-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FuNyNi6ZuP/o4O+q3BF1FdWgEY8CNYf/75osa3WjylmJ++CRLDWJ7M5a71X4ZhQ3 1x3siUJtmoDdRD45PKoFjg== 0000889812-96-000303.txt : 19960401 0000889812-96-000303.hdr.sgml : 19960401 ACCESSION NUMBER: 0000889812-96-000303 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JEAN PHILIPPE FRAGRANCES INC CENTRAL INDEX KEY: 0000822663 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 133275609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16469 FILM NUMBER: 96541714 BUSINESS ADDRESS: STREET 1: 551 FIFTH AVE STE 1500 CITY: NEW YORK STATE: NY ZIP: 10176 BUSINESS PHONE: 2129832640 MAIL ADDRESS: STREET 1: 551 FIFTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10176 10-K 1 ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 REPORT ON FORM 10-K (Mark one) /X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1995 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 No. 0-16469 JEAN PHILIPPE FRAGRANCES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3275609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 551 Fifth Avenue, New York, New York 10176 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 983-2640. Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value per share. Indicate by checkmark 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 such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes /X/ No / / Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation SK is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any other amendment to this Form 10K. / / State the aggregate market value of the voting stock held by nonaffiliates of the registrant (based on the closing price on March 25, 1996 of $7.375): $35,916,611. Indicate the number of shares outstanding of the registrant's $.001 par value common stock as of the close of business on the latest practicable date (March 25, 1996): 10,009,981. Documents Incorporated By Reference: None. PART I Item 1. Business Introduction Jean Philippe Fragrances, Inc. was organized under the laws of the State of Delaware in May 1985, maintains it executive offices at 551 Fifth Avenue, New York, New York 10176 and its telephone number is 212-983-2640. Unless the context otherwise indicates, the term "Jean Philippe" refers to the parent company, Jean Philippe Fragrances, Inc., and the term the "Company" refers to Jean Philippe Fragrances, Inc. and its consolidated majority-owned direct and indirect subsidiaries, Inter Parfums Holdings, S.A. ("IP Holdings"), Inter Parfums, S.A. ("Inter Parfums"), Inter Parfums Trademarks, S.A. (formerly Jean Desprez, S.A.) and Inter Parfums Cosmetiques (formerly Jean Desprez, S.A.); and the Company's wholly-owned subsidiaries, Elite Parfums, Ltd. ("Elite") and Jean Philippe Fragrances do Brasil, Ltda. ("Jean Philippe Brasil"), a limited liability company. The Company is a manufacturer and distributor of fragrances and cosmetics in the following niche markets: domestic and international brand name and licensed fragrances, alternative designer fragrances and mass market cosmetics. The Company is the owner of the Intimate(Registered), Parfums Molyneux(Registered) and Parfums Weil(Registered) fragrance lines, and Aziza(Registered), a hypo-allergenic line of eye cosmetics; is the exclusive licensee in the United States and Puerto Rico for Cutex(Registered) nail care (excluding nail polish remover) and lip products; and is world-wide licensee, manufacturer and distributor of the Burberrys(Registered), Ombre Rose(Registered) and Regine's(Registered) fragrance lines, the Jordache(Registered) line of fragrances and cosmetics and Chaz(Registered) fragrances for men. Inter Parfums markets its own line of moderately priced fragrances and certain licensed or brand name fragrances in approximately sixty (60) countries worldwide. The Company has in the past acquired, and may in the future seek to acquire, one (1) or more companies or divisions of companies in the fragrance or related business, or fragrance product lines or related products. Any and all discussions had by management to date have been at the inquiry, pre-negotiation level only, and no assurances can be given that: (i) management will pursue any transaction should a company, business, division, or product line become available; (ii) or if pursued, that any transaction will be consummated; or (iii) if consummated, that such transaction will increase the Company's earnings. Products and Selection -Alternative Designer Fragrances The Company produces and markets several lines of fragrances which it sells at a substantial discount from the high image, high retail cost brand name counterparts. Prior to producing and marketing a new alternative designer product, management of the Company looks for the existence of certain factors with respect to a particular designer fragrance: (i) high retail cost, (ii) substantial expenditure of advertising dollars and (iii) selective distribution. Management is of the opinion that the presence of all three (3) factors gives a reasonable degree of market presence for such designer fragrance. Management then seeks to create a similar scent which, together with creative packaging and steeply discounted prices, will create what the Company intends will be an appealing fragrance to be sold to mass market merchandisers and drug store chains at substantial discounts from the higher cost brand name fragrance. The Company's alternative designer fragrances are similar in scent to highly advertised designer fragrances that have been established in the retail market at a high retail price. These products are produced in the United States, and are intended to have an upscale image without a high retail price. The Company's alternative designer fragrances, which typically sell for under $5.00 at the retail level, are substantially discounted from the high cost of designer fragrances, which range from $30.00 to $200.00. Some of the alternative designer fragrances currently produced and marketed by the Company include: Fleur de Paris(Trademark), Radiance(Trademark), Elite 2(Trademark), Flight(Trademark), Dakota(Trademark), Memphis(Registered), Snow Silk(Registered), Duo(Trademark), Sexation(Trademark) and Gold by Jean Philippe(Registered). Additionally, the Company markets complementary alternative designer fragrance products such as deodorant sticks, roll on deodorants and body sprays. New products are intended to be developed in accordance with market feasibility and demand. Management of the Company believes that demand for new alternative designer fragrances may be created when participants in the designer fragrance industry launch promotional campaigns for new products. -Brand Name and Licensed Fragrances The Parfums Weil and Parfums Molyneux world-wide family of trademarks were acquired in February 1994 by Inter Parfums, and cover a variety of moderately priced fragrance lines for distribution to perfumeries, and the fragrance lines are distributed in over thirty (30) countries world-wide. Parfums Molyneux, formed in 1927, has established a classic line of fragrances including Captain and Quartz, with representation in all major markets world-wide. Parfums Weil has enjoyed a similar history dating back to the early 1900's with its first production of a range of original perfumes presented in exquisite Baccarat bottles. Through the years the fragrance lines were modernized and expanded, and today include the trademarks Bambou, Antilope and Kipling, among others. Quartz by Molyneux has achieved wide acceptance in Central and South America. As a result, Inter Parfums will introduce a new fragrance, Quartz for men, in 1996. During 1995, Inter Parfums launched Fluer de Weil, a new fragrance developed by Inter Parfums following the trend of light floral notes associated with the Weil brand. Initial results for this new fragrance have been promising. In March 1994 the Company acquired from Revlon Consumer Products Corporation ("Revlon") the world-wide trademarks for the Intimate fragrance line, and entered into a 99 year royalty free license agreement with Revlon for the use of the trademark Chaz in connection with men's fragrances, deodorants and body sprays. The Intimate and Chaz brands cover a variety of moderately priced fragrances for mass market distribution, and are currently distributed in a number of countries throughout the world. The Intimate product line has been available for over forty (40) years and has gained a reputation for quality and value with women over forty (40) years of age. In July 1993 Inter Parfums acquired the exclusive world-wide license for Burberrys fragrances in accordance with the terms of a License Agreement entered into among Burberrys Limited as licensor, Inter Parfums as licensee and Jean Philippe as the guarantor of Inter Parfums obligations thereunder (the "Burberrys License Agreement"). The Burberrys License Agreement expires on December 31, 2003, subject to certain minimum sales requirements and royalty payments. In 1995 Inter Parfums completely redesigned all products under the Burberry's brand name, which achieved successful distribution in more than twenty (20) countries around the world. In July 1993 Inter Parfums acquired the exclusive world-wide license for Ombre Rose fragrances as well as other fragrances to be developed by Inter Parfums in accordance with the terms of a License Agreement entered into between Jean-Charles Brosseau S.A. as licensor and Inter Parfums as licensee (the "Brosseau License Agreement"). The Brosseau License Agreement is for a term of ten (10) years, subject to certain minimum sales requirements and royalty payments. The Ombre Rose line, with its classically designed bottle, continues to enjoy wide acceptance in the Far East and the United States. In addition, Inter Parfums acquired all of the then existing world-wide distribution rights for Ombre Rose fragrances, which had previously been granted to two (2) affiliated companies based in Miami, Florida, subject to continuing in effect certain sub-distribution agreements outside of the United States in accordance with their respective terms. As part of such transaction, Inter Parfums granted exclusive distribution rights in the United States, Canada and Puerto Rico to Fragrance Marketing Group, Inc., an affiliate of the former distributors of Ombre Rose, for the same term of the Brosseau License Agreement, subject to certain minimum purchase requirements. Jean Philippe has guaranteed the obligations of Inter Parfums under such agreements. In January 1990 the Company obtained the exclusive right to use the trademark Jordache(Registered) from Jordache Enterprises, Inc. ("Jordache") in connection with the manufacturing, marketing and distribution of fragrances and cosmetics in the United States. The Company also received the license to manufacture, market and distribute fragrances and cosmetics in various territories abroad, which territories are to become exclusive in nature upon the commencement of substantial bona fide sales in each such territory. The initial term of the license was for five and a half (5-1/2) years and ended on June 30, 1995. In addition the license agreement provides the Company with the right to renew the license for ten (10) annual renewal terms, subject to certain minimum sales and royalty payment requirements. In the first quarter of both fiscal 1995 and 1996, the Company elected to renew the Jordache license for the next annual period. Since obtaining the right to use the Jordache trademark, the Company has created and produced, and presently markets, a Jordache(Registered) product line, which consists of a collection of moderately priced fragrances and cosmetics (lipstick and nail polish) geared to the youth market. In February 1989 the Company became the exclusive world wide distributor for a new fragrance called Regine's, which is sold internationally in approximately sixty (60) countries. The Regine's fragrance was developed by Inter Parfums, the first original fragrance to be created and marketed by the Company. Inter Parfums markets Regine's, Zoa(Trademark) and Jimmy'z (the Regine's men's fragrance) outside the United States and Canada. In March 1996, the Company, through its indirect, majority-held subsidiary, Parfums Jean Desprez, S.A. and its wholly-owned subsidiary, Jean Desprez, S.A., sold to Parlux Fragrances, Inc. all of the trademarks and related intellectual property rights, equipment, ancillary assets and inventory of the Bal`a Versailles and Revolution `a Versailles lines, among others. In addition, Parfums Jean Desprez and Jean Desprez on behalf of themselves and their parent and affiliated corporations, agreed not to create alternative designer fragrances with similar packaging to the Bal`a Versailles and Revolution `a Versailles, lines. The aggregate consideration paid by the purchaser was $4.95 million (which included $1.8 million of inventory at cost), payable $1.575 million in cash at closing and $3.375 million in installments over a nine (9) month period without interest. Inter Parfums, the parent of Parfums Jean Desprez, paid approximately $3.1 million in excess of the tangible assets of the companies acquired, for the outstanding capital stock of Parfums Jean Desprez in July 1994. -International Fragrances Inter Parfums creates, produces and markets its proprietary line of fragrances designed to appear expensive, with attractive bottling and packaging, but sold in the middle market. Typical proprietary fragrances sold by Inter Parfums retail between U.S.$10.00 to $15.00. Mass Market Cosmetics On August 1, 1994 Jean Philippe entered into a license agreement with Chesebrough-Pond's, Inc. for the exclusive rights to manufacture and market Cutex(Registered) nail care (excluding nail polish remover) and lip color products in the United States and Puerto Rico (the "Cutex License"). The Cutex License provides for an initial term of seven (7) years together with three (3) annual renewal periods, and either party may cancel the agreement if certain minimum annual sales levels are not achieved. The Cutex License also provides for the payment of royalties based upon net sales and minimum annual royalty payments. The Cutex License contemplates certain minimum sales levels over the life of the agreement, which would constitute a material increase over the Company's recent level of net sales. However, sales of Cutex products have been substantially below that set forth in the Cutex License, and product returns have been substantially higher than anticipated. As a result of disappointing sales in the Cutex lip color line, the Company decided to discontinue production of the line in October 1995. As a result, the Company has taken a nonrecurring charge aggregating $2.2 million, before taxes, in the fourth quarter of 1995. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operation"). This charge represents a writedown of current lip product inventory and the effect of potential customer returns or markdowns which may be required on lip products in 1996. The discontinued lip color line did not contribute to net sales in 1995 as customer returns exceeded new product shipments. Further, the Company and the licensor of Cutex have agreed to a reduction in the minimum annual royalties payable under the Cutex License. The Company believes that such relief along with the discontinuance of the lip color line will enable the Company to direct all Cutex marketing efforts and resources to building upon the core nail care business for which Cutex is famous. In February 1996 the Company relaunched the Aziza(Registered) brand hypo-allergenic line of eye cosmetics through mass market distribution. The new Aziza line was completely modernized and includes thirty-six (36) of the historically most popular and best selling mascaras, eyeliners and eyeshadows. The Company acquired the world-wide rights to the brand name Aziza in June 1994 from Chesebrough-Pond's USA, Unilever N.V. and various affiliates of Unilever N.V. for nominal consideration. Also in the mass market cosmetics category, the Company has created, produced and markets a Jordache(Registered) line of cosmetics (lipstick and nail polish), which is geared to the youth segment of such market. The Company's Cutex nail care, Jordache cosmetic and Aziza lines are presently distributed in approximately 20,000 mass market outlets. Production and Supply A substantial portion of the Company's products are produced by the Company either in the United States or France. Although the Company does not own a factory or production plant, it acts as a general contractor, and supervises each stage of production from the creation of the fragrance, design and creation of the bottle, dispenser or container, filling of same, packing and shipping, all as performed by various subcontractors. Management believes that its relationships with such subcontractors are good, and that there are sufficient alternatives should one or more subcontractors become unavailable. Inventory The Company purchases its raw materials and component parts from suppliers based upon internal estimates of anticipated need for finished goods, which enables the Company to meet its production requirements for finished goods. The Company generally delivers customer orders within seventy-two (72) hours of their receipt. Sales and Marketing The broad array of Company product lines permits the Company to market fragrances and cosmetics to all levels of distribution -- the alternative designer fragrances, Cutex and Jordache cosmetics at mass market, the Inter Parfums proprietary line at the moderately priced level and the Company's brand name and licensed designer fragrances at the high end. The Company markets its alternative designer fragrances and personal care products and its Cutex and Jordache product lines through in-house sales executives to mass merchandisers, major drugstore chains, supermarket chains, "specialty store chains" (multiple outlets of accessories, jewelry and clothing), and wholesalers. The Company's alternative designer products are presently being sold in approximately 18,000 retail outlets, and the Cutex, Aziza and Jordache product lines are presently being sold in approximately 20,000 retail outlets. In addition, the Company has established an electronic ordering system, or Electronic Data Interface ("EDI"), which permits the Company to receive orders for products via computer modem, as opposed to hard copy purchase orders, from certain major retailers. Management believes that EDI facilitates the receipt and processing of customer orders. Mass market merchandisers and major drug chains are the most established markets for all of Jean Philippe's product lines, and are the traditional points of distribution for them. The ultimate market for this business segment is the general public. Some of the mass market merchandisers, major drug store chains and supermarket chains which are presently carrying the Company's products include: Walmart, KMart, Walgreen's, Revco, Rite Aid, Winn Dixie, CVS, Publix, and Thrifty Drugs. Another market for the Company's products consists of distributors and wholesalers, which service independent stores. Often, the trends in this business segment mirror those of major drug store chains and mass market retailers. The Company uses the same marketing strategy of providing quality products coupled with flexible programs (i.e., discounts, extended payment terms) in order to compete with other alternative fragrance companies. During fiscal years ended December 31, 1995, 1994 and 1993, no customer accounted for ten percent (10%) or more of sales on a consolidated basis. Foreign Sales and Marketing Marketing and sales of the Company's brand name and licensed designer fragrance line are conducted through independent distributors, in-house executives and international agents and importing companies and such products are sold in approximately sixty (60) countries world-wide. Generally, marketing and advertising are subject to approval of the respective licensors. Advertising for the Company's designer fragrance lines appear in high fashion magazines and to a lesser extent on television in France and the Middle East. Inter Parfums maintains its own in-house sales force with executives who are generally responsible for marketing the Inter Parfums designer fragrance lines in specific territories. In France, the Inter Parfums designer fragrance lines are sold in approximately 1000 perfumeries. Inter Parfums markets its middle market proprietary fragrances to wholesalers in France, and to distributors and importers predominantly in the Middle East, Far East, Central America and South America through in-house sales executives. In October 1995 the Company commenced marketing its alternative designer fragrance and Jordache lines through a newly formed limited liability company organized in Brazil, Jean Philippe Brasil. See Note "J" to the Consolidated Financial Statements for information regarding the Company's operations by geographic areas. Product Liability The Company maintains product liability coverage in an amount of $3,000,000, which it believes is adequate to cover substantially all of the exposure it may have with respect to its products. The Company has never been the subject of any material product liability claims. Competition The market for fragrances and beauty related products is highly competitive and sensitive to changing consumer preferences and demands. At the present time, management is aware of approximately five (5) established companies which market similar alternative designer fragrances. The Company believes that the quality of its fragrance products, as well as its ability to quickly and efficiently develop and distribute new products, will enable it to continue to effectively compete with these companies. The market for name brand and budget color cosmetics is highly competitive, with several major cosmetic companies marketing similar products, many with substantial financial resources and national marketing campaigns. The Company has experienced competitive pressures in this market, and it may be difficult for the Company to significantly increase the market share of its brands against this competition. However, management believes that brand recognition of its Cutex, Aziza and Jordache lines, together with the quality and competitive pricing of its products, should enable it to compete with these companies. However, especially in the area of high priced, original designer fragrances, there are products which are better known than the products produced for or distributed by the Company. There are also many companies which are substantially larger and more diversified, and which have substantially greater financial and marketing resources than the Company, as well as greater name recognition, and the ability to develop and market products competitive with those distributed by the Company. For these reasons, it may be particularly difficult for the Company to successfully increase market share in the high priced, original designer fragrance market. Government Regulation A fragrance is a "cosmetic" as that term is defined under the Federal Food, Drug and Cosmetics Act ("FDC Act"), and must comply with the labeling requirements of the FDC Act, the Fair Packaging and Labeling Act, and the regulations thereunder. Certain of the Company's Cutex brand color cosmetic products contain menthol, and are also classified as a "drug," as the categories of cosmetic and drug are not mutually exclusive. Additional regulatory requirements for such products include additional labeling requirements, registration of manufacturer and semi-annual update of drug list. The Company's fragrances are subject to approval of the Bureau of Alcohol, Tobacco and Firearms as the result of the use of specially denatured alcohol. To date the Company has not experienced any difficulties in obtaining such approval. Trademarks In the United States the Company's registered trademarks include Intimate, Aziza, Beverly, Fire by Jean Philippe(Registered), Fashion Mood(Registered), Snow Silk(Registered) and Memphis(Registered). In addition, the Company has various trademark applications pending. In addition, under various license agreements the Company has the right to use the registered trademark Cutex in the United States and Puerto Rico, and the registered trademarks, Burberrys, Ombre Rose, Chaz, Regine's and Jordache both in the United States and abroad. Outside of the United States and Canada, the Company owns the following registered trademarks: Intimate, Aziza, the Parfums Molyneux family of trademarks, including Captain, Quartz and Lord, and the Parfums Weil family of trademarks, including Bambou, Antilope and Kipling. See "Business-Products and Selection". Employees As of March 15, 1996 Jean Philippe had eighty-three (83) full-time domestic employees. Of these, seventeen (17) were engaged in sales activities, and sixty-six (66) in administrative and marketing activities. As of March 15, 1996 Inter Parfums and its foreign subsidiaries had forty-five (45) full-time employees. Of these, fourteen (14) were engaged in sales activities, and thirty-one (31) in administrative and marketing activities. The Company believes that its relationships with its employees are satisfactory. Item 2. Properties The Company's domestic offices are located in approximately 12,000 square feet of office space at 551 Fifth Avenue, New York, New York. These premises are leased for a five (5) year term ending in April 1997, at a monthly rental of approximately $17,000, which is subject to escalations. The offices of Inter Parfums and the Company's other French subsidiaries are located at 4 Rond Point Des Champs Elysees, Paris, France, in approximately 6,000 square feet of leased office space pursuant to two (2) leases. The first lease, for approximately 4,000 square feet, expires in September 1996, with an annual rental of 775,000 French francs (or approximately $155,000) for such period. Inter Parfums has options to renew for two (2) additional three (3) year periods, with annual rental commencing at 800,000 French francs (approximately $160,000). Rent is subject to escalations. The second lease, for approximately 2,000 square feet, is for a term which expires in March 1997, with annual rentals of 410,650, 439,300 and 458,400 French francs (approximately $83,300, $87,900 and $91,000 for the three (3) year period. Inter Parfums has options to renew for two (2) additional three (3) year periods, with annual rental commencing at 477,500 French francs (or approximately $95,500). Rent is subject to escalations. Management of the Company is of the belief that the Company's executive office facilities are satisfactory for its present needs and those for the foreseeable future. On October 25, 1995, the Company took occupancy of its new 145,000 square foot distribution center at 60 Stults Road in Dayton, New Jersey. The premises have been leased by the Company for an eight (8) year term and require monthly rental payments of $57,000, aggregating $684,000 per annum. In connection therewith, the Company has expended approximately $1.0 million in equipment and improvements and incurred moving expenses of approximately $50,000 in the fourth quarter of 1995. Management of the Company is of the belief that the Company's distribution center is satisfactory for its present needs and those for the foreseeable future. Item 3. Legal Proceedings There is no material litigation pending or, to the knowledge of the Company, threatened to which the property of the Company is subject or to which the Company may be a party. Item 4. Submissions Of Matters To A Vote Of Security Holders Not applicable. PART II Item 5. Market For Registrant's Common Equity And Related Stockholder Matters The Company's Common Stock, $.001 par value per share ("Common Stock") is traded on The Nasdaq Stock Market under the symbols "JEAN". The following table sets forth in dollars, the range of high and low closing prices for the past two (2) fiscal years for the Company's Common Stock. Fiscal 1995 High Closing Price Low Closing Price Fourth Quarter $10.50 $ 8.13 Third Quarter $11.75 $10.63 Second Quarter $10.88 $ 8.75 First Quarter $ 9.00 $ 7.31 Fiscal 1994 High Closing Price Low Closing Price Fourth Quarter $ 9.00 $ 6.88 Third Quarter $11.00 $ 8.63 Second Quarter $11.88 $ 9.88 First Quarter $12.75 $ 9.75 As of March 1, 1996, the number of record holders (brokers and broker's nominees, etc.) of the Company's Common Stock was 133. Management believes that there are approximately 2400 beneficial owners of the Company's Common Stock. Dividends Jean Philippe has not paid cash dividends since inception and management of the Company does not foresee Jean Philippe paying cash dividends in the foreseeable future as earned surplus is to be retained as working capital for anticipated growth. The revolving credit agreement with the Company's primary institutional lender generally prohibits the payment of cash dividends in excess of fifty (50%) percent of the Company's net income. Item 6. Selected Financial Data The following selected financial data have been derived from the Company's financial statements, and should be read in conjunction with such financial statements, including the footnotes relating thereto, referred to in Item 8 of this Form 10-K.
Years Ended December 31 (In Thousands Except Share and Per Share Data) -------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- -------- ------- ------- Income Statement Data: Net sales $93,669 $75,079 $59,546 $43,688 $25,465 Cost of Sales 48,703 39,036 32,964 24,536 14,042 Selling, General and Administrative 32,990 23,773 15,814 12,479 8,229 Income before taxes and minority interest 12,380 11,679 11,240 6,669 2,911 Net income 9,038 7,275 7,099 4,278 1,862 Net income per common and common equivalent share $.87(1,2) $.70(1) $.70(1) $.50 $.27 Weighted average number of common and common equivalent shares outstanding 10,438,896 10,454,555 10,132,628 8,641,393 7,020,099
As at December 31 (In Thousands Except Share and Per Share Data) ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- -------- ------- ------- Balance Sheet Data: Working Capital $41,363 $31,226 $31,967 $17,250 $ 7,349 Total Assets 84,001 69,451 49,909 31,807 19,684 Long Term Debt 596 862 424 -0- 313 Shareholders' equity 51,976 44,513 33,774 18,488 8,181
- ----------------------- 1 Includes a net gain of $3.3 million or $.32 per share, $221,000 or $.02 per share, $645,000 or $.06 per share for the years ended December 31, 1995, 1994 and 1993, respectively, resulting from the sale of common stock of a subsidiary. 2 Includes a nonrecurring charge, net of taxes, of $1.3 million or $.13 per share, relating to the discontinuance of a product line. Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operation The Company's long-term business strategy of building core volume and profitability, developing products in new categories, exploring strategic acquisition opportunities, and pursuing expansion in international markets, has enabled the Company to report another record year for growth in sales. However, current year earnings excluding the gain on sale of stock of subsidiary, reflect the obstacles encountered in bringing the newly acquired Cutex nail care and lip color lines to the profitability levels originally anticipated. As discussed in more detail below, current earnings reflect a nonrecurring charge of $2.2 million, before taxes, relating to the discontinuance of the Cutex lip color line in October 1995. 1995 as Compared to 1994 Net sales increased 25% to $93.7 million, as compared to $75.1 million in 1994. This increase reflects the Company's ability to integrate new product lines with existing product offerings. Sales generated by the Company's domestic operations increased 19%. Such growth is the result of the August 1994 acquisition of the Cutex nail care and lip color line, and the continued growth in the core Alternative Designer Fragrance lines. Net sales generated by Cutex product lines increased $5.3 million over 1994 net sales. This increase was well below original expectations as the result of excessive product returns caused in part from the required change in the Uniform Product Code from that of Chesebrough-Ponds and disappointing sales of the lip color line. In October 1995 the Company decided to discontinue production of the lip color line and as a result, has taken a nonrecurring charge aggregating $2.2 million, before taxes, in the fourth quarter of 1995. This charge represents a writedown of current lip product inventory and the effect of potential customer returns or markdowns which may be required on lip products in 1996. The discontinued lip color line did not contribute to net sales in 1995 as customer returns exceeded new product shipments. As a result of the issues relating to the Cutex product lines, the Company and the licensor have agreed to a reduction of the minimum royalties payable under the Cutex license. The Company believes that such relief along with the discontinuance of the lip color line will enable the Company to direct all Cutex marketing efforts and resources to building upon the core nail care business for which Cutex is famous. Sales by the Company's foreign subsidiaries increased 36%; at comparable foreign currency exchange rates, sales by the Company's foreign subsidiaries increased 22%. Such increase reflects new product introductions under the Ombre Rose and Burberrys labels and initial sales by Jean Philippe Brasil, the Company's recently organized Brazilian subsidiary, which commenced operations in October 1995. The Company continues to focus its sales efforts on development of new product categories for sale to our expanding customer base. The February 1996 relaunch of the Aziza(Registered) hypo allergenic eye cosmetic line is well under way. Gross profit margin was 48% in both 1995 and 1994. Ordinarily, increased sales of Cutex products would have enabled the Company to improve overall gross margin. However, with the excessive customer returns experienced in 1995, markdowns and inventory writedowns of returned products were necessary. In addition, gross margin has been negatively impacted from incremental closeout sales of discontinued or returned product at reduced prices. While in the ordinary course of business the Company closes out such inventory, management had taken an increased initiative to reduce excess inventory to improve the Company's cash flow and in preparation of moving to our new distribution center in Dayton NJ. The Company's business lines, excluding Cutex, generated a 46% gross margin in both 1995 and 1994. Selling, general and administrative expenses represented 35% of net sales in 1995 as compared to 32% in 1994. The increase is primarily the result of promotion and advertising expenses required for the Cutex product lines and reflect the fact that sales of the Cutex color lines have been below original expectations. Management is taking the steps it deems necessary to bring these product lines to an acceptable profitability level. In addition, most licensed product lines call for royalties to be paid based on sales volume and some require minimum advertising expenditures. Interest expense increased to $1.1 million in 1995 from $0.8 million in 1994. The Company uses its available credit lines, as needed, to finance its working capital needs. The Company realized a gain on foreign currency aggregating $197,000 in 1995 as compared to a loss of $161,000 in 1994. The Company, on occasion enters into foreign currency forward exchange contracts as a hedge for short-term intercompany borrowings. The Company recognized a net gain on sale of stock of a subsidiary aggregating $3.3 million in 1995 and $0.2 million in 1994. The 1995 gain resulted primarily from the public offering by Inter Parfums, in France, of 308,000 shares of its common stock. The 1994 gain also resulted from the sale of common stock by Inter Parfums. Such sales of shares has been accounted for as a gain on sale of stock of a subsidiary and is not part of a broader corporate reorganization contemplated by the Company. Although additional shares may be issued in the future, the Company has no plans to spin-off its subsidiary nor to repurchase the shares previously issued. (See Liquidity and Financial Resources). The Company's effective income tax rate was 26% in 1995 and 37% in 1994. Both the 1995 and 1994 tax rates were favorably impacted as deferred taxes were not required to be provided on the gain on sale of stock by Inter Parfums. Excluding such gain the Company's effective tax rate was 35% in 1995 and 37% in 1994. Net income for the year ended December 31, 1995 increased 24% to $9.0 million compared to $7.3 million for the year ended December 31, 1994. Results for 1995 include a nonrecurring charge of $1.3 million, on an after tax basis, relating to the discontinuance of the lip color line. Results also include a net gain from the sale of common stock of a subsidiary of $3.3 million in 1995 and $0.2 million in 1994. Excluding the nonrecurring charge and such gains, net income was $7.1 million or $0.68 per share in 1995 and in 1994. The weighted average number of shares outstanding was 10,438,896 in 1995 and 10,454,555 in 1994. 1994 as Compared to 1993 Net sales increased 26% to $75.1 million, as compared to $59.5 million in 1993. The results for 1994 reflect the Company's success in integrating new product lines with pre existing product offerings, and creating greater opportunities to serve the needs of its customers. Sales generated by the Company's domestic operations increased 12%. Such growth reflects the positive impact of the recently acquired Cutex lip and nail product line and the negative impact of store closings of one of the Company's larger customers. Sales by the Company's foreign subsidiaries increased 62%; at comparable foreign currency exchange rates, sales by the Company's foreign subsidiaries increased 59%. Such increase reflects contributions from the Ombre Rose and Burberrys license agreements as well as the Parfums Molyneux and Parfums Weil fragrance lines. In connection with the Company's recent acquisitions and license agreements, the Company has restructured its retail sales force and has added additional experienced salespeople. The Company's primary efforts are now focused on capitalizing on its expanding list of customer relationships. With efficient product development and a strong national sales force, the Company can now offer to all of its customers, its growing collection of fragrance, personal care and color cosmetic products. Gross profit margin for 1994 increased to 48% of sales from 45% in 1993. The Company's decision to purchase certain raw materials and component parts for its domestic operations at lower domestic prices continued to benefit the Company's gross margin throughout 1994. In addition, initial sales of Cutex products have enabled the Company to further improve its gross margin; without such sales gross profit margin would have been 46%. Selling, general and administrative expenses represented 32% of net sales in 1994 as compared to 27% and 1993. The increase is primarily the result of expenses incurred in connection with the restructuring of the Company's sales force and the transition of all of the Company's new product lines into its existing domestic and international business operations. In addition, most licensed product lines call for royalties to be paid based on sales volume and some require minimum advertising expenditures. Interest expense increased to $803,000 in 1994 from $619,000 in 1993.The Company uses its available credit lines, as needed, to finance its working capital needs. In 1994, as a result of the decline of the U.S. dollar relative to the French franc, the Company incurred a loss on foreign currency of $161,000 as compared to a gain of $179,000 in 1993. The Company, on occasion enters into foreign currency forward exchange contracts as a hedge for short-term intercompany borrowings. No material hedge transactions were entered into during 1994. Gain on sale of stock of subsidiary aggregated $221,000 in 1994 as compared to a gain of $645,000 1993. The 1993 gain resulted from the issuance by Inter Parfums of 7.65% of its common stock. In 1994, an additional 10,000 shares were sold to enable the stock of Inter Parfums to commence trading in the over-the-counter stock market in Paris, and 11,536 shares were issued pursuant to the conversion terms of Inter Parfum's long-term debt. These issuances of shares by Inter Parfums have been accounted for as a gain on sale of stock of subsidiary; the issuances are not part of a broader corporate reorganization contemplated by the Company. Although additional shares may be issued in the future the Company has no plans to spin-off its subsidiary nor repurchase the shares previously issued. The Company's effective income tax rate increased to 37.1% in 1994 from 36.8% in 1993. Both 1994 and 1993 were favorably impacted as deferred taxes were not required to be provided on the gain from issuance of common stock by Inter Parfums. Net income for the year ended December 31, 1994 was $7.3 million compared to $7.1 million for the year ended December 31, 1993. Results for the year include a net gain from the sale of common stock of a subsidiary of $221,000 or $0.02 per share in 1994 and $645,000 or $0.06 per share in 1993. Excluding such gain, net income increased 9.3% to $7.1 million or $0.68 per share compared to $6.5 million or $0.64 per share for the year ended December 31, 1993. The weighted average number of shares outstanding increased 3% to 10,454,555 in 1994 from 10,132,628 in 1993. This increase is primarily the result of the issuance of common stock in connection with the February 1994 acquisition of Parfums Molyneux and Parfums Weil. Liquidity and Financial Resources The Company's financial position continues to show solid strength as a result of profitable operating results. At December 31, 1995, working capital aggregated $41.4 million and the Company had cash and cash equivalents aggregating $14.2 million. The Company's Board of Directors has authorized the repurchase of up to 1,000,000 shares of the Company's common stock and as of December 31, 1995, 324,305 shares had been purchased at an average price per share of $8.91. Through February 1996 an additional 138,000 shares were purchased at an average price per share of $7.85. In November 1995, the Company's majority owned subsidiary, Inter Parfums sold to the public in France 308,000 shares of its capital stock at 130 French francs per share. Net proceeds of such offering aggregated 36.5 million French francs ($7.6 million U.S.). In connection with such offering, Inter Parfums Holding ("Holding"), a wholly-owned subsidiary of the Company and direct parent of Inter Parfums, exercised its right to convert a portion of its convertible debt into 250,000 shares of capital stock of Inter Parfums at 80 French francs per share. As a result of such offering and related debt to equity conversions, the interest of the Company in Inter Parfums, as held by Holding, was reduced from 90.64% to 76.72%. The Company's short-term financing requirements are expected to be met by available cash at December 31, 1995, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facility for 1996 is a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank. Borrowings under the domestic revolving line of credit are due on demand and bear interest at the bank's prime lending rate. Management of the Company believes that funds generated from operations, supplemented by its available credit facilities, will provide it with sufficient resources to meet all present and reasonably foreseeable future operating needs. Operating activities provided $2.8 million of net cash in 1995 as compared to $2.1 million in 1994. As the Company continues to monitor and improve its procedures with respect to collection of outstanding receivables and closely monitor inventory levels, the Company anticipates continued improvement in cash flow. Current inventory levels reflect the necessary quantities to support the upcoming selling season and new product introductions. On October 25, 1995, the Company took occupancy of its new 145,000 square foot distribution center at 60 Stults Road in Dayton NJ. The premises have been leased by the Company for an eight year term and require monthly rental payments of $57,000, aggregating $684,000 per annum. In connection therewith, the Company has invested approximately $0.7 million in equipment and improvements and expects to invest an additional $0.3 million in 1996. Inflation rates in the U.S. and foreign countries in which the Company operates have not had a significant impact on operating results for the year ended December 31, 1995. Item 8. Financial Statements and Supplementary Data The required financial statements commence on page F-1. Supplementary Data
Quarterly Data (Unaudited) For the year ended December 31, 1995 (In Thousands Except Share and Per Share Data) -------------------------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Full Year ------- ------- ------- ------- --------- Net sales $21,612 $22,152 $25,480 $24,425 $93,669 Cost of Sales 10,660 11,187 13,514 13,342 48,703 Net income 1,621 1,628 2,072 3,717 9,038 Net income per common and common equivalent share $.16 $.16 $.20 $.361,2 $.871,2 Number of shares outstanding 10,429,287 10,458,483 10,561,214 10,306,599 10,438,896
Quarterly Data (Unaudited) For the year ended December 31, 1994 (In Thousands Except Share and Per Share Data) ----------------------------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter Full Year ------- ------- ------- ------- --------- Net sales $14,126 $15,230 $22,109 $23,014 $75,079 Cost of Sales 7,999 8,168 11,282 11,587 39,036 Net income 1,221 1,323 2,258 2,473 7,275 Net income per common and common equivalent share $.12(3) $.13 $.22 $.24(4) $.70(5) Number of shares outstanding 10,373,760 10,538,411 10,470,431 10,426,054 10,454,555
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure Not applicable. - ------------------------------- 1 Includes a net gain of $3.3 million or $.32 per share resulting from the sale of common stock of a subsidiary. 2 Includes a nonrecurring charge, net of taxes, of $1.3 million or $.13 per share, relating to the discontinuance of a product line. 3 Includes a net gain of $113,000 or $.01 per share resulting from the sale of common stock of a subsidiary. 4 Includes a net gain of $108,000 or $.01 per share from the sale of common stock of a subsidiary. 5 Includes a net gain of $221,000 or $.01 per share from the sale of common stock of a subsidiary PART III Item 10. Executive Officers And Directors Of Registrant As of March 1, 1996, the executive officers and directors of the Company were as follows: Name Position Jean Madar Chairman of the Board and Director General of Inter Parfums Philippe Benacin Vice Chairman of the Board, President and President of Inter Parfums Russell Greenberg Director, Executive Vice President and Chief Financial Officer Francois Heilbronn Director Joseph A. Caccamo Director Bruce Elbilia Executive Vice President Wayne C. Hamerling Executive Vice President Terrence H. Augenbraun Executive Vice President Jaime Resnik Executive Vice President The directors will serve until the next annual meeting of stockholders and thereafter until their successors shall have been elected and qualified. With the exception of Mr. Benacin, the officers are elected annually by the directors and serve at the discretion of the board of directors. See "Item 11. Executive Compensation- Employment Agreement". There are no family relationships between executive officers or directors of the Company. The following sets forth biographical information as to the business experience of each executive officer and director of the Company for at least the past five (5) years. Jean Madar Jean Madar, age 35, a Director, has been the Chairman of the Board of Directors (since inception), and a co-founder of the Company with Mr. Benacin. From inception until December 1993 he was the President of the Company; in January 1994 he became Director General of Inter Parfums; and was previously the managing director of Inter Parfums, from September 1983 until June 1985. At Inter Parfums, he had the responsibility of overseeing the marketing operations of its foreign distribution, including market research analysis and actual marketing campaigns. Mr. Madar graduated from The French Higher School of Economic and Commercial Sciences (ESSEC) in 1983. Philippe Benacin Mr. Benacin, age 37, a Director, has been the Vice Chairman of the Board since September 1991, and is a co-founder of the Company with Mr. Madar. He was elected the Executive Vice President in September 1991, Senior Vice President in April 1993, and President of the Company in January 1994. In addition, has been the President of Inter Parfums for more than the past five (5) years. Mr. Benacin graduated from The French Higher School of Economic and Commercial Sciences (ESSEC) in 1983. Mr. Benacin filed a Form 5 in which he indicates that he neglected to file a Form 4 disclosing the exercise of an option and the repurchase of such shares by the Company pursuant to its stock repurchase program. Russell Greenberg Mr. Greenberg, age 39, the Chief Financial Officer, was Vice-President, Finance when he joined the Company in June 1992; became Executive Vice President in April 1993; and was appointed to the Board of Directors in February 1995. He is a certified public accountant licensed in the State of New York, and is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. Since graduating from The Ohio State University in 1980, he has been employed in public accounting. From July 1987 through June 1992, he was employed as a manager with Richard A. Eisner & Company, the independent accountants of the Company. Francois Heilbronn Mr. Heilbronn, age 35, a Director, is a graduate of Harvard Business School with a Master of Business Administration degree and is currently working as a consultant for the firm of M.M. Friedrich, Heilbronn & Fiszer, of which he is a partner. He was formerly employed by The Boston Consulting Group, Inc. from 1986 through 1991 as a management consultant. He graduated from Institut D'Etudes Politiques De Paris in June 1983. From 1984 to 1986, he worked as a financial analyst for Lazard Freres & Co. Joseph A. Caccamo Mr. Caccamo, age 40, a Director, has been a practicing attorney since 1981. From May 1987 through February 1991, he was an associate of Parker Chapin Flattau & Klimpl, New York City, and from February 1991 through August 1991, he was of counsel to Brandeis, Bernstein & Wasserman, New York City. In September 1991 he founded Joseph A. Caccamo Attorney at Law, P.C., which is counsel to the Company. He is also a director of Hydron Technologies, Inc., a company primarily engaged in the development of cosmetic/personal care products, which has its common stock listed on The Nasdaq Stock Market. Bruce Elbilia Mr. Elbilia, age 36, Executive Vice President joined the Company in June 1986 as the National Sales Director, and from that time until 1994, he was in charge of the Company's marketing efforts. In 1994 Mr. Elbilia became head of international sales and marketing for Jean Philippe, and has expanded Jean Philippe's export sales to South America, the Middle East and Eastern Europe. Mr. Elbilia received a Bachelor of Business Administration degree, with a major in International Business/Marketing from George Washington University in Washington, D.C., which he attended from 1977-1981. Wayne C. Hamerling Mr. Hamerling, age 39, was Vice-President, Sales, from May 1987 through April 1993, when he became Executive Vice President. Mr. Hamerling has over fifteen (15) years experience in the fragrance and cosmetic business. From 1980 through 1983 he was employed by Rite Aid Drug Stores; from 1983 through 1985, he was the Senior Buyer for Valley Fair Stores, and from 1985 through May 1987, he was the National Sales Manager for Happy Valley Fragrances. Terrence H. Augenbraun Mr. Augenbraun, age 51, who became an Executive Vice President of the Company in June 1994, is in charge of the Company's Premier Fragrances division, which markets name brand fragrances and cosmetics, domestically. Mr. Augenbraun has been in the fragrances and cosmetics business for more than the past five (5) years, and from 1992 through June 1994, he was the manager of the Prince Matchabelli Division of Chesebrough-Ponds. From 1991 to 1992 he was an Executive Vice President of Del Labs, a cosmetics concern in charge of new product marketing. He was formerly the Chief Operating Officer of Lasale 10, a fragrance and cosmetic concern, from 1989 through 1991, and from 1982 through 1989, he was the Vice President of Marketing for the cosmetics group of Chesebrough-Pond's with $160,000,000 in sales. Jaime Resnik Mr. Resnik, age 35, became an Executive Vice President in July 1994, and is in charge of operations. He joined the Company in April 1992 as Operations Manager in charge of production and planing. From October 1988 through April 1991, Mr. Resnik was the Licensing Audit Manager for Jordache Enterprises, with responsibility for auditing approximately thirty (30) licensees with sales in excess of $250,000,000. From April 1991 through April 1992, Mr. Resnik was the Director of International Licensing for Jordache Enterprises, with responsibility for overseeing the licensing activities of approximately fifty (50) licensees world wide. Mr. Resnik graduated with honors from the University of Miami in 1983 with a B.A. in management. Item 11. Executive Compensation The following table sets forth a summary of all compensation awarded to, earned by or paid to, the Company's Chief Executive Officer and each of the four (4) most highly compensated executive officers of the Company whose compensation exceeded $100,000 per annum for services rendered in all capacities to the Company and its subsidiaries during fiscal years ended December 31, 1995, December 31, 1994 and December 31, 1993: SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Awards Name and Year Salary ($) Bonus ($) Other Annual Securities All Other Principal Position Compensation($) Underlying Compensation Options (#) Jean Madar,(1) 1995 175,800 -0- 20,800(2) 100,000 -0- Chairman of the Board and Director General of 1994 133,250 -0- 905,225(3) 100,000 -0- Inter Parfums 1993 230,800 -0- -0- 100,000 -0- Philippe Benacin,(4) 1995 96,000 -0- 681,200(5) 100,000 -0- Chief Executive Officer, President and President of 1994 81,360 -0- 28,205(6) 100,000 -0- Inter Parfums 1993 78,000 -0- 34,100(7) 100,000 -0- Bruce Elbilia,(8) 1995 168,000 18,500 56,510(9) 9,000 -0- Executive Vice President 1994 158,500 3,500 31,124(10) 4,000 -0- 1993 138,000 3,000 740,254(11) 6,500 -0-
- -------- (1) As of December 31, 1995, Mr. Madar held 2,768,049 restricted shares of Common Stock, with an aggregate value of $22,490,398 based upon the closing price of the Company's Common Stock as reported by the Nasdaq Stock Market, National Market system, of $8.125 on December 29, 1995. (2) Consists of lodging expenses. (3) Consists of noncash compensation attributable to the difference between the exercise price and the value of certain restricted shares of Common Stock acquired upon the exercise of stock options. (4) Mr. Benacin was elected President of the Company in January 1994. Compensation figures for Mr. Benacin are approximate, as he is paid in French francs, and conversion into U.S. dollars was made at the average exchange rates prevailing during the respective periods. As of December 31, 1995, Mr. Benacin held 2,318,049 restricted shares of Common Stock, with an aggregate value of $18,834,148 based upon the closing price of the Company's Common Stock as reported by the Nasdaq Stock Market, National Market system, of $8.125 on December 29, 1995. (5) Consists of noncash compensation of $650,000 attributable to the difference between the exercise price and the value of certain restricted shares of Common Stock acquired upon the exercise of stock options; approximately $2,400 for automobile expenses and $28,800 for lodging expenses. (6) Consists of approximately $2,170 for automobile expenses and $26,035 for lodging expenses. (7) Consists of approximately $8,300 for automobile expenses and $25,800 in lodging expenses. (8) As of December 31, 1995, Mr. Elbilia held 20,000 restricted shares of Common Stock, with an aggregate value of $162,500 based upon the closing price of the Company's Common Stock as reported by the Nasdaq Stock Market, National Market system, of $8.125 on December 29, 1995. (9) Consists of selling commissions. (10) Consists of selling commissions. (11) Consists of selling commissions equal to $22,159; and noncash compensation of $718,095 attributable to the difference between the exercise price and the value of certain restricted shares of Common Stock acquired upon the exercise of stock options. (SUMMARY COMPENSATION TABLE CONTINUED)
Annual Compensation Long Term Awards Name and Year Salary ($) Bonus ($) Other Annual Securities All Other Principal Position Compensation Underlying Compensation ($) Options (#) Terrence H. Augenbraun,(1) 1995 165,804 28,500 100,000(2) 9,000 -0- Executive Vice President 1994 93,876 25,000 58,333(3) 11,334 -0- 1993 NA NA NA NA NA Wayne C. Hamerling,(4) 1995 157,004 3,500 86,974(5) 9,000 -0- Executive Vice President 1994 155,949 3,500 66,106(6) 4,000 -0- 1993 140,639 3,000 52,784(7) 6,500 -0-
- ---------- (1) As of December 31, 1995, Mr. Augenbraun held 1,334 restricted shares of Common Stock, with an aggregate value of $10,839 based upon the closing price of the Company's Common Stock as reported by the Nasdaq Stock Market, National Market system, of $8.125 on December 29, 1995. (2) Consists of selling commissions. (3) Consists of selling commissions. (4) As of December 31, 1995, Mr. Hamerling held 30,000 restricted shares of Common Stock, with an aggregate value of $243,750 based upon the closing price of the Company's Common Stock as reported by the Nasdaq Stock Market, National Market system, of $8.125 on December 29, 1995. (5) Consists of selling commissions equal to $82,160 and noncash compensation of $4,814 equal to the value of personal use of a Company leased automobile. (6) Consists of selling commissions equal to $62,749 and noncash compensation of $3,357 equal to the value of personal use of a Company leased automobile. (7) Consists of selling commissions equal to $41,784; and noncash compensation of $11,000 equal to the value of personal use of a Company leased automobile. The following table sets forth certain information relating to stock option grants during Fiscal 1995 to the Company's Chief Executive Officer and each of the four (4) most highly compensated executive officers of the Company whose compensation exceeded $100,000 per annum for services rendered in all capacities to the Company and its subsidiaries during fiscal year ended December 31, 1995: OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realized Value at Assumed Annual Rates of Stock Individualized Grants Price Appreciation for Option Term - ----------------------------------------------------------------------- ----------------------------------------- Name Number of % of Total Exercise Expiration Five (5%) Ten (10%) Securities Options/SARs or Base Date Percent Percent Underlying Granted to Price ($) ($) Options Employees in ($/Sh) Granted (#) Fiscal Year Jean Madar 50,000 15.97 $7.25 1/2/2000 100,152 221,310 Jean Madar 50,000 15.97 $8.625 12/6/2000 119,146 263,282 Philippe Benacin 50,000 15.97 $7.25 1/2/2000 100,152 221,310 Philippe Benacin 50,000 15.97 $8.625 12/6/2000 119,146 263,282 Bruce Elbilia 4,500 1.44 $7.25 1/2/2000 9,014 19,918 Bruce Elbilia 4,500 1.44 $8.625 12/6/2000 10,723 23,695 Wayne Hamerling 4,500 1.44 $7.25 1/2/2000 9,014 19,918 Wayne Hamerling 4,500 1.44 $8.625 12/6/2000 10,723 23,695 Terrence H. Augenbraun 4,500 1.44 $7.25 1/2/2000 9,014 19,918 Terrence H. Augenbraun 4,500 1.44 $8.625 12/6/2000 10,723 23,695
The following table sets forth certain information relating to option exercises effected during Fiscal 1994, and the value of options held as of such date by each of the four (4) most highly compensated executive officers of the Company whose compensation exceeded $100,000 per annum for services rendered in all capacities to the Company and its subsidiaries during fiscal year ended December 31, 1995: AGGREGATE OPTION EXERCISES FOR FISCAL 1995 AND YEAR END OPTION VALUES
Number of Value(1) of Unexercised Unexercised Options In-the-Money Options at December 31, 1995 at December 31, 1995 (#) ($) Shares Acquired Value ($) Exercisable/ Exercisable/ on Exercise Realized(2) Unexercisable Unexercisable Jean Madar -0- NA 595,687/-0- $629,528/$-0- Philippe Benacin 75,000 $650,000 613,687/-0- $699,878/$-0- Bruce Elbilia -0- NA 36,000/-0- $ 37,310/$-0- Wayne C. Hamerling 6,000 $ 44,460 36,000/-0- $ 37,310/$-0- Terrence H. Augenbraun -0- NA 23,000/-0- $ 19,688/$-0-
- ---------- (1) Total value of unexercised options is based upon the fair market value of the Common Stock as reported by the Nasdaq Stock Market of $8.125 on December 29, 1995. (2) Value realized in dollars is based upon the difference between the fair market value of the Common Stock on the date of exercise, and the exercise price of the option. Employment Agreements As part of the acquisition by the Company of the controlling interest in Inter Parfums in 1991, the Company entered into an employment agreement with Philippe Benacin. The agreement provides that Mr. Benacin will be employed as Vice Chairman of the Board and President and Chief Executive Officer of IP Holdings and its subsidiary, Inter Parfums. The initial term expired on September 2, 1992, and has subsequently been automatically renewed for additional annual periods. The agreement provides for automatic annual renewal terms, unless either party terminates the agreement upon 120 days notice. Mr. Benacin is entitled to receive an annual salary is 600,000ff (approximately US$ 120,000) together with 5,000ff per month (approximately US$1,000) for lodging expenses, both of which are subject to increases in the discretion of the Board of Directors. In addition he is to receive a nonaccountable expense allowance of 1,200ff (approximately US$ 240) per week and reimbursement for all out-of-pocket expenses associated with the acquisition, operation and maintenance of an automobile. The agreement also provides for indemnification and a covenant not to compete for one (1) year after termination of employment. Compensation of Directors Mr. Caccamo receives $500 for each board meeting at which he participates. On January 14, 1994, the Board of Directors of the Company adopted, subject to the approval of its stockholders, the 1994 Nonemployee Stock Option Plan (the "1994 Plan"). The purpose of the 1994 Plan is to assist the Company in attracting and retaining key directors who are responsible for continuing growth and success of the Company. The 1994 Plan was approved by the stockholders of the Company on July 8, 1994. The 1994 Plan provides for the grant of nonqualified stock options to nonemployee directors to purchase an aggregate of 25,000 shares of Common Stock. Options to purchase 1,000 shares are granted on each February 1st to all nonemployee directors for as long as each is a nonemployee director on such date, except for Joseph A. Caccamo, who is granted options to purchase 4,000 shares. Further, options to purchase 1,000 shares are to be granted to persons who become nonemployee directors at the time they become nonemployee directors. The exercise price of all options granted or to be granted under the 1994 Plan is to be equal to the fair market value of the Company's Common Stock on the date of grant, and the term of each option shall be for a five (5) year period, subject to earlier termination as set forth in the 1994 Plan. On February 1, 1996, in accordance with the terms of the 1994 Plan, options to purchase 1,000 shares were granted on such date to Francois Heilbronn, and 4,000 shares to nonemployee director, Joseph A. Caccamo, all at the exercise price of $8.0625 per share, the fair market value on the date of grant. Item 12. Security Ownership Of Certain Beneficial Owners And Management The following table sets forth information, as of March 25, 1996 with respect to the beneficial ownership of the Company's Common Stock by (a) each person known by the Company to be the beneficial owner of more than five percent (5%) of the Company's outstanding Common Stock, (b) the executive officers and directors of the Company and (c) the directors and officers of the Company as a group: Name and Address Amount of Approximate of Beneficial Owner Beneficial Percent of Class Ownership(1) Jean Madar 3,363,736(2) 31.7% c/o Inter Parfums, S.A. 4, Rond Point Des Champs Elysees 75008 Paris, France Philippe Benacin 2,931,736(3) 27.6% c/o Inter Parfums, S.A. 4, Rond Point Des Champs Elysees 75008 Paris, France Russell Greenberg 33,000(4) Less than 1% c/o Jean Philippe Fragrances, Inc. 551 Fifth Avenue New York, NY 10176 Francois Heilbronn 8,500(5) Less than 1% 12 Rue Pierre Leroux 75007 Paris, France - ---------- (1) All shares of Common Stock are directly held unless otherwise stated. (2) Consists of 2,768,049 shares held directly and options to purchase 595,687 shares of Common Stock. (3) Consists of 2,318,049 shares held directly and options to purchase 613,687 shares of Common Stock. (4) Consists of options to purchase shares of Common Stock. (5) Consists of 4,500 shares held directly and options to purchase 4,000 shares of Common Stock. (Beneficial Ownership Table Continued) Name and Address Amount of Approximate Percent of Beneficial Owner Beneficial of Class Ownership Bruce Elbilia 54,000(1) Less than 1% c/o Jean Philippe Fragrances, Inc. 551 Fifth Avenue New York, NY 10176 Wayne C. Hamerling 66,000(2) Less than 1% c/o Jean Philippe Fragrances, Inc. 551 Fifth Avenue New York, NY 10176 Joseph A. Caccamo 18,500(3) Less than 1% 666 Third Avenue--18th Fl. New York, NY 10017 Terrence H. Augenbraun 24,334(4) Less than 1% c/o Jean Philippe Fragrances, Inc. 551 Fifth Avenue New York, NY 10176 Jaime Resnik 20,500(5) Less than 1% c/o Jean Philippe Fragrances, Inc. 551 Fifth Avenue New York, NY 10176 FMR Corp., Fidelity Management 605,000(6) 6.0% & Research Company and Fidelity Low-Priced Stock Fund 82 Devonshire Street, Boston, MA 02109 All Directors and Officers 6,520,306(7) 57.2% as a Group (9 Persons) - ---------- (1) Consists of 18,000 shares held directly and options to purchase 36,000 shares of Common Stock. (2) Consists of 30,000 shares held directly and options to purchase 36,000 shares of Common Stock. (3) Consists of options to purchase shares of Common Stock. (4) Consists of 1,334 shares held directly and options to purchase 23,000 shares of Common Stock (5) Consists of options to purchase shares of Common Stock. (6) Information is derived forth in a Schedule 13G dated February 14, 1996 of Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., FMR Corp. and Fidelity Low-Price Stock Fund ("Fidelity Fund"). Fidelity is a registered investment advisor to various investment companies, including Fidelity Fund, which is listed as a beneficial owner. Edward C. Johnson, 3rd, and members of his family are control persons of FMR and therefore also listed as beneficial owners of the 605,000 shares of common stock or the Company. (7) Consists of 5,139,932 shares held directly and options to purchase 1,380,374 shares of Common Stock. Item 13. Certain Relationships And Related Party Transactions Transactions with French Subsidiaries In July 1994 the Company, through its subsidiary, Inter Parfums, acquired the outstanding capital stock of Parfums Jean Desprez, and its wholly-owned subsidiary, Jean Desprez, S.A. for approximately $3.1 million in excess of the tangible assets of the companies acquired. The acquisition was funded by Jean Philippe, and is being carried as an advance to its direct French subsidiary, IP Holding, and is due and payable on July 12, 1999, together with interest at seven percent (7%) per annum on the unpaid principal balance, payable quarterly in arrears, to the date of payment of the principal balance. IP Holding has in turn advanced such funds to Inter Parfums, which are repayable to IP Holding in ten (10) years together with interest at seven percent (7%) per annum. In addition, subject to compliance with applicable French regulatory requirements, the advance is convertible at the option of IP Holding into additional shares of common stock of Inter Parfums at the rate of 86 French francs per share. Subsequent to the closing of the sale of the Bal`a Versailles and Revolution `a Versailles assets in March 1996 (see Item 1, "Business-Products and Selection-Brand Name and Licensed Products"), IP Holdings intends to repay the sum of $1.575 million to Jean Philippe Fragrances in partial satisfaction of the aforementioned loan. In connection with the acquisitions by Inter Parfums of the world-wide rights under the Burberrys License Agreement and the Brosseau License Agreement, Jean Philippe guaranteed the obligations of Inter Parfums under the Burberrys License Agreement and the distribution agreement for Ombre Rose fragrances. Jean Philippe and Elite have guaranteed the obligations of IP Holdings and Inter Parfums to Republic National Bank of New York (France). Loans to Directors In February 1996 the Company made a short term loan in the sum of $400,000 to Jean Madar, the Chairman of the Board, together with interest at the rate of five (5%) percent per annum, and the principal amount of such loan was repaid in two (2) weeks. Interest of $770 is paid in April 1996. On August 20, 1996 the Company made a bridge loan in the amount of $175,000 to Russell Greenberg, the Chief Financial Officer and a Director, in connection with the sale of his residence and purchase of a new residence, with interest at the rate of four (4%) percent per annum. The sum of $145,000 was repaid four (4) days later. The balance of the loan is repayable $400 per month and prepayable out of the proceeds of any sale of shares of Common Stock of the Company by Mr. Greenberg. Repurchase of Shares from Officers and Directors In August 1995 Philippe Benacin, the President and a Director, exercised a nonqualified stock option to purchase 75,000 shares at $1.33 per share. In connection with the Company's stock repurchase program, the Company purchased such shares at $10.00 per share, which was below the market value at the time of the sale. In April 1995 the Company, in connection with the Company's stock repurchase program, purchased from Joseph A. Caccamo, the principal of the general counsel to the Company and a Director, 1,005 shares at $8.625 per share, the fair market value at the time of such sale. In September 1995 Mr. Caccamo exercised nonqualified stock options to purchase 5,000 shares at $7.75 per share and 4,000 shares at $7.6875. In connection with the Company's stock repurchase program, the Company purchased such shares at $10.25 per share and $10.1875 per share, respectively, which was below the fair market value at the time of such sales. Remuneration of Counsel Joseph A. Caccamo, a director of the Company, is the principal of Joseph A. Caccamo Attorney at Law, P.C., general counsel to the Company. Mr. Caccamo's firm was paid $107,223 in legal fees and for reimbursement of disbursements incurred on behalf of the Company during Fiscal 1995, and presently receives a monthly retainer of $7,250 together with reimbursement for expenses. In addition, his firm is of counsel to the law firm of Robson & Miller, LLP, which received an aggregate of fees and disbursements equal to $34,570 during Fiscal 1995. On February 1, 1996 in accordance with the terms of the 1994 Plan, Mr. Caccamo was granted an option with a term of five (5) years to purchase 4,000 shares at $8.0625 per share, the fair market value at the time of grant. In addition, Mr. Caccamo receives $500 for each board meeting at which he participates. PART IV Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K (a)(1) Financial Statements annexed hereto Page No. Reports of Independent Auditors- F-1 Consolidated Balance Sheets as at December 31, 1995 and December 31, 1994 F-3 Consolidated Statements of Income for the Years ended December 31, 1995, December 31, 1994 and December 31, 1993 F-4 Consolidated Statements of Changes in Shareholders' Equity for the Years ended December 31, 1995, December 31, 1994 and December 31, 1993 F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 1995, December 31, 1994 and December 31, 1993 F-6 Notes to Financial Statements F-7 (a)(2) Financial Statement Schedules annexed hereto: Schedule II - Valuation and Qualifying Accounts and Reserves S-1 Schedules other than those referred to above have been omitted as the conditions requiring their filing are not present or the information has been presented elsewhere in the consolidated financial statements. (a)(3) Exhibits The following documents heretofore filed by the Company with the Securities and Exchange Commission (the "Commission") are hereby incorporated by reference from the Company's Registration Statement on Form S-18, file no. 33-17139-NY: Exhibit No. and Description 3.1 Restated Certificate of Incorporation 4.2 Common Stock Certificate Specimen 4.4 1987 Stock Option Plan The following document heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987: Exhibit No. and Description 3.2 By-laws, as amended The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - January 18, 1990), as follows: Exhibit No. and Description 10.13 License Agreement between the Company and Jordache dated January 18, 1990 (as no. 10.1 therein). 10.15 Letter of Indemnification from Jordache to the Company dated January 18, 1990 (as no. 10.3 therein) 10.16 Letter Agreement from Jordache to the Company regarding foreign license rights dated January 18, 1990 (as no. 10.4 therein). The following documents heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990: Exhibit No. and Description 3.1(a) Certificate of Amendment of the Restated Certificate of Incorporation 10.20 Stock Option Agreement between the Company and Philippe Benacin dated August 31, 1990. The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 29, 1991), as follows: Exhibit No. and Description 10.24 Agreement and Plan or Reorganization dated July 29, 1991 among the Company, Jean Madar and Philippe Benacin (as No. 10.1 therein) The following document heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991: Exhibit No. and Description 10.25 Employment Agreement between the Company and Philippe Benacin dated July 29, 1991 The following documents heretofore filed with the Commission is incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-48811): Exhibit No. and Description 10.26 Lease for portion of 15th Floor, 551 Fifth Avenue, New York, New York The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992: Exhibit No. and Description 3.1(b) Amendment to the Company's Restated Certificate of Incorporation, as amended, dated July 31, 1992 4.9 1992 Stock Option Plan 4.10 Amendment to 1992 Stock Option Plan 4.11 1993 Stock Option Plan The following documents heretofore filed with the Commission are incorporated by reference to the Company's Registration Statement on Form S-3 (No. 33-63330): Exhibit No. and Description 4.12 Form of Warrant Agreement between Bear, Stearns & Co. Inc. and Jean Philippe Fragrances, Inc. 10.29 Form of Purchase Agreement The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 15, 1993), as follows: Exhibit No. and Description 10.30 License Agreement dated July 15, 1993, among Burberrys Limited, Inter Parfums, S.A. and Jean Philippe Fragrances, Inc.1 10.31 License Agreement dated May 7, 1993, between Jean-Charles Brosseau, S.A. and Inter Parfums, S.A. (original in French)1 10.32 License Agreement dated May 7, 1993, between Jean-Charles Brosseau, S.A. and Inter Parfums, S.A.(translation of French into English)1 10.33 Agreement dated July 14, 1993, between Alfin, Inc. and Inter Parfums, S.A.1 10.34 Agreement dated July 16, 1993 among Inter Parfums, S.A., Jean Philippe Fragrances, Inc., C&C Beauty Sales, Inc. and Parfico, Inc. 10.35 Distribution Agreement dated July 16, 1993 among Inter Parfums, S.A., Jean Philippe Fragrances, Inc. and Fragrance Marketing Group, Inc.1 - ------------------ 1Filed in excised form, as confidentiality is being sought for certain portions thereof. The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - February 28, 1994), as follows: Exhibit No. and Description 10.36 Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Molyneux) 10.37 Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Weil) 10.38 Agreement (Acquisition) among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Cosmetiques et Parfums de France, S.A. dated February 18, 1994 10.39 Noncompetition Agreement among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 10.40 Commission Agreement among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 10.41 Convention between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re inventory purchase) 10.42 Convention de Nantissement among Cosmetiques et Parfums de France, S.A., Cosmetiques et Parfums de France-I.D., S.A., Sodipe S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. dated February 18, 1994 (re security agreement) 10.43 Convention among Cosmetiques et Parfums de France-I.D., S.A., Cosmetiques et Parfums de France,S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 (re French regulatory requirements) 10.44 Acquisition Agreement among Jean Philippe Fragrances, Inc., Revlon Consumer Products Corporation and Revlon Suisse, S.A. dated March 2, 1994 10.45 License Agreement among Jean Philippe Fragrances, Inc., Revlon Consumer Products Corporation and Revlon Suisse, S.A. dated March 2, 1994 The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Form 8 Amendment no. 1 (dated March 14, 1994) to the Current Report on Form 8-K (date of event - February 28, 1994), as follows: Exhibit No. and Description 10.46. English translation of exhibit no. 10.36, Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Molyneux) 10.47. English translation of exhibit no. 10.37, Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Weil) 10.48. English translation of exhibit no. 10.41, Convention between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re inventory purchase) 10.49. English translation of exhibit no. 10.42, Convention de Nantissement among Cosmetiques et Parfums de France, S.A., Cosmetiques et Parfums de France-I.D., S.A., Sodipe S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. dated February 18, 1994 (re security agreement) The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Form 8 Amendment no. 2 (dated March 21, 1994) to the Current Report on Form 8-K (date of event - February 28, 1994), as follows: Exhibit No. and Description 10.50. English translation of exhibit no. 10.43, Convention among Cosmetiques et Parfums de France-I.D., S.A., Cosmetiques et Parfums de France, S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 (re French regulatory requirements) The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993: Exhibit No. and Description 3.1(c) Amendment to the Company's Restated Certificate of Incorporation, as amended, dated July 9, 1993 3.3 Articles of Incorporation of Inter Parfums Holding, S.A. 3.3.1 English Translation of Exhibit no. 3.3, Articles of Incorporation of Inter Parfums Holding, S.A. 3.4 Articles of Incorporation of Inter Parfums, S.A. 3.4.1 English Translation of Exhibit no. 3.4, Articles of Incorporation of Inter Parfums, S.A. 4.14 Warrant no. 108 registered in the name of Ladenburg, Thalmann & Co., Inc. dated February 2, 1994 4.15 1994 Nonemployee Director Stock Option Plan 10.51 Traite D'Apport Partiel D'Actif dated July 30, 1993 (Reorganization Agreement between Inter Parfums, S.A. and Selective Industrie, S.A.) 10.51.1 English translation of Exhibit no. 10.51, Traite D'Apport Partiel D'Actif dated July 30, 1993 (Reorganization Agreement between Inter Parfums, S.A. and Selective Industrie, S.A.) 10.52 Lease for portion of 4, Rond Point Des Champs Des Elysees dated September 30, 1993 10.52.1 English translation of Exhibit no. 10.52, Lease for portion of 4, Rond Point Des Champs Des Elysees dated September 30, 1993 10.53 Lease for portion of 4, Rond Point Des Champs Des Elysees dated March 2, 1994 10.53.1 English translation of Exhibit no. 10.53, Lease for portion of 4, Rond Point Des Champs Des Elysees dated March 2, 1994 The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - May 31, 1994), as follows: Exhibit No. and Description 10.55 License Agreement between Chesebrough-Pond's, Inc. and Jean Philippe Fragrances, Inc. dated May 31, 1994 2, listed as no. 10.51 therein. 10.56 Asset Purchase Agreement between Conopco, Inc. and Jean Philippe Fragrances, Inc. dated May 31, 1994, listed as no. 10.52 therein. The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 15, 1994), as follows: Exhibit No. and Description 10.57 Revolving Credit Agreement dated July 15, 1994 among Republic National Bank of New York, Jean Philippe Fragrances, Inc. and Elite Parfums, Ltd., listed as no. 10.54 therein. The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Form 8 Amendment no. 1 (dated August 8, 1994) to the Current Report on Form 8-K (date of event - July 13, 1994), as follows: Exhibit No. and Description 10.58. Engagements de Garanties among Zanimob Enterprise Limited, Jacomo France and Inter Parfums, S.A. dated July 12, 1994, listed as no. 10.53 therein. 10.58.1 English translation of exhibit no. 10.53, Engagements de Garanties among Zanimob Enterprise Limited, Jacomo France and Inter Parfums, S.A. dated July 12, 1994, listed as no. 10.53.1 therein. The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994: 4.15 1994 Nonemployee Director Supplemental Stock Option Plan 10.59 Modification of Lease Agreement dated June 17, 1994 between Metropolitan Life Insurance Company and Jean Philippe Fragrances, Inc. _______________________ 2Filed in excised form as confidential treatment has been granted for certain provisions thereof. The following exhibits are filed herewith: Exhibit No. and Description 10.60 Guaranty and Security Agreement of Jean Philippe Fragrances, Inc. and Elite Parfums, Ltd. to Republic National Bank of New York (France) dated July 19, 1995 10.61 Lease for 60 Stults Road, South Brunswick, NJ between Forsgate Industrial Complex, a limited partnership, and Jean Philippe Fragrances, Inc. dated July 10, 1995 10.62 Intellectual Property Purchase Agreement between Parlux Fragrances, Inc. and Parfums Jean Desprez, S.A. dated March 12, 1996 10.63 Inventory Purchase Agreement between Parlux Fragrances, Inc. and Jean Desprez, S.A. dated March 12, 1996 11 Statement re: Computation of Earnings Per Share 21 List of Subsidiaries (b) Reports on Form 8-K: No Current Reports on Form 8-K were filed during the fourth quarter of Fiscal 1995. Richard A. Eisner & Company, LLP Accountants and Consultants REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Jean Philippe Fragrances, Inc. New York, New York We have audited the accompanying consolidated balance sheets of Jean Philippe Fragrances, Inc. and subsidiaries as at December 31, 1995 and December 31, 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Inter Parfums Holdings, S.A. and subsidiaries, consolidated subsidiaries of the Company, which statements include total assets, net sales and net income constituting 53%, 38% and 51% of the related consolidated totals for 1995 and 47%, 36% and 13% for 1994 and 30%, 28% and 28% for 1993. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts for Inter Parfums Holdings, S.A. and subsidiaries, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements enumerated above present fairly, in all material respects, the consolidated financial position of Jean Philippe Fragrances, Inc. and subsidiaries at December 31, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. Our audits referred to above included Schedule II for each of the years in the three-year period ended December 31, 1995. In our opinion, such schedule presents fairly the information set forth therein in accordance with the applicable accounting regulation of the Securities and Exchange Commission. Richard A. Eisner & Company, LLP New York, New York March 19, 1996 With respect to accounts for foreign subsidiaries March 27, 1996 INDEPENDENT AUDITOR'S REPORT INTER PARFUMS HOLDING AND SUBSIDIARIES We have audited the consolidated balance sheets of Inter Parfums Holding and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income, retained earnings and cash flows for the years ended December 31, 1995, 1994 and 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Inter Parmfums Holding and subsidiaries as of December 31, 1995 and 1994 and the results of its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. CABINET CAUVIN, ANGLEYS, SAINT-PIERRE INTERNATIONAL Paris, France March 27, 1996 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except share and per share data) December 31, ------------------- A S S E T S 1995 1994 ----------- ------- ------- Current assets: Cash and cash equivalents. . . . . . . . . . . . . $14,204 $ 5,275 Accounts receivable, net of allowances of $4,208 and $2,823 in 1995 and 1994, respectively (Note F) . . . . . . . . . . . . . . . . . . . . 22,884 19,876 Inventories (Notes A and C). . . . . . . . . . . . 26,093 24,641 Receivables, other . . . . . . . . . . . . . . . . 970 1,936 Other. . . . . . . . . . . . . . . . . . . . . . . 987 1,786 Deferred tax benefit (Note K). . . . . . . . . . . 2,401 992 -------- ------- Total current assets. . . . . . . . . . . . 67,539 54,506 Equipment and leasehold improvements, net (Notes A and D). . . . . . . . . . . . . . . . . . 1,970 1,202 Other assets. . . . . . . . . . . . . . . . . . . . . 1,314 584 Deferred tax benefit (Note K) . . . . . . . . . . . . 582 732 Trademarks and licenses, net (Notes A and E). . . . . 12,596 12,427 -------- ------- T O T A L . . . . . . . . . . . . . . . . . $84,001 $69,451 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Loans payable, banks (Note F). . . . . . . . . . . $ 9,922 $ 6,681 Current portion of long-term debt. . . . . . . . . 187 Accounts payable . . . . . . . . . . . . . . . . . 15,012 14,647 Income taxes payable . . . . . . . . . . . . . . . 1,242 1,765 -------- ------- Total current liabilities . . . . . . . . . 26,176 23,280 -------- ------- Long-term debt, less current portion (Note G) . . . . 596 862 -------- ------- Minority interest . . . . . . . . . . . . . . . . . . 5,253 796 -------- ------- Commitments (Note H) Shareholders' equity (Note I): Preferred stock, $.001 par value; authorized 1,000,000 shares; none issued Common stock, $.001 par value; authorized 30,000,000 shares; outstanding 10,009,981 and 10,242,786 shares in 1995 and 1994, respectively . . . . . . . . . . . . . . . . . . 10 10 Additional paid-in capital . . . . . . . . . . . . 20,610 20,408 Retained earnings. . . . . . . . . . . . . . . . . 32,565 23,527 Foreign currency translation adjustment. . . . . . 1,681 568 Treasury stock, at cost 810,503 and 486,198 shares in 1995 and 1994, respectively. . . . . . (2,890) -------- ------- Total shareholders' equity. . . . . . . . . 51,976 44,513 -------- ------- T O T A L . . . . . . . . . . . . . . . . . $84,001 $69,451 ======== ======= The accompanying notes are an integral part of these financial statements. JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands except share and per share data) Year Ended December 31, --------------------------------------- 1995 1994 1993 -------- ------- ------- Net sales . . . . . . . . . . . . $93,669 $75,079 $59,546 Cost of sales . . . . . . . . . . 48,703 39,036 32,964 -------- -------- ------- Gross margin. . . . . . . . . . . 44,966 36,043 26,582 Selling, general and administrative . . . . . . . . 32,990 23,773 15,814 Loss on product discontinuance. . 2,229 -------- -------- ------- Income from operations. . . . . . 9,747 12,270 10,768 -------- -------- ------- Other charges (income): Interest . . . . . . . . . . . 1,148 803 619 (Gain) loss on foreign currency . . . . . . . . . . (197) 161 (178) Interest (income). . . . . . . (274) (152) (269) (Gain) on sale of stock of subsidiary . . . . . . . . . (3,310) (221) (644) -------- -------- -------- (2,633) 591 (472) -------- -------- -------- Income before income taxes. . . . 12,380 11,679 11,240 Income taxes. . . . . . . . . . . 3,188 4,330 4,137 -------- -------- ------- Income before minority interest . 9,192 7,349 7,103 Minority interest in net income of consolidated subsidiary . . 154 74 4 -------- -------- ------- NET INCOME. . . . . . . . . . . . $ 9,038 $ 7,275 $ 7,099 ======== ======== ======= Net income per share. . . . . . . $0.87 $0.70 $0.70 ====== ====== ===== Weighted average number of common and common equivalent shares outstanding. . . . . . . . . . 10,438,896 10,454,555 10,132,628 =========== =========== ========== The accompanying notes are an integral part of these financial statements. JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands except share and per share data)
Common Stock Additional -------------------- Paid-in Retained Translation Treasury Shares Amount Capital Earnings Adjustments Stock Total ---------- -------- --------- -------- ----------- ------- ------- Balance - January 1, 1993. . . . . . . . . . . . . . . 9,206,201 $ 9 $ 9,365 $ 9,154 $ (40) $18,488 Issuance of common stock . . . . . . . . . . . . . . . 550,000 1 7,630 7,631 Shares issued upon exercise of stock options and warrants. . . . . . . . . 165,750 649 649 Tax benefit from exercise of stock options . . . . . . 285 285 Net income . . . . . . . . . . . . . . . . . . . . . . 7,099 7,099 Translation adjustments. . . . . . . . . . . . . . . . (378) (378) ---------- -------- --------- -------- ----------- ------- ------- Balance - December 31, 1993. . . . . . . . . . . . . . 9,921,951 10 17,929 16,253 (418) 33,774 Issuance of common stock for acquisition . . . . . . . 200,000 2,200 2,200 Shares issued upon exercise of stock options and warrants. . . . . . . . . 121,835 279 279 Net income . . . . . . . . . . . . . . . . . . . . . . 7,274 7,274 Translation adjustments. . . . . . . . . . . . . . . . 986 986 ---------- -------- --------- -------- ----------- ------- ------- Balance - December 31, 1994. . . . . . . . . . . . . . 10,243,786 10 20,408 23,527 568 44,513 Shares issued upon exercise of stock options . . . . . 91,500 202 202 Net income . . . . . . . . . . . . . . . . . . . . . . 9,038 9,038 Translation adjustments. . . . . . . . . . . . . . . . 1,113 1,113 Purchased treasury shares. . . . . . . . . . . . . . . (324,305) $(2,890) (2,890) ---------- -------- --------- -------- ----------- ------- ------- BALANCE - DECEMBER 31, 1995. . . . . . . . . . . . . . 10,010,981 $10 $20,610 $32,565 $1,681 $(2,890) $51,976 ========== ======== ========= ======== =========== ======= =======
The accompanying notes are an integral part of these financial statements. JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands except share and per share data)
Year Ended December 31, ------------------------------ 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . $ 9,038 $ 7,275 $ 7,099 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization. . . . . . . . . . 1,322 879 412 Gain on sale of stock of subsidiary. . . . . . . (3,311) (221) (644) Minority interest in net income. . . . . . . . . 158 74 4 Increase (decrease) in cash from changes in: Accounts receivable. . . . . . . . . . . . . . (2,609) (1,493) (6,500) Inventories. . . . . . . . . . . . . . . . . . (1,043) (6,118) (5,569) Other assets . . . . . . . . . . . . . . . . . 1,102 (3,085) 131 Deferred tax benefit . . . . . . . . . . . . . (1,223) (216) Accounts payable . . . . . . . . . . . . . . . (75) 4,824 436 Income taxes payable . . . . . . . . . . . . . (523) 141 1,568 -------- -------- -------- Net cash provided by (used in) operating activities . . . . . . . . . . . 2,836 2,060 (3,063) -------- -------- -------- Cash flows from investing activities: Purchase of equipment and leasehold improvements . . (1,244) (714) (453) Cash portion of trademark and license acquisitions . (135) (9,144) (1,759) Loan to officer. . . . . . . . . . . . . . . . . . . (99) Repayment of officer loans . . . . . . . . . . . . . 315 -------- -------- -------- Net cash (used in) investing activities. . . (1,379) (9,858) (1,996) -------- -------- -------- Cash flows from financing activities: Increase in loan payable - bank. . . . . . . . . . . 3,085 2,173 165 Proceeds from issuance of long-term debt . . . . . . 722 708 Repayment of long-term debt. . . . . . . . . . . . . (499) (181) (111) Proceeds from issuance of common stock . . . . . . . 7,631 Proceeds from sale of stock of subsidiary. . . . . . 7,579 194 1,157 Purchase of treasury stock . . . . . . . . . . . . . (2,890) Proceeds from exercise of options and warrants . . . 202 279 649 -------- -------- -------- Net cash provided by financing activities. . 7,477 3,187 10,199 -------- -------- -------- Effect of exchange rate changes in cash . . . . . . . . (5) (34) (15) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . 8,929 (4,645) 5,125 Cash and cash equivalents - beginning of year . . . . . 5,275 9,920 4,795 -------- -------- -------- CASH AND CASH EQUIVALENTS - END OF YEAR . . . . . . . . $14,204 $ 5,275 $ 9,920 ======== ======== ======== Supplemental disclosures of cash flow information: Cash paid for: Interest . . . . . . . . . . . . . . . . . . . . . $ 1,146 $ 791 $ 635 Income taxes . . . . . . . . . . . . . . . . . . . 4,968 4,781 2,720
The accompanying notes are an integral part of these financial statements. JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE A) - The Company and its Significant Accounting Policies: [1] Business of the Company: The Company is a manufacturer and distributor of domestic and international brand name and licensed fragrances, alternative designer fragrances and mass market cosmetics. [2] Basis of preparation: The consolidated financial statements include the accounts of Jean Philippe Fragrances, Inc. ("JPF") and its domestic and foreign subsidiaries (the "Company"). All material intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. [3] Foreign currency translation: For foreign subsidiaries that operate in a foreign currency, assets and liabilities are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the year. Gains and losses from translation adjustments are accumulated in a separate component of shareholders' equity. In instances where the financial statements of foreign entities are remeasured into their functional currency (U.S. dollars), the remeasurement adjustment is recorded in operations. [4] Cash equivalents: All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. [5] Inventories: Inventories are stated at the lower of cost (first-in, first-out) or market. [6] Equipment and leasehold improvements: Equipment and leasehold improvements are stated at cost. Depreciation and amortization are provided using the straight-line method and the declining balance method over the estimated useful asset lives for equipment and the shorter of the lease term or estimated useful asset lives for leasehold improvements. (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE A) - The Company and its Significant Accounting Policies: (continued) [7] Trademarks and licenses: Trademarks are stated at cost and are amortized by the straight-line method over twenty years. The cost of licenses acquired is being amortized by the straight-line method over the term of the license, approximately seven to ten years. The Company reviews trademarks and licenses for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. [8] Revenue recognition: Revenue is recognized upon shipment of merchandise. Allowances are established for estimated returns. [9] Issuance of common stock of subsidiary: The Company's share of the proceeds in excess of the carrying amount of the portion of the Company's investment sold is reflected as a gain in the consolidated income statement. [10] Per share data: Net income per share is based on the weighted average number of common and common equivalent shares outstanding during each year. Common equivalent shares, which consist of unissued shares under options and warrants, are included in the computation when the results are dilutive. (NOTE B) - Loss on Product Discontinuance: As a result of disppointing sales of the Cutex lip color line, the Company decided to discontinue prodcution of the line in October 1995. As a result, the Company has taken a nonrecurring charge aggregating $2.2 million, before taxes, in the fourth quarter of 1995. This charge represents a writedown of current lip product inventory and the effect of potential customer returns or markdowns of lip products expected in 1996. The discontinued lip color line did not contribute to net sales in 1995 as customer returns exceeded new product shipments. JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE B) - Loss on Product Discontinuance: (continued) As a result of this issue, among others, relating to the Cutex product lines, the Company and the licensor have agreed to a reduction of the minimum royalties payable under the Cutex license. The Company believes that such relief, along with the discontinuance of the lip color line, will enable the Company to direct all Cutex marketing efforts and resources to building upon the core nail care business for which Cutex is famous. (NOTE C) - Inventories: December 31, ------------------- 1995 1994 ------- ------- Raw materials and component parts. . . . . . . . . . . . . $10,982 $10,537 Finished goods. . . . . . . . . . 15,111 14,104 ------- ------- T o t a l . . . . . . . $26,093 $24,641 (NOTE D) - Equipment and Leasehold Improvements: December 31, ------------------- 1995 1994 ------- ------- Equipment . . . . . . . . . . . . $3,308 $ 2,275 Leasehold improvements. . . . . . 727 405 ------- ------- 4,035 2,680 Less accumulated depreciation and amortization . . . . . . . 2,065 1,478 ------- ------- T o t a l . . . . . . . $1,970 $ 1,202 ======= ======= (NOTE E) - Trademarks and Licenses: December 31, ------------------- 1995 1994 ------- ------- Trademarks. . . . . . . . . . . . $11,015 $10,032 Licenses. . . . . . . . . . . . . 3,246 3,008 ------- ------- 14,261 13,040 Less accumulated amortization . . 1,665 613 ------- ------- T o t a l . . . . . . . $12,596 $12,427 ======= ======= (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE F) - Loans Payable - Banks: December 31, ------------------- 1995 1994 ------- ------- Borrowings under a $12,000 unsecured revolving line of credit. Principal is due on demand bearing interest at the bank's prime rate or 1.75% above the LIBOR rate. . . . . . . . . . . . . . . . $ 2,600 $ 3,000 Borrowings by the Company's foreign subsidiaries under a $4,000 credit facility whereby accounts receivable are sold with recourse and accounted for as a loan and bearing interest at 0.8% above the PIBOR rate (5.5% at December 31, 1995). . . . . . . . . . . . 2,530 996 Borrowings by the Company's foreign subsidiaries under several bank overdraft facilities bearing interest at 1.0% above the PIBOR rate. . . . . . . 4,792 1,374 Other borrowings by the Company's foreign subsidiaries. . . . . . . . . . . 1,311 ------- ------- T o t a l. . . . . . . . . . . . . $ 9,922 $ 6,681 ======= ======= (NOTE G) - Long-Term Debt: Borrowings by the Company's foreign subsidiary of $596 is due in 2004, or the loan may be converted into shares of the Company's foreign subsidiary at approximately $15 per share. Interest is payable quarterly at 7% per annum. (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE H) - Commitments: [1] Leases: The Company leases its office and warehouse facilities under operating leases expiring through 2003. Rental expense amounted to $730 in 1995, $442 in 1994 and $362 in 1993. Minimum future rental payments are as follows: 1996. . . . . . . . . . . . $1,307 1997. . . . . . . . . . . . 1,180 1998. . . . . . . . . . . . 1,127 1999. . . . . . . . . . . . 684 2000. . . . . . . . . . . . 684 Thereafter. . . . . . . . . 1,926 ------ T o t a l . . . . $6,908 ====== [2] License agreements: In January 1990, the Company entered into a license agreement with Jordache Enterprises, Inc. ("Jordache"). In connection therewith, the Company acquired the exclusive license to use the Jordache trademark in connection with fragrances and cosmetics in the United States and various territories abroad. The license, which expired June 30, 1995, permits ten annual renewals at the Company's option, subject to certain minimum sales requirements and royalty payments. The Company has exercised its option to renew for the year ended June 30, 1996. On July 15, 1993, the Company entered into a license agreement with Burberrys Limited. In connection therewith, the Company obtained the exclusive world-wide rights for the manufacturing and distribution of Burberrys' fragrances. The license agreement expires December 31, 2003, subject to certain minimum sales requirements and royalty payments. On July 16, 1993, the Company entered into an exclusive, ten-year, world-wide license with Jean Charles Brosseau S.A. for Ombre Rose fragrances, subject to certain minimum sales requirements and royalty payments. On May 31, 1994 the Company entered into a license agreement with Chesebrough-Pond's USA for the United States and Puerto Rican rights to manufacture and market Cutex nail care and lip color products, excluding nail polish remover. The license is for a term of ten years, including renewal periods, and is subject to certain minimum sales and royalty payments. (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE H) - Commitments: [2] License agreements: (continued) Minimum future royalty payments due pursuant to license agreements are as follows: 1996. . . . . . . . . . . . $ 2,166 1997. . . . . . . . . . . . 2,156 1998. . . . . . . . . . . . 2,077 1999. . . . . . . . . . . . 2,122 2000. . . . . . . . . . . . 2,192 Thereafter. . . . . . . . . 3,590 ------- T o t a l . . . . $14,303 ======= (NOTE I) - Shareholders' Equity: [1] Issuance of common stock of subsidiary: In December 1993, Inter Parfums, S.A., a consolidated subsidiary of the Company, sold 100,000 shares of its common stock at 70 French francs per share aggregating 7 million French francs or approximately $1.2 million. The shares were sold in a private placement transaction to unaffiliated French institutional investors. In 1994, 10,000 shares were sold to enable the stock of Inter Parfums, S.A. to commence trading on the over-the-counter Paris Stock Exchange, and 11,536 shares were issued pursuant to the conversion terms of the Company's long-term debt. In November 1995, Inter Parfums, S.A. completed a public offering of 308,000 shares of its common stock at 130 French francs per share. Net proceeds of such offering aggregated 36.5 million French francs or approximately $7.6 million. In connection with such offering, Inter Parfums Holdings, S.A. ("Holdings"), a wholly-owned subsidiary of the Company and direct parent of Inter Parfums, S.A. exercised its right to convert a portion of its convertible debt into 250,000 shares of capital stock of Inter Parfums, S.A. at 80 French francs per share. As a result of such issuances in 1995, the percentage ownership of Inter Parfums, S.A. was reduced from 90.64% to 76.72%. The Company's share of the offering, sale or conversion proceeds in excess of the carrying amount of the portion of the Company's investment sold is reflected as a gain in the consolidated income statement. Deferred taxes have not been provided because application of available tax savings strategies would eliminate taxes on this transaction. (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE I) - Shareholders' Equity: (continued) [2] Stock option plans: The Company maintains a stock option program for key employees and executives and a separate program for nonemployee directors. The plans provide for the granting of both nonqualified and incentive options. Options granted under the plans are exercisable for a period of up to ten years from the date of grant. A summary of option transactions during the year ended December 31, 1995 is presented below: Incentive Nonqualified Stock Options Stock Options Shares under option - beginning ------------- ------------- of year. . . . . . . . . . . 31,500 1,248,974 Options granted . . . . . . . . 313,150 Options exercised at prices ranging from $3.83 to $7.75. (6,000) (10,500) Options cancelled . . . . . . . (35,250) ------ --------- Shares under option - end of year (1) . . . . . . . . . . 25,500 1,516,374 ====== ========= Exercise price. . . . . . . . . $3.83 to $4.22 $6.67 to $12.00 ============== =============== Options available for grant . . 162,600 177,100 ======= ======= (1) All of which are exercisable. In addition, the Company has outstanding options not pursuant to any plan. Options for 75,000 shares were exercised during 1995 at $1.33 per share and 1,000 remain outstanding at an exercise price of $12.00. (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE J) - Geographic Areas: Information on the Company's operations by geographical areas is as follows: Year Ended December 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- Net sales: United States. . $ 57,382 $ 48,377 $ 43,103 Europe . . . . . 38,451 30,672 20,661 South America. . 693 Eliminations . . (2,857) (3,970) (4,218) -------- -------- -------- T o t a l. . . $ 93,669 $ 75,079 $ 59,546 ======== ======== ======== Net income: United States. . $ 4,256 $ 6,297 $ 5,139 Europe . . . . . 4,619 1,295 1,960 South America. . 107 Eliminations . . 56 (317) -------- -------- -------- T o t a l. . . $ 9,038 $ 7,275 $ 7,099 ======== ======== ======== Total assets: United States. . $ 50,767 $ 49,625 $ 37,362 Europe . . . . . 44,522 32,518 15,134 South America. . 900 Eliminations . . (12,188) (12,692) (2,587) -------- -------- -------- T o t a l. . . $ 84,001 $ 69,451 $ 49,909 ======== ======== ======== United States export sales were approximately $6,400, $5,700 and $5,100 for the years ended December 31, 1995, 1994 and 1993, respectively. (NOTE K) - Income Taxes: The components of income before income taxes consist of the following: Year Ended December 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- U.S. operations . . $ 6,802 $ 10,244 $ 8,480 Foreign operations. 5,483 1,951 2,760 Eliminations. . . . 95 (516) -------- -------- -------- T o t a l. . . $ 12,380 $ 11,679 $ 11,240 ======== ======== ======== (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE K) - Income Taxes: (continued) The provision for current and deferred income tax expense consists of the following: Year Ended December 31, ------------------------------------ 1995 1994 1993 -------- -------- -------- Current: Federal . . . . . $2,627 $3,434 $2,762 State and local . 618 919 746 Foreign . . . . . 316 180 915 ------ ------ ------ T o t a l . . . $3,561 $4,533 $4,423 ====== ====== ====== Deferred: Federal . . . . . $ (555) $ (338) $ (175) State and local . (143) (69) 8 Foreign . . . . . 325 204 (119) ------ ------ ------ T o t a l . . . . $ (373) $ (203) $ (286) ====== ====== ====== Deferred taxes are provided principally for valuation reserves, and certain other expenses that are recognized in different years for financial reporting and income tax purposes. At December 31, 1995, the deferred tax assets consists of approximately $2,400 relating to reserves and other expenses which are not currently deductible for tax purposes and approximately $581 relating to available foreign net operating loss carryforwards. Differences between the United States federal statutory income tax rate and the effective income tax rate were as follows: Year Ended December 31, --------------------- 1995 1994 1993 ----- ----- ----- Statutory rates. . . . . . . . 34.0% 34.0% 34.0% State and local taxes, net of federal benefit . . . . . . 2.5 4.8 4.4 Nontaxable gain on sale of stock of subsidiary . . . . (9.2) Other. . . . . . . . . . . . . (1.6) (1.7) (1.6) ----- ----- ----- Effective rates. . . . . . . . 25.7% 37.1% 36.8% ===== ===== ===== (continued) JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (in thousands except share and per share data) (NOTE L) - Subsequent Event: On March 19, 1996, the Company sold the trademarks of the Bal `a Versailles and Revolution' a Versailles lines. The aggregate sales price was $4.95 million which includes $1.8 million of inventory at cost. (continued) SCHEDULE II JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (in thousands)
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions -------------------------- (1) (2) Balance -------------------------- at Charged to Balance beginning Charged to other at of costs and accounts - Deductions - end of Description period expenses describe (A) describe (B) period ----------- ------ -------- ------------ ------------ ------ Year ended December 31, 1995: Allowances for sales returns and doubtful accounts . . . . . . . . . . . . . . . $2,823 $1,546 $160 (a) $4,208 ====== ====== ===== ====== Year ended December 31, 1994: Allowances for sales returns and doubtful accounts . . . . . . . . . . . . . . . $1,202 $2,150 $529 (a) $2,823 ====== ====== ===== ====== Year ended December 31, 1993: Allowances for sales returns and doubtful accounts . . . . . . . . . . . . . . . $1,086 $ 716 $600 (a) $1,201 ====== ====== ===== ======
(a) Write off of bad debts and sales returns. The accompanying notes are an integral part of these financial statements. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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. JEAN PHILIPPE FRAGRANCES, INC. By: /s/ Philippe Benacin -------------------- Philippe Benacin, President Date: March 27, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Jean Madar - -------------- Jean Madar Chairman of the March 26, 1996 Board of Directors /s/ Philippe Benacin - -------------------- Philippe Benacin Chief Executive Officer March 27, 1996 and Director /s/ Russell Greenberg - --------------------- Chief Financial and March 26, 1996 Russell Greenberg Accounting Officer and Director /s/ Francois Heilbronn - ---------------------- Director March 27, 1996 Francois Heilbronn /s/ Joseph A. Caccamo - --------------------- Director March 26, 1996 Joseph A. Caccamo UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBIT INDEX TO REPORT ON FORM 10-K (Mark one) /X/ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1995 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 No. 0-16469 JEAN PHILIPPE FRAGRANCES, INC. (Exact name of registrant as specified in its charter) Delaware 13-3275609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 551 Fifth Avenue, New York, New York 10176 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 983-2640. ------------------------------------------------------------ The following documents heretofore filed by the Company with the Securities and Exchange Commission (the "Commission") are hereby incorporated by reference from the Company's Registration Statement on Form S-18, file no. 33-17139-NY: Exhibit No. and Description 3.1 Restated Certificate of Incorporation 4.2 Common Stock Certificate Specimen 4.4 1987 Stock Option Plan The following document heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1987: Exhibit No. and Description 3.2 By-laws, as amended The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - January 18, 1990), as follows: Exhibit No. and Description 10.13 License Agreement between the Company and Jordache dated January 18, 1990 (as no. 10.1 therein). 10.15 Letter of Indemnification from Jordache to the Company dated January 18, 1990 (as no. 10.3 therein) 10.16 Letter Agreement from Jordache to the Company regarding foreign license rights dated January 18, 1990 (as no. 10.4 therein). The following documents heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990: Exhibit No. and Description 3.1(a) Certificate of Amendment of the Restated Certificate of Incorporation 10.20 Stock Option Agreement between the Company and Philippe Benacin dated August 31, 1990. The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 29, 1991), as follows: Exhibit No. and Description 10.24 Agreement and Plan or Reorganization dated July 29, 1991 among the Company, Jean Madar and Philippe Benacin (as No. 10.1 therein) The following document heretofore filed with the Commission is incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991: Exhibit No. and Description 10.25 Employment Agreement between the Company and Philippe Benacin dated July 29, 1991 The following documents heretofore filed with the Commission is incorporated by reference to the Company's Registration Statement on Form S-1 (No. 33-48811): Exhibit No. and Description 10.26 Lease for portion of 15th Floor, 551 Fifth Avenue, New York, New York The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992: Exhibit No. and Description 3.1(b) Amendment to the Company's Restated Certificate of Incorporation, as amended, dated July 31, 1992 4.9 1992 Stock Option Plan 4.10 Amendment to 1992 Stock Option Plan 4.11 1993 Stock Option Plan The following documents heretofore filed with the Commission are incorporated by reference to the Company's Registration Statement on Form S-3 (No. 33-63330): Exhibit No. and Description 4.12 Form of Warrant Agreement between Bear, Stearns & Co. Inc. and Jean Philippe Fragrances, Inc. 10.29 Form of Purchase Agreement The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 15, 1993), as follows: Exhibit No. and Description 10.30 License Agreement dated July 15, 1993, among Burberrys Limited, Inter Parfums, S.A. and Jean Philippe Fragrances, Inc.1 10.31 License Agreement dated May 7, 1993, between Jean-Charles Brosseau, S.A. and Inter Parfums, S.A. (original in French)1 10.32 License Agreement dated May 7, 1993, between Jean-Charles Brosseau, S.A. and Inter Parfums, S.A.(translation of French into English)1 10.33 Agreement dated July 14, 1993, between Alfin, Inc. and Inter Parfums, S.A.1 10.34 Agreement dated July 16, 1993 among Inter Parfums, S.A., Jean Philippe Fragrances, Inc., C&C Beauty Sales, Inc. and Parfico, Inc. 10.35 Distribution Agreement dated July 16, 1993 among Inter Parfums, S.A., Jean Philippe Fragrances, Inc. and Fragrance Marketing Group, Inc.(1) The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - February 28, 1994), as follows: - -------- 1 Filed in excised form, as confidentiality is being sought for certain portions thereof. Exhibit No. and Description 10.36 Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Molyneux) 10.37 Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Weil) 10.38 Agreement (Acquisition) among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Cosmetiques et Parfums de France, S.A. dated February 18, 1994 10.39 Noncompetition Agreement among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 10.40 Commission Agreement among Jean Philippe Fragrances, Inc., Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 10.41 Convention between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re inventory purchase) 10.42 Convention de Nantissement among Cosmetiques et Parfums de France, S.A., Cosmetiques et Parfums de France-I.D., S.A., Sodipe S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. dated February 18, 1994 (re security agreement) 10.43 Convention among Cosmetiques et Parfums de France-I.D., S.A., Cosmetiques et Parfums de France, S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 (re French regulatory requirements) 10.44 Acquisition Agreement among Jean Philippe Fragrances, Inc., Revlon Consumer Products Corporation and Revlon Suisse, S.A. dated March 2, 1994 10.45 License Agreement among Jean Philippe Fragrances, Inc., Revlon Consumer Products Corporation and Revlon Suisse, S.A. dated March 2, 1994 The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Form 8 Amendment no. 1 (dated March 14, 1994) to the Current Report on Form 8-K (date of event - February 28, 1994), as follows: Exhibit No. and Description 10.46. English translation of exhibit no. 10.36, Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Molyneux) 10.47. English translation of exhibit no. 10.37, Cession D'Elements Partiels de Fonds de Commerce between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re: Parfums Weil) 10.48. English translation of exhibit no. 10.41, Convention between Inter Parfums, S.A. and Cosmetiques et Parfums de France-I.D., S.A. dated February 18, 1994 (re inventory purchase) 10.49. English translation of exhibit no. 10.42, Convention de Nantissement among Cosmetiques et Parfums de France, S.A., Cosmetiques et Parfums de France-I.D., S.A., Sodipe S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. dated February 18, 1994 (re security agreement) The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Form 8 Amendment no. 2 (dated March 21, 1994) to the Current Report on Form 8-K (date of event - February 28, 1994), as follows: Exhibit No. and Description 10.50. English translation of exhibit no. 10.43, Convention among Cosmetiques et Parfums de France-I.D., S.A., Cosmetiques et Parfums de France, S.A., Jean Philippe Fragrances, Inc. and Inter Parfums, S.A. and Sodipe S.A. dated February 18, 1994 (re French regulatory requirements) The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993: Exhibit No. and Description 3.1(c) Amendment to the Company's Restated Certificate of Incorporation, as amended, dated July 9, 1993 3.3 Articles of Incorporation of Inter Parfums Holding, S.A. 3.3.1 English Translation of Exhibit no. 3.3, Articles of Incorporation of Inter Parfums Holding, S.A. 3.4 Articles of Incorporation of Inter Parfums, S.A. 3.4.1 English Translation of Exhibit no. 3.4, Articles of Incorporation of Inter Parfums, S.A. 4.14 Warrant no. 108 registered in the name of Ladenburg, Thalmann & Co., Inc. dated February 2, 1994 4.15 1994 Nonemployee Director Stock Option Plan 10.51 Traite D'Apport Partiel D'Actif dated July 30, 1993 (Reorganization Agreement between Inter Parfums, S.A. and Selective Industrie, S.A.) 10.51.1 English translation of Exhibit no. 10.51, Traite D'Apport Partiel D'Actif dated July 30, 1993 (Reorganization Agreement between Inter Parfums, S.A. and Selective Industrie, S.A.) 10.52 Lease for portion of 4, Rond Point Des Champs Des Elysees dated September 30, 1993 10.52.1 English translation of Exhibit no. 10.52, Lease for portion of 4, Rond Point Des Champs Des Elysees dated September 30, 1993 10.53 Lease for portion of 4, Rond Point Des Champs Des Elysees dated March 2, 1994 10.53.1 English translation of Exhibit no. 10.53, Lease for portion of 4, Rond Point Des Champs Des Elysees dated March 2, 1994 The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - May 31, 1994), as follows: Exhibit No. and Description 10.55 License Agreement between Chesebrough-Pond's, Inc. and Jean Philippe Fragrances, Inc. dated May 31, 1994(2), listed as no. 10.51 therein. 10.56 Asset Purchase Agreement between Conopco, Inc. and Jean Philippe Fragrances, Inc. dated May 31, 1994, listed as no. 10.52 therein. - ------------------ (2) Filed in excised form as confidential treatment has been granted for certain provisions thereof. The following document heretofore filed with the Commission is incorporated herein by reference to the Company's Current Report on Form 8-K (date of event - July 15, 1994), as follows: Exhibit No. and Description 10.57 Revolving Credit Agreement dated July 15, 1994 among Republic National Bank of New York, Jean Philippe Fragrances, Inc. and Elite Parfums, Ltd., listed as no. 10.54 therein. The following documents heretofore filed with the Commission are incorporated herein by reference to the Company's Form 8 Amendment no. 1 (dated August 8, 1994) to the Current Report on Form 8-K (date of event - July 13, 1994), as follows: Exhibit No. and Description 10.58. Engagements de Garanties among Zanimob Enterprise Limited, Jacomo France and Inter Parfums, S.A. dated July 12, 1994, listed as no. 10.53 therein. 10.58.1 English translation of exhibit no. 10.53, Engagements de Garanties among Zanimob Enterprise Limited, Jacomo France and Inter Parfums, S.A. dated July 12, 1994, listed as no. 10.53.1 therein. The following documents heretofore filed with the Commission are incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994: 4.15 1994 Nonemployee Director Supplemental Stock Option Plan 10.59 Modification of Lease Agreement dated June 17, 1994 between Metropolitan Life Insurance Company and Jean Philippe Fragrances, Inc. The following exhibits are filed herewith: Exhibit No. and Description 10.60 Guaranty and Security Agreement of Jean Philippe Fragrances, Inc. and Elite Parfums, Ltd. to Republic National Bank of New York (France) dated July 19, 1995 10.61 Lease for 60 Stults Road, South Brunswick, NJ between Forsgate Industrial Complex, a limited partnership, and Jean Philippe Fragrances, Inc. dated July 10, 1995 10.62 Intellectual Property Purchase Agreement between Parlux Fragrances, Inc. and Parfums Jean Desprez, S.A. dated March 12, 1996 10.63 Inventory Purchase Agreement between Parlux Fragrances, Inc. and Jean Desprez, S.A. dated March 12, 1996 11 Statement re: Computation of Earnings Per Share 21 List of Subsidiaries EX-10.60 2 GUARANTY AND SECURITY AGREEMENT Exhibit 10.60 GUARANTY AND SECURITY AGREEMENT Date: July 19, 1995 SECTION 1. Definitions. The following terms have the following meanings unless otherwise specified herein: "Bank" means Republic National Bank of New York (France), a bank formed under the laws of France, and its successors and assigns, and any Person acting as agent or nominee for Republic National Bank of New York (France), and any corporation the stock of which is owned or controlled directly or indirectly by, or is under common control with, Republic National Bank of New York (France), and/or Republic New York Corporation, and/or Safra Republic Holdings S.A. "Bankruptcy Code" shall mean the United States Bankruptcy Code, and any amendments thereto (Title 11, United States Code). +----------------------------------------------------------------------------+ |"Borrower" shall mean Inter Parfums, S.A. and Inter Parfums Holding, S.A. | |(if more than one, "Borrower" shall mean each, any or all of them). | +----------------------------------------------------------------------------+ "Claims" shall mean each "claim" as that term is defined under Section 101(4) of the Bankruptcy Code. "Collateral" shall mean all property that secures the payment of the Obligations, and any Proceeds thereof. "Guaranty" shall mean this Guaranty and Security Agreement. "Guarantor" shall mean the undersigned (and if more than one, "Guarantor" shall mean each, any and all of them, jointly and severally). "Liabilities" shall mean any and all indebtedness, obligations (whether monetary or non-monetary) and liabilities of Guarantor to the Bank under this Guaranty, and all Claims thereon, including without limitations all Obligations. "Lien" means any lien, security interest, pledge, hypothecation, or other claim in or with respect to any Security. "Obligations" shall mean any and all indebtedness, obligations and liabilities of the Borrower to the Bank, and all Claims of the Bank against the Borrower, now existing or hereafter arising, direct or indirect (including participations or any interest of the Bank in indebtedness of the Borrower to others), acquired outright, conditionally, or as collateral security from another, absolute or contingent, joint or several, secured or unsecured, matured or not matured, monetary or non-monetary, arising out of contract or tort, liquidated or unliquidated, arising by operation of law or otherwise and all extensions, renewals, refunding, replacements and modifications of any of the foregoing. "Person" shall mean any natural person, corporation, partnership, trust, government or other association or legal entity. "Proceeds" shall have the meaning assigned to that term by the New York Uniform Commercial Code, as amended, and also means all "proceeds," "products," "offspring," "rents" or "profits" of any property, as such quoted terms are used in the Bankruptcy Code. "Security" shall mean any property which secures payment or performance of any of the Liabilities, and all Proceeds thereof. SECTION 2. Scope of Guaranty. In consideration of any extension of credit or other financial accommodation heretofore, now or hereafter made by the Bank to or for the account of the Borrower, whether voluntary or obligatory, Guarantor hereby absolutely and unconditionally guarantees to the Bank the prompt and complete payment and performance when due (whether at stated maturity, by required prepayment, acceleration, or otherwise) of all Obligations and the performance of each of Borrower's covenants and obligations under all loan agreements, documents and instruments evidencing or relating to any Obligations or under which any Obligations may have been issued, created, assumed, suffered involuntarily, or guaranteed, and all expenses incurred in collecting or enforcing the same, as more fully set below, all of which conclusively shall be deemed to have been incurred in reliance upon this Guaranty, as if each of the foregoing were the direct and primary legal responsibility of Guarantor and not the Borrower. SECTION 3. Security. As Security for the Liabilities of Guarantor, Guarantor hereby grants to the Bank a continuing lien upon and security interest in, and hereby pledges, assigns and transfers to the Bank, all right, title and interest of Guarantor in and to all deposits (general or special) of Guarantor at any time maintained with the Bank or any branch, subsidiary or affiliate of the Bank, wherever located, and any substitutions and all products and Proceeds thereof, and any other property described below, whether now or hereafter existing or acquired, and wherever located, and any substitutions and all products and Proceeds (including but not limited to insurance proceeds) thereof: The Bank or its nominee may exercise any right of Guarantor with respect to any Security whether or not any Obligation or Liability is then due and payable or any default has occurred. In any statutory or non-statutory proceeding, affecting the Borrower, Guarantor or any Security or any Obligation or Liability, the Bank or its nominee may, whether or not any Obligation or Liability is then due and payable or any default shall have occurred, and regardless of the amount of Obligations or Liabilities, assert, or file a proof of claim for, the full amount of any such Obligation, Liability or the Security and vote such claim, for the full amount thereof: (a) for or against any proposal or resolution; (b) for a trustee or trustees or for a committee of creditors; or (c) for the acceptance or rejection of any proposed arrangement, plan of reorganization, wage earners plan, composition or extension, and the Bank or its nominee may receive any payment or distribution and give acquittance therefor and may exchange or release any Security. Guarantor agrees that at any time, whether or not any Obligation or Liability is then due and payable or any default shall have occurred, the Bank shall have the right to notify any account debtor (with respect to any Security consisting of Accounts), or the obligor on any Instrument or other right or claim of Guarantor to any payment which is Security, to make payment directly to the Bank, whether or not any default shall have occurred and whether or not Guarantor was theretofore making collections on such Security, and also to take control of any Proceeds the Bank is entitled to under Section 9-306 of the New York Uniform Commercial Code. If any Security consists of Accounts, Instruments or other rights or claims of Guarantor to any payment, then at the Bank's request Guarantor shall promptly notify (in manner, form and substance satisfactory to the Bank) all Persons obligated to Guarantor under any such Accounts, Instruments or other rights or claims of Guarantor to any payment that the Bank possesses a security interest in such Accounts, Instruments or other rights or claims of Guarantor to any payment and that all payments in respect of such Accounts, Instruments or other rights or claims of Owner to any payment are to be made directly to the Bank. Guarantor shall not settle, compromise or adjust any disputed amount, or allow any credit, rebate or discount with respect to any Account, Instrument or other right or claim of Guarantor to any payment which constitutes Security under this Guaranty. After the Bank shall have given any notice to an account debtor of the type specified above, any and all accounts recovered by Guarantor from the account debtor or other obligor so notified shall be promptly remitted to the Bank, and until so remitted shall be segregated by Guarantor and held in trust for the Bank. To the extent permitted by applicable law, the Bank or its nominee is hereby given a right of setoff for the amount of the Liabilities upon any of and all said deposits and any credits of Guarantor with, and any and all claims of Guarantor against, the Bank at any time existing and the Bank is hereby authorized to setoff and apply such deposits, credits and claims, without prior notice or demand, to the Liabilities in such order and amounts as the Bank may elect, although such Liabilities may be contingent or unmatured. Guarantor shall, upon request of the Bank, assemble the Security and make it available to the Bank at a place to be designated by the Bank which is reasonably convenient to the Bank and Guarantor. The Bank will give Guarantor notice of the time and place of any public sale of the Security or of the time after which any private sale or any other intended disposition thereof is to be made by sending notice, as provided below, at least five days before the time of the sale or disposition, which provisions for notice Guarantor agrees are reasonable. No such notice need be given by the Bank with respect to Security which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market. Guarantor shall remain liable to the Bank for the payment of any deficiency with interest thereon at the highest rate applicable to the Obligations, or if no rate is specified with respect to such Obligations, at the then legal rate of interest. Guarantor will do all such other acts and things and will execute and deliver all such other instruments and documents, including further security agreements, pledges, endorsements, assignments, and notices as the Bank may reasonably deem necessary or advisable from time to time in order to perfect and preserve the Liens created by this Guaranty and will, at its own cost and expense, cause such Lien to be perfected and continue to be perfected and to be and remain prior to all other Liens. The Bank, acting through its officers, employees and authorized agents, is hereby irrevocably appointed the attorney-in-fact of Guarantor to do, at Guarantor's expense, all acts and things which the Bank may reasonably deem necessary or advisable to preserve, perfect, continue to perfect and/or maintain the priority of such Liens, including the signing of financing, continuation or other similar statements and notices on behalf of Guarantor, and which Guarantor is required to do by the terms of this Guaranty. Guarantor hereby authorizes the Bank to sign and file financing statements with respect to the Security without the signature of Guarantor. Guarantor shall pay all filing fees for financing statements with respect to the Security. SECTION 4. Reinstatement. If after receipt of any payment of, or proceeds of Security applied (or intended to be applied) to the payment of, all or any part of the Obligations, the Bank is for any reason compelled to surrender or voluntarily surrenders, such payment or proceeds to any person, (a) because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, fraudulent conveyance, impermissible setoff or a diversion of trust funds; or (b) for any other reason, including without limitation (i) any judgment, decree or order of any Court or administrative body having jurisdiction over the Bank or any of its property, or (ii) any settlement or compromise of any such claim effected by the Bank with any such claimant (including the Borrower), then the Obligations or part thereof intended to be satisfied shall be reinstated and continue and this Guaranty shall continue in full force as if such payment or proceeds had not been received by the Bank, notwithstanding any revocation thereof or the cancellation of any note or other instrument evidencing any Obligation or otherwise; and Guarantor shall be liable to pay to the Bank, and hereby does indemnify the Bank and hold the Bank harmless for, the amount of such payment or proceeds so surrendered and all expenses (including all attorneys' fees, court costs and expenses attributable thereto) incurred by the Bank in the defense of any claim made against the Bank that any payment or proceeds received by the Bank in respect of all or any part of the Obligations must be surrendered. The provisions of this Section 4 shall survive the termination of this Guaranty, and any satisfaction and discharge of the Borrower by virtue of any payment, court order or any federal or state law. SECTION 5. Waiver. Guarantor hereby waives (a) notice of acceptance of this Guaranty and all notice of the creation, extension or accrual of any of the Obligations; (b) presentment, demand for payment, notice of dishonor, and protest; (c) notice of any other nature whatsoever, except for notices specifically provided for in this Guaranty or which may not be waived under applicable law; (d) any requirement that the Bank take any action whatsoever against the Borrower or any other party or file any claim in the event of the bankruptcy of the Borrower; or (e) failure to protect, preserve or resort to any Collateral or to exercise or enforce the Bank's rights under any other guaranties of or security for the Obligations; and Guarantor further agrees that this Guaranty will not be discharged (subject to the provisions contained in Section 11) except by complete performance of all Obligations of the Borrower and the Liabilities of Guarantor hereunder. SECTION 6. Consent. Guarantor hereby consents that from time to time, and without further notice to or consent of Guarantor, the Bank may take any or all of the following actions without diminishing, releasing or otherwise affecting the liability of Guarantor to pay and perform under this Guaranty: (a) extend, renew, modify, compromise, settle or release the Obligations (including without limitation any increase or decrease in the interest rate); (b) release or compromise any liability of any party or parties with respect to Obligations; (c) release its security interest in any or all of the Collateral or exchange, surrender, or otherwise deal with the Collateral as the Bank may determine; or (d) exercise or refrain from exercising any right or remedy of the Bank against any person or property. SECTION 7. Guaranty Absolute. The liability of Guarantor under this Guaranty shall be absolute and unconditional irrespective of any lack of validity, regularity or enforceability of the Obligations or any note, instrument or agreement evidencing the same or relating thereto, the acceptance of additional guarantees or collateral or the termination, by operation of law or otherwise, of the liability of anyone with respect to the Obligations, or any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Borrower. SECTION 8. WAIVER OF SUBROGATION. NOTWITHSTANDING ANY PAYMENT OR PAYMENTS MADE BY GUARANTOR HEREUNDER, OR ANY SETOFF OR APPLICATION BY THE BANK OF THE SECURITY OR OF ANY CREDITS OR CLAIMS, GUARANTOR WILL NOT ASSERT OR EXERCISE ANY RIGHTS OF THE BANK OR GUARANTOR AGAINST THE BORROWER TO RECOVER THE AMOUNT OF ANY PAYMENT MADE BY GUARANTOR TO THE BANK HEREUNDER OR UNDER ANY OTHER GUARANTEE BY WAY OF SUBROGATION, REIMBURSEMENT, CONTRIBUTION, INDEMNITY, OR OTHERWISE ARISING BY CONTRACT OR OPERATION OF LAW, AND GUARANTOR SHALL HAVE NO RIGHT OF RECOURSE TO OR ANY CLAIM AGAINST ANY ASSETS OR PROPERTY OF THE BORROWER, UNLESS AND UNTIL THE OBLIGATIONS OF THE BORROWER HAVE BEEN SATISFIED IN FULL. If there is more than one Guarantor, each Guarantor agrees not to seek contribution from any other Guarantor until all the Obligations shall have been paid in full. If any amount shall nevertheless be paid to a Guarantor by Borrower or another Guarantor such amount shall be held in trust for the benefit of the Bank and shall forthwith be paid to the Bank to be credited and applied to the Obligations, whether matured or unmatured. The provisions of this Section 8 shall survive the terminaton of this Guaranty, and any satisfaction and discharge of the Borrower by virtue of any payment, court order or any federal or state law. SECTION 9. Expenses. Guarantor hereby agrees to pay any and all expenses incurred by the Bank in enforcing any rights under this Guaranty or in defending any of its rights or any amounts received hereunder. Without limiting the foregoing, Guarantor agrees that whenever any attorney is used by the Bank to obtain payment hereunder, to advise it as to its rights, to adjudicate the rights of the parties hereunder or for the defense of any of its rights or amounts received hereunder, the Bank shall be entitled to recover all attorneys' fees, court costs, and expenses attributable thereto. SECTION 10. Binding Effect. Except to the extent it may be terminated in accordance with Section 11, this Guaranty shall remain in full force and effect and shall be binding upon Guarantor, its successors and assigns, in accordance with its terms, notwithstanding any increase, decrease or change in the partners of Guarantor, if it should be a partnership, or the merger, consolidation, or reorganization of Guarantor, if it be a corporation, or any other change concerning the form, structure or substance of any such entity. SECTION 11. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY, WHICH SHALL REMAIN IN EFFECT UNTIL THE DATE SIX (6) MONTHS AFTER NOTICE OF TERMINATION IN WRITING FROM GUARANTOR IS ACTUALLY RECEIVED BY THE BANK AT THE BANK'S ADDRESS SET FORTH BELOW ("TERMINATION DATE"). SUCH TERMINATION WILL BE EFFECTIVE ONLY WITH RESPECT TO ALL OBLIGATIONS INCURRED OR CONTRACTED BY THE BORROWER OR ACQUIRED BY THE BANK AFTER THE TERMINATION DATE, BUT THIS GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AS TO ALL OBLIGATIONS EXISTING ON AND AS OF THE TERMINATION DATE, INCLUDING ALL RENEWALS, COMPROMISES, MODIFICATIONS, EXTENSIONS AND OTHER AMENDMENTS RELATING THERETO, ALL INTEREST THEREON AND COLLECTION EXPENSES THEREFOR, UNTIL FULL PAYMENT OF SUCH OBLIGATIONS TO THE BANK. SECTION 12. Obligations Deemed to Become Due. If the Borrower or Guarantor makes an assignment for the benefit of creditors or a trustee or receiver is appointed for the Borrower or Guarantor or for any of its property; or any proceeding by or against the Borrower or Guarantor (or any other guarantor), under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt, receivership, liquidation or dissolution law or statute is commenced; or Guarantor fails to furnish to the Bank such financial information concerning Guarantor as the Bank may from time to time request; or any representation or warranty made by Guarantor herein proves to be incorrect or untrue in any material respect; or Bank shall in good faith determine that there has been a material adverse change in Guarantor's or the Borrower's net worth or in good faith deem itself insecure with respect to Guarantor's or the Borrower's financial condition or ability to pay the Liabilities or Obligations, as the case may be, then all Obligations, regardless of their terms, for the purposes of this Guaranty, together with all Liabilities, shall be immediately due and payable, notwithstanding the absence of any default by the Borrower under any of the Obligations. SECTION 13. Assignment. The Bank may, without notice, assign the Obligations, in whole or in part, and each successive assignee of the Obligations so assigned may enforce this Guaranty for its own benefit with respect to the Obligations so assigned. SECTION 14. Notices. Each notice or other communication hereunder shall be in writing, shall be sent by messenger, by first class mail or by facsimile transmitter or tested telex, and shall be effective when received, and shall be sent as follows: If to the Guarantor, to the address set forth below its signature or such other address as it may designate, by written notice to the Bank as herein provided or such other address as may appear in the records of the Bank. If to the Bank, to the following address: Republic National Bank of New York (France) 20 Place Vendome 75001 Paris France Attention: Loan Department or such other address as it may designate, by written notice to the Guarantor as herein provided. SECTION 15. Other Guarantees; Amendments. The execution and delivery hereafter to the Bank by Guarantor of a new instrument of guarantee shall not terminate, supersede or cancel this instrument, unless expressly provided therein, and this instrument shall not terminate, supersede or cancel any instrument of guarantee previously delivered to the Bank by Guarantor, and all rights and remedies of the Bank hereunder or under any instrument of guarantee hereafter or heretofore executed and delivered to the Bank by Guarantor shall be cumulative and may be exercised singly or concurrently. This Guaranty may be amended only by a writing executed by Guarantor and a duly authorized officer of the Bank. SECTION 16. No Waiver; Cumulative Remedies. No delay on the part of the Bank in exercising any of its options, powers or rights, or partial or single exercise thereof, shall constitute a waiver thereof. NO WAIVER OF ANY PROVISION OF THIS GUARANTY IS EFFECTIVE UNLESS MADE IN WRITING AND EXECUTED BY A DULY AUTHORIZED OFFICER OF THE BANK. All rights and remedies hereunder are cumulative and may be exercised singly or concurrently. SECTION 17. Statute of Limitations. Any acknowledgment, new promise, payment of principal or interest or other act by the Borrower or others with respect to the Obligations shall be deemed to be made as agent of Guarantor, and shall, if the statute of limitations in favor of Guarantor against the Bank shall have commenced to run, toll the running of such statute of limitations, and if such statute of limitations shall have expired, prevent the operation of such statute. SECTION 18. Governing Law; Consent to Jurisdiction; Service of Process. This Guaranty shall be governed by and construed in accordance with the laws of the State of New York applicable to instruments made and to be performed wholly within that State. Guarantor hereby consents to the jurisdiction of the courts of the State of New York and the courts of the United States of America for the Southern District of New York and consents that any action or proceeding hereunder may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; and authorizes the service of process on Guarantor by registered or certified mail sent to its address as set forth in Section 14. SECTION 19. RIGHT OF BANK TO ARBITRATE DISPUTES. (a) GUARANTOR AGREES THAT ANY ACTION, DISPUTE, PROCEEDING, CLAIM OR CONTROVERSY BETWEEN OR AMONG GUARANTOR AND THE BANK WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ("DISPUTE" OR "DISPUTES") SHALL, AT THE BANK'S ELECTION, WHICH ELECTION MAY BE MADE AT ANY TIME PRIOR TO THE COMMENCEMENT OF A JUDICIAL PROCEEDING BY THE BANK, OR IN THE EVENT OF A JUDICIAL PROCEEDING INSTITUTED BY GUARANTOR AT ANY TIME PRIOR TO THE LAST DAY TO ANSWER AND/OR RESPOND TO A SUMMONS AND/OR COMPLAINT MADE BY GUARANTOR, BE RESOLVED BY ARBITRATION IN NEW YORK, NEW YORK IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION 19 AND SHALL, AT THE ELECTION OF THE BANK, INCLUDE ALL DISPUTES ARISING OUT OF OR IN CONNECTION WITH (I) THIS GUARANTY OR ANY RELATED AGREEMENTS OR INSTRUMENTS, (II) ALL PAST, PRESENT AND FUTURE AGREEMENTS INVOLVING GUARANTOR AND THE BANK, (III) ANY TRANSACTION CONTEMPLATED HEREBY AND ALL PAST, PRESENT AND FUTURE TRANSACTIONS INVOLVING GUARANTOR AND THE BANK, AND (IV) ANY ASPECT OF THE PAST, PRESENT OR FUTURE RELATIONSHIP OF GUARANTOR AND THE BANK. Bank may elect to require arbitration of any such Dispute with Guarantor without thereby being required to arbitrate all Disputes between the Bank and Guarantor. Any such dispute shall be resolved by binding arbitration in accordance with Article 75 of the New York Civil Practice Law and Rules and the commercial arbitration rules of the American Arbitration Association ("AAA"). In the event of any inconsistency between such Rules and these arbitration provisions, these provisions shall supersede such Rules. All statutes of limitations which would otherwise be applicable shall apply to any arbitration proceeding under this subsection 19(a). In any arbitration proceeding subject to these provisions, the arbitration panel (the "arbitrator") is specifically empowered to decide (by documents only, or with a hearing, at the arbitrator's sole discretion) pre-hearing motions which are substantially similar to pre-hearing motions to dismiss and motions for summary adjudication. In any such arbitration proceeding, the arbitrator shall not have the power or authority to award punitive damages to any party. Judgment upon the award rendered may be entered in any court having jurisdiction. Whenever an arbitration is required, the parties shall select an arbitrator in the manner provided in subsection 19(d). (b) No provision of, nor the exercise of any rights under, subsection 19(a) shall limit the right of any party (i) to foreclose against any real or personal property collateral through judicial foreclosure, by the exercise of a power of sale under a deed of trust, mortgage or other security agreement or instrument, pursuant to applicable provisions of the Uniform Commercial Code, or otherwise pursuant to applicable law, (ii) to exercise self help remedies including but not limited to setoff and repossession, or (iii) to request and obtain from a court having jurisdiction before, during or after the pendency of any arbitration, provisional or ancillary remedies and relief including but not limited to injunctive or mandatory relief or the appointment of a receiver. The institution and maintenance of an action or judicial proceeding for, or pursuit of, provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of the Bank, even if the Bank is the plaintiff, to submit the Dispute to arbitration if the Bank would otherwise have such right. (c) The Bank may require arbitration of any Dispute(s) concerning the lawfulness, unconscionableness, propriety, or reasonableness of any exercise by the Bank of its right to take or dispose of any Collateral or its exercise of any other right in connection with Collateral including, without limitation, judicial foreclosure, exercising a power of sale under a deed of trust or mortgage, obtaining or executing a writ of attachment, taking or disposing of property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code or otherwise as permitted by applicable law, notwithstanding any such exercise by the Bank. (d) Whenever an arbitration is required under subsection 19(a), the arbitrator shall be selected, except as otherwise herein provided, in accordance with the Commercial Arbitration Rules of the AAA. A single arbitrator shall decide any claim of $100,000 or less and he or she shall be an attorney with at least five years' experience. Where the claim of any party exceeds $100,000, the Dispute shall be decided by a majority vote of three arbitrators, at least two of whom shall be attorneys (at least one of whom shall have not less than five years' experience representing commercial banks). (e) In the event of any Dispute governed by this Section 19, each of the parties shall, subject to the award of the arbitrator, pay an equal share of the arbitrator's fees. The arbitrator shall have the power to award recovery of all costs and fees (including attorneys' fees, administrative fees, arbitrator's fees, and court costs) to the prevailing party. SECTION 20. Severability. If any one or more of the provisions contained in this Guaranty or any document executed in connection herewith shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein shall not (to the full extent permitted by law) in any way be affected or impaired. SECTION 21. Headings. The descriptive headings used in this Guaranty are for convenience only and shall not be deemed to affect the meaning or construction of any provision hereof. SECTION 22. Representations and Warranties. To induce Bank to extend credit or other financial accommodation to Borrower, Borrower represents and warrants to Bank that (i) Borrower is duly incorporated and validly existing in good standing under the laws of the jurisdiction of its incorporation, with full power and authority to make, deliver and perform this Guaranty; (ii) the execution, delivery and performance by Borrower of this Guaranty have been duly authorized by all necessary corporate action, and does not and will not violate or conflict with, its charter or by-laws, or any law, rule, regulation or order binding on Borrower or any agreement or instrument to which Borrower is a party or which may be binding on Borrower; (iii) this Guaranty has been fully executed by an authorized officer of, and, constitutes a legal, valid, binding and enforceable obligation of Borrower; (iv) no authorization, consent, approval, license, exemption of or filing or registration with, any court or government or governmental agency is or will be necessary to the valid execution, delivery or performance by Borrower of this Guaranty; (v) there are no pending or threatened actions, suits or proceedings against or affecting Borrower by or before any court, commission, bureau or other governmental agency or instrumentality, which, individually or in the aggregate, if determined adversely to Borrower, would have a material adverse effect on the business, properties, operations, or condition, financial or otherwise, of Borrower; and (vi) the most recent financial statements of Borrower heretofore delivered to Bank are complete and correct and since the date thereof there has not occurred any material adverse change in the financial condition or operations of Borrower from that shown on said financial statements. SECTION 23. Payments Free and Clear of All Taxes. Each payment to be made hereunder shall be free and clear of, and without deductions for or on account of any present or future taxes, imposts, charges, levies, compulsory loans or other withholdings or deductions whatsoever. If Guarantor shall be required by applicable law to make any such deduction from any payment hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this paragraph) Bank receives an amount equal to the sum it would have received had no deductions been made, (ii) Guarantor shall make such deductions, and (iii) Guarantor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. In addition, Guarantor agrees to pay, if necessary, all stamp, documentary, or similar taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this instrument. SECTION 24. Judgment Currency. Any and all Liabilities payable hereunder shall be paid in the currency(ies) which such Liability (including without limitation any Obligation) is by the terms expressed to be payable, whether in French Francs, U.S. Dollars or any other currency(ies) (the "Payment Currency"). If by reason of any applicable law or arbitral award, judicial or administrative decision or judgment, all or part of said amounts are payable in a currency other than such applicable Payment Currency (the "Other Currency(ies)"), the Guarantor shall indemnify the Bank from and against any loss resulting from the difference between the rate of exchange of the Other Currency for the Payment Currency(ies) as of the date of such award, decision or applicable judgment and the rate at which the Bank actually is able to purchase the Payment Currency with the Other Currency(ies) upon the Bank's actual receipt of payment in the Other Currency. SECTION 25. WAIVER OF TRIAL BY JURY. EACH OF THE BANK AND GUARANTOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY OR AGAINST IT ON ANY MATTERS WHATSOEVER, IN CONTRACT OR IN TORT, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTY OR THE OBLIGATIONS. SECTION 26. WAIVER OF CERTAIN OTHER RIGHTS. GUARANTOR HEREBY WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE BASED UPON ANY CLAIMS OF LACHES OR SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, ANY OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE, AND ANY CLAIM FOR CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES. IN WITNESS WHEREOF, the Guarantor(s) has/have executed this Guaranty and Security Agreement. [SEAL] Jean Philippe Fragrances, Inc. ---------------------------------- By: /s/ RUSSELL GREENBERG ------------------------------ Russell Greenberg, Executive Vice President 551 5th Avenue, NY NY 10176 Elite Parfums, Ltd. ---------------------------------- By: /s/ RUSSELL GREENBERG ------------------------------ Russell Greenberg, Executive Vice President 551 5th Avenue, NY NY 10176 [Corporate Acknowledgment] STATE OF NEW YORK COUNTY OF NEW YORK On this 19th day of July, 1995, before me personally came Russell Greenberg, and Joseph A. Caccamo, to me known who, being duly sworn, deposes and says that (t)(s)he(y) is/are the Executive Vice President and the Secretary of Jean Philippe Fragrances, Inc., the corporation described in and which executed the above instrument; that (t)(s)he(y) know(s) the seal of the corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation and (t)(s)he(y) signed his (her) (their) name(s) by like order. /s/ ANNIE FAILLER ---------------------------------- Notary Public ANNIE FAILLER Notary Public, State of New York No. 01FA5023811 Qualified in Queens County Commission Expires Feb. 14, 1996 [Corporate Acknowledgment] STATE OF NEW YORK COUNTY OF NEW YORK On this 19th day of July, 1995, before me personally came Russell Greenberg, and Joseph A. Caccamo, to me known who, being duly sworn, deposes and says that (t)(s)he(y) is/are the Executive Vice President and the Secretary of Elite Parfums, Ltd., the corporation described in and which executed the above instrument; that (t)(s)he(y) know(s) the seal of the corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation and (t)(s)he(y) signed his (her) (their) name(s) by like order. /s/ ANNIE FAILLER ---------------------------------- Notary Public ANNIE FAILLER Notary Public, State of New York No. 01FA5023811 Qualified in Queens County Commission Expires Feb. 14, 1996 EX-10.61 3 LEASE Exhibit 10.61 6/21/95 LEASE-1/SG7907 ROSNER AND FELTMAN 70 GRAND AVENUE RIVER EDGE, NJ 07661 TABLE OF CONTENTS LANDLORD: FORSGATE INDUSTRIAL COMPLEX TENANT: JEAN PHILIPPE FRAGRANCES, INC. PREMISES: 60 STULTS ROAD, SOUTH BRUNSWICK, NEW JERSEY ========================================================= ARTICLE 1 DEMISED PREMISES - TITLE - TERM OF LEASE ARTICLE 2 USE OF PREMISES ARTICLE 3 RENT AND OTHER CHARGES ARTICLE 4 TAXES ARTICLE 5 COMMENCEMENT DATE OF LEASE ARTICLE 6 INSURANCE TO BE PROVIDED BY TENANT ARTICLE 7 RESTORATION OF DEMISED PREMISES IN THE EVENT OF FIRE OR OTHER CASUALTY ARTICLE 8 REPAIRS, MAINTENANCE, UTILITIES, CHANGES AND ALTERATIONS, COMPLIANCE WITH ORDERS, ETC., EASEMENTS ARTICLE 9 LEASE PROVISION AGAINST ASSIGNMENT, MORTGAGE OR SUBLET BY TENANT WITHOUT LANDLORD'S PERMISSION - LANDLORD'S RIGHT OF RECAPTURE ARTICLE 10 LANDLORD'S REMEDIES IN EVENT OF TENANT'S DEFAULT OR BANKRUPTCY ARTICLE 11 SUBORDINATION OF LEASE TO MORTGAGE ON THE DEMISED PREMISES ARTICLE 12 EXONERATION OF INDIVIDUALS ARTICLE 13 COVENANT AGAINST LIENS ARTICLE 14 EMINENT DOMAIN ARTICLE 15 ACCESS TO PREMISES ARTICLE 16 NOTICES ARTICLE 17 ACCEPTANCE ARTICLE 18 QUIET ENJOYMENT - CONVEYANCE BY LANDLORD ARTICLE 19 ESTOPPEL CERTIFICATE ARTICLE 20 FINANCIAL INFORMATION ARTICLE 21 NO ABATEMENT OF RENT ARTICLE 22 NONRECORDATION OF LEASE ARTICLE 23 SURRENDER ARTICLE 24 SECURITY ARTICLE 25 MISCELLANEOUS SCHEDULE A DEMISED PREMISES SCHEDULE B RULES AND REGULATIONS LEASE THE INDENTURE OF LEASE (hereinafter called "LEASE") dated the 10th day of July, 1995, by and between FORSGATE INDUSTRIAL COMPLEX, a Limited Partnership, with offices at c/o Charles Klatskin Co., Inc., 400 Hollister Road, Teterboro, New Jersey 07608, (hereinafter called "LANDLORD"), and JEAN PHILIPPE FRAGRANCES, INC., a corporation of the State of Delaware having its principal office at 551 Fifth Avenue, New York, New York 10176 (hereinafter called "TENANT"). W I T N E S S E T H: ARTICLE 1 DEMISED PREMISIS - TITLE - TERM OF LEASE Section 1.01 Demised Premises. Landlord, for and in consideration of the rents, covenants and agreements hereinafter reserved, mentioned and contained on the part of the Tenant, its successors and assigns, to be paid, kept and performed, has demised and leased, and by these presents does demise and lease, unto the Tenant, and the Tenant does hereby take and hire upon subject to the conditions hereinafter expressed, the real property together with the building thereon (the "Building"), commonly known as 60 Stults Road, in the Township of South Brunswick, County of Middlesex and State of New Jersey, as more particularly described on Schedule "A" (hereinafter sometimes referred to as "Demised Premises"). Section 1.02 Title. At the commencement of the term of the Lease ("Term"), Landlord shall own the fee title to the Demised Premises, subject to restrictions of record, if any, zoning regulations affecting such Demised Premises and any state of facts shown on an accurate survey or as a visual inspection of the premises would disclose, provided the same does not prohibit or unduly restrict the use of the premises for warehousing and offices, as presently constructed. Section 1.03 Term of Lease. To have and to hold unto the Tenant, its permitted successors and permitted assigns, for a Term of eight (8) years, commencing on the commencement date as defined in ARTICLE 5 hereof and ending eight (8) years thereafter, unless sooner terminated, plus the number of days required, if any, to have such Term expire on the last day on the calendar month. Section 1.04 Acknowledgment of Commencement. Upon the commencement of the Term, the parties shall execute and exchange a recordable Lease instrument, specifying the commencement and expiration dates of the Term. Section 1.05 Definitions. (i) As used herein, "Hazardous Substance" includes any pollutant, dangerous substance, toxic substances, any hazardous chemical, hazardous substance, hazardous pollutant, hazardous waste or any similar term as defined in or pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et seq. ("CERCLA"); Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA"); the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10- 23.11, et seq. ("Spill Act"); the Solid Waste Management Act, N.J.S.A. 13:1E-1, et seq. ("SWMA"); the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq. ("RCRA"); the New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A- 21, et seq. ("USTA"); Clean Air Act, 42 U.S.C. Section 7401, et seq. ("CAA"); Air Pollution Control Act, N.J.S.A. 26:2C-l, et seq. ("APCA"); New Jersey Water Pollution Control Act, N.J.S.A. 58:10A- 1, et seq. ("WPCA"); and any rules or regulations promulgated thereunder or in any other applicable federal, state or local law, rule or regulation dealing with environmental protection. It is understood and agreed that the provisions contained in the Lease shall be applicable notwithstanding whether any substance shall not have been deemed to be a hazardous substance at the time of its use or Release but shall thereafter be deemed to be a Hazardous Substance. (ii) "Release" means spilling, leaking, disposing, pumping, pouring, discharging, emitting, emptying, ejecting, depositing, injecting, leaching, escaping or dumping, however defined, and whether intentional or unintentional, of any Hazardous Substance. (iii) "Notice" means any summons, citation, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other communication, written or oral, actual or threatened, from the New Jersey Department of Environmental Protection ("NJDEP"), the United States Environmental Protection Agency ("USEPA"), the United States Occupational Safety and Health Administration ("OSHA") or other federal, state or local agency or authority, or any other entity or any individual, concerning any act or omission relating or which may result in the Releasing of Hazardous Substances into the waters or onto the lands of the State of New Jersey, or into the waters outside the jurisdiction of the State of New Jersey, or into the environment. (iv) "Environmental Laws" mean any and all present or future laws, statutes, ordinances, regulations and executive orders, federal and state and local in any related to the protection of human health or the environmental, including, but not limited to, (i) CERCLA; (ii) RCRA; (iii) ISRA; (iv) Spill Act; (v) USTA; (vi) WPCA; (vii) APCA; (viii) SWMA; (ix) CAA; and (x) USTA. ARTICLE 2 USB OF PREMISES Section 2.01 Use. The Tenant shall use and occupy the Demised Premises for offices, warehousing and distribution of cosmetics, fragrances and personal care items, and for repackaging of cosmetics, fragrances and personal care items only, and for no other purpose. If Tenant desires to expand or change the aforementioned uses, Tenant shall not do so without first obtaining Landlord's written consent. Landlord agrees not to unreasonably withhold its consent, if the use is for warehousing only of products which are consumer products, and are non-hazardous and are not toxic pollutants. In all other events, Landlord may, for no reason or for any reason, not consent to a change or expansion of use. It being a consideration of this Lease, that the use of the premises shall be limited, to those uses as otherwise hereinbefore specified, and Tenant may not, use the premises for manufacturing or the warehousing of any product which is a hazardous substance as that term is more particularly hereinafter defined. Such use does not permit the stacking of merchandise or materials against the walls, so as to create a load or weight factor upon the walls, or to tie in, Tenant's racking systems with such walls, nor the hanging of equipment from (or otherwise loading) the roof or structural members of the building without the express written consent of the Landlord. The Tenant shall not use or occupy or permit the Demised Premises to be used or occupied, nor do or permit anything to be done in or on the Demised Property, in a manner which will in any way violate any Certificate of Occupancy affecting the Demised Premises, or make void or voidable any insurance then in force with respect thereto, or which will make it impossible to obtain fire or other insurance required to be furnished by the Tenant hereunder, at regular rates, or which will cause or be likely to cause structural damage to the Building or any part thereto, or which will constitute a public or private nuisance, or which would adversely affect the then value thereof, and shall not use or occupy or permit the Demised Premises to be used or occupied in any manner which will violate any present or future laws or regulations of any governmental authority. Except for the products contemplated by the permitted uses in this Section 2.01, Tenant shall not, during the term of this Lease store upon the premises, hazardous substances as that term may be defined from time to time by the New Jersey Department of Environmental Protection or, by the Federal Environmental Protection Agency pursuant to Section 311 of the "Federal Water Pollution Act, amendments of 1972" (33 U.S.C. Section 1321) and the list of toxic pollutants designated by Congress or the Environmental Protection Agency pursuant to Section 307 of that Act (33 U.S.C. Section 1317). The storage of products contemplated by the permitted uses in this Section 2.01 shall during the term of this Lease be in compliance with all applicable laws and regulations, whether federal, state or local, and whether environmental or otherwise. Nothing herein contained shall be deemed or construed to constitute a representation or guaranty by the Landlord that any specific business may be conducted in the Demised Premises or is lawful under the certificate of occupancy. In the event the Tenant cannot obtain the continued certificate of occupancy for the uses of the Demised Premises described in the first sentence of this Section 2.01, then in such event, Tenant shall have the right, prior to Tenant taking occupancy, to terminate this Lease; such right of termination in all events to be exercised no later than ten (10) days from the date Landlord advises Tenant, TIME BEING OF THE ESSENCE, that the municipality will not issue the continued Certificate of Occupancy. Tenant acknowledges and recognizes that Tenant will have to undertake ordinary and usual improvements required by the municipality, such as, but not limited to, in rack sprinklers, exit areas marked on the floor, exit signs, etc. If Tenant is required to undertake other improvements in order to obtain the continued certificate of occupancy, such improvements specifically required by the municipality by reason of Tenant's peculiar use, and if the collective cost thereof is more than FIVE THOUSAND and NO/100 Dollars ($5,000.00), then Tenant shall have the right to terminate this Lease, such right to be exercised, in all events, within the ten (10) day time period as heretofore provided, TIME BEING OF THE ESSENCE. ARTICLE 3 RENT AND OTHER CHARGES Section 3.01 Net Basic Rent. The Tenant shall pay to the Landlord as net annual basic rent (the "Basic Rent") for the Demised Premises during the Term the sum of SIX HUNDRED EIGHTY- FOUR THOUSAND and NO/100 Dollars ($684,000.00) per annum, payable in equal monthly installments of FIFTY-SEVEN THOUSAND and NO/100 Dollars ($57,000.00) due and payable the first day of each and every month, in advance, except, the first month's rent which shall be paid upon the execution hereof. Said rent and all payments due hereunder shall be paid to the Landlord at its address hereinabove first specified, or as the Landlord may otherwise direct in writing. It is the intention of the parties that the Basic Rent shall be net to the Landlord, so that this Lease shall yield to the Landlord, the Basic Rent during the Term and that all costs, expenses and obligations of every kind and nature whatsoever relating to the Demised Premises shall be paid by the Tenant, except as otherwise specifically provided in this Lease. Whenever the rent as hereinabove set forth is stated as an annual rent, and if there shall be less than twelve (12) months in any year, the rate therein referred to shall be the "annualized rate". Section 3.02 First Month Proration. If the Term shall begin on a date other than the first day of a calendar month, the Basic Rent for the initial month of the Term shall be prorated. Section 3.03 Rent Credit to Tenant. Landlord, as an accommodation to Tenant to reimburse Tenant for its initial moving/rental expenses, will extend a credit to Tenant in an amount equal to the lesser of FORTY-TWO THOUSAND and NO/100 Dollars ($42,000.00) or, if less, the net monthly rent paid by Tenant in its present leased premises to be applied against the rent accruing as of the second month of the Lease Term. Section 3.04 Additional Rent. All payments other than Basic Rent Tenant is required to make pursuant to this Lease shall constitute additional rent ("Additional Rent") and, if Tenant defaults in any such payment so as to create an Event of Default (as hereinafter defined), Landlord shall have (in addition to any rights and remedies granted hereby) all rights and remedies provided by law for nonpayment of Basic Rent. Section 3.05 Late Charge. If a payment of Basic Rent or Additional Rent or any part thereof shall not be made on or prior to a date which is five (5) days after the date on which it is due and payable, a late charge of $500.00 per day shall become due and payable to Landlord as liquidated damages for the administrative costs and expenses incurred by Landlord by reason of Tenant's failure to make prompt payment and said late charge shall be payable by Tenant on the first day of the following month. No failure by Landlord to insist upon the strict performance by Tenant of Tenant's obligations to pay late charges shall constitute a waiver by Landlord of its rights to enforce the provisions of this Section in any instance thereafter occurring, nor shall acceptance of late charges be deemed to extend the time of payment of Basic Rent or Additional Rent or any part thereof. The provisions of this Section 3.05 shall not be construed in any way to extend the grace periods or notice periods as otherwise provided for in this Lease. In the first three (3) instances in each calendar year when Landlord is asserting a late charge, Landlord agrees that, prior to asserting the late charge, Landlord shall give to Tenant five (5) days' prior written notice and Tenant shall have five (5) days after receipt of such notice to make payment. If Tenant fails to make payment within five (5) days after receipt of written notice by Landlord, then the late charge shall be effective. Landlord's obligation to give notice shall only accrue in the first three (3) instances that failure to pay occurs in each calendar year, and not thereafter. Section 3.06 Additional Security Deposit. In the event a late charge is payable hereunder pursuant to Section 3.05, whether or not collected, for three (3) installments of rent or other monetary obligations of Tenant under the terms of this Lease during any twelve-month period, Tenant shall pay to the Landlord, if Landlord shall so request, in addition to any other payments required under this Lease, an additional security deposit as estimated by Landlord in an amount equal to rent and additional rent for three (3) months. Such additional security shall be established to insure payment when due before delinquency of all rent and additional rent, and shall be held pursuant to the security clause provisions as provided in Article 24 hereof. Such additional security deposit shall be returned to the Tenant upon termination of the Lease, less any amount of the security deposit so expended by Landlord, to cure Tenant's defaults hereunder, together with interest as otherwise provided in Article 24 hereof. Section 3.07 No Abatement, Deduction, or Set-off etc. There shall be no abatement, diminution or reduction of Basic Rent, or Additional Rent or other charges or other compensation due to the Landlord by Tenant or any person claiming under it under any circumstances, including, but not limited to, any inconvenience, discomfort, interruption of business or otherwise, except as specifically provided herein. Section 3.08 Common Area Charge. The Premises to be demised are located within an office/industrial park known as Forsgate Industrial Complex. Landlord, from time to time, will incur various expenses to maintain the Park for the benefit of all tenants. The Tenant shall pay three percent (3.0%) ("Tenant's Share") of the total costs and expenses incurred by Landlord in maintaining certain areas of the Park for items as follows: (i) the cost of maintaining Park signs and tenant directories; (ii) the cost of water, electricity and other utilities used in connection with the operation and maintenance of the Park and not part of any area demised to a tenant; (iii) the cost of insurance, including general liability insurance, which is carried by Landlord and is usual and customary under the circumstances; (iv) other costs reasonably incurred by Landlord to maintain the Park or costs incurred for services benefiting all tenants or occupants of the Park which, in the reasonable opinion of Landlord, are a service desirable to operate the Park. The cost of maintaining common facilities used by all tenants, such as common grass areas, boulevard dividers, curbing and lighting. Tenant shall pay to the Landlord as an additional charge, annually, Tenant's Share of such common Park expenses for each calendar year. At the end of each calendar year, Landlord shall furnish Tenant with a statement called "Landlord's Expense Statement" setting forth in reasonable detail the common area Complex expenses for such calendar year. Tenant's share of such charges shall not exceed, on an annual basis, FIVE THOUSAND TWO HUNDRED FIFTY and NO/100 Dollars ($5,250.00), such sum adjusted to be increased per annum by the percentage increase, if any, of the cost of living from January 1, 1996 to December 31 of the year for which the bill is rendered by Landlord to Tenant. The cost of living increase shall be measured by the Consumer Price Index for "All Items", the "Index" issued by the U.S. Department of Labor. In the event the Index is no longer issued or available or commonly used at the time a determination is to be made, the Landlord shall designate another index or criteria which will accurately reflect the increase in the cost of living which has occurred for the time period so to be determined. Tenant's Share of common area charges for Forsgate Industrial Complex, which shall become payable by Tenant during the calendar year in which this Lease commences or ends, shall be apportioned between Landlord and Tenant in accordance with the portion of such calendar year within the Term. ARTICLE 4 TAXES Section 4.01 Real Estate Taxes. Tenant shall, throughout the Term, pay directly to the appropriate taxing authorities, at least one (1) day before the same shall become due and payable, without interest or penalty, all water and sewer rents, rates and charges, licenses and permit fees, real estate taxes and assessments levied, assessed, confirmed, imposed upon or against the Demised Premises or any part thereof, including those presently in effect as well as those which may be enacted in the future (collectively the "Impositions"). Tenant shall forward copies of all receipted bills or statements therefor to Landlord upon receipt thereof from said taxing authorities. Section 4.02 Other Taxes and Payment Thereof. (a) Other Taxes Arising Out of Tenant's Use and Occupancy. In addition to the Impositions, Tenant shall pay, at least one (1) days prior to its due date, each and every item of expense in the nature of a tax or charge or assessment for which Landlord is or shall become liable by reason of its estate or interest in the Demised Premises, or any part thereof, including, without limiting the generality thereof, all personal property taxes, gross receipts taxes, use and occupancy taxes, and excise taxes levied or assessed against Landlord or Tenant by reason of the use, occupancy or any other activity by the Tenant in connec- tion with the Demised Premises or any part thereof, or which may be levied or assessed or imposed upon any rents or rental income, as such, payable to Landlord or payable to Tenant from any sub-Tenant in connection with the Demised Premises or any part thereof. Tenant shall forthwith forward copies of receipted bills or cancelled checks therefor to Landlord evidencing the payment thereof. (b) Payment of Bills. In the event that the bills or statements issued by the appropriate taxing authorities in respect of any Imposition or tax required to be paid by Tenant pursuant to paragraph (a) of this Section 4.02 shall be forwarded directly to Landlord, Landlord shall promptly forward the same to Tenant, and Tenant shall pay the same before expiration of the time period set forth above or within ten (10) days after receipt of such bill or statement, whichever is later. Section 4.03 Certain Taxes Not Payable by Tenant. Tenant shall not be required to pay any of the following taxes or governmental impositions which shall be levied or imposed against Landlord by any governmental authority: (i) Any estate inheritance, devolution, succession, transfer, legacy or gift tax which may be imposed upon or with respect to any transfer of Landlord's interest in the demised premises. (ii) Any income tax levied upon or against the profits of the Landlord from all sources provided, however, that if at any time during the Term the method of taxation prevailing at the commencement of the Term shall be altered so that any new tax, assessment, levy, imposition or charge, shall be measured by or be based in whole or in part upon the Demised Premises or the income thereof and shall be imposed upon Landlord then all such taxes, assessments, levies, imposition or charges to the extent that they are so measured or based, shall be deemed to be an Imposition for the purpose hereof, to the extent that such Imposition would be payable if the Demised Premises were the only property of Landlord subject to such Imposition and Tenant shall pay and discharge the same as herein provided in respect of the payment of any Imposition. Section 4.04 Apportionment During First and Last Year of Term. All Impositions which shall become payable during the fiscal tax year in which this Lease commences or ends shall be apportioned between Landlord and Tenant in accordance with the portion of the tax year within the Term. Section 4.05 Tenant's Right to Contest. Tenant may contest any Imposition by diligently conducting proceedings in which event, upon Tenant's request and if permitted by law, Tenant may postpone payment of such Imposition during such contest if: (a) Such postponement would not constitute a default under any Landlord's mortgage; (b) Landlord's interest in the Demised Premises would not be endangered thereby; and (c) Tenant deposits with Landlord the amount so contested and unpaid, and annually thereafter adds to such deposit such accrued interest and penalties as Landlord reasonably estimates might be assessed against the Demised Premises in such proceeding. Upon the termination of such proceeding, Tenant shall pay the amount of such Imposition (as finally therein determined) remaining unpaid and all interest and penalties relating thereto or, upon Tenant's request, Landlord shall pay such amount to the extent of the funds so deposited. Upon payment in full of such amount, interest and penalties (whether by Landlord or Tenant), Landlord shall return any then balance of the amount so deposited. If, during such proceeding, Landlord in good faith deems the amount so deposited insufficient, Tenant shall upon Landlord's demand, deposit such additional funds as Landlord reasonably requests. If Tenant fails to deposit such additional funds, the funds theretofore deposited may be applied by Landlord to the payment of such Imposition, interest and penalties and any balance shall be returned to Tenant. Landlord shall, if required through such proceedings and requested by Tenant, join in such proceedings, cooperate with Tenant and execute requisite documents, provided Tenant pays Landlord's resultant expenses. Section 4.06 Assessments Payable in Installments. With respect to any assessment levied by any governmental or municipal agency or authority which is or may be payable, at the option of the taxpayer, in installments, Tenant agrees to pay Landlord, in lieu of paying the assessment directly to the appropriate governmental or municipal agency, as additional rent, annually, from the date of payment of the assessment, the installment due therefor, at least five (5) days before the last day on which each such installment may be paid without penalty or interest. Tenant shall not be required to pay any installment which shall fall due after the expiration of this Lease. ARTICLE 5 COMMENCEMENT DATE OF THE LEASE - DELAYED COMMENCEMENT Section 5.01 Commencement Date of the Lease - Delayed Commencement. The Commencement Date of this Lease shall occur on the earlier of: (i) the date Landlord substantially completes Landlord's work as otherwise set forth in Section 5.02 and delivers possession of the Premises to Tenant, or (ii) the earlier occupancy of the Tenant. The premises are presently occupied pursuant to the terms and conditions of a certain Lease between Forsgate Industrial Complex, as Landlord, and Midlantic Distribution Inc., as Tenant, as amended, which Lease provides that either Landlord or Tenant on thirty (30) days' prior written notice may terminate the Lease. Landlord agrees, within three (3) business days of the execution of this Lease, to serve notice of termination upon Midlantic Distribution, Inc. In the event Midlantic Distribution Inc. shall fail to vacate the Premises and deliver possession to the Landlord in accordance with the thirty (30) day notice of cancellation, then the Commencement Date of this Lease shall be delayed until Landlord can deliver possession to the Tenant. Landlord agrees to institute summary dispossess proceedings or take such other action as is reasonably necessary to secure possession for Tenant hereunder. If the Landlord is unable to obtain possession of the Premises on or before the seventy-fifth (75th) day from the date of this Lease, then Tenant shall have the right prior to the date Landlord notifies Tenant that the Premises are vacant to terminate this Lease. Upon termination of this Lease, both parties shall be releaaed thereafter from and after further liability to the other, except the return to Tenant of prepaid rent and the security deposit. If Landlord has failed to obtain possession from the existing tenant by December 31, 1995, then, if Tenant has not theretofore terminated this Lease, this Lease shall terminate as of December 31, 1995. All such notices shall be in conformance with Article 16 of this Lease. Section 5.02 Landlord's Work. Landlord, at no cost to Tenant, agrees, upon obtaining possession, to paint the second floor offices, remove ground floor offices except for lobby and tollets, and install two overhead doors between warehouse and demolished office area, and clean and seal the warehouse floor, repave the parking lot, clean and wash all windows and repair landscaping where necessary. Landlord shall immediately and in a diligent manner, undertake Landlord's work upon obtaining possession of the Premises and obtaining, if required, governmental building permits, and shall substantially complete such work not later than sixty (60) days thereafter, which date shall be an estimated completion date, provided, however, that such date shall be extended by any delay occasioned by scarcity of materials, entry or occupancy by Tenant which inhibits, delays or increases the cost of construction, strikes, labor disputes, weather conditions which inhibit construction, fires or other casualties, governmental restrictions and regulations, delays in obtaining governmental permits, delays in transportation and other delays beyond the reasonable control of Landlord. Section 5.03 Continued Certificate of Occupancy. Upon Landlord completing Landlord's work as set forth in Section 5.02, Tenant shall be responsible to obtain a Continued Certificate of Occupancy. Tenant shall be required to undertake such work, such as installation of in-rack sprinklers, exit lines and signs, and other requirements as imposed by the municipality, as required for the issuance of the Continued Certificate of Occupancy permitting Tenant to use and occupy the Demised Premises for the uses described in the first sentence of Section 2.01. Section 5.04 Tenant's License to Install a Racking System Prior to the Commencement Date. At such time as Landlord has completed its work regarding cleaning and sealing of the warehouse floor, Landlord shall grant a revocable license to Tenant, to install in the Premises Tenant's racking system. Such license shall be subject to revocation by Landlord at any time, upon written notice, in the event Landlord reasonably determines that Tenant's exercise of the license is delaying, interfering or otherwise impeding Landlord's Work. The installation of racking as contemplated by this Section 5.04 shall not be deemed, for purposes of Section 5.01, occupancy of the Premises by the Tenant. However, Tenant shall be deemed to have accepted that portion of the Premises so used for racking upon installation thereof by Tenant. Tenant, however, prior to exercising the license, shall deliver an insurance certificate to Landlord, in compliance with the provisions of Paragraph (iv) of Section 6.01. Tenant acknowledges that neither Landlord nor its agents or employees shall have any liability to Tenant as to Tenant's property as may placed pursuant to the license in the Demised Premises. ARTICLE 6 INSURANCE TO BE PROVIDED BY TENANT Section 6.01 Coverage and Amount. During the Term, Tenant shall maintain policies of insurance at its sole cost and expense as follows: (i) Insurance against loss or damage to the Demised Premises by fire and from such other hazards as may be covered by the form of all risk coverage then in effect (including specifically damage by water, flood or earthquake) all in an amount sufficient to prevent any coinsurance provision from becoming effective but in any event ln an amount not less than 100% of the then replacement value of the Building without depreciation except for flood and earthquake insurance which shall be in the amount of One Million Dollars ($1,000,000.00). This insurance shall include but not be limited to the following: a. Boiler and other pressure vessels, plate glass and elevator insurance, if appropriate (Tenant shall have the right to be self-insured as to plate glass); and b. Insurance against riot or civil commotion, vandalism, aircraft, sprinkler leakage, all risk endorsement rider (the SMP allrisk form) or the equivalent, and "Demolition" and "Increased Cost of Construction". In addition to the foregoing, such insurance shall include, but not be limited to windstorm, hail, explosion, flood or earthquake, riot and civil commotion, damage from aircraft and vehicles, smoke damage, and such coverage as may be deemed necessary by the Landlord. These insurance provisions shall in no way limit or modify any of the obligations of the Tenant under any provision of this Lease to restore the Demised Premises. Anything contained herein to the contrary not- withstanding, the insurance required by this paragraph shall in all events be sufficient to comply with the requirements of any fee mortgage and the replacement value shall in no event be less than FIVE MILLION FIVE HUNDRED THOUSAND and NO/100 Dollars ($5,500,000.00) except for flood and earthquake insurance which shall be in the amount of One Million Dollars ($1,000,000.00). Landlord may demand that such replacement value be determined from time to time by an appraiser, engineer, architect or contractor designated and paid for by Tenant and approved in writing by Landlord. No omission on the part of Landlord to request any such determination shall relieve Tenant of any of its obligations under this Article 6. (ii) Rent insurance, with all risk coverage, in an amount not less than one year's current Basic Rent and Additional Rent and one year's taxes and premiums for the insurance required by this Article 6. (iii) If appropriate, boiler and machinery insurance including coverage for pressure vessels with such limits as from time to time may be reasonably required by Landlord, but not less than $300,000.00 per occurrence with endorsement for actual replacement cost without depreciation. (iv) Commercial General Liability Insurance, including property damage, insuring Landlord and Tenant (and any Mortgagee or other person or persons whom Landlord may designate, called "Additional Insured" in this Lease) from and against all claims, demands, actions or liability for injury to, or death of any persons and for damage to property arising from or related to the use or occupancy of the Premises or the operation of Tenant's business. This policy must contain, but not be limited to, coverage for premises and operations, products and completed operations, blanket contractual, personal injury, operations, ownership, maintenance and use of owned, non-owned, or hired automobiles, bodily injury, and property damage. The policy must have limits in an amount not less than THREE MILLION and NO/100 Dollars ($3,000,000.00) per occurrence and THREE MILLION and NO/100 Dollars ($3,000,000.00) in the aggregate. This insurance will include a contractual coverage endorsement specifically insuring the performance by Tenant of its indemnity agreements contained in this Lease. To the extent Tenant carries commercial general liability insurance in excess of THREE MILLION and NO/100 Dollars ($3,000,000.00), which protects Tenant as to the Demised Premises, then Landlord shall have the advantage of the availability of such insurance and shall be named as an additional insured on such liability insurance in excess of THREE MILLION and NO/100 Dollars ($3,000,000.00). (v) If a sprinkler shall be located in any part of the Demised Premises, sprinkler leakage insurance in amounts reasonably satisfactory to Landlord. (vi) Such other insurance and in such amounts as may from time to time be reasonably required by any fee mortgagee holding a first mortgage on the Demised Premises against other insurable hazards, which at the time are commonly insured against, in the case of premises similarly situated. If by reason of changed economic conditions Landlord's insurance advisor reasonably concludes that these amounts of coverage or coverages are no longer adequate, then such amount or coverage will be appropriately increased, or obtained as the case may be. All policies of insurance carried pursuant to this Article 6 shall name as insured the Landlord, and if required, any fee mortgagee, as may be specifically designated by Landlord, as their respective interests may appear, provided however, that rent insurance shall be carried solely in favor of Landlord. To the extent Landlord receives and applies proceeds of rent insurance, Tenant shall receive a credit against rent payable hereunder. Subject to the rights of any fee mortgagee, all losses paid under the policy or policies under Article 6 shall be adjusted by Landlord and the proceeds thereof shall be payable to the Landlord and all such policies shall so provide. Section 6.02 Forms, Certificates, Blanket Policies, Renewals, Cancellation. All premiums on policies referred to in this Lease shall be paid by the Tenant. The originals of such policies or certificates shall be delivered to Landlord except when such originals are required to be held by any fee mortgagee, in which case, certificates of insurance shall be delivered to Landlord. Policies or certificates with respect to renewal policies shall be delivered to Landlord by Tenant not Iess than thirty (30) days prior to the expiration of the original policies or succeeding renewals, as the case may be, together with receipts or other evidence that the premiums thereon have been paid for at least one year. In the event the Tenant is not able to deliver the insurance policies or certificates prior to the renewal date as aforesaid, the Tenant may deliver binders in lieu of such policies or certificates to the Landlord, provided, however, that the insur- ance policies or certificates shall be delivered within sixty (60) days after the expiration of the original policies or succeeding renewals but in no event later than fifteen (15) days prior to the expiration date of the binder. Premiums on policies shall not be financed in any manner whereby the lender, on default or otherwise, shall have the right or privilege of surrendering or cancelling the policies. Each policy of insurance required under this paragraph shall have attached thereto an endorsement that such policy shall not be cancelled or modified without at least thirty (30) days prior written notice to the Landlord, and if required, to any fee mortgagee, as specifically designated by Landlord. Each such policy shall contain a provision that no act or omission of Tenant shall affect or limit the obligation of the insurance company to pay the amount of any loss sustained and a provision waiving any right of the insured aga1nst the Landlord. Tenant's obligations to carry insurance required by this Lease may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant, so long as (i) Landlord and such other persons will be named as additional insureds under such policies as their interests may appear; and (ii) the coverage afforded to Landlord and such other persons will not be reduced or diminished by reason of the use of such blanket policy of insurance; and (iii) all other requirements set forth herein are otherwise satisfied. Section 6.03 Recognized Insurance Companies. All insurance provided for in this Article 6 shall be effected under valid and enforceable policies issued by insurers which are licensed to do business in the State of New Jersey and shall be written on the standard policies of such companies and provide for no deductibles. Section 6.04 Landlord's Non-Liability, Tenant's Own Insurance. Tenant hereby waives all right of recovery which it might have against Landlord, Landlord's agents and employees, for loss or damage to Tenant's furniture, furnishings, fixtures, equipment, chattels and articles of personal property located on the Demised Premises, nor shall Landlord be liable for any business interruption, or injury to or death of persons occurring in the Demised Premises, or in any manner growing out of or in connection with Tenant's use and occupation of the leased premises or the condition thereof, notwithstanding that such loss or damage may result from the negligence or fault of Landlord. Tenant shall obtain insurance policies covering its furnishings, fixtures, equipment and articles of personal property (collectively, "Personal Property") in the Demised Premises, and Tenant shall either cause Landlord to be named as an insured party under such policies (without entitling Landlord to receive any loss proceeds thereof) or obtain the insurer's waiver of all rights of subrogation against Landlord with respect to losses insured under such policies. Tenant shall advise Landlord promptly of the applicable provisions of such insurance policies and notify Landlord promptly of any cancellation or change therein. All insurance carried by Tenant as to the Demised Premises or as to any property located thereon or therein, whether or not such insurance is carried pursuant to this Lease, shall provide that the insurer waives all rights of subrogation against Landlord with respect to losses insured under such policies. Section 6.05 Indemnity. Tenant is and shall be in exclusive control and possession of the Demised Premises as provided herein, and Landlord shall not in any event whatsoever be liable for any injury or damage to any property or to any person happening on or about the Demised Premises, nor for any injury or damage to the Demised Premises, nor to any property of Tenant, or of any other person contained therein. Tenant shall indemnify and save Landlord harmless against and from all liabilities, claims, suits, fines, penalties, damages, losses, fees, costs and expenses (including reasonable attorneys' fees) which may be imposed upon, incurred by or asserted against Landlord by reason of: (i) Any work or thing done in, on or about the Demised Premises or any part thereof; (ii) Any use, occupation, condition, operation of the Demised Premises or any part thereof or of any street, alley, sidewalk, curb, vault, passageway, or space adjacent thereto or any occurrence on any of the same; (iii) Any act or omission on the part of Tenant or any subtenant or any employees, licensees or invitees; (iv) Any accident injury (including death) or damage to any person or property occurring in, on or about the Demised Premises; or any part thereof or in, on or about any street, alley, sidewalk, curb, vault, passageway or space adjacent thereto; and (v) Any failure on the part of Tenant to perform or comply with any of the covenants, agreements, terms or conditions contained in this Lease, or recording of this Lease. The provisions of this paragraph shall survive the expiration or earlier termination hereof. Section 6.06 Fire Insurance Rate and Requirements. Tenant agrees, at its own cost and expense, to comply with all of the rules and regulations of the Fire Insurance Rating Organization having jurisdiction and any similar body, and the insurance company insuring the building. Section 6.07 Waiver of Subrogation. All insurance carried by Tenant as to the Demised Premises or as to any property located thereon or therein, whether or not such insurance is carried pursuant to this Lease, shall provide that the insurer waives all rights of subrogation against the Landlord with respect to losses insured under such policies. ARTICLE 7 RESTORATION OF DEMISED PREMISES IN THE EVENT OF FIRE OR OTHER CASUALTY Section 7.01 No Abatement. No damage to the Building by fire or other casualty shall terminate the Lease or relieve Tenant either from payment of Basic Rent, Impositions and Additional Rent, or from the performance of Tenant's other obligations hereunder. Such damage or destruction shall not affect the termination of this Lease. Tenant expressly waives the provisions of N.J.S.A. 46:8- 6 and 46:8-7 and agrees that the foregoing provisions of this Article shall govern and control in lieu thereof. Section 7.02 Tenant's Restoration. During the Term, Tenant shall promptly notify Landlord of any damage to the Demised Premises and shall, at its own cost and regardless of the suf- ficiency of insurance proceeds restore the Building subject to Section 8.07 as nearly as possibIe to its condition immediately prior to the damage. Restoration shall be commenced promptly after the occurrence of any such damage and completed with due diligence. As promptly as reasonably possible after damage, Tenant shall notify Landlord of its estimate of the cost of restoration certified correct by Tenant's architect, which architect to be reasonably approved by Landlord, and provide Landlord with such substantiation thereof as Landlord reasonably requests. If the estimated cost of the restoration exceeds the insurance proceeds, Tenant shall, prior to the commencement of the restoration, deposit the deficiency in accordance with Section 7.03. If such determina- tion has not been made when the restoration is to commence, Tenant shall so deposit the difference between Landlord's estimate of the cost of the restoration and the insurance proceeds (any deposit by Tenant pursuant to this Section 7.03 being hereinafter referred to as the "deficiency deposit") and, upon the determination of the estimated cost of the restoration, any excess amount so deposited shall promptly be refunded to Tenant. Before commencing with any restoration which would cost more than $50,000.00, Tenant's architect shall prepare plans and specifications therefor, for Landlord's and any fee mortgagee's approval. There shall be no material deviation from such plans and specifications without Landlord's and the fee mortgagee's approval. The reasonable expenses of Landlord and the fee mortgagee in reviewing such plans and specifications and reviewing requests for disbursements shall be paid by Tenant as Additional Rent. Section 7.03 Disbursement of Insurance Funds. In the event of such damage or destruction, which would cost more than FIFTY THOUSAND and NO/100 Dollars ($50,000.00) to restore, any insurance money recovered by the Landlord shall be paid over to a banking company selected by the Landlord to act as an Insurance depository, and such Insurance Depository shall pay out such money from time to time to the Tenant as the repairing, restoration and rebuilding (collectively called the "work") progresses. All amounts received shall be applied by Tenant to the cost of repairing such damage and restoring the Demised Premises, and the Tenant shall proceed with reasonable diligence to repair such damage and to restore the Demised Premises substantially to the condition thereof existing immediately prior to the occurrence of such damage or destruction. The insurance proceeds shall be paid out by the Insurance Depository from time to time upon Tenant's written request, accompanied by: (a) A certificate signed by the Tenant and the architect or engineer in charge of the work, dated not more than thirty (30) days prior to such request, setting forth the following: (i) That the sum then requested either has been paid by Tenant, or is justly due to contractors, subcontracitors, materialmen, engineers, architects or other persons who have rendered services or furnished materials for the restoration therein specified, the names and addresses of such persons, a brief description of such services and materials, the several amounts so paid or due to each of said persons in respect thereof, that no part of such expenditures has been or is being made the basis, in any previous or then pending request, for the withdrawal of insurance money or has been made out of the proceeds of insurance received by Tenant, and that the sum then requested does not exceed the value of the services and materials described in the certificate. (ii) That except for the amount, if any, stated (pursuant to the foregoing subclause (a)(i) in such certificate to be due for services or materials, there is no outstanding indebtedness known to the persons signing such certificate, after due inquiry, which is then due for labor, wages, materials, supplies or services in connection with such restoration which, if unpaid, might become the basis of a vendor's, mechanic's laborer's or materialman's statutory or similar lien upon such restoration or upon the demised premises, or any part thereof, or upon Tenant's leasehold interest therein. (iii) That the cost, as estimated by the persons signing such certificate, of the restoration required to be done subsequent to the date of such certificate in order to complete the same, does not exceed the insurance money, plus any amount deposited by Tenant to defray such cost and remaining in the hands of the Insurance Depository after payment of the sum requested in such certificate. (iv) The Tenant shall furnish the Insurance Depository at the time of any such payment with an official search or evidence satisfactory to the Insurance Depository that there has not been filed with respect to the Demised Premises any mechanic's or other liens which have not been discharged of record. (b) An opinion of counsel or other evidence, reasonably satisfactory to the Insurance Depository, to the effect that there has not been filed with respect to the Demised Premises, or any part thereof, or upon Tenant's leasehold interest therein any vendor's, mechanic's, laborer's, materialman's or other lien which has not been discharged of record, except such as will be dis- charged by payment of the amount then requested. (c) If the insurance money in the hands of the Insurance Depository and such other sums, if any, deposited with the Insurance Depository shall be insufficient to pay the entire cost of such work, the Tenant agrees to pay the deficiency. Upon completion of the work and payment in full thereof by the Tenant, the Insurance Depository shall turn over to the Tenant, upon sub- mission of proof satisfactory to the Landlord that the work has been paid for in full, any insurance money then remaining and such other sums, if any, deposited with the Insurance Depository then remaining in the hands of the Insurance Depository. (d) Tenant shall pay all charges and fees, including attorneys' fees, of any bank, trust company or other entity that performs the functions provided for in Section 7.03 hereof. Section 7.04. Damage to or destruction of the Demised Premises as aforesaid shall not reduce or abate to rent herein reserved. Such damage or destruction shall not effect a termination of this Lease. Tenant expressly waives the provisions of N.J.S.A. 46:8-6 and 46:8-7 and agrees that the foregoing provisions of this paragraph shall govern and control in lieu thereof. ARTICLE 8 REPAIRS, MAINTENANCE, UTILITIES, CHANGES AND ALTERATIONS COMPLIANCE WITH ORDERS, ETC., EASEMENTS Section 8.01 Tenant's Repairs and Maintenance. Tenant for and during the Term, at Tenant's sole cost and expense, assumes all responsibility and obligation for the physical condition of the Demised Premises and its sidewalks, curbs, grounds, parking area and utilities and shall keep the same in good order and first class condition free of accumulation of dirt, rubbish, snow and ice, and shall make all necessary repairs thereto, interior and exterior, structural and non-structural, ordinary and extraordinary and foreseen and unforeseen. When used in this Article, the term "repairs" shall include all necessary replacements and renewals. All repairs made by Tenant shall be equal in quality to the original work. The lawns, shrubs and other vegetation will be maintained and, when required, replaced or renewed. Tenant shall obtain a roof maintenance contract and a maintenance contract for the heating, ventilation and air conditioning systems in the building. Such contract shall provide for semi-annual maintenance of the roof and the HVAC systems, and copies of the maintenance agreements shall be submitted to Landlord, together with an annual report of the maintenance company as to the condition and repairs made to the roof and the systems. In the event the Tenant shall fail to maintain the premises as afoeesaid, the Landlord may serve notice upon the Tenant to correct same and if the Tenant shall fail to do so within 15 days after notice, the Landlord is authorized to take whatever action the Landlord deems reasonably necessary to maintain the Demised Premises, all at the expense of the Tenant. The Tenant shall under no circumstances, paint either the inside or the outside of the masonry walls or the concrete floors without first obtaining Landlord's written consent. Upon surrender, if Tenant shall violate this undertaking, then, Tenant shall cause any such painting to be removed and the finish restored to its original condition. Section 8.02 Landlord's Responsibility. Provided Tenant notifies Landlord of the necessity of the repair prior to the last day of the twelfth (12th) month of the Term, Landlord, at its sole cost and expense, shall at the request of Tenant remedy all material defects in workmanship and materials used in the construction of the building which results in an interference with Tenant's reasonable use of the Premises, evidence of which shall appear or be discovered on or before the last day of the twelfth (12th) month of the Lease Term. Notwithstanding the foregoing, if Tenant shall make any change or alteration, structural or otherwise, to any portion of the building or lands, Landlord's obligations as heretofore provided shall not thereafter extend to the portion of the building or the Premises so changed or altered by Tenant to the extent any portion thereof is adversely affected by the change or alteration. If such change or alteration made by Tenant affects any warranty which Landlord obtained, Landlord shall be excused from Landlord's obligation to the extent such warranty is abrogated, voided or diminished. Landlord's liability under this section is limited to repair or correction of the defect or condition to be rectified and Landlord shall not be liable for any consequential loss or damage. On the commencement date of the Lease, the roof will be free of leaks. Section 8.03 Utilities. Tenant shall make arrangements directly with the appropriate utility companies for the supply of gas, electricity, water, light, power, telephone and shall pay all fees, expenses and charges therefore to such companies. Section 8.04 Tenant's Responsibility. Landlord shall not be required to furnish any services or facilities or to make any repairs or alterations on or to the Building or the Demised Premises and Tenant assumes the full responsibility for the condition, operation, repair, replacement, maintenance and management of the Demised Premises. Section 8.05 Compliance. During the Term, Tenant, at its cost, shall promptly comply with all present and future laws, ordinances, or other governmental regulations (including, but not limited to, the Americans with Disabilities Act of 1990-ADA) and all present and future applicable requirements of the Fire Insurance Rating Organization of New Jersey (or other body exercising similar functions), whether or not the same requires structural repairs or alterations, foreseen or unforeseen, ordinary as well as extraordinary, which may be applicable to the Demised Premises, the fixtures and equipment thereof, or the use or manner of use of the Demised Premises. Tenant agrees to comply with all zoning ordinances and the responsibility for specific use or uses shall be that of the Tenant and the Landlord makes no representation as to any permissive use. Tenant may contest the validity of any such requirement at its expense and defer compliance therewith pending such contest, provided such deferral shall neither constitute a default under any mortgage of the Landlord or cause the imposition of any lien against the Demised Premises nor subject Landlord to any criminal or civil liability. Section 8.06 Environmental Compliance. Tenant agrees, that under all circumstances, Tenant shall comply with all federal, state and local laws, ordinances, rules and regulations which are applicable, as to the conduct of Tenant's business as it relates, to the environment, including but not limited to, spillage, pollution, and storage. Tenant hereby represents that its Standard Industrial Classification number ("S.I.C.") is 5190 and its operations shall consist of only those activities otherwise set forth in the first sentence of Section 2.01. Tenant will not permit the operations at the Premises to so change so that the S.I.C. designation heretofore enumerated will change. Tenant shall, prior to July 30, 1995, obtain its own environmental consultant to do such audit and investigation of the Demised Premises as Tenant deems appropriate or necessary, to satisfy Tenant as to the environmental condition of the Premises. If, in the sole judgment of the Tenant, such environmental audit and investigation is not satisfactory to Tenant, then Tenant shall have the right to terminate this Lease, provided and subject, however, that such right shall be exercised on or before July 30, 1995, TIME BEING OF THE ESSENCE, and such notice of termination is served together with a copy of all of Tenant's environmental reports so obtained. The right to terminate this Lease shall be void and without further force and effect subsequent to July 30, 1995, if Tenant has not theretofore exercised its right of termination. All such notices shall be in conformance with Article 16 of this Lease. Notwithstanding any provision of the Industrial Site Recovery Act, N.J.S.A. 13:lK-6, et seq., and the regulations promulgated thereunder, and any successor or amended legislation or regulations ("ISRA") to the contrary, if Tenant is operating an "industrial establishment" as that term is defined in ISRA, Tenant shall, at its own cost and expense, comply with ISRA whenever an obligation to do so arises, including by reason of a closing, terminating or transferring operations. Tenant shall, at its own cost and expense, make all submissions to, provide all information to, and comply with all requirements of the New Jersey Department of Environmental Protection & Energy ("DEPE") pursuant to ISRA. Should the DEPE determine that a Remediation Action Work Plan must be prepared and that remediation must be undertaken because of any spills or discharge of a hazardous substance or hazardous waste (as those terms are defined in ISRA) at the premises, then Tenant shall, at Tenant's own expense, prepare and submit the required documents and remediation funding source, and carry out the approved plans. Landlord covenants and agrees with Tenant that Tenant shall not be responsible for any environmental cleanup costs solely related to a spill or discharge of hazardous substance or hazardous waste which occurred prior to the commencement date of the Lease. At no expense to the Landlord, Tenant shall promptly provide all information requested by Landlord regarding or in furtherance of ISRA compliance. Tenant shall sign any affidavit submitted to it by Landlord which is true, accurate and complete; and if an affidavit is not true, accurate and complete, Tenant shall supply the necessary information to make it true, accurate or complete and shall then sign the same. Tenant shall promptly supply Landlord with any notices, correspondence or submissions of any nature made by Tenant to, or received by Tenant from, the DEPE, United States Environmental Protection Agency, or any local, state or federal authority concerning compliance with applicable Environmental Law. In the event Tenant uses, stores or generates hazardous substances, as that term is otherwise defined in this Lease, Tenant will so advise Landlord. In such event, Tenant shall, if requested by Landlord, but no more frequently than annually, supply the Landlord a list of all such hazardous substances used, generated or stored at the Demised Premises during the preceding twelve (12) months. Information to be provided shall be in a narrative report, including a description and quantification of hazardous substances and wastes which were generated, manufactured, stored or disposed of at the Premises during the preceding twelve (12) months. In addition to the foregoing, if Tenant uses, stores or generates hazardous substances, as that term is otherwise herein defined in this Lease, then Landlord shall have the right to require Tenant to hire a consultant, reasonably satisfactory to the Landlord, to undertake an Environmental Site Assessment and Site Investigation, as those terms are defined in ISRA, and if that report indicates a spill or discharge of hazardous substance at the Premises, an appropriate report will be filed with the applicable governmental agencies and Tenant shall Remediate the spill or discharge in accordance with ISRA and other applicable Environmental Laws. In the event a lien shall be filed (i) against the Premises during the term of this Lease arising out of hazardous substances or hazardous waste spilled or discharged after the commencement date of this Lease, or (ii) after the commencement of the term of this Lease arising from a violation of applicable Environmental Law which occurred during the term of this Lease, then Tenant shall, within thirty (30) days from the time Tenant is given notice of the lien, pay the claim and remove the lien from the Premises. Subject to the last paragraph of this Section 8.06, Tenant shall indemnify, defend and hold harmless from all fines, suits, procedures, claims, liabilities, costs and actions of any kind, including counsel fees (including those to enforce this indemnity), arising out of or in any way connected with any spills or discharges of hazardous substances or hazardous waste at the Premises, except those which occurred as otherwise provided in the immediately succeeding paragraph of this section; and from all fines, suits, procedures, claims, liabilities, costs and actions of any kind, including counsel fees (including those to enforce this indemnity), arising out of Tenant's failure to comply with the provisions of this Section 8.06. Tenant's obligations and liabilities under this Section 8.06 shall survive the expiration or earlier termination of this Lease and shall continue so long as Landlord remains responsible or liable for either any spills or discharges of hazardous substances or hazardous waste at the Premises or any violation of applicable Environmental Laws. Tenant's failure to abide by the terms of this Section 8.06 shall be enforceable by injunction. The undertaking of the Tenant hereunder shall survive termination of this Lease, provided and subject, however, that Tenant's responsibility shall only apply as to violation of Environmental Laws which occurred during Tenant's Lease term. If Tenant can prove in a reasonable manner that a violation of Environmental Laws did not occur during Tenant's Lease term, then, after such events, Tenant shall have no responsibility or liability as to any such noncompliance. Landlord covenants and agrees with Tenant that Tenant shall not have any liability for either the storage of, a spill of or discharge of a Hazardous Substance which occurred prior or subsequent to this Lease Term, or occurred by reason of a spill or discharge of a Hazardous Substance on lands other than the Demised Premises and such storage of, spill of or discharge is not due to any act or omission of Tenant or Tenant's officers, directors, employees, agents or invitees. If Landlord or Landlord's prior tenants at the Demised Premises caused a spill or discharge of hazardous substance or hazardous waste at the Premises, then as to either of such events, Landlord will defend, indemnify and hold Tenant harmless from all fines, suits, proceedings, claims, liabilities, costs and actions of any kind, including counsel fees (including those to enforce this indemnity), arising out of or in any way connected with a spill or discharge of hazardous substance or hazardous waste at the Premises directly caused by Landlord or by a prior tenant of Landlord. Section 8.07 Alterations. During the Term, Tenant shall not make structural alterations but may, at its cost, make non-structural alterations to the Demised Premises necessary for the conduct of its business, subject to the following: (a) Tenant shall first obtain requisite permits and authorizations from governmental authorities having jurisdiction; (b) Obtain Landlord's, and if required, the fee mortgagee's, prior written consent, (which Landlord's consent not to be withheld if the change or alteration would not, in the reasonable opinion of the Landlord, impair the value or usefulness of the Building or any part of the Demised Premises). (c) Any alterations shall be made promptly (unavoidable delays excepted), in a workmanlike manner in accordance with any alteration plans and in compliance with applicable laws and governmental regulations; (d) The cost of the alterations shall be paid by Tenant so that the Demised Premises remains free of any liens; (e) If requested by Landlord, post with Landlord adequate security to assure restoration of the premises at the end of the Term; (f) Tenant shall maintain Workmen's Compensation Insurance covering all persons on whose behalf death or injury claims could be asserted, until the alteration is completed; (g) No change or alterations shall, when completed, tie in or connect the Demised Premises with any other building on adjoining property. (h) During such time as Tenant shall be constructing any improvements, Tenant, at its sole cost and expense, shall carry, or cause to be carried, (i) Workmen's Compensation Insurance covering all persons employed in connection with the improvements in statutory limits, (ii) a completed operations endorsement to the Commercial General Liability Insurance policy referred to in Section 6.1(iv), (iii) Builder's Risk Insurance, completed value form, covering all physical loss, in an amount reasonably satisfactory to Landlord, and (iv) such other insurance, in such amounts, as Landlord deems reasonably necessary to protect Landlord's interest in the Demised Premises from any act or omission of Tenant's contractors or subcontractors. (i) No permitted alteration shall be undertaken until detailed Plans and Specifications have first been submitted to and approved in writing by Landlord, and, if required, by the fee mortgagee. At the completion of the alteration or restoration under Article 7, "as-built" plans shall be delivered to Landlord. Section 8.08 Restoration. Any alteration made by Tenant under Article 8 hereof shall, at Landlord's option, become Landlord's property, or, at the election of Landlord, shall be removed by the Tenant thirty (30) days prior to the termination of the Term and the Demised Premises shall be restored to its condi- tion prior to such alteration. The security deposited under Section 8.06(e) hereof shall be returned to the Tenant at the end of the Term if Landlord elects to have such improvement remain, or, returned to Tenant after restoration by Tenant if Landlord directs that said alteration be removed and the premises restored. Section 8.09. Landlord hereby reserves to itself its successors and assigns the right to construct, maintain and use ingress and egress easements, railroad easements, utility ease- ments, drainage easements, across, over and under the Demised Premises, to or from other lands now owned or in the future ac- quired by the Landlord, provided however, that the same be at the cost of the Landlord and does not unreasonably interfere with the use of the Demised Premises by the Tenant. ARTICLE 9 LEASE PROVISION AGAINST ASSIGNMENT, MORTGAGE, OR SUBLET BY TENANT WITHOUT LANDLORD'S PERMISSION, LANDLORD'S RIGHT OF RECAPTURE Section 9.01. Tenant covenants and agrees for Tenant and its successors, assigns, and legal representatives, that neither this Lease nor the term and estate hereby granted, nor any part hereof or thereof, will be assigned, mortgaged, pledged, encumbered or otherwise transferred (whether voluntarily, involuntarily, by operation of law, or otherwise), and that neither the Demised Premises, nor any part thereof, will be encumbered in any manner by reason of any act or omission on the part of Tenant, or will be used or occupied, or permitted to be used or occupied, or utilized for desk space or for mailing privileges or as a concession, by anyone other than Tenant, or for any purpose other than as hereinbefore set forth, or will be sublet, without the prior written consent of Landlord in every case; provided, however, that, if Tenant is a corporation, the assignment or transfer of this Lease, and the term and estate hereby granted, to any corporation into which Tenant is merged or consolidated or to which its assets are sold (such corporation being hereinafter in this Article called "Assignee") without the prior written consent of Landlord shall not be deemed to be prohibited hereby if, and upon the express condi- tion that, Assignee shall promptly execute, acknowledge, and deliver to Landlord an agreement in form and substance satis- factory to Landlord whereby Assignee shall assume and agree to perform and to be personally bound by and upon, all the covenants, agreements, terms, provisions, and conditions set forth in this Lease on the part of Tenant to be performed, and whereby Assignee shall expressly agree that the provisions of this Article shall, notwithstanding such assignment or transfer, continue to be binding upon it with respect to all future assignments and transfers and provided such Assignee shall prove to the satisfaction of Landlord that its net worth is at least equal to that of Tenant as of the date hereof. Section 9.02. Subject to Section 9.01 hereof, which shall take precedence over the provisions hereof, in the event Tenant desires Landlord's consent to an assignment or subletting of all or any part of the Demised Premises, Tenant, by notice in writing, (a) shall notify Landlord of the name of the proposed assignee or subtenant, such information as to the proposed assignee's or sub- tenant's financial responsibility and standing as Landlord may require, and a copy of the proposed assignment or sublease executed by all parties; and (b) shall offer to vacate the space covered by the proposed area to be subleased or the entire Demised Premises in the event of an assignment (as the case may be) and to surrender the same to Landlord as of a date (the "Surrender Date") specified in said offer that shall be the last day of any calendar month during the term hereof, provided, however, that the Surrender Date shall not be earlier than the date occurring ninety (90) days after the giving of such notice nor be later than the effective date of the proposed assignment or the commencement date of the term of the proposed sublease. Landlord may accept such offer in writing by notice to Tenant given within thirty (30) days after the receipt of such notice from Tenant. If Landlord accepts such offer, Tenant shall surrender to Landlord, effective as of the Surrender Date, all Tenant's right, title, and interest in and to the portion of the Demised Premises covered by the proposed sublease, or, if Tenant proposes to sublet the entire Demised Premises, or assign this Lease, all Tenant's right, title and interest in and to the entire Demised Premises. In the event of such surrender by Tenant of a portion of the Demised Premises, then, effective as of the date immediately following the Surrender Date, the Basic Rent shall be reduced by an amount equal to that portion of the Basic Rent that is allocable to the space so surrendered, and the Additional Rent shall be equitably adjusted. If the entire premises be so surrendered by Tenant, this Lease shall be cancelled and terminated as of the Surrender Date with the same force and effect as if the Surrender Date were the date hereinbefore specified for the expiration of the full term of this Lease. In the event of any such surrender by Tenant of the Demised Premises or a portion thereof, Landlord and Tenant shall, at the request of either party, execute and deliver an agreement in recordable form to the effect(s) hereinbefore stated. Section 9.03. In the event Landlord does not accept such offer of Tenant referred to in Section 9.02 hereof, Landlord covenants not to unreasonably withhold its consent to such proposed assignment or subletting by Tenant of such space to the proposed assignee or subtenant on said covenants, agreements, terms, provisions, and conditions set forth in the notice to Landlord referred to in clause (a) of the first sentence of Section 9.02 hereof; provided, however, that Landlord shall not in any event be obligated to consent to any such proposed assignment or subletting unless: (a) The use of the proposed assignee or subtenant is (i) for warehousing of products which are non-hazardous and are not "toxic pollutants" (ii) does not violate any of the negative covenants as to use as contained in this lease and (iii) is in keeping with the then standards of Landlord as to the use of the Building. (b) The proposed assignee or subtenant shall be the actual user of the premises and shall agree that it shall not have the right to sublease the premises or subsequently assign the Lease; (c) The proposed assignee or subtenant is not then a tenant or occupant of any part of the industrial park in which the Demised Premises are located; (d) There shall be no default by Tenant under any of the terms, covenants, and conditions of this Lease at the time that Landlord's consent to any such assignment or subletting is requested and on the effective date of the assignment or the proposed sublease; (e) Tenant shall reimburse Landlord for any reasonable expenses that may be incurred by Landlord in connection with the proposed assignment or sublease, including without limitation the reasonable costs of making investigations as to the acceptability of a proposed assignee or subtenant and reasonable legal expenses incurred in connection with the granting of any requested consent to the assignment or sublease; (f) The proposed assignment shall be for a consideration or the proposed subletting shall be at a rental rate not less than the rental rates then being charged under leases being entered into by landlord for comparable space in the Building and any other similar buildings owned or operated by Landlord in a radius of five (5) miles from the Demised Premises and for a comparable term. (g) Such permitted assignment shall be conditioned upon Tenant's delivery to Landlord of an executed instrument of assignment (wherein the assignee assumes, jointly and severally with Tenant, the performance of Tenant's obligations hereunder). (h) Such permitted sublease shall be conditioned upon Tenant's delivery to Landlord of an executed instrument of sublease (wherein Tenant and such sublessee agree that such sublease is subject to the Lease and such sublessee agrees that, if the Lease is terminated because of Tenant's default, such sublessee shall, at Landlord's option, attorn to Landlord). (i) Tenant shall at Tenant's own expense first comply with ISRA and fulfill all of Tenant's environmental obligations under this Lease which also arise upon termination of Tenant's Lease term. If this condition shall not be satisfied, then Landlord shall have the right, to withhold consent to a sublease or assignment. Section 9.04. Each subletting pursuant to this Article shall be subject to all the covenants, agreements, terms, provisions, and conditions contained in this Lease. Tenant covenants and agrees that, notwithstanding such assignment or any such subletting to any subtenant and/or acceptance of Basic Rent or Additional Rent by Landlord from any subtenant, Tenant shall and will remain fully liable for the payment of the Basic Rent and Additional Rent due and to become due hereunder and for the performance of all the covenants, agreements, terms, provisions, and conditions contained in this Lease on the part of Tenant to be performed. Tenant further covenants and agrees that, notwithstanding any such assignment or subletting, no other and further assignment, underletting, or subletting of the Demised Premises or any part thereof shall or will be made except upon compliance with the subject to the provisions of this Article. Tenant shall promptly furnish to Landlord a copy of each such sublease. Section 9.05. If this Lease be assigned, or if the Demised Premises or any part thereof be sublet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, subtenant, or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, subletting, occupancy, or collection shall be deemed a waiver by Landlord of any of Tenant's covenants contained in this Article or the acceptance of the assignee, subtenant, or occupant as Tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. Section 9.06. If for any assignment or sublease, Tenant receives rent or other consideration, either initially, or over the term of the assignment or sublease, in excess of the rent called for hereunder, or in the case of the sublease of a portion of the demised premises, in excess of such rent fairly allocable to such portion, after appropriate adjustment to assure that all other payments called for hereunder are appropriately taken into account, Tenant shall pay the Landlord, as additional rent hereunder, one half (1/2) of the excess of each such payment of rent or other consideration received by Tenant promptly after its receipt. Section 9.07 In the event Tenant subleases a portion of the premises to an entity which is a wholly owned subsidiary or division of the Tenant, then in such event, the provisions of Section 9.06 shall not be applicable as to any such sublease, and the provisions of Section 9.02 shall not be applicable to any such sublease. However, Tenant shall comply with the other provisions of this Article 9. Tenant shall not be prohibited from permitting wholly owned subsidiaries or a division thereof from occupancy of the premises under Tenant's leasehold rights. Section 9.08 As to Section 9.03, Landlord agrees within fifteen (15) business days of receipt of Tenant's request for a consent to an assignment of subletting, to respond to Tenant. ARTICLE 10 LANDLORD'S REMEDIES IN EVENT OF THE TENANT'S DEFAULT OR BANKRUPTCY Section 10.01 Events of Default. If any one or more of the following events (hereinafter called "events of default") occurs: (a) Tenant shall default in payment of any installments of rent or other sums required to be paid by Tenant under this Lease, which default shall continue for ten (10) days after written notice thereof by Landlord to Tenant; or in the observance or performance of any other covenant or provision of this Lease and such default continues for thirty (30) days after notice of such default from Landlord (unless such default cannot be cured within (30) days) and Tenant commences to cure such default within such 30 days and diligently proceeds to cure such default; or (b) If the Demised Premises shall be left vacant or unoccupied or be deserted for a period of sixty (60) days; or (c) Tenant shall make an assignment for the benefit of creditors; (d) Tenant shall attempt to transfer, assign or sublet or hypothecate this Lease except as otherwise specifically permitted in Article 9 hereof; or (e) A voluntary petition is filed by Tenant under any laws for the purpose of adjudication of Tenant as a bankrupt or the extension of the time of payment, composition, arrangement, adjustment, modification, settlement or satisfaction of the liabilities of Tenant, or the reorganization of Tenant under the Bankruptcy Act of the United States or any future laws of the United States having the same general purpose, or receivers appointed for Tenant by reason of insolvency or alleged insolvency of Tenant; an involuntary petition shall be filed against Tenant for such relief and shall not be dismissed within sixty (60) days; Upon the happening of an event of default, and such event of default is not cured within the time periods as otherwise hereinbefore set forth, then Landlord, notwithstanding any other right or remedy it may have under the Lease, at law or in equity, may terminate the Lease, by notice to Tenant setting forth the basis therefor and effective not less than seven (7) days thereafter, whereupon, upon such effective date, the Lease shall terminate (with the same effect as if such date were the date fixed herein for the natural expiration of the Term), Tenant shall surrender the demised premises to Landlord and Tenant shall have no further rights hereunder, but Tenant shall remain liable as hereinafter provided. In such event, Landlord may, without further notice, enter the demised premises, repossess the same and dispossess Tenant and all other persons and property therefrom. Section 10.02 Landlord's Damages. If Landlord so terminates the Lease, Tenant shall pay Landlord, as damages: (a) A sum which represents any excess of (i) the aggregate of the rent, impositions and additional rent for the balance of the term if the Lease were not so terminated, over (ii) the net rental value of the demised premises at the effective date of such termination, both discounted at the rate of four (4) percent per annum; or, at Landlord's option, (b) Sums equal to the rent, impositions and additional rent, when the same would have been payable if not for such termination, less any net rents received by Landlord from any reletting, after deducting all costs incurred in connection with such termination and reletting (but Tenant shall not receive any excess of such net rents over such sums). Landlord may commence actions or proceedings to recover such damages or installments thereof at any lawful time. No provision hereof shall be construed to preclude Landlord's recovery from Tenant of any other damages to which landlord is lawfully entitled. Section 10.03 Nonexclusivity. No right or remedy herein con- ferred upon Landlord is intended to be exclusive of any other right or remedy herein or by law provided, but each shall be cumulative and subject to the grace and notice provisions of Section 10.01 hereof, in addition to every other right or remedy given herein or now or hereafter existing at law or in equity or by statute. Landlord shall be entitled, to the extent permitted by law, to injunctive relief in case of the violation, or attempted or threatened violation, of any of the provisions of this Lease, or to a decree compelling observance or performance of any provision of this Lease, or to any other legal or equitable remedies. Nothing herein contained shall limit or prejudice the right of the Landlord in any bankruptcy or reorganization or insolvency proceeding, to prove for and obtain as liquidated damages by reason of such termination an amount equal to the maximum allowed by any bankruptcy or reorganization or insolvency proceedings, or to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule of law, whether such amount shall be greater or less than the excess referred to in Section 10.02. Section 10.04 Landlord's Right to Perform Tenant's Covenants. If Tenant shall fail to pay any tax, pay for or maintain or deliver any of the insurance policies or shall fail to make any other payment or perform any other act which Tenant is obligated to make or perform under this Lease, then, Landlord after notice to Tenant may perform for the account of Tenant any covenant in the perfor- mance of which Tenant is in default. Tenant shall pay to the Landlord as additional rent, upon demand, any amount paid by Landlord in the performance of such covenant in any amount which Landlord shall have paid by reason of failure of Tenant to comply with any covenant or provision of this Lease, including reasonable attorneys fees incurred in connection with the prosecution or defense of any proceedings instituted by reason of default of Tenant, together with interest at the maximum lawful rate of in- terest then allowed by the State of New Jersey, but not more than two (2%) percent per month from the date of payment by Landlord until paid by Tenant. Section 10.05 No Waiver. No waiver by Landlord of any breach by Tenant of any of Tenant's obligations hereunder shall be a waiver of any subsequent breach or of any obligation, agreement or covenant, nor shall any forbearance by Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of Landlord's rights and remedies with respect to such or by subsequent breach. Section 10.06 Right of Re-Entry. In the event that the termination of this Lease is the result of any election exercised by Landlord pursuant to the terms of this Article, the Landlord shall be entitled to the rights, remedies and damages set forth in this Article and elsewhere in this Lease. Tenant waives the service of notice of intention to re-enter as provided for in any statute and also waives any and all right of redemption in case Landlord obtains possession by reason of Tenant's default. Tenant waives any and all right to a trial by a jury in the event that summary proceedings shall be instituted by Landlord. The terms "enter", "re-enter", "entry" or "reentry", as used in this Lease are not restricted to their technical legal meaning. Section 10.07 Payment of Landlord's Counsel Fees and Other Costs. Tenant shall pay the Landlord as additional rent, upon demand, Landlord's reasonable attorneys fees incurred by Landlord in connection with the prosecution or defense of any proceeding instituted by reason of default of Tenant, together with interest on such sum at the rate of two (2%) percent per month from the date of payment by Landlord until repaid by Tenant to Landlord, this covenant to survive the expiration or sooner termination of this Lease. Section 10.08 Noncurable Default. If Tenant fails, on four (4) separate occasions in any twelve (12) month period during the Term hereof, to make payment of the rent and or additional rent and or late charges on or before the due date, then, whether or not Tenant ultimately makes and Landlord accepts the required payment after the due date, such failure shall entitle Landlord, upon or at any time after such fourth separate occasion, to pursue the remedies provided in this Article, said circumstances being hereby declared a default no longer susceptible of being cured or removed by Tenant. ARTICLE 11 SUBORDINATION OF LEASE TO MORTGAGE ON THE DEMISED PREMISES Section 11.01 Subordination to Mortgages. At the option of Landlord, this Lease shall either be: (a) Subject and subordinate to all mortgages which may now or hereafter affect the Demised Premises, and to all renewals, modifications, consolidations, replacements or extensions thereof, provided however, that the holder of any such mortgage shall execute with Tenant a Non-Disturbance Agreement hereinafter described; or (b) This lease shall be paramount in priority as an encumbrance against the Demised Premises with respect to the lien of any mortgage which may now or hereafter affect the Demised Premises and to all renewals, modifications, consolidations, replacements and extensions thereof. Section 11.02 Non-Disturbance Agreement. The non- disturbance agreement referred in Section 11.01 shall be an agreement in recordable form between Tenant and the holder of such mortgage, binding on such holder and on future holders of such mortgages, or an agreement by such holder expressed in such mortgage, which shall provide in substance that, so long as Tenant is not in default under any of the terms, covenants, provisions or conditions of this Lease, neither such holder nor any other holder of such mortgage shall name or join Tenant as a party-defendant or otherwise in any suit, action or proceeding to enforce, nor will this Lease or the term hereof be terminated (except as permitted by the provisions of this Lease) or otherwise affected by enforcement of, any rights given to any holder of such mortgage, pursuant to the terms, covenants or conditions contained in such mortgage or any other document held by any holder or any rights given to any holder as a matter of law. Upon request of holder of a mortgage to which this Lease becomes subordinate, Tenant shall execute, acknowledge and deliver to such holder an agreement to attorn to such holder as Landlord if such holder becomes Landlord hereunder and/or execute, acknowledge and deliver to such holder an agreement not to pay the Basic Rent for a period of more than one (1) month in advance. ARTICLE 12 EXONERATION OF INDIVIDUALS Section 12.01 Exoneration. Neither Landlord, nor its successors or assigns, shall have any personal liability in respect to any of the covenants or conditions of this Lease. The Tenant shall look solely to the equity of the Landlord in the Demised Premises for satisfaction of the remedies of the Tenant in the event of a breach by the Landlord of any of the covenants or conditions of this Lease and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies in the event of a breach or violation by Landlord of any of the terms of this Lease or any other liability which the Landlord might have to the Tenant. Whenever Tenant claims that Landlord is liable to Tenant by reason of any obligation of Landlord under this Lease, Tenant's remedies shall be restricted to a declaratory judgement and injunction for the relief sought, and shall exclude money damages in excess of in total One Million ($1,000,000.00 Dollars. Section 12.02 The provisions of this Section 12.01 shall not be applicable to Landlord's obligations under Article 23 "Security." ARTICLE 13 COVENANT AGAINST LIENS Section 13.01 No Liens. Tenant shall neither create nor permit to be created or exist any lien or encumbrance affecting the Demised Premises and shall discharge, promptly upon notice, any lien or encumbrance arising out of any act or omision of Tenant. Notice its hereby given that Landlord shall not be liable for any work performed or to be performed at the Demised Premises for Tenant, or for any materials furnished or to be furnished at the Demised Premises for Tenant, upon credit and that no mechanic's or other lien for such work or materials shall attach to or affect the estate or interest of Landlord in and to the Demised Premises. ARTICLE 14 EMINENT DOMAIN Section 14.01 Total Condemnation. If at any time during the Term the whole of the Building shall be taken for any public or quasi-public use under any statute, or by right of eminent domain, or a part of the Building consisting of more than fifty (50%) percent of the Building area shall be so taken, the Term and all rights of the Tenant shall immediately cease and terminate as of the date of such taking, and the Basic Rent and Additional Rent shall be apportioned and paid to the time of such termination. Section 14.02 Partial. In the event that only a part of the Building area constituting fifty (50%) percent or less shall be so taken, the Landlord or Tenant may elect to cancel this Lease provided Landlord, within ninety (90) days after such taking, gives notice to that effect and upon the giving of such notice, the Basic Rent and Additional Rent shall be apportioned and paid to the date of the expiration of the Term and this Lease and the Term shall cease, expire and come to an end upon the expiration of said ninety (90) days specified in said notice. If the Landlord shall not elect to terminate as heretofore provided, this Lease shall remain unaffected except the Tenant shall be entitled to a pro rata reduction of Basic Rent, based on the proportion which the area of the Building so taken bears to the area of the Building immediately prior to such taking. Section 14.03 Award. In case of any taking, whether involving the whole or any part of the Demised Premises and regardless of whether this Lease survives, the entire award shall be paid to the Landlord and the Tenant hereby assigns such award or awards to the Landlord. It is specifically understood and agreed between Tenant and Landlord that Tenant shall have no right to participate in any condemnation award for any claim whatsoever for the unexpired leasehold, claims for fixtures, claims for improvements, claims for value of options, if any, granted hereunder, or options to extend the term of this Lease, or any other claims whatsoever. Tenant hereby waives all rights to any portion of the Award including, without limitation, any such rights arising from any termination of Tenant's leasehold interest hereunder. Section 14.04 Definition of "Taking". For purpose of this Article 14, a "Taking" shall include any conveyance made in response to a bona fide threat of condemnation. Section 14.05 Tenant's Moving Expense. If the condemning authority permits Tenant, in a proceeding separate from Landlord's proceeding, to seek recovery of its moving expenses, and if such recovery shall not diminish or affect the Award otherwise payable to Landlord, then Tenant may, in such separate proceeding, seek recovery for its moving expenses. Section 14.06 Other Tenant's Rights. Tenant shall have the right, in the event of any Taking which results in termination of this Lease, to remove its trade fixtures and other personal property from the Demised Premises. ARTICLE 15 ACCESS TO PREMISES Section 15.01 Access. The Tenant agrees to permit the Landlord and the authorized representatives of the Landlord to enter the Demised Premises at all times during usual business hours upon reasonable notice, provided Landlord does not unreasonably interfere with the normal business operations of Tenant, for the purpose of inspecting the same and upon Tenant's failing to make repairs or failing to comply with laws, ordinances, rules, regulations or requirements, etc., making all necessary repairs to the Demised Premises and performing any work therein that may be necessary to comply with any laws, ordinances, rules, regulations or requirements of any public authority or of the Board of Fire Underwriters or any similar body or that the Landlord may deem necessary to prevent waste or deterioration in connection with the Demised Premises. Nothing herein shall imply any duty upon the part of the Landlord to do any such work which, under any provision of this Lease, the Tenant may be required to perform, and the performance thereof by the Landlord shall not constitute a waiver of the Tenant's default in failing to perform the same. The landlord may during the progress of any work in the Demised Premises keep and store upon the Demised Premises all necessary materials, tools and equipment. The Landlord shall not in any event be liable for inconvenience, annoyance, disturbance, loss of business or other damage of the Tenant by reason of making repairs or the performance of any work in the Demised Premises, or on account of bringing materials, supplies and equipment into or through the Demised Premises during the course thereof, and the obligations of the Tenant under this Lease shall not thereby be affected in any manner whatsoever. The Landlord is hereby given the right during usual business hours to enter the Demised Premises upon reasonable notice, provided that Landlord does not unreasonably interfere with the normal business operations of Tenant, and to exhibit the same for the purposes of sale or hire during the final nine months of the Term and the Landlord shall be entitled to display, on the Demised Premises in such manner as not unreasonably to interfere with the Tenant's business, the usual "For Sale" or "To Let" signs, and the Tenant agrees that such signs may remain unmolested upon the Demised Premises. ARTICLE 16 NOTICES Section 16.01 Notices. All notices, demands and requests which may or are required to be given by either party to the other shall be in writing. All notices, demands and requests by the Landlord to the Tenant shall be sent by United States Certified Mail, postage prepaid, addressed to the Tenant at the address specified on the first page of this Lease or at such other place as the Tenant may from time to time designate in a written notice to the Landlord. All notices, demands and requests by the Tenant to the Landlord shall be sent by United States Certified Mail, postage prepaid, Return Receipt Requested, addressed to the Landlord at the address shown on the first page of this Lease or at such other place as the Landlord may from time to time designate in a written notice to the Tenant. Notices, demands and requests which shall be served upon the Landlord or the Tenant in the manner aforesaid shall be deemed sufficiently served or given for all pur- poses hereunder at the time such notice, demand or request shall be mailed. ARTICLE 17 ACCEPTANCE Section 17.01 Acceptance. The Demised Premises includes a building previously erected on the land which Tenant acknowledges it has inspected and is fully familiar with and its conditions and is leasing the land and building in a "as is" condition. The Demised Premises constitutes a self-contained unit, and nothing in this Lease shall impose any obligation upon Landlord to provide any service for the benefit of Tenant, including, but not limited to, water, gas, electricity, heat, air conditioning, janitorial, or any other service or utility. ARTICLE 18 QUIET ENJOYMENT - CONVEYANCE BY LANDLORD Section 18.01 Ouiet Enjoyment. Tenant, upon paying the Basic Rent and all Additional Rent and other charges herein provided for and performing all covenants and conditions of this Lease, on its part to be performed, shall quietly have and enjoy the Demised Premises during the Term, without hindrance or molestation by Landlord or any other person claiming through Landlord, subject, however, to the terms of this Lease and to any Mortgage. Section 18.02 Conveyance by Landlord. If Landlord shall convey the Demised Premises, all liabilities and obligations on the part of Landlord under this Lease shall terminate upon such conveyance and thereafter all such liabilities and obligations shall be the liabilities and obligations of such transferee and shall be binding upon such transferee of the Demised Premises. ARTICLE 19 ESTOPPEL CERTIFICATE Section 19.01 Estoppel Certificate. Either party shall, without charge, at any time from time to time hereafter, within ten (10) days after written request to the other, certify by written instrument duly executed and acknowledged to any mortgagee or purchaser or proposed mortgagee or proposed purchaser, or any other person specified in such request; (a) as to whether this Lease has been supplemented or amended and if so, the substance and manner of such supplement or amendment; (b) as to the validity and force and effect of this Lease in accordance with its tenor as then constituted; (c) as to the existence of any default or event of default; (d) as to the existence of any offsets, counterclaims or defenses thereto on the part of such other party; (e) as to the term commencement date and stated expiration dates; and (f) as to any other matters as may be reasonably so requested. Any such certificate may be relied upon by the party requesting it and any other person to whom the same may be exhibited or delivered and the contents of such certificate shall be binding on the party executing same. Tenant shall, in addition, within five business days of the term commencement date, execute and deliver to Landlord a Tenant Estoppel Letter certifying and stating to those matters above referred to. ARTICLE 20 FINANCIAL INFORMATION Section 20.01 Financial Information. Tenant has furnished the Landlord with Profit and Loss Statements and Balance Sheets for the fiscal years ending December 31, 1994, prepared by a Certified Public Accountant. Tenant further agrees that it will furnish to the Landlord a Certified Profit and Loss statement and Certified Balance Sheet prepared by a Certified Public Accountant for the preceding fiscal year, when required by Landlord. ARTICLE 21 NO ABATEMENT OF RENT Section 21.01 No Abatement of Rent. Except as otherwise specifically provided in this Lease, there shall be no abatement, diminution or reduction of Basic Rent, Additional Rent, other charges or other compensation due to the Landlord by the Tenant or any person claiming under it, under any circumstances including but not limited to the complete or partial destruction of the Building or any inconveniences, discomfort, interruption of business or otherwise caused by a taking or destruction of the premises or any building thereon except as otherwise specifically provided herein. ARTICLE 22 NONRECORDATION OF LEASE Section 22.01 Nonrecordation of Lease. Tenant shall not record the within Lease. Should Tenant record this Lease, Landlord may at its option, cause the within Lease to be terminated, cancelled and of no further force and effect or it may bring suit against Tenant for damages arising therefrom, providing, however, that Tenant or Landlord shall have the right to record a short form of lease. ARTICLE 23 SECURITY Section 23.01 Security. Tenant has deposited with Landlord ONE HUNDRED SEVENTY-ONE THOUSAND and NO/100 Dollars ($171,000.00) as security for the performance of Tenant's obligations under the Lease. Landlord may use, apply or retain the whole or any part of the security to the extent required to cure any default of Tenant's and to reimburse Landlord for any damages or expenses (including, without limitation, counsel fees) incurred by reason of such default, including, but not limited to, any damages, deficiency or expenses in the reletting of the Demised Premises, whether accrued before or after summary proceedings or other re-entry by Landlord. If Landlord applies any part of said security deposit to remedy any default of Tenant, Tenant shall, upon demand, deposit with Landlord the amount so applied so that Landlord shall have the full deposit on hand at all times during the term of this Lease. If Tenant complies with all of its obligations hereunder, the security shall be returned to it after the end of the Term and delivery of possession of the Demised Premises to Landlord. In the event the Landlord shall sell or assign the premises then, upon such transfer, Landlord agrees to transfer the security deposit to such transferee and Landlord shall thereupon be released from all liability with respect to such security. Tenant shall not assign or encumber the security and neither Landlord nor its successors or assigns shall be bound by any such assignment or encumbrance. Landlord agrees that, as of December 31 of each calendar year, Landlord shall pay to Tenant an interest factor on the security deposit equal to the interest paid by United Jersey Bank on "Preferred Money Market Accounts" during that calendar year. The foregoing shall not require Landlord to escrow or otherwise deposit such sum or segregate same, and Tenant recognizes and understands that Landlord shall have the right to use these funds for Landlord's general purposes. The interest shall be calculated at the rate in effect as of the opening of business of each day during that year. Landlord, with the sum of ONE THOUSAND and NO/100 Dollars ($l,000.00) on the Commencement Date of this Lease will open such an account, and the interest rate so reflected on such account during that calendar year shall be the interest rate applied to the amount of the security deposit held by the Landlord during that year. Section 23.02 The provisions of Section 12.01 shall not be applicable to this Article. ARTICLE 24 SURRENDER Section 24.01. On the last day or sooner termination of the Lease, Tenant shall quit and surrender the Demised Premises broom-clean, in good condition and repair, together with all alterations, additions and improvements which may have been made in, on, or to the Demised Premises, except movable furniture or unattached movable trade fixtures put in at the sole expense of the Tenant (provided Tenant has not been in default under this Lease) provided, however, that Tenant shall ascertain from Landlord at least thirty (30) days before the end of the Term whether Landlord desires to have the Demised Premises, or any part thereof, restored to the condition in which it was originally delivered to Tenant, and if Landlord shall so desire, then Tenant, at its own cost and expense, shall restore the same before the end of the Term. Landlord shall, in response to Tenant's request, or otherwise, advise Tenant as to the repairs and restoration to be undertaken by Tenant prior to the expiration of the Lease Term. Tenant shall, at least six (6) months before the end of the Term, advise the New Jersey Department of Environmental Protection and Energy of the termination of Tenant's use of the premises, and file, with said Department, such information, affidavits, forms, remedial action work plan and such other information as said Department may require and undertake such action or work as required by the Department of Environmental Protection and Energy pertaining to Tenant's use and occupancy of the premises as it relates to remedial action or a remedial action work plan for the removal of hazardous substances and wastes that remain on the premises demised by reason thereof. Tenant agrees upon termination of the lease, the air-conditioning, cooling systems, heating equipment and plumbing and electrical systems shall be in good, operable condition. All light fixtures and bulbs shall be operable, cleaned and in good working order, rugs cleaned, and the warehouse floor washed and sealed. Tenant shall obtain from Landlord Landlord's approval as to the sealer used by Tenant. The condition of the building and premises shall be in such a condition upon surrender as though the premises were used exclusively for warehousing and offices, and the Tenant made all repairs and replacements as were necessary during the term of the Lease so that after surrender, the building and premises are in good condition and ready to be re-rented. Tenant and Landlord understand that during the term of this Lease, the building and its equipment may be subject to reasonable wear and tear. However, Landlord and Tenant specifically agree that wear and tear shall not excuse Tenant from undertaking its repair and maintenance obligations, and the provisions as herein provided, by way of example, that the various systems shall be in good operating condition, are intended to be the standard by which the building and its systems shall be returned to Landlord by Tenant. If the Demised Premises is not surrendered as and when aforesaid, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the premises including, without limitation, any claims made by any succeeding occupant founded on such delay. Tenant's obligations under this section shall survive the expiration or sooner termination of the Term. In the event Tenant, prior to termination of the Lease, fails to comply with the Rules and Regulations of the Department of Environmental Protection of the State of New Jersey or other applicable Federal agencies having jurisdiction over the storage or use of hazardous substances then, Tenant, at the option of the Landlord, shall be deemed to be occupying the Demised Premises as a tenant from month-to-month, at the monthly rental indicated below. In the event Tenant remains in possession of the Demised Premises after the expiration of the term and without execution of a new Lease, or, Tenant fails to restore the premises, or fails to comply with its other obligations which must be complied with prior to the termination date of the Lease, then Tenant, at the option of the Landlord, shall be deemed to be occupying the Demised Premises as a tenant from month-to-month, at the monthly rental equal to the higher of 150% of market rent plus one-twelfth (1/12th) of all items of Additional Rent such as, but not limited to, taxes, insurance payable or paid during the last lease year or, four (4) times the sum of (i) the Basic Rent payable for the last month of the Term under Article 3 hereof and, (ii) one twelfth (l/12th) of all items of Additional Rent, such as, but not limited to, taxes, insurance payable or paid during the last lease year. Tenant shall on a date no later than six (6) months prior to the termination date of this Lease obtain from the New Jersey Department of Environmental Protection and Energy ("DEPE") a non-applicability letter and/or a de minimis quantity exception and/or a negative declaration approval and/or a written determination by DEPE that there are no discharged hazardous materials at the site that occurred during the Lease Term and, if any had occurred, have been remedied in accordance with applicable regulations, such determination presently referred to as a No Further Action letter ("NFA"). If Tenant obtains a non-applicability exemption or otherwise is not required to undertake sampling then Tenant shall, at Landlord's option, hire a consultant satisfactory to Landlord to undertake sampling in a manner consistent with applicable environmental law sufficient to determine whether or not Tenant's operations have resulted in any spill or discharge of hazardous substances or waste at the premises. Should the sampling reveal any spills or discharges of a hazardous substance or waste which occurred during the Lease Term, then Tenant shall, at Tenant's expense, promptly clean up the premises to the satisfaction of the applicable governmental agencies which have jurisdiction of the matter and to the reasonable satisfaction of the Landlord. If Tenant shall fail to comply with the preceding sentence of this subparagraph prior to termination of the Lease, then Tenant's obligations to pay rent and additional rent shall continue until the earlier of either Landlord rerenting the Premises and a new tenant takes occupancy and commences to pay rent, or such date as Tenant shall comply with the foregoing, such rent to be computed as though the Tenant was occupying the demised premises as a Tenant from month to month as otherwise set forth in the preceding paragraph. ARTICLE 25 MISCELLANEOUS Section 25.01 Table of Contents. The Table of Contents and headings of this Lease are for convenience of reference only and in no way define, limit or describe the scope or intent of this Lease nor in any way affect this Lease. Section 25.02 No Reservations. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option to lease, and it is not effective as a Lease or otherwise until execution and delivery by both Landlord and Tenant. Section 25.03 Laws. This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. Section 25.04 Brokers. Tenant represents that it has dealt with no realtors, brokers or agents in connection with the negotiation of this Lease and the renting of the Demised Premises hereunder, other than Charles Klatskin Company, Inc. and Cushman and Wakefield. Should any claims be made for brokerage commissions, other than those payable to the brokers specified in this Section, through or on account of dealings of Tenant or its agents or representatives, Tenant shall indemnify and hold Landlord harmless against any liability in connection therewith, including without limitation reasonable claims, damages or counsel fees. Section 25.05 Broker's Signs. The Tenant shall not permit, at any time during the term of this Lease, any broker signs to be attached to, exhibited or placed upon the Demised Premises, which signs offer the premises for let or for sale unless such broker has obtained Landlord's prior written consent and presents such consent to the Tenant. Section 25.06 Rules and Regulations. The rules and regulations attached to this Lease are made a part of this Lease, and Tenant shall comply with them. Landlord shall have the right, from time to time, to promulgate amendments and additional rules and regulations for the safety, care and cleanliness of the premises, or for the preservation of good order. On delivery of a copy of such amendments and additional rules and regulations to Tenant, Tenant shall comply with the rules and regulations, and a material violation of any of them shall constitute a default by Tenant under this Lease, subject to Tenant's right to cure, as set forth in Section 10.01 hereof. Irrespective of the foregoing, Landlord will have the right to strictly enforce the provisions of Rule 2 as set forth on the Rules and Regulations attached. As to the enforcement of other Rules and Regulations, whether now existing or amended, Landlord agrees to permit Tenant, after notice, to comply in a reasonable manner with such Rules and Regulations. If there is a conflict between the rules and regulations and any other provisions of this Lease, the provisions of this Lease shall prevail. Section 25.07 Waste. The Tenant covenants not to do or suffer any waste or damage, disfigurement or injury to any building or improvement now or hereafter on the Demised Premises, or the fixtures and equipment thereof, or permit or suffer any overloading of the floors thereof. Section 25.08 Compactor. If the municipality or other governmental agency shall require Tenant to install a garbage compactor or other storage or waste management facility at the premises, Tenant shall, at Tenant's expense, install such equipment and/or storage facility. Section 25.09 Underground Tanks. Tenant warrants and represents that it will, at no time, install any underground storage tanks on the Demised Premises. A breach of this covenant shall be deemed a default under the Lease and Landlord shall have the right to terminate the Lease upon the happening of such event. Section 25.10 Declaratory Judgment. Wherever in this Lease Landlord's consent or approval is required, if Landlord shall refuse such consent or approval, Tenant in no event shall be entitled to make, nor shall Tenant make any claim, and Tenant hereby waives any claim for money damages (nor shall Tenant claim any money damages by way of setoff, counterclaim or defense), based upon any claim or assertion by Tenant that Landlord unreasonably withheld or unduly delayed its consent or approval. Tenant's sole remedy in such event shall be an action or proceeding to enforce any such provision, for specific performance injunction or declaratory judgment. Section 25.11 Corporate Authority. If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the By-Laws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after execution of this Lease, deliver to Landlord a certified copy of a resolution of the Board of Directors of said corporation authorizing or ratifying the execution of this Lease. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals on the date first above written. Witness: FORSGATE INDUSTRIAL COMPLEX, a Limited Partnership, Landlord /s/ ELAINE G. SCHADE By: /s/ STEPHEN P. SEIDEN - ---------------------------- -------------------------- STEPHEN P. SEIDEN, GENERAL PARTNER By: /s/ CHARLES KLATSKIN -------------------------- CHARLES KLATSKIN, GENERAL PARTNER Attest: JEAN PHILIPPE FRAGRANCES, INC. Tenant /s/ By: /s/ Russell Greenberg - ---------------------------- --------------------------- Name: Russell Greenberg Title: Executive V.P. STATE OF NEW JERSEY ) ) ss.: COUNTY OF BERGEN ) BE IT REMEMBERED, that on this 10th day of July 1995 before me, the subscriber, personally appeared Charles Klatskin, Stephen Seiden, who, I am satisfied, is the person named in and who executed the within Instrument, and thereupon he/they acknowledged that he/they signed, sealed and delivered the same as his/their act and deed, and the act and deed of the said FORSGATE INDUSTRIAL COMPLEX, a partnership, for the uses and purposes therein expressed. /s/ ELAINE G. SCHADE --------------------------- ELAINE G. SCHADE NOTARY PUBLIC OF NEW JERSEY My Commission Expires Sept. 17, 1995 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) BE IT REMEMBERED, that on this 26th day of June, 1995 before me, the subscriber, personally appeared, Russell Greenberg, who, I am satisfied, is the person who signed the within instrument as Executive V.P. of JEAN PHILIPPE FRAGRANCES, INC., the corporation named therein and he/she thereupon acknowledged that the said instrument made by the corporation and sealed with its corporate seal, was signed, sealed with the corporate seal and delivered by him/her as such officer and is the voluntary act and deed of the corporation, made by virtue of authority from its Board of Directors. /s/ ANNIE FAILLER --------------------------- ANNIE FAILLER Notary Public, State of New York No. 01FA5023811 Qualified in Queens County Commission Expires Feb. 14, 1996 CORPORATE RESOLUTION This is to certify that a meeting of the Board of Directors of JEAN PHILIPPE FRAGRANCES, INC., a corporation of the State of , held on the day of , 1995, at its principal office at , Kearny, New Jersey, at which time there was a quorum present, the following Resolution was duly adopted and unanimously passed: BE IT RESOLVED, that the Corporation entered into an Agreement with FORSGATE INDUSTRIAL COMPLEX for premises commonly known as 60 Stults Road, South Brunswick, New Jersey, for a period of eight (8) years in accordance with a certain draft of lease attached. BE IT FURTHER RESOLVED, that the President and/or Vice President and Secretary be and they are hereby authorized to execute the Agreement (Lease) and to affix the corporate seal thereto. That the officers referred to in the foregoing Resolution are as follows: President: __________________ Vice President: __________________ Secretary: __________________ I hereby certify that the foregoing Resolution was duly adopted by the Board of Directors of JEAN PHILIPPE FRAGRANCES, INC., a corporation of the State of , at a meeting held on the day of , 1995, and that the above- named officers are duly qualified and hold the offices stated aforesaid. _________________________________ Secretary SCHEDULE A DESCRIPTION OF TAX LOT 16, BLOCK 10, STULTS ROAD, TOWNSHIP OF SOUTH BRUNSWICK, MIDDLESEX COUNTY, NEW JERSEY. Begining at a point in the southerly line of Stults Road (as widened to thirty-three (33) feet from the center line ), where the same is intersected by the division line between lot 15 and lot l6 in Tax Block 10, said point being one thousand one hundred forty-nine and twenty-seven hundredths (1,149.27) feet northwesterly from the point of intersection formed by the northeasterly prolongation of the westerly line of Cranbury-South River Road (as widened) and the southeasterly prolongatlon of the southerly line of Stults Road (as widened); and running: - Thence (l) northwesterly, along the southerly line of Stults Road (as widened) north seventy-two degrees fifty-one minutes west (N 72 degrees-51'W), six hundred forty-four and no hundredths (644.00) feet to a point; Thence (2) southwesterly along the easterly line of Lot 18 in Tax Block 10, south seventeen degrees nine minutes west (S 17 degrees--O9'W), five hundred ninety and eighty-two hundredths (590.82) feet to a point; Thence (3) southeasterly, parallel to Stults Road, south seventy-two degrees fifty-one minutes east (72 degrees-51' E ), six hundred forty-four and no hundredths (644.00) feet to a point; Thence (4) northeasterly, along the division line between Lot 15 and Lot 16 in Tax Block 10; north seventeen degrees nine minutes east (N 17 degrees-09' E), five hundred ninety and eighty-two hundredths (590.82) feet to the point and place of beginning. Containing an area of eight and seven hundred thirty-four thousandths (8.734) Acres. Being the premises known and designated as Lot 16 in Block 10 in the Tax Records of the Township of South Brunswick. Being Lot 16 and Lot 17 in Block 10 as shown on a certain map entitled "Final Subdivision Plat, Section One, Forsgate Industrial Complex, Township of South Brunswick, Middlesex County, New Jersey"., which map was filed in the Middlesex County Clerk's Office as filed map No. 3992, File No. 963 on September 30, 1977. The said Lot 16 and Lot 17 were combined by Reverse Minor Subdivision No. 820 which was approved by the Township of South Brunswick Plannlng Board on December 13, 1977. A deed description was filed in the Middlesex County Clerk's office on April 7, 1975 in Deed Book 3024, Page 796. Subject to a fifty (50) foot wide easement southerly to and contiguous with the first course herein above described for the purpose of installing and maintaining Detention Ponds and Storm Drainage installations. Subject to a ten (10) foot wide easement easterly to and contiguous with the second course herein above described and a ten (10) foot wide easement westerly to and contiguous with the fourth course herein above described for the installation, replacement and maintenance of above ground and below ground utlilties and channelized surface drainage. In the event that Lot 16 and Lot 18 in Tax Block 10 shall be combined, any easement along a common property line shall be null and vold. Subject to a fifty (50) foot wide easement northerly to and contiguous with the third course herein above described for the installation, replacement and maintenance of Railroad facilities, above ground and below ground utilities and channelized surface drainage. [PROPERTY MAP] LOT 18 LOT 16 SCHEDULE B RULES AND REGULATIONS The Tenant covenants and agrees with the Landlord to obey the following rules and regulations: 1. All garbage and refuse shall be kept in containers inside the premises. If the Landlord shall provide or designate a service for picking up refuse and garbage, Tenant shall use same at its cost; the Tenant shall pay the cost to remove any of its rubbish or refuse. The Tenant shall not burn any trash or garbage of any kind in or about the building. 2. The Tenant shall maintain, at its expense, a landscaping service and shall provide that the lawns shall be watered, reseeded, fertilized and regularly mowed and maintained, and debris shall be removed, if any, and all shrubery shall likewise be fertilized, maintained, pruned and replaced when necessary. The sidewalks or entrances shall not be obstructed or encumbered by Tenant or used for any purposes other than ingress and egress and the parking lot shall be used exclusively for the parking of motor vehicles of Tenant's employees and invitees. The parking lot shall be swept, maintained, retarred when necessary and striped. Tenant shall not be required to retar in the last three years of the Lease. 3. The Tenant shall not store any material, supplies, semi-finished products or anything whatsoever outside of the building. In the event Tenant requires temporary outside storage for any reason whatsoever, Tenant must first obtain written approval of the Landlord. 4. The Tenant shall, at its cost and expense, use a pest extermination service so as to keep the premises free of same. 5. The Tenant will undertake a general maintenance program, either through its own employees or outside contractors which shall provide amongst other things for general and periodic window cleaning, when necessary and painting of trim and the like. 6. Tenant shall not at any time, without first obtaining Landlord's consent, change, by alteration or replacement, rebuilding or otherwise, the exterior color or architectural treatment of the leased bullding. 7. Tenant shall not use or permit to be used any loud speaker or sound amplifier which may be heard outside of the leased property. 8. Tenant shall not suffer, allow or permit any offensive or obnoxious vibration, noise, odor, or other undesirable effect to emanate from the leased property, or any machine or other installation therein, or otherwise suffer, allow or permit the same to constitute a nuisance or otherwise unreasonably interfere with the safety, comfort or convenience of adjoining properties. 9. Tenant shall not erect a ground sign or building sign without prior written consent of Landlord. Landlord will not unreasonably withhold its consent or delay the same if the sign does not damage the building, and any such sign is dignified. 10. Tenant shall maintain and keep lit any and all exterior architectural lighting which may be installed by the Landlord. 11. Tenant shall have the right, provided same is done in accordance with the zoning ordinance of the municipality, to park trucks on the property along the area wherein are located the loading docks. The Tenant shall not park trucks in any other portion of the Demised Premises. Upon notice by the Landlord to the Tenant of a breach of any of the rules and regulations, Tenant shall, within thirty (30) days thereafter, comply with such rule and regulation and in the event Tenant shall not comply, then the Landlord may, at its discretion, either: (1) cure such condition and add any cost and expense incurred by the Landlord therefor to the next install- ation of rental due under this Lease, and the Tenant shall then pay such amount, as additional rent hereunder; or (2) treat such failure on the part of the Tenant to remedy such condition as a material default of this Lease on the part of the Tenant hereunder. Landlord reserves the right, from time to time, to promulgate additional rules and regulations as Landlord, provided that Landlord gives notice to Tenant not less than sixty (60) days prior to the effective date of new or revised rules; such new or revised rule is applied uniformly to all tenants in the industrial park in which the Demised Premises are located, and such new or revised rule does not interfere with the normal business operations of Tenant. EX-10.62 4 INTELLECTUAL PROPERTY PURCHASE AGREEMENT EXHIBIT 10.62 INTELLECTUAL PROPERTY PURCHASE AGREEMENT Agreement dated this 12th day of March 1996 by and between PARLUX FRAGRANCES, INC., a Delaware corporation ("Purchaser"), with its principal office at 3725 S.W. 30th Avenue, Ft. Lauderdale, Florida 33312 represented by Zalman Lekach in his capacity as Chief Operating Officer and invested with full powers to execute this Agreement, and PARFUMS JEAN DESPREZ, S.A., a French corporation ("Seller"), with its principal offices at 4 rond point des Champs Elysees, 75008 Paris, France, registered on the Paris Trade and Companies Registry under the number B 652040847, represented by Philippe Benacin in his capacity as President and invested with full powers to execute this Agreement. W I T N E S S E T H: WHEREAS, Seller desires to sell and Purchaser desires to acquire all of the rights to certain assets of Seller upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants, conditions and promises contained herein, the parties hereto hereby agree as follows: ARTICLE I ASSIGNMENT, CONVEYANCE AND OTHER TERMS OF TRANSACTION 1.1 Assignment and Sale. Upon the terms and subject to the conditions of this Agreement, at the Closing, as hereinafter defined, Seller agrees to (a) irrevocably assign all of its right, title and interest in and to the world-wide trademarks, service marks, trade names, patents and copyrights and applications therefor, as set forth on the annexed Schedule 1.1(a), together with trade secrets and other proprietary information related thereto (collectively the "Intellectual Property"), and (b) convey, transfer and irrevocably assign to Purchaser (i) any and all formulae, molds, models, tools, dies, casts, packaging patterns, displays and forms, and materials relating to national advertising and line slots as set forth on the annexed Schedule 1.1(b) (collectively the "Equipment"); (ii) current customer list for International, French and United States sales; item masters and bill of materials, including costs thereof; sales for each customer for calendar year 1995; current list of vendors; price list and list of advertising materials for International, French and United States customers, to the extent available; sales for the period January 1, 1996 through February 29, 1996; forecast of sales for calendar year 1996; and suggested retail price list for the products produced, marketed and sold in respect of the Intellectual Property (the "Products") for the United States and France (collectively the "Ancillary Assets") (provided, that Seller shall deliver copies of the Ancillary Assets to Purchaser not less than five (5) days prior to the closing), free and clear of all liens, pledges, charges, security interests, encumbrances, title retention agreements or adverse claims of any kind whatsoever ("Claims"), except as provided in Article 1.4 below. The Intellectual Property, the Equipment and the Ancillary Assets are sometimes hereinafter referred to as the "Acquired Assets". 1.2 Assets Not Conveyed; No Liabilities Assumed. Seller shall retain any and all rights to each and every asset not expressly referred to in Articles 1.1(a) and (b) above. Purchaser does not hereby assume, and shall not be liable for, any debt, obligation, responsibility or liability of Seller or arising out of or relating to the Acquired Assets through the Closing Date (as hereinafter defined), whether known or unknown, contingent or absolute, or otherwise (collectively, "Seller Liabilities"), and Seller agrees to indemnify and hold harmless Purchaser from and against any Seller Liability in accordance with Article VI hereof. 1.3 Purchase Price and Payment. Upon the closing of this Agreement Purchaser agrees to pay the purchase price to the Seller as follows: (a) For the Intellectual Property, US$2.150 million, payable US$1.075 million in cash, certified, bank or cashier's check or wire transfer of immediately available funds to an account as instructed by the Seller, and US$1.075 by delivery of a promissory note (the "Note") payable in ninety (90) days in the form annexed hereto as Exhibit 1.3; and (b) US$200,000 for the Equipment and Ancillary Assets, payable in cash, certified, bank or cashier's check or wire transfer of immediately available funds to an account as instructed by the Seller. 1.4 Security for Payment of Purchase Price. Upon the closing of this Agreement, Purchaser, Seller, Subsidiary (as hereinafter defined) and the law firm of Purchaser, Mayer Brown & Platt, shall enter into an escrow agreement in the form annexed hereto as Exhibit 1.4 (the "Escrow Agreement"), whereby all documents evidencing the assignment of the Intellectual Property shall be held in escrow by such law firm, pending payment by Purchaser of the Note as well as a series of three (3) promissory notes (sometimes collectively the "Inventory Notes") issued pursuant to an Inventory Purchase Agreement between Jean Desprez, S.A., a wholly-owned subsidiary of the Seller ("Subsidiary") and Purchaser, relating to the sale of goods produced under the Intellectual Property rights (the "Inventory Purchase Agreement"). The date on which such payment in full of the Note and the Inventory Notes occurs is hereinafter referred to as the "Final Payment Date". 1.5 Covenants of Seller. Seller covenants and agrees with Purchaser that prior to the Closing, Seller shall (a) terminate or cause the termination of, any and all license, sublicense and distribution agreements relating to the Intellectual Property, without any obligation of or liability to Purchaser; (b) provide reasonable access to all financial information relating to the Intellectual Property, the Equipment and the Ancillary Assets (sometimes collectively the "Business") for the last three (3) years, including financial statements, operations, inventory costs, distribution agreements and any other supporting records, and Seller covenants and agrees to maintain such books and records for three (3) years from the Closing (as hereinafter defined) and to make them available for inspection by Purchaser or its designee upon reasonable notice; and (c) forward or cause to be forwarded all sales orders received by Seller or any Affiliate (as hereinafter defined) subsequent to the execution of the letter of intent among Seller, Subsidiary and Purchaser dated January 11, 1996 for any and all Products, via telecopier to Purchaser for its approval, and Seller acknowledges that Purchaser may prohibit shipment of any or all of such orders at its sole discretion. For purposes hereof, the term "Affiliate" of Seller shall mean Groupe Inter Parfums, Jean Philippe Fragrances, Inc. and any other company, entity or individual which directly or indirectly controls or is controlled by or is under common control with Seller. After the Closing, if Seller receives any such sales orders, Seller shall promptly telecopy said orders to Purchaser. 1.6 Transfer Taxes; Expenses of Transfer. Seller and Purchaser shall equally share the cost of all taxes and other similar fees such as registration and stamp duties ("Transfer Taxes") arising out of or in connection with the assignment of the Intellectual Property and conveyance of Equipment and the Ancillary Assets to be effected pursuant to this Agreement. Notwithstanding the foregoing, Seller shall be solely responsible for, and shall indemnify and hold harmless the Purchaser from the imposition of any and all Transfer Taxes in excess of Purchaser's proportionate share of $122,500. Expenses of the transfer of the Intellectual Property such as filing fees and the like shall be borne by the Purchaser. 1.8 Closing. Subject to the fulfillment of the conditions precedent as hereinafter set forth, the closing under this Agreement ("Closing"), shall take place at the offices of Mayer, Platt & Brown, 1675 Broadway, New York, New York at 10:00 A.M. on March 19, 1996 or at such other time and at such other place as shall be fixed by mutual consent of the parties hereto, but in no event subsequent to March 29, 1996 (the "Closing Date"). ARTICLE II WARRANTIES AND REPRESENTATIONS OF SELLER Warranties and Representations of Seller. Seller hereby warrants and represents to Purchaser as follows: 2.1 Due Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of France and has all requisite corporate power and authority to carry on its businesses as currently conducted and to own or lease and to operate its properties and assets as and where such properties and assets are now owned or leased and operated. 2.2 Legal, Valid and Binding. Each of this Agreement and the other documents contemplated hereby constitutes the legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and the availability of equitable remedies. 2.3 Other Consents and Approvals. Except for the consent or non-objection of the French Treasury Department to the transactions contemplated hereby, any and all consents, approvals, authorizations, or orders of or registrations or qualifications with any person, bank, corporation, association, governmental body, or court having authority or power to regulate, supervise or direct the business and affairs of Seller necessary for the consummation of the transactions specified in this Agreement shall have been obtained on or before the Closing by Seller. 2.4 Due Authorization; Compliance with Law. The execution and delivery of this Agreement and the other documents contemplated hereby and performance of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and will not conflict with or result in a breach of any of the terms or provisions of its Certificate of Incorporation or By-laws, lease, bond, note, debenture, guaranty, deed of trust or other agreement, instrument (or French equivalent thereof) or arrangement to which Seller may be or is a party (including by operation of law) or by which the property of Seller is bound, or any law, administrative regulation, or any order of any court or governmental agency or authority entered in any proceeding to which Seller was or is a party or by which its property is bound. The Business is being conducted in compliance with all applicable law, statutes, ordinances, regulations, decrees and orders, except for violations which have not had and would not reasonably be expect to have a material adverse effect on the Business or any of the Acquired Assets. 2.5 No Litigation. There are no actions, suits, legal or governmental proceedings pending or threatened against Seller relating to this Agreement, the Intellectual Property, the Equipment or the Ancillary Assets being acquired hereunder, or the transactions described herein. 2.6 Intellectual Property. Schedule 1.1(a) annexed hereto contains a complete and accurate list of all of the Intellectual Property used in the Business. Except as set forth in the annexed Schedule 2.6, no license, sublicense, distribution or other agreements relating to any of the Intellectual Property shall be in effect at the Closing, and each trademark, service mark, trade name, copyright and patent and each application therefor comprising the Intellectual Property is owned solely and exclusively by Seller, and is not subject to any license or royalty arrangement or dispute. Except as set forth in the annexed Schedule 2.6, Seller has not received any notification of infringement by Seller or any claims with regard to any trademark, service mark, trade name, copyright or patent or application therefor comprising the Intellectual Property from any person, and Seller is not aware of a basis for any such claim. No trademark, service mark, trade name, copyright or patent or application therefor comprising the Intellectual Property infringes any trademark, service mark, trade name, copyright or patent of others in any country in which such trademark, service mark, trade name, copyright or patent is used in connection with the manufacture or sale of any product or otherwise. No Affiliate of Seller owns or has any interest in the Intellectual Property. Seller has delivered to Purchaser prior to the Closing copies of any and all documents in its possession, custody or control relating to the Intellectual Property. 2.7 Origin of Seller's Business. Seller has good title to the business consisting of the Intellectual Property, Equipment and Ancillary Assets (sometimes collectively the "Business"), by virtue of having purchased the Business from Jacomo S.A. at the purchase price of FRF 15,000,000 at the closing of such acquisition held in Paris, France on July 12, 1994. None of the Acquired Assets is subject to (i) any contract of sale, or (ii) any Claim. At the Closing, Seller shall convey to Purchaser good, marketable and indefeasible title to all of the Intellectual Property, free and clear of all Claims, except for the escrow arrangement described by the terms of Article 1.4 hereof. All of the Equipment and the Ancillary Assets are in good condition, operable and useful for their intended purposes (ordinary wear and tear excepted), and none of such assets has been damaged by any fire, accident, act of God or any other casualty that materially and adversely impairs any such assets or the Business. 2.8 Net Sales and Profits of Business. The net sales and gross profits of the Business for the fiscal years as set forth below are as follows: Net Sales in FRF Gross Profit in FRF 1992 10,703,253 (2,267,271) 1993 10,323,914 489,400 1994 16,096,572 6,601,513 1995 7,565,150 2,967,082 2.9 Absence of Adverse Change. Since January 11, 1996, there has been no material adverse change in the Business or any of the Acquired Assets, and there is no condition, development or contingency of any kind of which the Seller has actual knowledge which may result in any such material adverse change. 2.10 Survival of Warranties, Representations, etc. All statements contained in any certificate or other instruments delivered by or on behalf of Seller pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a warranty and representation of Seller hereunder. All warranties and representations made hereunder shall be effective as of the Closing with the same force and effect as if made at such time, and shall survive the Closing. ARTICLE III WARRANTIES AND REPRESENTATIONS OF PURCHASER Warranties and Representations. Purchaser hereby warrants and represents as follows: 3.1 Legal, Valid and Binding. Each of this Agreement and the other documents contemplated hereby constitutes the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors rights generally or court decisions with respect thereto and the availability of equitable remedies. 3.2 No Litigation. There are no actions, suits, legal or governmental proceedings pending or threatened against Purchaser relating to this Agreement or the transactions described herein. ARTICLE IV CONDITIONS TO PARTIES' OBLIGATIONS 4.1 Purchaser's Conditions. The obligations of Purchaser under this Agreement are subject to the fulfillment of each of the conditions set forth below: (a) At the Closing the warranties and representations of Seller contained in this Agreement shall be true and correct in all material respects; Seller shall have complied with and duly performed any and all covenants, agreements and conditions in all material respects, on its part to be complied with or performed pursuant to or in connection with this Agreement; and Seller shall have delivered to Purchaser at the Closing a certificate from a duly authorized officer of Seller to such effect. (b) No action or proceeding shall have been instituted to restrain or prohibit the Closing of the transactions contemplated by this Agreement or the Inventory Purchase Agreement. (c) Seller shall have obtained, and delivered evidence thereof to Purchaser at the Closing, a termination of each existing license, sublicense and/or distribution agreement in respect of the Intellectual Property(except as set forth on Schedule 2.6), in form reasonably satisfactory to counsel to Purchaser. (d) Seller shall execute and deliver the Assignment of United States Trademarks and the Omnibus Assignment of Foreign Trademarks in the forms set forth as Exhibit 4.1(d) to Purchaser at Closing. (e) Seller shall execute and deliver one or more Bills of Sale evidencing the conveyance of the Equipment and Ancillary Assets substantially in the forms set forth as Exhibit 4.1(e) to Purchaser at Closing. (f) Seller shall execute and deliver to Purchaser a Noncompetition Agreement, a Guarantee in the form set forth in Exhibit 4.1(f) and the Escrow Agreement. (g) Subsidiary shall execute and deliver to Purchaser the Inventory Purchase Agreement and each of the documents contemplated thereby to be executed and delivered by Subsidiary. (h) Purchaser shall have completed its due diligence investigation of the Acquired Assets and the Business. (i) Seller shall not have engaged in any transaction out of the ordinary course of business. 4.2 Sellers' Conditions. The obligations of Seller under this Agreement are subject to the fulfillment of each of the conditions set forth below: (a) At the Closing the warranties and representations of Purchaser contained in this Agreement shall be true and correct in all material respects; Purchaser shall have complied with and duly performed any and all covenants, agreements and conditions in all material respects, on its part to be complied with or performed pursuant to or in connection with this Agreement; and Purchaser shall have delivered to Seller at the Closing a certificate from a duly authorized officer of Purchaser to such effect. (b) No action or proceeding shall have been instituted to restrain or prohibit the Closing of the transactions contemplated by this Agreement or the Inventory Purchase Agreement. (c) Purchaser shall execute and deliver to Seller the Noncompetition Agreement and the Escrow Agreement. (d) Purchaser shall have executed and delivered the Inventory Purchase Agreement to Subsidiary. ARTICLE V OTHER CONDITION PRECEDENT 5.1 Consent or Non-Objection of French Treasury. The closing of this Agreement and the transactions contemplated hereby are expressly made subject to the receipt by Seller of either consent or non-objection of the French Treasury Department to the sale contemplated by this Agreement that may be required in respect of foreign investment in France. 5.2 Non-receipt of Consent. In the event that the consent or non-objection of the French Treasury Department is not obtained prior to the close of business on March 29, 1996, then in either such event, this Agreement shall be deemed null and void without any other action by or on behalf of the parties hereto, unless both parties specifically agree in writing signed by both parties to extend the Closing. ARTICLE VI INDEMNIFICATION 6.1 By Seller. Seller agrees to indemnify and hold harmless Purchaser from and against any and all losses, claims, damages or liabilities to which Purchaser may become subject, and to reimburse Purchaser for any and all legal expenses (including the cost of any investigation and preparation) reasonably incurred by Purchaser in connection with any claim or litigation, whether or not resulting in any liability, insofar as such losses, claims, damages, liabilities, or litigation arise out of or are based upon (i) any breach of warranty or representation or failure to fulfill any covenant, agreement or condition contained herein by Seller; (ii) any claims arising out of license, sublicense and distributor agreements terminated by Seller in accordance with Article 1.5 hereof; (iii) any Seller Liabilities; or (iv) any claims of creditors objecting to the transactions contemplated hereby as described in Article 8.5 hereof (collectively the "Purchaser Claims"). 6.2 Threshold. Notwithstanding Article 6.1 hereof, Seller shall not be obligated to indemnify Purchaser except to the extent that the aggregate amount of Purchaser Claims has exceeded the sum of $10,000. 6.3 Limit of Indemnification. Notwithstanding Article 6.1 hereof, the maximum liability of Seller under Article 6.1 hereof for Purchaser Claims is $4,950,000, inclusive of any liability of Subsidiary for indemnification of Purchaser under the Inventory Purchase Agreement. ARTICLE VII CONDITIONS SUBSEQUENT 7.1 Change of Name. Promptly after the Closing, Seller shall change its name to that which is not similar to Jean Desprez. 7.2 Conversion of Unfinished Inventory. Within ninety (90) days subsequent to the Closing, Seller will convert the raw materials, component parts and work-in-progress to be sold using the Intellectual Property into finished goods inventory exclusively for sale to Purchaser, which will be payable in French francs in six (6) consecutive monthly installments commencing from the date of the bill of lading. The cost of the finished goods will be as indicated on the attached Schedule 7.2. Seller covenants and agrees with Purchaser that none of the finished goods or remaining components or raw materials, if any, will be sold to any parties other than Purchaser; and all remaining components not converted into finished goods, if any, will be destroyed by Seller at its own expense. 7.3 No "Knock-offs". Neither Seller nor any Affiliate will produce or distribute any products bearing any confusingly similar names to any of the trademarks constituting a portion of the Intellectual Property. ARTICLE VIII MISCELLANEOUS 8.1 No Waiver. The failure of any of the parties hereto to enforce any provision hereof on any occasion shall not be deemed to be a waiver of any preceding or succeeding breach of such provision or any other provision. 8.2 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto and no amendment, modification or waiver of any provision herein shall be effective unless in writing executed by the party charged therewith. 8.3 Agreement, Exhibits and Schedules. As used herein, the term "this Agreement," means the body of this Agreement and the Schedules and Exhibits hereto, and the terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement and such Schedules and Exhibits as a whole and not to any particular part of subdivision thereof. 8.4 Governing Law; Arbitration. (a) This Agreement shall be construed, interpreted and enforced in accordance with and shall be governed by the laws of France without regard to the principles of conflicts of laws. (b) Any and all disputes between the parties arising out of or in connection with this Agreement which the parties are unable to resolve amicably, shall be finally determined by arbitration. The arbitration shall be held in Brussels, Belgium, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with said rules. Any and all such arbitration proceedings shall be conducted in the English language. 8.5 Objection of Creditors. The parties hereto designate the following person at following address to receive any and all objections to the sale contemplated by this Agreement that may be raised by creditors of Seller: Ms. Catherine Benard-Lotz, Parfums Jean Desprez, S.A., 4, Rond Point des Champs Elysees, 75008, Paris, France. Seller agrees to promptly to notify Purchaser of any of such objections. 8.6 Binding Effect. This Agreement shall bind and inure to the benefit of the parties, their successors and assigns. 8.7 Assignment. No party may assign its rights or delegate its obligations under this Agreement and any such attempted assignment or delegation shall be void and of no force and effect; provided, that Purchaser may assign its rights hereunder (but not is obligations) to its affiliate, Parlux, S.A. 8.8 Article Headings. The article headings herein have been inserted for convenience of reference only, and shall in no way modify or restrict any of the terms or provisions hereof. 8.9 Notices. (a) Any notice or other communication under the provisions of this Agreement shall be in writing, and shall be given by postage prepaid, registered or air mail, or by hand delivery with an acknowledgement copy requested, or by a reputable overnight delivery or courier service; all to be directed to the addresses set forth above, or to any new address of which either party hereto shall have informed the other by the giving of notice in the manner provided herein. Such notice or communication shall be effective, if sent by postage prepaid, registered or air mail, five (5) days after it is mailed; if sent by a reputable overnight delivery or courier service, two (2) days after properly forwarded; or by hand delivery, upon receipt. (b) The parties hereto agree to promptly send copies of all notices under this Agreement by telecopier to the other party, but such notice by telecopier shall not relieve the sending party of the obligation to forward notice in accordance with the terms of Article 8.9(a) hereof. 8.10 Unenforceability; Severability. If any provision of this Agreement is found to be void or unenforceable by a court of competent jurisdiction, then the remaining provisions of this Agreement, shall, nevertheless, be binding upon the parties with the same force and effect as though the unenforceable part had been severed and deleted. 8.11 Brokers' Fees. Seller covenants and agrees to Purchaser that Purchaser shall have no liability with respect to any brokerage fees or agents' commissions in connection with the transactions contemplated hereby by reason of any of their acts or conduct. Purchaser covenants and agrees to Seller that Seller shall have no liability with respect to any brokerage fees or agents' commissions in connection with the transactions contemplated hereby by reason of any of their acts or conduct. 8.12 Further Assurances. After the Final Payment Date, Seller shall at any time and from time to time, at the request of Purchaser and without further cost or expense to Purchaser, execute and deliver such other instruments of conveyance or transfer and take such other actions as Purchaser may request in order to vest in Purchaser clear and unencumbered title to the Intellectual Property, Equipment and Ancillary Assets and to comply with applicable law. 8.13 Declaration of Good Faith. The undersigned parties declare, under the pain of penalties laid down in Article 1837 of the General Tax Code (Code general des impois), that this Agreement states the whole amount of the purchase price. 8.14 No Third Party Rights. The warranties, representations and other terms and provisions of this Agreement are for the exclusive benefit of the parties hereto, and no other person shall have any right or claim against any party by reason of any of those terms and provisions or be entitled to enforce any of those terms and provisions against any party. 8.15 Counterparts. This Agreement may be executed in counterparts, all of which shall be deemed to be duplicate originals. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the date first above written. PARLUX FRAGRANCES, INC. By: /s/ Zalman Lekach ------------------ Zalman Lekach, Chief Operating Officer PARFUMS JEAN DESPREZ, S.A. By: /s/ Philippe Benacin --------------------- Philippe Benacin, President List of Schedules and Exhibits Schedule 1.1(a): Intellectual Property Schedule 1.1(b): Equipment Exhibit 1.3: Promissory Note Exhibit 1.4: Escrow Agreement Schedule 2.6: Trademarks Exhibit 4.1(d): Assignment of United States Trademarks and the Omnibus Assignment of Foreign Trademarks Exhibit 4.1(e): Bills of Sale Exhibit 4.1(f): Guarantee Schedule 7.2: Cost of Finished Goods EX-10.63 5 INVENTORY PURCHASE AGREEMENT EXHIBIT 10.63 INVENTORY PURCHASE AGREEMENT Agreement dated this 12th day of March 1996 by and between PARLUX FRAGRANCES, INC., a Delaware corporation ("Purchaser"), with its principal office at 3725 S.W. 30th Avenue, Ft. Lauderdale, Florida 33312 represented by Zalman Lekach in his capacity as Chief Operating Officer and invested with full powers to execute this Agreement,, and JEAN DESPREZ, S.A., a French corporation ("Seller"), with its principal offices at 4 rond point des Champs Elysees, 75008 Paris, France, registered on the Paris Trade and Companies Registry under the number B 327 630 042, represented by Philippe Benacin in his capacity as President and invested with full powers to execute this Agreement. W I T N E S S E T H: WHEREAS, Seller desires to sell and Purchaser desires to acquire all of the rights to certain assets of Seller upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants, conditions and promises contained herein, the parties hereto hereby agree as follows: ARTICLE I SALE OF INVENTORY AND RELATED MATTERS 1.1 Sale and Purchase of Inventory. Upon the terms and subject to the conditions of this Agreement, at the Closing, as hereinafter defined, Seller agrees to sell, transfer, convey and deliver to Purchaser, and Purchaser agrees to purchase, all of Seller's right, title and interest in and to the all of the items of Seller's Inventory, as hereinafter defined and as set forth in the annexed Schedule 1.1, free and clear of all liens, pledges, charges, security interests, encumbrances, title retention agreements, adverse claims, options, equities or restrictions of any kind whatsoever ("Claims"). 1.2 Purchase Price and Payment. Upon the closing of this Agreement Purchaser agrees to pay the purchase price to the Seller as follows: The price for the Inventory determined two (2) business days prior to the Closing by reference to the Seller's cost of the Inventory in French francs, as set forth in the Schedule 1.1 calculated in United States Dollars at the then current exchange rate as set forth in the Wall Street Journal on the immediately preceding business day, together with the sum of U.S. $500,000 (the "Purchase Price"). The Purchase Price shall be payable in United States dollars, as follows: (a) the first US$500,000 ninety (90) days from the date of closing of this Agreement, evidenced by a promissory note in the form annexed hereto as Exhibit 1.2(a); (b) $1,020,000 in six (6) consecutive equal monthly installments commencing from the date of the bill of lading for the Inventory, evidenced by a promissory note in the form annexed hereto as Exhibit 1.2(b); and (c) $780,000, payable in six (6) equal consecutive monthly installments commencing three (3) months from the date of the bill of lading for the Inventory, evidenced by a promissory note in the form annexed hereto as Exhibit 1.2(c). All of the notes annexed hereto are sometimes collectively referred to as the "Notes". 1.3 Security for Payment of Purchase Price. Upon the closing of this Agreement, Purchaser, Seller, Parent (as hereinafter defined) and the law firm of Purchaser, Mayer Brown & Platt, shall enter into an escrow agreement in the form annexed hereto as Exhibit 1.4 (the "Escrow Agreement"), whereby all documents evidencing certain intellectual property being conveyed pursuant to the terms of the Intellectual Property Purchase Agreement between Parfums Jean Desprez, S.A., the parent of Seller (the "Parent"), and Purchaser (the "Intellectual Property Agreement"), shall be held in escrow by such law firm, pending payment by Purchaser of the Notes and a promissory note issued pursuant to the terms of the Intellectual Property Agreement (the "Intellectual Property Note"). The date on which such payment in full of the Notes and the Intellectual Property Note occurs is hereinafter referred to as the "Final Payment Date". 1.4 Covenants of Seller. (a) Seller covenants and agrees with Purchaser that prior to the Closing, Seller shall provide reasonable access to all financial information relating to the Inventory, including financial statements, operations, inventory costs, distribution agreements and any other supporting records, and Seller covenants and agrees to maintain such books and records for three (3) years from the Closing and to make them available for inspection by Purchaser or its designee upon reasonable notice. (b) All sales orders received by Seller or any Affiliate subsequent to the execution of the letter of intent among Seller, Parfums Jean Desprez, S.A. and Purchaser dated January 11, 1996 for any and all Products, shall have been, and up to the Closing will be, forwarded via telecopier to Purchaser for its approval, and Seller acknowledges that Purchaser may prohibit shipment of any or all of such orders at its sole discretion. For purposes hereof, the term "Affiliate" of Seller shall mean Groupe Inter Parfums, Jean Philippe Fragrances, Inc. and any other company, entity or individual which directly or indirectly controls or is controlled by or is under common control with Seller. After the Closing, if Seller or any Affiliate receives any such sales orders, Seller shall promptly telecopy said orders to Purchaser. 1.5 No Liabilities Assumed. Purchaser does not hereby assume, and shall not be liable for, any debt, obligation, responsibility or liability of Seller or arising out of or relating to the Inventory through the Closing Date (as hereinafter defined), whether known or unknown, contingent or absolute, or otherwise (collectively, "Seller Liabilities"), and Seller agrees to indemnify and hold harmless Purchaser from and against any Seller Liability in accordance with Article VII hereof. 1.6 Closing. Subject to the fulfillment of the conditions precedent as hereinafter set forth, the closing under this Agreement ("Closing"), shall take place at the offices of Mayer, Platt & Brown, 1675 Broadway, New York, New York at 10:00 A.M. on March 19, 1996 or at such other time and at such other place as shall be fixed by mutual consent of the parties hereto, but in no event subsequent to March 29, 1996 (the "Closing Date"). ARTICLE II INVENTORY 2.1 Invoice, Shipment and Possible Adjustment to Purchase Price. (a) Seller agrees to release the Inventory to Purchaser for shipment, and to deliver the Inventory and the bills of lading to Purchaser's transport agent's warehouse located in Paris, France, as follows: (i) Inventory equal to the principal amount of the Note set forth in Exhibit 1.2(b) on or before March 29, 1996 and (ii) Inventory equal to the principal amount of the Note set forth in Exhibit 1.2(c) commencing approximately April 1, 1996 but in all respects completed on or before May 31, 1996. (b) Within five (5) business days of receipt of a shipment of Inventory and bill of lading to Purchaser's warehouse in Florida, Purchaser shall verify the receipt of the Inventory as stated on the bill of lading. (c) The purchase price for the Inventory shall be appropriately adjusted to conform any actual discrepancy found by the Purchaser in good faith, and notice of any such discrepancy shall be promptly given to Seller. If the purchase price is determined to be in excess of the actual price paid on the Closing Date, then Purchaser shall pay such difference to Seller and the principal amount of the promissory note described in Article 1.2(c) shall be correspondingly increased. If the purchase price is determined to be less than the actual price paid at Closing, then the purchase price shall be reduced by the cost of any missing Inventory, and the principal amount of the promissory note described in Article 1.2(c) shall be correspondingly decreased. 2.2 Risk of Loss. The risk of loss of any Inventory prior to shipment of the Inventory to Purchaser because of loss, theft, fire or other casualty, shall be borne by Seller. Risk of loss shall pass to Purchaser on shipment ex-factory. 2.3 Returns. In the event that items of Inventory are returned to Seller by third parties subsequent to the Closing Date, then in such event, Purchaser covenants and agrees with Seller to purchase for cash at a price equal to the cost thereof determined in accordance with Schedule 7.2 annexed hereto, on a monthly basis for the one hundred eighty (180) day period immediately following the Closing Date, such returned finished goods Inventory, provided, that such items of returned finished goods Inventory appear on the 1996 Price List annexed hereto as Schedule 2.3, and are in saleable condition, except for exterior packaging which may not be in saleable condition. Any Inventory returned to Seller that, in Purchaser's opinion, is not in saleable condition, must be destroyed by Seller at Seller's sole cost. ARTICLE III WARRANTIES AND REPRESENTATIONS OF SELLER Warranties and Representations of Seller. Seller hereby warrants and represents to Purchaser as follows: 3.1 Due Organization. Seller is a corporation duly organized, validly existing and in good standing under the laws of France and has all requisite corporate power and authority to carry on its businesses as currently conducted and to own or lease and to operate its properties and assets as and where such properties and assets are now owned or leased and operated. 3.2 Legal, Valid and Binding. Each of this Agreement and the other documents contemplated hereby constitutes the legal, valid and binding obligation of Seller, enforceable against it in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and court decisions with respect thereto, and the availability of equitable remedies. 3.3 Other Consents and Approvals. Except for the consent or non-objection of the French Treasury Department to the transactions contemplated hereby, any and all consents, approvals, authorizations, or orders of or registrations or qualifications with any person, bank, corporation, association, governmental body, or court having authority or power to regulate, supervise or direct the business and affairs of Seller necessary for the consummation of the transactions specified in this Agreement shall have been obtained on or before the Closing by Seller. 3.4 Due Authorization; Compliance with Law. The execution and delivery of this Agreement and the other documents contemplated hereby and performance of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and will not conflict with or result in a breach of any of the terms or provisions of its Certificate of Incorporation or By-laws, lease, bond, note, debenture, guaranty, deed of trust or other agreement, instrument (or French equivalent thereof) or arrangement to which Seller may be or is a party (including by operation of law) or by which the property of Seller is bound, or any law, administrative regulation, or any order of any court or governmental agency or authority entered in any proceeding to which Seller was or is a party or by which its property is bound. The Business is being conducted in compliance with all applicable law, statutes, ordinances, regulations, decrees and orders, except for violations which have not had and would not reasonably be expect to have a material adverse effect on the Business or any of the Inventory. 3.5 No Litigation. There are no actions, suits, legal or governmental proceedings pending or threatened against Seller relating to this Agreement, the Inventory, or the transactions described herein. 3.6 Inventory. The Inventory has been acquired in the ordinary course of business, in customary quantities and at prevailing prices, and has been valued at the lower of cost or market on the financial statements of the Seller in accordance with generally accepted accounting principles in France consistently applied. The Inventory is located in France and consists solely of finished goods (perfumes, fragrances, cosmetics, oils, creams, containers and packaging), samples, testers and displays marketed and sold under the trademarks Bal a Versailles and Revolution a Versailles, for which the Parent is the owner. The Inventory is not subject to (i) any contract of sale or (ii) any Claims. At the Closing, Seller shall convey to Purchaser good, marketable and indefeasible title to all of the Inventory, free and clear of all Claims, except for the escrow arrangement described by the terms of Article 1.4 hereof. All of the Inventory is in good condition, operable and useful for its intended purpose (ordinary wear and tear excepted), and none of the Inventory has been damaged by any fire, accident, act of God or any other casualty that materially and adversely impairs any such assets or the Business. 3.7 Absence of Adverse Change. Since January 11, 1996, there has been no material adverse change in the Business or the Inventory, and there is no condition, development or contingency of any kind of which the Seller has actual knowledge which may result in any such material adverse change. 3.8 Survival of Warranties, Representations, etc. All statements contained in any certificate or other instruments delivered by or on behalf of Seller pursuant hereto or in connection with the transactions contemplated hereby shall be deemed a warranty and representation of Seller hereunder. All warranties and representations made hereunder shall be effective as of the Closing with the same force and effect as if made at such time, and shall survive the Closing. ARTICLE IV WARRANTIES AND REPRESENTATIONS OF PURCHASER Warranties and Representations. Purchaser hereby warrants and represents as follows: 4.1 Legal, Valid and Binding. This Agreement constitutes the legal, valid and binding obligation of Purchaser, enforceable against it in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors rights generally or court decisions with respect thereto and the availability of equitable remedies. 4.2 No Litigation. There are no actions, suits, legal or governmental proceedings pending or threatened against Purchaser relating to this Agreement or the transactions described herein. ARTICLE V CONDITIONS TO PARTIES' OBLIGATIONS 5.1 Purchaser's Conditions. The obligations of Purchaser under this Agreement are subject to the fulfillment of each of the conditions set forth below: (a) At the Closing the warranties and representations of Seller contained in this Agreement shall be true and correct in all material respects; Seller shall have complied with and duly performed any and all covenants, agreements and conditions in all material respects, on its part to be complied with or performed pursuant to or in connection with this Agreement; and Seller shall have delivered to Purchaser at the Closing a certificate from a duly authorized officer of Seller to such effect. (b) No action or proceeding shall have been instituted to restrain or prohibit the Closing of the transactions contemplated by this Agreement or the Intellectual Property Purchase Agreement. (c) Seller or Parent shall have obtained, and deliver evidence thereof to Purchaser at the Closing, a termination of each existing license, sublicense and/or distribution agreement in respect of the Intellectual Property, in form reasonably satisfactory to counsel to Purchaser. (d) Seller shall execute and deliver a Bill of Sale to Purchaser to evidence the conveyance of the Inventory from Seller to Purchaser in the form set forth as Exhibit 4.1(d). (e) Seller shall execute and deliver to Purchaser a Noncompetition Agreement, the Escrow Agreement. (g) Parent shall execute and deliver to Purchaser the Intellectual Property Purchase Agreement and each of the documents contemplated thereby to be executed and delivered by Parent. (h) Purchaser shall have completed its due diligence investigation of the Inventory and the Business. (i) Seller shall not have engaged in any transaction out of the ordinary course of business. 5.2 Sellers' Conditions. The obligations of Seller under this Agreement are subject to the fulfillment of each of the conditions set forth below: (a) At the Closing the warranties and representations of Purchaser contained in this Agreement shall be true and correct in all material respects; Purchaser shall have complied with and duly performed any and all covenants, agreements and conditions in all material respects, on its part to be complied with or performed pursuant to or in connection with this Agreement; and Purchaser shall have delivered to Seller at the Closing a certificate from a duly authorized officer of Purchaser to such effect. (b) No action or proceeding shall have been instituted to restrain or prohibit the Closing of the transactions contemplated by this Agreement or the Intellectual Property Purchase Agreement. (c) Purchaser shall execute and deliver to Seller the Noncompetition Agreement and the Escrow Agreement. (d) Seller shall execute and deliver the Intellectual Property Agreement to the Parent. ARTICLE VI OTHER CONDITION PRECEDENT 6.1 Consent or Non-Objection of French Treasury. The closing of this Agreement and the transactions contemplated hereby are expressly made subject to the receipt by Parent of either consent or non-objection of the French Treasury Department to the sale contemplated by the Intellectual Property Agreement, that may be required in respect of foreign investment in France. 6.2 Non-receipt of Consent. In the event that the consent or non-objection of the French Treasury Department is not obtained prior to the close of business on March 29, 1996, then in either such event, this Agreement shall be deemed null and void without any other action by or on behalf of the parties hereto, unless both parties specifically agree in writing signed by both parties to extend the Closing Date. ARTICLE VII INDEMNIFICATION 7.1 By Seller. Seller agrees to indemnify and hold harmless Purchaser from and against any and all losses, claims, damages or liabilities to which Purchaser may become subject, and to reimburse Purchaser for any and all legal expenses (including the cost of any investigation and preparation) reasonably incurred by Purchaser in connection with any claim or litigation, whether or not resulting in any liability, insofar as such losses, claims, damages, liabilities, or litigation arise out of or are based upon (i) any breach of warranty or representation or failure to fulfill any covenant, agreement or condition contained herein by Seller; (ii) any Seller Liabilities; or (iii) any claims of creditors objecting to the transactions contemplated hereby as described in Article 9.5 hereof (collectively the "Purchaser Claims"). 7.2 By Purchaser. Purchaser agrees to indemnify and hold harmless each of Seller and Parent from and against any and all losses, claims, damages, or liabilities to Seller or Parent may become subject, and to reimburse each of Seller and Parent for any legal or other expenses (including the cost of any investigation and preparation) reasonably incurred by Seller or Parent in connection with any claim or litigation, whether resulting in any liability, insofar as such losses, claims, damages, liabilities or litigation arise out of or are based upon any breach of warranty or representation or the failure to fulfill any covenant, agreement or condition contained herein by Purchaser (collectively "Seller Claims"). 7.2 Threshold. Notwithstanding Articles 7.1 and 7.2 hereof, Purchaser and Seller shall not be obligated to indemnify the other party except to the extent that the aggregate amount of Seller Claims or Purchaser Claims (as the case may be) has exceeded the sum of $10,000. 7.3 Limit of Indemnification. Notwithstanding Article 7.1 hereof, the maximum liability of Seller under Article 7.1 hereof for Purchaser Claims is $4,950,000, inclusive of any liability of Parent for indemnification of Purchaser under the Intellectual Property Agreement. ARTICLE VIII CONDITIONS SUBSEQUENT 8.1 Change of Name. Promptly after the Closing, Seller shall change its name to that which is not similar to Jean Desprez. 8.2 No "Knock-offs". Neither Seller nor any Affiliate will produce or distribute any products bearing any confusingly similar names to any of the trademarks constituting a portion of the Intellectual Property. ARTICLE IX MISCELLANEOUS 9.1 No Waiver. The failure of any of the parties hereto to enforce any provision hereof on any occasion shall not be deemed to be a waiver of any preceding or succeeding breach of such provision or any other provision. 9.2 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties hereto and no amendment, modification or waiver of any provision herein shall be effective unless in writing executed by the party charged therewith. 9.3 Agreement, Exhibits and Schedules. As used herein, the term "this Agreement," means the body of this Agreement and the Schedules and Exhibits hereto, and the terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Agreement and such Schedules and Exhibits as a whole and not to any particular part of subdivision thereof. 9.4 Governing Law; Arbitration. (a) This Agreement shall be construed, interpreted and enforced in accordance with and shall be governed by the laws of France without regard to the principles of conflicts of laws. (b) (b) Any and all disputes between the parties arising out of or in connection with this Agreement which the parties are unable to resolve amicably, shall be finally determined by arbitration. The arbitration shall be held in Brussels, Belgium, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrator appointed in accordance with said rules. Any and all such arbitration proceedings shall be conducted in the English language. 9.5 Objection Creditors. The parties hereto designate the following person at following address to receive any and all objections to the sale contemplated by this Agreement that may be raised by creditors of Seller: Ms. Catherine Benard-Lotz, Parfums Jean Desprez, S.A., 4, Rond Point des Champs Elysees, 75008, Paris, France. Seller agrees to promptly to notify Purchaser of any of such objections. 9.6 Binding Effect. This Agreement shall bind and inure to the benefit of the parties, their successors and assigns. 9.7 Assignment. No party may assign its rights or delegate its obligations under this Agreement and any such attempted assignment or delegation shall be void and of no force and effect. 9.8 Article Headings. The article headings herein have been inserted for convenience of reference only, and shall in no way modify or restrict any of the terms or provisions hereof. 9.9 Notices. (a) Any notice or other communication under the provisions of this Agreement shall be in writing, and shall be given by postage prepaid, registered or air mail, or by hand delivery with an acknowledgement copy requested, or by a reputable overnight delivery or courier service; all to be directed to the addresses set forth above, or to any new address of which any party hereto shall have informed the others by the giving of notice in the manner provided herein. Such notice or communication shall be effective, if sent by postage prepaid, registered or air mail, five (5) days after it is mailed; if sent by a reputable overnight delivery or courier service, two (2) days after properly forwarded; or by hand delivery, upon receipt. (b) The parties hereto agree to send copies of all notices under this Agreement by telecopier to the other party, but such notice by telecopier shall not relieve the sending party of the obligation to forward notice in accordance with the terms of Article 9.9(a) hereof. 9.10 Unenforceability; Severability. If any provision of this Agreement is found to be void or unenforceable by a court of competent jurisdiction, then the remaining provisions of this Agreement, shall, nevertheless, be binding upon the parties with the same force and effect as though the unenforceable part had been severed and deleted. 9.11 Brokers' Fees. Seller covenants and agrees to Purchaser that Purchaser shall have no liability with respect to any brokerage fees or agents' commissions in connection with the transactions contemplated hereby by reason of any of their acts or conduct. Purchaser covenants and agrees to Seller that Seller shall have no liability with respect to any brokerage fees or agents' commissions in connection with the transactions contemplated hereby by reason of any of their acts or conduct. 9.12 Further Assurances. After the Final Payment Date, Seller shall at any time and from time to time, at the request of Purchaser and without further cost or expense to Purchaser, execute and deliver such other instruments of conveyance or transfer and take such other actions as Purchaser may request in order to vest in Purchaser clear and unencumbered title to the Inventory and to comply with applicable law. 9.13 Declaration of Good Faith. The undersigned parties declare, under the pain of penalties laid down in Article 1837 of the General Tax Code (Code general des impois), that this Agreement states the whole amount of the purchase price. 9.14 No Third Party Rights. The warranties, representations and other terms and provisions of this Agreement are for the exclusive benefit of the parties hereto, and no other person shall have any right or claim against any party by reason of any of those terms and provisions or be entitled to enforce any of those terms and provisions against any party. 9.15 Counterparts. This Agreement may be executed in counterparts, all of which shall be deemed to be duplicate originals. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the date first above written. PARLUX FRAGRANCES, INC. By: /s/ Zalman Lekach ----------------- Zalman Lekach, Chief Operating Officer JEAN DESPREZ, S.A. By: /s/ Philippe Benacin -------------------- Philippe Benacin, President List of Schedules and Exhibits Schedule 1.1: Inventory Exhibit 1.2(a): Promissory Note Exhibit 1.2(b): Promissory Note Exhibit 1.2(c): Promissory Note Exhibit 1.3: Escrow Agreement Schedule 2.3: 1996 Price List Exhibit 4.1(d): Bill of Sale Schedule 7.2: Cost of Finished Goods EX-11 6 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE Exhibit 11 JEAN PHILIPPE FRAGRANCES, INC. AND SUBSIDIARIES STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE Years ended December 31, ---------------------------- 1993 1994 1995 ---- ---- ---- Computation of earnings per share: Earnings: Net income $ 7,099,123 $ 7,274,686 $ 9,037,527 ----------- ----------- ----------- Net Income $ 7,099,123 $ 7,274,686 $ 9,037,527 =========== =========== =========== Number of shares: Weighted average number of common shares outstanding (exclusive of 1,500,000 shares held in escrow through June 30, 1993) 8,799,248 10,180,412 10,044,653 Dilutive effect of exercise of outstanding options and warrants and issuance of shares held in escrow 1,333,380 274,143 394,243 ----------- ----------- ----------- Weighted average number of common and common equivalent shares outstanding 10,132,628 10,454,555 10,438,896 =========== =========== =========== Earnings per share $.70 $.70 $.87 =========== =========== =========== EX-21 7 LIST OF SUBSIDIARIES Exhibit 21 LIST OF SUBSIDIARIES Name Jurisdiction Elite Parfums, Ltd. Delaware Inter Parfums Holdings, S.A. France Inter Parfums, S.A. France Jean Philippe Fragrances do Brasil, Ltda.1 Brazil Inter Parfums Trademarks, S.A. France Inter Parfums Cosmetiques, S.A France - -------- 1A limited liability company. EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 14,204 0 22,884 0 26,093 67,539 1,970 0 84,001 26,176 0 0 0 17,730 34,246 84,001 93,669 93,669 48,703 81,693 (2,663) 0 1,148 12,380 3,188 9,192 0 154 0 9,038 .87 .87
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