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PROSPECTUS SUPPLEMENT DATED JANUARY 12, 2001 Rule 424(b)(3)
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(To the Prospectus dated September 10, 1999) File No. 333-85943
1,285,000 Shares
FRENCH FRAGRANCES, INC.
Common Stock
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PLEASE SEE THE "RISK FACTORS" BEGINNING ON THIS PAGE THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE SHARES WE ARE REGISTERING IN
CONNECTION WITH THIS PROSPECTUS.
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RECENT DEVELOPMENTS
ACQUISITION OF THE ASSETS RELATING TO THE ELIZABETH ARDEN PRESTIGE FRAGRANCE,
COSMETICS AND SKIN CARE LINES AND THE ELIZABETH TAYLOR AND WHITE SHOULDERS
LINES.
On October 30, 2000, we entered into a definitive agreement with an
affiliate of Unilever, N.V. ("Unilever") to acquire certain assets and to
assume certain liabilities relating to the Elizabeth Arden prestige fragrance,
cosmetics and skin care lines and the Elizabeth Taylor and White Shoulders
prestige fragrance lines (the "Elizabeth Arden business"). In connection with
the consummation of this acquisition, we will enter into agreements with
affiliates of Unilever related to product distribution, manufacturing,
transition services and information technology services. The purchase price
is expected to consist of approximately $190 million cash and $50 million
liquidation preference of a new series of our convertible preferred stock.
The transaction has been approved by our board of directors and the board
of directors of Unilever and is subject to customary closing conditions.
While neither party's shareholders are required to approve the transaction, at
a special shareholders meeting held on January 3, 2001, our shareholders
approved certain issuances of our common stock upon conversion of the
convertible preferred stock to be included, and the exercise of certain
warrants that may be included, as part of the purchase price. At such
meeting, the shareholders also approved an amendment to our Amended and
Restated Articles of Incorporation to change our company's name to Elizabeth
Arden, Inc., subject to completion of the acquisition. At the shareholders
meeting, the shareholders also approved our 2000 Stock Incentive Plan and
amendments to our Non-Employee Director Stock Option Plan.
On January 8, 2001, we announced that we are proposing to make an
offering of $160 million principal amount of senior secured notes. The notes
are expected to bear a fixed rate, payable semiannually and to mature in 2011.
The net proceeds of the notes offering together with borrowings under a new
$175 million revolving credit facility are expected to be used to finance the
acquisition together with related costs and expenses. The notes will not be
registered under the Securities Act of 1933, as amended, and may not be
offered or sold in the United States absent registration or an applicable
exemption from registration requirements of this act. There is no guarantee
that we will obtain the requisite financing or that Unilever and we will be
able to satisfy all of the closing conditions. Accordingly, there is no
assurance that the acquisition will be consummated.
RISK FACTORS
The Risk Factors set forth on pages 3 to 6 of the Prospectus dated
September 10, 1999 are updated as follows:
OUR SUBSTANTIAL DEBT COULD IMPAIR OUR FINANCIAL CONDITION AND OUR ABILITY TO
FULFILL OUR DEBT OBLIGATIONS.
We have a significant amount of long-term debt and interest payment
obligations, and we will incur a significant amount of indebtedness in
connection with the acquisition of the Elizabeth Arden business. Our
substantial indebtedness could have important consequences to our business.
For example, it could:
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- make it more difficult for us to satisfy our debt obligations;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital
expenditures, and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and other general corporate requirements;
- limit our flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors
that have less debt; and
- limit, along with the financial and other restrictive covenants in
our indebtedness, among other things, our ability to borrow additional
funds and pay dividends. Moreover, failing to comply with those
covenants could result in an event of default which, if not cured or
waived, could have a material adverse effect on us.
Our future cash flow may be insufficient to meet our debt payment
obligations. Our ability to pay or to refinance our indebtedness will depend
upon our future operating performance, which will be affected by general
economic, financial, competitive, legislative, regulatory, business and other
factors beyond our control.
If we are unable to meet our debt service obligations, we could be forced
to restructure or refinance our indebtedness, seek additional equity capital
or sell assets. We may be unable to obtain financing or sell assets on
satisfactory terms, or at all.
In addition, subject to the restrictions and limitations contained in our
new credit facility, the indenture governing the senior secured notes and our
existing indentures, we may incur significant additional indebtedness, which
could adversely affect our operating cash flow and our ability to service
indebtedness.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR GROWTH AND INTEGRATE OUR
ACQUISITIONS, INCLUDING THE ACQUISITION OF THE ELIZABETH ARDEN BUSINESS.
To be successful, our management must anticipate on a timely basis the
changing and increasing demands of our growing operations and implement
appropriate operating procedures and systems. There is no assurance that our
management will be able to do so. If we complete the acquisition of the
Elizabeth Arden business, our size and geographic scope of operations will
increase significantly. Our ability to integrate the Elizabeth Arden business
with our existing business will determine, to a significant extent, the future
success of our business. Our integration strategies are subject to numerous
conditions beyond our control, including the possibility of adverse general
and regional economic conditions, general negative industry trends and
competition. We may be unable to achieve the anticipated synergies from this
acquisition or any other acquisition.
The successful integration of the Elizabeth Arden business will require
us to, among other things, attract and hire key employees from the Elizabeth
Arden business. These employees may decide not to work for us. Our future
performance will depend, in part, on our ability to successfully integrate
these new employees into our company. Our failure to hire these new employees
could disrupt our ongoing business.
We have not previously undertaken an acquisition of this size and
complexity. As a result, we will need to determine the extent to which our
management information systems are compatible with those of the Elizabeth
Arden business and implement any modifications necessary to successfully
integrate the two systems. As a result, the Arden acquisition will require
additional attention from, and place substantial demands upon, our senior
management, which may divert their attention from and make it more difficult
for them to manage our business.
BECAUSE OUR ARRANGEMENTS WITH OUR MANUFACTURERS, SUPPLIERS OR CUSTOMERS ARE
GENERALLY INFORMAL, WE MAY BE SUBJECT TO INCREASED COSTS, DELAYS OR OTHER
DISRUPTIONS TO OUR BUSINESS IF THESE ARRANGEMENTS WERE CHANGED OR TERMINATED.
We do not have long-term or exclusive contracts with any of our customers
and generally do not have long- term or exclusive contracts with our
manufacturers or suppliers. Our suppliers of distributed brands generally
can, at any time, elect to supply products to our customers directly or
through another distributor. Our suppliers of distributed brands may also
choose to reduce or eliminate the volume of their products distributed by us.
If we were to lose any of our key suppliers or customers, or if our
relationship with any one of them were to change, our revenues and growth
could suffer.
We do not own or operate any significant manufacturing facilities. We
use third-party manufacturers and suppliers to manufacture certain of our
products. We currently obtain these products from a limited number of
manufacturers and other suppliers. If we were to experience delays in the
delivery of the finished products or the raw materials or components used to
make such products, our reputation and ability to generate revenues could
suffer.
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IF WE ARE UNABLE TO SECURE ADDITIONAL BRANDS OR DISTRIBUTION ARRANGEMENTS, THE
GROWTH OF OUR BUSINESS COULD BE IMPAIRED.
Our business strategy contemplates the continued increase of our
portfolio of owned or licensed brands and distributed brands. Currently, we
have no agreements or commitments to obtain additional brands (other than
those included in the Arden acquisition) or to enter into exclusive or
non-exclusive distribution arrangements. We may be unsuccessful in
identifying, negotiating and consummating such acquisitions or arrangements on
terms acceptable to use, or at all, which could hinder our ability to increase
revenues and build our business.
IF WE ARE UNABLE TO SECURE ADDITIONAL WORKING CAPITAL IN THE FUTURE, OUR
IMPLEMENTATION OF OUR BUSINESS PLAN MAY BE IMPAIRED AND OUR GROWTH MAY BE
HINDERED.
Our working capital requirements have been and will continue to be
significant. To date, we have financed and expect to continue to finance our
working capital requirements primarily through internally generated funds and
our credit facility. Excluding additional working capital requirements that
may result from future acquisitions or new product distribution arrangements,
we believe that internally-generated funds and financing available under our
credit facility will be sufficient to fund our working capital needs for at
least the next twelve months. Our future expansion through acquisitions or
new product distribution arrangements, if any, will depend upon the capital
resources available to us. We may be unable to obtain additional financing
for these purposes or on terms acceptable to us or at all.
OUR QUARTERLY RESULTS OF OPERATIONS FLUCTUATE DUE TO SEASONALITY AND OTHER
FACTORS.
We generate much of our sales and income from operations during the
second half of our fiscal year as a result of increased demand by retailers in
anticipation of and during the holiday season. For example, in fiscal 2000,
we generated more than 68% of our net sales during the second half of the
fiscal year. Any substantial decrease in sales during that period likely
would harm our business, financial condition and results of operations.
Similarly, our working capital needs are greater during the second half of the
fiscal year. In addition, our sales and profitability may vary from quarter
to quarter as a result of a variety of factors, including the timing of
customer orders and additions or losses of brands or distribution rights.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY, OUR REVENUES MAY DECLINE AND WE MAY
BE UNABLE TO SUSTAIN PROFITABILITY.
The beauty industry is highly competitive and at times changes rapidly
due to consumer preferences and industry trends. We compete primarily with
global prestige beauty companies, some of whom have significantly greater
resources than we have. Our products compete for consumer recognition and
shelf space with products that have achieved significant international,
national and regional brand name recognition and consumer loyalty campaigns.
These factors, as well as demographic trends, economic conditions, discount
pricing strategies by competitors and direct sales by manufacturers to our
customers, could result in increased competition and could harm our business,
financial condition and results of operations.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES AND OTHER PERSONNEL, OUR GROWTH MAY
BE HINDERED.
Our success is largely dependent on the performance of our management
team and other key personnel. Our future operations could be harmed if any of
our senior executives or other key personnel ceased working for us. We are
particularly dependent on E. Scott Beattie, our Chairman, President and Chief
Executive Officer and Paul West, our Executive Vice President and Chief
Operating Officer. We currently have no employment contracts with Messrs.
Beattie and West, and as a result, may be unable to maintain their services.
WE MAY BE SUBJECT TO RISKS RELATED TO OUR INTERNATIONAL OPERATIONS IF THE
ACQUISITION OF THE ELIZABETH ARDEN BUSINESS OCCURS.
If we complete the acquisition of the Elizabeth Arden business, our
business in foreign countries will significantly increase and subject us to
risks customarily associated with foreign operations, including:
- Currency fluctuations;
- Import and export license requirements;
- Trade restrictions;
- Changes in tariffs and taxes;
- Restrictions on repatriating foreign profits back to the United
States;
- Unfamiliarity with foreign laws and regulations; and
- Difficulties in staffing and managing international operations.
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In all jurisdictions in which we will operate following the acquisition
of the Elizabeth Arden business, we will also be subject to laws and
regulations that govern foreign investment, foreign trade and currency
exchange transactions. These laws and regulations may limit our ability to
repatriate cash as dividends or otherwise to the United States and may limit
our ability to convert foreign currency cash flows into U.S. dollars. Outside
the United States, our sales and costs are denominated in a variety of
currencies including the euro, British pound, Swiss franc and Australian
dollar. A weakening of the currencies in which we generate sales relative to
the currencies in which our costs are denominated may decrease our operating
profits and cash flows. The recent decline in many European currencies
relative to the U.S. dollar could adversely affect our results of operations
when translated according to U.S. generally accepted accounting principles.
WE ARE EFFECTIVELY CONTROLLED BY OUR OFFICERS AND DIRECTORS AND THEIR
AFFILIATES.
At December 31, 2000, our officers and directors (including companies
under their control) beneficially owned 6,443,038 shares, or approximately
39%, of our common stock (including shares of common stock issuable upon the
conversion of 7.5% subordinated convertible debentures due 2006 and upon the
exercise of outstanding stock options (in each case determined in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")). Their aggregate beneficial ownership permits them to have
effective control of our company and to direct our management and affairs.
If the acquisition of the Elizabeth Arden business occurs, Unilever will
own shares of convertible preferred stock and, possibly, certain warrants
convertible into or exchangeable for, when fully vested, an aggregate of
4,166,667 shares of our common stock, representing approximately 21% of the
total number of shares outstanding immediately after the closing of the
acquisition (assuming no change in the number of issued and outstanding shares
of common stock prior to the closing and without regard to any warrants which
may be issued in connection with the financing of the acquisition). However,
the holders of the convertible preferred stock may only convert up to 33.33%
of the shares beginning on the first anniversary of the initial issuance date,
66.66% of the shares beginning on the second anniversary of the initial
issuance date and all of the shares of convertible preferred stock on and
after the third anniversary of the initial issuance date. The conversion of
the shares of convertible preferred stock will reduce the effective control of
our company by our officers and directors.
CHANGES IN THE RETAIL INDUSTRY COULD ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
From time to time, major retailers, including certain of our customers,
have suffered financial difficulties. In addition, the retail industry has
periodically experienced consolidation and other ownership changes. Major
retailers in the United States and in foreign countries may in the future
consolidate, undergo restructuring or realign their affiliations, which could
decrease the number of stores that sell our products or provide more leverage
to our retailers in transacting business with us. While such changes in the
retail industry to date have not harmed our business, financial condition or
results of operations, there can be no assurance as to the future effect of
any such changes.
OUR STOCK PRICE MAY BE VOLATILE.
Although our common stock has been traded on the Nasdaq Stock Market
since December 1995, we cannot assure that there will be an active trading
market or adequate liquidity for our common stock. Additionally, the trading
price of our common stock has been and may continue to be subject to wide
fluctuations over short and long periods of time. Our stock price may
fluctuate in response to a number of events and factors, including:
- quarterly or cyclical variations in financial results;
- future announcements concerning our business;
- changes in financial estimates and recommendations by securities
analysts;
- news reports relating to trends in the fragrance industry;
- actions of competitors or the entrance of new competitors;
- market and industry perceptions of our success, or lack thereof, in
pursuing our growth strategy;
- prevailing interest rates;
- governmental regulation;
- changes and developments affecting the fragrance industry; and
- general market conditions.
WE ARE UNLIKELY TO DECLARE OR PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid any cash dividends on our common stock and
do not expect to do so in the foreseeable future. Our bank credit facility
prohibits our payment of cash dividends and the indentures relating to the
senior notes we have issued and those that we expect to issue condition the
payment of cash dividends on the satisfaction of certain financial and other
covenants.
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SHARES ELIGIBLE FOR FUTURE SALE MAY HARM OUR STOCK PRICE.
Sales of substantial numbers of additional shares of our common stock, or
the perception that such sales could occur, may have a harmful effect on
prevailing market prices for our common stock and our ability to raise
additional capital in the financial markets at a time and price favorable to
us. As of December 31, 2000, 15,668,912 shares of common stock were
outstanding and an additional 3,464,939 shares of common stock were reserved
for issuance upon the conversion of outstanding debentures and upon the
exercise of outstanding stock options and warrants. The convertible preferred
stock to be issued if the acquisition of the Elizabeth Arden business is
consummated will be convertible into 4,166,667 additional shares of our common
stock when fully vested. Approximately 15,668,912 currently outstanding
shares of common stock, as well as the shares offered in this prospectus, will
be immediately freely tradeable in the public market without restriction under
the Securities Act of 1933, as amended (the "Securities Act"), except that
approximately 5,397,243 shares currently held by our "affiliates" (as that
term is defined in the rules and regulations under the Securities Act) and the
shares issuable upon conversion of the newly-issued convertible preferred
stock may generally be sold only in compliance with the limitations of Rule
144 under that act. In addition, we have entered into registration rights
agreements granting certain demand and piggyback registration rights to
certain of our current affiliates and to Unilever relating to the acquisition
of the Elizabeth Arden business.
WE MAY ISSUE ADDITIONAL STOCK IN THE FUTURE; FLORIDA LEGISLATION MAY DETER A
TAKEOVER.
As of December 31, 2000, our authorized, unissued and unreserved shares
of capital stock includes (i) a total of approximately 29,870,749 shares of
common stock (assuming the conversion of the subordinated debentures and the
exercise of all outstanding options and warrants, and excluding the 4,166,667
shares of our common stock issuable upon conversion of the convertible
preferred stock to be issued if the acquisition of the Elizabeth Arden
business is consummated), and (ii) a total of 4,428,571 shares of preferred
stock (excluding 1,000,000 shares to be reserved for issuance in the
acquisition of the Elizabeth Arden business or as dividends thereon). Our
Board of Directors, without any action by our shareholders, is authorized to
issue additional shares of common stock and to designate and issue shares of
preferred stock in such series as it deems appropriate and to establish the
rights, preferences and privileges of such preferred stock, including
dividend, voting and liquidation rights. The ability of the Board to issue
additional shares of common stock and to designate and issue preferred stock
having preferential rights could impede or deter an unsolicited tender offer
or other takeover proposal for us, and could adversely affect the voting power
and other rights of holders of our common stock. Further, as a Florida
corporation, our shareholders' voting rights are subject to certain
legislation that may deter or frustrate any potential takeover of us.
SELLING SHAREHOLDERS
The table of Selling Shareholders set forth on page 10 of the Prospectus
dated September 10, 1999 is updated as follows:
<TABLE>
<CAPTION>
Shares Number Shares Percent of
Beneficially of Shares Beneficially Class Owned
Owned Prior To Being Offered Owned After After
Name This Offering For Sale (1) This Offering (1) Offering (1)
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<S> <C> <C> <C> <C>
Hencorp, Becstone
Financial
Services LC (3) 1,122,727 1,122,727 0 0
David I. Alfin (4) 102,273 102,273 0 0
Mary Beth Mazzotta (5) 21,309 10,000 11,309 *
Indian Head
Banks, Inc. 35,000 35,000 0 0
BankAmerica Investment
Corporation 15,000 15,000 0 0
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Total 1,296,309 1,285,000 11,309
* Less than one percent
(1) Includes, where applicable, shares of our common stock issuable upon the exercise of
warrants and stock options, which may be converted or exercised within 60 days after
January 9, 2001.
(2) Assumes all shares being registered will be sold.
(3) Shares offered for sale relate to shares of our common stock issuable upon the
exercise of warrants originally issued to Fragrance Marketing Group, Inc. ("FMG") in
connection with our acquisition of substantially all of the assets of FMG in May 1996.
Hencorp, Becstone Financial Services LC entered into an agreement with FMG in January
2001 to purchase these warrants.
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(4) Mr. Alfin served as Vice President, Sales from May 1996 to November 1999. Shares
offered for sale include (a) 52,273 shares of our common stock issuable upon the
exercise of warrants that were assigned to him by FMG, and (b) 50,000 shares of our
common stock issuable upon the exercise of warrants we issued to him at the time we
acquired FMG.
(5) Ms. Mazzotta has served as our Vice President, Sales Operations since April 1998 and
as our Director of Sales Administration from May 1996 until April 1998. Shares
offered for sale reflect 10,000 shares of our common stock issuable upon the
exercise of warrants we issued to her at the time we acquired FMG.
</TABLE>
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
