-----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, GxlO+2mfB953Ov5O/SWJJPajVGp2nqkYThDnie+1z0/z83PWhNqlglQJdPcRE5Hm UqhhtaNzKw6PT+hcRWqCxQ== 0000930413-02-002480.txt : 20020812 0000930413-02-002480.hdr.sgml : 20020812 20020812130136 ACCESSION NUMBER: 0000930413-02-002480 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTER PARFUMS INC CENTRAL INDEX KEY: 0000822663 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 133275609 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16469 FILM NUMBER: 02726291 BUSINESS ADDRESS: STREET 1: 551 FIFTH AVE STREET 2: STE 1500 CITY: NEW YORK STATE: NY ZIP: 10176 BUSINESS PHONE: 2129832640 MAIL ADDRESS: STREET 1: 551 FIFTH AVENUE STREET 2: STE 1500 CITY: NEW YORK STATE: NY ZIP: 10176 FORMER COMPANY: FORMER CONFORMED NAME: JEAN PHILIPPE FRAGRANCES INC DATE OF NAME CHANGE: 19920703 10-Q 1 c25305_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ( MARK ONE ) /X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2002. 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 ------- INTER PARFUMS, 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) (212) 983-2640 ----------------------------------------------------- (Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At August 5, 2002 there were 18,760,782 shares of common stock, par value $.001 per share, outstanding. INTER PARFUMS, INC. AND SUBSIDIARIES INDEX Page Number Part I. Financial Information Item 1. Financial Statements 1 Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001 (audited) 2 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2002 (unaudited) and June 30, 2001 (unaudited) 3 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 (unaudited) and June 30, 2001 (unaudited) 4 Notes to Unaudited Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 Part II. Other Information 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 14 INTER PARFUMS, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS In our opinion, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. We have condensed such financial statements in accordance with the rules and regulations of the Securities and Exchange Commission. Therefore, such financial statements do not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2001 included in our annual report filed on Form 10-K. The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the entire fiscal year. Page 1 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
June 30, December 31, 2002 2001 ------------------ ------------------ Current assets: Cash and cash equivalents $30,425,861 $28,562,296 Accounts receivable, net 35,386,665 31,222,907 Inventories 36,387,420 27,644,960 Receivables, other 1,291,361 944,220 Other 1,252,050 1,362,352 Income taxes receivable 3,764,144 2,633,000 Deferred tax benefit 1,307,000 1,360,000 ------------------ ------------------ Total current assets 109,814,501 93,729,735 Equipment and leasehold improvements, net 4,228,764 3,895,733 Other assets 333,485 304,928 Deferred tax benefit 431,000 767,000 Intangible assets, net 7,093,426 3,841,707 ------------------ ------------------ $121,901,176 $102,539,103 ================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable, banks $4,542,790 $1,308,086 Accounts payable 18,240,145 15,512,938 Accrued expenses 10,426,404 7,960,117 Income taxes payable 1,564,395 746,684 ------------------ ------------------ Total current liabilities 34,773,734 25,527,825 ------------------ ------------------ Deferred taxes payable 825,017 739,353 ------------------ ------------------ Long-term debt, less current portion 1,560,682 1,365,633 ------------------ ------------------ Minority interests 11,679,299 9,817,925 ------------------ ------------------ Shareholders' equity: Common stock, $.001 par; authorized 30,000,000 shares; outstanding 18,760,782 and 18,692,269 shares at June 30, 2002 and December 31, 2001, respectively 18,761 18,692 Additional paid-in capital 32,686,977 32,469,587 Retained earnings 70,159,989 66,786,620 Accumulated other comprehensive income (3,660,033) (8,043,282) Treasury stock, at cost, 7,492,463 shares at June 30, 2002 and December 31, 2001 (26,143,250) (26,143,250) ------------------ ------------------ 73,062,444 65,088,367 ------------------ ------------------ $121,901,176 $102,539,103 ================== ==================
See notes to financial statements. Page 2 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Net sales $27,442,809 $26,259,763 $55,860,455 $57,302,939 Cost of sales 14,635,220 13,701,340 29,346,744 29,130,397 ----------- ----------- ----------- ----------- Gross margin 12,807,589 12,558,423 26,513,711 28,172,542 Selling, general and administrative 9,212,038 9,232,698 19,097,812 21,102,392 ----------- ----------- ----------- ----------- Income from operations 3,595,551 3,325,725 7,415,899 7,070,150 ----------- ----------- ----------- ----------- Other charges (income): Interest 169,491 80,063 249,441 129,675 (Gain) loss on foreign currency 58,285 (228,353) 57,409 (176,277) Interest and dividend (income) (242,158) (368,782) (329,921) (651,319) Loss on sale of stock of subsidiary, net 5,382 85,805 5,382 85,805 ----------- ----------- ----------- ----------- (9,000) (431,267) (17,689) (612,116) ----------- ----------- ----------- ----------- Income before income taxes 3,604,551 3,756,992 7,433,588 7,682,266 Income taxes 1,268,633 1,409,509 2,654,205 2,863,922 ----------- ----------- ----------- ----------- Net income before minority interest 2,335,918 2,347,483 4,779,383 4,818,344 Minority interest in net income of consolidated subsidiary 409,424 406,280 843,193 845,689 ----------- ----------- ----------- ----------- Net income $1,926,494 $1,941,203 $3,936,190 $3,972,655 =========== =========== =========== =========== Net income per common share: Basic $0.10 $0.11 $0.21 $0.23 Diluted $0.10 $0.10 $0.20 $0.20 =========== =========== =========== =========== Number of common shares outstanding: Basic 18,760,558 17,446,165 18,755,443 17,447,091 Diluted 20,022,039 19,985,022 19,990,328 19,812,478 =========== =========== =========== =========== See notes to financial statements.
Page 3 INTER PARFUMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2002 2001 ------------------ ----------------- Operating activities: Net income $3,936,190 $3,972,656 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 964,702 935,766 Loss on sale of stock of subsidiary 5,382 85,805 Minority interest in net income 843,180 845,689 Deferred tax provision 389,000 Gain on sale of trademark (82,524) Increase (decrease) in cash from changes in: Accounts receivable (1,078,739) (197,517) Inventories (6,139,179) (7,036,993) Other assets (22,774) (162,283) Accounts payable and accrued expenses 2,391,240 2,412,213 Income taxes payable (248,389) (623,455) ----------- ----------- Net cash provided by operating activites 958,089 231,881 ----------- ----------- Investing activities: Purchase of equipment and leasehold improvements (715,489) (818,245) Trademark and license acquisitions (3,225,199) Proceeds from the sale of trademark 149,799 ----------- ----------- Net cash (used in) investing activities (3,790,889) (818,245) ----------- ----------- Financing activities: Increase in loan payable, bank 3,087,088 3,463,811 Proceeds from sale of stock of subsidiary 5,382 106,535 Proceeds from exercise of stock options 217,459 Dividends paid (545,126) (197,144) Purchases of treasury stock (410,296) ----------- ----------- Net cash provided by financing activities 2,764,803 2,962,906 ----------- ----------- Effect of exchange rate changes on cash 1,931,562 (1,192,536) ----------- ----------- Increase in cash and cash equivalents 1,863,565 1,184,006 Cash and cash equivalents at beginning of period 28,562,296 27,598,771 ----------- ----------- Cash and cash equivalents at end of period $30,425,861 $28,782,777 =========== =========== Supplemental disclosure of cash flows information: Cash paid during the period for: Interest $166,000 $105,000 Income taxes 1,906,000 2,547,000
See notes to financial statements. Page 4 INTER PARFUMS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES: The accounting policies we follow are set forth in the notes to our financial statements included in our Form 10-K which was filed with the Securities and Exchange Commission for the year ended December 31, 2001. 2. COMPREHENSIVE INCOME:
Six months ended Six months ended June 30, 2002 June 30, 2001 ------------- ------------- Comprehensive income Net income $ 3,936,190 $ 3,972,655 Other comprehensive income, net of tax: Foreign currency translation adjustment 4,381,016 (2,742,039) Cumulative effect of adopting SFAS 133 as of January 1, 2001 274,201 Gains on derivatives reclassified into earnings (4,717) (274,201) Change in fair value of derivatives 6,950 (59,370) ----------- ----------- Comprehensive income $ 8,319,439 $ 1,171,246 =========== ===========
3. GEOGRAPHIC AREAS: Segment information related to domestic and foreign operations is as follows:
Six months ended Six months ended June 30, 2002 June 30, 2001 ------------- ------------- Net sales: United States $ 16,956,093 $ 15,837,931 Europe 38,974,362 41,535,008 Eliminations (70,000) (70,000) ------------- ------------- $ 55,860,455 $ 57,302,939 ============= ============= Net Income: United States $ 1,072,024 $ 1,078 916 Europe 2,864,166 $ 2,893,739 ------------- ------------- $ 3,936,190 $ 3,972,655 ============= =============
4. EARNINGS PER SHARE: We computed basic earnings per share using the weighted average number of shares outstanding during each period. We computed diluted earnings per share using the weighted average number of shares outstanding during each period, plus the incremental shares outstanding assuming the exercise of dilutive stock options. Page 5 INTER PARFUMS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED FINANCIAL STATEMENTS 5. INVENTORIES: Inventories consist of the following: June 30, 2002 December 31, 2001 ------------- ----------------- Raw materials and component parts $ 12,601,427 $ 8,823,260 Finished goods 23,785,993 18,821,700 ------------ ------------ $ 36,387,420 $ 27,644,960 ============ ============ 6. RECENT ACCOUNTING DEVELOPMENTS: In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires all business combinations after June 30, 2001 to be accounted for using the purchase method. SFAS No. 142 establishes new guidelines for accounting for goodwill and other intangible assets. In accordance with SFAS No. 142, goodwill and intangible assets with an indeterminate life associated with acquisitions are no longer amortized; However, the carrying value of existing intangible assets with an indeterminate life is assessed for impairment at least annually. We have implemented the provisions of SFAS No. 142 on January 1, 2002 and have tested our trademarks for impairment as of such date and determined that there was no impairment. The effect on net income of amortization of intangible assets with an indeterminate life for the six months ended June 30, 2001 aggregated $72,000, after taxes and minority interest. 7. TRISTAR ASSET ACQUISITION: On May 21, 2002 our wholly-owned subsidiary, Jean Philippe Fragrances, LLC, purchased certain mass market fragrance brands and inventories of Tristar Corporation ("Tristar"), a Debtor-in-Possession. Jean Philippe Fragrances, LLC purchased the trademarks and related intellectual property of certain brands for approximately $3.2 million, and acquired certain existing inventory for approximately $3.7 million. In connection with the acquisition, Jean Philippe Fragrances, LLC entered into a manufacturing agreement with Fragrance Impressions Corporation for production of the Tristar brands acquired. In addition, Tristar and Fragrances Impressions Corporation entered into a non-competition agreement with Jean Philippe Fragrances, LLC relating to alternative designer fragrances and certain mass market cosmetics. Page 6 INTER PARFUMS, INC. AND SUBSIDIARIES ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We are a leading manufacturer and distributor of fragrances, cosmetics and personal care products. Innovation and creativity are combined to produce quality products for our customers around the world. We operate in the fragrance and cosmetic industry, specializing in prestige fragrances and mass market fragrances and cosmetics: o Prestige products -- For each prestige brand, owned or licensed by us, we create an original concept for the perfume consistent with world market trends; o Mass market products -- We design, market and distribute inexpensive fragrances and personal care products including alternative designer fragrances, health and beauty aids and mass market cosmetics. Statements in this document, which are not historical in nature, are forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from projected results. Given these risks, uncertainties and other factors, persons are cautioned not to place undue reliance on the forward-looking statements. Such factors include effectiveness of sales and marketing efforts and product acceptance by consumers, dependence upon management, competition, currency fluctuation and international tariff and trade barriers, governmental regulation and possible liability for improper comparative advertising or "Trade Dress". Amongst the various license agreements we operate under, two (2) licenses are with affiliates of our strategic partner, LV Capital USA, Inc. ("LV Capital"), a wholly-owned subsidiary of LVMH Moet Hennessy Louis Vuitton S.A. In May 2000 we entered into an exclusive worldwide license for prestige fragrances for the Celine brand, and in March 1999 we entered into an exclusive worldwide license for Christian Lacroix fragrances. Both licenses are subject to certain minimum sales requirements, advertising expenditures and royalty payments as are customary in our industry. Page 7 INTER PARFUMS, INC. AND SUBSIDIARIES THREE AND SIX MONTHS ENDED JUNE 30, 2002 AS COMPARED TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 Net sales for the three months ended June 30, 2002 increased 5% to $27.4 million, as compared to $26.3 million for the corresponding period of the prior year. At comparable foreign currency exchange rates, net sales were up 1% for the period. Net sales for the six months ended June 30, 2002 declined 3% to $55.9 million, as compared to $57.3 million for the corresponding period of the prior year. Changes in foreign currency exchange rates had no discernible effect on net sales for the period. The 5% net sales increase for the three months ended June 30, 2002 is in line with our internal expectations. Sales generated by our French subsidiary increased 4%; in constant dollars sales were down 1%. Domestic sales registered a 5% increase for the period. These results were achieved despite the current unfavorable economic climate in South America and the general decline in prestige product sales as seen by many luxury goods manufacturers. The slight decline in net sales for the six months ended June 30, 2002 is not surprising considering the 23% net sales growth reported in the first half of 2001. Sales of our prestige fragrance products were the primary contributor to the growth in 2001 as we continued the broader geographic rollout of Paul Smith and Burberry Touch, two new fragrance collections that debuted in the second half of 2000. We are very optimistic for the remainder of 2002 and beyond. We will continue the geographic expansion of our Celine distribution network and we are very enthusiastic about our new Christian Lacroix fragrance line, Bazar, which has been launched in select markets during the second quarter of 2002. Our FUBU Plush line is now available in select specialty stores, certain international markets and select mid tier department stores. In addition, Essence Pure by S.T. Dupont and Eaux Extremes by Paul Smith are two new products that are in the final stages of development for launch in October 2002. Finally, our 2003 plans include a seasonal perfume under our Celine brand, an alcohol-free Bazar eau de toilette by Christian Lacroix, a new Burberry women's line, two new fragrances by Paul Smith and in late 2003 we expect to launch our first prestige fragrance line under the Diane von Furstenberg label. With respect to our mass market products, the sales increase is the result of the product line expansion of our Intimate health and beauty aids and our Aziza cosmetic line. We have been developing new product line extensions for both lines throughout 2002. Also in development is the reintroduction of Tatiana by Diane von Furstenberg. We expect that this mass market fragrance will be ready for re-launch in September 2002. Page 8 INTER PARFUMS, INC. AND SUBSIDIARIES We anticipate our mass market fragrance lines will get a significant boost from the recent acquisition of certain fragrance brands from Tristar Corporation ("Tristar"), a Debtor-in-possession in a Chapter 11 proceeding. In May 2002, we purchased trademarks and related intellectual property of certain brands for $3.2 million, and acquired certain existing inventory for approximately $3.7 million. Tristar was one of our most significant competitors in mass market fragrances and the brands acquired will be sold in the same distribution channel as that of our other mass market fragrance lines. Growing sales within existing product lines, new product launches and an active new business development program are how we plan to grow our business. With respect to new business development, several licensing and acquisition opportunities are presently under discussion. However, we cannot assure you that any such transactions will be completed. Gross profit margin was 47% of net sales for both the three and six month periods ended June 30, 2002, as compared to 48% and 49% for the corresponding periods of the prior year. Our target gross margin percentage has historically been 45% to 46%. However, gross profit margins have increased recently as our prestige fragrance lines, which have been growing at a faster rate than our mass market lines, generate a higher gross profit margin than our mass market product lines. Selling, general and administrative expenses aggregated $9.2 million for both three month periods ended June 30, 2002 and 2001. However, as a percentage of sales, selling, general and administrative expenses decreased to 34% of net sales for the three month period ended June 30, 2002, as compared to 35% for the corresponding period of the prior year. Selling, general and administrative expenses aggregated $19.1 million for the six months ended June 30, 2002, as compared to $21.1 million for the corresponding period of the prior year. As a percentage of sales, selling, general and administrative expenses declined to 34% of net sales for the 2002, as compared to 37% for the 2001 period. Promotion and advertising are prerequisites for brand-building and sales of designer products. We develop a complete marketing and promotional plan to support our growing portfolio of prestige fragrance brands and to build upon each brand's awareness. We typically budget advertising and promotion expenditures based upon sales of each of our product lines. For example, as a result of the success of the Burberry Touch and Paul Smith launches in late 2000, we increased advertising and promotional activities in early 2001 to keep the momentum of the second half of 2000 going. Conversely, with the softness in economy, particularly for discretionary consumer products, in recent months, we intentionally curtailed advertising and marketing expenditures. We plan to again gear up our promotional programs as the economy improves. Page 9 INTER PARFUMS, INC. AND SUBSIDIARIES Interest expense was $169,000 and $249,000 for the three and six month periods ended June 30, 2002, as compared to $80,000 and $130,000 for the corresponding periods of the prior year. We use the credit lines available to us, as needed, to finance our working capital needs. We recorded a loss on foreign currency of $58,000 and $57,000 for the three and six month periods ended June 30, 2002, as compared to a gain $228,000 and $176,000 for the corresponding periods of the prior year. Occasionally, we enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments. Our effective income tax rate was 35% for the three months ended June 30, 2002, as compared to 38% for the corresponding period of the prior year. Our effective income tax rate was 36% for the six months ended June 30, 2002, as compared to 37% for the corresponding period of the prior year. The small decline in our effective tax rate is the result of slightly lower foreign tax rates. Net income was $1.9 million for both the three months ended June 30, 2002 and 2001. After giving effect to the 3-for-2 stock split effected in September 2001, diluted earnings per share aggregated $0.10 for both three month periods. Net income was $3.9 million for the six months ended June 30, 2002, as compared to $4.0 million for the corresponding period of the prior year. After giving effect to the 3-for-2 stock split, diluted earnings per share aggregated $0.20 for both six month periods. Weighted average shares outstanding aggregated 18.8 million for both the three and six month periods ended June 30, 2002, as compared to 17.4 million for both the three and six month periods ended June 30, 2001. On a diluted basis, average shares outstanding were 20.0 million for both the three and six month periods ended June 30, 2002, respectively, as compared to 20.0 million and 19.8 million for the three and six month periods ended June 30, 2001, respectively. LIQUIDITY AND CAPITAL RESOURCES Profitable operating results continue to strengthen our financial position. At June 30, 2002, working capital aggregated $75 million and we had a working capital ratio of greater than 3 to 1. Cash and cash equivalents aggregated $30 million and our net book value was $3.89 per outstanding share as of June 30, 2002. Furthermore, we had only $1.6 million in long-term debt. Page 10 INTER PARFUMS, INC. AND SUBSIDIARIES Our short-term financing requirements are expected to be met by available cash at June 30, 2002, cash generated by operations and short-term credit lines provided by domestic and foreign banks. The principal credit facilities for 2002 are a $12.0 million unsecured revolving line of credit provided by a domestic commercial bank and approximately $12.0 million in credit lines provided by a consortium of international financial institutions. Cash provided by operating activities aggregated $1.0 million for the six months ended June 30, 2002 as compared to $0.2 million for the corresponding period of the prior year. As previously discussed, in connection with the May 2002 acquisition of certain Tristar fragrance brands, we purchased existing inventory aggregating $3.7 million. This is reflected as a use of cash by operating activities in the accompanying cash flow statement. In addition, throughout the month of June, and continuing into July and August, we purchased additional raw materials to balance our inventory of Tristar brand products. This was done without the benefit of significant Tristar brand sales during the period. Cash provided by operating activities continues to be the primary source of funds to finance operating needs and investments in new ventures. Cash used in investing activities includes the $3.2 million paid for the Tristar brands and related intellectual property. Our Board of Directors approved a cash dividend program and our first 1.5 cent per share quarterly dividend was paid on April 15, 2002. This cash dividend, which totals $1.1 million on an annual basis, represents a small part of our cash position and is not expected to have any significant impact on our financial position. We believe that funds generated from operations, supplemented by our present cash position and available credit facilities, will provide us with sufficient resources to meet all present and reasonably foreseeable future operating needs. Inflation rates in the U.S. and foreign countries in which we operate have not had a significant impact on operating results for the three months ended June 30, 2002. Page 11 INTER PARFUMS, INC. AND SUBSIDIARIES ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK GENERAL We address certain financial exposures through a controlled program of risk management that primarily consists of the use of derivative financial instruments. We primarily enter into foreign currency forward exchange contracts in order to reduce the effects of fluctuating foreign currency exchange rates. We have entered into one (1) interest rate swap in an attempt to take advantage of low variable interest rates as compared to the fixed rate on our long-term debt. We do not engage in the trading of foreign currency forward exchange contracts or interest rate swaps. FOREIGN EXCHANGE RISK MANAGEMENT We periodically enter into foreign currency forward exchange contracts to hedge exposure related to receivables denominated in a foreign currency and to manage risks related to future sales expected to be denominated in a foreign currency. We enter into these exchange contracts for periods consistent with our identified exposures. The purpose of the hedging activities is to minimize the effect of foreign exchange rate movements on the receivables and cash flows of Inter Parfums, S.A., our French subsidiary, whose functional currency is the Euro. All foreign currency contracts are denominated in currencies of major industrial countries and are with large financial institutions, which are rated as strong investment grade. All derivative instruments are required to be reflected as either assets or liabilities in the balance sheet measured at fair value. Generally, increases or decreases in fair value of derivative instruments will be recognized as gains or losses in earnings in the period of change. If the derivative is designated and qualifies as a cash flow hedge, the changes in fair value of the derivative instrument will be recorded in other comprehensive income. Before entering into a derivative transaction for hedging purposes, we determine that a high degree of initial effectiveness exists between the change in the value of the hedged item and the change in the value of the derivative from a movement in foreign currency rates. High effectiveness means that the change in the value of the derivative will effectively offset the change in the fair value of the hedged item. We measure the effectiveness of each hedge throughout the hedged period. Any hedge ineffectiveness is recognized in the income statement. Page 12 INTER PARFUMS, INC. AND SUBSIDIARIES We believe that our risk of loss as the result of nonperformance by any of such financial institutions is remote and in any event would not be material. The contracts have varying maturities with none exceeding one year. Costs associated with entering into such contracts have not been material to our financial results. At June 30, 2002, we had foreign currency contracts in the form of forward exchange contracts in the amount of approximately $10.0 million. The foreign currencies included in these contracts are principally the U.S. dollar. INTEREST RATE RISK MANAGEMENT We mitigate interest rate risk by continually monitoring interest rates, and then determining whether fixed interest rates should be swapped for floating rate debt, or if floating rate debt should be swapped for fixed rate debt. We have entered into one (1) interest rate swap to take advantage of declining interest rates. At June 30, 2002 we had one (1) interest rate swap agreement outstanding to convert $1.6 million of principal fixed rate debt with an interest rate of 4.56% to floating interest rate debt, at the EURIBOR rate, over the life of our long-term debt due in 2005. At June 30, 2002, the EURIBOR rate was 3.3%. If interest rates were to rise 1% per annum over the remaining term of the long-term debt, then we would incur a loss of $30,000. PART II. OTHER INFORMATION Items 1, 3, 4, and 5 are omitted as they are either not applicable or have been included in Part I. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 2, 2002, two (2) executive officers exercised outstanding stock options to purchase an aggregate of 20,000 shares of Common Stock and we received approximately $51,000 in proceeds as a result of such exercises, as well as $36,000 in required withholding taxes. The transactions were exempt from the registration requirements of Section 5 of the Securities Act under Section 4(2) of the Securities Act. Each shareholder, an executive officer, agreed to purchase his common stock for investment and not for resale to the public. Page 13 INTER PARFUMS, INC. AND SUBSIDIARIES ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NO. DESCRIPTION 10.91 Bail entre SCI et Inter Parfums, S.A. [Original in French] 10.91.1 Lease between SCI and Inter Parfums, S.A. [English Translation Version] 10.92 Third Modification of Lease dated June 17, 2002 between Metropolitan Life Insurance Company, and Jean Philippe Fragrances, LLC (b) We filed the following Current Reports on Form 8-K (1) Date of event - 21 May 2002, reporting Item 2; and (2) Date of event - 29 May 2002, reporting Item 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 8th day of August 2002. INTER PARFUMS, INC. By: /s/ RUSSELL GREENBERG ---------------------------------- Russell Greenberg, Executive Vice President and Chief Financial Officer Page 14 INTER PARFUMS, INC. AND SUBSIDIARIES CERTIFICATION Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Inter Parfums, Inc. that the Quarterly Report of Inter Parfums, Inc. on Form 10-Q for the period ended June 30, 2002, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of Inter Parfums, Inc. Date: August 8, 2002 By: /s/ JEAN MADAR -------------- Jean Madar Chief Executive Officer Date: August 8, 2002 By: /s/ RUSSELL GREENBERG --------------------- Russell Greenberg Executive Vice President, Chief Financial Officer and Principal Accounting Officer Page 15 EX-10.91 3 c25305_ex10-91.txt Exhibit 10.91 BAIL DE 6 ANS A USAGE D'HABITATION ENTRE LES SOUSSIGNES : S.C.I. DU 4/6 ROND-POINT DES CHAMPS ELYSEES ET SOCIETE INTER PARFUMS ADRESSE 4/6 ROND-POINT DES CHAMPS ELYSEES 75008 PARIS IMMEUBLE 4/6 rond-point des Champs Elysees 75008 PARIS LOCATION N(DEGREE) 1040.01.12.5 DUREE DIX-SEPT JOURS UN MOIS ET SIX ANS A COMPTER DU QUINZE MAI DEUX MIL UN BAIL DE SIX ANS ENTRE LES SOUSSIGNES : - - Societe Civile Immobiliere du 4/6 rond-point des Champs Elysees , Representee par : DAUCHEZ, Administrateurs de Biens, Societe Anonyme ayant son siege social 132 boulevard Haussmann 75008 PARIS. Titulaire de la carte professionnelle n(degree) G 989 garantie par la SOCAMAB, 18 rue Beaurepaire PARIS 10eme, ladite societe representee par Madame Mabe LE CHATELIER. ci-apres denommee le Bailleur, d'une part ET - - Societe INTER PARFUMS, S.A. au capital de 60.755.620 Francs, immatriculee au Registre du Commerce et des Societes de PARIS sous le n(degree)B 350 219 382 dont le siege social est situe 4/6 rond-point des Champs Elysees 75008 PARIS, Et represente par Monsieur Philippe BENACIN, en qualite de President-Directeur General. Ci-apres denommee le Preneur, d'autre part Le bailleur fait bail et donne a loyer a la Societe INTER PARFUMS qui accepte les locaux dependant d'un immeuble sis a PARIS 8eme - 4/6 rond point des Champs Elysees et ci-dessous designes : A) CONSISTANCE ET DESIGNATION : Un appartement situe au 5eme etage gauche compose de : - Une entree, un sejour, une salle a manger, degagement trois chambres, une cuisine meublee, deux salles de bains completes avec baignoire - douche et W.C. et un W.C.. - Deux caves n(degree) 1 et 5, - Une chambre de service n(degree) 20. B) EQUIPEMENTS PRIVATIFS : Suivant etat des lieux dont le cout sera regle entierement par le locataire, qui sera annexe ulterieurement. En cas de conge donne par le preneur, il sera etabli un etat des lieux de sortie dont le cout sera, egalement, regle entierement par le locataire. C) EQUIPEMENTS COMMUNS : - Digicode, - Tapis, - Ascenseur. Tels que lesdits lieux existent dans leur etat actuel, le preneur declarant les bien connaitre pour les avoir visites. DUREE Le present bail est consenti et accepte pour une duree de DIX-SEPT JOURS, UN MOIS ET SIX ANS, - A compter du QUINZE MAI DEUX MIL UN - Pour expirer le TRENTE JUIN DEUX MIL SEPT RESILIATION Toutefois, les parties pourront resilier le contrat dans les conditions suivantes : 1) LE PRENEUR : A condition de prevenir le bailleur de son intention, trois mois au moins a l'avance, soit par notification par lettre recommandee avec avis de reception, soit par signification par acte d'Huissier de Justice. En cas de preavis donne en cours de mois, le delai de preavis prendra effet a compter du premier jour du mois suivant la reception de la lettre recommandee ou de l'acte d'Huissier de Justice. 2) LE BAILLEUR : A l'expiration du bail, a condition de prevenir le preneur de son intention, six mois au moins a l'avance, soit par notification par lettre recommandee, soit par signification par acte d'Huissier de Justice. A defaut de conge, le bail se renouvellera par tacite reconduction de trois en trois mois et la bailleur pourra donner conge en respectant les modalites prevues au precedent paragraphe. DESTINATION Les lieux loues sont destines a l'usage exclusif d'habitation, pour y loger certains membres du personnel de la Societe INTER PARFUMS, de ses filiales ou de sa maison mere, l'exercice de tout commerce ou industrie, de toute profession, meme liberale, etant formellement interdit. CONDITIONS PARTICULIERES CHAUFFAGE INDIVIDUEL - EAU CHAUDE (GAZ) LE PRENEUR EST TENU DE SOUSCRIRE UN CONTRAT D'ENTRETIEN. Il existe dans les lieux loues une installation de chauffage central au gaz assurant egalement la fourniture de l'eau chaude. Le preneur est tenu de faire entretenir regulierement et, au moins une fois par an, par une entreprise qualifiee, la chaudiere de chauffage central, les canalisations, les radiateurs et leurs robinets, les chauffe-eau ou chauffe-bains qui sont, ou pourraient etre, installes dans l'appartement, les tuyaux d'evacuation et les prises d'air. ASCENSEURS Le preneur ne pourra utiliser les ascenseurs pouvant exister dans l'immeuble qu'a ses risques et perils. L'usage de l'ascenseur desservant le grand escalier est interdit a toute personne devant emprunter l'escalier de service ; il est de meme interdit pour monter des colis ou ballots quelconques. Toute personne faisant usage de ces appareils devra se conformer strictement aux indications donnees par l'entreprise assurant l'entretien de cet appareil et affichees a cet effet. L'usage des ascenseurs est absolument interdit aux enfants non accompagnes. Le bailleur decline toute responsabilite quant aux accidents pouvant resulter de l'usage des ascenseurs, ainsi que des arrets qui pourraient se produire independamment de son fait ou necessites par l'entretien des appareils. CHAMBRE - CAVES Le bailleur se reserve la possibilite de reprendre la ou les chambres de service et la ou les caves faisant partie de la presente location pour les remplacer par d'autres equivalentes et en bon etat dans l'immeuble. AUTRE CONDITION PARTICULIERE Le preneur etant une personne morale, la location n'est pas soumise aux lois n(degree) 86 1290 du 23 decembre 1986 et n(degree) 89-462 du 6 juillet 1989 modifiee par la loi n(degree) 94 624 du 21 juillet 1994. LOYER Le present bail est consenti et accepte moyennant un loyer annuel fixe a la somme de CINQUANTE ET UN MILLE HUIT CENT TRENTE DEUX EUROS ET SOIXANTE SEPT CENTIMES (51.832,67 Euros) soit Trois cent quarante mille Francs (340 000,00 Francs), - - Payable par mois et d'avance. - - Au domicile du bailleur ou de son representant. Le preneur est tenu d'acquitter en meme temps que le loyer le montant du droit de bail ou tout autre impot ou taxe qui lui sera substitue. REVISION DU LOYER Pendant le cours du present bail, le loyer ci-dessus fixe sera automatiquement modifie le premier juillet de chaque annee et pour la premiere fois le premier juillet 2002 en proportion des variations de la moyenne sur quatre trimestres de l'indice du cout de la construction (I.C.C.) publie par l'INSEE, sans qu'il soit necessaire de proceder a une quelconque notification. L'indice de base a retenir est celui resultant de la moyenne sur quatre trimestres, publiee, pour le quatrieme trimestre 2000, soit 1 098,00 . L'indice servant au calcul de chaque modification periodique sera celui publie au titre du meme trimestre de chaque annee. Dans le cas ou, par voie legislative ou reglementaire, il serait fait obligation, pour la revision du loyer des contrats de location d'habitation ou a usage mixte professionnel et d'habitation, de se referer a un autre indice, ce dernier serait substitue de plein droit a l'indice contractuel ci-dessus. Les periodicites et modes de revision resteront inchanges. Les parties reconnaissent que ladite clause de revision est la condition essentielle du present bail sans laquelle celui-ci n'aurait pas ete consenti. CHARGES En sus de son loyer en principal, le preneur s'oblige a rembourser sa quote-part des charges recuperables telles qu'elles sont fixees par les dispositions legales ou reglementaires notamment : taxes municipales, eclairage des parties communes, fournitures d'entretien de l'immeuble, consommation d'eau froide, antenne collective de television et les trois-quarts du salaire de la concierge, accessoires et charges sociales correspondantes. Il remboursera en outre sa quote-part concernant l'entretien du tapis, les depenses de fonctionnement et d'entretien de l'ascenseur. Cette quote-part pourra etre modifiee par voie contractuelle, judiciaire ou legale. Le preneur versera une provision annuelle de 4 774,70 Euros soit 31 320,00 Francs pour la premiere annee, la regularisation s'effectuera en fin d'exercice. MONTANT DEPOT DE GARANTIE Le preneur a verse au bailleur la somme de HUIT MILLE SIX CENT TRENTE HUIT EUROS ET SOIXANTE-DIX-HUIT CENTS (8 638,78 Euros) soit Cinquante six mille six cent soixante six Francs et soixante sept centimes (56 666,67 F) qui ne sera pas productive d'interets et qui lui sera restituee dans les deux mois a compter de la date pour laquelle le conge aura ete accepte, deduction faite des sommes qui pourraient etre dues par le preneur au bailleur, notamment pour reparations, ou dont le bailleur pourrait etre rendu responsable du fait du preneur. Ce depot de garantie ne sera en aucun cas imputable sur les loyers et les accessoires dus. PIECES ANNEXES Le preneur reconnait avoir recu du bailleur : - - Detail des charges de l'exercice 1999, - - Plan de l'appartement, - - Liste des charges recuperables, - - Liste relative a l'entretien et aux reparations locatives. CONDITIIONS PARTICULIERES [Omitted] Fait en autant d'exemplaires que de parties a Paris. Le 3 Moi 2001 << Lu et Approuve >> /s/ Philippe Benacin /s/ RB Chatelier Seal : Dauchez Administrateur de Biens 132 Boulevard Haussman 75008 Paris CHARGES RECUPERABLES DECRET NO. 87-713 DU 26 AOUT 1987 [Omitted] EX-10.91.1 4 c25305_ex1091-1.txt EXHIBIT 10.91.1 DAUCHEZ 6-YEAR LEASE FOR PREMISES TO BE USED AS A DWELLING BETWEEN THE UNDERSIGNED: S.C.I. OF 4/6 ROND-POINT DES CHAMPS ELYSEES and SOCIETE INTER PARFUMS ADDRESS: 4/6 ROND-POINT DES CHAMPS ELYSEES 75008 PARIS 132 Boulevard Haussmann 75008 Paris BUILDING: 4/6 ROND-POINT DES CHAMPS ELYSEES 75008 PARIS LOCATION No.: 1040.01.12.5 DURATION: SEVENTEEN DAYS, ONE MONTH AND SIX YEARS STARTING WITH: MAY FIFTEENTH TWO THOUSAND AND ONE SIX-YEAR LEASE -------------- BETWEEN THE UNDERSIGNED - - SOCIETE CIVILE IMMOBILIERE DU 4/6 ROND-POINT DES CHAMPS ELYSEES, represented by: DAUCHEZ, Administrateurs de Biens, Societe Anonyme, headquartered at 132 boulevard Haussmann 75008 Paris Holder of professional license No. G989, guaranteed by SOCAMAB, 18 Rue Beaurepaire, 10th district of Paris, represented by Mrs. Mahe LE CHATELIER hereinafter referred to as the Lessor, on the one hand AND - - SOCIETE INTER PARFUMS, S.A. with a capital of 60,755,620 francs, entered in the Register of Commerce and Companies of Paris under No. B.350 219 382 with headquarters at 4/6/ Rond-Point des Champs Elysees 75008 Paris and represented by Mr. Philippe BENACIN, as Chief Executive officer hereinafter referred to as the Lessee, on the other hand Lessor leases and offers to lease to the SOCIETE INTER PARFUMS which accepts the premises of a building located in the 8TH DISTRICT OF PARIS AT 4/6 ROND-POINT DES CHAMPS ELYSEES and designated hereinafter; A) MAKEUP AND DESIGNATION: - An apartment located on the left side of the 5th floor consisting of: An entrance, a living room, a dining room, a hall, three rooms, a kitchen, two full bathrooms with tub - shower and toilet, one toilet. - Two cellars 1 and 5; - One service room No. 20. B) PRIVATE EQUIPMENT According to the condition report of the premises the cost of which will be paid in full by lessee, which will be attached subsequently. In the event that lessee gives notice, a condition report of the premises will be prepared; its cost will also be borne in full by the tenant. C) COMMON EQUIPMENT - Digicode - Rug - Elevator Premises "as is" of which lessee states to be well informed after having visited them. DURATION -------- This lease is granted and accepted for a duration of SEVENTEEN DAYS, ONE MONTH AND SIX YEARS, - - starting from: MAY FIFTEENTH TWO THOUSAND AND ONE - - ending on: JUNE THIRTIETH TWO THOUSAND AND SEVEN CANCELLATION ------------ However, the parties shall be able to cancel the contract under the following conditions: 1. LESSEE Provided lessor is notified of its intent, at least three months in advance through registered letter with return receipt, or by notice delivered by the court's process server. In the event notice is given in the course of a month, the notice period will start to run on the first day of the month following receipt of the registered letter or of the process server's notice. 2. LESSOR Upon expiration of the lease, provided lessee is notified of its intent, at least six months in advance, either by registered letter or by notice delivered by the court's process server. 2 If no notice is given, the lease will be renewed tacitly for three months at a time and lessor can give notice by complying with the terms and conditions set forth in the preceding paragraph. PURPOSE ------- The leased premises are to be used exclusively as a dwelling, FOR THE PURPOSE OF LODGING CERTAIN MEMBERS OF PERSONNEL OF THE SOCIETE INTER PARFUMS, ITS AFFILIATES OR PARENT COMPANY; engaging in any business or industry, any profession, even an independent profession, shall be officially prohibited. X SPECIAL CONDITIONS SPECIAL CONDITIONS ------------------ INDIVIDUAL HEATING - HOT WATER (GAS) LESSEE SHALL UNDERWRITE A MAINTENANCE CONTRACT. At the leased premises, there is a gas operated central heating facility that also provides hot water. At least once a year, lessee shall regularly maintain, using a qualified service, the central heating boiler, the piping, radiators and their faucets, water heaters or bath heaters which are, or may be, installed in the apartment, the discharge piping and the air intakes. ELEVATORS Lessee shall use the elevators that might be present in the building at its own risk. Use of the elevator serving the main hall shall be prohibited to all personnel that must use the service stairs; it is also prohibited to move any boxes or crates using these elevators. Any person using this equipment shall strictly comply with the guidelines given by the service that maintains such equipment and which are posted for such purposes. It is absolutely forbidden for unaccompanied children to use the elevators. Lessor declines any liability involving accidents that might result from the use of the elevators as well as from the interruption of service that might take place beyond its control or as required by the maintenance of such equipment. 3 ROOM - CELLARS Lessor reserves the right to take over the service room(s) and the cellar(s) that are presently part of this premise and to replace them with other equivalent ones in good condition in the building. OTHER SPECIAL CONDITION ----------------------- Since lessee is a company, the lease is not subject to the laws no. 86-1290 dated December 23, 1986 and No. 89-462 dated July 6, 1989 amended by law No. 94-624 dated July 21, 1994. RENT ---- This lease is granted and accepted against an annual rent of FIFTY ONE THOUSAND EIGHT HUNDRED AND THIRTY TWO EUROS AND SIXTY-SEVEN CENTS (51,832.67 EUROS) or THREE HUNDRED AND FORTY-THOUSAND FRANCS (340,000.00 FRANCS). - payable ONE MONTH IN ADVANCE - at the lessor's or its representative's domicile. At the time of paying the rent, lessee shall also pay the lease fee or any other tax that might replace it. RENT REVISION ------------- During this lease, said rent shall automatically be modified on the FIRST OF JULY of each year and for the first time on JULY FIRST 2002 in proportion to the variations of the average over four quarters of the construction cost index published by INSEE without it being necessary to give with any notice. The basic index to consider is the one of the average for the four quarters, published for the FOURTH QUARTER of 2000, this being 1,098.00. The index used to calculate each periodic modification shall be the one published for the same quarter of each year. In the event that through legislative or regulatory way, there is a need to consult another index to review the rent of dwelling rental contracts or used for a mixed professional and dwelling purpose, the latter shall replace the above contractual index outright. The periods and the revision methods shall remain unchanged. The parties acknowledge that said revision clause is the essential condition of this lease without which it would not have been granted. 4 CHARGES ------- In addition to the principal rent, lessee shall reimburse its portion of the recoverable charges as they are determined by the legal or regulatory provisions, namely: municipal taxes, lighting of the common parts, maintenance supplies for the building, cold water consumption, collective TV hookup and three-quarters of the concierge's salary, accessories and the applicable social benefits. Moreover, it shall reimburse its portion for carpet maintenance, expenses related to operation and maintenance of the elevator. This portion may be modified contractually, judicially or legally. Lessee shall pay an annual amount of 4,774.70 euros or 31,320.00 francs for the first year; payment shall take place at the end of the fiscal year. SECURITY DEPOSIT Lessee shall pay lessor EIGHT THOUSAND SIX HUNDRED AND THIRTY EIGHT EUROS AND SEVENTY EIGHT CENTS )( 8,638.79 EUROS) or FIFTY-SIX THOUSAND SIX HUNDRED AND SIXTY-SIX FRANCS AND SIXTY-SEVEN CENTS (56,666.67 F) that shall not earn interest and which will be returned within two months from the date when notice has been accepted, less the amounts that may be due by lessee to lessor, such as for repairs, or for which lessor might be held responsible by virtue of lessee. This security deposit shall under no circumstance be assignable to the rents and accessories due. ATTACHMENTS Lessee acknowledges to have received from lessor: - - a breakdown of the charges for fiscal year 1999 - - apartment layout - - list of recoverable charges - - list for maintenance and premise repairs. GENERAL CONDITIONS [omitted] May 3, 2001 "Read and approved" /s/ Philippe Benacin /s/ RB Chatelier Seal: Dauchez Administrateur de Biens 132 Boulevard Haussmann 75008 Paris 5 RECOVERABLE CHARGES Decree No. 87-713 dated August 26, 1987 [Omitted] EX-10.92 5 c25305_ex10-92.txt Exhibit 10.92 THIRD MODIFICATION OF LEASE --------------------------- Third Modification of Lease ("Agreement") made June 17 , 2002 between Metropolitan Life Insurance Company, a New York corporation having its principal place of business at One Madison Avenue, New York, New York 10010 ("Landlord") and Jean Philippe Fragrances, LLC, a New York limited liability company having an office at 551 Fifth Avenue, New York, New York 10176 ("Tenant"). W I T N E S S E T H: -------------------- WHEREAS, Landlord and Tenant (by its predecessor-in-interest, Jean Philippe Fragrances, Inc.) heretofore entered into a certain written lease dated January 13, 1992, as amended by Modification of Lease dated June 17, 1994 and Second Modification of Lease dated April 30, 1997 (collectively, the "Lease") wherein and whereby Landlord leased to Tenant, and Tenant hired from Landlord, those certain premises (the "demised premises") as shown on the plans annexed to the Lease as "Exhibit A" thereto on the 15th floor in the building known as 551 Fifth Avenue, New York, New York 10176 (the "Building"), which demised premises Landlord and Tenant agree contains 9,000 rentable square feet; and WHEREAS, the term of the Lease is due to expire October 31, 2002 and Landlord and Tenant wish to again modify the Lease, subject to the terms and conditions hereinafter set forth, to, INTER ALIA, again extend the term of the Lease; and WHEREAS, the Lease is in full force and effect; and WHEREAS, Landlord and Tenant desire to modify the Lease only in the respects hereinafter stated. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto by these presents do covenant and agree as follows: 1. All capitalized terms used herein without definition are used herein with the meanings assigned to such terms in the Lease, unless the context otherwise requires. 2. The term of the Lease is hereby extended to February 28, 2013 (the "Additional Extension Period"). 3.A. Effective November 1, 2002, Tenant's annual rent shall be amended to be as follows: (i) from and including November 1, 2002 through and including October 31, 2007, Three Hundred Twenty Two Thousand Four Hundred Seventy Dollars ($322,470.00) per annum which amount shall include the annual cost of electricity supplied by Landlord to the demised premises on a rent inclusion basis of Twenty Two Thousand Five Hundred Dollars ($22,500.00) per annum, the "Additional Extension Period Electric Charge"; and thereafter, (ii) from and including November 1, 2007 through and including the end of the term of the Lease, as modified by this Agreement, Three Hundred Fifty Eight Thousand Four Hundred Seventy Dollars ($358,470.00) per annum, which amount shall include the Additional Extension Period Electric Charge. B. Notwithstanding the foregoing, Landlord agrees to waive to the collection of annual rent and additional rent for "Real Estate Taxes" (Article 35) and "Operating Expenses" (Article 36), but not the Additional Extension Period Electric Charge, for period from and including November 1, 2007 through and including February 28, 2008. C. Effective November 1, 2002, (i) Tenant's "Base Tax Year" (Article 35) shall be amended to be the fiscal tax year of the City of New York commencing July 1, 2002 and ending June 30, 2003; (ii) Tenant's "Base Operating Period" (Article 36) shall be amended to be the calendar year commencing January 1, 2003; and (iii) Tenant's proportionate share for Real Estate Taxes and Operating Expenses shall be 2.11 percent. 4. Inasmuch as Tenant currently occupies the demised premises and is fully aware of the condition thereof, Tenant agrees to accept the demised premises in the condition which it exists on the first day of the Additional Extension Period. Further, Tenant understands and agrees that no materials whatsoever are to be furnished by Landlord and no work whatsoever is to be furnished by Landlord in connection with the demised premises or any part thereof nor shall any construction or tenant improvement allowance be provided by Landlord. 5. Tenant represents and warrants to Landlord that it has not dealt with any real estate agents or brokers in connection with this Agreement other than Insignia/ESG, Inc. ("IESG") whose fees, if any, Landlord agrees to pay and that this Agreement was not brought about or procured through the use or instrumentality of any other agent or broker. Tenant covenants and agrees to indemnify and hold Landlord harmless from any and all claims for commissions and other compensation made by any agent or agents and/or any broker or brokers, other than IESG, based on any dealings between Tenant and any agent or agents and/or broker or brokers, together with all costs and expenses incurred by Landlord in resisting such claims, including, without limitation, reasonable attorneys' fees. 7. Except as modified by this Agreement, the Lease and all the terms, covenants, conditions, provisions, and agreements thereof are hereby in all respects ratified, confirmed, and approved. 8. The Lease, as modified by this Agreement contains the entire understanding between the parties. No other representations, warranties, covenants or agreements have been made. 2 9. This Agreement may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 10. This Agreement shall be binding upon, and inure to the benefit of the parties hereto, their respective legal representatives, successors and, except as otherwise provided in the Lease as modified by this Agreement, their respective assigns. 11. The submission of this Agreement to Tenant shall not be construed as an offer, nor shall Tenant have any rights with respect hereto, unless and until Landlord shall execute a copy of this Agreement and deliver the same to Tenant. IN WITNESS WHEREOF, the parties hereto have respectively executed this Agreement as of the day and year first above written. Landlord: Metropolitan Life Insurance Company By: /s/ KATHRYN L. CAMPBELL ----------------------- Kathryn Campbell, Director Tenant: Jean Philippe Fragrances, LLC By: /s/ RUSSELL GREENBERG --------------------- Executive Vice President 3 -----END PRIVACY-ENHANCED MESSAGE-----