owned by Devonshire Trust
("Devonshire"), a trust of which Mr. Mauran is a trustee, (iii) 110,680
shares of Common Stock issuable upon the conversion of Series B Convertible
Preferred owned by Devonshire, (iv) 489,051 shares of Common Stock issuable
upon the conversion of Series B Convertible Preferred beneficially owned by
Euro Credit Investments Limited ("Euro Credit"), a company controlled by
Mr. Mauran, (v) 108,254 shares of Common Stock issuable upon the conversion
of Series C Convertible Preferred owned by Mr. Mauran, (vi) 23,264 shares
of Common Stock issuable upon the conversion of Series C Convertible
Preferred owned by Devonshire, (vii) 24,920 shares of Common Stock issuable
upon the exercise of Options held by Mr. Mauran, and (viii) 110,964 shares
of Common Stock issuable upon conversion of 7.5% Convertible Debentures
owned by Mr. Mauran. The information relating to the Common Stock is based
on a Schedule 13D, dated March 15, 1997, which was filed by Mr. Mauran.
(10) The following shares are owned together with his spouse as joint tenants
with right of survivorship: (i) 9,000 shares of Common Stock owned by Mr.
Dooley, and (ii) 3,300 shares owned by an unnamed executive officer.
(11) Prior to the Merger, Eugene Ramos was the President and principal
shareholder of Suave.
(12) The Common Stock includes (i) 417,801 shares of Common Stock, (ii) 240,378
shares of Common Stock issuable upon the conversion of Series B Convertible
Preferred, and (iii) 55,072 shares of Common Stock issuable upon the
conversion of Series C Convertible Preferred.
(13) The Common Stock includes (i) 734,775 shares of Common Stock issuable upon
the conversion of Series B Convertible Preferred, (ii) 161,220 shares of
Common Stock issuable upon the conversion of Series C Convertible Preferred
and (iii) 564,843 shares of Common Stock issuable upon the exercise of
Options.
</FN>
</TABLE>
66
<PAGE>
CERTAIN TRANSACTIONS
The Company has, and will continue to be, engaged in transactions with
affiliates. The policy of the Company with regard to transactions with
affiliates is to require that such transactions be on terms no less favorable to
the Company than those that would have been obtained in a comparable transaction
by the Company with an unrelated third party.
REGISTRATION RIGHTS AGREEMENT
Following the Merger on November 30, 1995, the Company entered into a
registration rights agreement with Bedford, for itself and on behalf of the
investors in the Bedford Funds holding shares of Series B Convertible Preferred
and Common Stock, Rafael Kravec, Eugene Ramos (who was the President of Suave
prior to the Merger) and Fred Berens pursuant to which the Company granted
certain demand and "piggyback" registration rights to such persons with respect
to the Common Stock owned by them (including Common Stock issuable upon the
conversion of the Series B Convertible Preferred), provided that a demand can
only be made for at least an aggregate of 1,000,000 shares of Common Stock and
no earlier than April 15, 1996. "Piggyback" registration rights permit such
persons to require the Company to include their shares of Common Stock in a
registration of Common Stock for the account of the Company or other
shareholders, subject to certain limitations. Demand registration rights
terminate November 30, 2000, and "piggyback" registration rights terminate on
November 30, 2002. On March 20, 1996, the agreement was amended to grant
registration rights to the investors in the Bedford Funds holding shares of the
Series C Convertible Preferred with respect to the Common Stock issuable upon
the conversion thereof, and on July 22, 1996, the agreement was further amended
to grant similar registration rights to the holders of 7.5% Convertible
Debentures with respect to the Common Stock issuable upon the conversion
thereof.
COMPENSATION AND MONITORING AGREEMENTS
The Company is a party to a one-year agreement dated as of April 1, 1997
(the "Chief Operating Officer Compensation Agreement") with ESB, which is
renewable at the option of the Company for additional one-year terms. E. Scott
Beattie, the President, Chief Operating Officer and a director of the Company,
is the President and controlling shareholder of ESB and a director of Bedford.
The Chief Operating Officer Compensation Agreement provides for a fee to ESB of
$300,000, which fee is subject to increase as determined by the Board of
Directors. In addition, the Company reimburses ESB for pre-approved travel
expenses. Mr. Beattie does not draw a salary from the Company.
Prior to the date of the Chief Operating Officer Compensation Agreement,
the Company was a party to certain monitoring agreements with (i) Bedford, (ii)
Nevcorp, and (iii) ESB, pursuant to which such entities provided financial
advisory services to the Company, all of which have been replaced by the Chief
Operating Officer Compensation Agreement. Pursuant to the monitoring agreements,
(i) Bedford received fees of $37,000, $27,750, $187,000 and $132,000, (ii)
Nevcorp received fees of $22,000, $16,500, $47,000 and $47,000, and (iii) ESB
received fees of $16,000, $12,000, $41,000 and $96,000 for the fiscal year ended
June 30, 1994, for the seven months ended January 31, 1995, and for the fiscal
years ended January 31, 1996 and 1997, respectively. In addition, under these
agreements the Company reimbursed Bedford, Nevcorp, and ESB for pre-approved
travel expenses. Messrs. Thomas, Mauran and Beattie, each a director of the
Company, are affiliates of Bedford. Mr. Thomas is also the President and
controlling shareholder of Nevcorp.
MANAGEMENT FEES
In connection with certain management and financial advisory services
performed by Bedford over several months on behalf of the Company with respect
to the Merger, the Company paid Bedford a management services fee of $200,000.
In addition, in connection with certain management and financial advisory
services performed by Bedford Capital Financial Inc., a wholly owned subsidiary
of Bedford ("BCFI"), over several months on behalf of the Company with respect
to the Halston Acquisition, the Company paid BCFI a management services fee of
$200,000.
67
<PAGE>
BORROWINGS FROM AFFILIATES
Prior to May 13, 1997, the Company had outstanding $7.4 million aggregate
principal amount of the 8.0% Series I Debentures, of which (i) $159,193 in
aggregate principal amount were owned by Rafael Kravec and his affiliate, (ii)
$477,579 in aggregate principal amount were owned by BCFC, (iii) $1,894,397 in
aggregate principal amount were owned by Richard C.W. Mauran and his affiliates,
and (iv) $175,112 in aggregate principal amount were owned by an affiliate of E.
Scott Beattie. In March 1996, the Company issued $3.0 million aggregate
principal amount of 8.0% Series II Debentures as part of the financing for the
Halston Acquisition, of which (i) $173,931 in aggregate principal amount were
owned by BCFC, (ii) $57,978 in aggregate principal amount were owned by Mr.
Kravec, (iii) $680,922 in aggregate principal amount were owned by Mr. Mauran
and his affiliates, and (iv) $60,275 in aggregate principal amount were owned by
an affiliate of E. Scott Beattie. Mr. Kravec is the Chairman of the Board and
Chief Executive Officer of the Company, Mr. Beattie is President, Chief
Operating Officer and a director of the Company, and each of Messrs. Mauran and
Berens is a director of the Company. The 8.0% Series I Debentures and 8.0%
Series II Debentures were repaid with a portion of the net proceeds of the
Offering. The Company also has outstanding $5.5 million aggregate principal
amount of 7.5% Convertible Debentures, of which (i) $2,184,000 in aggregate
principal amount are owned by Mr. Kravec and his affiliate, (ii) $546,000 in
aggregate principal amount are owned by Fred Berens, (iii) $798,942 in aggregate
principal amount are owned by Mr. Mauran and his affiliates and (iv) $8,374 in
aggregate principal amount are owned by an affiliate of E. Scott Beattie. See
"Management," "Use of Proceeds" and "Description of Certain Indebtedness."
During the last three fiscal years, the Company has obtained certain loans
and advances from affiliates of the Company. As of January 31, 1997, the Company
had outstanding balances from National Trading and Fine Fragrances in the
principal amounts of $1.1 million and $519,000, respectively. Since June 30,
1993, the highest amount outstanding at any one time from affiliates of the
Company was as follows: National Trading, $2,088,000, Fine Fragrances,
$1,900,000, and Rafael Kravec, $235,000. These loans or advances generally bear
interest at the prime rate and are short-term in nature. As a result of the Fine
Fragrances Acquisition, the advances from Fine Fragrances were cancelled. See
Note 12 of Notes to Consolidated Financial Statements of the Company.
NATIONAL TRADING
The Company is a party to a lease agreement dated as of July 2, 1992, with
National Trading, pursuant to which the Company is leasing the National Trading
Facility. The property is subject to a mortgage by National Trading to secure
its obligation for industrial development revenue bonds issued through the Dade
County Industrial Development Authority in the original amount of $3 million.
Pursuant to the lease, the Company is required to maintain a maximum leverage
ratio, a minimum tangible capital base, a minimum current ratio and a minimum
interest coverage ratio, and is subject to limits on capital expenditures. In
addition, the Company agreed not to assign the lease without the prior written
consent of the Industrial Development Authority and the trustee under the Bond
Indenture. Under the terms of the lease, the Company has an option to purchase
the leased property on or before the end of the lease term at a price of $1.8
million less the amount equal to the product of $10,000 multiplied by the number
of months for which the Company has paid rent pursuant to the lease. The Company
and National Trading currently intend to pursue a sale or lease of the National
Trading Facility to a third party that would discharge the Company from the
lease obligation. There is no assurance that any such sale or lease will be
consummated. The Company made aggregate lease payments to National Trading of
$236,000, $155,000, $277,000, and $259,000 for the fiscal year ended June 30,
1994, for the seven months ended January 31, 1995, and for the fiscal years
ended January 31, 1996 and 1997, respectively. See Note 10 of Notes to the
Consolidated Financial Statements of the Company.
FINE FRAGRANCES
Prior to the consummation of the Fine Fragrances Acquisition and since May
14, 1990, the Company was a party to a management agreement (the "Management
Agreement") with Fine
68
<PAGE>
Fragrances, which the Company assumed in connection with its acquisition of the
assets of the fragrance and cosmetics distribution business of National Trading
in July 1992. Under the terms of the Management Agreement, the Company provided
office space and equipment, warehousing and delivery facilities and certain
managerial, accounting and legal services to Fine Fragrances, a corporation
which was at the time 49.99% owned by the Company and of which Rafael Kravec,
the Company's Chairman of the Board and Chief Executive Officer, served as
President and Chief Executive Officer, in return for a management fee of 12% of
the gross sales of Fine Fragrances, payable on a monthly basis. In addition, the
Company was reimbursed for certain business expenses incurred by the Company in
connection with the performance of the services under the Management Agreement.
The Company received management fees under the Management Agreement totaling
$371,000, $254,000, $376,000, and $925,000 during the fiscal year ended June 30,
1994, the seven months ended January 31, 1995 and the fiscal years ended January
31, 1996 and 1997, respectively. The Management Agreement was terminated upon
consummation of the Fine Fragrances Acquisition. See "Business--Fine Fragrances
Acquisition."
OTHER
In the normal course of business and from time to time, the Company, Fine
Fragrances and National Trading have entered into transactions that are
reflected on the consolidated balance sheets of the Company as due to
affiliates, net. See Note 12 of Notes to the Consolidated Financial Statements
of the Company.
69
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
INDEBTEDNESS REPAID WITH PROCEEDS OF OFFERING
The following indebtedness of the Company was repaid with a portion of the
net proceeds of the Offering:
EXISTING CREDIT FACILITY. The Existing Credit Facility with Fleet provided
for borrowings on a revolving basis of up to $45.0 million (which was increased
to $55.0 million from July 1 to December 31 to accommodate increased working
capital requirements in anticipation of and during the holiday season and was to
be decreased to $30.0 million from January 1, 1998 through May 31, 1998),
including up to $2.0 million in commercial letters of credit. Amounts borrowed
on the revolving portion of the Existing Credit Facility were scheduled to
mature on May 31, 1998. The Existing Credit Facility also included the remaining
balance ($4.3 million as of January 31, 1997) of the $7.0 million term loan (the
"Geoffrey Beene Term Note") which was used to finance a portion of the purchase
price of the Geoffrey Beene Acquisition. Principal and interest payments on the
Geoffrey Beene Term Note were due on a monthly basis, and principal payments
were due: $2.0 million during the fiscal year ending January 31, 1998, and the
balance during the fiscal year ending January 31, 1999. As of January 31, 1997,
the Company had outstanding borrowings under the Existing Credit Facility
(including the Geoffrey Beene Term Note) of approximately $42.0 million.
Loans under the revolving credit portion of the Existing Credit Facility
bore interest at a floating rate as did the Geoffrey Beene Term Note. The
Company's borrowing availability under the revolving credit portion of the
Existing Credit Facility was limited to the sum of between 80 to 85% of eligible
accounts receivable and, subject to certain limitations, 50% (60% from July 1
through October 31 of each year) of eligible inventory.
The Existing Credit Facility was secured by a first priority lien on all of
the Company's assets, other than its Miami Lakes Facility (see
"Business--Properties"), as well as by a security interest in the assets and the
capital stock of its wholly owned subsidiaries and its stock of Fine Fragrances
and by collateral assignment of brand licenses and trademarks. The Existing
Credit Facility restricted the Company's ability to incur additional debt or
other obligations, limited its ability to enter into certain acquisitions,
mergers, investments and affiliated transactions, prohibited the declaration or
payment of dividends on, or the redemption of, the Company's capital stock,
prohibited certain payments on subordinated debt and prohibited the sale of the
Company's interest in Fine Fragrances, G.B. Parfums, Halston Parfums, and FRM.
The Existing Credit Facility also contained covenants requiring the Company to
maintain a minimum shareholders' equity, a maximum leverage ratio, and minimum
debt service and interest coverage ratios. In addition, it was an event of
default under the Existing Credit Facility if Rafael Kravec, the Company's
Chairman of the Board and Chief Executive Officer, ceased to be actively
involved in the Company's management and a replacement satisfactory to Fleet did
not succeed him. This event of default is not contained in the New Credit
Facility. See "Description of the New Credit Facility."
Upon repayment of the amounts outstanding under the Existing Credit
Facility with a portion of the net proceeds of the Offering, such facility was
terminated. The Company entered into the New Credit Facility with Fleet
concurrently with the consummation of the Offering. See "Use of Proceeds" and
"Description of New Credit Facility."
8.0% SECURED SUBORDINATED DEBENTURES. The Company had outstanding $7.4
million aggregate principal amount of 8.0% Series I Debentures, which the
Company issued to investors in the Bedford Funds in connection with the Geoffrey
Beene Acquisition. The Company also issued approximately $3.0 million aggregate
principal amount of 8.0% Series II Debentures to certain investors in the
Bedford Funds in connection with the Halston Acquisition. The 8.0% Secured
Subordinated Debentures were secured by a lien on all of the personal property
assets of the Company junior to the lien of Fleet under the Existing Credit
Facility, and the 8.0% Series II Debentures were also secured by an interest in
the
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proceeds from the sale of the Miami Lakes Facility following satisfaction of
amounts due the mortgage company. The 8.0% Secured Subordinated Debentures
required aggregate mandatory annual principal payments of approximately $2.1
million commencing January 31, 2001, with the final payment due January 31,
2005. See Note 2 to the Notes to Consolidated Financial Statements. The 8.0%
Secured Subordinated Debentures could, at the option of a holder thereof, be
surrendered to pay the conversion price related to any shares of the Company's
Series B Convertible Preferred or Series C Convertible Preferred held by such
holder. See "Use of Proceeds."
8.5% SUBORDINATED DEBENTURES. In connection with the FMG Acquisition, the
Company issued approximately $11.1 million aggregate principal amount of 8.5%
Subordinated Debentures. The 8.5% Subordinated Debentures consisted of a $4.0
million 8.5% Subordinated Debenture which required mandatory principal payments
of $2.0 million in May 1998 and 1999, and three additional 8.5% Subordinated
Debentures in the aggregate principal amount of $7.1 million. See Note 2 to the
Notes to Consolidated Financial Statements. The $4.0 million 8.5% Subordinated
Debenture was retired with a portion of the net proceeds of the Offering at an
aggregate discount to par of $0.1 million. See "--Indebtedness to Remain
Outstanding" and "Use of Proceeds."
INDEBTEDNESS WHICH REMAINS OUTSTANDING
The following indebtedness of the Company continues to be outstanding
following the consummation of the Offering:
HALSTON NOTE. In connection with the Halston Acquisition, the Company
issued to Halston Borghese, Inc. a $2.0 million term note which is to be repaid
on a quarterly basis in an amount equal to 5% of the net sales revenues derived
from the Company's sales of Halston brand products, provided that no payments
are due until October 15, 1997 and that the accrued amount bears interest at 8%
per annum. The Halston Note matures March 20, 2000.
MORTGAGE NOTE. In June 1996, the Company obtained a $6.0 million mortgage
on the Miami Lakes Facility. The Mortgage Note provides for monthly payments of
interest at 8.84%, and a 20-year amortization schedule. The outstanding
principal balance of the Mortgage Note is due and payable in June 2004. The
Mortgage Note is secured by a first priority lien on the Miami Lakes Facility.
8.5% SUBORDINATED DEBENTURES. After consummation of the Offering, $7.1
million aggregate principal amount of 8.5% Subordinated Debentures remain
outstanding. These 8.5% Subordinated Debentures require mandatory annual
principal payments in the aggregate amount of $2.4 million commencing May 2002,
with the remaining balance due May 2004. See Note 2 to the Notes to Consolidated
Financial Statements. The 8.5% Subordinated Debentures are and will be
subordinated in right of payment to all existing and future indebtedness of the
Company, including the Senior Notes.
7.5% CONVERTIBLE DEBENTURES. The Company also has outstanding $5.5 million
aggregate principal amount of 7.5% Convertible Debentures. The 7.5% Convertible
Debentures are convertible at any time at $7.20 per share into shares of Common
Stock, and are redeemable at par at any time commencing July 22, 1999 at the
option of the Company, but only in the event the Common Stock, at the time a
redemption notice is delivered by the Company, has been trading at no less than
$14.40 for 20 consecutive trading days. The 7.5% Convertible Debentures are due
June 30, 2006 and require interest-only payments payable semi-annually until
maturity at which time the entire unpaid principal amount and any unpaid accrued
interest is due and payable. The 7.5% Convertible Debentures are and will be
subordinated in right of payment to all senior indebtedness of the Company,
including the Senior Notes. See Note 4 to the Notes to Consolidated Financial
Statements.
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DESCRIPTION OF THE NEW CREDIT FACILITY
Concurrently with the closing of the Offering, the Company entered into the
New Credit Facility with Fleet which provides for borrowings on a revolving
basis of up to $40.0 million, with a $3.0 million sublimit for letters of
credit, for general corporate purposes, including working capital needs and
acquisitions, subject to certain borrowing base limitations as described below.
Borrowings under the New Credit Facility will mature on May 31, 1999.
The New Credit Facility provides for borrowings on a revolving basis of up
to $40.0 million. Availability is limited, however, to an amount equal to the
Company's Borrowing Base. For purposes of the New Credit Facility, "Borrowing
Base" means an amount equal to the sum of 50% of Eligible In-House Inventory (up
to a maximum of $20.0 million), 85% of Eligible Insured Accounts Receivable, 85%
of Approved Eligible Accounts Receivables and 80% of Eligible Accounts
Receivable (other than Insured Eligible Accounts Receivable or Approved Eligible
Accounts Receivable) (as such terms are defined in the New Credit Facility). The
Company's obligations under the New Credit Facility rank PARI PASSU in right of
payment with the Senior Notes and senior in right of payment to all existing and
future subordinated indebtedness of the Company. In addition, borrowings under
the New Credit Facility are secured by a first priority lien on all of the
Company's accounts receivable and inventory, which constitute a substantial
portion of the Company's assets. Accordingly, the New Credit Facility has
priority as to such collateral over the Senior Notes.
Loans under the New Credit Facility bear interest, payable monthly, at a
floating rate ranging from, at the option of the Company, either (i) 1.75% over
LIBOR to 2.25% over LIBOR or (ii) the Prime Rate as quoted by Fleet to 0.5% over
such Prime Rate, and combinations thereof, in each case depending upon the
Company's ratio of total Funded Debt (which includes all indebtedness of the
Company other than the Halston Note) to its Shareholders Equity Base (as such
term is defined in the New Credit Facility).
The New Credit Facility contains customary covenants, including (a)
limitations on additional indebtedness (including guarantees and capitalized
lease obligations, but excluding up to $50.0 million in each fiscal year for
additional indebtedness which may be issued in connection with certain asset
purchases), (b) limitations on liens, (c) limitations on declaring dividends
(other than stock dividends) on, or repurchasing, redeeming or otherwise
retiring, any class of common stock of the Company or any warrants, options or
rights to purchase any such capital stock or making any other distribution in
respect thereof, (d) limitations on investments (including additional
investments in existing or new subsidiaries) and contingent liabilities, and on
the creation of additional subsidiaries, (e) limitations on advances,
guarantees, and other transactions with affiliated parties, (f) limitations on
capital expenditures and (g) limitations on mergers, consolidations and sales of
assets. The New Credit Facility contains events of default customary for a
facility of this type.
The New Credit Facility also contains certain financial covenants,
including requirements that the Company, on a consolidated basis, (a) maintain
as of the last day of each fiscal quarter, a maximum ratio of indebtedness (less
amounts outstanding under the 8.5% Subordinated Debentures and the 7.5%
Convertible Debentures) to shareholders' equity (plus amounts outstanding under
the 8.5% Subordinated Debentures and the 7.5% Convertible Debentures); (b)
maintain at the end of each fiscal quarter, a shareholders' equity base of at
least $37.0 million, subject to certain yearly increases based on net income and
certain increases based on net proceeds from public offerings by the Company;
(c) maintain at the end of each fiscal quarter for the twelve preceding months
then ended, a minimum ratio of EBITDA (less capital expenditures) to interest
expense (plus regularly scheduled principal payments for borrowed money); and
(d) maintain at the end of each fiscal quarter for the twelve preceding months
then ended, a minimum ratio of Operating Cash Flow (as defined in the New Credit
Facility) (subject to certain adjustments) to interest expense.
The Company pays quarterly in arrears a fee of .375% per annum on the
unused portion of the New Credit Facility and a letter of credit fee of 1.0% per
annum on the face amount of trade letters of credit and 2.0% per annum on the
face amount of stand-by letters of credit issued and outstanding.
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DESCRIPTION OF THE SENIOR NOTES
GENERAL
The Initial Notes were, and the Exchange Notes will be, issued pursuant to
an indenture dated as of May 13, 1997 (the "Indenture") between the Company and
Marine Midland Bank, as trustee (the "Trustee"), a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). Upon the issuance of the Exchange Notes, if
any, or the effectiveness of a Shelf Registration Statement (as defined herein),
the Indenture will be subject to and governed by the Trust Indenture Act. The
Senior Notes are subject to all such terms, and holders of Senior Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of the material provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions." Unless the context other requires, references to
the Senior Notes shall include the Exchange Notes.
The Senior Notes are unsecured senior obligations of the Company, rank
senior in right of payment to all existing and future Subordinated Indebtedness
of the Company and rank PARI PASSU in right of payment with all existing and
future Senior Indebtedness of the Company, including indebtedness under the New
Credit Facility. As of January 31, 1997, after giving effect to the Offering and
the application of the net proceeds therefrom, the Company would have had
approximately $21.8 million of total indebtedness, other than the Senior Notes.
The Indenture limits the ability of the Company and its Subsidiaries to incur
additional indebtedness; however, subject to certain limitations, the Company
and its Subsidiaries are permitted to incur certain indebtedness, which may be
secured. See "--Certain Covenants."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $115 million
and will mature on May 15, 2007. Interest on the Senior Notes accrues at the
rate of 103/8% per annum and will be payable in cash semi-annually in arrears on
May 15 and November 15, commencing on November 15, 1997, to holders of record on
the immediately preceding May 1 and November 1. Interest on the Senior Notes
accrues from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Senior Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the holders of the Senior Notes at their respective
addresses set forth in the register of holders of Senior Notes. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Exchange Notes will
be issued in registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.
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OPTIONAL REDEMPTION
The Senior Notes are not redeemable at the Company's option prior to May
15, 2002. Thereafter, the Senior Notes are subject to redemption, at the option
of the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, in cash, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on May 15 of the years indicated below:
YEAR PERCENTAGE
---- -----------
2002 ..................... 105.188%
2003 ..................... 103.458%
2004 ..................... 101.729%
2005 and thereafter ...... 100.000%
Notwithstanding the foregoing, at any time prior to May 15, 2000, the
Company, at its option, may on any one or more occasions redeem up to 35% of the
initially outstanding aggregate principal amount of Senior Notes at a redemption
price equal to 1093/8% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the redemption date, with the net proceeds of one
or more public equity offerings of the Company generating in each case net
proceeds of at least $15.0 million; PROVIDED that at least 65% of the initially
outstanding aggregate principal amount of Senior Notes remains outstanding
immediately after the occurrence of any such redemption; and PROVIDED, FURTHER,
that such redemption occurs within 60 days of the date of the closing of any
such public equity offering of the Company.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Senior Notes has
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Senior Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 60 days following any Change of Control, the Company will mail
a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Senior Notes
pursuant to the procedures required by the Indenture and described in such
notice. The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Notes as a result of a Change of Control.
On the payment date set forth in the Change of Control Offer (the "Change
of Control Payment Date"), the Company will, to the extent lawful, (i) accept
for payment all Senior Notes or portions thereof properly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Senior Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the Senior Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Senior Notes or portions thereof being purchased
by the Company. The Paying Agent will promptly mail to each holder of Senior
Notes so tendered the Change of Control Payment for such Senior Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each holder a new Senior Note
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equal in principal amount to any unpurchased portion of the Senior Notes
surrendered, if any; PROVIDED that each such new Senior Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) (other than the Principals or their Related Parties (as defined below)),
(ii) the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction or series of transactions
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) (other than the Principals and their
Related Parties) becomes the "beneficial owner" (as such term is defined in Rule
13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of (a) 35%
or more of the voting Capital Interests of the Company and (b) more of the
voting Capital Interests of the Company than are, in the aggregate, beneficially
owned by the Principals and their Related Parties at the time of such
consummation, or (iv) the first day on which a majority of the members of the
Board of Directors are not Continuing Directors. For purposes of this
definition, any transfer of an equity interest of an entity that was formed for
the purpose of acquiring voting Capital Interests of the Company will be deemed
to be a transfer of such portion of such voting Capital Interests as corresponds
to the portion of the equity of such entity that has been so transferred.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of Senior Notes to require the Company
to repurchase such Senior Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another person or group may be
uncertain.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors who (i) was a member of such Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to such
Board of Directors with the approval of (a) a majority of the Principals who
were beneficial owners of voting Capital Interests of the Company at the time of
such nomination or election or (b) a majority of the Continuing Directors who
were members of such Board of Directors at the time of such nomination or
election.
"PRINCIPALS" means Rafael Kravec, E. Scott Beattie, J.W. Nevil Thomas, Fred
Berens and Richard C.W. Mauran.
"RELATED PARTY" with respect to any Principal means (a) any spouse or
immediate family member of such Principal or (b) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of such Principal and/or such other Persons referred to in the
immediately preceding clause (a).
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar restructuring.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale, unless (a) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the
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assets or Equity Interests issued or sold or otherwise disposed of and (b) at
least 75% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash or Cash Equivalents; PROVIDED that the amount
of (i) any liabilities (as shown on the Company's or such Subsidiary's most
recent balance sheet or in the notes thereto) of the Company or any Subsidiary
(other than liabilities that are by their terms subordinated to the Senior Notes
or any guarantee thereof) that are assumed by the transferee of any such assets
and (ii) any securities, notes or other obligations received by the Company or
any such Subsidiary from such transferee that are promptly converted by the
Company or such Subsidiary into cash (to the extent of the cash received), will
be deemed to be cash for purposes of this provision.
Within 180 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds (a) to permanently reduce Senior
Indebtedness, (b) to permanently reduce Indebtedness permitted to be incurred
pursuant to clause (i) of the second paragraph of the covenant described below
under "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Disqualified Stock" or (c) to an Investment in another business, the making of a
capital expenditure or the acquisition of other tangible assets, in each case,
in the same or a similar or related line of business as the Company and its
Subsidiaries were engaged in on the date of the Indenture. Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds." Within 30 days
after the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company
is required to make an offer to all holders of Senior Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes that may be
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest,
if any, thereon to the date of purchase (the "Asset Sale Offer Price"), in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company and its Subsidiaries may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Senior Notes surrendered by holders thereof exceeds the
amount of Excess Proceeds, the Trustee will select the Senior Notes to be
purchased on a PRO RATA basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds will be reset at zero.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Senior Notes are listed, or, if the Senior Notes are not so
listed, on a PRO RATA basis, by lot or by such method as the Trustee shall deem
fair and appropriate; PROVIDED that no Senior Notes of $1,000 or less will be
redeemed in part. Notices of redemption will be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each holder of
Senior Notes to be redeemed at its registered address. If any Senior Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Note will state the portion of the principal amount thereof to be redeemed. A
new Senior Note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the holder thereof upon cancellation of the original
Senior Note. On and after the redemption date, interest ceases to accrue on
Senior Notes or portions thereof called for redemption unless the Company
defaults in making the redemption payment.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, (i) declare or pay any dividend
or make any distribution on account of the Company's or any of its Subsidiaries'
Equity Interests (including, without limitation, any such distribution by such
Persons in connection with any merger or consolidation involving the Company)
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the
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Company or dividends or distributions payable to the Company or any Wholly Owned
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Company or any direct or indirect parent
of the Company; (iii) make any principal payment on, or purchase, redeem,
defease or otherwise acquire or retire for value any Subordinated Indebtedness,
except at scheduled maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(A) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(B) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the most recently ended four fiscal quarters for which
financial statements are available, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described below under
the caption "--Incurrence of Indebtedness and Issuance of Disqualified
Stock"; and
(C) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (ii) and
(iii) of the next succeeding paragraph), is less than the sum of (1) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing
after the date of the Indenture to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, LESS 100% of such deficit), PLUS (2) 100% of the
aggregate net cash proceeds received by the Company from the issuance or sale
since the date of the Indenture of Equity Interests of the Company or of debt
securities of the Company that have been converted into such Equity Interests
(other than Equity Interests (or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock or Equity
Interests issued upon conversion of the Company's Series B Convertible
Preferred or Series C Convertible Preferred outstanding on the date of the
Indenture), PLUS (3) to the extent that any Restricted Investment that was
made after the date of the Indenture is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (x) the cash return of capital with respect
to such Restricted Investment (LESS the cost of disposition, if any) and (y)
the initial amount of such Restricted Investment.
The foregoing provisions do not prohibit (i) the payment of any dividend or
distribution within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
PROVIDED that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement or other acquisition will be excluded
from clause (C)(2) of the preceding paragraph; (iii) the defeasance, redemption
or repurchase of Subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); PROVIDED that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition will be excluded from clause (C)(2) of the
preceding paragraph; (iv) the payment on the Issue Date of all principal and
accrued interest related to (a) all of the Company's 8.0% Secured Subordinated
Debentures and (b) $4.0 million principal amount of the Company's 8.5%
Subordinated Debentures; and (v) an Investment to repurchase stock and to repay
Indebtedness in connection with a transaction that results in Fine Fragrances
becoming a Wholly Owned Subsidiary of the Company, in the case of clauses (iv)
and (v), as described under "Use of Proceeds" elsewhere in this Prospectus.
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The amount of all Restricted Payments (other than cash) will be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company will deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, which calculations may be
based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock;
PROVIDED that the Company may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock and any Subsidiary may incur Indebtedness (including
Acquired Debt), if, (i) in each case, the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least (a) 2.00 to 1, on or prior to May 15, 1999 and (b) 2.25 to 1,
thereafter, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period and (ii) in the case of
incurrence of Indebtedness by a Subsidiary (other than Acquired Debt), such
Subsidiary guarantees on a senior unsecured basis (a "Subsidiary Guarantee") the
Company's payment obligations under the Senior Notes (each such Subsidiary, a
"Subsidiary Guarantor"). See "--Subsidiary Guarantees" and "--Limitations on
Issuances of Guarantees of Indebtedness."
The foregoing provisions do not apply to:
(i) the incurrence by the Company and any Subsidiary Guarantor of Senior
Revolving Debt and letters of credit pursuant to any Credit Facility for
working capital purposes (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of the Company
thereunder) in an aggregate principal amount not to exceed the amount of the
Borrowing Base;
(ii) the incurrence by the Company of the Existing Indebtedness;
(iii) the incurrence by the Company of the Indebtedness represented by the
Senior Notes and the incurrence by any Subsidiary Guarantor of the
Indebtedness represented by its Subsidiary Guarantee;
(iv) the incurrence by the Company and any Subsidiary Guarantor of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(v) the incurrence by the Company or any Subsidiary Guarantor of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries; PROVIDED that (A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a Person
other than a Wholly Owned Subsidiary and (B) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company or a Wholly
Owned Subsidiary will be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Subsidiary Guarantor, as the case
may be;
(vi) the incurrence by the Company and any Subsidiary Guarantor of
Indebtedness (A) represented by Capital Lease Obligations, mortgage
financings or purchase money obligations,
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in each case incurred for the purpose of financing up to all or any part of
the purchase price or cost of construction or improvement of property used in
the business of the Company or such Subsidiary Guarantor, or (B) represented
by mortgage financing secured solely by the Miami Lakes Facility (in addition
to Indebtedness permitted to be incurred pursuant to clauses (ii) or (iv)
above in this covenant) in a principal amount for (A) and (B) in the
aggregate not to exceed $7.5 million at any time outstanding;
(vii) the incurrence by the Company and any Subsidiary Guarantor of Hedging
Obligations in the ordinary course of business of the Company or such
Subsidiary Guarantor, as the case may be;
(viii) the incurrence by the Company and any Subsidiary Guarantor of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business of
the Company or such Subsidiary Guarantor, as the case may be; and
(ix) the incurrence by the Company and any Subsidiary Guarantor of
Indebtedness not otherwise permitted under the Indenture in an aggregate
amount for all such Indebtedness not to exceed $7.5 million at any time
outstanding.
The Company will not incur any secured Indebtedness which is not Senior
Indebtedness. No Subsidiary Guarantor will incur any secured Indebtedness which
is not Guarantor Senior Indebtedness.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, create, incur, assume or otherwise cause or suffer to
exist or become effective any Lien of any kind (other than Permitted Liens) upon
any of their property or assets, now owned or hereafter acquired, unless all
payments due under the Indenture and the Senior Notes, and all obligations under
the Subsidiary Guarantees, if any, are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are no
longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on their Capital
Interests or (B) with respect to any other interest or participation in, or
measured by, its profits, or (ii) pay any Indebtedness owed to the Company or
any of its Subsidiaries, (b) make loans or advances to the Company or any of its
Subsidiaries or (c) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (i) Existing Indebtedness as in effect on the date of the
Indenture, (ii) any Credit Facility, PROVIDED that any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereto are no more restrictive with respect to
such dividend and other payment restrictions than those contained in the
Revolving Credit Facility as in effect on the date of the Indenture, (iii) the
Indenture and the Senior Notes, (iv) applicable law, (v) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (vi) Capital Lease Obligations,
mortgage financings or purchase money obligations for property acquired in the
ordinary course of business or mortgage financings secured by the Miami Lakes
Facility that impose restrictions of the nature described in clause (c) above on
the property so acquired or the Miami Lakes Facility, as the case may be, (vii)
existing with respect to any Person or the property or assets of such Person
acquired by the Company or any of its Subsidiaries, at the time of such
acquisition and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired, or (viii) Permitted Refinancing Indebtedness, PROVIDED that the
restrictions contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being refinanced.
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MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its assets in one or more related transactions to, another corporation,
Person or entity, unless (i) the Company is the surviving Person or the entity
or the Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is organized and existing under the
laws of the United States, any state thereof or the District of Columbia; (ii)
the entity or Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Senior Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or Event of Default
exists; and (iv) the Company or the entity or Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) except in the case of a transaction the principal purpose
and effect of which is to change the Company's state of incorporation, will, at
the time of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make any contract, agreement, understanding, loan, advance or guarantee with,
or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that would
have been obtained in a comparable transaction by the Company or such Subsidiary
with an unrelated Person and (b) the Company delivers to the Trustee (i) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (a) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (ii) with
respect to any Affiliate Transaction involving aggregate consideration in excess
of $5.0 million, an opinion as to the fairness to the Company or such Subsidiary
of such Affiliate Transaction from a financial point of view issued by a
nationally-recognized investment banking firm; PROVIDED that (A) any reasonable
employment, compensation, bonus or benefit arrangement entered into by the
Company or any of its Subsidiaries in the ordinary course of business of the
Company or such Subsidiary, including without limitation, (x) the grant of stock
options, stock appreciation rights or other stock-based incentive awards (other
than Disqualified Stock) in the ordinary course of business of the Company or
such Subsidiary, as the case may be, PROVIDED that any non-stock payments by the
Company or any Subsidiary in connection with the grant or exercise or other
settlement of such stock options, stock appreciation rights or other stock-based
incentive awards are permitted under the provisions of the Indenture described
above under "--Restricted Payments" and (y) the payment of bonuses to officers
of the Company from the 6% Bonus Pool described under the caption
"Management--Executive Compensation" elsewhere in this Prospectus, and any
renewals, extensions or amendments thereof, provided that amounts paid
thereunder with respect to any fiscal year shall not exceed in the aggregate 6%
of the Company's pre-tax profits for such fiscal year as determined pursuant to
the terms of the 6% Bonus Pool as in effect on the date of the Indenture, (B)
transactions between or among the Company and/or its Subsidiaries, (C) the
payment of reasonable fees, expense reimbursement and customary indemnification,
advances and
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other similar arrangements to directors and officers of the Company, (D)
reasonable loans or advances to employees of the Company and its Subsidiaries in
the ordinary course of business of the Company or such Subsidiary, as the case
may be, (E) transactions permitted by the provisions of the Indenture described
above under the caption "--Restricted Payments," (F) scheduled payments of
principal and interest with respect to Existing Indebtedness, (G) scheduled
payments pursuant to the lease of the National Trading Facility as described
under the caption "Certain Transactions--National Trading" elsewhere in this
Prospectus and (H) so long as Mr. Beattie is acting as President and Chief
Operating Officer of the Company, payment of a fee to ESB pursuant to the terms
of the Chief Operating Officer Compensation Agreement as in effect on the date
of the Indenture (or any agreement replacing such agreement on terms approved as
reasonable by a majority of the disinterested members of the Board of Directors
and set forth in an Officers' Certificate delivered to the Trustee), in each
case, will not be deemed to be Affiliate Transactions.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; PROVIDED
that the Company and any Subsidiary Guarantor may enter into a sale and
leaseback transaction if (a) the Company or such Subsidiary Guarantor could have
(i) incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction pursuant to the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Disqualified
Stock" and (ii) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "--Liens," (b) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (c) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
or such Subsidiary Guarantor applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales."
LIMITATION ON ISSUANCES AND SALES OF CAPITAL INTERESTS OF WHOLLY OWNED
SUBSIDIARIES
The Indenture provides that the Company (a) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of (including by way of merger, consolidation or similar
transaction) any Capital Interests of any Wholly Owned Subsidiary of the Company
to any Person (other than the Company or a Wholly Owned Subsidiary of the
Company), unless (i) such transfer, conveyance, sale, lease or other disposition
is of all the Capital Interests of such Wholly Owned Subsidiary and (ii) the
cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "--Repurchase at the Option of Holders--Asset Sales," and (b) will
not permit any Wholly Owned Subsidiary of the Company to issue any of its Equity
Interests (other than, if necessary, Capital Interests constituting directors'
qualifying shares or interests) to any Person other than to the Company or a
Wholly Owned Subsidiary of the Company.
LIMITATION ON PREFERRED STOCK OR PREFERRED EQUITY INTERESTS OF SUBSIDIARIES
The Company will not permit any of its Subsidiaries to issue or sell any
preferred stock or preferred Equity Interests (other than to the Company or to a
Wholly Owned Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly Owned Subsidiary of the Company) to own any preferred stock
or preferred Equity Interests of any Subsidiary.
BUSINESS ACTIVITIES
The Indenture provides that the Company will not, and will not permit any
Significant Subsidiary to, engage in any business other than such business
activities as the Company and its Subsidiaries are engaged in on the date of the
Indenture and such business activities similar or reasonably related thereto.
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PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of any Senior Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Senior Notes, unless such consideration is
offered to be paid or agreed to be paid to all holders of the Senior Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Senior Notes are outstanding, the
Company will furnish to the holders of Senior Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
SUBSIDIARY GUARANTEES
As described above under the caption "--Incurrence of Indebtedness and
Issuance of Disqualified Stock," the Indenture permits any Subsidiary to incur
Indebtedness under certain circumstances, PROVIDED that such Subsidiary
guarantees on a senior unsecured basis the Company's payment obligations under
the Senior Notes. To effect such Guarantee, such Subsidiary will, no later than
the incurrence of such Indebtedness, execute and deliver to the Trustee a
supplemental indenture to the Indenture providing for the Guarantee of the
payment of the Senior Notes by such Subsidiary Guarantor. Each Subsidiary
Guarantee will be a senior unsecured obligation of the Subsidiary Guarantor
issuing such Subsidiary Guarantee and will rank PARI PASSU in right of payment
with all Guarantor Senior Indebtedness of such Subsidiary Guarantor. The
obligations of each Subsidiary Guarantor under its Subsidiary Guarantee will be
limited so as to not to constitute a fraudulent conveyance under applicable law.
See "Risk Factors--Fraudulent Conveyance."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor (other than the Company or a Subsidiary Guarantor),
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Subsidiary Guarantor) assumes all the obligations of such Subsidiary Guarantor,
pursuant to a supplemental indenture in form and substance reasonably
satisfactory to the Trustee, under the Senior Notes and the Indenture, (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists and (iii) such Subsidiary Guarantor, or any Person formed by or
surviving any such consolidation or merger, would be permitted by virtue of the
Company's pro forma Fixed Charge Coverage Ratio to incur, immediately after
giving effect to such transaction, at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Disqualified Stock"; PROVIDED that the foregoing provisions do not apply to any
Asset Sale subject to the provisions described above under the caption
"--Repurchase at the Option of Holders--Asset Sales."
The Indenture provides that, (i) in the event of a sale or other
disposition of all, or substantially all, of the assets of any Subsidiary
Guarantor, by way of merger, consolidation or otherwise, or a sale or
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other disposition of all of the capital stock of any Subsidiary Guarantor, such
Subsidiary Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor) or the corporation acquiring the property (in the event of
a sale or other disposition of all, or substantially all, of the assets of such
Subsidiary Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee; PROVIDED that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture described above under the caption "--Repurchase at the Option of
Holders--Asset Sales", (ii) in the event the Subsidiary Guarantee was issued by
reason of the incurrence of Indebtedness by a Subsidiary Guarantor permitted
pursuant to the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Disqualified Stock," the payment in full, whether
at maturity or otherwise, of all Indebtedness incurred by such Subsidiary
Guarantor in accordance with such covenant or (iii) in the event the Subsidiary
Guarantee was issued by reason of the Guarantee or securing of payment of
Indebtedness other than the Senior Notes pursuant to the covenant described
below under the caption "--Limitations on Issuances of Guarantees of
Indebtedness," the release or discharge of the Guarantee by the Subsidiary
Guarantor of all such Indebtedness, except a discharge by or as a result of
payment under such Guarantee.
LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS
The Indenture provides that the Company will not permit any Subsidiary,
directly or indirectly, to guarantee or secure the payment of any Indebtedness
other than the Senior Notes, unless such Subsidiary simultaneously executes and
delivers a supplemental indenture to the Indenture providing for the Guarantee
of the payment of the Senior Notes by such Subsidiary, which Guarantee will rank
senior to or PARI PASSU with such Subsidiary's Guarantee of, or pledge to
secure, such other Indebtedness. Notwithstanding the foregoing, any such
Guarantee by a Subsidiary of the Senior Notes will provide by its terms that it
will be automatically and unconditionally released and discharged upon either
(a) the release or discharge of such Guarantee of such other Indebtedness,
except a discharge by or as a result of payment under such Guarantee, or (b) any
sale, exchange or transfer, to any Person not an Affiliate of the Company, of
all of the Company's Capital Interests in, or all or substantially all the
assets of, such Subsidiary, which sale, exchange or transfer is made in
compliance with the applicable provisions of the Indenture. The form of such
Guarantee is attached as an exhibit to the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in the payment of all or any part of the principal,
or premium, if any, on the Senior Notes when and as the same becomes due and
payable at maturity, upon redemption, by acceleration, or otherwise, including,
without limitation, the payment of the Change of Control Payment or the Asset
Sale Offer Price, or otherwise; (iii) failure by the Company or any of its
Subsidiaries to observe or perform in all material respects the covenants set
forth in the Indenture described above under the captions "--Certain
Covenants--Restricted Payments," "--Incurrence of Indebtedness and Issuance of
Disqualified Stock," "--Liens" and "--Merger, Consolidation or Sale of Assets";
(iv) failure by the Company or any of its Subsidiaries to observe or perform in
all material respects any other covenant or agreement on the part of the Company
or such Subsidiary contained in the Senior Notes or the Indenture and the
continuance of such failure for a period of 30 days after written notice is
given to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the Senior Notes then
outstanding, specifying such default, requiring that it be remedied and stating
that such notice is a "Notice of Default"; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness by the Company or any of its Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (A) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (B) results in the acceleration of such
Indebtedness prior to its
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express maturity and, in each of (A) and (B), the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $3.0 million or more; (vi) failure by the Company or
any of its Subsidiaries to pay final non-appealable judgments aggregating in
excess of $3.0 million, which judgments are not paid, discharged or stayed for a
period of 60 consecutive days; (vii) except as permitted by the Indenture, any
Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Subsidiary Guarantor, or any Person acting on behalf of any
Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with
respect to the Company or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Senior Notes will become
due and payable without further action or notice. Holders of the Senior Notes
may not enforce the Indenture or the Senior Notes except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Senior Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Senior Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium will
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to May 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Notes prior to May 15, 2002, then the
premium specified in the Indenture will also become immediately due and payable
to the extent permitted by law upon the acceleration of the Senior Notes.
The holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes, and except
as to payments required under the covenants described above under the captions
"--Repurchase at the Option of Holders--Change of Control" and "--Asset Sales."
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, PARTNERS AND
STOCKHOLDERS
No director, officer, employee, incorporator, partner or stockholder of the
Company or any Subsidiary of the Company, as such, has any liability for any
obligations of the Company or any Subsidiary Guarantor under the Senior Notes,
any Subsidiary Guarantee or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of Senior
Notes by accepting a Senior Note waives and releases all such liability. The
waiver and release are part
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of the consideration for issuance of the Senior Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws, and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Senior Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations will not constitute
a Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"--Events of Default and Remedies" will no longer constitute an Event of Default
with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Senior Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Senior Notes
are being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel will
confirm that, the holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the holders of the
outstanding Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, assuming that no holder of a Senior Note is an
"insider" as defined in Section 101(31) of the U.S. Bankruptcy Code and assuming
that prior to such 91st day no voluntary or involuntary bankruptcy case has been
commenced with respect to the Company, such deposit will not constitute a
preference as defined in Section 547 of the U.S. Bankruptcy Code, and, assuming
such a bankruptcy case is commenced on or after such 91st day, the trust funds
will not constitute property included within the
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estate of the debtor; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for in the Indenture relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Senior Notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the Senior Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for Senior Notes), and any existing Default or compliance with any provision of
the Indenture or the Senior Notes may be waived with the consent of the holders
of a majority in principal amount of the then outstanding Senior Notes
(including consents obtained in connection with a tender offer or exchange offer
for Senior Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting holder) (i) reduce
the principal amount of Senior Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes, (iii) reduce the rate of or change the time for payment of
interest, including default interest, on any Senior Note, (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Senior Notes including, without limitation, payment of the
Change of Control Payment or the Asset Sale Offer Price (except a rescission of
acceleration of the Senior Notes by the holders of at least a majority in
aggregate principal amount of the then outstanding Senior Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Senior
Note payable in money other than that stated in the Senior Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of Defaults or the
rights of holders of Senior Notes to receive payments of principal of or
premium, if any, or interest on the Senior Notes, (vii) waive a redemption
payment with respect to any Senior Note or (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes, the Company and the Trustee may amend or supplement the Indenture, the
Senior Notes or any Subsidiary Guarantee to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes, to provide for the assumption of the
Company's or any Subsidiary Guarantor's obligations to holders of Senior Notes
in the case of a merger, consolidation or other similar business combination, to
make any change that would provide any additional rights or benefits to the
holders of Senior Notes or that does not materially adversely affect the legal
rights under the Indenture of any such holder, to provide for Subsidiary
Guarantees of the Senior Notes or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must (i)
eliminate such conflict within 90 days, (ii) apply to the Commission for
permission to continue or (iii) resign.
The holders of a majority in principal amount of the then outstanding
Senior Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Senior Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to French Fragrances, Inc., 14100 N.W. 60th Avenue,
Miami Lakes, Florida 33014, Attention: Chief Financial Officer.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, PROVIDED
that such Indebtedness was not incurred in contemplation of such other Person
merging with or into or becoming a Subsidiary of such specified Person and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such specified
Person, PROVIDED that such Indebtedness was not incurred in contemplation of
such acquisition.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person will be
deemed to be control.
"ASSET SALE" means (a) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback or by
way of merger, consolidation or similar transaction) other than sales of
inventory in the ordinary course of business consistent with past practices
(PROVIDED that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above under
the caption "--Repurchase at the Option of Holders--Change of Control" and/or
the provisions described above under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), (b) the issuance by any Subsidiary of Equity Interests of such
Subsidiary and (c) the disposition by the Company or any of its Subsidiaries of
Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (a), (b) or (c), whether in a single transaction or a series of related
transactions, (i) that have a fair
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market value in excess of $1.0 million or (ii) for net proceeds in excess of
$1.0 million. Notwithstanding the foregoing, (a) a transfer of assets by the
Company to a Wholly Owned Subsidiary that is a Subsidiary Guarantor, or by a
Wholly Owned Subsidiary to the Company or to another Wholly Owned Subsidiary,
(b) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company
or to another Wholly Owned Subsidiary, (c) a Restricted Payment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments," (d) any sale and leaseback transaction
otherwise permitted pursuant to the covenant described above under the caption
"--Certain Covenants--Sale and Leaseback Transactions" and (e) sales of accounts
receivable in the ordinary course of business of the Company consistent with
past practices for the purpose of insuring against the risk of uncollectibility
pursuant to the Heller Arrangement described elsewhere in this Prospectus in
"Business--Marketing and Sales" (or any replacement thereof on terms that are no
less favorable to the Company), will not be deemed to be Asset Sales.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"BOARD OF DIRECTORS" means the Board of Directors of the Company or any
authorized committee of the Board of Directors, except that for the purposes of
the definitions of the terms "Change of Control" and "Continuing Directors," the
term "Board of Directors" shall mean the entire Board of Directors of the
Company and not any authorized committee of the Board of Directors.
"BORROWING BASE" means, as of any date, an amount equal to (a) 85% of the
face amount of all accounts receivable owned by the Company and its Subsidiaries
as of such date that are not more than 90 days past due, PLUS (b) 65% of the
book value (calculated on an average cost basis) of all inventory owned by the
Company and its Subsidiaries as of such date, MINUS (c) any amount applied
pursuant to the second paragraph of the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales" to permanently
reduce Indebtedness permitted to be incurred pursuant to clause (i) of the
second paragraph of the covenant described above under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock," all
calculated on a consolidated basis and in accordance with GAAP. To the extent
that information is not available as to the amount of accounts receivable or
inventory as of a specific date, the Company may utilize the most recent
available information for purposes of calculating the Borrowing Base.
"CAPITAL INTERESTS" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or other business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits or demand deposits, in each case with any lender party
to any Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $1.0 billion, (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into
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with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Ratings Service, a division
of The McGraw-Hill Companies, Inc., and in each case maturing within six months
after the date of acquisition and (vi) investments in money market funds all of
whose assets comprise securities of the types described in clauses (i), (ii) and
(iii) above.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED CASH FLOW" means with respect to any Person for any period,
the Consolidated Net Income of such Person and its Subsidiaries for such period
PLUS (i) an amount equal to any extraordinary loss PLUS any net loss realized in
connection with an Asset Sale (including, without limitation, dispositions
pursuant to sale and leaseback transactions) (to the extent such losses were
deducted in computing such Consolidated Net Income), PLUS (ii) the provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, PLUS (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income, PLUS (iv) all items
classified as "depreciation" or "amortization" on such Person's statement of
operations and other non-cash charges (including non-cash, equity-based
compensation charges, but excluding any non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income. Notwithstanding the foregoing, the provision for
taxes on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of the referent Person will be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its organizational documents and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; PROVIDED
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting will be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary will be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without prior approval (that has not been
obtained) pursuant to the terms of its organizational documents and all
agreements, instruments, judgments, decrees, orders, statutes, rules or
governmental regulations applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will be
excluded, (iv) the cumulative effect of a change in accounting principles will
be excluded, (v) Consolidated Net Income will not include any gain (but shall
include any loss), together with any related provision for taxes on such gain
(but not such loss), realized in connection with (A) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(B) the disposition of any securities by such Person or any of its Subsidiaries
or the
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extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(vi) Consolidated Net Income will not include any extraordinary or nonrecurring
gain (but shall include any loss), together with any related provision for taxes
on such extraordinary or nonrecurring gain (but not such loss).
"CONSOLIDATED NET WORTH" means, with respect to any Person, the sum of (i)
the consolidated equity of the holders of common Equity Interests in such Person
and its consolidated Subsidiaries PLUS (ii) the respective amounts reported on
such Person's most recent balance sheet with respect to any series of preferred
stock or preferred Equity Interests; PROVIDED that the preferred stock or
preferred Equity Interests will be included in Consolidated Net Worth only if
such preferred stock or preferred Equity Interests are not Disqualified Stock,
LESS (x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within twelve months after the acquisition of such business) subsequent to the
date of the most recently completed fiscal quarter in the book value of any
asset owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries (except, in each case, investments in marketable securities), and
(z) all unamortized debt discount and expense and unamortized deferred financing
charges, all of the foregoing determined in accordance with GAAP.
"CREDIT FACILITY" means any credit facility entered into by and among the
Company, any Subsidiary Guarantor and the lending institutions party thereto,
including any credit agreement, related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
91st day after the date on which the Senior Notes mature.
"EQUITY INTERESTS" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security that
is convertible into, or exchangeable for, Capital Interests).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXISTING INDEBTEDNESS" means the aggregate principal amount of
Indebtedness of the Company and its Subsidiaries in existence on the date of the
Indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of deferred financing fees), (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Subsidiaries or secured by a Lien on assets of such Person
or one of its Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) the amount of dividends or distributions paid,
whether or not in cash, in respect of preferred stock or preferred Equity
Interests of such Person, other than dividend payments on Equity Interests
payable
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solely in Equity Interests of the Company, times (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in the case of clauses (i) through (iv), determined on a
consolidated basis and, in the case of clauses (i) through (iii), determined in
accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Subsidiaries for such period to the Fixed Charges of such Person and its
Subsidiaries for such period. In the event that the Company or any of its
Subsidiaries incurs, assumes, Guarantees or redeems any Indebtedness (other than
revolving borrowings under any Credit Facility) or issues or redeems preferred
stock or preferred Equity Interests subsequent to the commencement of the period
for which the Fixed Charge Coverage Ratio is being calculated but prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock or preferred Equity Interests, as if the same had occurred at
the beginning of the applicable four-quarter reference period. For purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTOR SENIOR INDEBTEDNESS" means any Indebtedness permitted to be
incurred by any Subsidiary Guarantor under the terms of the Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is subordinated in right of payment to such Subsidiary Guarantor's Subsidiary
Guarantee. Notwithstanding the foregoing, Guarantor Senior Indebtedness shall
not include (i) any Obligation of such Subsidiary Guarantor to any Subsidiary of
such Subsidiary Guarantor, (ii) any liability for federal, state, local or other
taxes owed or owing by such Subsidiary Guarantor, (iii) any accounts payable or
other liability to trade creditors arising in the ordinary course of business of
the Subsidiary Guarantor (including Guarantees thereof or instruments evidencing
such liabilities), (iv) any Indebtedness, Guarantee or Obligation of the
Subsidiary Guarantor that is contractually subordinated or junior in any respect
to any other Indebtedness, Guarantee or Obligation of such Subsidiary Guarantor
or (v) any Indebtedness incurred in violation of the Indenture.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates and (iii) agreements entered into for the purpose of fixing or hedging the
risks associated with fluctuations in foreign currency exchange rates.
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"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability on a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations but
excluding advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person or its
Subsidiaries in accordance with GAAP), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration consisting of Indebtedness, Equity Interests or other securities
and all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP; PROVIDED that an acquisition of assets,
Equity Interests or other securities by the Company for consideration consisting
of common equity securities of the Company will not be deemed to be an
Investment.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"MIAMI LAKES FACILITY" means the land and buildings comprising the
Company's executive offices and distribution facility at 14100 N.W. 60th Avenue,
Miami Lakes, Florida 33014.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP.
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, regulatory compliance costs and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Senior Revolving Debt) secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means (a) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that is engaged in the same or a similar
or related line of business as the Company and its Subsidiaries were engaged in
on the date of the Indenture; (b) any Investments in Cash Equivalents; (c)
Investments by the Company or any Subsidiary of the Company in a Person, if as a
result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of
the Company that is engaged in the same or a similar or related line of business
as the Company and its Subsidiaries were
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engaged in on the date of the Indenture or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Subsidiary of the Company that is engaged in the same or a similar or related
line of business as the Company and its Subsidiaries were engaged in on the date
of the Indenture; (d) Investments made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales"; (e) Investments in endorsements of negotiable
instruments and similar negotiable documents in the ordinary course of business;
(f) Investments existing on the date of the Indenture; (g) Investments in
obligations of account debtors to the Company or any of its Subsidiaries and
stock or obligations issued to the Company or any such Subsidiary by any Person,
in each case, in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of such Person's
Indebtedness; and (h) other Investments in any one or more Persons that do not
exceed $5.0 million in the aggregate at any time outstanding.
"PERMITTED LIENS" means (i) Liens on accounts receivable and inventory
securing Indebtedness permitted to be incurred under clause (i) of the second
paragraph of the covenant described above under "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Disqualified Stock"; (ii) Liens in favor of the
Company; (iii) Liens to secure Indebtedness permitted to be incurred pursuant to
the first paragraph of the covenant described above under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock" that
is incurred to finance the acquisition of property or assets acquired by the
Company or any Subsidiary after the date of the Indenture, so long as (A) such
Indebtedness is incurred and the Lien securing such Indebtedness is created
within 90 days of such acquisition and (B) such Lien does not extend to any
property or assets of the Company or any Subsidiary other than the property and
assets so acquired; (iv) Liens on property of a Person existing at the time such
Person is merged into, consolidated with or acquired by the Company or any
Subsidiary of the Company; PROVIDED that such Liens were not incurred in
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company or
any Subsidiary or those of an unrelated third party; (v) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, PROVIDED that such Liens were not incurred in contemplation of such
acquisition; (vi) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company; (vii) Liens to secure Indebtedness permitted by clause (vi) of the
second paragraph of the covenant described above under "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Disqualified Stock"
covering only the assets acquired, constructed or improved with such
Indebtedness or the Miami Lakes Facility, as the case may be; (viii) Liens
existing on the date of the Indenture; (ix) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently pursued, PROVIDED that any reserve or other appropriate provision as
is required in conformity with GAAP shall have been made therefor; (x) Liens
securing Permitted Refinancing Indebtedness, PROVIDED that such Liens do not
extend to or cover any assets or property other than the collateral securing the
Indebtedness to be refinanced; (xi) Liens arising by operation of law in
connection with judgments, which do not give rise to an Event of Default with
respect thereto; (xii) easements, rights of way, zoning restrictions and other
similar encumbrances or title defects which do not materially detract from the
value of the property or the assets subject thereto or interfere with the
ordinary conduct of the business of the Company and its Subsidiaries, taken as a
whole; (xiii) Liens securing Attributable Debt with respect to any sale and
leaseback transaction in an aggregate amount not to exceed the aggregate
principal amount of Attributable Debt permitted to be incurred pursuant to the
covenant described above under "--Certain Covenants--Incurrence of Indebtedness
and Issuance of Disqualified Stock," PROVIDED that such Liens do not extend to
or cover any assets or property other than the collateral securing such
Attributable Debt; (xiv) Liens on sales of accounts receivable pursuant to the
Heller Arrangement (or any permitted replacement thereof); and (xv) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company with respect to obligations that (A) are not incurred in connection
with the borrowing of money or the obtaining of advances or credit (other than
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trade credit in the ordinary course of business) and (B) do not in the aggregate
materially detract from the value of the property subject thereto or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; PROVIDED that (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (PLUS the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Senior
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to, the
Senior Notes on terms at least as favorable to the holders of Senior Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary that is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"REVOLVING CREDIT FACILITY" means the revolving credit facility dated as of
May 13, 1997, between the Company and Fleet National Bank.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"SENIOR INDEBTEDNESS" means any Indebtedness which ranks PARI PASSU in
right of payment with, and which is not expressly by its terms subordinated in
right of payment of principal, interest or premium, if any, to the Senior Notes,
whether or not such Indebtedness is secured.
"SENIOR REVOLVING DEBT" means revolving credit borrowings under any Credit
Facility.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture; PROVIDED that each Subsidiary Guarantor will be deemed a
Significant Subsidiary.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness which is expressly by
its terms subordinated in right of payment of principal, interest or premium, if
any, to the Senior Notes.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Capital Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person (or a combination thereof).
"SUBSIDIARY GUARANTOR" means any Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and its
successors and assigns.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
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principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person,
all of the outstanding Capital Interests or other ownership interests of which
(other than directors' qualifying shares or interests) are at the time owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person (or a
combination thereof).
BOOK-ENTRY, DELIVERY AND FORM
The Initial Notes were offered and sold to QIBs in reliance on Rule 144A
("Rule 144A Notes"). Initial Notes also were offered and sold to Institutional
Accredited Investors in transactions exempt from registration under the
Securities Act not made in reliance on Rule 144A ("Other Notes").
Exchange Notes issued in exchange for each of the Rule 144A Notes and Other
Notes initially will be represented by one or more Notes in registered, global
form without interest coupons (collectively, the "Global Notes"). The Global
Notes will be deposited upon issuance with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Exchange Notes in certificated form except in the limited circumstances
described below. See "--Exchange of Book-Entry Senior Notes for Certificated
Senior Notes." In addition, transfers of beneficial interests in the Global
Notes will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants, which may change from time to time.
The Exchange Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly (collectively, the "Indirect Participants"). Persons who are not
Participants may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The ownership interest
and transfer of ownership interest of each actual purchaser of each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants which receive Exchange Notes with portions of the principal amount
of the Global Notes and (ii) ownership of such interests in the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Note may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations which are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC.
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The laws of some states require that certain Persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such Persons may be limited to
that extent. Because DTC can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants and certain banks, the ability of a
Person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests. For certain other restrictions on the
transferability of the Exchange Notes, see "--Exchange of Book-Entry Senior
Notes for Certificated Senior Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on a Global Note registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
will treat the Persons in whose names the Exchange Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes, or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Exchange Notes (including principal
and interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Notes as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practices and will
not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Exchange Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
Exchange Notes for all purposes.
Interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its Participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such Participant or Participants has or have
given such direction. However, if there is an Event of Default under the
Exchange Notes, DTC reserves the right to exchange the Global Notes for Exchange
Notes in certificated form, and to distribute such Exchange Notes to its
Participants.
The information in this section concerning DTC and its book-entry systems
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
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Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Initial
Purchasers or the Trustee will have any responsibility for the performance by
DTC or its respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY SENIOR NOTES FOR CERTIFICATED SENIOR NOTES
A Global Note is exchangeable for definitive Exchange Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the
Exchange Notes in certificated form or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Exchange Notes.
In addition, beneficial interests in a Global Note may be exchanged for
certificated Exchange Notes upon request of a holder but only upon at least 20
days' prior written notice given to the Trustee by or on behalf of DTC in
accordance with its customary procedures. In all cases, certificated Exchange
Notes delivered in exchange for any Global Note or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures).
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Initial Purchasers, for the benefit of the holders of
Senior Notes, entered into the Registration Rights Agreement dated as of May 13,
1997. Pursuant to the Registration Rights Agreement, the Company filed with the
SEC the Registration Statement with respect to the Exchange Offer (the "Exchange
Offer Registration Statement"). If any holder of Transfer Restricted Senior
Notes (as defined below) notifies the Company, within 20 business days following
the consummation of the Exchange Offer, that (A) such holder was prohibited by
law or SEC policy from participating in the Exchange Offer, or (B) such holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and this Prospectus is not appropriate or
available for such resales by such holder, the Company will file with the SEC a
shelf registration statement (the "Shelf Registration Statement") to cover
resales of the Transfer Restricted Senior Notes by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company will use
reasonable best efforts to cause the Shelf Registration Statement to be declared
effective as promptly as possible by the SEC. For purposes of the foregoing,
"Transfer Restricted Senior Notes" means each Senior Note until the earliest to
occur of (i) the date on which such Senior Note is exchanged in the Exchange
Offer for an Exchange Note which may be resold to the public by the holder
thereof without complying with the prospectus delivery requirements of the
Securities Act, (ii) the date on which such Senior Note has been sold or
otherwise disposed of in accordance with the Shelf Registration Statement, (iii)
the date on which such Senior Note is disposed of by a broker-dealer as
contemplated by the Exchange Offer Registration Statement (including delivery of
this Prospectus) and (iv) the date on which such Senior Note is distributed to
the public pursuant to Rule 144 under the Securities Act.
A holder of Transfer Restricted Senior Notes who sells Senior Notes
pursuant to the Shelf Registration Statement will generally be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Registration Rights Agreement that are applicable
to such a holder (including certain indemnification obligations).
The Registration Rights Agreement provides that the Company will use
reasonable best efforts to issue Exchange Notes in exchange for all Initial
Notes tendered in the Exchange Offer. If the Company
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is obligated to file the Shelf Registration Statement, the Company will file the
Shelf Registration Statement with the SEC on or prior to 30 days after such
filing obligation arises and use reasonable best efforts to cause the Shelf
Registration Statement to be declared effective by the SEC on or prior to 150
days after such obligation arises; PROVIDED that if the Company has not
consummated the Exchange Offer by November 9, 1997, then the Company will file
the Shelf Registration Statement with the SEC on or prior to November 10, 1997.
The Company shall use reasonable best efforts to keep the Shelf Registration
Statement continuously effective, supplemented and amended until May 13, 1999 or
such shorter period that will terminate when all the Senior Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement or are eligible for sale under Rule 144(k) under the Securities Act;
PROVIDED, HOWEVER that, if the Company is engaged in a material acquisition or
disposition and in certain other circumstances, the Company may suspend offers
and sales under the Shelf Registration Statement, subject to certain conditions,
for up to 30 days in each year during which the Shelf Registration Statement is
required to be effective. If (a) the Company fails to file the Shelf
Registration Statement on or before the date specified for such filing, (b) the
Shelf Registration Statement is not declared effective by the SEC on or prior to
the date specified for such effectiveness, (c) the Company fails to consummate
the Exchange Offer on or prior to 1997, (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective but
thereafter, subject to certain exceptions, ceases to be effective for a period
of one business day or (e) at any time when the prospectus is required by the
Securities Act to be delivered in connection with sales of the Transfer
Restricted Senior Notes, the Company shall conclude, or the holders of a
majority in principal amount of the affected Transfer Restricted Senior Notes
shall reasonably conclude, based on the advice of their counsel, and shall give
notice to the Company, that either (A) any event shall have occurred or fact
exist as a result of which it is necessary to amend or supplement the prospectus
in order that it will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading, or (B) it
shall be necessary to amend or supplement such Registration Statement or the
prospectus in order to comply with the requirements of the Securities Act or the
rules of the SEC thereunder, and in the case of clause (A) or (B), such
Registration Statement is not appropriately amended by an effective
post-effective amendment, or the prospectus is not amended or supplemented, in a
manner reasonably satisfactory to the holders of Transfer Restricted Senior
Notes so as to be declared effective and made usable within one business day
after the Company shall so conclude or shall receive the above-mentioned notice
from holders of Transfer Restricted Senior Notes (each such event referred to in
clauses (a) through (e) above, a "Registration Default"), then the Company will
pay as liquidated damages ("Liquidated Damages") to each holder of Transfer
Restricted Senior Notes, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$0.05 per week for each $1,000 principal amount of Senior Notes held by such
holder. The amount of the Liquidated Damages will increase by an additional
$0.05 per week per $1,000 principal amount of Senior Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $0.50 per week for each $1,000
principal amount of Senior Notes. Liquidated Damages will not accrue during any
period the Company is permitted, as set forth above, to suspend offerings and
sales when the Company is engaged in a material acquisition or disposition or in
certain other circumstances. All accrued Liquidated Damages will be paid by the
Company to the holder of the Global Notes by wire transfer of immediately
available funds or by federal funds check and to holders of certificated Senior
Notes by mailing checks to their registered addresses. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Senior Notes will be required to make
certain representations to the Company (as described herein under the
caption--"The Exchange Offer--Procedures for Tendering Initial Notes") in order
to participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Transfer Restricted
Senior Notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above. Holders of Transfer
Restricted
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Notes will be responsible for the fees and disbursements, if any, of their
counsel, accountants and any other advisors, and for underwriting commissions
and discounts, brokerage commissions, agent fees (other than the fees of the
Exchange Agent for the Exchange Offer) and transfer taxes relating to the
Exchange Offer Registration Statement or the Shelf Registration Statement.
The foregoing description of the Registration Rights Agreement is a summary
only and does not purport to be complete. This summary is qualified in its
entirety by reference to all provisions of the Registration Rights Agreement,
which has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The exchange of an Initial Note for an Exchange Note pursuant to the
Exchange Offer should not be treated as an exchange for United States federal
income tax purposes and, therefore, will not be a taxable event. Accordingly, an
Exchange Note should be treated as a continuation of the corresponding Initial
Note and, as a result, an exchanging holder should not recognize any gain or
loss on the exchange, his holding period for the Exchange Note would include his
holding period for the Initial Note and his basis in the Exchange Note would be
the same as his basis in the Initial Note.
IN ANY EVENT, PERSONS CONSIDERING THE EXCHANGE OF INITIAL NOTES FOR
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS
AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTIONS.
PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the Initial Notes. The Company does not intend to apply for the
listing of the Senior Notes on a national securities exchange or for their
quotation through The Nasdaq Stock Market. The Initial Notes are eligible for
trading in the PORTAL market. The Company has been advised by the Initial
Purchasers that the Initial Purchasers currently intend to make a market in the
Senior Notes; however, no Initial Purchaser is obligated to do so and any market
making may be discontinued by any Initial Purchaser at any time. In addition,
such market making activity may be limited during the Exchange Offer. Therefore,
there can be no assurance that an active market for the Initial Notes or the
Exchange Notes will develop.
If a trading market develops for the Initial Notes or the Exchange Notes,
future trading prices of such securities will depend on many factors, including,
among other things, prevailing interest rates, the Company's results of
operations and the market for similar securities. Depending on such factors,
such securities may trade at a discount from their offering price.
With respect to resale of Exchange Notes, based on an interpretation by the
staff of the SEC set forth in no-action letters issued to third parties, the
Company believes that a holder (other than a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act or "broker" or
"dealer" registered under the Exchange Act) who exchanges Initial Notes for
Exchange Notes in the ordinary course of business and who is not participating,
does not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes, will be
allowed to resell the Exchange Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the
Exchange Notes a prospectus that satisfies the requirements of Section 10
thereof. However, if any holder acquires Exchange Notes in the Exchange Offer
for the purpose of distributing or participating in a distribution of the
Exchange Notes, such holder cannot rely on the position of the staff of the SEC
enunciated in Exxon Capital Holdings
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Corporation (available May 13, 1988) or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, and such secondary resale transaction must be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of Exchange Notes obtained by such holder in exchange for Initial
Notes acquired by such holder directly from the Company or an affiliate thereof,
unless an exemption from registration is otherwise available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Exchange Notes are to be
acquired by the holder in the ordinary course of business, (ii) the holder is
not engaging and does not intend to engage in the distribution of the Exchange
Notes, and (iii) the holder acknowledges that if such holder participates in the
Exchange Offer for the purpose of distributing the Exchange Notes such holder
must comply with the registration and prospectus delivery requirements of the
Securities Act and cannot rely on the above no-action letters.
Any broker or dealer registered under the Exchange Act (each a
"Broker-Dealer") who holders Initial Notes that were acquired for its own
account as a result of market-making activities or other trading activities
(other than Initial Notes acquired directly from the Company) may exchange such
Initial Notes for Exchange Notes pursuant to the Exchange Offer; however, such
Broker-Dealer may be deemed an underwriter within the meaning of the Securities
Act and, therefore, must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the Exchange Notes received by
it in the Exchange Offer, which prospectus delivery requirement may be satisfied
by the delivery by such Broker-Dealer of this Prospectus. The Company has agreed
to cause the Exchange Offer Registration Statement, of which this Prospectus is
a part, to remain continuously effective for a period of one year from the
Exchange Date, and to make this Prospectus, as amended or supplemented,
available to any such Broker-Dealer for use in connection with resales. Any
Broker-Dealer Participating in the Exchange Offer will be required to
acknowledge that it will deliver a prospectus in connection with any resales of
Exchange Notes received by it in the Exchange Offer. The delivery by a
Broker-Dealer of a prospectus in connection with resales of Exchange Notes shall
not be deemed to be an admission by such Broker-Dealer that it is an underwriter
within the meaning of the Securities Act.
The Company will not receive any proceeds from any sale of Exchange Notes
by Broker-Dealers. Exchange Notes received by Broker-Dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to a purchaser or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
Broker-Dealer and/or the purchasers of any such Exchange Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than fees and disbursements of counsel, accountants and any advisors to
holders of Initial Notes, underwriting commissions and discounts, brokerage
commissions, agent fees (other than the fees of the Exchange Agent) and transfer
taxes relating to the Exchange Offer Registration Statement.
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Steel Hector & Davis LLP, Miami, Florida.
100
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of January 31, 1996
and 1997 and for the year ended June 30, 1994, for the seven months ended
January 31, 1995, and for the years ended January 31, 1996 and 1997, and the
financial statements of Fine Fragrances as of January 31, 1997 and for the year
then ended, included in this Prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
101
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES:(1)
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of January 31, 1996 and 1997 ........................... F-3
Consolidated Statements of Income for the Year Ended June 30, 1994, for the Seven Months
Ended January 31, 1994 and 1995, for the Twelve Months Ended January 31, 1995 and for
the Years Ended January 31, 1996 and 1997 ............................................. F-4
Consolidated Statements of Shareholders' Equity for the Year Ended June 30, 1994, for the
Seven Months Ended January 31, 1995 and for the Years Ended January 31, 1996 and 1997 ... F-5
Consolidated Statements of Cash Flows for the Year Ended June 30, 1994, for the Seven
Months Ended January 31, 1994 and 1995, for the Twelve Months Ended January 31, 1995
and for the Years Ended January 31, 1996 and 1997 .................................... F-6
Notes to Consolidated Financial Statements ............................................. F-7
FINE FRAGRANCES, INC.:
Independent Auditors' Report ............................................................ F-25
Balance Sheet as of January 31, 1997 ................................................... F-26
Statement of Income and Retained Earnings for the Year Ended January 31, 1997 ............ F-27
Statement of Cash Flows for the Year Ended January 31, 1997 .............................. F-28
Notes to Financial Statements ......................................................... F-29
<FN>
- ----------------
(1) The consolidated financial statements of French Fragrances, Inc. and
Subsidiaries (the "Consolidated Financial Statements of the Company")
represent the financial statements of French Fragrances, Inc. from July 1,
1992 through November 30, 1995, when French Fragrances, Inc. merged into
Suave Shoe Corporation (the "Merger"), and of the surviving corporation in
the Merger from and after the date of the Merger. Suave Shoe Corporation was
the surviving corporation in the Merger but changed its name to French
Fragrances, Inc., and French Fragrances, Inc. was considered to have
acquired Suave Shoe Corporation for financial reporting purposes. Effective
January 31, 1995, the Company changed its fiscal year end to January 31 from
June 30. For this reason, the audited financial statements as of January 31,
1995 consisted of seven months.
</FN>
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
French Fragrances, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of French
Fragrances, Inc. and subsidiaries (the "Company") as of January 31, 1996 and
1997, and the related consolidated statements of income, shareholders' equity,
and cash flows for the year ended June 30, 1994, for the seven months ended
January 31, 1995 and for the years ended January 31, 1996 and 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
1996 and 1997, and the results of its operations and its cash flows for the year
ended June 30, 1994, for the seven months ended January 31, 1995 and for the
years ended January 31, 1996 and 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 14, 1997
(April 11, 1997 as to Note 16)
F-2
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1997
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 123,960 $ 855,969
Accounts receivable, net .......................................... 14,236,326 35,021,081
Inventories ......................................................... 25,850,669 67,989,322
Advances on inventory purchases .................................... -- 3,441,020
Equipment held for sale ............................................. 1,000,000 --
Prepaid expenses and other assets ................................. 1,370,777 909,250
------------ -------------
Total current assets ............................................. 42,581,732 108,216,642
------------ -------------
Investment in unconsolidated affiliate ................................. 1,708,235 2,104,218
------------ -------------
Restricted cash and investments ....................................... -- 1,314,602
------------ -------------
Property and equipment, net .......................................... 11,099,492 13,817,203
------------ -------------
Other assets:
Exclusive brand licenses and trademarks, net ........................ 14,671,875 45,126,465
Deferred income taxes, net .......................................... 761,342 955,805
Other intangibles and other assets ................................. 561,138 843,109
------------ -------------
Total other assets ................................................ 15,994,355 46,925,379
------------ -------------
Total assets ...................................................... $71,383,814 $172,378,044
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ................................................... $16,713,333 $ 39,631,301
Accounts payable--trade ............................................. 11,115,664 37,329,059
Other payables and accrued expenses ................................. 3,250,365 10,600,000
Current portion of capital lease, installment loans,
mortgage and term note ............................................. 201,630 1,308,370
Loans from shareholders ............................................. 410,000 --
Convertible subordinated debentures ................................. 600,000 --
Due to affiliates, net ............................................. 2,268,819 1,613,989
------------ -------------
Total current liabilities ....................................... 34,559,811 90,482,719
------------ -------------
Long-term liabilities:
Secured subordinated debentures .................................... 11,681,500 10,435,035
Subordinated debentures ............................................. -- 11,080,000
Convertible subordinated debentures ................................. -- 5,460,000
Mortgage note ...................................................... -- 5,824,231
Term notes ......................................................... 4,333,333 3,285,915
Capital lease and installment loans ................................. 1,269,860 1,130,000
------------ -------------
Total liabilities ................................................ 51,844,504 127,697,900
------------ -------------
Commitments (Notes 7 and 12)
Redeemable preferred stock:
Series A, $.01 par value; stated at liquidation preference
value of $100 per share; 20,000 shares issued and
outstanding at January 31, 1996 .................................... 2,000,000 --
------------ -------------
Shareholders' equity:
Convertible, redeemable preferred stock, Series B, $.01 par value
(liquidation preference of $.01 per share); 350,000 shares authorized;
350,000 and 316,005 shares issued and outstanding, respectively ...... 3,500 3,160
Convertible, redeemable preferred stock, Series C, $.01 par value
(liquidation preference of $.01 per share); 571,429 shares authorized,
issued and outstanding at January 31, 1997 ........................... -- 5,714
Common stock, $.01 par value, 50,000,000 shares authorized;
9,641,290 and 13,249,152 shares issued and outstanding, respectively 96,413 132,492
Additional paid-in capital .......................................... 10,333,539 29,185,161
Retained earnings ................................................... 7,105,858 15,353,617
------------ -------------
Total shareholders' equity ....................................... 17,539,310 44,680,144
------------ -------------
Total liabilities and shareholers' equity ........................ $71,383,814 $172,378,044
============ =============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
YEAR ENDED JANUARY 31,
JUNE 30, -------------------------------
1994 1994 1995
--------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales ........................ $ 46,104,536 $ 27,415,158 $ 50,922,407
Cost of sales ..................... 37,952,555 22,692,581 40,822,023
------------ ------------ ------------
Gross profit .................. 8,151,981 4,722,577 10,100,384
------------ ------------ ------------
Operating expenses:
Warehouse and shipping ......... 1,375,110 722,642 1,403,280
Selling, general and
administration .................. 3,543,436 2,035,628 3,330,805
Depreciation and
amortization .................. 335,052 201,431 206,010
------------ ------------ ------------
Total operating
expenses ........................ 5,253,598 2,959,701 4,940,095
------------ ------------ ------------
Income from operations ............ 2,898,383 1,762,876 5,160,289
------------ ------------ ------------
Other income (expense):
Interest expense, net ......... (1,537,815) (827,027) (1,408,415)
Other income .................. 15,410 8,519 46,909
------------ ------------ ------------
Other income
(expense), net .................. (1,522,405) (818,508) (1,361,506)
------------ ------------ ------------
Income before equity in
earnings of unconsolidated
affiliate and provisions
for income taxes ............... 1,375,978 944,368 3,798,783
Equity in earnings of
unconsolidated affiliate,
50% owned ..................... 165,899 45,778 183,231
------------ ------------ ------------
Income before income taxes ...... 1,541,877 990,146 3,982,014
Provision for income taxes ...... 530,510 349,089 1,490,119
------------ ------------ ------------
Net income ........................ $ 1,011,367 $ 641,057 $ 2,491,895
============ ============ ============
Earnings per common
share equivalent:
Primary ........................ $ 0.14 $ 0.09 $ 0.35
============ ============ ============
Fully Diluted .................. $ 0.14 $ 0.09 $ 0.35
============ ============ ============
Weighted average number of
common share equivalents:
Primary ........................ 7,120,000 7,120,000 7,120,000
============ ============ ============
Fully diluted .................. 7,120,000 7,120,000 7,120,000
============ ============ ============
<CAPTION>
TWELVE MONTHS YEAR YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1997
---------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales ........................ $ 69,611,785 $ 87,978,695 $ 140,482,299
Cost of sales ..................... 56,108,042 66,339,698 94,404,288
----------- ------------ -------------
Gross profit .................. 13,503,743 21,638,997 46,078,011
----------- ------------ -------------
Operating expenses:
Warehouse and shipping ......... 2,034,271 2,706,782 4,528,022
Selling, general and
administration .................. 4,907,354 9,193,929 19,664,857
Depreciation and
amortization .................. 339,632 1,319,675 3,663,261
----------- ------------ -------------
Total operating
expenses ........................ 7,281,257 13,220,386 27,856,140
----------- ------------ -------------
Income from operations ............ 6,222,486 8,418,611 18,221,871
----------- ------------ -------------
Other income (expense):
Interest expense, net ......... (2,119,201) (4,142,475) (6,826,248)
Other income .................. 127,126 374,120 1,108,489
----------- ------------ -------------
Other income
(expense), net .................. (1,992,075) (3,768,355) (5,717,759)
----------- ------------ -------------
Income before equity in
earnings of unconsolidated
affiliate and provisions
for income taxes ............... 4,230,411 4,650,256 12,504,112
Equity in earnings of
unconsolidated affiliate,
50% owned ..................... 303,353 287,553 395,983
----------- ------------ -------------
Income before income taxes ...... 4,533,764 4,937,809 12,900,095
Provision for income taxes ...... 1,671,537 1,930,691 4,652,336
----------- ------------ -------------
Net income ........................ $ 2,862,227 $ 3,007,118 $ 8,247,759
=========== ============ =============
Earnings per common
share equivalent:
Primary ........................ $ 0.40 $ 0.35 $ 0.61
=========== ============ =============
Fully Diluted .................. $ 0.40 $ 0.33 $ 0.60
=========== ============ =============
Weighted average number of
common share equivalents:
Primary ........................ 7,120,000 8,517,760 13,639,952
=========== ============ =============
Fully diluted .................. 7,120,000 9,121,091 13,787,660
=========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------
SERIES B SERIES C
----------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 ...... -- -- -- --
Net income for the seven
months ended .................. -- -- -- --
--------- ------- -------- -------
Balance at January 31, 1995 -- -- -- --
Issuance of Series B
convertible preferred
shares ........................ 350,000 $ 3,500 -- --
Issuance of Common Stock
in Merger ..................... -- -- -- --
Net income for the year ...... -- -- -- --
--------- ------- -------- -------
Balance at January 31, 1996 350,000 3,500 -- --
Issuance of Common Stock
upon conversion of
Series B convertible
preferred stock ............... (33,995) (340) -- --
Issuance of Common Stock
upon conversion of 5%
convertible subordinated
debentures .................. -- -- -- --
Issuance of Common Stock
in public offering ............ -- -- -- --
Issuance of warrants ......... -- -- -- --
Issuance of Series C
convertible preferred
stock ........................ -- -- 571,429 $5,714
Net income for the year ...... -- -- -- --
--------- ------- -------- -------
Balance at January 31, 1997 316,005 $ 3,160 571,429 $5,714
========= ======= ======== =======
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------ ---------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 ...... 7,120,000 $ 71,200 $ 208,800 $ 1,606,845 $ 1,886,845
Net income for the seven
months ended .................. -- -- -- 2,491,895 2,491,895
----------- --------- ------------ ------------ ------------
Balance at January 31, 1995 7,120,000 71,200 208,800 4,098,740 4,378,740
Issuance of Series B
convertible preferred
shares ........................ -- -- -- -- 3,500
Issuance of Common Stock
in Merger ..................... 2,521,290 25,213 10,124,739 -- 10,149,952
Net income for the year ...... -- -- -- 3,007,118 3,007,118
----------- --------- ------------ ------------ ------------
Balance at January 31, 1996 9,641,290 96,413 10,333,539 7,105,858 17,539,310
Issuance of Common Stock
upon conversion of
Series B convertible
preferred stock ............... 242,041 2,421 796,655 -- 798,736
Issuance of Common Stock
upon conversion of 5%
convertible subordinated
debentures .................. 1,815 18 13,982 -- 14,000
Issuance of Common Stock
in public offering ............ 3,364,000 33,640 17,979,361 -- 18,013,001
Issuance of warrants ......... -- -- 61,624 -- 61,624
Issuance of Series C
convertible preferred
stock ........................ -- -- -- -- 5,714
Net income for the year ...... -- -- -- 8,247,759 8,247,759
----------- --------- ------------ ------------ ------------
Balance at January 31, 1997 13,249,146 $132,492 $29,185,161 $15,353,617 $44,680,144
=========== ========= ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED
YEAR ENDED JANUARY 31,
JUNE 30, ------------------------------
1994 1994 1995
--------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 1,011,367 $ 641,057 $ 2,491,895
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization ........................ 335,052 201,431 206,010
Equity in earnings of unconsolidated affiliate ......... (165,899) (45,778) (183,231)
Deferred tax benefit ................................. (257,852)
Change in assets and liabilities net of effects from
the acquisitions:
Increase in accounts receivable ........................ (3,146,558) (1,457,130) (1,678,019)
(Increase) decrease in inventories ..................... (6,470,448) (16,493,423) (5,280,552)
(Increase) decrease in prepaid expenses and
other assets ............................................. (224,093) (182,416) (41,200)
Increase (decrease) in accounts payable ............... 4,616,011 14,633,049 1,050,077
Increase (decrease) in other payables
and accrued expenses .................................... 1,105,100 864,259 (32,549)
Increase (decrease) in due to affiliate, net ......... 346,603 149,251 (192,059)
------------ ------------- ------------
Net cash (used in) provided by
operating activities .................................... (2,592,865) (1,689,700) (3,917,480)
------------ ------------- ------------
Cash flows from investing activities:
Purchase of exclusive brand licenses and trademarks ...... -- -- --
Additions to property and equipment,
net of disposals .......................................... (373,731) (239,867) (80,921)
Receipts of restricted cash .............................. -- -- --
Net cash acquired in merger .............................. -- -- --
------------ ------------- ------------
Net cash used in investing activities .................. (373,731) (239,867) (80,921)
------------ ------------- ------------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock ............ -- -- --
Proceeds from stock offering ........................... -- -- --
Proceeds from the issuance of secured
subordinated debentures ................................. -- -- --
Advances from (payments to) unconsolidated affiliate . 695,991 (228,022) 4,058
Proceeds from term loan ................................. 1,700,000 1,700,000 --
Payments on term loans ................................. (840,000) (140,000) (860,000)
Net proceeds from short-term debt ........................ 1,580,000 1,034,478 5,580,004
Proceeds from installment loans ........................ 185,202 185,206 --
Payments on capital lease and installment loans ......... (155,332) (93,973) (121,096)
Loans from shareholders ................................. 150,000 -- --
Payments on loans from shareholders and officer ......... (85,000) -- (235,000)
Proceeds from the grant of stock purchase warrants ...... -- -- --
Proceeds from bridge and inventory loans ............... -- -- --
Payments on bridge and inventory loans .................. -- -- --
Proceeds from mortgage note .............................. -- -- --
Payments on mortgage note .............................. -- -- --
Proceeds from conversion of 5%
subordinated debentures ................................. -- -- --
Payments on convertible subordinated debentures ......... -- -- --
------------ ------------- ------------
Net cash provided by financing activities ............ 3,230,861 2,457,689 4,367,966
------------ ------------- ------------
Net increase (decrease) in cash and cash equivalents ...... 264,265 528,122 369,565
Cash and cash equivalents at beginning of period ............ 12,319 12,319 276,584
------------ ------------- ------------
Cash and cash equivalents at end of period ............... $ 276,584 $ 540,441 $ 646,149
============ ============= ============
Supplemental disclosure of cash flow information:
Interest paid during the period ........................ $ 1,241,794 $ 806,792 $ 1,152,461
============ ============= ============
Income taxes paid during the period ..................... $ 235,000 $ 215,000 $ 1,740,000
============ ============= ============
<PAGE>
<CAPTION>
TWELVE MONTHS YEAR YEAR
ENDED ENDED ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1997
---------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 2,862,227 $ 3,007,118 $ 8,247,759
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization ........................ 339,632 1,319,675 3,663,261
Equity in earnings of unconsolidated affiliate ......... (303,353) (287,553) (395,983)
Deferred tax benefit ................................. (257,852) (504,211) (194,463)
Change in assets and liabilities net of effects from
the acquisitions:
Increase in accounts receivable ........................ (3,367,448) (3,192,712) (20,784,755)
(Increase) decrease in inventories ..................... 4,742,423 (4,021,498) (44,216,341)
(Increase) decrease in prepaid expenses and
other assets ............................................. 157,639 1,005,334 990,242
Increase (decrease) in accounts payable ............... (9,052,244) 2,991,835 26,213,395
Increase (decrease) in other payables
and accrued expenses .................................... (19,290) 3,417,215 4,294,542
Increase (decrease) in due to affiliate, net ......... 5,281 1,444,160 (1,038,451)
----------- ------------ -------------
Net cash (used in) provided by
operating activities .................................... (4,892,985) 5,179,363 (23,220,794)
----------- ------------ -------------
Cash flows from investing activities:
Purchase of exclusive brand licenses and trademarks ...... -- (18,370,655) (19,315,291)
Additions to property and equipment,
net of disposals .......................................... (246,763) (149,394) (2,486,960)
Receipts of restricted cash .............................. -- -- 685,398
Net cash acquired in merger .............................. -- 536,913 --
----------- ------------ -------------
Net cash used in investing activities .................. (246,763) (17,983,136) (21,116,853)
----------- ------------ -------------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock ............ -- 3,500 5,714
Proceeds from stock offering ........................... -- -- 18,013,001
Proceeds from the issuance of secured
subordinated debentures ................................. -- 8,221,500 3,000,035
Advances from (payments to) unconsolidated affiliate . 928,070 (418,476) 383,621
Proceeds from term loan ................................. -- 7,000,000 8,960,000
Payments on term loans ................................. (1,560,000) (833,333) (10,833,332)
Net proceeds from short-term debt ........................ 6,125,522 (1,120,001) 22,751,300
Proceeds from installment loans ........................ 106,009 -- --
Payments on capital lease and installment loans ......... (184,145) (221,606) (200,346)
Loans from shareholders ................................. 150,000 250,000 --
Payments on loans from shareholders and officer ......... (320,000) -- (410,000)
Proceeds from the grant of stock purchase warrants ...... -- -- 41,624
Proceeds from bridge and inventory loans ............... -- -- 7,000,000
Payments on bridge and inventory loans .................. -- -- (7,000,000)
Proceeds from mortgage note .............................. -- -- 4,000,000
Payments on mortgage note .............................. -- -- (55,961)
Proceeds from conversion of 5%
subordinated debentures ................................. -- -- 14,000
Payments on convertible subordinated debentures ......... -- (600,000) (600,000)
----------- ------------ -------------
Net cash provided by financing activities ............ 5,245,456 12,281,584 45,069,656
----------- ------------ -------------
Net increase (decrease) in cash and cash equivalents ...... 105,708 (522,189) 732,009
Cash and cash equivalents at beginning of period ............ 540,441 646,149 123,960
----------- ------------ -------------
Cash and cash equivalents at end of period ............... $ 646,149 $ 123,960 $ 855,969
=========== ============ =============
Supplemental disclosure of cash flow information:
Interest paid during the period ........................ $ 1,813,516 $ 4,082,339 $ 6,014,871
=========== ============ =============
Income taxes paid during the period ..................... $ 1,760,000 $ 2,245,000 $ 2,113,441
=========== ============ =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY. French Fragrances, Inc. (the
"Company") is a manufacturer, distributor and marketer of prestige designer
fragrances and related cosmetic products, primarily to mass-market retailers in
the United States. In 1992, a company called French Fragrances, Inc. ("FFI") was
formed to acquire the net assets of the fragrance and cosmetics distribution
business of National Trading Manufacturing, Inc. ("National Trading"). In
connection with the acquisition of the net assets of National Trading, the
Company purchased 50% of Fine Fragrances, Inc. ("Fine Fragrances"), a company
which distributes fragrances manufactured in France by Cofci, S.A.
In November 1995, FFI merged with and into Suave Shoe Corporation ("Suave")
in a reverse acquisition (the "Merger"). See Note 2.
Effective January 31, 1995, the Company changed its fiscal year-end to
January 31 from June 30 to conform to its business year.
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts of the Company's wholly owned subsidiaries G.B. Parfums, Inc. ("G.B.
Parfums"), Halston Parfums, Inc. and FRM Services, Inc., an inactive subsidiary
(see Note 2). All significant intercompany accounts and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION. All references to the Company in these consolidated
financial statements and notes refer to FFI until the Merger and to the
surviving corporation following the Merger (see Note 2). The unaudited financial
statements for the twelve months ended January 31, 1995 and for the seven months
ended January 31, 1994 have been prepared on the same basis as the audited
financial statements included herein. In the opinion of management, such
unaudited financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the results for such
periods.
USE OF ESTIMATES. The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Sales are recognized upon shipment. During the year
ended June 30, 1994, the seven months ended January 31, 1995, and the years
ended January 31, 1996 and 1997, no customer accounted for more than 10% of
total sales.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash and
interest-bearing deposits at banks with an original maturity date of three
months or less.
ACCOUNTS RECEIVABLE. A portion of the Company's accounts receivable is
insured from risk of uncollectibility by an independent party, which received
service fees of approximately $129,000, $170,000, $117,000 and $199,000 for the
year ended June 30, 1994, for the seven months ended January 31, 1995, and for
the years ended January 31, 1996 and 1997, respectively. Receivables are not
factored. A provision has been made and an allowance established for potential
losses from uninsured
F-7
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
receivables and estimated sales returns in the normal course of business. Since
these allowances are based on estimates, there is no assurance that such
reserves and allowances will be sufficient to cover unforeseen losses or
returns. The activity for these allowance accounts are as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1995 1996 1997
--------------- -------------- -------------
<S> <C> <C> <C>
Allowance for Doubtful Accounts:
Beginning balance .................. $ 72,526 $ 112,094 $ 290,645
Provision ........................... 70,000 180,000 205,000
Write offs, net of recoveries ...... (30,432) (1,449) (5,708)
---------- ------------ ------------
Ending balance ..................... $ 112,094 $ 290,645 $ 489,937
========== ============ ============
Allowance for Sales Returns:
Beginning balance .................. $ 0 $ 56,000 $ 346,500
Provision ........................... 700,486 1,650,602 2,726,143
Actual returns ..................... (644,486) (1,360,102) (2,706,035)
---------- ------------ ------------
Ending balance ..................... $ 56,000 $ 346,500 $ 366,608
========== ============ ============
</TABLE>
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined on the weighted-average method. Inventory balances at January 31,
1996 and 1997 were as follows:
JANUARY 31,
------------------------------
1996 1997
-------------- -------------
Finished ............... $23,433,669 $61,117,587
Work in progress ...... -- 1,303,514
Raw materials ......... 2,417,000 5,568,221
------------ ------------
$25,850,669 $67,989,322
============ ============
EQUIPMENT HELD FOR SALE. Certain equipment acquired in connection with the
Merger was designated as equipment held for sale (see Note 2). Equipment held
for sale was disposed of in the fiscal year ended January 31, 1997.
INVESTMENT IN UNCONSOLIDATED AFFILIATE. The Company's investment in Fine
Fragrances is accounted for under the equity method (see Notes 6 and 16).
RESTRICTED CASH INVESTMENTS. Restricted cash and investments consist of
cash and investments held in trust and committed for capital improvements on the
Miami Lakes Facility (as defined in Note 2).
F-8
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
PROPERTY AND EQUIPMENT, AND DEPRECIATION. Property and equipment are
stated at cost. Expenditures for major improvements 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
- --------------------------------- -------
Building ..................... 20
Building improvements ......... 20
Furniture and fixtures ...... 8
Machinery and equipment ...... 3-8
Tools and molds ............... 1-3
CAPITAL LEASE. The Company has entered into a lease for the building and
the land which are presently used for its business offices (the "National
Trading Facility") that transfers substantially all benefits and risks of
ownership to the Company. The lessor of this property is National Trading, which
is owned by a shareholder of the Company. This property is mortgaged by National
Trading to secure its obligations under Industrial Development Revenue Bonds
(Series 1985) (the "Bonds") issued through Metropolitan Dade County, Florida
which mature on December 1, 2011. The balance of the Bonds was approximately
$2,220,000 and $2,100,000 at January 31, 1996 and January 31, 1997,
respectively. The Company has an option to purchase the National Trading
Facility on or before the end of the lease term at a price of $1,800,000 less
the amount equal to the product of $10,000 multiplied by the number of months
for which the Company has paid rent pursuant to the lease.
This lease is accounted for as the acquisition of assets and incurrence of
obligations under the capital lease standards issued by the Financial Accounting
Standards Board (see Note 10). Accordingly, the capitalized leased assets are
recorded as property at the fair value of the property, which is the present
value of the minimum lease payments. Depreciation of the building is computed
using the term of the lease and is included in depreciation expense.
INCOME TAXES. The provision for income taxes is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities. The Company provides for deferred taxes under the
liability method. Under such method, deferred taxes are adjusted for tax rate
changes as they occur. Deferred income tax assets and liabilities are computed
annually for differences between the financial statements and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
recorded when necessary to reduce deferred tax assets to the amount expected to
be realized.
EXCLUSIVE BRAND LICENSES AND TRADEMARKS, CUSTOMER LISTS AND AMORTIZATION.
These intangible assets are being amortized using the straight-line method, as
follows at January 31:
<TABLE>
<CAPTION>
ACCUMULATED AMORTIZATION
--------------------------
CATEGORY YEARS COST 1996 1997
- ---------------------------------------------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Exclusive brand licenses and
trademarks ................................. 15 $48,838,574 $908,877 $3,712,109
Customer lists and other intangibles ...... 3 and 5 546,131 439,874 521,886
</TABLE>
F-9
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
The Company reviews its intangible assets periodically for events or
changes in circumstances that may indicate that the carrying amount is not
recoverable on an undiscounted cash flow basis in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. If the
estimated future cash flows are projected to be less than the carrying value, an
impairment write-down would be recorded.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
include accounts receivable, accounts payable, short-term debt, loans from
shareholders, convertible subordinated debentures, secured subordinated
debentures, subordinated debentures, a capital lease, installment loans, a term
loan and convertible redeemable preferred stock. The fair value of such
financial instruments has been determined using available market information and
interest rates as of January 31, 1996 and 1997.
At January 31, 1996 and 1997, the estimated fair value of the Company's
subordinated debentures was as follows:
1996 1997
-------------- ------------
Secured subordinated debentures ......... $10,236,000 $9,939,000
Subordinated debentures .................. -- 9,616,000
Convertible subordinated debentures ...... -- 5,904,000
The fair value of all other financial instruments was not materially
different than their carrying value.
EARNINGS PER SHARE. Earnings per share is based on the weighted average
number of common shares outstanding and includes the effect of the issuance of
shares in connection with the assumed exercise of dilutive stock options and the
assumed conversion of dilutive convertible preferred stock using the treasury
stock method. Fully diluted earnings per share reflects additional dilution due
to the use of the market price at the end of the period when higher than the
average market price for the period. Earnings per share for the year ended June
30, 1994, for the seven months ended January 31, 1994 and 1995 and for the
twelve months ended January 31, 1995, were computed using the number of common
shares received by the shareholders of FFI in the Merger (see Note 2). Earnings
per share for the year ended January 31, 1996 is based on the number of shares
received by the shareholders of FFI in the Merger through the date of the Merger
and thereafter is based on the actual number of common shares and common share
equivalents outstanding. Earnings per share for the year ended January 31, 1997
is based on actual number of common shares and common share equivalents
outstanding.
STOCK-BASED COMPENSATION. Effective February 1, 1996, the Company adopted
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which encourages, but
does not require companies to record compensation cost for stock-based employee
and non-employee members of the Board of Directors of the Company (the "Board")
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation to employees and non-employee members of the Board
using the intrinsic value method as prescribed by Accounting Principles Board
Opinion ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. Accordingly, compensation cost for stock options issued to
employees and non-employee members of the Board are measured as the
F-10
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
excess, if any, of the fair value of the Company's stock at the date of grant
over the amount an employee or non-employee member of the Board must pay for the
stock. See Note 15.
RECLASSIFICATIONS. Certain amounts in the prior period consolidated
financial statements have been reclassified to conform with the fiscal 1997
presentations.
2. MERGER AND ACQUISITIONS
MERGER. In November 1995, FFI merged with and into Suave Shoe Corporation
in a reverse acquisition. Following the Merger, Suave, as the surviving
corporation, changed its name to "French Fragrances, Inc." The principal
business operations following the Merger consist of the business previously
conducted by FFI, which is the manufacture, distribution and marketing of
prestige fragrances and related cosmetic products. Pursuant to the terms of the
Merger: (i) each outstanding share of FFI common stock, $.01 par value per share
("FFI Common Stock"), was converted into the right to receive 7.12 shares of
common stock, $.01 par value per share ("Common Stock"), of the surviving
corporation; (ii) each outstanding share of FFI Series A Preferred was converted
into the right to receive one share of Series A Preferred Stock, $.01 par value
per share ("Series A Preferred"); (iii) each outstanding share of FFI Series B
Convertible Preferred, $.01 par value ("FFI Series B Convertible Preferred"),
was converted into one share of Series B Convertible Preferred Stock, $.01 par
value per share ("Series B Convertible Preferred"); and (iv) each outstanding
option to purchase one share of FFI Common Stock was adjusted to be exercisable
for 7.12 shares of Common Stock. In connection with the Merger, the surviving
corporation issued to FFI shareholders 7,120,000 shares of Common Stock, 20,000
shares of Series A Preferred and 350,000 shares of Series B Convertible
Preferred. In connection with the Merger, FFI relocated its distribution
facilities to the larger facility formerly occupied by Suave in Miami Lakes,
Florida (the "Miami Lakes Facility").
In connection with the Merger, the shareholders of Suave adopted amendments
to Suave's Articles of Incorporation to: (i) change the name of Suave to "French
Fragrances, Inc."; (ii) increase the number of authorized shares of Common
Stock, from 10,000,000 to 50,000,000; (iii) authorize 20,000 shares of Series A
Preferred and 350,000 shares of Series B Convertible Preferred issued pursuant
to the Merger; and (iv) authorize 5,000,000 shares of undesignated preferred
stock.
The Merger was treated as a recapitalization of the Company, with FFI as
the accounting acquiror (i.e., a reverse acquisition) and has been accounted for
under the "purchase" method of accounting in accordance with generally accepted
accounting principles. In connection therewith, the Company acquired net assets
with a fair value of approximately $10,100,000, consisting of $9,500,000 in
property and equipment and $3,200,000 in current assets, offset by $2,600,000 in
assumed liabilities.
GEOFFREY BEENE ACQUISITION. In March 1995, FFI completed the acquisition
(the "Geoffrey Beene Acquisition") from Sanofi Beaute, Inc. of certain assets,
including the worldwide license to the Geoffrey Beene fragrance and cosmetic
lines, which include the brands GREY FLANNEL, BOWLING GREEN and CHANCE and
certain inventory. The license agreement extends for thirty years (subject to
renewal by G.B. Parfums) and requires royalty payments of 3% of net sales. A
related agreement provides consulting fees to the licensor. The purchase price
approximated $18,000,000 and included the exclusive license and trademarks for
the manufacture and distribution of the brands in the amount of $15,000,000 and
inventories in the amount of approximately $3,000,000.
F-11
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGER AND ACQUISITIONS--(CONTINUED)
FFI financed the Geoffrey Beene Acquisition in part with $8,225,000 of
proceeds from the issuance to a group of shareholders of $8,225,000 principal
amount of 8% Secured Subordinated Debentures due 2005 Series I ("8% Series I
Debentures") and 350,000 shares of FFI Series B Convertible Preferred. Each
share of FFI Series B Convertible Preferred was convertible prior to January 31,
2005 into one share of FFI Common Stock upon payment by the Holder of $23.50 per
share. Pursuant to the Merger, each of these shares was exchanged for one newly
issued Series B Convertible Preferred share which is convertible into 7.12
shares of Common Stock upon the payment of $3.30 per share. The amount received
was allocated based on estimated fair value and accounted for by allocating
$3,500 to Series B Convertible Preferred and $8,221,500 to the 8% Series I
Debentures. Interest expense on these debentures totaled approximately $594,000
and $639,000 for the years ended January 31, 1996 and 1997, respectively. As of
January 31, 1997, the shareholders had redeemed $786,500 principal amount of 8%
Series I Debentures to convert 33,995 shares of Series B Convertible Preferred
Stock into 242,041 shares of Common Stock. As of January 31, 1997, principal
payments for these debentures are currently payable at the rate of $1,488,000
per year from 2001 through 2005.
FFI funded the balance of the purchase price for the Geoffrey Beene
Acquisition through borrowings under its bank credit facility, including a new
$7,000,000 term loan facility (the "Geoffrey Beene Term Loan"). The Geoffrey
Beene Term Loan is repayable monthly, commencing April 1995, and currently bears
interest at prime plus 1.75%. The monthly payments were $83,333 for the first
twelve months, increasing to $166,667 for the remaining months. The final
payment of all principal and interest outstanding is due in full on December 31,
1998. Interest expense for the Geoffrey Beene Term Loan approximated $620,000
and $527,000 for the years ended January 31, 1996 and 1997, respectively.
HALSTON ACQUISITION. In March 1996, the Company completed the acquisition
(the "Halston Acquisition") from Halston Borghese, Inc. ("HBI") and its
affiliates of certain assets relating to the Halston fragrance brands, including
the trademarks and certain inventory and tangible assets. The purchase price was
approximately $22,000,000 and was paid as follows: (i) $19,000,000 in cash; and
(ii) a $2,000,000 note issued to HBI maturing March 20, 2000 (the "HBI Note"),
which is to be repaid on a quarterly basis in an amount equal to 5% of the
Company's net sales of the Halston brands, provided that no payments are due
until October 15, 1997 and that the accrued amount bears interest at 8% per
annum. The Company also assumed approximately $1,000,000 in trade payables. The
cash portion of the purchase price was financed as follows: (a) $3,000,000 from
the issuance of the equivalent principal amount of 8% Secured Subordinated
Debentures due 2005, Series II (the "8% Series II Debentures"), and 571,429
shares of Series C Convertible Preferred Stock, $.01 par value ("Series C
Convertible Preferred"); and (b) $16,000,000 in term loans from the two banks
which were parties to the Company's then existing credit facility. Each share of
Series C Convertible Preferred is convertible into one share of Common Stock
upon the payment of a conversion price of $5.25 per share. The term loans
consisted of the following: (1) a $1,000,000 term loan from one of the banks due
December 31, 1996, bearing interest at 0.75% over prime (the "Halston Term Loan
1"); (2) $9,000,000 term loans from both banks on the credit facility due
December 31, 1998, bearing interest at 1.75% over prime (collectively, the
"Halston Term Loan 2"); and (3) a $6,000,000 term loan bearing interest at 2%
over prime from one of the banks due June 14, 1996 (the "Bridge Loan"). In June
1996, the Company issued a mortgage in the amount of $6,000,000 on the Miami
Lakes Facility to partially repay the Bridge Loan. The mortgage note provides
for interest at 8.84%, a 20-year amortization schedule and a maturity date eight
years from issuance. Of the proceeds from the $6,000,000 mortgage note,
$2,000,000 was placed in escrow to be drawn upon for the completion of the
capital improvements on the Miami Lakes Facility. As of
F-12
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGER AND ACQUISITIONS--(CONTINUED)
January 31, 1997, approximately $1,315,000 remained in escrow pending completion
of the capital improvements on the Miami Lakes Facility and is reflected as
restricted cash and investment in the accompanying consolidated balance sheet.
In July 1996, with a portion of the net proceeds received from the public
offering (the "Offering") of 3,364,000 shares of Common Stock, the Company
repaid the Halston Term Loan 1 and the Halston Term Loan 2. See Note 3.
FMG ACQUISITION. In May 1996, the Company completed the acquisition (the
"FMG Acquisition") of certain assets of Fragrance Marketing Group, Inc. ("FMG"),
including contract rights under certain license and exclusive distribution
agreements in the United States for several brands, including OMBRE ROSE,
LAPIDUS, FACONNABLE, BALENCIAGA, BOGART, CHEVIGNON and NIKI DE SAINT PHALLE,
inventory, accounts receivable and tangible assets. In addition, the Company
assumed approximately $3,100,000 of certain trade and other payables of FMG and
discharged approximately $600,000 of accounts receivable due from FMG. In
addition to the payables assumed and the discharge of the receivable, the
consideration for the assets included approximately $4,300,000 in cash,
$11,100,000 aggregate principal amount of 8.5% Subordinated Debentures (the
"8.5% Debentures") and $900,000 of the Company's inventory to be delivered to
FMG. The Company also issued to FMG (for assignment to its shareholders and
senior management) warrants for an aggregate of 1,075,000 shares of Common
Stock, which will be exercisable at $7.50 per share from July 1997 to January
2002. The cash portion of the purchase price was financed from the Company's
revolving credit facility. The 8.5% Debentures consist of: (i) a $4,000,000 8.5%
Debenture which requires mandatory principal payments of $2,000,000 in May 1998
and 1999; (ii) a $6,500,000 8.5% Debenture which requires mandatory annual
principal repayments of $2,167,000 commencing May 2002, with the remaining
balance due May 2004; (iii) a $500,000 8.5% Debenture which requires mandatory
annual principal repayments of $167,000 commencing May 2003 with the remaining
balance due May 2004; and (iv) a $100,000 8.5% Debenture which requires
mandatory annual principal repayments of $33,000 commencing May 2002, with the
remaining balance due May 2004. In addition, warrants for 160,000 shares of
Common Stock, which are exercisable at $7.50 per share from July 1997 to January
2002, were issued to certain key employees of FMG as an inducement to join the
Company.
The following unaudited information presents the Company's pro forma
operating data for the years ended January 31, 1996 and 1997 as if the Halston
Acquisition and the FMG Acquisition had been consummated at the beginning of
each of the periods presented and includes certain adjustments to the historical
consolidated statements of income of the Company to give effect to the
acquisition of intangible assets including trademarks and associated
intellectual property, license and distribution arrangements and of other net
assets, the payment of the purchase prices in such acquisitions, the related
issuances of additional indebtedness by the Company, and the increased
amortization of intangible assets. The Halston fragrance brands acquired were
not operated or accounted for separately by HBI. In addition, HBI had never
segregated indirect operating cost information relative to these brands.
Accordingly, the pro forma adjustments reflect the historical net sales, cost of
sales and direct operating expenses of the Halston fragrance brands for the year
ended December 30, 1995 and for the period from January 1, 1996 through March
20, 1996. Direct operating expenses for the Halston brands consist principally
of marketing, advertising and demonstrator expenses and exclude selling, general
and administrative, research and development, interest, income tax and
amortization of intangible expenses. The unaudited pro forma financial data are
not indicative of the results of operations that would have been achieved had
the transactions been consummated prior to the periods in which they were
completed, or that might be attained in the future.
F-13
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. MERGER AND ACQUISITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
----------------------------------------
JANUARY 31, 1996 JANUARY 31, 1997
------------------- ------------------
<S> <C> <C>
Net sales .................................... $130,426,000 $143,905,000
Net income .................................... $ 4,243,000 $ 7,380,000
Net income per common share equivalents ...... $ 0.50 $ 0.54
</TABLE>
3. PUBLIC OFFERING OF COMMON STOCK
In July 1996, the Company completed the offering of 3,364,000 shares of
Common Stock at a price of $6.00 per share. The Company realized approximately
$18,000,000 of net proceeds from the Offering. Approximately $9,300,000 of the
net proceeds were used to repay the outstanding balance of the Halston Term Loan
1 and the Halston Term Loan 2, and the balance of the net proceeds was used to
reduce outstanding borrowings under the Company's credit facility. See Notes 2
and 7. In connection with the Offering, the Company issued warrants for an
aggregate of 162,500 shares of Common Stock to the representatives of the
underwriters, exercisable at $7.20 per share from June 28, 1997 to June 28,
1999.
4. EXCHANGE OFFER
In July 1996, the Company also consummated an exchange offer (the "Exchange
Offer"), pursuant to which the Company issued $5,460,000 principal amount of
7.5% Convertible Subordinated Debentures Due 2006 (the "7.5% Convertible
Debentures") in exchange for the 20,000 outstanding shares of Series A Preferred
and the $3,460,000 outstanding principal amount of 12.5% Secured Subordinated
Debentures Due 2002 (the "12.5% Debentures") (see Note 9). Pursuant to the
Exchange Offer, each share of Series A Preferred was exchanged for $100
principal amount of 7.5% Convertible Debentures, and each outstanding 12.5%
Debenture was exchanged for the equivalent principal amount of 7.5% Convertible
Debentures. The 7.5% Convertible Debentures (i) are unsecured, (ii) require
interest only payments at 7.5% per annum, payable semi-annually until maturity
ten years from the date of issue, at which time the entire principal amount and
any unpaid accrued interest is due and payable, (iii) are convertible at any
time, at the option of the holder, into shares of Common Stock at $7.20 per
share, and (iv) are redeemable, at the option of the Company, at their principal
amount commencing three years from the date of issue, but only in the event the
Common Stock, at the time the redemption notice is delivered by the Company, has
been trading at no less than $14.40 for 20 consecutive trading days. The shares
of Series A Preferred have been canceled.
F-14
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JANUARY 31, 1997
------------------- ------------------
<S> <C> <C>
Land (includes $576,000 under capital lease) ............ $ 3,447,000 $ 3,447,000
Building (includes $1,224,000 under capital lease) ...... 6,743,452 6,743,452
Building improvements ................................. -- 454,863
Furniture and fixtures ................................. 491,540 640,400
Machinery and equipment ................................. 1,161,020 1,811,780
Tools and molds ....................................... -- 1,051,689
------------ ------------
11,843,012 14,149,184
Less accumulated depreciation ........................... (743,520) (1,508,275)
------------ ------------
11,099,492 12,640,909
Construction in progress .............................. -- 1,176,294
------------ ------------
Property and equipment, net ........................... $ 11,099,492 $ 13,817,203
============ ============
</TABLE>
6. INVESTMENT IN UNCONSOLIDATED AFFILIATE
The following represents condensed financial information of Fine
Fragrances, a fragrance distribution company which is 49.99% owned by the
Company and distributes the SALVADOR DALI, CAFE, TAXI and WATT brands.
<TABLE>
<CAPTION>
JANUARY 31, 1996 JANUARY 31, 1997
------------------- ------------------
<S> <C> <C>
Current assets ................................. $3,284,066 $4,327,313
Other assets .................................... 742,265 1,386,694
----------- -----------
Total assets .................................... $4,026,331 $5,714,007
=========== ===========
Current liabilities .............................. $ 970,716 $1,717,091
Shareholders' equity ........................... 3,055,615 3,996,916
----------- -----------
Total liabilities and shareholders' equity ...... $4,026,331 $5,714,007
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
TWELVE MONTHS
YEAR ENDED SEVEN MONTHS ENDED ENDED
JUNE 30, JANUARY 31, JANUARY 31, YEARS ENDED JANUARY 31,
------------- --------------------------- --------------- --------------------------
1994 1994 1995 1995 1996 1997
------------- ------------- ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales ...... $3,742,342 $2,048,794 $3,004,644 $4,698,192 $4,746,765 $7,279,739
=========== =========== =========== =========== =========== ===========
Net Income ...... $ 481,129 $ 178,343 $ 453,574 $ 756,360 $ 724,438 $ 941,301
=========== =========== =========== =========== =========== ===========
</TABLE>
The Company's equity in the net income of Fine Fragrances as reflected in
the accompanying statements of income has been reduced for the amortization of
the exclusive distribution agreements. The exclusive distribution agreements are
being amortized using the straight-line method over six years, the term of the
agreements. Amortization expense on these exclusive distribution agreements was
approximately $75,000 for the year ended June 30, 1994, $44,000 for the seven
months ended January 31, 1995, and $75,000 for each of the years ended January
31, 1996 and 1997.
F-15
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENT IN UNCONSOLIDATED AFFILIATE--(CONTINUED)
The reconciliation of the investment in unconsolidated affiliate is as
follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JANUARY 31, 1997
------------------- ------------------
<S> <C> <C>
Equity interest at 50% .............................. $1,527,800 $1,998,440
Unamortized exclusive distribution agreements ...... 180,435 105,778
----------- -----------
Carrying value .................................... $1,708,235 $2,104,218
=========== ===========
</TABLE>
Current liabilities primarily relate to a $3,000,000 secured line of credit
from a bank. The interest rate is prime rate plus 2.5% (prime rate was 8.25% at
January 31, 1997). The line is secured by receivables and inventories. The line
is subject to annual review and renewal by the bank in April. Amounts
outstanding were $912,000 and $952,000 as of January 31, 1996 and 1997,
respectively. There are no other material commitments or contingencies for Fine
Fragrances other than the management fees owed to the Company (see Note 12).
7. SHORT-TERM DEBT
In March 1996, the Company entered into a credit facility to replace its
then existing credit facility. The credit facility provides for borrowings on a
revolving basis of up to $30,000,000 (which is increased to $40,000,000 from
July 1 to December 31 as an over line for the holiday season). Borrowings are
limited to eligible accounts receivable and inventories. Borrowings are also
collateralized by the Company's shares of common stock in its subsidiaries and
in Fine Fragrances and all other assets (including accounts receivable and
inventories) other than the Miami Lakes Facility. The credit facility contains
several covenants, the more significant of which are that the Company maintain a
minimum level of equity and meet certain debt-to-equity, interest coverage and
liquidity ratios. The credit facility also includes a prohibition on the payment
of dividends and other distributions to shareholders and restrictions on the
incurrence of additional indebtedness. The credit facility also includes the
Geoffrey Beene Term Loan of which $4,333,333 remained outstanding as of January
31, 1997 (see Note 2). In connection with the credit facility, the Company
issued to the banks warrants to purchase 50,000 shares of Common Stock
exercisable at $5.50 per share until March 14, 1998. In August 1996, the credit
facility was amended to increase the over line borrowings for the 1996 holiday
season from $40,000,000 to $55,000,000. In December 1996, the credit facility
was amended to provide for an increase in the borrowing limit from $30,000,000
to $40,000,000 from January 1997 through March 1997. The outstanding balance
under the credit facility (excluding the Geoffrey Beene Term Loan) as of January
31, 1997 and 1996 was $37,631,000 and $14,880,000 respectively. Interest expense
under the credit facility totaled approximately $716,000 for the year ended June
30, 1994, $383,000 and $855,000 for the seven months ended January 31, 1994 and
1995, respectively; and $1,130,000, $1,910,000 and $3,192,000 for the twelve
months ended January 31, 1995, and for the years ended January 31, 1996 and
1997, respectively. As part of the credit facility, the Company had
approximately $599,000 in outstanding letters of credit at January 31, 1997. In
March 1997, the Company's credit facility was amended to provide for an increase
in the borrowing limit from $30,000,000 to $45,000,000 from March 31, 1997
through June 30, 1997.
8. CONVERTIBLE SUBORDINATED DEBENTURES
The convertible subordinated debentures as of January 31, 1996 represent 5%
convertible debentures due 1997 (the "5% Convertible Debentures") which were
convertible into Common Stock.
F-16
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. CONVERTIBLE SUBORDINATED DEBENTURES--(CONTINUED)
Prior to the January 1, 1997 maturity, bondholders elected to convert $14,000
aggregate principal amount of the 5% Convertible Debentures into 1,815 shares of
Common Stock. The balance of the 5% Convertible Debentures was redeemed by the
Company at maturity. The convertible subordinated debentures as of January 31,
1997 represent the 7.5% Convertible Debentures issued in the Exchange Offer (see
Note 4).
9. SECURED SUBORDINATED DEBENTURES
Secured subordinated debentures as of January 31, 1996, include (1)
$3,460,000 principal amount of 12.5% Debentures which were issued on July 2,
1992, and (2) $8,225,000 principal amount of 8% Series I Debentures. Secured
subordinated debentures as of January 31, 1997, include (1) $7,438,500 principal
amount of 8% Series I Debentures, and (2) $3,000,000 principal amount of 8%
Series II Debentures (see Note 2). The 12.5% Debentures were exchanged for 7.5%
Convertible Debentures in the Exchange Offer (see Note 4). Interest expense on
the secured subordinated debentures totaled approximately $443,000 for the year
ended June 30, 1994; $252,000 for the seven months ended January 31, 1994 and
1995, respectively; and $433,000, $433,000 and $1,069,000, for the twelve months
ended January 31, 1995, for the years ended January 31, 1996 and 1997,
respectively. The 8% Series I Debentures and 8% Series II Debentures are secured
by a lien on all of the personal property and assets of the Company junior to
the lien of the lender under the Company's credit facility (see Note 7).
10. CAPITAL LEASE AND INSTALLMENT LOANS
As of January 31, 1997, the future minimum lease payments for the National
Trading Facility under capital lease (see Note 1) and payments due on
installment loans are as follows:
<TABLE>
<CAPTION>
CAPITAL INSTALLMENT
JANUARY 31, TOTAL LEASE LOANS
- ---------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
1998 ....................................... $ 271,646 $ 250,462 $ 21,184
1999 ....................................... 242,813 242,813 --
2000 ....................................... 235,163 235,163 --
2001 ....................................... 227,513 227,513 --
2002 and thereafter ........................ 1,292,463 1,292,463 --
----------- ----------- --------
Total ....................................... 2,269,598 2,248,414 21,184
Less amount representing interest ......... (998,414) (998,414) --
----------- ----------- --------
Present value of net future payments ...... 1,271,184 1,250,000 21,184
Less current portion ........................ (141,184) (120,000) (21,184)
----------- ----------- ---------
Balance at January 31, 1997 ............... $ 1,130,000 $ 1,130,000 $ 0
=========== =========== =========
</TABLE>
F-17
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
The components of the provision for income taxes for the year ended June
30, 1994, for the seven months ended January 31, 1995 and for the years ended
January 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31,
1994 1995 1996 1997
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Current income taxes:
Federal ............... $450,374 $ 1,579,491 $ 2,082,263 $ 4,108,569
State ............... 79,415 168,480 352,639 738,230
--------- ----------- ----------- -----------
Total current ...... 529,789 1,747,971 2,434,902 4,846,799
--------- ----------- ----------- -----------
Deferred income taxes:
Federal ............... 610 (233,117) (455,642) (173,364)
State .................. 111 (24,735) (48,569) (21,099)
--------- ----------- ----------- -----------
Total deferred ...... 721 (257,852) (504,211) (194,463)
--------- ----------- ----------- -----------
Total provision for
income taxes ............ $530,510 $ 1,490,119 $ 1,930,691 $ 4,652,336
========= =========== =========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss carryforwards.
The tax effects of significant items comprising the Company's net deferred tax
asset are as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1996 JANUARY 31, 1997
------------------- ------------------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment ................................. $ 1,966 $ --
Management incentive arrangements ..................... 119,304 --
Other ................................................... -- 97,047
---------- ----------
Gross deferred tax liabilities ........................ 121,300 97,047
---------- ----------
Deferred tax assets:
Excess of book bad debts reserve over tax reserve ...... 141,701 78,720
Intangibles ............................................. 232,252 129,224
Management incentive arrangements ..................... -- 310,043
Net operating loss carryforwards ........................ 800,468 800,468
Property and equipment ................................. -- 80,332
Inventories related .................................... 290,475 454,533
Other ................................................... 218,214 --
---------- ----------
Gross deferred tax assets ........................... 1,683,110 1,853,320
---------- ----------
Net deferred tax asset .................................... 1,561,810 1,756,723
Valuation allowance for deferred taxes .................. (800,468) (800,468)
---------- ----------
Net deferred tax asset .................................... $ 761,342 $ 955,805
========== ==========
</TABLE>
As of January 31, 1996 and 1997, the valuation allowance relates to the net
operating loss carry forwards available in connection with the Merger discussed
in Note 2 which expire through 2009.
F-18
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES--(CONTINUED)
The total income tax provision differs from the amount obtained by applying
the statutory federal income tax rate to pretax income for the following
reasons:
<TABLE>
<CAPTION>
SEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1994 JANUARY 31, 1995 JANUARY 31, 1996 JANUARY 31, 1997
---------------------- ------------------------ ------------------------ -------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------- ---------- ------------- ---------- ------------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax at
statutory rates ...... $ 524,239 34.00% $ 1,291,586 34.00% $ 1,672,126 34.00% $ 4,386,033 34.00%
Florida tax,
net of federal
benefit ............... 51,724 3.35 154,177 4.06 232,742 4.71 473,307 3.67
Undistributed
earnings in
affiliate ............ (65,434) (4.24) (61,686) (1.62) (116,426) (2.36) (138,594) (1.07)
Other ............... 19,981 1.30 106,042 2.79 142,249 2.88 (68,410) (0.53)
-------- -------- ---------- -------- ---------- -------- ---------- --------
Total income
taxes ............... $ 530,510 34.41% $ 1,490,119 39.23% $ 1,930,691 39.23% $ 4,652,336 36.07%
======== ======== ========== ======== ========== ======== ========== ========
</TABLE>
12. RELATED PARTY TRANSACTIONS
As of January 31, 1996, the Company had $410,000 outstanding in loans from
shareholders, which were repaid in fiscal year end 1997. Interest expense on
these loans totaled approximately $22,000 for the year ended June 30, 1994;
$14,000 and $10,000 for the seven months ended January 31, 1994 and 1995,
respectively; and $18,000, $28,000 and $16,000 for the twelve months ended
January 31, 1995, and for the years ended January 31, 1996 and 1997,
respectively.
F-19
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTIONS--(CONTINUED)
In the normal course of business and from time-to-time, the Company and its
affiliates, Fine Fragrances and National Trading, have entered into transactions
which are reflected on the balance sheet as Due to Affiliates, net. During the
seven months ended January 31, 1995 and for the years ended January 31, 1996 and
1997, such transactions are summarized as follows:
<TABLE>
<CAPTION>
ADVANCES DUE TO DUE TO
FROM MANAGEMENT (FROM) (FROM) TOTAL DUE
FINE FEES AND FINE NATIONAL TO (FROM)
FRAGRANCES OTHER FRAGRANCES, NET TRADING, NET AFFILIATES, NET
--------------- ---------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 ......... $ 1,616,991 $ (490,849) $ 1,126,142 $ 304,994 $ 1,431,136
Advances, net ..................... 430,000 -- 430,000 87,941 517,941
Management fee (8%) ............... -- (254,000) (254,000) -- (254,000)
Miscellaneous ..................... -- (31,011) (31,011) -- (31,011)
Interest (8.5%) .................. 74,433 -- 74,433 7,000 81,433
Repayments ........................ (215,364) -- (215,364) (287,000) (502,364)
------------ ------------- ------------ ------------ ------------
Balance at January 31, 1995 ...... 1,906,060 (775,860) 1,130,200 112,935 1,243,135
Advances, net ..................... 873,000 -- 873,000 1,444,160 2,317,160
Management fee (8%) ............... -- (375,576) (375,576) -- (375,576)
Interest (8.5%) .................. 236,788 -- 236,788 -- 236,788
Repayments ..................... (1,152,688) -- (1,152,688) -- (1,152,688)
------------ ------------- ------------ ------------ ------------
Balance at January 31, 1996 ...... 1,863,160 (1,151,436) 711,724 1,557,095 2,268,819
Advances, net ..................... 1,495,000 -- 1,495,000 222,500 1,717,500
Management fee (12%) ............ -- (925,289) (925,289) -- (925,289)
Interest (8.25%) .................. 154,199 -- 154,199 -- 154,199
Repayments ........................ (340,289) -- (340,289) (1,260,951) (1,601,240)
------------ ------------- ------------ ------------ ------------
Balance at January 31, 1997 ...... $ 3,172,070 $ (2,076,725) $ 1,095,345 $ 518,644 $ 1,613,989
============ ============= ============ ============ ============
</TABLE>
The Company has various monitoring agreements with affiliates of the
Company pursuant to which such affiliates provide financial advisory services to
the Company. In consideration of the services provided, such affiliates receive
annual fees totaling $275,000 which are payable in quarterly installments. See
Note 16.
The Company has an employment agreement through April 2000 with its Chief
Executive Officer, whereby he agrees to devote a majority of his business time
and energies to the business and affairs of the Company. The agreement is
automatically renewable for successive one year periods and contains a
non-compete clause during the term of the agreement and for a period of five
years after its termination.
13. REDEEMABLE PREFERRED STOCK
Redeemable Preferred Stock represents the Series A Preferred which was
issued in exchange for the FFI Series A Preferred in the Merger. The FFI Series
A Preferred was originally issued in July 1992. The Series A Preferred was
exchanged for 7.5% Convertible Debentures in the Exchange Offer.
F-20
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
JANUARY 31, 1996 JANUARY 31, 1997
------------------- ------------------
<S> <C> <C>
Reverse acquisition of Suave:
Fair value of non-cash assets acquired ............... $ 12,267,430
==============
Liabilities assumed ................................. $ (2,654,391)
==============
HBI Note issued in connection with the
Halston Acquisition .................................... $ 2,000,000
============
7.5% Convertible Debentures issued in connection
with the Exchange Offer ................................. $ 5,460,000
============
Redemption of 8% Debentures used to pay for
conversion of preferred stock ........................ $ 786,500
============
Acquisition of FMG Assets:
Fair value of assets acquired excluding inventory ...... $14,552,489
============
8.5% Debentures issued, net of discount ............... $11,080,000
============
Warrants issued ....................................... $ 20,000
============
Liabilities assumed .................................... $ 3,107,328
============
Discharge of receivable and inventory transferred ...... $ 1,544,489
============
Inventory acquired for other than cash .................. $ 1,199,332
============
</TABLE>
15. STOCK OPTION PLANS
In January 1995, the board adopted two stock option plans, one for the
benefit of non-employee directors (the "Non-Employee Director Plan") and another
for directors, officers, and employees (the "1995 Stock Option Plan"). Both the
1995 Stock Option Plan and the Non-Employee Director Plan were assumed in the
Merger and the outstanding options were adjusted for the Merger (see Note 2).
The stock options awarded under the Non-Employee Director Plan are
generally exercisable within a year after grant provided the grantee remains a
director of FFI. The options granted under the Non-Employee Director Plan are
non-qualified under the Internal Revenue Code. The option exercise price cannot
be less than the fair value of the underlying Common Stock as of the date of the
option grant, and the maximum option term cannot exceed ten years. The number of
shares of Common Stock authorized under the Non-Employee Director Plan is
200,000. As of January 31, 1996, no options were outstanding under the
Non-Employee Director Plan. As of January 31, 1997, options for 44,500 shares of
Common Stock were outstanding but none were exercisable. Options for 7,000
shares are exercisable at $6.00 per share on March 29, 1997, and options for
37,500 shares are exercisable at $7.00 per share on June 25, 1997.
The stock options awarded under the 1995 Stock Option Plan are exercisable
at any time or in any installments as determined by the Compensation Committee
of the Board at the time of grant, provided that no stock options shall be
exercisable prior to six months from the date of grant. The options
F-21
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. STOCK OPTION PLANS--(CONTINUED)
granted under the 1995 Stock Option Plan may be either incentive and/or
nonqualified stock options under the Internal Revenue Code as determined by the
Compensation Committee. The aggregate fair value (determined at the grant date)
of Common Stock with respect to which incentive options are exercisable for the
first time by a participant of the plan during any calendar year shall not
exceed $100,000. The number of shares of Common Stock authorized under the 1995
Stock Option Plan is 1,500,000. On January 26, 1995, options for 477,040 shares
of Common Stock (following conversion in the Merger) were granted at $3.30 per
share exercisable as follows: (i) 150,114 shares on July 26, 1995; (ii) 150,114
shares on January 26, 1996; (iii) 150,112 shares on January 26, 1997; and (iv)
26,700 shares on January 26, 1998. On December 19, 1995, options for 50,000
shares of Common Stock were granted at $5.25 per share exercisable on June 19,
1996. On June 25, 1996, options for 92,500 shares of Common Stock were granted
at $6.50, of which 30,834 of such options are currently exercisable and the
remaining options become exercisable in equal amounts when the Common Stock next
trades at $11.00 and $15.00, respectively.
In addition, two stock option plans were established by Suave prior to the
Merger, the 1981 Employee Stock Option and Stock Appreciation Plan (the "1981
Employee Plan") and the 1993 Stock Option Plan (the "1993 Plan"). On February
22, 1996, options for 20,000 shares of Common Stock were granted at $5.25 per
share exercisable in thirds on August 22, 1996, February 22, 1997 and February
22, 1998. On May 2, 1996, options for 45,000 shares of Common Stock were granted
at $6.50 per share exercisable in thirds on November 2, 1996, May 2, 1997 and
May 2, 1998. The terms relating to grants of options under the 1981 Employee
Plan are similar to those of options granted under the 1995 Stock Option Plan.
Effective June 25, 1996, the Board determined that there would be no additional
option grants under the 1981 Employee Plan or the 1993 Plan.
F-22
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. STOCK OPTION PLANS--(CONTINUED)
The option activities of all plans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 31, 1996 JANUARY 31, 1997
------------------------------ -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ------------------- ---------- ------------------
<S> <C> <C> <C> <C>
Beginning outstanding ............... 477,040 $3.30 527,040 $3.49
Granted ........................... 50,000 5.25 202,000 6.45
Exercised ........................... -- -- -- --
Canceled ........................... -- -- -- --
--------- ------- --------- -------
Ending outstanding .................. 527,040 $3.49 729,040 $4.31
========= ======= ========= =======
Exercisable as of January 31, 1996 and
January 31, 1997 ..................... 300,228 552,845
========= =========
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------- --------------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
RANGE OF AS OF REMAINING AVERAGE AS OF AVERAGE
EXERCISE PRICE JANUARY 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE JANUARY 31, 1997 EXERCISE PRICE
- ----------------- ------------------- ------------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C> <C>
$3.30-$5.25 547,040 3.11 $3.55 507,007 $3.52
$6.00-$7.00 182,000 5.57 6.58 45,838 6.50
- ------------ -------- ----- ------- --------- --------
$3.30-$7.00 729,040 3.72 $4.31 552,845 $3.77
======== ===== ======= ========= ========
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock options to employees and non-employee members of the Board as
described in Note 1. Accordingly, no compensation expense has been recognized
during the years ended January 31, 1996 and 1997 related to the stock options.
Net income and net income per primary common share equivalent would have been as
follows had the fair value of stock options granted during 1996 and 1997 been
recognized as compensation expense as prescribed by SFAS No. 123:
FISCAL YEARS ENDED
JANUARY 31,
----------------------------
1996 1997
------------- ------------
Pro forma net income ........................ $2,991,000 $8,142,000
Net income per primary share equivalent ...... 0.35 0.60
In calculating the fair value of the stock options, the Company calculated
the volatility of trading of its stock since it was listed on the Nasdaq
National Market. The Company used a 7% risk-free rate of return and assumed no
dividend payments over the life of the options.
16. SUBSEQUENT EVENTS
In April 1997, the Company entered into an agreement which grants to the
Company an option to acquire the 50.01% of the common stock of Fine Fragrances
that the Company does not already own from an unaffiliated third party. The
purchase price consists of $2,000,000 plus an additional $1,000,000 to be paid
over time based on 5% of the net sales of Cofci, S.A. products, with any unpaid
balance due
F-23
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. SUBSEQUENT EVENTS--(CONTINUED)
30 days after the third anniversary of the consummation of such transaction.
Upon consummation of such transaction, Fine Fragrances will become a wholly
owned subsidiary of the Company and its operations will be consolidated with
those of the Company, and the management agreement with Fine Fragrances will be
terminated.
In April 1997, the monitoring agreements with affiliates of the Company
were terminated. In their place, the Company entered into an agreement with ESB
Consultants, Inc. ("ESB") for financial, advisory and management services. The
agreement is for a term of one year, renewable at the option of the Company for
additional one-year terms and provides for a fee to ESB of $300,000. See Note
12.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Fine Fragrances, Inc.
We have audited the accompanying balance sheet of Fine Fragrances, Inc.
("Fine") as of January 31, 1997, and the related statements of income and
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of Fine's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Fine as of January 31, 1997, and the results
of its operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Miami, Florida
March 14, 1997
(April 11, 1997 as to Note 6)
F-25
<PAGE>
FINE FRAGRANCES, INC.
BALANCE SHEET
JANUARY 31, 1997
------------------
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 67,884
Accounts receivable, net .............................. 1,451,779
Inventories .......................................... 2,724,471
Prepaid expenses and other assets ..................... 83,179
-----------
Total current assets .............................. 4,327,313
Due from affiliates, net .............................. 1,304,553
Property and equipment, net ........................... 7,543
Deferred income taxes ................................. 74,598
-----------
Total ............................................. $5,714,007
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt ....................................... $ 951,570
Accounts and other payables ........................... 765,521
-----------
Total current liabilities ........................... 1,717,091
-----------
Commitments (Note 3)
Stockholders' equity:
Common stock, $.01 par value, 10,000 shares authorized,
issued and outstanding ................................. 100
Additional paid-in capital ........................... 499,900
Retained earnings .................................... 3,496,916
-----------
Total stockholders' equity ........................ 3,996,916
-----------
Total ............................................. $5,714,007
===========
See notes to financial statements.
F-26
<PAGE>
FINE FRAGRANCES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED
JANUARY 31, 1997
------------------
Net sales .................................... $7,279,739
Cost of sales ................................. 4,091,064
-----------
Gross profit ................................. 3,188,675
-----------
Operating expenses:
Warehouse and shipping ........................ 48,963
Selling, general and administrative ......... 1,700,054
Depreciation ................................. 1,128
-----------
Total operating expenses .................. 1,750,145
-----------
Income from operations ........................ 1,438,530
-----------
Other income:
Interest income, net ........................ 65,690
Other income ................................. 5,001
-----------
Other income, net ........................... 70,691
-----------
Income before provision for income taxes ...... 1,509,221
Provision for income taxes ..................... 567,920
-----------
Net income .................................... 941,301
Retained earnings, beginning of year ......... 2,555,615
-----------
Retained earnings, end of year ............... $3,496,916
===========
See notes to financial statements.
F-27
<PAGE>
FINE FRAGRANCES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1997
------------------
<S> <C>
Cash flow from operating activities:
Net income ................................................... $ 941,301
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation ................................................ 1,128
Deferred income taxes benefit .............................. (27,511)
Changes in current assets and liabilities:
Increase in accounts receivable ........................... (748,687)
Increase in inventories .................................... (591,320)
Increase in prepaid expenses and other current assets ...... (32,750)
Increase in due from affiliate, net ........................ (187,337)
Increase in accounts and other payables ..................... 659,534
----------
Net cash provided by operating activities ............... 14,358
----------
Cash flows from investing activities:
Advances to affiliate, net .................................... (383,621)
----------
Cash flows from financing activities:
Net proceeds from short-term debt ........................... 39,753
----------
Net decrease in cash and cash equivalents ..................... (329,510)
Cash and cash equivalents, beginning of year .................. 397,394
----------
Cash and cash equivalents, end of year ........................ $ 67,884
==========
Supplemental disclosure of cash flow information:
Interest paid during the year ................................. $ 91,489
==========
Income taxes paid during the year ........................... $ 211,041
==========
</TABLE>
See notes to financial statements.
F-28
<PAGE>
FINE FRAGRANCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL. Fine Fragrances, Inc. ("Fine") was organized in March 1990 for
the purpose of distributing fragrances manufactured in France by Cofci, S.A.
("Cofci"). The fragrances are sold to retail establishments throughout the
United States.
Effective January 31, 1995, Fine changed its reporting year-end to January
31 from June 30 to conform to its natural business year.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION. Sales are recognized upon shipment. During the year
ended January 31, 1997, there were no customers accounting for more than 10% of
total sales.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash and
interest-bearing deposits at banks with original maturities of three months or
less.
ACCOUNTS RECEIVABLE. A portion of Fine's accounts receivable are insured
from risk of uncollectibility by an independent party. Receivables are not
factored. A provision has been made and an allowance established for potential
losses from uninsured receivables and estimated sales returns in the normal
course of business. Since this allowance is based on estimates, there is no
assurance that such allowance will be sufficient to cover unforeseen losses or
returns. The activity for this allowance account is as follows:
YEAR ENDED
JANUARY 31, 1997
------------------
Beginning balance ..................... $ 74,379
Provisions ........................... 289,689
Net write offs and actual returns ...... (294,942)
----------
Ending balance ........................ $ 69,126
==========
INVENTORIES. Inventories are stated at the lower of cost or market. Cost
is determined using the weighted average cost method.
F-29
<PAGE>
FINE FRAGRANCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. Estimated useful lives are eight years.
INCOME TAXES. The provision for income taxes is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities. Fine provides for deferred taxes under the liability
method. Under such method, deferred taxes are adjusted for tax rate changes as
they occur. Deferred income tax assets and liabilities are computed annually for
differences between the financial statements and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances when
necessary reduce deferred tax assets to the amount expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Fine's financial instruments include
accounts receivable, short-term debt, and accounts and other payables. The fair
value of such financial instruments have been determined using available market
information and interest rates as of January 31, 1997. The fair value of these
financial instruments was not materially different than their carrying value.
2. PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT AS OF JANUARY 31, 1997 WAS COMPRISED OF THE
FOLLOWING:
Furniture and fixtures ............ $ 16,837
Less accumulated depreciation ...... (9,294)
---------
Total .............................. $ 7,543
=========
3. SHORT-TERM DEBT
Short-term borrowing consists of a $3,000,000 revolving line of credit from
a bank. Under the line, advances of up to $800,000 are made in cash or by
issuance of commercial letters of credit. The interest rate is prime rate plus
2.5% (prime rate was 8.25% at January 31, 1997). The terms of the advances call
for interest monthly and principal on demand. The bank has a first security
interest on all corporate assets other than accounts receivable. The line is
subject to annual review and renewal by the bank in April. Amounts outstanding
were $952,000 as of January 31, 1997. In addition, as of January 31, 1997, Fine
had approximately $463,000 in open letters of credit.
F-30
<PAGE>
FINE FRAGRANCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. INCOME TAXES
The components of the provision of income taxes for the year ended January
31, 1997 are as follows:
Current income taxes:
Federal ................................. $ 508,557
State .................................... 86,874
---------
Total current ........................ 595,431
---------
Deferred income taxes:
Federal ................................. (23,757)
State .................................... (3,754)
---------
Total deferred ........................ (27,511)
---------
Total provision for income taxes ...... $ 567,920
=========
Deferred income taxes reflect net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. The tax effects of significant
items comprising Fine's net deferred tax asset as of January 31, 1997 are as
follows:
Deferred income tax assets:
Excess of book bad debt reserve over tax reserve ...... $ 27,305
Inventories related .................................... 50,272
--------
Gross deferred income tax assets ..................... 77,577
--------
Deferred income tax liabilities:
Depreciable property .................................... (2,979)
--------
Net deferred income tax asset ........................ $ 74,598
========
The total income tax provision differs from the amount obtained by applying
the statutory federal income tax rate to pretax income for the following
reasons:
YEAR ENDED
JANUARY 31, 1997
-------------------------
AMOUNT RATE
----------- -----------
Income tax at statutory rate ............ $513,135 34.00%
State tax, net of federal benefit ...... 54,086 3.58
Other, net .............................. 699 0.05
--------- --------
Total provision for income taxes ...... $567,920 37.63%
========= ========
F-31
<PAGE>
FINE FRAGRANCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS
In the normal course of business, Fine, French Fragrances, Inc. ("French"),
a company that owns 49.99%, of the outstanding common stock of Fine and National
Trading Manufacturing, Inc., a company which is wholly owned by the chief
executive officer of French, enter into transactions which are reflected on the
balance sheet as due from affiliates, net. Such transactions include cash
advances, which bear interest at prime with no stated maturity dates, and fees
under a management agreement with French (the "Management Agreement") wherein
French provides Fine with management services, office space, equipment, and
warehousing in exchange for 12% of Fine's gross sales.
During the year ended January 31, 1997, such transactions are summarized as
follows:
<TABLE>
<CAPTION>
MANAGEMENT DUE FROM
ADVANCES FEES AND OTHER DUE FROM ADVANCES (TO) FRENCH
TO FRENCH DUE TO FRENCH (TO) FRENCH TO NTM AND NTM, NET
-------------- ----------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1996 $ 1,863,160 $ (1,151,436) $ 711,724 $ 21,871 $ 733,595
Advances, net ............... 1,495,000 -- 1,495,000 200,000 1,695,000
Management fee (12%) ......... -- (925,289) (925,289) -- (925,289)
Interest (8.25%) ............ 154,199 -- 154,199 -- 154,199
Collections on advances ...... (340,289) -- (340,289) (12,663) (352,952)
----------- ------------ ----------- --------- -----------
Balance at January 31, 1997 $ 3,172,070 $ (2,076,725) $ 1,095,345 $ 209,208 $ 1,304,553
=========== ============ =========== ========= ===========
</TABLE>
Since its organization, Fine has been a party to distribution agreements
(the "Agreements") with Cofci pursuant to which Fine distributes on an exclusive
basis in North America certain products manufactured by Cofci. During the year
ended January 31, 1997, Cofci products comprised 100% of net sales. The
Agreements also provide that Fine shall keep a minimum inventory level or have
on order from Cofci approximately three months of projected sales. As of January
31, 1997, amounts due to Cofci totaled approximately $55,000 and are included in
accounts and other payables in the accompanying balance sheet.
6. SUBSEQUENT EVENTS
In April 1997, Fine and Cofci entered into new ten-year distribution
agreements, which replaced the Agreements, pursuant to which Fine will continue
to serve as the exclusive distributor in North America for Cofci products.
In April 1997, French entered into an agreement which grants to French an
option to acquire the 50.01% of the common stock of Fine which is not owned by
French from an unaffiliated third party. The purchase price consists of
$2,000,000 plus an additional $1,000,000 to be paid over time based on 5% of the
net sales of Cofci products, with any unpaid balance due 30 days after the
consummation of such transaction. French and Fine have agreed to terminate the
Management Agreement following such transaction, and French has agreed to repay
the outstanding amounts due under the bank revolving line of credit (see Note
3).
F-32
<PAGE>
---------------------------- ----------------------------
---------------------------- ----------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, THE SENIOR NOTES TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
PAGE
Available Information .................. 2
Incorporation of Certain Documents
by Reference ........................... 3
Cautionary Note Regarding Forward-
Looking Statements ..................... 3
Prospectus Summary ..................... 5
Risk Factors ........................... 16
The Exchange Offer ..................... 21
The Company ........................... 32
Use of Proceeds ........................ 33
Capitalization ........................ 34
Pro Forma Financial Data ............... 35
Selected Historical and Pro Forma
Financial Data ........................ 40
Management's Discussion and Analysis of
Financial Condition and Results
of Operations ........................ 42
Business .............................. 51
Management .............................. 59
Principal Shareholders .................. 65
Certain Transactions .................. 67
Description of Certain Indebtedness ... 70
Description of the New Credit Facility 72
Description of the Senior Notes ......... 73
Exchange Offer; Registration Rights ... 97
Certain Federal Income Tax
Consequences ........................... 99
Plan of Distribution .................. 99
Legal Matters ........................... 100
Experts ................................. 101
Index to Financial Statements ......... F-1
FRENCH FRAGRANCES, INC.
OFFER TO EXCHANGE ITS
10 3/8% SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2007, SERIES A
--------------
PROSPECTUS
--------------
, 1997
---------------------------- ----------------------------
---------------------------- ----------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Section 607.0850 of the Florida Business
Corporation Act (the "FBCA") to indemnify its directors and officers to the
extent provided for in such statute. The Company's Amended and Restated Articles
of Incorporation provide that, to the fullest extent permitted by applicable
law, as amended from time to time, the Company will indemnify any person who was
or is a director or officer of the Company, or serves or served in such capacity
with any other enterprise at the request of the Company, against all fines,
liabilities, settlements, costs and expenses asserted against or incurred by
such person in his capacity or arising out of his status as such officer or
director. The Company may also indemnify employees or agents of the Company if
the Company's Board so approves. This indemnification includes the right to
advancement of expenses when allowed pursuant to applicable law.
The provisions of the FBCA authorize a corporation to indemnify its
officers and directors in connection with actions, suits and proceedings brought
against them if the person acted in good faith and in a manner which the person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal actions, had no reasonable cause
to believe the person's conduct was unlawful. Unless pursuant to a determination
by a court, the determination of whether a director, officer or employee has
acted in accordance with the applicable standard of conduct must be made by (i)
a majority vote of directors who were not parties to the proceeding or a
committee consisting solely of two or more directors not parties to the
proceedings, (ii) independent legal counsel selected by a majority vote of the
directors who were not parties to the proceeding or committee of directors (or
selected by the full board if a quorum or committee can not be obtained), or
(iii) the affirmative vote of the majority of the corporation's shareholders who
were not parties to the proceeding.
The FBCA further provides that a corporation may make any other or further
indemnity by resolution, bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, except with respect to certain enumerated acts or
omissions of such persons. Florida law prohibits indemnification or advancement
of expenses if a judgment or other final adjudication establishes that the
actions of a director, officer or employee constitute (i) a violation of
criminal law, unless the person had reasonable cause to believe his conduct was
unlawful, (ii) a transaction from which such person derived an improper personal
benefit, (iii) willful misconduct or conscious disregard for the best interests
of the corporation in the case of a derivative action by a shareholder, or (iv)
in the case of a director, a circumstance under which a director would be liable
for improper distributions under Section 607.0834 of the FBCA. The FBCA does not
affect a director's responsibilities under any other law, such as federal
securities laws.
At present, there is no pending litigation or other proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.
The Company maintains directors' and officers' liability insurance for its
directors and officers.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 19, 1995, by and between the Company and
FFI (incorporated herein by reference to Exhibit 2.1 filed as a part of the Company's
Form 8-K dated November 30, 1995 (Commission File No. 1-6370)).
3.1 Amended and Restated Articles of Incorporation of the Company dated March 6, 1996
(incorporated herein by reference to Exhibit 3.1 filed as a part of the Company's Form 10-K
for the fiscal year ended January 31, 1996 (Commission File No. 1-6370)).
3.2 Amendment dated September 19, 1996 to the Amended and Restated Articles of
Incorporation of the Company (incorporated by reference to Exhibit 4.4 filed as part of the
Company's Form 10-Q for the quarter ended October 31, 1996 (Commission File No. 1-6370)).
3.3 By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 filed as a part of
the Company's Form 10-K for the fiscal year ended January 31, 1996 (Commission File No.
1-6370)).
4.1 Indenture, dated as of May 13, 1997, between the Company and Marine Midland Bank, as
trustee (incorporated herein by reference to Exhibit 4.1 filed as a part of the Company's
Form 8-K dated May 13, 1997 (including forms of 103/8% Senior Note due 2007, Series A and
10 3/8% Senior Note due 2007, Series B) (Commission File No. 1-6370)).
4.2 Registration Rights Agreement, dated as of May 13, 1997, between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc.
(incorporated herein by reference to Exhibit 4.2 filed as a part of the Company's Form 8-K
dated May 13, 1997 (Commission File No. 1-6370)).
4.3 Credit Agreement, dated as of May 13, 1997, by and among the Company and Fleet National
Bank (incorporated herein by reference to Exhibit 4.3 filed as a part of the Company's
Form 8-K dated May 13, 1997 (Commission File No. 1-6370)).
5.1 Opinion of Steel Hector & Davis LLP.
10.1 Registration Rights Agreement dated as of November 30, 1995, among the Company, Bedford
Capital Corporation ("Bedford"), Fred Berens, Rafael Kravec and Eugene Ramos
(incorporated herein by reference to Exhibit 10.1 filed as a part of the Company's Form 10-K
for the fiscal year ended September 30, 1995 (Commission File No. 1-6370)).
10.2 Amendment dated as of March 20, 1996 to Registration Rights Agreement dated as of
November 30, 1995, among the Company, Bedford, Fred Berens, Rafael Kravec and Eugene
Ramos (incorporated herein by reference to Exhibit 10.2 filed as a part of the Company's
Form 10-K for the year ended January 31, 1996 (Commission File No. 1-6370)).
10.3 Second Amendment dated as of July 22, 1996 to Registration Rights Agreement dated as of
November 30, 1995, among the Company, Bedford, Fred Berens, Rafael Kravec and the
Estate of Eugene Ramos (incorporated by reference to Exhibit 10.3 filed as part of the
Company's Form 10-Q for the quarter ended July 31, 1996 (Commission File No. 1-6370)).
10.4 Employment Agreement dated as of April 1, 1997, between the Company and Rafael Kravec
(incorporated herein by reference to Exhibit 10.4 filed as a part of the Company's Form 10-K
for the year ended January 31, 1997 (Commission File No. 1-6370)).
10.5 Chief Operating Officer Compensation Agreement dated as of April 1, 1997, between the
Company and E.S.B. Consultants, Inc. (incorporated herein by reference to Exhibit 10.5 filed
as a part of the Company's Form 10-K for the year ended January 31, 1997 (Commission File
No. 1-6370)).
10.6 Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.4
filed as a part of the Company's Form 10-K for the fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.7 1995 Stock Option Plan (incorporated herein by reference to Exhibit 10.5 filed as a part of the
Company's Form 10-K for the fiscal year ended September 30, 1995 (Commission File No. 1-6370)).
10.8 Lease Agreement, dated as of July 2, 1992, between FFI and National Trading (incorporated
herein by reference to Exhibit 10.13 filed as a part of the Company's Form 10-K for the fiscal
year ended September 30, 1995 (Commission File No. 1-6370)).
10.9 Option Agreement, dated July 2, 1992, between FFI and National Trading and Memorandum
of Lease and Option Agreement related thereto (incorporated herein by reference to Exhibit
10.14 filed as a part of the Company's Form 10-K for the fiscal year ended September 30, 1995
(Commission File No. 1-6370)).
10.10 Amended and Rested Exclusive Trademark License Agreement, dated February 29, 1980,
between Geoffrey Beene, Inc., and Epocha Distributors, Inc. (now known as Sanofi Beaute,
Inc.) as amended July 29, 1992 and February 13, 1995 (incorporated herein by reference to
Exhibit 10.15 filed as a part of the Company's Form 10-K for the fiscal year ended September
30, 1995 (Commission File No. 1-6370)).
10.11 Asset Purchase Agreement dated as of February 1, 1996, by and between the Company and
Halston-Borghese, Inc. and its affiliates (incorporated herein by reference to Exhibit 2.1 filed
as a part of the Company's Form 8-K dated March 20, 1996 (Commission File No. 1-6370)).
10.12 Asset Purchase Agreement dated as of April 17, 1996, by and between the Company and
Fragrance Marketing Group, Inc. and Rene Garcia and Jose Miguel Norona, including the
forms of Debentures and Seller's Warrant related thereto (incorporated herein by reference to
Exhibit 10.21(a) filed as a part of the Company's Registration Statement on Form S-1 dated
May 3, 1996 (Registration Statement No. 333-4588)).
10.13 Amendment to Asset Purchase Agreement dated as of May 14, 1996, by and between the
Company and Fragrance Marketing Group, Inc. and Rene Garcia and Jose Miguel Norona
(incorporated herein by reference to Exhibit 2.2 filed as a part of the Company's Form 8-K
dated May 14, 1996 (Commission File No. 1-6370)).
10.14 Amendment to Asset Purchase Agreement dated as of July 1, 1996, by and between the
Company and Fragrance Marketing Group, Inc. and Rene Garcia and Jose Miguel Norona
(incorporated by reference to Exhibit 4.4 filed as part of the Company's Form 10-Q for the
quarter ended October 31, 1996 (Commission File No. 1-6370)).
10.15 Purchase Agreement, dated May 6, 1997, between the Company and Donaldson, Lufkin &
Jenrette Securities Corporation and TD Securities (USA) Inc.
12.1 Statement Regarding Computation of Ratios.
16.1 Letter from Arthur Andersen LLP Regarding Change in Certifying Accountant (incorporated
herein by reference to Exhibit 16.1 filed as a part of the Company's Form 8-K dated
February 22, 1996 (Commission File No. 1-6370)).
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Steel Hector & Davis LLP (contained in the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Marine Midland
Bank, as Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
<FN>
- ----------------
The foregoing list omits instruments defining the rights of holders of long term
debt of the Company where the total amount of securities authorized thereunder
does not exceed 10% of the total assets of the Company. The Company hereby
agrees to furnish a copy of each such instrument or agreement to the Commission
upon request.
</FN>
</TABLE>
II-3
<PAGE>
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Commission are either not required under the related
instructions, are not applicable (and therefore have been omitted), or the
required disclosures are contained in the financial statements included herein.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement.
(2) that, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference in the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this Registration Statement through the date
of responding to the request.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami Lakes, Florida on
June 6, 1997.
FRENCH FRAGRANCES, INC.
By: /s/ RAFAEL KRAVEC
------------------------------------------------
Rafael Kravec
Chairman and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Rafael
Kravec and Oscar E Marina, or any one of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him and in his name, place and stead in any and all capacities to execute in
the name of each such person who is then an officer or director of the
Registrant any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents and each of them full power and
authority to do and perform each and every act and thing required or necessary
to be done in and about the premises as fully as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their substitute or substitutes, may lawfully do or cause to be
done by virtue thereof. Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ------------------------------------- --------------
<S> <C> <C>
/s/ RAFAEL KRAVEC Chairman of the Board and June 6, 1997
- ----------------------------- Chief Executive Officer
Rafael Kravec (Principal Executive Officer)
/s/ WILLIAM J. MUELLER Vice President--Operations and June 6, 1997
- ----------------------------- Chief Financial Officer (Principal
William J. Mueller Financial and Accounting Officer)
/s/ J.W. NEVIL THOMAS Vice Chairman of the Board June 6, 1997
- -----------------------------
J.W. Nevil Thomas
/s/ E. SCOTT BEATTIE President, Chief Operating Officer June 6, 1997
- ----------------------------- and Director
E. Scott Beattie
/s/ FRED BERENS Director June 6, 1997
- -----------------------------
Fred Berens
/s/ GEORGE DOOLEY Director June 6, 1997
- -----------------------------
George Dooley
Director June , 1997
- -----------------------------
Richard C.W. Mauran
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
5.1 Opinion of Steel Hector & Davis LLP.
10.15 Purchase Agreement, dated May 6, 1997, between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation and TD
Securities (USA) Inc.
12.1 Statement Regarding Computation of Ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of Marine Midland Bank, as Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
EXHIBIT 5.1
June 6, 1997
French Fragrances, Inc.
14100 N.W. 60th Avenue
Miami Lakes, FL 33014
Gentlemen:
We have acted as counsel to French Fragrances, Inc. (the "Company") in
connection with the preparation and filing with the Securities and Exchange
Commission of a registration statement on Form S-4 to be filed on or about the
date hereof (the "Registration Statement"). The Registration Statement relates
to an exchange offer pursuant to which the Company is offering to exchange
$1,000 in principal amount of its 10 3/8% Senior Notes due 2007, Series B (the
"Exchange Notes"), which Exchange Notes are the subject of the Registration
Statement, for each $1,000 in principal amount of its 10 3/8% Senior Notes due
2007, Series A (the "Initial Notes"). You have advised us that $115,000,000
aggregate principal amount of the Initial Notes are currently outstanding. The
Initial Notes were, and the Exchange Notes will be, issued pursuant to an
Indenture dated as of May 13, 1997 (the "Indenture") by and between the Company
and Marine Midland Bank, as trustee (the "Trustee").
In connection therewith, we have examined the Amended and Restated
Articles of Incorporation, as amended, and the Bylaws of the Company; the
minutes of the proceedings of the Company's Board of Directors with respect to
the Registration Statement and the issuance of the Exchange Notes as
contemplated in the Registration Statement; the Indenture and such other
corporate documents and records, certificates of public officials and questions
of law as we deemed necessary or appropriate for the purposes of this opinion.
In our examination and for all purposes of this opinion, we have
assumed (a) the genuineness of all signatures, (b) the legal capacity of all
natural persons, (c) the authenticity of all documents submitted to us as
originals, (d) the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the authenticity of originals of
such latter documents, (e) the due authorization, execution and delivery of the
Indenture by the Trustee, (f) that the Trustee is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to execute, deliver and
perform the Indenture, (g) that the Indenture constitutes the legal, valid and
binding obligation of the Trustee enforceable against the Trustee in accordance
with its terms, (h) that each certificate of a governmental authority relied
upon for purposes of this opinion and all official public records (including
their proper indexing and filing) are accurate and complete, (i) that routine
procedural matters such as service of process or qualification to do business in
the relevant jurisdictions will be satisfied by the parties seeking to enforce
the Indenture or the Exchange Notes, and (j) the constitutionality and validity
of all relevant laws, regulations and agency actions unless a reported case has
otherwise held or widespread concern has been expressed by commentators as
reflected in materials which lawyers routinely consult.
<PAGE>
French Fragrances, Inc.
June 6, 1997
Page 2
We have made such examinations of the Federal law of the United States,
the law of the State of Florida, and the law of the State of New York as we have
deemed relevant for purposes of this opinion, and have not made any independent
review of the law of any other state or other jurisdiction. The opinions
expressed herein are limited solely to the Federal law of the United States, the
law of the State of Florida, and the law of the State of New York.
Based upon and subject to the foregoing and the other qualifications,
limitations and assumptions contained herein, we are of the opinion that the
Exchange Notes have been validly authorized and when executed and authenticated
pursuant to the Indenture and when issued and delivered as contemplated by the
Registration Statement, the Exchange Notes will be the valid and binding
obligations of the Company enforceable in accordance with their terms.
The foregoing opinions are subject to the following qualifications:
(A) Our opinion concerning the validity, binding effect and
enforceability of the Exchange Notes means that (i) a contract has been formed
under applicable law, (ii) a remedy will be available with respect to each
agreement of the Company in the Indenture and the Exchange Notes or such
agreements will otherwise be given effect, and (iii) subject to the last
sentence of this paragraph and the other qualifications set forth hereinafter,
any remedy expressly provided for in the Indenture and the Exchange Notes will
be given effect as stated. The validity, binding effect and enforceability of
the Indenture and the Exchange Notes may be limited or otherwise affected by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
(including the Uniform Fraudulent Transfers Act as adopted in Florida and New
York) or other similar statutes, rules, regulations or other laws affecting the
enforcement of creditors' rights and remedies generally, and (ii) the
unavailability of, or limitation on the availability of, a particular right or
remedy (whether in a proceeding in equity or at law) because of an equitable
principle or a requirement as to commercial reasonableness, conscionability or
good faith.
(B) We express no opinion as to:
(i) the validity, binding effect or enforceability of any
purported waiver under the Indenture or the Exchange Notes, or any
purported consent thereunder, relating to the rights of the Company or
duties owing to the Company, existing as a matter of law except to the
extent the Company may so waive or consent and has effectively so
waived and consented (whether in the Indenture, the Exchange Notes or
otherwise); or
(ii) the validity, binding effect or enforceability of any
provisions in the Indenture or the Exchange Notes (a) restricting
access to legal or equitable redress, (b) purporting to waive or affect
any rights to notice or the obligations of good faith, fair dealing,
diligence and reasonableness, (c) allowing any party to declare
indebtedness to be due and payable
<PAGE>
French Fragrances, Inc.
June 6, 1997
Page 3
without notice, (d) providing that the Trustee's or any other party's
failure to exercise any right, remedy or option under the Indenture or
the Exchange Notes shall not operate as a waiver or that a selection of
a remedy will not limit the availability of another remedy, (e) which,
under Florida or New York law, could be deemed to be unconscionable, to
be evidence of bad faith or to be violative of public policy, (f)
providing that forum selection clauses are binding on the court or
courts in the forum selected, (g) releasing, exculpating or exempting a
party from, or requiring indemnification of a party for, liability for
its own actions or inactions, to the extent the action or inaction
involves gross negligence, recklessness, willful misconduct or unlawful
conduct, (h) limiting judicial discretion regarding the determination
of damages and entitlement to attorneys' fees and other costs, or (i)
which deny a party who has materially failed to render or offer
performance required by the contract the opportunity to cure that
failure unless permitting a cure would unreasonably hinder the
nondefaulting party from making substitute arrangements for performance
or it was important in the circumstances to the nondefaulting party
that performance occur by the date stated in the agreement.
This opinion is limited to the matters stated herein and no opinions
may be implied or inferred beyond the matters expressly stated herein. We have
assumed no obligation to update or supplement our opinions to reflect any facts
or circumstances which may come to our attention or any changes in law which may
occur.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us contained therein under the
caption "Legal Matters."
Very truly yours,
STEEL HECTOR & DAVIS LLP
EXHIBIT 10.15
PURCHASE AGREEMENT
French Fragrances, Inc.
Senior Notes due 2007
PURCHASE AGREEMENT
May 6, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
TD SECURITIES (USA) INC.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies & Gentlemen:
French Fragrances, Inc., a Florida corporation ("COMPANY"), agrees with
you as follows:
1. Issuance of Securities. The Company proposes to issue and sell to
Donaldson, Lufkin & Jenrette Securities Corporation and TD Securities (USA) Inc.
(each, a "Purchaser"), an aggregate of $115 million principal amount of 10 3/8%
Senior Notes due 2007 (the "Series A NoteS"). The Series A Notes are to be
issued pursuant to an indenture (the "Note Indenture") to be dated as of May 13,
1997 between the Company and Marine Midland Bank, as trustee (the "Trustee").
Capitalized terms used but not defined herein shall have the meanings
given to such terms in the Note Indenture or the Offering Memorandum, as the
case may be.
The Series A Notes will be offered and sold to you pursuant to an
exemption from the registration requirements under the Securities Act of 1933,
as amended (the "Act"). The Company has prepared a preliminary offering
memorandum, dated April 21, 1997 (the "Preliminary Offering Memorandum"), and a
final offering memorandum, dated May 6, 1997 (the "Offering Memorandum"),
relating to the Company and the Series A Notes for your use.
Upon original issuance thereof, and until such time as the same is no
longer required under the applicable requirements of the Act, the Series A Notes
(and all securities issued in exchange therefor or in substitution thereof)
shall bear the following legend:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER
<PAGE>
SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED
HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1)(a) INSIDE THE UNITED
STATES TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE
SECURITIES ACT, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PURCHASER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND, IN THE
CASE OF CLAUSE (b), (c) OR (d), BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN EACH
CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OR ANY NOTE ISSUED IN
EXCHANGE FOR OR IN SUBSTITUTION HEREOF OF THE RESALE RESTRICTIONS SET
FORTH IN (A) ABOVE."
You have advised the Company that you will make offers (the "Exempt
Resales") of the Series A Notes purchased hereunder on the terms set forth in
the Offering Memorandum, as amended or supplemented, solely (i) to persons whom
you reasonably believe to be "qualified institutional buyers," as defined in
Rule 144A under the Act ("QIBs"), (ii) to non-U.S. persons whom you reasonably
believe are outside the United States and to whom offers and sales of the Series
A Notes may be made in reliance upon Regulation S under the Act ("Regulation
S"), in transactions meeting the requirements of regulation s, and (iii) to a
limited number of institutional "Accredited Investors" referred to in Rule
501(a)(1), (2), (3) or (7) under the Act (each, an "Accredited Investor"). The
QIBs, the non-U.S. persons outside the United States and the Accredited
Investors are referred to herein as the "Eligible Purchasers." You will offer
the Series A Notes to such Eligible Purchasers initially at a price equal to
100% of the principal amount thereof. Such price may be changed at any time
without notice.
Holders (including subsequent transferees) of the Series A Notes will
have the registration rights set forth in the registration rights agreement
relating thereto (the "Registration
2
<PAGE>
Rights Agreement"), to be dated the Closing Date, in substantially the form of
Exhibit A hereto, for so long as such Series A Notes constitute "Transfer
Restricted Securities" (as defined in the Registration Rights Agreement).
Pursuant to the Registration Rights Agreement, the Company will agree to file
with the Securities and Exchange Commission (the "Commission"), under the
circumstances set forth therein, (i) a registration statement under the Act (the
"Exchange Offer Registration Statement") relating to the 10 3/8% Series B Senior
Notes due 2007 (the "Series B Notes", and together with the Series A Notes, the
"Notes") to be offered in exchange for the Series A Notes (the "Exchange
Offer"), and (ii) a shelf registration statement pursuant to Rule 415 under the
Act (the "Shelf Registration Statement") relating to the resale by certain
holders of the Series A Notes, and to use its reasonable best efforts to cause
such Registration Statements to be declared effective. This Purchase Agreement
(this "Agreement"), the Notes, the Note Indenture and the Registration Rights
Agreement are hereinafter sometimes referred to collectively as the "Operative
Documents".
2. Agreements To Sell And Purchase. On the basis of the representations
and warranties contained in this Agreement, and subject to its terms and
conditions, the Company agrees to issue and sell to you, and each of the
Purchasers, severally but not jointly, agrees to purchase from the Company,
Series A Notes in the respective principal amount set forth opposite its name on
Schedule I hereto. The purchase price for the Series A Notes shall be 97% of
their principal amount.
3. Delivery And Payment. Delivery to the Purchasers of and payment for
the Series A Notes shall be made at 9:00 a.m., New York City time, on May 13,
1997 (the "Closing Date") at the offices of Fried, Frank, Harris, Shriver &
Jacobson, One New York Plaza, New York, New York 10004, or such other time or
place as you and the Company shall designate.
One or more of the Series A Notes in definitive form, registered in the
name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), having
an aggregate principal amount corresponding to the aggregate principal amount of
the Series A Notes sold pursuant to Exempt Resales to QIBs (collectively, the
"Master Note"), one or more of the Series A Notes in definitive form, registered
in the name of Cede & Co., as nominee of DTC, having an aggregate principal
amount corresponding to the aggregate principal amount of the Series A Notes
sold pursuant to Exempt Resales to non-U.S. persons in reliance upon Regulation
S (collectively, the "Regulation S Note") and one or more Series A Notes in
definitive form registered in the name of Cede & Co., as nominee of DTC, having
an aggregate principal amount corresponding to the aggregate principal amount of
the Series A Notes sold pursuant to Exempt Resales to Accredited Investors
(collectively, the "Other Note"), shall be delivered by the Company to you (or
as you direct), against payment by you of the purchase price therefor by
certified or official bank check or checks payable in federal (same day) funds
to the order of the Company or as the Company may direct. The Master Note, the
Regulation S Note and the Other Note shall be made available to you for
inspection not later than 9:30 a.m. on the business day immediately preceding
the Closing Date.
3
<PAGE>
4. Agreements Of The Company. The Company agrees with each of you as
follows:
(a) To advise you promptly and, if requested by the
Purchasers, to confirm such advice in writing, (i) of the issuance by
any state securities commission of any stop order suspending the
qualification or exemption from qualification of any of the Series A
Notes for offering or sale in any jurisdiction, or the initiation of
any proceeding for such purpose by any state securities commission or
other regulatory authority, and (ii) of the happening of any event that
makes any statement of a material fact made in the Offering Memorandum
untrue or that requires the making of any additions to or changes in
the Offering Memorandum in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
The Company shall use its reasonable best efforts to prevent the
issuance of any stop order or order suspending the qualification or
exemption of any of the Series A Notes under any state securities or
Blue Sky laws, and if at any time any state securities commission or
other regulatory authority shall issue an order suspending the
qualification or exemption of any of the Series A Notes under any state
securities or Blue Sky laws, the Company shall use its reasonable best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish you, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as you may reasonably request. The
Company consents to the use of the Preliminary Offering Memorandum and
the Offering Memorandum, and any amendments and supplements thereto, by
you in connection with Exempt Resales.
(c) Not to amend or supplement the Preliminary Offering
Memorandum or the Offering Memorandum prior to the Closing Date unless
you shall previously have been advised thereof and shall have no
reasonable objection thereto after being furnished a copy thereof. The
Company shall promptly prepare, upon your request, any amendment or
supplement to the Preliminary Offering Memorandum or the Offering
Memorandum that may be reasonably necessary or advisable in connection
with Exempt Resales.
(d) If, after the date hereof and prior to consummation of any
Exempt Resales, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of your counsel,
it becomes necessary to amend or supplement the Offering Memorandum in
order to made the statements therein, in the light of the circumstances
when the Offering Memorandum is delivered to an Eligible Purchaser
which is a prospective purchaser, not misleading, or if it is necessary
to amend or supplement the Offering Memorandum to comply with
applicable law, forthwith to prepare an appropriate amendment or
supplement to the Offering Memorandum so that statements therein as so
amended or supplemented will not, in the light of the circumstances
when it is so delivered, be misleading, or so that the Offering
Memorandum will comply with applicable law.
4
<PAGE>
(e) To cooperate with you and your counsel in connection with
the qualification of the Series A Notes under the securities or Blue
Sky laws of such jurisdictions as you may request and to continue such
qualification in effect so long as required for the Exempt Resales;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation where it is
not now so qualified or to take any action that would subject it to
service of process in suits or taxation, other than as to matters and
transactions relating to the Exempt Resales, in any jurisdiction where
it is not now so subject.
(f) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement becomes effective or is
terminated, to pay all costs, expenses, fees and taxes incident to and
in connection with: (i) the preparation, printing, filing and
distribution of the Preliminary Offering Memorandum and the Offering
Memorandum (including, without limitation, financial statements and
exhibits) and all amendments and supplements thereto (but not, however,
legal fees and expenses of your counsel incurred in connection with any
of the foregoing), (ii) the preparation (including, without limitation,
word processing and duplication costs) and delivery of this Agreement
and the other Operative Documents and all other agreements, memoranda,
correspondence and other documents (but not, however, legal fees and
expenses of your counsel incurred in connection with any of the
foregoing) and all preliminary and final Blue Sky memoranda prepared
and delivered in connection herewith and with the Exempt Resales, (iii)
the issuance and delivery by the Company of the Notes, (iv) the
qualification of the Notes for offer and sale under the securities or
Blue Sky laws of the several states (including, without limitation, the
reasonable fees and disbursements of your counsel relating to such
registration or qualification), (v) furnishing such copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and all
amendments and supplements thereto, as may be reasonably requested for
use in connection with Exempt Resales, (vi) the preparation of
certificates for the Notes (including, without limitation, printing and
engraving thereof), (vii) the fees, disbursements and expenses of the
Company's counsel and accountants, (viii) all expenses and listing fees
in connection with the application for quotation of the Series A Notes
in the National Association of Securities Dealers, Inc. ("NASD")
Automated Quotation System - PORTAL ("PORTAL"), (ix) all fees and
expenses (including fees and expenses of counsel) of the Company in
connection with approval of the Notes by DTC for "book-entry" transfer
and (x) the performance by the Company of its other obligations under
this Agreement and the other Operative Documents.
(g) To use the proceeds from the sale of the Series A Notes in
the manner described in the Offering Memorandum under the caption "Use
of Proceeds".
(h) To the extent it may be lawful, not to voluntarily claim,
and to resist actively any attempts to claim, the benefit of any usury
laws against the holders of any Notes.
5
<PAGE>
(i) To do and perform all things required to be done and
performed under this Agreement by them prior to or after the Closing
Date and to satisfy all conditions precedent on their part to the
delivery of the Series A Notes.
(j) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Series A Notes in a
manner that would require the registration under the Act of the sale to
you or Eligible Purchasers of the Series A Notes.
(k) For so long as any of the Notes remain outstanding and
during any period in which the Company is not subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to make available, upon request, to any QIB holding Series A
Notes or any beneficial owner of Series A Notes in connection with any
sale thereof and any prospective purchaser of such Series A Notes from
such QIB or beneficial owner, the information required by Rule
144A(d)(4) under the Act.
(l) To cause the Exchange Offer to be made in the appropriate
form to permit registration of the Series B Notes to be offered in
exchange for the Series A Notes and to comply with all applicable
federal and state securities laws in connection with the Exchange
Offer.
(m) To comply with all of its agreements set forth in the
Registration Rights Agreement, and all agreements set forth in the
representation letter of the Company to DTC relating to the approval of
the Notes by DTC for "book-entry" transfer.
(n) To use its reasonable best efforts to effect the inclusion
of the Series A Notes in PORTAL.
(o) During a period of five years following the date of this
Agreement, to deliver to each of you promptly upon their becoming
available, copies of all current, regular and periodic reports filed by
the Company with the Commission or any securities exchange or with any
governmental authority succeeding to any of the Commission's functions.
5. Representations And Warranties. (a) The Company represents and
warrants to each of you that, as of the date hereof:
(i) The Preliminary Offering Memorandum and the Offering
Memorandum have been prepared in connection with the Exempt Resales.
The Preliminary Offering Memorandum and the Offering Memorandum, as of
the respective dates thereof, do not, and the Offering Memorandum will
not as of the Closing Date, and any supplement or amendment to them
will not, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, except that the representations and warranties
contained in this paragraph (i) shall not
6
<PAGE>
apply to statements in or omissions from the Preliminary
Offering Memorandum and the Offering Memorandum (or any supplement or
amendment thereto) made in reliance upon and in conformity with
information relating to you furnished to the Company in writing by you
expressly for use therein. No stop order preventing the use of the
Preliminary Offering Memorandum or the Offering Memorandum, or any
amendment or supplement thereto, or order asserting that any of the
transactions contemplated by this Agreement is subject to the
registration requirements of the Act, has been issued.
(ii) When the Series A Notes are issued and delivered
pursuant to this Agreement, none of the Series A Notes will be of the
same class (within the meaning of Rule 144A under the Act) as
securities of the Company that are listed on a national securities
exchange registered under Section 6 of the Exchange Act or that are
quoted in a United States automated inter-dealer quotation system.
(iii) Each of the Company and the Subsidiaries has been
duly organized, is validly existing as a corporation in good standing
under the laws of its respective jurisdiction of incorporation, has all
requisite corporate power and authority to carry on its business as it
is currently being conducted and as described in the Offering
Memorandum and to own, lease and operate its properties, and is duly
qualified and in good standing as a foreign corporation authorized to
do business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the financial condition, results of operations,
business or prospects of the Company and the Subsidiaries (as defined
below), taken as a whole (a "Material Adverse Effect").
(iv) Each of the entities listed on Schedule II hereto
is, and upon consummation of the Fine Fragrances Acquisition on the
Closing Date, Fine Fragrances, Inc. will become, a subsidiary of the
Company. The entities listed on Schedule II are, together with Fine
Fragrances, Inc. when so acquired on the Closing Date, the only
subsidiaries, direct or indirect, of the Company. The Company owns, or
in the case of Fine Fragrances, Inc. will own on the Closing Date upon
consummation of the Fine Fragrances Acquisition, directly or indirectly
through other subsidiaries, 100% of the outstanding capital stock or
other securities evidencing equity ownership of such subsidiaries, free
and clear of any security interest, claim, lien, limitation on voting
rights or encumbrance, subject only to security interests in favor of
the Existing Credit Facility and the 8.0% Secured Subordinated
Debentures which will be released on the Closing Date; and all of such
securities have been duly authorized, validly issued, are fully paid
and nonassessable and were not issued in violation of any preemptive or
similar rights. As used herein, "Subsidiaries" means the entities
listed on Schedule II, together with Fine Fragrances, Inc. upon
consummation of the Fine Fragrances Acquisition. Other than in
connection with the Fine Fragrances Acquisition, there are no
outstanding subscriptions, rights, warrants, calls, commitments of sale
or options to acquire, or instruments convertible into or exchangeable
for, any such shares of capital stock or other equity interest of such
Subsidiaries.
7
<PAGE>
(v) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Notes, the Note Indenture and the Registration Rights
Agreement and to consummate the transactions contemplated hereby and
thereby, including, without limitation, the corporate power and
authority to issue, sell and deliver the Notes as provided herein and
therein.
(vi) This Agreement has been duly and validly authorized,
executed and delivered by the Company and is the legally valid and
binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance (including the Uniform Fraudulent Transfers Act as adopted
in Florida) or other laws affecting creditors' rights and remedies
generally and except as such enforcement is subject to general
principles of equity (including, without limitation, standards of
materiality, good faith, fair dealing and reasonableness), regardless
of whether enforcement is considered in a proceeding in equity or at
law, except as any rights to indemnity and contribution under this
Agreement may be limited by federal and state securities laws and
except to the extent that a waiver of rights under any usury laws may
be unenforceable.
(vii) The Note Indenture has been duly and validly
authorized by the Company and, when duly executed and delivered by the
Company, will be the legally valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance (including the
Uniform Fraudulent Transfers Act as adopted in Florida) or other laws
affecting enforcement of creditors' rights and remedies generally and
except as such enforcement is subject to general principles of equity
(including, without limitation, standards of materiality, good faith,
fair dealing and reasonableness), regardless of whether enforcement is
considered in a proceeding in equity or at law, and except to the
extent that a waiver of rights under any usury laws may be
unenforceable. The Note Indenture, when executed and delivered, will
conform in all material respects to the description thereof in the
Offering Memorandum.
(viii) The Series A Notes have been duly and validly
authorized for issuance and sale to you by the Company pursuant to this
Agreement and, when issued and authenticated in accordance with the
terms of the Note Indenture and delivered against payment therefor in
accordance with the terms hereof, will be the legally valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the Note
Indenture, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance
(including the Uniform Fraudulent Transfers Act as adopted in Florida)
or other laws affecting enforcement of creditors' rights and remedies
generally and except as such enforcement is subject to general
principles of equity (including, without limitation, standards of
materiality, good faith, fair dealing and reasonableness),
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regardless of whether enforcement is considered in a
proceeding in equity or at law, and except to the extent that a waiver
of rights under any usury laws may be unenforceable. The Series A
Notes, when issued, authenticated and delivered, will conform in all
material respects to the description thereof in the Offering
Memorandum.
(ix) The Series B Notes have been duly and validly
authorized for issuance by the Company, and when issued and
authenticated in accordance with the terms of the Note Indenture, the
Registration Rights Agreement and the Exchange Offer, will be the
legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Note Indenture, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance (including the Uniform Fraudulent Transfers Act
as adopted in Florida) or other laws affecting enforcement of
creditors' rights and remedies generally and except as such enforcement
is subject to general principles of equity (including, without
limitation, standards of materiality, good faith, fair dealing and
reasonableness), regardless of whether enforcement is considered in a
proceeding in equity or at law, and except to the extent that a waiver
of rights under any usury laws may be unenforceable.
(x) The Registration Rights Agreement has been duly and
validly authorized by the Company and, when duly executed and delivered
by the Company, will be the legally valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance (including the
Uniform Fraudulent Transfers Act as adopted in Florida) or other laws
affecting enforcement of creditors' rights and remedies generally and
except as such enforcement is subject to general principles of equity
(including, without limitation, standards of materiality, good faith,
fair dealing and reasonableness), regardless of whether enforcement is
considered in a proceeding in equity or at law, except as any rights to
indemnity and contribution under the Registration Rights Agreement may
be limited by federal and state securities laws and public policy
considerations, and except as enforcement of any provisions requiring
the payment of liquidated damages may be limited by applicable law or
public policy. The Registration Rights Agreement, when executed and
delivered, will conform in all material respects to the description
thereof in the Offering Memorandum.
(xi) Neither the Company nor any of the Subsidiaries is
in violation of its respective charter or bylaws or is in default in
the performance of any bond, debenture, note, indenture, mortgage, deed
of trust or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties is subject, or is
in violation of any law, statute, rule, regulation, judgment or court
decree applicable to the Company, any of the Subsidiaries or their
assets or properties, except for any such violations or defaults as
would not have a Material Adverse Effect. There exists no condition
that, with notice, the passage of time or otherwise, would constitute a
default
9
<PAGE>
under any such document or instrument, except for any such default as
would not have a Material Adverse Effect.
(xii) The execution, delivery and performance by the
Company of this Agreement and the other Operative Documents, the
issuance and sale of the Notes, and the consummation of the
transactions contemplated hereby and thereby will not violate, conflict
with or constitute a breach of any of the terms or provisions of, or a
default under (or an event that with notice or the lapse of time, or
both, would constitute a default), or require consent under, or result
in the imposition of a lien or encumbrance on any properties of the
Company or any of the Subsidiaries, or an acceleration of indebtedness
pursuant to, (i) the charter or bylaws of the Company or any of the
Subsidiaries, (ii) any bond, debenture, note, indenture, mortgage, deed
of trust or other agreement or instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or their
property is or may be bound, except for any such violation, conflict,
breach or default as would not have a Material Adverse Effect, (iii)
any statute, rule or regulation applicable to the Company, any of the
Subsidiaries or any of their assets or properties, or (iv) any
judgment, order or decree of any court or governmental agency or
authority having jurisdiction over the Company, any of the Subsidiaries
or their assets or properties. Subject to the assumptions set forth in
clauses (i) through (iii) of Section 5(xxvii), no consent, approval,
authorization or order of, or filing, registration, qualification,
license or permit of or with, any court or governmental agency, body or
administrative agency is required for the execution, delivery and
performance of this Agreement and the other Operative Documents and the
consummation of the transactions contemplated hereby and thereby,
except such as have been obtained and made (or, in the case of the
Registration Rights Agreement and the transactions contemplated thereby
and by the Note Indenture, will be obtained and made under the Act and
the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act")), or such as may be required by the NASD, or such as may be
required under state securities or Blue Sky laws or regulations or the
securities laws of non-U.S. jurisdictions. No consents or waivers from
any other person are required for the execution, delivery and
performance of this Agreement and the other Operative Documents and the
consummation of the transactions contemplated hereby and thereby, other
than such consents and waivers as have been obtained (or, in the case
of the Registration Rights Agreement and the transactions contemplated
thereby and by the Note Indenture, will be obtained).
(xiii) There is (i) no action, suit or proceeding before
or by any court, arbitrator or governmental agency, body or official,
domestic or foreign, now pending or, to the knowledge of the Company,
threatened or contemplated to which the Company or any of the
Subsidiaries is or may be a party or to which the business or property
of the Company or any of the Subsidiaries is or may be subject, (ii) no
statute, rule, regulation, or order that has been enacted, adopted or
issued by any governmental agency or, to the knowledge of the Company,
that has been proposed by any governmental body, (iii) no injunction,
restraining order or order of any nature by a federal or state court or
foreign court of competent jurisdiction to which the Company or
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<PAGE>
any of the Subsidiaries is subject that has been issued that,
in the case of clauses (i), (ii) and (iii) above, if adversely
determined, (x) might reasonably be expected to, singly or in the
aggregate, result in a Material Adverse Effect, or (y) would interfere
with or adversely affect the issuance of the Notes or (z) in any manner
draw into question the validity of this Agreement or any other
Operative Document.
(xiv) No action, to the Company's knowledge, has been
taken and no statute, rule or regulation or order has been enacted,
adopted or issued by any governmental agency that prevents the issuance
of the Notes; no injunction, restraining order or order of any nature
by a federal or state court of competent jurisdiction has been issued
that prevents the issuance of the Notes or suspends the sale of the
Notes in any jurisdiction referred to in Section 4(e) hereof; and no
action, suit or proceeding is pending against or affecting or, to the
knowledge of the Company, threatened against, the Company or any of the
Subsidiaries before any court or arbitrator or any governmental body,
agency or official which, if adversely determined, would prohibit,
interfere with or adversely affect the issuance or marketability of the
Notes or in any manner draw into question the validity of any Operative
Document; and, to the Company's knowledge, every request of any
securities authority or agency of any jurisdiction for additional
information has been complied with in all material respects.
(xv) There is (i) no significant unfair labor practice
complaint pending against the Company or any of the Subsidiaries nor,
to the knowledge of the Company, threatened against any of them, before
the National Labor Relations Board, any state or local labor relations
board or any foreign labor relations board, and no significant
grievance or significant arbitration proceeding arising out of or under
any collective bargaining agreement is so pending against the Company
or any or the Subsidiaries or, to the knowledge of the Company,
threatened against any of them, (ii) no significant strike, labor
dispute slowdown or stoppage pending against the Company or any of the
Subsidiaries nor, to the knowledge of the Company, threatened against
the Company or any of the Subsidiaries and (iii) to the knowledge of
the Company, no union representation question existing with respect to
the employees of the Company and, to the knowledge of the Company, no
union organizing activities are taking place. Neither the Company nor
any of the Subsidiaries has violated any federal, state or local law or
foreign law relating to discrimination in hiring, promotion or pay of
employees, nor any applicable wage or hour laws, nor any provision of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules and regulations thereunder, or analogous
foreign laws and regulations, other than any such violation as would
not result in a Material Adverse Effect.
(xvi) Neither the Company nor any of the Subsidiaries has
violated any environmental, safety or similar law or regulation
applicable to it or its business or property relating to the protection
of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental
Laws"), lacks any permit, license or other approval required of them
under applicable Environmental Laws or is violating any term or
condition of such
11
<PAGE>
permit, license or approval, other than any such violation or
failure to obtain a permit, license or approval as would not have a
Material Adverse Effect.
(xvii) Each of the Company and the Subsidiaries has (i)
good and marketable title to all of the properties and assets described
in the Offering Memorandum as owned by it, free and clear of all liens,
charges, encumbrances and restrictions, except such as exist on the
date hereof and are described in the Offering Memorandum or will arise
upon consummation of the transactions described therein or as would not
have a Material Adverse Effect, (ii) peaceful and undisturbed
possession under all leases to which it is party as lessee, (iii) all
licenses, certificates, permits, authorizations, approvals, franchises
and other rights from, and has made all declarations and filings with,
all federal, state and local authorities, all self-regulatory
authorities and all courts and other tribunals (each an
"Authorization") necessary to engage in the business currently
conducted by it in the manner described in the Offering Memorandum,
except where failure to hold such Authorizations would not have a
Material Adverse Effect and (iv) no reason to believe that any
governmental body or agency is considering limiting suspending or
revoking any such Authorization. All such Authorizations (as qualified
in clause (iii) above) are valid and in full force and effect and the
Company and the Subsidiaries are in compliance in all material respects
with the terms and conditions of all such Authorizations (as qualified
in clause (iii) above) and with the rules and regulations of the
regulatory authorities having jurisdiction with respect thereto, except
where the failure to comply would not have a Material Adverse Effect.
All leases to which the Company or any of the Subsidiaries is a party
are valid and binding upon the Company or such Subsidiary, as the case
may be, and, to the Company's knowledge, upon the other parties
thereto, no material default by the Company or any of the Subsidiaries
has occurred and is continuing thereunder, and, to the knowledge of the
Company, no material defaults by the landlord are existing under any
such lease.
(xviii) Each of the Company and the Subsidiaries owns or
possesses or otherwise has the right to use all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names (collectively, the "Intellectual Property") presently
employed by it in connection with the businesses now operated by them,
and neither the Company nor any of the Subsidiaries has received any
notice of infringement of or conflict with asserted rights of others
with respect to any of the foregoing. To the knowledge of the Company,
the use of the Intellectual Property in connection with the business
and operations of the Company and the Subsidiaries does not infringe on
the right of any person, which, if determined adversely to the Company
or the Subsidiaries, would have a Material Adverse Effect.
(xix) All tax returns required to be filed by the Company
or any of the Subsidiaries, in all jurisdictions, have been so filed,
except where the failure to so file would not have a Material Adverse
Effect. All taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due or claimed to be due from
12
<PAGE>
such entities or that are due and payable have been paid,
other than those being contested in good faith and for which adequate
reserves have been provided or those currently payable without penalty
or interest, except where the failure to so pay would not have a
Material Adverse Effect. Neither the Company nor any of the
Subsidiaries knows of any material proposed additional tax assessments
against it or any of the Subsidiaries.
(xx) Neither the Company nor any of the Subsidiaries is
(i) an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), or analogous foreign laws and
regulations, or (ii) a "holding company" or a "subsidiary company" or
an "affiliate" of a holding company within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or analogous foreign
laws and regulations.
(xxi) There are no holders of securities of the Company
who, by reason of the execution by the Company of this Agreement or any
other Operative Document to which it is a party or the consummation of
the transactions contemplated hereby and thereby, have the right to
request or demand that the Company register under the Act or analogous
foreign laws and regulations securities held by them.
(xxii) The authorized, issued and outstanding capital
stock of each of the Company and each of the Subsidiaries has been duly
and validly authorized and issued, is fully paid and nonassessable and
was not issued in violation of or subject to any preemptive or similar
rights. The Company had at January 31, 1997, an authorized and
outstanding capitalization as set forth in the Offering Memorandum.
(xxiii) Each certificate signed by any officer of the
Company and delivered to the Purchasers or counsel for the Purchasers
shall be deemed to be a representation and warranty by the Company to
each Purchaser as to the matters covered thereby.
(xxiv) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxv) The Company and each of the Subsidiaries maintain
insurance covering their properties, operations, personnel and
businesses. Such insurance insures against such losses and risks as are
adequate in accordance with customary industry practice to protect the
Company and the Subsidiaries and their businesses. Neither the Company
nor any of the Subsidiaries has received notice from any insurer or
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<PAGE>
agent of such insurer that substantial capital improvements or other
expenditures will have to be made (that have not been undertaken) in
order to continue such insurance. All such insurance is outstanding and
duly in force on the date hereof and will be outstanding and duly in
force on the Closing Date.
(xxvi) Neither the Company nor any of the Subsidiaries
has (i) taken, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Notes or (ii) since the date of the
Preliminary Offering Memorandum (A) sold, bid for, purchased or paid
any person any compensation for soliciting purchases of, the Notes or
(B) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(xxvii) No registration under the Act of the Series A
Notes is required for the sale of the Series A Notes to the Purchasers
as contemplated hereby or for the Exempt Resales assuming (i) that the
purchasers who buy the Series A Senior Notes in the Exempt Resales are
either QIBs, non-U.S. persons you reasonably believe are outside the
United States to whom offers and sales of the Series A Notes may be
made in reliance upon Regulation S or Accredited Investors (up to a
maximum of 35 such Accredited Investors), (ii) the accuracy of the
Purchasers' representations contained herein and (iii) the accuracy of
the representations made by such Accredited Investors as set forth in
the letter of representation executed by each Accredited Investor in
the form of Annex A to the Offering Memorandum. No form of general
solicitation and directed selling efforts or general advertising was
used by the Company, the Subsidiaries or any of its representatives in
connection with the offer and sale of any of the Series A Notes or in
connection with Exempt Resales, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. The Company has not (and none of
its representatives has) engaged in any directed selling efforts within
the meaning of Rule 902 under the Act in the United States in
connection with the Series A Notes being offered and sold pursuant to
Regulation S. No securities of the same class as the Series A Notes
have been issued and sold by the Company within the six-month period
immediately prior to the date hereof.
(xxviii) Set forth on Exhibit B hereto is a list of each
employee pension or welfare benefit plan with respect to which the
Company or any corporation considered an affiliate of the Company
within the meaning of Section 407(d)(7) of ERISA (an "Affiliate") is a
party in interest or disqualified person. The execution and delivery of
this Agreement, the other Operative Documents and the sale of the
Series A Notes to be purchased by the Eligible Purchasers will not
involve any prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986. The
representation made by the Company in the preceding sentence is made in
reliance upon and subject to the accuracy of, and compliance with,
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<PAGE>
the representations and covenants made or deemed made by the
Eligible Purchasers as set forth in the Offering Memorandum under the
Section entitled "Notices to Investors."
(xxix) Subsequent to the respective dates as of which
information is given in the Offering Memorandum and up to the Closing
Date, except as set forth in the Offering Memorandum, neither the
Company nor any of the Subsidiaries has incurred or will incur any
liabilities or obligations, direct or contingent, which are material to
the Company and the Subsidiaries taken as a whole (other than accounts
payable in the ordinary course of business), nor entered into any
transaction not in the ordinary course of business, and there has not
been, singly or in the aggregate, any material adverse change, or any
development which may reasonably be expected to involve a material
adverse change, in the properties, business, results of operations,
condition (financial or otherwise), affairs or prospects of the Company
and the Subsidiaries, taken as a whole (a "Material Adverse Change")
and there have not been dividends or distributions of any kind
declared, paid or made by the Company or any of the Subsidiaries on any
class of its capital stock.
(xxx) Neither the Company, the Subsidiaries nor any agent
thereof acting on the behalf of any of them has taken, and none of them
will take, any action that might cause this Agreement or the issuance
or sale of the Notes to violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System or analogous foreign laws and regulations.
(xxxi) The accountants who have certified or shall
certify the financial statements and supporting schedules included or
to be included as part of the Offering Memorandum are independent
accountants. The consolidated historical statements fairly present the
consolidated financial condition and results of operations of the
Company and the Subsidiaries at the respective dates and for the
respective periods indicated, in accordance with generally accepted
accounting principles consistently applied throughout such periods,
except as stated therein. The pro forma financial statements have been
prepared on a basis consistent with such historical statements, except
for the pro forma adjustments specified therein, and give effect to
assumptions made on a reasonable basis and present fairly the
historical and proposed transactions contemplated by this Agreement and
the other Operative Documents. Other financial information and data
included in the Offering Memorandum, historical and pro forma, are
accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company and the
Subsidiaries.
(xxxii) The present fair saleable value of the assets of
the Company, on a consolidated basis, exceeds the amount that will be
required to be paid on or in respect of the existing debts and other
liabilities (including contingent liabilities) of the Company as they
become absolute and matured. The assets of the Company, on a
consolidated basis, do not constitute unreasonably small capital to
carry out its business as conducted or as proposed to be conducted. The
Company does not intend to, nor does
15
<PAGE>
it believe that it will, incur debts beyond its ability to pay
such debts as they mature. Upon the issuance of the Series A Notes, the
present fair saleable value of the assets of the Company, on a
consolidated basis, will exceed the amount that will be required to be
paid on or in respect of the existing debts and other liabilities
(including contingent liabilities) of the Company as they become
absolute and matured. The assets of the Company, on a consolidated
basis, upon the issuance of the Series A Notes, will not constitute
unreasonably small capital to carry out its business as now conducted,
including the capital needs of the Company, on a consolidated basis,
taking into account the projected capital requirements and capital
availability of the Company.
(xxxiii) There are no contracts, agreements or
understandings between the Company or any of the Subsidiaries and any
person (other than the Purchasers) that would give rise to a valid
claim against the Company, the Subsidiaries or any Purchaser for a
brokerage commission, finder's fee or like payment in connection with
the issuance, purchase and sale of the Notes.
(xxxiv) Neither the Company nor any of its affiliates
does business with the government of Cuba or with any person or
affiliate located in Cuba within the meaning of Section 517.075,
Florida Statutes.
The Company acknowledges that the Purchasers and, for purposes
of the opinions to be delivered to the Purchasers pursuant to Section 7 hereof,
counsel to the Company and counsel to the Purchasers will rely upon the accuracy
and truth of the foregoing representations and hereby consents to such reliance.
(b) Each Purchaser represents and warrants to the Company
and the other Purchaser and agrees that:
(i) Such Purchaser is a QIB, with such knowledge and
experience in financial and business matters as are necessary in order
to evaluate the merits and risks of an investment in the Series A
Notes.
(ii) Such Purchaser (A) is not acquiring the Series A
Notes with a view to any distribution thereof that would violate the
Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling
the Series A Notes only to QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A, to non-U.S.
persons it reasonably believes are outside the United States to whom
offers and sales of the Series A Notes may be made in reliance on
Regulation S and to Accredited Investors in a private placement exempt
from the registration requirements of the Act.
(iii) No form of general solicitation or general
advertising has been or will be used by such Purchaser or any of its
representatives in connection with the offer and sale of any of the
Series A Notes, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine, or similar
medium or
16
<PAGE>
broadcast over television or radio, or any seminar or meeting
whose attendees have been invited by any general solicitation or
general advertising.
(iv) No form of directed selling efforts within the
meaning of Rule 902 under the Act in the United States has been or will
be used by such Purchaser or any of its representatives in connection
with the offer and sale of any of the Series A Notes being sold
pursuant to Regulation S.
(v) In connection with sales outside the United States,
such Purchaser represents and warrants to and agrees with the Company
that it will not offer, sell or deliver the Series A Notes to, or for
the account or benefit of, U.S. persons (i) as part of such Purchaser's
distribution at any time or (ii) otherwise until forty (40) days after
the later of the commencement of the sale of the Series A Notes and the
Closing Date and it will send to each dealer to whom it sells such
Series A Notes during such period, a confirmation or other notice
setting forth the restrictions on offers and sales of the Series A
Notes within the United States or to, or for the account or benefit of,
U.S. persons.
(vi) Such Purchaser agrees that, in connection with the
Exempt Resales, it will solicit offers to buy the Series A Notes only
from, and will offer to sell the Series A Notes only to, QIBs, non-U.S.
persons it reasonably believes are outside the United States to whom
offers and sales of the Series A Notes may be made in reliance on
Regulation S and a total of no more than 35 Accredited Investors. Such
Purchaser further agrees (A) that it will offer to sell the Series A
Notes only to, and will solicit offers to buy the Series A Notes only
from (1) QIBs who in purchasing such Series A Notes will be deemed to
have represented and agreed that they are purchasing the Series A Notes
for their own account or accounts with respect to which they exercise
sole investment discretion and that they or such accounts are QIBs, (2)
non-U.S. persons who in purchasing such Series A Notes will be deemed
to have represented and agreed that they are outside the United States
and (3) Accredited Investors who make the representations contained in,
and execute and return to the Purchaser, a certificate in the form of
Annex A attached to the Offering Memorandum and (B) that, in the case
of such QIBs and Accredited Investors, such QIBs and Accredited
Investors acknowledge and agree that such Series A Notes will not have
been registered under the Act and may be resold, pledged or otherwise
transferred only (x)(I) to a person who the seller reasonably believes
is a QIB in a transaction meeting the requirements of Rule 144A, (II)
in a transaction meeting the requirements of Rule 144, (III) to a
non-U.S. person in a transaction meeting the requirements of Rule 904
under the Act or (IV) in accordance with another exemption from the
registration requirements of the Act (and based upon an opinion of
counsel if the Company so requests), (y) to the Company, (z) pursuant
to an effective registration statement under the Act and, in each case,
in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction and (C) that the
holder will, and each subsequent holder is required to, notify any
purchaser from it of the note evidenced thereby of the resale
restrictions set forth in (B) above.
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(vii) Such Purchaser also understands that the Company
and, for purposes of the opinions to be delivered to you pursuant to
Section 7 hereof, counsel to the Company and counsel to the Purchasers
will rely upon the accuracy and truth of the foregoing representations
and hereby consents to such reliance.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless (i) each
of the Purchasers and (ii) each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
each of the Purchasers (any of the persons referred to in this clause
(ii) being hereinafter referred to as a "controlling person"), and
(iii) the respective officers, directors, partners, employees,
representatives and agents of each of the Purchasers or any controlling
person (any person referred to in clause (i), (ii) or (iii) may
hereinafter be referred to as an "Indemnified Person") to the fullest
extent lawful, from and against any and all losses, claims, damages,
liabilities, judgments, actions and expenses (including without
limitation and as incurred, reimbursement of all reasonable costs of
investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of
counsel to any Indemnified Person) directly or indirectly caused by,
related to, based upon, arising out of or in connection with any untrue
statement or alleged untrue statement of a material fact contained in
the Preliminary Offering Memorandum or the Offering Memorandum (or any
amendment or supplement thereto), or any omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar
as such losses, claims, damages, liabilities or expenses are caused by
an untrue statement or omission or alleged untrue statement or omission
that is made in reliance upon and in conformity with information
relating to such Purchaser furnished in writing to the Company by such
Purchaser expressly for use therein. The Company shall notify you
promptly of the institution, threat or assertion of any claim,
proceeding (including any governmental investigation) or litigation in
connection with the matters addressed by this Agreement which involves
the Company or an Indemnified Person.
(b) In case any action or proceeding (including any
governmental investigation) shall be brought or asserted against any of
the Indemnified Persons with respect to which indemnity may be sought
against the Company, such Indemnified Person shall promptly notify the
Company in writing (provided, that the failure to give such notice
shall not relieve the Company of its obligations pursuant to this
Agreement, except to the extent the Company or any Subsidiary is
materially prejudiced by such failure). Such Indemnified Person shall
have the right to employ its own counsel in any such action and the
fees and expenses of such counsel shall be paid, as incurred, by the
Indemnified Person, unless (i) the Company has failed promptly to
assume the defense and employ counsel reasonably satisfactory to such
Indemnified Person, (ii) the Company has authorized the employment of
counsel for the Indemnified Person at the expense of the Company, or
(iii) the named parties to any such action or proceeding (including any
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impleaded parties) include such Indemnified Person and the Company and
such Indemnified Person shall have been advised by counsel that it has
reasonably concluded that a conflict of interest may exist between the
Company and such Indemnified Person in the conduct of the defense of
such action or proceeding. In the case of each of clause (i), (ii) or
(iii) above, the Company shall pay, as incurred, the fees and expenses
of such counsel, regardless of whether it is ultimately determined that
an Indemnified Person is not entitled to indemnification hereunder. The
Company shall not, in connection with any one such action or proceeding
or separate but substantially similar or related actions or proceedings
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel)
at any time for the Indemnified Persons, which firm shall be designated
by Donaldson, Lufkin & Jenrette Securities Corporation. The Company
shall be liable for any settlement of any such action or proceeding
effected with the Company's prior written consent, which consent will
not be unreasonably withheld, and the Company agrees to indemnify and
hold harmless any Indemnified Person from and against any loss, claim,
damage, liability or expense by reason of any settlement of any action
effected with the written consent of the Company. Notwithstanding the
immediately preceding sentence, if at any time an Indemnified Person
shall have requested an indemnifying party to reimburse the Indemnified
Person for fees and expenses of counsel as contemplated by the second
sentence of this paragraph, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than sixty
business days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
Indemnified Person in accordance with such request prior to the date of
such settlement. The Company shall not, without the prior written
consent of an Indemnified Person, settle or compromise or consent to
the entry of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Person is a party thereto), unless such settlement,
compromise, consent or termination includes an unconditional release of
such Indemnified Person from all liability arising out of such action,
claim, litigation or proceeding.
(c) Each of the Purchasers agrees, severally and not jointly,
to indemnify and hold harmless the Company, and its directors, officers
and any person controlling (within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act) the Company, and the respective
officers, directors, partners, employees, representatives and agents of
each such person, to the same extent as the foregoing indemnity from
the Company to each of the Indemnified Persons, but only with respect
to claims and actions based on information relating to such Purchaser
furnished in writing by such Purchaser to the Company expressly for use
in the Offering Memorandum.
The statements in the Offering Memorandum in the third and
fourth paragraphs and in the third sentence in the fifth paragraph in
Plan of Distribution constitute the only information heretofore
furnished to the Company in writing by any
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Purchaser expressly for use in the Preliminary Offering
Memorandum or the Offering Memorandum, or any amendment or supplement
thereto.
(d) If the indemnification provided for in this Section 6 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities and
expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party, on the one hand,
and the indemnified party, on the other hand, from the offering of the
Series A Notes or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party
and the indemnified party, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the
one hand, and either of the Purchasers, on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the
offering of the Series A Notes (net of discounts and commissions but
before deducting expenses) received by the Company and the total
discounts and commissions received by such Purchaser bear to the total
price of the Series A Notes paid in the Exempt Resales, in each case as
set forth in the table on the cover page of the Offering Memorandum.
The relative fault of the Company, on the one hand, and the Purchasers,
on the other hand, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact
related to information supplied by the Company, on the one hand, and
the Purchasers, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The indemnity set forth herein shall be in
addition to any liability or obligation the Company may otherwise have
to any Indemnified Person.
The Company and the Purchasers agree that it would not be just
and equitable if contribution to this Section 6(d) were determined by
pro rata allocation (even if the Purchasers were treated as one entity
for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 6,
neither of the Purchasers (and none of the related Indemnified Persons)
shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total discounts and commissions received by
such Purchaser with respect to the Series A Notes, exceeds the amount
of any damages which such Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
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contribution from any person who was not guilty of such fraudulent
misrepresentation. The Purchasers' obligations to contribute pursuant
to this Section 6(d) are several in proportion to the respective
principal amount of Series A Notes purchased by each of the Purchasers
hereunder and not joint.
(e) The Company hereby designates Abelman, Frayne & Schwab,
150 East 42nd Street, 26th Floor, New York, NY 10017-5612 (Attn: Peter
Lynfield) as its authorized agent upon whom process may be served in
any action, suit or proceeding that may be instituted in any state or
federal court in the State of New York by either Purchaser or any
person controlling either Purchaser asserting a claim for
indemnification or contribution under or pursuant to this Section 6,
and the Company will accept the jurisdiction of such court in such
action, and waive, to the fullest extent permitted by applicable law,
any defense based upon lack of personal jurisdiction or venue. A copy
of any such process shall be sent or given to the Company at the
address for notices specified in Section 10 hereof.
7. Conditions Of Purchasers' Obligations. The several obligations
of the Purchasers under this Agreement are subject to the satisfaction of each
of the following conditions:
(a) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on the date hereof and on the Closing Date with the same force
and effect as if, assuming, in the case of the Closing Date, that this
Agreement had been executed on the Closing Date, made on and as of the
date hereof and the Closing Date, respectively. The Company shall have
performed or complied with all of the agreements herein contained and
required to be performed or complied with in all material respects by
it at or prior to the Closing Date.
(b) The Offering Memorandum shall have been printed and copies
distributed to the Purchasers not later than 10:00 a.m., New York City
time, on the date of this Agreement or at such later date and time as
to which you may agree, and no stop order suspending the qualification
or exemption from qualification of any of the Series A Notes in any
jurisdiction referred to in Section 4(e) shall have been issued and no
proceeding for that purpose shall have been commenced or shall be
pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, prevent the
issuance of any of the Series A Notes; no action, suit or proceeding
shall be pending against or affecting or, to the knowledge of the
Company, threatened against the Company or any Subsidiary before any
court or arbitrator or any governmental body, agency or official that,
if adversely determined, (i) would prohibit, interfere with or
adversely affect the issuance of the Series A Notes, (ii) would
reasonably be expected to have a Material Adverse Effect or (iii) would
in any manner draw into question the validity of this Agreement, the
Note Indenture, the Series
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A Notes or the Registration Rights Agreement; and no stop
order preventing the use of the Offering Memorandum, or any amendment
or supplement thereto, or any order asserting that any of the
transactions contemplated by this Agreement is subject to the
registration requirements of the Act shall have been issued.
(d) Since the dates as of which information is given in the
Offering Memorandum and other than as described therein, (i) there
shall not have been any material change, or any development that is
reasonably likely to result in a material change, in the capital stock
or the long-term debt, or material increase in the short-term debt
(other than accounts payable incurred in the ordinary course of
business), of the Company or any of the Subsidiaries from that set
forth in the Offering Memorandum, (ii) no dividend or distribution of
any kind shall have been declared, paid or made by the Company or any
of the Subsidiaries on any class of its capital stock, and (iii)
neither the Company nor any of the Subsidiaries shall have incurred any
liabilities or obligations, direct or contingent, that are material,
individually or in the aggregate, to the Company and the Subsidiaries,
taken as a whole, and that are required to be disclosed on a balance
sheet in accordance with generally accepted accounting principles and
are not disclosed on the latest balance sheet included in the Offering
Memorandum (other than accounts payable incurred in the ordinary course
of business). Since the date hereof and since the dates as of which
information is given in the Offering Memorandum, there shall not have
been any Material Adverse Change.
(e) You shall have received certificates, dated the Closing
Date, signed by (i) the President or any Vice President and (ii) a
principal financial or accounting officer of the Company confirming, as
of the Closing Date, the matters set forth in paragraphs (a), (b), (c)
and (d) of this Section 7.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and your counsel), dated the Closing Date, of
Steel Hector & Davis LLP, counsel for the Company and the Subsidiaries,
to the effect that:
(i) The Company and each of the Subsidiaries has been
duly organized and is validly existing as a corporation in good
standing under the laws of its respective jurisdiction of
incorporation, has all requisite corporate power and authority to own,
lease and operate its properties and to conduct its business as it is
currently being conducted and as described in the Offering Memorandum,
and is duly qualified and in good standing as a foreign corporation
authorized to do business in each jurisdiction in which, to such
counsel's knowledge, the ownership, leasing and operating of its
property and the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a Material
Adverse Effect.
(ii) To such counsel's knowledge, each of the entities
listed on Schedule II hereto is, and upon consummation of the Fine
Fragrances Acquisition on the Closing Date, Fine Fragrances, Inc. will
become, a subsidiary of the Company. To such counsel's knowledge, the
entities listed on Schedule II are, together with Fine
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Fragrances, Inc. when so acquired on the Closing Date, the only
subsidiaries, direct or indirect, of the Company. The Company owns or
in the case of Fine Fragrances, Inc. will own on the Closing Date upon
consummation of the Fine Fragrances Acquisition, directly or indirectly
through other subsidiaries, 100% of the outstanding capital stock or
other securities evidencing equity ownership of such subsidiaries, to
such counsel's knowledge, and upon the release of the collateral
securing the Existing Credit Facility and the 8.0% Secured Subordinated
Debentures, free and clear of any security interest, claim, lien,
limitation on voting rights or encumbrance; and all of such securities
have been duly authorized, validly issued, are fully paid and
nonassessable and, to such counsel's knowledge, were not issued in
violation of any preemptive or similar rights. To such counsel's
knowledge, other than in connection with the Fine Fragrances
Acquisition, there are no outstanding subscriptions, rights, warrants,
calls, commitments of sale or options to acquire, or instruments
convertible into or exchangeable for, any such shares of capital stock
or other equity interest of such subsidiaries.
(iii) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement, the Notes, the Note Indenture and the Registration Rights
Agreement and to consummate the transactions contemplated hereby or
thereby, including, without limitation, the corporate power and
authority to issue, sell and deliver the Notes as provided herein.
(iv) The Company has duly and validly authorized,
executed and delivered this Agreement.
(v) The Company has duly and validly authorized, executed
and delivered the Note Indenture and (assuming the due authorization,
execution and delivery thereof by the Trustee) the Note Indenture is
the legally valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except (i) as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance (including the Uniform Fraudulent
Transfers Act as adopted in Florida) or other laws affecting creditors'
rights and remedies generally, (ii) as to general principles of equity
(including, without limitation, standards of materiality, good faith,
fair dealing and reasonableness), regardless of whether enforcement is
sought in a proceeding at law or in equity, and (iii) to the extent
that a waiver of rights under any usury laws may be unenforceable. The
Note Indenture conforms in all material respects to the description
thereof in the Offering Memorandum.
(vi) The Series A Notes have been duly and validly
authorized for issuance and sale to you by the Company pursuant to this
Agreement and, when issued and authenticated in accordance with the
terms of the Note Indenture and delivered against payment therefor in
accordance with the terms hereof, will be the legally valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits of the Note
Indenture, except (i) as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance
(including the Uniform Fraudulent Transfers Act as
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<PAGE>
adopted in Florida) or other laws affecting creditors' rights and
remedies generally, (ii) as to general principles of equity (including,
without limitation, standards of materiality, good faith, fair dealing
and reasonableness), regardless of whether enforcement is sought in a
proceeding at law or in equity, and (iii) to the extent that a waiver
of rights under any usury laws may be unenforceable. The Series A
Notes, when issued, authenticated and delivered in accordance with the
terms of the Note Indenture, will conform in all material respects to
the description thereof in the Offering Memorandum.
(vii) The Series B Notes have been duly and validly
authorized for issuance by the Company and, when issued, authenticated
and delivered in accordance with the terms of the Note Indenture, the
Registration Rights Agreement and the Exchange Offer, will be the
legally valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Note Indenture, except (i) as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance (including the Uniform Fraudulent Transfers Act
as adopted in Florida) or other laws affecting creditors' rights and
remedies generally, (ii) as to general principles of equity (including,
without limitation, standards of materiality, good faith, fair dealing
and reasonableness), regardless of whether enforcement is sought in a
proceeding at law or in equity, and (iii) to the extent that a waiver
of rights under any usury laws may be unenforceable.
(viii) The Registration Rights Agreement has been duly
and validly authorized by the Company and, when duly executed and
delivered by the Company, will be the legally valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except (i) as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance (including the Uniform Fraudulent Transfers Act
as adopted in Florida) or other laws affecting creditors' rights and
remedies generally, (ii) as to general principles of equity (including,
without limitation, standards of materiality, good faith, fair dealing
and reasonableness), regardless of whether enforcement is sought in a
proceeding at law or in equity, (iii) except as any rights to indemnity
and contribution thereunder may be limited by federal and state
securities laws and public policy considerations, and (iv) except as
enforcement of any provisions requiring the payment of liquidated
damages may be limited by applicable law or public policy. The
Registration Rights Agreement, when executed and delivered, will
conform in all material respects to the description thereof in the
Offering Memorandum.
(ix) When the Series A Notes are issued and delivered
pursuant to this Agreement, none of the Series A Notes will be of the
same class (within the meaning of Rule 144A under the Act) as
securities of the Company or any Subsidiary that are listed on a
national securities exchange registered under Section 6 of the Exchange
Act or that are quoted in a United States automated inter-dealer
quotation system.
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<PAGE>
(x) No registration under the Act of any of the Series A
Notes is required for the sale of the Series A Notes to you as
contemplated hereby or for the Exempt Resales assuming (i) that each of
the Eligible Purchasers is a QIB or an Accredited Investor or a
non-U.S. person you reasonably believe is outside the United States and
to whom offers and sales of the Series A Notes may be made in reliance
upon Regulation S, (ii) the accuracy of the Purchasers' representations
contained herein and (iii) the accuracy of the representations made by
each Accredited Investor as set forth in the letter of representation
executed by such Accredited Investor in the form of Annex A to the
Offering Memorandum.
(xi) To such counsel's knowledge, neither the Company nor
any of the Subsidiaries (a) is in violation of its respective charter
or bylaws, (b) is in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any other loan agreement,
indenture, mortgage or deed of trust or any other agreement that is
material to the Company and known to such counsel to which it is a
party or by which it is bound or to which any of its properties is
subject or (c) is in violation of any law, statute, rule, regulation,
judgment or court decree applicable to the Company or the Subsidiaries,
in the case of clause (b) or (c), other than such violation or default
that has not had and will not have a Material Adverse Effect; provided
however that no opinion need be expressed with respect to the Company's
purchase of fragrance products from Diverted Sources. To such counsel's
knowledge, there exists no condition that, with notice, the passage of
time or otherwise, would constitute such default under any such
document or instrument; provided however that no opinion need be
expressed with respect to the Company's purchase of fragrance products
from Diverted Sources.
(xii) The execution, delivery and performance by the
Company of this Agreement and the other Operative Documents, the
issuance and sale of the Notes, and the consummation of the
transactions contemplated hereby and thereby will not violate, conflict
with or constitute a breach of any of the terms or provisions of, or a
default under (or an event that with notice or the lapse of time, or
both, would constitute a default), or require consent under, or result
in the imposition of a lien or encumbrance on any properties of the
Company or any of the Subsidiaries, or an acceleration of indebtedness
pursuant to, (i) the charter or bylaws of the Company or any of the
Subsidiaries, (ii) any bond, debenture, note or any other evidence of
indebtedness or any other loan agreement, indenture, mortgage or deed
of trust or any other agreement that is material to the Company and
known to such counsel to which the Company or any of the Subsidiaries
is a party or by which any of them or their property is or may be
bound, (iii) any statute, rule or regulation applicable to the Company,
any of the Subsidiaries or their assets or properties; provided however
that no opinion need be expressed with respect to applicable state or
foreign securities or Blue Sky laws, or (iv) any judgment, order or
decree known to such counsel of any court or governmental agency or
authority having jurisdiction over the Company, any of the Subsidiaries
or their assets or properties. Subject to the assumptions set forth in
clauses (i) through (iii) of Section 7(f)(x), no consent, approval,
authorization or order of, or filing, registration,
25
<PAGE>
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency is required for the execution,
delivery and performance of this Agreement and the other Operative
Documents and the consummation of the transactions contemplated hereby
and thereby, except such as have been obtained and made (or, in the
case of the Registration Rights Agreement and the transactions
contemplated thereby and by the Note Indenture, will be obtained and
made under the Act the Trust Indenture Act) or such as may be required
by NASD or under state securities or Blue Sky laws and regulations or
under the securities laws of non-U.S. jurisdictions. No consents or
waivers from any other person are required under any bond, debenture,
note or any other evidence of indebtedness or any other loan agreement,
indenture, mortgage or deed of trust or any other agreement that is
material to the Company and known to such counsel for the execution,
delivery and performance of this Agreement and the other Operative
Documents and the consummation of the transactions contemplated hereby
and thereby, other than such consents and waivers as have been obtained
(or, in the case of the Registration Rights Agreement and the
transactions contemplated thereby and by the Note Indenture, are
required to be obtained).
(xiii) To the knowledge of such counsel, no action has
been taken and no statute, rule or regulation or order has been
enacted, adopted or issued by any governmental agency that prevents the
issuance of the Notes; to the knowledge of such counsel, no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of
the Notes or suspends the sale of the Notes in any jurisdiction
referred to in Section 4(e) hereof; and, to the knowledge of such
counsel, no action, suit or proceeding is pending or threatened against
or affecting, the Company or any of the Subsidiaries before any court
or arbitrator or any governmental body, agency or official which, if
adversely determined, would prohibit, interfere with or adversely
affect the issuance or marketability of the Notes or in any manner draw
into question the validity of any Operative Document; and every request
of any securities authority or agency of any jurisdiction for
additional information has been complied with in all material respects
(provided however that no opinion need be expressed as to requests from
state or foreign securities authorities or agencies).
(xiv) To the knowledge of such counsel, the Company and
each of the Subsidiaries has (i) good and marketable title to all of
the properties and assets described in the Offering Memorandum as owned
by it, free and clear of all liens, charges, encumbrances and
restrictions, except such as exist on the date hereof and are described
in the Offering Memorandum or will arise upon consummation of the
transactions described therein or as would not have a Material Adverse
Effect, (ii) peaceful and undistributed possession under all leases to
which it is party as lessee, (iii) all Authorizations necessary to
engage in the business currently conducted by it in the manner
described in the Offering Memorandum, except where failure to hold such
Authorizations would not have a Material Adverse Effect and (iv) no
reason to believe that any governmental body or agency is considering
limiting, suspending or revoking any such Authorization. To such
counsel's knowledge, all such Authorizations (as qualified in clause
(iii) above) are valid and in full force and effect and the Company and
26
<PAGE>
the Subsidiaries are in compliance in all material respects with the
terms and conditions of all such Authorizations (as qualified in clause
(iii) above) and with the rules and regulations of the regulatory
authorities having jurisdiction with respect thereto. To the knowledge
of such counsel, the lease of the National Trading Facility is valid
and binding and no material default by the Company has occurred and is
continuing thereunder, and no material defaults by the landlord are
existing under such lease.
(xv) To the knowledge of such counsel, neither the
Company nor any of the Subsidiaries has violated any Environmental
Laws, lacks any permits, licenses or other approvals required of them
under applicable Environmental Laws or is violating any terms and
conditions of any such permit, license or approval, nor, to the
knowledge of such counsel, has the Company or any of the Subsidiaries
violated any federal, state, local or foreign law relating to
discrimination in the hiring, promotion or pay of employees nor, to the
knowledge of such counsel, any applicable wage or hourly laws, nor any
provisions of ERISA or the rules and regulations promulgated thereunder
or analogous foreign laws and regulations, nor, to the knowledge of
such counsel, has the Company or any of the Subsidiaries engaged in any
unfair labor practice, which in each case would result in a Material
Adverse Effect.
(xvi) Neither the Company nor any of the Subsidiaries is
(i) an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940 or
analogous foreign laws and regulations, or (ii) a "holding company" or
a "subsidiary company" or an "affiliate" of a holding company within
the meaning of the Public Utility Holding Company Act of 1935, as
amended, or analogous foreign laws and regulations.
(xvii) To the knowledge of such counsel, there are no
holders of securities of the Company or any of the Subsidiaries who, by
reason of the execution by the Company of this Agreement or any other
Operative Document, or the consummation of the transactions
contemplated hereby and thereby, have the right to request or demand
that the Company or any Subsidiary register under the Act or analogous
foreign laws and regulations securities held by them.
(xviii) Prior to the effectiveness of the Exchange Offer
Registration Statement or the effectiveness of the Shelf Registration
Statement, the Note Indenture is not required to be qualified under the
Trust Indenture Act of 1939.
(xix) The authorized and, at January 31, 1997, issued and
outstanding capital stock of the Company and each of the Subsidiaries
has been duly and validly authorized and issued, is fully paid and
nonassessable and was not issued in violation of or subject to
statutory preemptive rights. The Company had at January 31, 1997, an
authorized and, to the knowledge of such counsel, outstanding
capitalization as set forth in the Offering Memorandum.
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company,
representatives of the independent public
27
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accountants for the Company, your representatives and your counsel in connection
with the preparation of the Preliminary Offering Memorandum and the Offering
Memorandum and has considered the matters required to be stated therein and the
statements contained therein and, although such counsel has not independently
verified the accuracy, completeness or fairness of such statements (except as
indicated above), such counsel advises you that, on the basis of the foregoing,
no facts came to its attention that caused it to believe that the Preliminary
Offering Memorandum or the Offering Memorandum (as amended or supplemented, if
applicable), at the time such Preliminary Offering Memorandum or Offering
Memorandum was circulated or that the Offering Memorandum, at the Closing Date,
contained or contains an untrue statement of a material fact or omitted 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 under which they were
made, not misleading. Without limiting the foregoing, such counsel may further
state that they assume no responsibility for, and have not independently
verified, the accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in the Preliminary
Offering Memorandum or the Offering Memorandum.
The opinions of such counsel described in this paragraph shall be
rendered to you at the request of the Company and shall so state therein.
(g) You shall have received an opinion, dated the Closing
Date, of Fried, Frank, Harris, Shriver & Jacobson, your counsel, in
form and substance reasonably satisfactory to you, covering such
matters as are customarily covered in such opinions.
(h) At the time this Agreement is executed and delivered by
the Company and on the Closing Date, you shall have received letters,
substantially in the form previously approved by you, from Deloitte &
Touche LLP, independent public accountants, with respect to the
financial statements and certain financial information contained in
Offering Memorandum.
(i) Fried, Frank, Harris, Shriver & Jacobson shall have been
furnished with such documents, in addition to those set forth above, as
they may reasonably require for the purpose of enabling them to review
or pass upon the matters referred to in this Section 7 and in order to
evidence the accuracy, completeness or satisfaction in all material
respects of any of the representations, warranties or conditions herein
contained.
(j) Prior to the Closing Date, the Company shall have
furnished to you such further information, certificates and documents
as you may reasonably request.
(k) The Company and the Trustee shall have entered into the
Note Indenture and you shall have received counterparts, conformed as
executed, thereof.
(l) The Company shall have entered into the Registration
Rights Agreement and you shall have received counterparts, conformed as
executed, thereof.
(m) Prior to, or simultaneously with, the sale to you of the
Series A Notes, the Company shall have (i) terminated the Existing
Credit Facility and (ii) entered
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into a new credit facility with Fleet National Bank providing for
revolving loans up to $40.0 million and you shall have received
counterparts, conformed as executed, thereof, which shall conform in
all material respects to the description thereof in the Offering
Memorandum.
(n) Prior to, or simultaneously with, the sale to you of the
Series A Notes, the Company shall have acquired the remaining 50.01% of
the common stock of Fine Fragrances, Inc. that the Company did not
already own.
(o) Prior to, or simultaneously with, the sale to you of the
Series A Notes, all security interests in the capital stock of the
Subsidiaries shall have been released.
All opinions, certificates, letters and other documents
required by this Section 7 to be delivered by the Company will be in compliance
with the provisions hereof only if they are reasonably satisfactory in form and
substance to you. The Company will furnish the Purchasers with such conformed
copies of such opinions, certificates, letters and other documents as they shall
reasonably request.
8. Defaults. If, on the Closing Date, either of the Purchasers shall
fail or refuse to purchase Series A Notes that it has agreed to purchase
hereunder on such date, and the aggregate principal amount of such Series A
Notes that such defaulting Purchaser agreed but failed or refused to purchase
does not exceed 10% of the total principal amount of such Series A Notes that
both of the Purchasers are obligated to purchase on such Closing Date, the
non-defaulting Purchaser shall be obligated to purchase the amount of such
Series A Notes that such defaulting Purchaser agreed but failed or refused to
purchase. If, on the Closing Date, either of the Purchasers shall fail or refuse
to purchase Series A Notes in an aggregate principal amount that exceeds 10% of
such total principal amount and arrangements satisfactory to the other Purchaser
and the Company for the purchase of such Series A Notes are not made within 48
hours after such default, this Agreement shall terminate without liability on
the part of the non-defaulting Purchaser or the Company, except as otherwise
provided in Section 9. In any such case that does not result in termination of
this Agreement, the Purchasers or the Company may postpone the Closing Date for
not longer than seven (7) days, in order that the required changes, if any, in
the Offering Memorandum or any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve a defaulting Purchaser
from liability in respect of any default by any such Purchaser under this
Agreement.
9. Effective Date Of Agreement And Termination. This Agreement shall
become effective upon the execution hereof.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by notice to the Company if any of the following has occurred: (i)
subsequent to the date information is provided in the Offering Memorandum, any
Material Adverse Change which, in your judgment, materially impairs the
investment quality of any of the Series A Notes, (ii) any outbreak or escalation
of hostilities or other national or international calamity or crisis or material
adverse change in the financial markets of the United States or elsewhere, or
any other
29
<PAGE>
substantial national or international calamity or emergency if the effect of
such outbreak, escalation, calamity, crisis, material adverse change or
emergency would, in your judgment, make it impracticable or inadvisable to
market any of the Series A Notes or to enforce contracts for the sale of any of
the Series A Notes, (iii) any suspension or limitation of trading generally in
securities on the New York Stock Exchange or in the over-the-counter markets or
any setting of minimum prices for trading on such exchange or markets, (iv) any
declaration of a general banking moratorium by either federal or New York
authorities, (v) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs that in your
judgment has a material adverse effect on the financial markets in the United
States, and would, in your judgment, make it impracticable or inadvisable to
market any of the Series A Notes or to enforce contracts for the sale of any of
the Series A Notes, (vi) the enactment, publication, decree, or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which, in your judgment, would have a
Material Adverse Effect, or (vii) any securities of the Company shall have been
downgraded or placed on any "watch list" for possible downgrading by any
nationally recognized statistical rating organization.
The indemnities and contribution provisions and the other agreements,
representations and warranties of the Company and of the Purchasers set forth in
or made pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Series A Notes,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of either of the Purchasers or by or on behalf of the
Company, the officers or directors of the Company or any controlling person of
the Company, (ii) acceptance of the Series A Notes and payment for them
hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Purchasers pursuant to
clauses (i) or (vii) of the second paragraph of this Section 9 or because of the
failure or refusal on the part of the Company to comply with the terms or to
fulfill any of the conditions of this Agreement, the Company agrees to reimburse
you for all out-of-pocket expenses (including the fees and disbursements of
counsel) incurred by you. Notwithstanding any termination of this Agreement, the
Company shall be liable for all expenses which it has agreed to pay pursuant to
Section 4(f) hereof.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Purchasers,
any Indemnified Person referred to herein and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement. The
terms "successors and assigns" shall not include a purchaser of any of the
Series A Notes from any of the Purchasers merely because of such purchase.
10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier or air courier
guaranteeing overnight delivery and shall be addressed as follows: (a) if to the
Company, French Fragrances, Inc., 14100 N.W. 60th Avenue, Miami
30
<PAGE>
Lakes, Florida 33014, Attention: Oscar E. Marina, Esq., with a copy to Steel
Hector & Davis LLP, 200 South Biscayne Boulevard, Suite 4000, Miami, Florida
33131, Attention: Beatriz Llorens Koltis, Esq., and (b) if to the Purchasers,
c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York 10172, Attention: Maureen Block, with a copy to Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004,
Attention: Kenneth R. Blackman, Esq., or in any case to such other address as
the person to be notified may have requested in writing.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
This Agreement shall be governed and construed in accordance with the
internal laws of the State of New York. This Agreement may be signed in various
counterparts which together shall constitute one and the same instrument.
31
<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
among the Company and the Purchasers.
Very truly yours,
FRENCH FRAGRANCES, INC.
By: /s/ E. SCOTT BEATTIE
-----------------------------
Name: E. Scott Beattie
Title: President & COO
Accepted and agreed to as of
the date first above written:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ WILLIAM J.R. WILSON
---------------------------------
Name: William J.R. Wilson
Title: Vice President
TD SECURITIES (USA) INC.
By: /s/ THOMAS W. REGAN JR.
---------------------------------
Name: Thomas W. Regan Jr.
Title: Managing Director
32
<PAGE>
SCHEDULE I
Principal Amount
Donaldson, Lufkin & Jenrette
Securities Corporation .................................. $ 97,750,000
TD Securities (USA) Inc. .................................. 17,250,000
Total .................................. $115,000,000
============
33
<PAGE>
SCHEDULE II
List Subsidiaries of Company
G.B. Parfums, Inc.
Halston Parfums, Inc.
FRM Services, Inc.
34
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
<TABLE>
<CAPTION>
Twelve
Months Proforma
Year Ended Year Ended Seven Seven Ended Year Ended Year Ended Year Ended
June 30, June 30, Months Ended Months Ended January 31, January 31, January 31, January 31,
1993 1994 1994 1995 1995 1996 1997 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings, as
defined:
Net Income $ 595 $1,011 $ 641 $2,492 $2,862 $3,007 $ 8,248 $ 4,598
Income taxes 232 531 349 1,490 1,672 1,931 4,652 2,373
Fixed charges,
as below 1,143 1,546 835 1,414 2,125 4,158 6,853 13,858
-----------------------------------------------------------------------------------------------------------------
Total earnings,
as defined $1,970 $3,088 $1,825 $5,396 $6,659 $9,096 $19,753 $20,829
=================================================================================================================
Fixed charges,
as defined:
Interest expense $1,143 $1,546 $ 835 $1,414 $2,125 $4,158 $6,853 $13,858
-----------------------------------------------------------------------------------------------------------------
Total fixed
charges, as
defined $1,143 $1,546 $ 835 $1,414 $2,125 $4,158 $6,853 $13,858
=================================================================================================================
Ratio of earnings
to fixed
charges 1.72 2.00 2.19 3.82 3.13 2.19 2.88 1.50
</TABLE>
COMPUTATION OF PROFORMA RATIOS
(In thousands, except ratios)
Proforma
Year Ended
January 31,
1997
-----------
Interest expense $ 13,858
Less amortization of deferred financing fees 410
-----------
Cash interest expense $ 13,448
===========
Income from operations 19,587
Plus depreciation and amortization 3,738
-----------
EBITDA $ 23,325
===========
Ratio of EBITDA to cash interest expense 1.73
Total debt $ 136,755
Total cash and cash equivalents 52,573
-----------
Net debt $ 84,182
===========
Ratio of net debt to EBITDA 3.61
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
NAME STATE OF INCORPORATION DOING BUSINESS AS NAMES
- ----------------------- ------------------------- -------------------------
G.B. Parfums, Inc. Delaware Geoffrey Beene Parfums
Halston Parfums, Inc. Delaware Halston Parfums
Fine Fragrances, Inc. Delaware N/A
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of French Fragrances,
Inc. on Form S-4 of our report related to French Fragrances, Inc. dated March
14, 1997 (April 11, 1997 as to Note 16), and of our report related to Fine
Fragrances, Inc. dated March 14, 1997 (April 11, 1997 as to Note 6), appearing
in the Prospectus which are part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Miami, Florida
June 6, 1997
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------------------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
------------------------------------
MARINE MIDLAND BANK
--------------------------------------------------
(Exact name of trustee as specified in its charter)
New York 16-1057879
- ------------------------------ ------------------
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 ----------
- --------------------------------------- (Zip Code)
(Address of principal executive offices)
Charles E. Bauer
Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
---------------------------------------------------------
(Name, address and telephone number of agent for service)
FRENCH FRAGRANCES, INC.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
Florida 59-0914138
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
14100 N.W. 60th Avenue
Miami, Florida 33014
(305) 818-8000 --------------------
- ---------------------------------------- (Zip Code)
(Address of principal executive offices)
10 3/8% SENIOR NOTES DUE 2007, SERIES B
---------------------------------------
(Title of Indenture Securities)
<PAGE>
General
Item 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which it
is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE>
Item 16. LIST OF EXHIBITS.
EXHIBIT
T1A(I) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20,
1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank required
by Section 321(b) of the Trust Indenture
Act of 1939.
T1A(vii) - Copy of the latest report of condition
of the trustee (March 31, 1997),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission with
Registration No. 33-53693 and incorporated herein by reference thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 2nd day of June, 1997.
MARINE MIDLAND BANK
By: /s/ FRANK J. GODINO
---------------------------------
Frank J. Godino
Assistant Vice President
<PAGE>
EXHIBIT T1A (VII)
Board of Governors of the
Federal Reserve System
OMB Number: 7100-0036
Federal Deposit
Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller
of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- --------------------------------------------------------------------------------
1
This financial information has
not been reviewed, or confirmed for accuracy
or relevance, by the Federal Reserve System. Please refer to page 1,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND
FOREIGN OFFICES--FFIEC 031
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1997 (950630)
This report is required by law; (RCRI 9999)
12 U.S.C. ss.324 (State member This report form is to be filed
banks); 12 U.S.C. ss. 1817 by banks with branches and
State nonmember banks); and 12 consolidated subsidiaries in U.S.
U.S.C. ss.161 (National banks). territories and possissions,
Edge or Agreement subsidiaries,
foreign branches, consolidated
foreign subsidiaries,or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and The Reports of Condition
Income must be signed by an authorized and Income are to be
officer and the Report of Condition prepared in accordance
must be attested to by not less than with Federal regulatory
two directors (trustees) for State authority instructions.
nonmember banks and three directors NOTE: These instructions
for State member and National Banks. may in some cases differ
from generally accepted
I, GERALD A. RONNING, EXECUTIVE VP & CONTROLLER accounting principles.
---------------------------------------------
Name and Title of Officer Authorized to Sign We, the undersigned
Report directors (trustees),
attest to the correctness
of the named bank do hereby declare that of this Report of
these Reports of Condition and Income Condition (including the
(including the supporting schedules) have supporting schedules) and
been prepared in conformance with the declare that it has been
instructions issued by the appropriate examined by us and to the
Federal regulatory authority and are true best of out knowledge and
to the best of my knowledge and believe. belief has been prepared
in conformance with the
/s/ GERALD A. RONNING instructions issued by
- ---------------------------------------------- the appropriate Federal
Signature of Officer Authorized to Sign Report regulatory authority and
4/28/97 is true and correct.
- ----------------------------------------------
Date of Signature /s/ JAMES H. CLEAVE
----------------------------
Director (Trustee)
/s/ BERNARD J. KENNEDY
---------------------------
Director (Trustee)
/s/ MALCOM BURNETT
---------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANK: Return the original NATIONAL BANKS: Return the
and one copy to the appropriate Federal original only in the SPECIAL
Reserve District Bank. RETURN ADDRESS ENVELOPE
PROVIDED. If express mail is
STATE NONMEMBER BANKS: Return the original used in lieu of the special
only in the SPECIAL RETURN ADDRESS return address envelope,
ENVELOPE PROVIDED. If express mail is used return the original only to
in lieu of the special return address the FDIC, c/o Quality Data
envelope, return the original only to the Systems, 2127 Espey Court,
FDIC, c/o Quality Data Systems, 2127 Suite 204, Crofton, MD 21114
Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------
FDIC Certificate Number 00589
<PAGE>
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
March 31, 1997
ASSETS
Thousands
of dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin.................................... $1,026,267
Interest-bearing balances ........................... 2,219,196
Held-to-maturity securities.......................... 0
Available-for-sale securities........................ 3,728,393
Federal funds sold and securities purchased
under agreements to resell............................ 1,830,419
Loans and lease financing receivables:
Loans and leases net of unearned
income............................... 21,110,911
LESS: Allowance for loan and lease
losses............................... 441,315
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve....................... 20,669,596
Trading assets....................................... 1,005,199
Premises and fixed assets (including
capitalized leases).................................. 217,027
Other real estate owned................................. 18,586
Investments in unconsolidated
subsidiaries and associated companies................... 0
Customers' liability to this bank on
acceptances outstanding................................. 21,351
Intangible assets....................................... 495,502
Other assets............................................ 709,342
Total assets............................................ 31,940,878
<PAGE>
LIABILITIES
Deposits:
In domestic offices.................................. 20,236,232
Noninterest-bearing.................. 4,166,679
Interest-bearing..................... 16,069,553
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.................................. 2,639,327
Noninterest-bearing.................. 0
Interest-bearing..................... 2,639,327
Federal funds sold and securities purchased
under agreements to resell............................ 3,281,586
Demand notes issued to the U.S. Treasury 197,415
Trading Liabilities...................................... 267,837
Other borrowed money:
With a remaining maturity of one year
or less.............................................. 1,800,280
With a remaining maturity of more than
one year............................................. 371,195
Bank's liability on acceptances
executed and outstanding................................ 21,351
Subordinated notes and debentures....................... 497,585
Other liabilities....................................... 525,585
Total liabilities....................................... 29,838,393
Limited-life preferred stock and
related surplus......................................... 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus................................................. 0
Common Stock............................................ 205,000
Surplus................................................. 1,983,378
Undivided profits and capital reserves.................. (76,867)
Net unrealized holding gains (losses)
on available-for-sale securities........................ (9,026)
Cumulative foreign currency translation
adjustments............................................. 0
Total equity capital.................................... 2,102,485
Total liabilities, limited-life
preferred stock, and equity capital..................... 31,940,878
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FRENCH FRAGRANCES, INC.
103/8% Senior Notes due 2007, Series A
in Exchange for
103/8% Senior Notes due 2007, Series B
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1997 (THE
"EXPIRATION DATE") UNLESS EXTENDED BY FRENCH FRAGRANCES, INC.
<TABLE>
<CAPTION>
EXCHANGE AGENT:
MARINE MIDLAND BANK
<S> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL:
Marine Midland Bank (INSURED OR REGISTERED RECOMMENDED)
140 Broadway, Level A Marine Midland Bank
New York, New York 10005-1180 140 Broadway, Level A
Attention: Paulette Shaw New York, New York 10005-1180
Attention: Paulette Shaw
</TABLE>
BY FACSIMILE:
(212) 658-2292
(For Eligible Institutions Only)
BY TELEPHONE:
(212) 658-5931
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
_______________, 1997 (the "Prospectus") of French Fragrances, Inc. (the
"Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which
together describe the Company's offer (the "Exchange Offer") to exchange $1,000
in principal amount of its new 10 3/8% Senior Notes due 2007, Series B (the
"Exchange Notes") for each $1,000 in principal amount of outstanding 10 3/8%
Senior Notes due 2007, Series A (the "Initial Notes"). The terms of the Exchange
Notes are identical in all material respects (including principal amount,
interest rate and maturity) to the terms of the Initial Notes for which they may
be exchanged pursuant to the Exchange Offer, except that the Exchange Notes are
freely transferable by holders thereof (except as provided herein or in the
Prospectus) and are not subject to any covenant regarding registration under the
Securities Act of 1933, as amended (the "Securities Act").
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Initial Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the Certificate Numbers and
Principal Amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF INITIAL NOTES TENDERED HEREWITH
- -------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL AMOUNT PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE REPRESENTED AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY INITIAL NOTES* TENDERED**
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered
the full aggregate principal amount represented by such Initial Notes.
See instruction 2.
</TABLE>
<PAGE>
This Letter of Transmittal is to be used either if certificates
representing Initial Notes are to be forwarded herewith or if delivery of
Initial Notes is to be made by book-entry transfer to an account maintained by
the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility"), pursuant to the procedures set forth in "The Exchange
Offer-Procedures for Tendering Initial Notes" in the Prospectus. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date must tender their Initial
Notes according to the guaranteed delivery procedure set forth in the Prospectus
under the caption "The Exchange Offer-Procedures for Tendering Initial Notes."
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_____________________________________________
[ ] The Depository Trust Company
Account Number)___________________________________________________________
Transaction Code Number___________________________________________________
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)______________________________________________
Name of Eligible Institution that Guaranteed Delivery_____________________
Date of Execution of Notice of Guaranteed Delivery________________________
If Delivered by Book-Entry Transfer:
Account Number____________________________________________________________
[ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO PERSON OTHER THAN
PERSON SIGNING THE LETTER OF TRANSMITTAL:
Name______________________________________________________________________
(Please Print)
Address___________________________________________________________________
(Including Zip Code)
[ ] CHECK HERE IF EXCHANGE NOTES ARE TO BE DELIVERED TO ADDRESS DIFFERENT FROM
THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Address___________________________________________________________________
(Including Zip Code)
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THIS PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name______________________________________________________________________
Address___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Initial Notes that were acquired as
result of market-making activities or other trading activities (other than
Initial Notes acquired directly from the Company), it acknowledges that it will
deliver a prospectus in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Any holder who is an "affiliate" of the Company or who has
an arrangement or understanding with respect to the distribution of the Exchange
Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who
purchased Initial Notes from the Company to resell pursuant to Rule 144A under
the Securities Act or any other available exemption under the Securities Act
must comply with the registration and prospectus delivery requirements under the
Securities Act.
2
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of Initial Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Initial Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Initial Notes. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent the true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that said
Exchange Agent acts as the agent of the Company, in connection with the Exchange
Offer) to cause the Initial Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Initial Notes and to acquire Exchange
Notes issuable upon the exchange of such tendered Initial Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Initial Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
undersigned also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be necessary
or desirable to complete the exchange, assignment and transfer of tendered
Initial Notes or transfer ownership of such Initial Notes on the account books
maintained by the Book-Entry Transfer Facility. The undersigned further agrees
that acceptance of any and all validly tendered Initial Notes by the Company and
the issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Company of its obligations under the Registration Rights
Agreement (as defined in the Prospectus) and that the Company shall have no
further obligations or liabilities with respect to provisions thereof that by
their terms terminate or cease to have effectiveness as a result of the making
of, and the acceptance for exchange of all validly tendered Initial Notes
pursuant to, the Exchange Offer.
The Exchange Offer is subject to the absence of certain conditions as set
forth in the Prospectus under the caption "The Exchange Offer-Certain Conditions
to the Exchange Offer." The undersigned recognizes that as a result of these
conditions (the occurrence of which may be waived, in whole or in part, by the
Company), as more particularly set forth in the Prospectus, the Company may not
be required to exchange any of the Initial Notes tendered hereby and, in such
event, the Initial Notes not exchanged will be returned to the undersigned at
the address shown above. In addition, the Company may amend the Exchange Offer
at any time prior to the Exchange Date if any of the conditions set forth under
"The Exchange Offer-Certain Conditions to the Exchange Offer" occur. By
tendering, each holder of Initial Notes represents that the Exchange Notes
acquired in the exchange will be obtained in the ordinary course of such
holder's business (and not in exchange for Initial Notes acquired directly from
the Company), that such holder has no arrangement with any person to participate
in the distribution of such Exchange Notes, that such holder is not an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act and that such holder is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. Any holder of Initial Notes who is an
affiliate of the Company, who is a broker-dealer who purchased Initial Notes
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, or who is using the Exchange Offer to
participate in a distribution of the Exchange Notes (i) cannot rely on the
position of the staff of the Securities and Exchange Commission (the
"Commission") enunciated in its interpretive letter with respect to Exxon
Capital Holdings Corporation (available May 13, 1988) or similar letters and
(ii) must comply with the registration and prospectus requirements of the
Securities Act in connection with a secondary resale transaction.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes and has no arrangement or understanding to participate in a
distribution of Exchange Notes. If the undersigned is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Initial Notes that
were acquired as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company), it
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes, however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, legal representatives, successors,
assigns,
3
<PAGE>
executors and administrators of the undersigned. Tendered Initial Notes may be
withdrawn at any time prior to the Expiration Date in accordance with the terms
of this Letter of Transmittal. See Instruction 2.
Certificates for all Exchange Notes delivered in exchange for tendered
Initial Notes and any Initial Notes delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned.
TENDER HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
_______________________________________________________________________________
_______________________________________________________________________________
Signature(s) of Holder(s)
Dated_________________________ Area Code and Telephone Number__________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Initial Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 3.
Name(s)________________________________________________________________________
_______________________________________________________________________________
(Please Print)
Capacity (full title)__________________________________________________________
Address________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.____________________________________________________
Taxpayer Identification No.____________________________________________________
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED-SEE INSTRUCTION 3)
Authorized Signature___________________________________________________________
Name___________________________________________________________________________
Title__________________________________________________________________________
Address________________________________________________________________________
Name of Firm___________________________________________________________________
Area Code and Telephone No.____________________________________________________
Dated__________________________________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery Of This Letter Of Transmittal And Certificates.
A holder of Initial Notes may tender the same by (i) properly completing
and signing this Letter of Transmittal or a facsimile hereof (all references in
the Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Initial Notes being tendered and any required
signature guarantees and any other document required by this Letter of
Transmittal, to the Exchange Agent at its address set forth above on or prior to
the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
4
<PAGE>
The method of delivery of this Letter of Transmittal, the Initial Notes and
any other required documents is at the election and risk of the holder, and
except as otherwise provided below, the delivery will be deemed made only when
actually received or confirmed by the Exchange Agent. If such delivery is by
mail, it is suggested that registered mail with return receipt requested,
properly insured, be used. In all cases sufficient time should be allowed to
permit timely delivery. No Initial Notes or Letters of Transmittal should be
sent to the Company.
If tendered Initial Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Initial Notes are to be reissued) in the
name of the registered holder (which term, for the purposes described herein,
shall include any participant in The Depository Trust Company (also referred to
as a "Book-Entry Transfer Facility") whose name appears on a security listing as
the owner of Initial Notes), the signature of such signer need not be
guaranteed. In any other case, the tendered Initial Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder, and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended. If the Exchange Notes and/or
Initial Notes not exchanged are to be delivered to an address other than that of
the registered holder appearing on the note register for the Initial Notes, the
signature on the Letter of Transmittal must be guaranteed by an Eligible
Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the
Initial Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Initial Notes by causing such
Book-Entry Transfer Facility to transfer such Initial Notes into the Exchange
Agent's account with respect to the Initial Notes in accordance with the
Book-Entry Transfer Facility's procedures for such transfer. Although delivery
of Initial Notes may be effected through book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to tender Initial Notes in the Exchange Offer and time
will not permit a Letter of Transmittal or Initial Notes to reach the Exchange
Agent before the Expiration Date or the procedure for book-entry transfer cannot
be completed on a timely basis, a tender may be effected if the Exchange Agent
has received on or prior to the Expiration Date, a letter, telegram or facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) from an Eligible Institution setting forth the
name and address of the tendering holder, the names in which the Initial Notes
are registered and, if possible, the certificate numbers of the Initial Notes to
be tendered, and stating that the tender is being made thereby and guaranteeing
that within three business days after the Expiration Date, the Initial Notes in
proper form for transfer (or a confirmation of book-entry transfer of such
Initial Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Initial Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed Letter of Transmittal and
any other required documents), the Company may, at its option, reject the
tender. Copies of the notice of guaranteed delivery ("Notice of Guaranteed
Delivery") which may be used by Eligible Institutions for the purposes described
in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Initial Notes (or a confirmation of book-entry transfer of
such Initial Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of Exchange Notes in exchange for Initial Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect
5
<PAGE>
(as provided above) by an Eligible Institution will be made only against deposit
of the Letter of Transmittal (and any other required documents) and the tendered
Initial Notes.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Initial Notes, such Initial Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Initial Notes.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Initial Notes for exchange.
2. Partial Tenders; Withdrawals.
If less than the entire principal amount of Initial Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Initial Notes submitted but
not tendered will be sent to such holder as soon as practicable after the
Exchange Date. All Initial Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise clearly indicated.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Initial Notes to be withdrawn (the "Depositor"), (ii)
identify the Initial Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Initial Notes), (iii) specify the principal
amount of Initial Notes to be withdrawn, (iv) include a statement that such
holder is withdrawing his election to have such Initial Notes exchanged, (v) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such Initial Notes were tendered or as otherwise
described above (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Initial Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Initial Notes
are to be registered, if different from that of the Depositor. The Exchange
Agent will return the properly withdrawn Initial Notes promptly following
receipt of notice of withdrawal. If Initial Notes have been tendered pursuant to
the procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Initial Notes or otherwise comply with the
Book-Entry Transfer Facility's procedure. All questions as to the validity of
notices of withdrawals, including time of receipt, will be determined by the
Company in its sole discretion and such determination will be final and binding
on all parties.
Any Initial Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Initial Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Initial Notes will be credited to an account
with such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Initial Notes may be retendered by following one of
the procedures described under the caption "Procedures for Tendering Initial
Notes" in the Prospectus at any time on or prior to the Expiration Date.
3. Signature On This Letter Of Transmittal; Written Instruments And
Endorsements; Guarantee Of Signatures.
If this Letter of Transmittal is signed by the registered holder(s) of the
Initial Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Initial Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
6
<PAGE>
If a number of Initial Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Initial Notes.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the
Book-Entry Transfer Facility whose name appears on a security listing as the
owner of the Initial Notes) of Initial Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holder of the Initial Notes listed, such Initial Notes must
be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the registered
holder, in either case signed exactly as the name or names of the registered
holder or holders appear(s) on the Initial Notes.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written instruments
of transfer or exchange required by this Instruction 3 must be guaranteed by an
Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Initial Notes are tendered: (i) by a
registered holder of such Initial Notes, for the holder of such Initial Notes;
or (ii) for the account of an Eligible Institution.
4. Transfer Taxes.
The Company shall pay all transfer taxes, if any, applicable to the
transfer and exchange of Initial Notes to it or its order pursuant to the
Exchange Offer. If, however, certificates representing Exchange Notes or Initial
Notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Initial Notes tendered, or if tendered Initial Notes
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Initial Notes pursuant to the Exchange Offer, then the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exception therefrom is not submitted herewith the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes listed in this Letter of
Transmittal.
5. Waiver Of Conditions.
The Company reserves the right to waive in its sole discretion, in whole or
in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
6. Mutilated, Lost, Stolen Or Destroyed Initial Notes.
Any holder whose Initial Notes have been mutilated, lost, stolen or
destroyed, should contact the Exchange Agent at the address indicated above for
further instructions.
7
<PAGE>
7. Substitute Form W-9.
Each holder of Initial Notes whose Initial Notes are accepted for exchange
(or other payee) is required to provide a correct taxpayer identification number
("TIN"), generally the holder's Social Security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided under "Important Tax Information" below, and to certify
that the holder (or other payee) is not subject to backup withholding. Failure
to provide the information on the Substitute Form W-9 may subject the holder (or
other payee) to a $50 penalty imposed by the Internal Revenue Service and 31%
federal income tax backup withholding on payments made in connection with the
Exchange Notes. The box in Part 3 of the Substitute Form W-9 may be checked if
the holder (or other payee) has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future. If the box in Part 3 is
checked and a TIN is not provided by the time any payment is made in connection
with the Exchange Notes, 31% of all such payments will be withheld until a TIN
is provided.
8. Requests For Assistance Or Additional Copies.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to French Fragrances, Inc., 14100 N.W. 60th
Avenue, Miami Lakes, Florida 33014, Attention: Corporate Secretary (telephone
305-818-8000).
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH
CERTIFICATES FOR INITIAL NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Initial Notes whose Initial
Notes are accepted for exchange may be subject to backup withholding unless the
holder provides Marine Midland Bank (as payor) (the "Paying Agent"), through the
Exchange Agent, with either (i) such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such holder of Initial Notes
is awaiting a TIN) and that (A) the holder of Initial Notes has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or (B)
the Internal Revenue Service has notified the holder of Initial Notes that he or
she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption from backup withholding. If such holder of Initial Notes is an
individual, the TIN is such holder's social security number. If the Paying Agent
is not provided with the correct taxpayer identification number, the holder of
Initial Notes may be subject to certain penalties imposed by the Internal
Revenue Service.
Certain holders of Initial Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Initial Notes should indicate their
exempt status on Substitute Form W-9. In order for a foreign individual to
qualify as an exempt recipient, the holder must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Paying Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for more
instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Initial Notes or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Initial Notes has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the box in Part 3
is checked, the holder of Initial Notes or other payee must also complete the
Certificate of Awaiting Taxpayer Identification Number
8
<PAGE>
below in order to avoid backup withholding. Notwithstanding that the box in Part
3 is checked and the Certificate of Awaiting Taxpayer Identification Number is
completed, the Paying Agent will withhold 31% of all payments made prior to the
time a properly certified TIN is provided to the Paying Agent.
The holder of Initial Notes is required to give the Paying Agent the TIN
(e.g., social security number or employer identification number) of the record
owner of the Initial Notes. If the Initial Notes are in more than one name or
are not in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________________________
PAYOR'S NAME: MARINE MIDLAND BANK, AS PAYING AGENT
__________________________________________________________________________________________________________________________________
<S> <C> <C>
Part 1-PLEASE PROVIDE YOUR TIN IN Social Security number(s) or Employer
THE BOX AT RIGHT AND CERTIFY BY Identification Number(s)
SUBSTITUTE SIGNING AND DATING BELOW. __________________________________________________
__________________________________________________________________________________________
FORM W-9
DEPARTMENT OF THE TREASURY PART 2-Certification-Under penalties of perjury, I certify that:
INTERNAL REVENUE SERVICE
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued for me), and
(2) I am not subject to backup withholding because: (a) I am
PAYOR'S REQUEST FOR exempt from backup withholding, or (b) I have not been notified by
TAXPAYER IDENTIFICATION Internal Revenue Service ("IRS") that I am subject to backup
NUMBER ("TIN") withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
Certification Instructions-You must cross out item (2) above if you have been notified by
the IRS that you are currently subject to backup withholding because of under reporting
interest or dividends on your tax return.
__________________________________________________________________________________________
Signature _____________________________
PART 3-Awaiting TIN [ ]
Date___________________________________
__________________________________________________________________________________________________________________________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31%
OF ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
9
<PAGE>
_______________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable cash payments made to me thereafter will be withheld until I
provide a taxpayer identification number.
_________________________________________ __________________________
Signature Date
_______________________________________________________________________________
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FRENCH FRAGRANCES, INC.
OFFER TO EXCHANGE
10 3/8% SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2007, SERIES A
Registered holders of outstanding 10 3/8% Senior Notes due 2007, Series
A (the "Initial Notes") who wish to tender their Initial Notes in exchange for a
like principal amount of 10 3/8 Senior Notes due 2007, Series B (the "Exchange
Notes") and whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and Letter of Transmittal (and any other documents
required by the Letter of Transmittal) to Marine Midland Bank (the "Exchange
Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery
or one substantially equivalent hereto. This Notice of Guaranteed Delivery may
be delivered by hand or sent by facsimile transmission (receipt confirmed by
telephone and an original delivered by guaranteed overnight courier) or mail to
the Exchange Agent. See "The Exchange Offer--Procedure for Tendering Initial
Notes" in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MARINE MIDLAND BANK
BY HAND/OVERNIGHT COURIER: BY MAIL:
Marine Midland Bank (INSURED OR REGISTERED RECOMMENDED)
140 Broadway, Level A Marine Midland Bank
New York, New York 10005-1180 140 Broadway, Level A
Attention: Paulette Shaw New York, New York 10005-1180
Attention: Paulette Shaw
BY FACSIMILE:
(212) 658-2292
(For Eligible Institutions Only)
BY TELEPHONE:
(212) 658-5931
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Initial Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated ________, 1997 of French Fragrances, Inc. (the "Prospectus"),
receipt of which is hereby acknowledged.
<TABLE>
<CAPTION>
DESCRIPTION OF SECURITIES TENDERED
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S) OF PRINCIPAL AMOUNT OF
NAME OF APPEARS ON THE INITIAL INITIAL NOTES INITIAL NOTES
TENDERING HOLDER NOTES (PLEASE PRINT) TENDERED TENDERED
<S> <C> <C> <C>
- ------------------- ------------------- ------------------- -------------------
- ------------------- ------------------- ------------------- -------------------
- ------------------- ------------------- ------------------- -------------------
- ------------------- ------------------- ------------------- -------------------
- ------------------- ------------------- ------------------- -------------------
</TABLE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(Not to be used for signature guarantee)
The undersigned, a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of
its addresses set forth above, the certificates representing the Initial Notes
(or a confirmation of book-entry transfer of such Initial Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility (as defined in the
Prospectus and the Letter of Transmittal), together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees, and any other documents required by the Letter of
Transmittal within three business days after the Expiration Date (as defined in
the Prospectus and the Letter of Transmittal)).
Name of Firm: ___________________________ _________________________________
(Authorized signature)
Address: ________________________________
Title: __________________________
__________________________________________
(Zip Code) Name: ___________________________
(Please type or print)
Area Code and Telephone No.:
__________________________________________
Date: ___________________________
NOTE: DO NOT SEND INITIAL NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. INITIAL NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
