UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________ to ________
Commission File Number 1-6370
FRENCH FRAGRANCES, INC.
(Exact name of registrant as specified in its charter)
Florida 59-0914138
(State of incorporation) (IRS Employer
Identification No.)
14100 N.W. 60th Avenue, Miami Lakes, Florida 33014
(Address of principal executive offices) (zip code)
(305) 818-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
<PAGE>
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Outstanding at
Class June 11, 1998
---------------------------- -----------------
Common stock, $.01 par value 13,793,616 shares
<PAGE>
FRENCH FRAGRANCES, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -
January 31, 1998 and April 30, 1998
Consolidated Statements of Income -
Three Months Ended April 30, 1997 and 1998
Consolidated Statements of Cash Flows -
Three Months Ended April 30, 1997 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31, 1998 April 30, 1998
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,667,119 $ 4,930,066
Accounts receivable, net 53,412,248 66,756,191
Inventories 90,425,910 112,448,318
Advances on inventory purchases 6,978,285 6,488,784
Prepaid expenses and other assets 3,936,529 3,984,434
------------ ------------
Total current assets 162,420,091 194,607,793
------------ ------------
Property and equipment, net 19,501,742 20,053,050
------------ ------------
Other assets:
Exclusive brand licenses and trademarks, net 42,776,017 41,936,430
Senior note offering costs, net 3,756,911 4,769,833
Deferred income taxes, net 838,633 838,633
Other intangibles and other assets 3,359,891 10,905,705
------------ ------------
Total other assets 50,731,452 58,450,601
------------ ------------
Total assets $232,653,285 $273,111,444
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ -- $ 1,743,000
Accounts payable - trade 24,393,878 19,075,288
Other payables and accrued expenses 12,454,835 10,471,980
Current portion of capital lease,
mortgage and term note 3,100,108 3,167,445
Due to affiliates, net 294,136 294,136
------------ ------------
Total current liabilities 40,242,957 34,751,849
------------ ------------
Long-term liabilities:
Senior notes, net 115,000,000 157,597,593
Subordinated debentures 7,131,873 9,581,995
Convertible subordinated debentures 4,960,633 4,911,833
Mortgage note 5,682,041 5,647,510
Capital lease 1,010,000 980,000
------------ ------------
Total liabilities 174,027,504 213,470,780
------------ ------------<PAGE>
Commitments and contingencies (Note 7)
Shareholders' equity:
Convertible, redeemable preferred stock,
Series B, $.01 par value (liquidation
preference of $.01 per share); 350,000
shares authorized; 279,877 and 271,596
shares issued and outstanding, respectively 2,799 2,716
Convertible, redeemable preferred stock,
Series C, $.01 par value (liquidation
preference of $.01 per share); 571,429
shares authorized; 525,490 and 511,355
shares issued and outstanding, respectively 5,255 5,114
Common stock, $.01 par value, 50,000,000
shares authorized; 13,623,734 and 13,793,616
shares issued and outstanding, respectively 136,238 137,936
Additional paid-in capital 30,786,503 31,496,170
Retained earnings 27,694,986 27,998,728
------------ ------------
Total shareholders' equity 58,625,781 59,640,664
------------ ------------
Total liabilities and shareholders' equity $232,653,285 $273,111,444
============ ============
See Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 30,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net Sales $35,102,038 $46,546,294
Cost of sales 23,598,456 33,229,130
----------- -----------
Gross Profit 11,503,582 13,317,164
----------- -----------
Operating Expenses
Warehouse and shipping 1,310,038 1,888,758
Selling, general and administration 5,156,653 5,856,672
Depreciation and amortization 1,107,314 1,596,115
----------- -----------
Total operating expenses 7,574,005 9,341,545
----------- -----------
Income from Operations 3,929,577 3,975,619
----------- -----------
Other income (expense):
Interest expense, net (1,742,440) (3,537,324)
Other income 37,668 48,704
----------- -----------
Other income (expense), net (1,704,772) (3,488,620)
----------- -----------
Income before equity in earnings
of unconsolidated affiliate and
provisions for income taxes 2,224,805 486,999
Equity in earnings of unconsolidated
affiliate, 50% owned 134,508 --
----------- -----------
Income before income taxes 2,359,313 486,999
Provision for income taxes 858,423 183,257
----------- -----------
Net Income $ 1,500,890 $ 303,742
=========== ===========
Earnings per common shares:
Basic $0.11 $0.02
===== =====
Diluted $0.10 $0.02
===== =====
<PAGE>
Weighted average number of common shares:
Basic 13,250,833 13,669,122
=========== ===========
Diluted 16,385,201 17,618,366
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
April 30,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 1,500,890 $ 303,742
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation and amortization 1,107,314 1,596,115
Equity in earnings of unconsolidated
affiliate (134,508) --
Amortization of senior note offering costs
and note premium -- 99,666
Change in assets and liabilities net
of effects from acquisitions:
Decrease (increase) in accounts receivable 20,321 (13,343,943)
Decrease (increase) in inventories 4,081,073 (11,461,831)
(Increase) decrease in advances on inventory
purchases (1,362,343) 489,501
Increase in prepaid expenses and other assets (620,068) (28,808)
Decrease in accounts payable (8,593,925) (15,879,168)
Decrease in other payables and accrued
expenses (516,923) (2,173,544)
Decrease in due to affiliate, net (514,657) --
----------- ------------
Net cash used in operating activities (5,032,826) (40,398,270)
----------- ------------
Cash flows from investing activities:
Additions to property and equipment,
net of disposals (1,490,151) (1,031,498)
Receipts of restricted cash for capital
improvements 954,820 --
Cash portion of purchase of intangible assets -- (5,150,000)
----------- ------------
Net cash used in investing activities (535,331) (6,181,498)
----------- ------------
Cash flows from financing activities:
Proceeds from the exercise of employee stock
options -- 117,480
Proceeds from the exercise of stock purchase
warrants -- 275,000
Proceeds from the conversion of preferred stock -- 268,780
Proceeds from the issuance of senior notes -- 41,500,000
Advances from unconsolidated affiliate 798,594 --
Payments on term loans (500,000) --
Net proceeds from short-term debt 6,692,047 1,743,000
Payments on capital lease and installment loans (42,937) (30,000)
Payments on facility mortgage note (38,748) (31,545)
----------- ------------
Net cash provided by financing activities 6,908,956 43,842,715
----------- ------------
Net increase (decrease) in cash and cash
equivalents 1,340,799 (2,737,053)
Cash and cash equivalents at beginning of period 855,969 7,667,119
----------- ------------
Cash and cash equivalents at end of period $ 2,196,768 $ 4,930,066
=========== ============
Supplemental disclosure of cash flow information:
Interest paid during the period $ 1,562,049 $ 368,447
=========== ============
Income taxes paid during the period $ 1,351,700 $ 5,213,675
=========== ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
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.
The consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission (the
"Commission") for interim financial information. As such
financial statements do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements, they should be read in
conjunction with the financial statements and related footnotes
included in the Company's Annual Report on Form 10-K for the year
ended January 31, 1998, filed with the Commission.
The consolidated balance sheet of the Company as of
January 31, 1998 is audited. The other consolidated financial
statements are unaudited, but in the opinion of management
contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the consolidated balance
sheet of the Company as of April 30, 1998, the consolidated
statements of income of the Company for the three months ended
April 30, 1998 and 1997, and the consolidated statements of cash
flow for the three months ended April 30, 1998 and 1997.
Operating results for the three months ended April 30, 1998 are
not necessarily indicative of the results for the full fiscal
year.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings per Share - Earnings per share for the three months
ended April 30, 1997 and 1998 have been calculated in accordance
with Statement of Financial Accounting Standards No. 128 Earnings
per Share ("SFAS 128"). SFAS 128, which was adopted by the
Company in the fourth quarter of fiscal 1998, 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 potential such as stock options,
warrants and convertible securities.
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Segments of an Enterprise - In June 1997, the Financial
Accounting Standards Board issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131
changes the way public companies report information about
segments of their business in their annual financial statements
and requires them to report selected segment information in their
quarterly reports issued to shareholders. SFAS No. 131 also
requires entity wide disclosures about the products and services
an entity provides, the foreign countries in which it holds
assets and reports revenues, and its major customers. SFAS 131
is effective for fiscal years beginning after December 15, 1997.
The adoption of SFAS 131 for the Company's fiscal year ended
January 31, 1999 is not expected to have a material impact on the
Company's consolidated financial statement presentation.
NOTE 3. J. P. FRAGRANCES ACQUISITION; SENIOR NOTE OFFERING
In March 1998, the Company consummated the acquisition (the
"JPF Acquisition") of certain assets of J.P. Fragrances, Inc.
("JPF"), a distributor of prestige fragrance products, including
inventory, returns, contract rights, accounts receivable, books
and records, fixed assets (including furniture and warehouse
materials and equipment), claims, intangible rights (including
non-compete agreements) and goodwill (collectively, the "Acquired
Assets"). The Company also assumed approximately $10.6 million
of certain trade and other payables of JPF. In addition to the
assumption of the payables, the purchase price for the Acquired
Assets consisted of approximately $37.3 million in cash and a
subordinated debenture of $3 million (the "Debenture"). The cash
portion of the purchase price was financed from available cash
from operations and the Company's revolving credit facility (the
"Credit Facility") with Fleet National Bank ("Fleet"). The
Debenture is non-interest bearing, with the principal amount
being payable in three equal annual installments if, and only
if, certain conditions relating to the fragrance business of JPF
(the "JPF Business") are achieved by the Company, including
achieving certain gross profit thresholds from the JPF Business.
The Debenture has been recorded net of its discount of $485,528
calculated using an effective rate of 9.38%. The discount will
be amortized using the effective rate over the life of the
Debenture. As a result of the JPF Acquisition, the Company
acquired approximately $30.4 million of inventory, $12.1 million
of accounts receivable and $263,000 of fixed assets (consisting
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. J. P. FRAGRANCES ACQUISITION; SENIOR NOTE OFFERING -
(Continued)
primarily of office and warehouse furniture and equipment).
Other intangibles and other assets at April 30, 1998 includes
approximately $8.2 million of contract rights, intangible rights
(including non-compete agreements) and goodwill acquired as part
of the JPF Acquisition.
In April 1998, the Company consummated the private placement
under Rule 144A (the "Note Offering") pursuant to the Securities
Act of 1933, as amended, of $40 million principal amount of
10-3/8% Senior Notes due 2007, Series C (the "Series C Senior
Notes"). The Series C Senior Notes were sold at 106.5% of their
principal amount and have substantially similar terms to the
Company's existing 10-3/8% Senior Notes due 2007, Series B (the
"Series B Senior Notes"), which the Company issued in May 1997.
The net proceeds of approximately $41.4 million from the sale of
the Notes were used to repay outstanding borrowings under the
Credit Facility and other indebtedness to Fleet, which were used
for the JPF Acquisition, as well as for working capital purposes.
The Series C Senior Notes have not been registered under the Act
and may not be offered or sold in the United States absent
registration or an applicable exemption from registration
requirements. The Series C Senior Notes are expected to be
exchanged for 10-3/8% Senior Notes due 2007, Series D (the
"Series D Senior Notes") containing identical terms which will be
registered under the Act. The exchange offer will be made only
by means of a prospectus.
The Indenture pursuant to which the Series C Senior Notes
(and the Series D Senior Notes following their exchange for the
Series C Senior Notes) were issued (the "Indenture") provides
that such notes will be senior unsecured obligations of the
Company and will rank senior in 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 Credit Facility
and the Series B Senior Notes. The Indenture generally limits
the ability of the Company to (i) incur additional indebtedness,
(ii) pay any dividend or make any distribution on account of its
capital stock or other equity interest, (iii) purchase or redeem
any capital stock or equity interest of the Company, (iv) make
any principal payment, purchase or redeem subordinated
indebtedness except at scheduled maturities, or (v) make certain
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. J. P. FRAGRANCES ACQUISITION; SENIOR NOTE OFFERING -
(Continued)
investments; in each case subject to the satisfaction of a fixed
charge coverage ratio and, in certain cases, also a net income
test. In addition, the Indenture generally limits the ability of
the Company to create liens, merge or transfer or sell assets.
The Indenture also provides that the holders of the Series C
Senior Notes (and the Series D Senior Notes) have the option to
require the Company to repurchase their notes in the event there
is a change of control in the Company (as defined in the
Indenture).
The following unaudited information presents the Company's
pro forma operating data for the three months ended April 30,
1998 and 1997 as if the JPF Acquisition and the Note Offering had
been consummated at the beginning of each of the periods
presented and include certain adjustments to the historical
consolidated statements of income of the Company to give effect
to the acquisition of the net assets of JPF, the payment of the
purchase price and the increased amortization of intangible
assets as a result of the JPF Acquisition and the related
issuance of Series C Senior Notes by the Company to finance the
purchase price for the JPF Acquisition. The unaudited pro forma
financial data are not indicative of the results of operations
that would have been achieved had the JPF Acquisition and the
Note Offering been consummated prior to the periods in which they
were completed, or that might be attained in the future.
<TABLE>
<CAPTION>
Three Months
Ended April 30,
1997 1998
----------- -----------
<S> <C> <C>
Net Sales $51,885,715 $60,141,229
Net Income $ 1,191,137 $ 18,546
Net Income per
Basic Share $0.09 --
Net Income per
Diluted Share $0.08 --
</TABLE>
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. SHORT-TERM DEBT
The Credit Facility with Fleet provides for borrowings on a
revolving basis of up to $40,000,000, with a $3,000,000 sublimit
for letters of credit. Borrowings under the Credit Facility are
limited to eligible accounts receivable and inventories and are
secured by a first priority lien on all of the Company's accounts
receivable and inventory. The Company's obligations under the
Credit Facility rank pari passu in right of payment with the
Series B Senior Notes and the Series C Senior Notes. 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 non-trade
indebtedness. At April 30, 1998, the outstanding balance under
the Credit Facility was $1,743,000 and there was approximately
$747,000 in outstanding letters of credit.
NOTE 5. RELATED PARTY TRANSACTION
At April 30, 1998, the Company had outstanding approximately
$294,000 in advances from National Trading Manufacturing, Inc., a
company which is wholly-owned by the Chairman of the Company
("National Trading"), which is reflected on the balance sheet as
Due to affiliates, net. These advances are payable upon demand.
NOTE 6. SUBORDINATED DEBENTURES
The subordinated debentures as of January 31, 1998 represent
the 8.5% Subordinated Debentures due May 2004 issued in
connection with the May 1996 acquisition of the assets of
Fragrance Marketing Group, Inc. (the "8.5% Debentures"). The
subordinated debentures as of April 30, 1998 represent the 8.5%
Debentures, the Debenture issued as part of the JPF Acquisition
and the non-current portion of a term note issued in connection
with the Fine Fragrances Acquisition. See Notes 3 and 9.
NOTE 7. CONTINGENCIES
The Company is a party to a number of pending legal actions,
proceedings and claims. While any litigation contains an element
of uncertainty, management of the Company, believes based upon
the advice of counsel, that the outcome of such actions,
proceedings or claims pending or known to be threatened, will
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CONTINGENCIES - (Continued)
not have a material adverse effect on the Company's consolidated
financial position or results of operations.
NOTE 8. SHAREHOLDERS' EQUITY
A schedule of the transactions in the common stock and the
preferred stock of the Company and the additional paid-in capital
accounts is as follows:
<TABLE>
<CAPTION>
Preferred Stock Additional
Series B Series C Common Stock Paid-in
Shares Amount Shares Amount Shares Amount Capital
---------------- ---------------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 1998 279,877 $2,799 525,490 $5,255 13,623,734 $136,238 $30,786,503
Issuance of common
stock upon
exercise of stock
options 35,600 356 117,124
Issuance of common
stock upon
exercise of
warrants 54,258 543 274,457
Issuance of common
stock upon
conversion of 7.5%
convertible
debentures 6,928 69 49,812
Issuance of common
stock upon
conversion
of Series B
convertible
preferred stock (8,281) (83) 58,961 589 194,065
Issuance of common
stock upon
conversion
of Series C
convertible
preferred stock (14,135) (141) 14,135 141 74,209
------- ------ ------- ------ ---------- -------- -----------
Balance at
April 30, 1998 271,596 $2,716 511,355 $5,114 13,793,616 $137,936 $31,496,170
======= ====== ======= ====== ========== ======== ===========
/TABLE
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE,
50% OWNED
The following represents income statement information for
the three months ended April 30, 1997 for Fine Fragrances, Inc.
("Fine Fragrances"), a fragrance distribution company which prior
to May 1997, was 49.99% owned by the Company and distributed on
an exclusive basis in the United States and Canada the Salvador
Dali, Taxi, Cafe and Watt brands manufactured by COFCI, S.A.
("COFCI"). For the period presented, the Company's investment in
Fine Fragrances was accounted for under the equity method:
<TABLE>
<CAPTION> Three Months Ended
April 30, 1997
<S> <C>
Net Sales $1,949,787
==========
Net Income $ 306,348
==========
</TABLE>
The Company's equity in the net income of Fine Fragrances
for the three months ended April 30, 1997 was reduced for the
amortization of the exclusive distribution agreements of Fine
Fragrances. The exclusive distribution agreements were being
amortized using the straight-line method over the term of the
agreements.
In May 1997, the Company acquired the 50.01% interest of
Fine Fragrances (the "Fine Fragrances Acquisition") that the
Company did not own from an unaffiliated third party. As a result
of this acquisition, Fine Fragrances became a wholly-owned
subsidiary of the Company and the operations of Fine Fragrances
were consolidated with those of the Company. In connection with
the Fine Fragrances Acquisition, the Company entered into new 10
year distribution agreements for the brands manufactured by
COFCI.
NOTE 10. INCOME TAXES
The provision for income taxes for the three-month period
ended April 30, 1997 was calculated based upon the estimated tax
rate of 39% for the full fiscal year ending January 31, 1998.
<PAGE>
FRENCH FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. STOCK OPTION PLANS
During the three months ended April 30, 1998 and 1997, the
Company granted options for 500,000 shares at an exercise price
of $12.50 per share and 30,000 at an exercise price of $8.38,
respectively, under the 1995 Stock Option Plan to employees and
consultants.
NOTE 12. SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND
INVESTING ACTIVITIES
The Company incurred the following non-cash financing and
investing activities for the three months ended April 30, 1997
and 1998: <TABLE>
<CAPTION>
Three Months Ended
April 30,
1997 1998
========== ==========
<S> <C> <C>
Redemption of 8% Debentures
used to pay for conversion
of preferred stock $40,559
=======
Conversion of 7.5% convertible
debentures (including
accrued interest) into Common
Stock $ 49,880
===========
Transactions in connection with the
JPF Acquisition: (See Note 3)
Issuance of Debenture to Seller $ 2,514,472
===========
Assumption of accounts payables $10,560,577
===========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 forward-looking
statements (as such term is defined in the Reform Act) made
herein. 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" and "projection") 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 following key factors that have a direct bearing on the
Company's results of operations: the absence of contracts with
customers or certain suppliers; the Company's ability to
successfully integrate acquired businesses or new brands into the
Company; the impact of competitive products and pricing; the
substantial indebtedness and debt service obligations of the
Company; changes in the retail industry; and general economic and
business conditions. 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 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 to reflect events or
circumstances after the date on which such statements 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.
<PAGE>
GENERAL
This discussion should be read in conjunction with the Notes
to Consolidated Financial Statements contained herein and
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in the Company's Form 10-K for
the year ended January 31, 1998. The results of operations for an
interim period may not give a true indication of results for the
year. In the following discussions, all comparisons are with the
corresponding items in the prior year.
RESULTS OF OPERATIONS
Three Months Ended April 30, 1998 Compared to the Three Months
Ended April 30, 1997
- --------------------------------------------------------------
NET SALES. Net sales increased $11.4 million, or 33%, to
$46.5 million for the three months ended April 30, 1998 from
$35.1 million for the three months ended April 30, 1997.
Approximately 75% of the increase in net sales was attributable
to an increase in sales of brands that are distributed by the
Company on a non-exclusive basis through direct purchase
relationships with manufacturers or other sources ("Distributed
Brands"), including certain of the brands which the Company is
distributing following the March 1998 acquisition (the "JPF
Acquisition") of the assets of J.P. Fragrances, Inc. ("JPF").
The balance of the increase in net sales was attributable to an
increase in sales of the Company's owned or licensed brands
(collectively, the "Controlled Brands"), including through the
addition of the net sales of COFCI S.A. fragrance products
following the May 1997 acquisition of the interest in Fine
Fragrances, Inc. that the Company did not own (a portion of which
sales were previously accounted for under the equity in earnings
of unconsolidated affiliate, 50% owned). See Note 9 to Notes to
Consolidated Financial Statements. 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 increased sales have resulted from the
Company's ability to provide its customers with a larger
selection of products and a continuous, direct supply of
products.
GROSS PROFIT. Gross profit increased $1.8 million, or 16%,
to $13.3 million for the three months ended April 30, 1998 from
$11.5 million for the three months ended April 30, 1997. The
increase in gross profit was primarily attributable to the
increase in product sales of both the Controlled Brands and the
Distributed Brands. Gross margins decreased from 32.8% to 28.6%
<PAGE>
primarily as a result of a proportionally larger increase in
sales of Distributed Brands, which typically sell at lower
margins than the Controlled Brands.
WAREHOUSE AND SHIPPING EXPENSE. Warehouse and shipping
expenses increased $579,000, or 44%, to $1.9 million for the
three months ended April 30, 1998 from $1.3 million for the three
months ended April 30, 1997. The increase resulted from both an
increase in labor, warehouse, shipping materials and freight
costs, all of which were associated with the increase in net
sales.
SG&A. Selling, general and administrative ("SG&A") expenses
increased $700,000, or 14%, to $5.9 million for the three months
ended April 30, 1998 from $5.2 million for the three months ended
April 30, 1997. As a percentage of net sales, SG&A expenses
decreased from 14.7% for the three months ended April 30, 1997 to
12.6% for the three months ended April 30, 1998. Of the increase
in SG&A expenses, approximately $200,000 represented an increase
in selling expenses, primarily as a result of the addition of
sales and marketing personnel and marketing costs associated with
the planned summer roll out of the Halston line extensions of
Halston Ladies and Z-14 and the planned fall launch of a Geoffrey
Beene ladies brand. General and administrative expenses
increased $500,000 primarily as a result of the one-time
operating expenses of approximately $300,000 incurred in
integrating the assets and liabilities, and in closing the
operations of JPF and the addition of administrative personnel.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased $489,000, or 44%, to $1.6 million for the three months
ended April 30, 1998 from $1.1 million for the three months ended
April 30, 1997. The increase was primarily attributable to
amortization of intangibles acquired as a result of the JPF
Acquisition and adjustments to intangibles and other assets
acquired in connection with the acquisition of the assets of
Fragrance Marketing Group in May 1996, and increased
depreciation of computer software and equipment in connection
with the implementation of a new management information system
which was completed in February 1998.
INTEREST EXPENSE, NET. Interest expense, net of interest
income, increased $1.8 million, or 103% to $3.5 million for the
three months ended April 30, 1998 from $1.7 million for the three
months ended April 30, 1997. This increase was primarily due to
the increase in average debt outstanding resulting from (i) the
May 1997 offering (the "1997 Note Offering") of $115 million
principal amount of 10-3/8% Senior Notes due 2007, and (ii) the
<PAGE>
draw down against the Company's revolving credit facility for
payment of the cash portion of the purchase price for the JPF
Acquisition. See Note 3 to Notes to Consolidated Financial
Statements.
NET INCOME. Net income decreased $1.2 million, or 80%, to
$304,000 for the three months ended April 30, 1998 from $1.5
million for the three months ended April 30, 1997, primarily as a
result of the increase in interest and SG&A expenses, which were
partially offset by higher net sales.
EBITDA. EBITDA (operating income, plus depreciation and
amortization) increased $535,000, or 11%, to $5.6 million for the
three months ended April 30, 1998 from $5.0 million for the three
months ended April 30, 1997. The EBITDA margin decreased to
12.0% for the three months ended April 30, 1998 from 14.3% for
the three months ended April 30, 1997. The increase in EBITDA was
primarily attributed to the increase in gross profit discussed
above. The decrease in EBITDA margin was primarily attributable
to the decrease in gross margins and the integration expenses
associated with the JPF Acquisition discussed above.
FINANCIAL CONDITION
In March 1998, the Company consummated the JPF Acquisition.
As a result of the JPF Acquisition, the Company acquired
approximately $30.4 million of inventory, $12.1 million of
accounts receivable and $263,000 of fixed assets (consisting
primarily of office and warehouse furniture and equipment). See
Note 3 to Notes to Consolidated Financial Statements. These
amounts are the primary reason for increases in inventory and
accounts receivable at April 30, 1998. As a result of the JPF
Acquisition, the Company also acquired approximately $8.2
million of contract rights, intangible rights (including
non-compete agreements) and goodwill, which account for the
increase in other intangibles and other assets at April 30, 1998.
The Company also assumed approximately $10.6 million of certain
trade and other payables of JPF in connection with the JPF
Acquisition. In addition to the assumption of the payables, the
purchase price for the assets of JPF consisted of approximately
$37.3 million in cash and a subordinated debenture of $3 million
(the "Debenture"). The cash portion of the purchase price was
financed from available cash from operations and the Company's
revolving credit facility (the "Credit Facility") with Fleet
National Bank ("Fleet"). The Debenture is non-interest bearing,
with the principal amount being payable in three equal annual
installments if, and only if, certain conditions relating to the
<PAGE>
fragrance business of JPF (the "JPF Business") are achieved by
the Company, including achieving certain gross profit thresholds
from the JPF Business.
In April 1998, the Company consummated the private placement
under Rule 144A (the "Note Offering") pursuant to the Securities
Act of 1933, as amended (the "Act"), of $40 million principal
amount of 10-3/8% Senior Notes due 2007, Series C (the "Series C
Senior Notes"). The Series C Senior Notes were sold at 106.5% of
their principal amount and have substantially similar terms to
the Company's existing 10-3/8% Senior Notes due 2007, Series B
(the "Series B Senior Notes"), which the Company issued in May
1997. The net proceeds of approximately $41.4 million from the
sale of the Notes were used to repay outstanding borrowings under
the Credit Facility to Fleet, which were used for the JPF
Acquisition, as well as for working capital purposes. The Series
C Senior Notes have not been registered under the Act and may not
be offered or sold in the United States absent registration or an
applicable exemption from registration requirements. The Series
C Senior Notes are expected to be exchanged for 10-3/8% Senior
Notes due 2007, Series D (the "Series D Senior Notes") containing
identical terms which will be registered under the Act. The
exchange offer will be made only by means of a prospectus.
The Indenture pursuant to which the Series C Senior Notes
(and the Series D Senior Notes following their exchange for the
Series C Senior Notes) were issued (the "Indenture") provides
that such notes will be senior unsecured obligations of the
Company and will rank senior in 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 Credit Facility
and the Series B Senior Notes. The Indenture generally limits
the ability of the Company to (i) incur additional indebtedness,
(ii) pay any dividend or make any distribution on account of its
capital stock or other equity interest, (iii) purchase or redeem
any capital stock or equity interest of the Company, (iv) make
any principal payment, purchase or redeem subordinated
indebtedness except at scheduled maturities, or (v) make certain
investments; in each case subject to the satisfaction of a fixed
charge coverage ratio and, in certain cases, also a net income
test. In addition, the Indenture generally limits the ability of
the Company to create liens, merge or transfer or sell assets.
The Indenture also provides that the holders of the Series C
Senior Notes (and the Series D Senior Notes) have the option to
require the Company to repurchase their notes in the event there
is a change of control in the Company (as defined in the
Indenture).
<PAGE>
At April 30, 1998, the Company had available $37.5 million
under the Credit Facility for general corporate purposes,
including working capital needs and acquisitions, subject to
certain borrowing base limitations.
In May 1998, the Company entered into a lease with an
unaffiliated third party for approximately 48,000 square feet of
a warehouse facility to accommodate the additional inventory
requirements associated primarily with the promotional sets which
will arrive in anticipation of the holiday season. The lease has
an initial term of 30 months with the Company having an option to
extend for an additional term of 30 months. The future minimum
lease payments for the fiscal years ended January 31, 1999, 2000
and 2001 are approximately $190,400, $257,600, and $193,200,
respectively.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
In April 1998, the Company consummated the private placement
of $40 million principal amount of 10-3/8% Senior Notes due 2007,
Series C (the "Series C Senior Notes"). The Series C Senior
Notes are expected to be exchanged for Series D Senior Notes
containing identical terms which will be registered under the
Securities Act of 1933, as amended. The exchange offer will be
made only by means of a prospectus. The Indenture pursuant to
which the Series C Senior Notes (and the Series D Senior Notes
following their exchange for the Series C Senior Notes) were
issued (the "Indenture") provides that such notes will be senior
unsecured obligations of the Company and will rank senior in
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 Company's revolving credit facility and
the Company's 10-3/8% Senior Notes due 2007, Series B. The
Indenture generally limits the ability of the Company to (i)
incur additional indebtedness, (ii) pay any dividend or make any
distribution on account of its capital stock or other equity
interest, (iii) purchase or redeem any capital stock or equity
interest of the Company, (iv) make any principal payment,
purchase or redeem subordinated indebtedness except at scheduled
maturities, or (v) make certain investments; in each case subject
to the satisfaction of a fixed charge coverage ratio and, in
certain cases, also a net income test. In addition, the
Indenture generally limits the ability of the Company to create
liens, merge or transfer or sell assets. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition."
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------- -----------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the
Company dated March 6, 1996 (incorporated herein by
reference to Exhibit 3.1 filed as a part of the
Company's Form 10-K for the fiscal year ended
January 31, 1996 (Commission File No. 1-6370)).
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------
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 (Commission File No. 1-6370)).
4.2 Indenture dated as of April 27, 1998, 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
April 27, 1998 (Commission File No. 1-6370)).
4.3 Registration Rights Agreement dated as of
April 27, 1998, among the Company and Donaldson,
Lufkin & Jenrette Securities Corporation
(incorporated herein by reference to Exhibit 4.2
filed as a part of the Company's Form 8-K dated
April 27, 1998 (Commission File No. 1-6370)).
4.4 Credit Agreement dated as of May 13, 1997, between
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)).
4.5 First Amendment to Credit Agreement and Other
Transaction Documents dated as of December 31, 1997,
between the Company and Fleet National Bank
(incorporated herein by reference to Exhibit 4.3
filed as a part of the Company's Form 10-K for the
fiscal year ended January 31, 1998 (Commission File
No. 1-6370)).
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------
4.6 Letter Agreement dated as of March 23, 1998, between
the Company and Fleet National Bank (incorporated
herein by reference to Exhibit 4.4 filed as a part of
the Company's Form 10-K for the fiscal year ended
January 31, 1998 (Commission File No. 1-6370)).
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 fiscal year ended
January 31, 1997 (Commission File No. 1-6370)).
10.5 Non-Employee Director Stock Option Plan (incorporated
herein by reference to Exhibit 10.4 filed as a part
of the Company's Form 10-K for the fiscal year ended
September 30, 1995 (Commission File No. 1-6370)).
10.6 1995 Stock Option Plan (incorporated herein by
reference to Exhibit 10.5 filed as a part of the
Company's Form 10-K for the fiscal year ended
September 30, 1995 (Commission File No. 1-6370)).
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------
10.7 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)).
10.8 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)).
10.9 Amended and Restated 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)).
10.10 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)).
10.11 Asset Purchase Agreement dated as of February 25,
1998, by and between the Company, J.P. Fragrances,
Inc., Joseph A. Pappalardo and Gloria Pappalardo
(incorporated herein by reference to Exhibit 2.1
filed as a part of the Company's Form 8-K dated
March 31, 1998 (Commission File No. 1-6370)).
10.12 Amendment to Asset Purchase Agreement dated as of
March 30, 1998, by and between the Company, J.P.
Fragrances, Inc., Joseph A. Pappalardo and Gloria
Pappalardo (incorporated herein by reference to
Exhibit 2.2 filed as a part of the Company's Form 8-K
dated March 31, 1998 (Commission File No. 1-6370)).
10.13 Lease Agreement dated as of May 4,1998, between the
Company and Mac Papers, Inc.
<PAGE>
Exhibit
Number Description
- ------- -----------------------------------------------------
27.1 Financial Data Schedule.
- ---------------
The foregoing list omits instruments defining the rights of
holders of long term debt of the Company where the total amount
of securities authorized thereunder does not exceed 10% of the
total assets of the Company. The Company hereby agrees to furnish
a copy of each such instrument or agreement to the Commission
upon request.
(b) Reports on Form 8-K.
(1) A Current Report on Form 8-K dated March 31, 1998 was
filed on April 15, 1998 reporting the JPF Acquisition
under Item 2. Acquisition or Disposition of Assets and
setting forth historical financial information for J.P.
Fragrances, Inc. and pro forma financial data for the
Company in connection with the JPF Acquisition under
Item 7. Financial Statements and Exhibits.
(2) A Current Report on Form 8-K dated April 27, 1998 was
filed on May 7, 1998 reporting on the Company's offering
of senior notes under Item 5. Other Events.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
FRENCH FRAGRANCES, INC.
Date: June 11, 1998 /s/ E. Scott Beattie
------------- -----------------------------
E. Scott Beattie
President and Chief Executive
Officer
(Principal Executive Officer)
Date: June 11, 1998 /s/ William J. Mueller
------------- -----------------------------
William J. Mueller
Vice President-Operations and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
LEASE
This lease agreement is made as of May 4, 1998 (the
"Effective Date"), by and between MAC PAPERS, INC., a Florida
corporation ("Landlord"), and FRENCH FRAGRANCES, INC., a Florida
corporation ("Tenant").
In consideration of the mutual covenants contained herein,
Landlord hereby leases and Tenant hereby accepts the portion of
the warehouse building located at 5900 N.W. 176th Street, Miami,
Florida 33169, consisting of approximately 47,700 square feet of
net usable ground floor area (the "Premises") as outlined in red
on the sketch attached hereto as EXHIBIT A (the "Sketch"),
together with the right to use that certain common area depicted
on the Sketch (the "Common Area") (the Premises and Common Area
are sometimes hereinafter referred to as the "Property"), on the
following terms and conditions:
1. TERM. The term of this lease will be for two and
one-half years beginning on May 4, 1998 (the "Commencement
Date"), and ending two and one-half years thereafter.
2. RENT.
(a) Tenant will pay Landlord on or before the fifth day
of each month rent in the amount of $21,465.00 ("base rent"). In
addition to base rent, Tenant will simultaneously pay Landlord
all applicable state and municipal sales and use tax imposed on
the rent. Payment will be made to Landlord at 3300 Philips
Highway, Jacksonville, Florida 32207, or by mail to Post Office
Box 5369, Jacksonville, Florida 32247. The time of each payment
of rent is of the essence of this lease. Tenant will also pay
Landlord a late charge equal to five percent of any payment of
rent or other sums payable hereunder that is not received within
ten (10) days after Tenant receives notice that such payment is
delinquent; provided, however, that Landlord shall only be
obligated to give two such notices in any 12-month period, and if
in any 12-month period Tenant again fails to pay rent or other
sums payable hereunder on or before the due date after two such
notices have been given by Landlord in that 12-month period,
Tenant will be obligated to pay the late charge without
Landlord's being obligated to give further notice. The base rent
shall be prorated for the first and last month of the lease term.
(b) Base rent will be increased on each anniversary of
the Commencement Date, for both the original term and any
renewal, by increases in the Index, which, for purposes of this
<PAGE>
lease, means the Consumer Price Index - United States City
Average for all Urban Consumers (computed on the basis of 1982 =
100) issued and published by the Bureau of Labor Statistics of
the United States Department of Labor. If the Index ceases to
use a 1982-84 base rate of 100 as the basis of calculation, or if
a substantial change is made in the terms of or number of items
contained in the Index, then the Index will be adjusted to the
figure that would have been arrived at had the manner of
computing the Index in effect on the date of this lease not been
altered. If the Index is not available, the term "Index" will
mean a successor or substitute index to the Index, appropriately
adjusted, or if such a successor or substitute index is not
available or may not lawfully be used for the purposes herein
stated, a reliable government or other nonpartisan publication,
selected by Landlord and approved by Tenant (which will not
unreasonable withhold or delay its approval) evaluating the
information previously used in determining the Index. Base
rent will be increased on each anniversary of the Commencement
Date to an amount equal to the lesser of (1) 105 percent of the
base rent in effect for the immediately preceding 12-month period
or (2) the greater of (aa) 103 percent of the base rent in effect
for the immediately preceding 12-month period or (bb) the product
obtained by multiplying the base rent for the immediately
preceding 12-month period by a fraction, the numerator of which
is the Index in effect for the month in which the increase is to
occur and the denominator of which is the Index in effect 12
months before the month in which the increase is to occur. For
example, on the first anniversary of the Commencement Date, since
the base rent in effect for the 12-month period immediately
preceding the increase is $21,465.00 per month, if the Index on
the Commencement Date is 150 and if the Index on the first
anniversary of the Commencement Date is 155, then the increased
base rent would be $22,180.50, which is the lesser of (1) 105
percent of $21,465.00 (or $22,538.25) or (2) the greater of (aa)
103 percent of $21,465.00 (or $22,108.95) or (bb) $21,465.00 x
155/150 (or $22,180.50).
3. TENANT'S ACCESS BEFORE COMMENCEMENT DATE. Tenant may
come on the Premises prior to the Commencement Date, upon the
full execution of this lease, Tenant's furnishing to Landlord
evidence acceptable to Landlord that the insurance required of
Tenant under paragraph 15 is in full force and effect, and
Tenant's payment to Landlord of the security deposit (as
hereinafter defined), solely to construct Tenant's improvements
described in EXHIBIT B attached hereto.
<PAGE>
4. USE; NO REPRESENTATIONS; PARKING; UTILITIES.
(a) The Premises will be used solely for general
warehousing, distribution and office use and for no other purpose
without the prior written consent of Landlord, which consent
will not be withheld unreasonably. The Premises will not be used
for any unlawful purpose or any purpose related to obscene,
pornographic, or sexually explicit materials, nor will the
Premises be used for the benefit of any competitor of Landlord.
Tenant may have no more than thirty-five (35) employees at the
Premises at any one time. Tenant shall have access to and use of
the Premises, twenty-four (24) hours per day, seven (7) days a
week, every day of the year. Tenant will not create any nuisance,
allow any nuisance to remain on the Premises, or use or permit
the use of the Premises for any illegal purpose. Tenant will at
its own cost and expense obtain any licenses and permits
necessary for its use of the Premises.
(b) Tenant acknowledges that no representations as to
the repair or condition of the Premises or agreements to remodel,
alter, or improve the Premises have been made by Landlord, except
such representations and agreements as are expressly set forth in
this lease. Sprinklers comply with applicable building code
requirements. The Premises have fans, but no heating or air
conditioning system. Notwithstanding anything to the contrary
contained in this lease, the Landlord at its sole cost and
expense shall bear the responsibility for the Property complying
with applicable zoning, and land use requirements and the
Americans with Disability Act, 42 U.S.C. ss.ss. 12101 et. seq.
(including laws, guidelines and regulations relating thereto),
all as amended (the "Governmental Requirements"), except that if
Tenant sublets the Premises or any part thereof or changes its
utilization of the Premises and the result of the subletting or
change is to require a change in the Premises to comply with the
Governmental Requirements, Tenant at its sole cost and expense
shall bear the responsibility for the Property complying with the
Governmental Requirements and shall obtain all governmental
permits and any certificates of occupancy required thereby.
(c) Landlord shall provide to Tenant thirty-two (32)
exclusive parking spaces as more particularly depicted on the
Sketch. Tenant will park its vehicles and will permit parking
of its employees' and visitors' vehicles only in the area shown
for Tenant's parking on the Sketch.
5. ASSIGNMENT BY TENANT. Tenant will not assign this
lease or sublet the Premises or any part thereof, or make any
alterations thereto exceeding $10,000.00 without the prior
written consent of Landlord, which consent will not be withheld
unreasonably; provided, however, that Landlord will not in any
event be obligated to consent to any such proposed assignment or
<PAGE>
subletting unless: (a) the proposed assignee or subtenant is of a
financial standing reasonably satisfactory to Landlord; (b) the
Premises will be used in a manner consistent with the terms of
this lease; and (c) Tenant is not in default under any of the
terms and conditions of this lease at the time of any notice for
request for consent to assignment or subletting. Landlord's
consent to assignment or subletting on one occasion does not
imply that Landlord will consent to any further assignment or
subletting. In any event, Tenant will remain liable under the
terms of this lease regardless of any assignment or subletting.
If Landlord consents to a particular assignment or subletting and
the rent for such assignment or sublease is greater than the rent
paid under this lease, then any excess rent will be split 50
percent to Tenant and 50 percent to Landlord.
6. DAMAGE OR DESTRUCTION. If the Premises are rendered
uninhabitable or are not secure (as reasonably determined by the
Tenant) because of fire or other casualty (a "Casualty") and such
Premises cannot be restored to be habitable and secure within one
hundred twenty (120) days from the date of the Casualty (as
reasonably determined by Landlord and the Tenant) then Tenant may
elect to terminate this lease by giving Landlord written notice
within fifteen (15) days after the date of Casualty. If the
Premises can be restored to be habitable and secure within one
hundred thirty-five (135) days (as reasonably determined by the
Tenant) from the date of the Casualty, then Landlord will
diligently proceed to repair and restore the Premises to
substantially the same condition that existed immediately prior
to the Casualty (the "Restoration"), excluding Tenant's personal
property and leasehold improvements performed by Tenant. If
Landlord fails to complete the Restoration within sixty (60) days
from the date of the Casualty, Tenant may terminate this lease.
If such Casualty occurs during the last eighty-nine (89) days of
the original term or during the last two hundred seventy (270)
days of the renewal term, then Landlord may elect to terminate
this lease by giving Tenant written notice within fifteen (15)
days after the date of Casualty. During any period that there is
substantial interference with Tenant's use of the Premises by
reason of a Casualty, all rent due hereunder shall be temporarily
abated in proportion to the degree of such interference.
7. CONDEMNATION.
(a) If all or any part of the Premises is permanently
taken or condemned by any competent authority for any public use
or purpose (including a deed given in lieu of condemnation) and
as a result the Premises are substantially untenantable, this
lease will terminate as of the date title vests in such authority
and rent will be apportioned as of such date.
<PAGE>
(b) If any part of the Premises is taken or condemned
for any public use or purpose (including a deed given in lieu of
condemnation) and this lease is not terminated pursuant to
subparagraph (a) above, rent will be reduced for the period of
such taking by an amount that bears the same ratio to the rent
then in effect as the number of square feet of the Premises, as
determined by the Landlord, remaining after such taking or
condemnation bears to the number of square feet of the Premises
before such taking or condemnation. Provided this lease is not
terminated pursuant to subparagraph (a) above, Landlord will
promptly use so much of the condemnation proceeds received by it
as is necessary to restore and repair the Premises to
substantially their condition immediately prior to the taking,
except for the part so taken and leasehold improvements and
personal property installed by Tenant prior to such taking.
(c) Landlord will be entitled to receive the entire
price or award from any such sale, taking, or condemnation of the
Property without any payment to Tenant and Tenant hereby
assigns to Landlord Tenant's interest, if any, in such award.
Tenant will have no claim or right to any price or award as a
result of any such sale, taking, or condemnation, except that
Tenant may claim or recover from the condemning authority a
separate award for any damages permitted by law, so long as the
award to Landlord will not be diminished thereby.
8. EVENTS OF DEFAULT. The following will constitute
"Events of Default" under this lease:
(a) failure by Tenant to pay rent or other sums payable
hereunder on or before the date due, if such failure continues
for more than ten (10) days after Tenant receives written notice
of such failure from Landlord; provided, however, that Landlord
shall only be obligated to give two such notices in any 12-month
period and if in any 12-month period Tenant again fails to pay
rent or other sums payable hereunder on or before the due date
after two such notices have been given in that 12-month period,
Tenant's failure shall constitute an Event of Default hereunder
without Landlord's being obligated to give further notice.
(b) failure by Tenant to observe or perform any of the
other material terms, covenants, agreements, or conditions
contained herein, but only if such failure continues for
thirty (30) days after Tenant receives written notice of such
failure from Landlord, or if such failure cannot be corrected
within thirty (30) days, only if Tenant fails to commence to
correct such default promptly or, having promptly commenced such
correction, fails to proceed with the correction of the same to
completion within a reasonable time;
<PAGE>
(c) the filing by Tenant of a voluntary petition in
bankruptcy or a voluntary petition or answer seeking
reorganization under the Bankruptcy Code, as amended, or under
any other insolvency act or law, state or federal, now or
hereafter existing; or any action by Tenant seeking the
appointment by consent or acquiescence of a receiver or trustee
for Tenant for all or a substantial part of its property; the
making by Tenant of any assignment for the benefit of its
creditors; or the inability of Tenant, or the admission by Tenant
of its inability, to pay its debts as they mature; or
(d) the filing of any involuntary petition against
Tenant in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts, or any other relief under the
Bankruptcy Code, as amended, or under any other insolvency act or
law, state or federal, now or hereafter existing; or the
involuntary appointment of a receiver or trustee of Tenant for
all or a substantial part of its property; or the issuance of an
attachment, execution, or other similar process against any
substantial part of the property of Tenant; and the continuation
of any of the foregoing for a period of sixty (60) days
undismissed, unbonded, or undischarged.
9. LANDLORD'S REMEDIES. Upon the occurrence of any Event
of Default, Landlord may pursue any one or more of the following
remedies, in addition to any other remedies provided under this
lease, at law or in equity, separately or concurrently or in any
combination, without any notice (except as specifically provided
herein) or demand whatsoever and without prejudice to any other
remedy that it may have for possession of the Premises or for
arrearages in rent or other amounts payable to Landlord:
(a) Landlord may terminate this lease by giving Tenant
written notice of termination, in which event Tenant will
immediately quit and vacate the Premises and deliver and
surrender possession of the Premises to Landlord, and this lease
will be terminated at the time designated by Landlord in the
notice of termination to Tenant; provided, however, that no
termination of this lease before the normal expiration hereof
will affect Landlord's right to collect rent for the period
before termination.
(b) With or without terminating this lease, Landlord
may enter upon and peaceably take possession of the Premises, and
expel or remove Tenant and any other person who may be occupying
the Premises.
(c) Landlord may re-let the Premises or any part
thereof, on such terms and conditions as Landlord may deem
satisfactory, and receive the rent for any such re-letting, in
which event Tenant will pay to Landlord on demand any deficiency
that may arise by reason of such re-letting; provided, further
<PAGE>
that Tenant will pay over to Landlord on demand any and all
costs and expenses incurred in re-letting the Premises (including
brokerage and attorneys' fees) and in renovating or altering the
Premises to make them suitable for re-letting.
(d) Landlord may declare all rent and other sums due
on or to become due under this lease to be immediately due and
payable; provided, however, that such payments will not
constitute a penalty or forfeiture or liquidated damages, but
will merely constitute payment in advance of the rent for the
remainder of the term of this lease. Landlord will make
reasonable attempts to re-let the Premises. If Landlord re-lets
the Premises, any rent received applicable to periods for which
Landlord has previously collected rent from Tenant will be
credited and repaid to Tenant after deducting all of Landlord's
reasonable expenses relating to such re-letting.
(e) Amounts due to Landlord and arising out of
Tenant's default will bear interest at the highest rate allowed
by law.
10. HAZARDOUS SUBSTANCES. Tenant covenants not to
introduce any hazardous or toxic materials onto the Premises
without first obtaining Landlord's written consent and complying
with all applicable federal, state, and local laws or ordinances
pertaining to the transportation, storage, use, or disposal of
such materials, including but not limited to obtaining proper
permits. Landlord acknowledges that Tenant's use of the Premises
shall include the storage of perfume and cologne products,
however, Tenant agrees that its use shall not include the pouring
or mixing of such perfume and cologne products or the opening of
the watertight containers in which such products arrive at the
Premises. If Landlord permits Tenant to introduce any such
hazardous or toxic materials onto the Premises, Tenant shall
promptly upon request of Landlord reimburse Landlord for any
increase in Landlord's property insurance premiums caused by
Tenant's introducing such materials onto the Premises. If
Tenant's transportation, storage, use, or disposal of hazardous
or toxic materials on the Premises, or that of its employees,
agents, or contractors, or invitees results in contamination of
the soil or surface or ground water or loss or damage to persons
or property, then Tenant agrees: (a) to notify Landlord
immediately of any contamination, claim of contamination, loss,
or damage; (b) after consultation and approval by Landlord, to
clean up the contamination in full compliance with all applicable
statutes, regulations, and standards; and (c) to indemnify,
defend, and hold Landlord, its successors and assigns, harmless
from and against any claims, suits, causes of action, costs, and
fees, including reasonable attorneys' fees, arising from or
connected with any such contamination, claim of contamination,
loss, or damage. This provision will survive termination of this
lease.
<PAGE>
11. LITIGATION COSTS. Any other provision of this lease to
the contrary notwithstanding, in any litigation arising out of or
relating to this lease, the prevailing party will be entitled to
recover from the other party its costs and expenses of such
litigation, including without limitation reasonable attorneys'
fees.
12. TRASH REMOVAL, JANITORIAL SERVICE, UTILITIES. Tenant
agrees to pay all charges for trash removal and janitorial
service used on the Premises. Landlord shall establish separate
meters or submeters, as necessary, and Tenant shall pay all
utility charges, including, without limitation to water, sewer,
gas, electricity, fuel, light, and heat bills for the Premises.
If Tenant does not pay any of the same, Landlord may pay the same
and such payment shall be added to the rental of the Premises as
additional rent which shall become due and payable at the time
the next monthly installment of base rent is due and payable.
13. LANDLORD'S AND TENANT'S MAINTENANCE OBLIGATIONS.
Landlord will maintain the building structure, roof, exterior
walls, and fire prevention sprinkler system of the Premises, and
the paving and landscaping around the building in which the
Premises are located, in good condition and repair. Tenant will
maintain the fans, dock levelers, exterior doors and windows, and
the interior of the Premises in good condition and repair,
including without limitation the concrete floor, inside walls,
ceiling, any floor coverings, and the mechanical, electrical, and
plumbing systems, including without limitation all portions of
such systems in or under the floor, except for those repairs
required to be made by Landlord hereunder. In maintaining the
fans, dock levelers, and exterior roll-up doors, Tenant shall, at
Tenant's option, either handle such maintenance with its
in-house maintenance staff, contract for such maintenance with a
maintenance company acceptable to Landlord under a contract
acceptable to Landlord, or permit the performance of such
maintenance by the maintenance company that maintains for
Landlord the other fans, dock levelers, and exterior roll-up
doors in the building in which the Premises are located and
promptly reimburse Landlord as additional rent for Landlord's pro
rata cost of such maintenance upon receipt of a bill therefor
from Landlord. Tenant will also (a) maintain and replace lights
and expendable items such as fire extinguishers; (b) maintain any
telephone systems, alarm systems, security features, signs,
storage systems, or other systems, equipment, or improvements
installed by Tenant; and (c) remove all trash from the portion
designated for use by Tenant of the parking lot around the
building in which the Premises are located. Tenant will also
reimburse Landlord for any costs incurred by Landlord and arising
<PAGE>
out of or related to damage to the Premises, the building in
which the Premises are located, or landscaping or other
improvements on Landlord's land on which that building is
situated, arising at any time after Tenant or its agents or
employees first come on the Premises as permitted in paragraph 3
and caused by the failure of Tenant to comply with its
obligations under this lease or by the willful act or negligence
of anyone other than Landlord or its employees. Upon any
termination of this lease, Tenant will surrender possession of
the Premises in good condition and repair, reasonable wear and
tear excepted, and remove any systems, security features, signs,
equipment, or improvements installed by Tenant except for any
of the same that Landlord permits Tenant to leave on the
Premises. Tenant will repair any damage to the Premises caused
by such removal. If Tenant attaches any improvements to the
floor or walls with bolts, when Tenant removes such improvements
it shall also remove the bolts and repair the floor or wall to
its condition before such attachment. If Tenant fails to
maintain the Premises as herein required, Landlord may, but is
not obligated to, perform such maintenance on behalf of Tenant,
after giving Tenant written notice of its intent to do so, and
bill Tenant for the cost thereof as additional rent.
14. TAXES. This lease constitutes a "gross lease" and
accordingly Landlord shall be responsible for the payment of all
real estate taxes and assessments, building insurance, building
operating expenses and common area expenses. Tenant shall pay
all taxes assessed against Tenant's inventory and other personal
property, and leasehold improvements and personal property
installed by Tenant.
15. INSURANCE. Tenant at its own cost and expense will
obtain and maintain in force throughout the term of this lease
comprehensive general liability insurance in an amount not less
than $2,000,000 for any one occurrence of bodily injury or
property damage, naming Landlord an additional insured. Tenant
will, at its own cost and expense, obtain and keep in force
during the term of this lease insurance coverage on its
improvements, fixtures, furnishings, equipment, and inventory
that are in and upon the Premises for the full replacement value
thereof. In no event shall Landlord have any liability to Tenant
because of any loss of or damage to any of Tenant's improvements,
fixtures, furnishings, equipment, or inventory on or about the
Premises unless such loss or damage is caused by the failure of
Landlord to comply with its obligations under this lease or by
the willful act or negligence of Landlord or its agents,
employees, or invitees. All such policies will be procured by
Tenant from responsible insurance companies reasonably
<PAGE>
satisfactory to Landlord. An insurance certificate evidencing
such policies, together with receipt evidencing payments of
premiums therefor, will be delivered to Landlord prior to the
Commencement Date. Not less than fifteen (15) days before the
expiration date of any such policies, an insurance certificate
evidencing the renewals thereof (bearing notations evidencing the
payment of renewal premiums) will be delivered to Landlord. Such
policies will further provide that not less than thirty (30)
days' prior written notice shall be given to Landlord before such
policy may be canceled or changed to reduce insurance provided
thereby. Landlord will at its cost and expense maintain hazard
insurance covering the Premises for the full replacement value
thereof. All such policies will be procured by Landlord from
responsible insurance companies reasonably satisfactory to
Tenant. Tenant hereby approves Royal Insurance Company. If
Tenant fails to obtain any insurance required under the terms of
this lease, Landlord may, but is not obligated to, obtain such
insurance on behalf of Tenant and bill Tenant for the cost
thereof as additional rent. Tenant will hold Landlord harmless
from any liability for loss or damage to persons or property
occurring from the use of the Premises unless such loss or damage
arises out of the Landlord's negligence or breach of Landlord's
obligations under this lease.
16. LANDLORD'S RIGHT TO ENTER. So long as such entry does
not unnecessarily disturb Tenant in the conducting of its
business and occurs after Landlord gives Tenant reasonable prior
notice, Landlord, or any of Landlord's agents, will have the
right to enter the Premises accompanied by an authorized Tenant
representative during all reasonable hours, to examine the same
to make such repairs, additions, or alterations as may be deemed
necessary for the safety, comfort, or preservation thereof or of
any building or other structure, or to exhibit the Premises and
to put or keep upon the doors or windows or other part thereof a
notice "FOR RENT" at any time within ninety (90) days before the
expiration of this lease or a notice "FOR SALE" at any time
during the term of this lease; such notices will be in good taste
and not a distraction to any Tenant's signage permitted by
Landlord. In the event of an emergency, Landlord shall be
entitled to enter the Premises and take all steps reasonably
necessary to handle such emergency.
17. ACCEPTANCE OF PREMISES; TENANT IMPROVEMENTS; TENANT
SIGNAGE. Landlord represents, warrants and certifies to Tenant
that the Property complies with all applicable building codes,
laws and regulations, and will comply with Tenant's contemplated
use as described in EXHIBIT C after Landlord completes the
improvements referred to in EXHIBIT C. Tenant hereby accepts the
<PAGE>
Premises in their current condition, except for the improvements
to be made by Landlord described in EXHIBIT C. Tenant may at its
own cost and expense construct tenant improvements as described
in EXHIBIT B attached hereto. Tenant shall not place any sign on
the outside of the building in which the Premises are located
without the prior written consent of Landlord, which consent
shall not be withheld unreasonably. Any and all signs placed on
the Premises or the outside of the building on which the Premises
are located by Tenant shall be maintained in compliance with all
governmental rules and regulations applicable to such signs and
the Tenant shall be responsible to Landlord for any damage caused
by installation, use, or maintenance of said signs. Tenant
agrees upon removal of said signs to repair all damage incidental
to such removal.
18. LANDLORD IMPROVEMENTS. Landlord shall at its own cost
and expense construct improvements as described in EXHIBIT C
attached hereto. Until such improvements have been completed,
Tenant's employees shall have access to and the use of the
restrooms in Landlord's adjacent facility twenty-four (24) hours
per day from 12:01 a.m Monday through 11:59 p.m. Friday of each
week. If such improvements are not completed within seventy-five
(75) days after the Effective Date, base rent will be reduced by
$50.00 per day from the seventy-fifty (75th) day after the
Effective Date until the improvements are completed. If the
improvements are not completed within one hundred twenty (120)
days after the Effective Date, Tenant may at its option terminate
this lease by giving notice of such termination to Landlord and
rent will be apportioned as of the day Tenant relinquishes the
Premises.
19. POSSESSION QUIET ENJOYMENT. Landlord covenants that
Tenant will have quiet, peaceful, and uninterrupted possession of
the Premises so long as Tenant keeps and performs all of the
material covenants and obligations of this lease on the part of
Tenant to be performed, subject to the other conditions and
provisions set forth herein. Landlord represents and warrants to
Tenant that the owner of the Property is McGehee Realty of Miami,
Ltd., a Florida limited partnership ("Owner"), and that the
Landlord occupies the Premises pursuant to that certain Lease
between Owner and Landlord dated September 5, 1997 (the "Prime
Lease"). Landlord represents and warrants to Tenant that neither
the Premises nor the Common Area is encumbered by any mortgage
nor any other instrument that would preclude Tenant from using
the Premises for the purposes contemplated by this lease.
20. TIME OF THE ESSENCE. Time is of the essence of this
lease and this applies to all terms and conditions contained
herein.
<PAGE>
21. NOTICE. All notices under this lease will be in
writing and will be hand delivered or sent by certified mail,
return receipt requested, or by Federal Express or other
overnight delivery service requiring a receipt, and will be sent
to the following respective addresses:
To Landlord:
Mac Papers, Inc.
Attention: F. Sutton McGehee, Jr.
3300 Philips Highway
Jacksonville, Florida 32207
or
Post Office Box 5369
Jacksonville, Florida 32247
With a copy to:
Martin, Ade, Birchfield & Mickler, P.A.
Attention: Timothy A. Burleigh
One Independent Drive, Suite 3000
Jacksonville, Florida 32202
To Tenant:
French Fragrances, Inc.
Attention: Oscar Marina, Jr.
14100 N. W. 60th Avenue
Miami Lakes, Florida 33014
With a copy to:
Adams, Gallinar, Iglesias & Meyer
Attention: Michael D. Gallinar, Esq.
701 Brickell Avenue, Suite 2150
Miami, Florida 33172
Notice will be complete upon receipt. Either party may change
its address for notices by giving the other party notice as
provided herein.
22. REMEDIES CUMULATIVE. The rights of the parties
hereunder will be cumulative and will be in addition to any and
all other rights and remedies available to them at law or in
equity and failure on the part of either to exercise promptly any
rights given hereunder will not operate to forfeit any of the
said rights.
<PAGE>
23. LEASE NOT TO BE RECORDED. Neither party will record
this lease in the public records of the county in which the
Premises are located.
24. BROKER'S COMMISSIONS. Tenant warrants and represents
to Landlord that it has had no dealings with any real estate
broker or agent in connection with this lease other than
Rafael A. Villamizar of Cushman & Wakefield of Florida, Inc., and
Tenant covenants to pay, hold harmless, and indemnify Landlord
from and against any and all costs, expenses, liabilities
(including reasonable attorneys' fees), causes of action, claims,
or suits in connection with any compensation, commission, fee, or
charges claimed by any other real estate broker or agent with
respect to this lease or the negotiation thereof, arising out of
any act of Tenant. Landlord warrants and represents to Tenant
that it has had no dealings with any real estate broker or agent
in connection with this lease other than Chris B. Spaulding of
The Prudential Florida Realty, and Landlord covenants to pay,
hold harmless, and indemnify Tenant from and against any and all
costs, expenses, liabilities (including reasonable attorneys'
fees), causes of action, claims, or suits in connection with any
compensation, commission, fee, or charges claimed by any other
real estate broker or agent with respect to this lease or the
negotiation thereof, arising out of any act or Landlord.
25. OPTION TO RENEW. Tenant may, at Tenant's option, and
provided that Tenant is not in default of any of the material
terms of this lease, extend the term of this lease for one
renewal period of two and one-half years, this option to be
exercised by Tenant by giving written notice to Landlord at least
ninety (90) days before the expiration of the original term of
this lease. During the renewal period, the provisions of this
lease will remain the same, including the provisions of paragraph
2 for increases of base rent.
26. HOLDING OVER. Tenant will, at the termination of this
lease by lapse of time or otherwise, yield up immediate
possession to Landlord. If Landlord agrees in writing that
Tenant may hold over after the expiration or termination of this
lease, unless the parties hereto otherwise agree in writing on
the terms of such holding over, the hold over tenancy will be
subject to termination by Landlord or Tenant at any time upon not
less than thirty (30) days' advance written notice, and all of
the other terms and provisions of this lease will be applicable
during that period, except that Tenant will pay Landlord from
time to time upon demand, as rental for the period of any hold
over, an amount equal to one and one-half times the rent in
effect on the termination date, computed on a daily basis for
<PAGE>
each day of the hold over period. No holding over by Tenant,
whether with or without consent of Landlord, will operate to
extend this lease except as otherwise expressly provided. The
preceding provisions of this paragraph will not be construed as
Landlord's consent for Tenant to hold over.
27. LANDLORD'S LIABILITY. Landlord will not be liable to
Tenant or Tenant's employees, agents, patrons, visitors, or any
other person whomsoever, for any injury to person or damage to
property on or about the Premises, unless such injury or damage
results from or is caused by the failure of Landlord to comply
with its obligations under this lease or the willful act or
negligence of Landlord or its employees. Tenant hereby covenants
and agrees that it will at all times indemnify, defend (with
counsel approved by Landlord), and hold safe and harmless
Landlord (including without limitation its partners if Landlord
is a partnership), and Landlord's officers, agents, employees,
contractors, and invitees from any loss, liability, claims,
suits, costs, expenses, including without limitation attorneys'
fees and damages, both real and alleged, arising out of any
injury to person or damage to property on or about the Premises
other than that for which Landlord is liable hereunder.
Notwithstanding anything to contrary contained in this lease,
Tenant agrees and understands that Tenant will look solely to the
estate and property of Landlord in the building on the Premises
for the enforcement of a judgment (or other judicial decree)
requiring the payment of money by Landlord to Tenant by reason of
default or breach of Landlord in performance of its obligations
under this lease, it being intended that there will be absolutely
no personal liability on the part of Landlord, or its successors
or assigns, with respect to any of the terms, covenants, and
conditions of this lease, and no other assets of Landlord will be
subject to levy, execution, attachment, or any other legal
process for the enforcement or satisfaction of the remedies
pursued by Tenant in the event of such default or breach, this
exculpation of liability to be absolute and without exception
whatsoever.
28. SECURITY DEPOSIT. Tenant will pay to Landlord on or
before the execution date hereof the sum of $21,465.00 to be held
by Landlord as security for the performance by Tenant of all
obligations imposed on Tenant pursuant to this lease (the
$21,465.00 plus all interest thereon shall be referred to
collectively as the "security deposit"). Landlord may commingle
the security deposit with its other funds. Landlord will not be
required to apply all or any portion of the security deposit with
respect to any particular violation or default by Tenant. Tenant
will reimburse Landlord for such portions of the security deposit
<PAGE>
as Landlord from time to time applies with respect to any
violation by Tenant hereunder promptly upon written notice of
such application by Landlord. Any portion of the security
deposit which has not been appropriated by Landlord in accordance
with the provisions hereof will be returned to Tenant only after
the expiration of the full stated term of this lease, including
any renewal term, if Tenant exercises its option therefor, or
earlier if this lease is terminated by Landlord prior thereto in
accordance with its provisions; it being the intention of the
parties that in the event of such termination by Landlord, such
sum of money shall secure Landlord not only as to default by
Tenant prior to such termination but also as to any deficiency of
rent or other charges for which Tenant is liable hereunder
arising or made known to Landlord after such termination. If
Landlord conveys Landlord's interest under this lease, the
security deposit, or any part thereof not previously applied, may
be released by Landlord to Landlord's grantee, and if so
released, Tenant agrees to look solely to such grantee for the
proper application and return thereof in accordance with the
terms of this paragraph. Tenant agrees that Tenant will not
assign, and that neither Landlord, nor its successors and
assigns, will be bound by any such assignment, encumbrance,
pledge, attempted assignment, attempted pledge, or attempted
encumbrance of the security deposit. Any mortgagee will not be
responsible to Tenant for the return or application of the
security deposit, whether or not it succeeds to the position of
Landlord hereunder, unless the security deposit is received in
hand by such mortgagee.
29. RADON GAS. Radon gas is a naturally occurring
radioactive gas that, when it has accumulated in a building in
sufficient quantities, may present health risks to persons who
are exposed to it over time. Levels of radon that exceed federal
and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be
obtained from your county public health unit.
30. MISCELLANEOUS.
(a) Words of any gender used in this lease will be
held and construed to include any other gender, and words in the
singular number will be held to include the plural, unless the
context otherwise requires.
(b) The terms, provisions, covenants, and conditions
contained in this lease shall apply to, inure to the benefit of,
and be binding upon the parties hereto and upon their respective
heirs, legal representatives, successors, and permitted assigns,
except as otherwise herein expressly provided. Landlord may
assign any of its rights and obligations under this lease. Each
<PAGE>
party agrees to furnish to the other, promptly upon demand, a
resolution, or other appropriate documentation evidencing the due
authorization of such party to enter into this lease.
(c) The captions inserted in this lease are for
convenience only and in no way define, limit, or otherwise
describe the scope or intent of this lease, or any provision
hereof, or in any way affect the interpretation of this lease.
(d) Tenant agrees from time to time, within ten (10)
days after request of Landlord, to deliver to Landlord, or
Landlord's designee, an estoppel certificate stating, if such
be the case, that this lease is in full force and effect, the
date to which rent has been paid, the unexpired term of this
lease, and such other matters pertaining to this lease as may be
requested by Landlord. It is understood and agreed that Tenant's
obligation to furnish such estoppel certificates in a timely
fashion is a material inducement for Landlord's execution of this
lease.
(e) This lease may not be altered, changed, or amended
except by an instrument in writing signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully
performed as of the expiration or earlier termination of the term
of this lease will survive the expiration or earlier termination
of the term hereof, including, without limitation, all payment
obligations concerning the condition of the Premises. Upon the
expiration or earlier termination of the term hereof, and before
Tenant vacates the Premises, Tenant will pay to Landlord any
amount reasonably estimated by Landlord as necessary to put all
portions of the Premises required to be maintained by Tenant
hereunder in good condition and repair, to remove any
improvements that Tenant is obligated to remove but fails to
remove, and to repair any damage caused to the Premises by the
removal of any improvements that Tenant is obligated to remove.
Tenant will also, before vacating the Premises, pay to Landlord
the amount, as estimated by Landlord, of Tenant's obligation
hereunder for real estate taxes and insurance premiums for the
year in which the lease expires or terminates. All such amounts
will be used and held by Landlord for payment of such obligations
of Tenant hereunder, with Tenant being liable for any additional
costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been
determined and satisfied, as the case may be. Any security
deposit held by Landlord will be credited against the amount
payable by Tenant under this paragraph.
(g) If Landlord transfers its interest in the
Premises, Landlord will be released from all obligations and
liabilities under the terms of this lease accruing subsequent to
the date of such transfer. If a transferee agrees to assume the
obligations and liabilities of Landlord under the lease accruing
<PAGE>
before the date of the transfer, Landlord will be released from
all obligations and liabilities under this lease.
(h) If any clause or provision of this lease is
illegal, invalid, or unenforceable under present or future laws
effective during the term of this lease, it is the intention of
the parties that the remainder of this lease will not be affected
thereby, and it is also the intention of the parties that in lieu
of each clause or provision of this lease that is illegal,
invalid, or unenforceable, there be added as a part of this lease
a clause or provision as similar in terms of such illegal,
invalid, or unenforceable clause or provision as may be possible
and be legal, valid, and enforceable.
(i) Landlord will not be in default in the performance
of any of Landlord's obligations hereunder unless and until
Landlord fails to perform such duties or obligations within
twenty (20) days after Landlord receives written notice of such
failure, or if such failure cannot be cured within twenty (20)
days, if Landlord fails to commence such cure within twenty (20)
days after receiving such notice, or having timely commenced such
cure fails to prosecute the same to completion diligently.
Neither party shall have any liability for any incidental or
consequential damages of the other party, or anyone claiming by
through or under the other party, for any reason whatsoever.
Each party, for itself and for any party claiming by, through,
or under that party, waives any claim that it might otherwise
have against the other party, its partners, officers, and
directors, for punitive damages.
(j) If Landlord defaults in the performance of
Landlord's obligations hereunder, the holder of a mortgage that
encumbers the Premises will have the right, but not the
obligation, to perform or comply with any covenants, agreements,
and provisions violated in connection with such default.
(k) The undersigned officer of Tenant does hereby
warrant and certify to Landlord that Tenant is a corporation,
validly existing under the laws of the State of Florida. The
undersigned officer of Tenant hereby further warrants and
certifies to Landlord that such officer is authorized and
empowered to bind Tenant to the terms of this lease by such
officer's signature hereto.
(l) Although the printed provisions of this lease were
drafted by Landlord, such fact shall not cause this lease to be
construed either for or against Landlord or Tenant.
(m) The parties acknowledge that this lease contains a
complete expression of the agreement between the parties hereto
on the subjects herein set forth and that there are no promises,
representations, or inducements except such as are provided in
this lease. Neither party, nor any party claiming by, through,
or under either party, will be entitled to rely upon any prior or
<PAGE>
contemporaneous agreement, understanding, or statement that is
not evidenced by this lease. All prior agreements, arrangements,
understandings, and negotiations between the parties with respect
to the subject matters hereof are merged into this lease.
(n) Any Landlord approval or consent required under
this lease shall not be unreasonably withheld or delayed by the
Landlord.
IN WITNESS WHEREOF, the parties hereto have hereunto
executed this instrument for the purposes herein expressed, the
day and year first above written.
LANDLORD:
MAC PAPERS, INC.
/s/John W. Brent By:/s/ F. SUTTON MCGEHEE, JR.
- ------------------------------ --------------------------
Printed Name: John W. Brent Name: F. Sutton McGehee, Jr.
Title: President
/s/Linda B. Mickler
- ------------------------------
Printed Name: Linda B. Mickler
As to Landlord [CORPORATE SEAL]
TENANT:
FRENCH FRAGRANCES, INC.
/s/ William J. Mueller By:/s/ Oscar E. Marina
- -------------------------------- --------------------------
Printed Name: William J. Mueller Name: Oscar E. Marina
Title: Vice President
/s/ Ana M. Chavez
- --------------------------------
Printed Name: Ana M. Chavez
As to Tenant [CORPORATE SEAL]
<PAGE>
JOINDER
The Owner, after reviewing and approving the terms and conditions
of this lease, has joined in the execution of this lease in order
to acknowledge and confirm the following:
(i) a true and correct copy of the Prime Lease has been
delivered to Tenant and there are no defaults existing
under said Prime Lease;
(ii) Notwithstanding anything contained in the Prime Lease,
the Owner consents to the transaction contemplated by
this lease, and;
(iii) Notwithstanding any default under, modification to or
termination of the Prime Lease, Owner agrees that
Tenant may continue its occupancy and use of the
Premises in accordance with the terms of this lease,
so long as Tenant continues to pay rent and otherwise
perform its obligations under this lease.
OWNER:
MCGEHEE REALTY OF MIAMI, LTD.
/s/ By: Asbury Realty Company, its
- ------------------------- general partner
Printed Name:
/s/ By: /s/ F. Sutton McGehee, Jr.
- ------------------------- --------------------------
Printed Name: F. Sutton McGehee, Jr.
As to Owner
<PAGE>
EXHIBIT A
Sketch of the Premises
and Tenant's Parking Area
<PAGE>
EXHIBIT B
Tenant Improvements
Tenant, at its own cost and expense, may make certain
improvements to the Premises, but only after the plans and
specifications therefor (including without limitation the method
used to attach improvements to the floor or walls with bolts)
have been approved in writing by Landlord. The improvements
shall consist of installation of racking, construction of minimal
office space, and installation of shutters on the glass entry
features, including the door. In addition, Tenant may, at its
sole cost and expenses, install alarm and telephone systems and
secure the perimeter of the inside of the Premises. All such
improvements will be performed in a good and workmanlike manner
and will comply fully with all applicable mechanics' lien laws,
building codes and laws, and other governmental requirements,
including the requirements for licensing of contractors and
obtaining building permits. Before commencing any work, Tenant
will submit to Landlord copies of all required permits. Tenant
will indemnify Landlord and hold Landlord harmless from any and
all claims for mechanics', materialmen's, or other liens in
connection with improvements made by Tenant, and any such liens
will exist only against Tenant's leasehold interest, and not
against Landlord's interest. Landlord reserves the right to
approve all contractors hired by Tenant; such approval will not
be withheld unreasonably.
<PAGE>
EXHIBIT C
Landlord Improvements
Landlord, at its own cost and expense, will make the
following improvements to the Premises:
Installation of sufficient improvements to meet the
Governmental Requirements for seven to 20 employees of Tenant
(including without limitation two restrooms), not to include any
improvements for office space.
Such improvements will be substantially completed not later
than sixty (60) days after Landlord acquires all of the permits
and other governmental authorizations necessary for the
construction of such improvements, it being understood that
Landlord will use its reasonable best efforts to obtain such
permits and authorizations as soon as practicable.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> APR-30-1998
<CASH> 4,930,066
<SECURITIES> 0
<RECEIVABLES> 69,014,869
<ALLOWANCES> 2,258,678
<INVENTORY> 112,448,318
<CURRENT-ASSETS> 194,607,793
<PP&E> 23,325,135
<DEPRECIATION> 3,272,085
<TOTAL-ASSETS> 273,111,444
<CURRENT-LIABILITIES> 34,751,849
<BONDS> 178,718,931
0
7,830
<COMMON> 137,936
<OTHER-SE> 59,494,898
<TOTAL-LIABILITY-AND-EQUITY> 273,111,444
<SALES> 46,546,294
<TOTAL-REVENUES> 46,546,294
<CGS> 33,229,130
<TOTAL-COSTS> 42,570,675
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (210,000)
<INTEREST-EXPENSE> 3,566,005
<INCOME-PRETAX> 486,999
<INCOME-TAX> 183,257
<INCOME-CONTINUING> 303,742
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