REVISED PRELIMINARY COPY - SUBJECT TO COMPLETION,
DATED JANUARY 5, 2007
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
Consent Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant |_|
Filed by a Party other than the Registrant |X|
Check the appropriate box:
|X| Revised Preliminary Consent Statement
|_| Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
|_| Definitive Consent Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to Section 240.14a-12
PARLUX FRAGRANCES, INC.
(Name of Registrant as Specified in its Charter)
GLENN NUSSDORF
(Name of Person(s) Filing Consent Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1.) Title of each class of securities to which the transaction
applies:
2.) Aggregate number of securities to which transaction applies:
3.) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4.) Proposed maximum aggregate value of transaction:
5.) Total fee paid:
|_| Fee paid previously with preliminary materials
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1.) Amount Previously Paid:
2.) Form, Schedule or Registration Statement No.:
3.) Filing Party:
4.) Date Filed:
REVISED PRELIMINARY COPY - SUBJECT TO COMPLETION,
DATED JANUARY 5, 2007
CONSENT STATEMENT
OF
GLENN NUSSDORF
This consent statement and the enclosed WHITE consent card are being
furnished by Glenn Nussdorf ("Mr. Nussdorf "), in connection with the
solicitation by Mr. Nussdorf of written consents from the holders of shares of
common stock, par value $0.01 per share (the "Shares" or the "Common Stock"), of
Parlux Fragrances, Inc., a Delaware corporation (the "Company"), to take the
following actions (each, a "Proposal" and collectively, the "Proposals") without
a meeting of stockholders, as authorized by the General Corporation Law of the
State of Delaware (the "DGCL"):
Proposal 1. Remove, without cause, all existing members of the
Company's Board of Directors (the "Board") (and any person or
persons, other than those elected pursuant to this consent
solicitation, elected or designated by any of such directors
to fill any vacancy or newly created directorship); and
Proposal 2. Elect Glenn Nussdorf, Michael Katz, Joshua Angel, Anthony
D'Agostino, Neil Katz and Robert Mitzman (each, a "Nominee"
and collectively, the "Nominees") as the directors of the
Company (or if any such Nominee is unable or unwilling to
serve on the Board, any other person designated as a Nominee
by Mr. Nussdorf).
Mr. Nussdorf believes that the Proposals, if adopted, will provide the
stockholders of the Company with a Board which will be comprised of individuals
with integrity and extensive business experience, the skills and conviction to
evaluate management performance and the capability of assisting with the
selection of highly qualified senior executives who intend to take such actions
as may be necessary to stem the downward trend of the Company's stock price.
This consent statement is first being mailed to stockholders, along
with the enclosed WHITE consent card, on or about January [ ], 2007.
Neither of the Proposals is subject to, or is conditioned upon, the
adoption of the other Proposal; however, if none of the existing members of the
Board are removed in Proposal 1, there will be no vacancies to fill and none of
the Nominees can be elected in Proposal 2. Accordingly, Mr. Nussdorf will not be
seeking to elect the Nominees unless the stockholders also approve the removal,
without cause, of one or more of the existing members of the Board. Neither of
the Proposals will be effective unless the delivery of the written consents
complies with Section 228(c) of the DGCL (See "Consent Procedures"). Mr.
Nussdorf beneficially owns an aggregate of 2,212,629 (approximately 12.0%) of
the Company's Common Stock and intends to deliver a consent in favor of each of
the Proposals. Lillian Ruth Nussdorf beneficially owns an aggregate of 250,000
shares (approximately 1.36%) of the Company's Common Stock, which shares are
included in Mr. Nussdorf's beneficial ownership of the Company's Common Stock as
stated above. Other than Mr. Nussdorf and Lillian Ruth Nussdorf, no other
participant in Mr. Nussdorf's solicitation of written consents from the
stockholders of the Company beneficially owns any shares of the Company's Common
Stock.
Mr. Nussdorf, Lillian Ruth Nussdorf and Model Reorg, Inc., a
privately-held holding corporation ("Model"), may be deemed to be participants
in this solicitation of written consents by Mr. Nussdorf from the stockholders
of the Company, together with other individuals including the Nominees and the
following directors and executive officers of Model: Stephen Nussdorf, President
and Director; Arlene Nussdorf-Mark, Director; and Alfred Paliani, Chief Legal
Officer and Assistant Secretary (collectively, the "Participants," and each, a
"Participant"). Model is controlled by Mr. Nussdorf, Stephen Nussdorf and Arlene
Nussdorf-Mark. Michael Katz, one of the Nominees, is the President and Chief
Executive Officer of E Com Ventures, Inc. ("ECMV"), a public company controlled
by Mr. Nussdorf and Stephen Nussdorf, and also serves as a director and
executive officer of certain other private companies controlled by the Nussdorf
family. Mr. Nussdorf, Stephen Nussdorf and Arlene
1
Nussdorf-Mark are siblings and Lillian Ruth Nussdorf is their mother. Additional
information concerning the Nominees is set forth in "The Proposals - Proposal 2:
Election of Nominees" and additional information concerning the Participants is
set forth in Annex A.
THIS CONSENT SOLICITATION IS BEING MADE BY MR. NUSSDORF AND NOT BY OR
ON BEHALF OF THE COMPANY. MR. NUSSDORF IS ASKING THE STOCKHOLDERS OF THE COMPANY
TO ACT BY WRITTEN CONSENT WITH RESPECT TO THESE PROPOSALS ON THE ACCOMPANYING
WHITE CONSENT CARD.
A consent solicitation is a process that allows a company's
stockholders to act by submitting written consents to any proposed stockholder
actions in lieu of voting in person or by proxy at an annual or special meeting
of stockholders. Whereas at special or annual meetings of stockholders at which
a quorum is present, proposed actions may only require that a majority of the
shares present and entitled to vote on a proposal vote in favor of the proposal,
a written consent solicitation requires the majority vote of all outstanding
stock of a company.
YOUR PROMPT ACTION IS IMPORTANT. MR. NUSSDORF URGES YOU TO SIGN, DATE
AND RETURN THE ENCLOSED WHITE CONSENT CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE. YOUR CONSENT IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES YOU
OWN. PLEASE SEND IN YOUR WHITE CONSENT CARD TODAY. PLEASE NOTE YOU MUST SIGN AND
DATE THE WHITE CONSENT CARD IN ORDER FOR IT TO BE VALID.
Mr. Nussdorf has engaged Innisfree M&A Incorporated ("Innisfree") to
assist him in the solicitation of consents from the Company's stockholders. If
your Shares are registered in your name on the Company's stock records, please
sign, date and mail the enclosed WHITE consent card to Innisfree at 501 Madison
Avenue, 20th Floor, New York, New York 10022, in the postage-paid envelope
provided. If your Shares are held in the name of a brokerage firm, bank or other
nominee, only it can execute a consent representing your Shares and only on
receipt of your specific instructions. Accordingly, you should contact the
person responsible for your account and give instructions for a WHITE consent
card to be signed on your behalf. You can also sign, date and return the
enclosed WHITE consent card to your brokerage firm, bank or other nominee in the
postage paid envelope provided.
If you have any questions about executing your consent or require
assistance, please contact:
Innisfree M&A Incorporated
501 Madison Avenue
20th Floor
New York, NY 10022
Stockholders Call Toll Free: (877) 456-8847
Banks and Brokers Call Collect: (212) 750-5833
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THE PROPOSALS
Mr. Nussdorf is soliciting consents from the Company's stockholders in
support of the following Proposals:
PROPOSAL 1: REMOVAL OF DIRECTORS.
Proposal 1 is to remove, without cause, all existing directors of the
Company (and any person or persons, other than those elected by this consent
solicitation, elected or designated by any of such directors to fill any vacancy
or newly created directorship at the time the action proposed to be taken by
this consent procedure becomes effective). According to the Company's filings
with the Securities and Exchange Commission (the "Commission"), the following
six persons currently are members of the Company's Board of Directors: Ilia
Lekach, Frank Buttacavoli, Glenn Gopman, Esther Egozi Choukroun, David Stone and
Jaya Kader Zebede. According to the Company's filings with the Commission, Isaac
Lekach, the 25-year old son of Ilia Lekach, resigned as a director on November
16, 2006 after serving on the Board for nearly two years, citing time and travel
constraints as the reason for his resignation.
Pursuant to Section 141(k) of the DGCL, any director or the entire
Board may be removed, with or without cause, by holders of a majority of the
Shares then entitled to vote at an election of directors.
PROPOSAL 2: ELECTION OF NOMINEES.
Proposal 2 is to elect Mr. Nussdorf's six Nominees to serve as
directors of the Company. Accordingly, if Proposal 1 is approved, Mr. Nussdorf
is nominating six Nominees to fill the available seats on the Board, and if the
Nominees are elected they will constitute the entire membership of the Board.
Mr. Nussdorf's Nominees are named in the table below. Mr. Nussdorf and
Michael Katz, if elected, would not be independent directors within the meaning
of NASDAQ listing standards. If elected, the Nominees intend to appoint Mr.
Nussdorf as Chairman of the Board and Chief Executive Officer of the Company and
Michael Katz as Vice Chairman of the Board. These positions, in addition to the
fact that Michael Katz has operational duties at other companies controlled by
Mr. Nussdorf, would make Mr. Nussdorf and Michael Katz inside directors of the
Company and thus not independent, if elected. Mr. Nussdorf believes that the
remaining Nominees are independent within the meaning of NASDAQ listing
standards and, except as described herein, are not currently affiliated with Mr.
Nussdorf, or with the Company or any subsidiary of the Company. Consequently,
Mr. Nussdorf believes that if the Nominees are elected, a majority of the
directors will be independent within the meaning of the NASDAQ listing
standards, and there will be a sufficient number of independent directors to
serve on the Board's Audit, Compensation and Nominating Committees. Mr. Nussdorf
reserves the right to nominate or substitute additional persons if the Company
makes or announces any changes to its bylaws or takes or announces any other
action that has, or if consummated would have, the effect of disqualifying any
or all of the Nominees.
The composition of the Board's committees will be determined by the
Nominees, if elected. The Audit Committee, Compensation Committee and Nominating
Committee will each consist solely of independent directors as determined in
accordance with NASDAQ listing standards. Except as described herein with
respect to the Strategic Alternatives Committee, no other specific
determinations regarding the composition of the Board's committees have been
made as of the date of this consent statement.
The Nominees have furnished the following information regarding their
principal occupations and certain other matters.
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- --------------------------------- ------- ----------------------------------------------------------------
Principal Occupation or Employment During
Name and Business Address Age The Last Five Years and Other Directorships
- --------------------------------- ------- ----------------------------------------------------------------
Glenn Nussdorf 52 Since 1996, Mr. Nussdorf has served as Chief Executive
2060 Ninth Avenue, Officer of Quality King Distributors, Inc. ("QKD") and its
Ronkonkoma, New York 11779 subsidiary and affiliates, a group of companies engaged in
the business of wholesale distribution of health and
beauty care products, pharmaceuticals, hair care products
and fragrances. From 1996 until November 2006 when he
resigned his offices and directorships, Mr. Nussdorf was a
director and senior officer of Model, a sister company to
QKD, and all of Model's subsidiaries, all of which are
wholesalers and retailers of fragrances.
- --------------------------------- ------- ----------------------------------------------------------------
Michael Katz 58 Mr. Katz joined ECMV, a specialty retailer and wholesaler
2060 Ninth Avenue, of fragrances and related products, in February 2004 as
Ronkonkoma, New York 11779 its President, Chief Executive Officer and as a director.
Mr. Nussdorf and his brother, Stephen Nussdorf,
beneficially own an aggregate of approximately 45% of
ECMV's outstanding common stock. Mr. Katz has served in
various capacities at QKD and its affiliated companies and
has been primarily responsible for overseeing
administration, finance and mergers and acquisitions. Mr.
Katz has participated in the design and implementation of
the business strategy that has fostered the growth of QKD
and its affiliated companies. From 1994 until 1996 he was
Senior Vice President of QKD. From 1996, he has served as
Executive Vice President of QKD. From 1996 until November
2006, he served in the Office of the Chief Executive and
as a director of Model. Mr. Katz resigned from this
position in November 2006. Mr. Katz became Executive Vice
President, Chief Financial Officer and Treasurer of QK
Healthcare, Inc., a wholly owned subsidiary of QKD in
2000. Mr. Katz is a Certified Public Accountant.
- --------------------------------- ------- ----------------------------------------------------------------
Joshua Angel 70 From 1981 to January 2006, Mr. Angel served as President
460 Park Avenue of Angel & Frankel, P.C., a specialty law firm. This firm
New York, New York 10022 merged its practice into Cole, Schotz, Meisel, Forman &
Leonard, P.A. ("Cole Schotz") on January 1, 2006. Mr.
Angel is currently Of Counsel to Cole Schotz. Also, Mr.
Angel serves as a director of Cellular Technical Services
Company, Inc.. Mr. Angel has from time to time provided
legal services to certain companies affiliated with Mr.
Nussdorf.
- --------------------------------- ------- ----------------------------------------------------------------
Anthony D'Agostino 49 Since 2004, Mr. D'Agostino has been a consultant, assisting
24 Newport Drive the chief financial officers and boards of directors of
Plainview, New York 11803 private and public companies, including QKD, with Sarbanes-Oxley
compliance issues and various transactions. From 2003 to 2004,
Mr. D'Agostino served as the Vice President of Finance and
Chief Financial Officer of CPI Aerostructures, Inc., a
defense contractor. From 2002 to 2003, Mr. D'Agostino
served as the Vice President of Finance and Chief
Financial Officer of American Patriot Apparel Corporation,
a start-up not-for-profit organization. From 2000 to 2002,
he served as Senior Vice President of Finance and Chief
Financial Officer of Softheon, Inc., a software start-up company.
- --------------------------------- ------- ----------------------------------------------------------------
Neil Katz 62 Mr. Katz is a private investor. From March 2004 through
9 Michael Drive December 2006, Mr. Katz served as the President and Chief
Scarsdale, New York 10583 Executive Officer of Gemini Cosmetics, Inc., a prestige
fragrance company. From 2003 through 2004, he served as
the President of Strategem Creative Marketing Corporation,
a marketing and consulting company which provided services
to third parties, which included Mr. Nussdorf and certain
members of his family, and certain of their affiliated
companies. From 1991 through 2002, Mr. Katz served as
President of Liz Claiborne Cosmetics, the prestige
fragrance division of the Liz Claiborne Corporation. From
1986 to 1990, Mr. Katz served as President of Revlon's
Beauty Care Division.
- --------------------------------- ------- ----------------------------------------------------------------
Robert Mitzman 51 Since 1981, Mr. Mitzman has served as Chief Executive
212 Fifth Avenue Officer of Quick International Courier, a privately held
New York, New York 10010 courier company, with over 600 employees and over 4,000
agents and worldwide offices. Mr. Mitzman was previously a
member of Young Presidents Organization and currently
serves on the Board of Directors of US Doctors for Africa.
- --------------------------------- ------- ----------------------------------------------------------------
There is no family relationship between Michael Katz and Neil Katz.
4
Each of the Nominees has consented to being named as a nominee in this
consent statement. Mr. Nussdorf does not expect that any of the Nominees will be
unable to stand for election to the Board or to serve as a director if elected.
In the event that a vacancy in the slate of Mr. Nussdorf's Nominees should occur
unexpectedly, Mr. Nussdorf may appoint a substitute candidate selected by him.
If Mr. Nussdorf determines to add nominees because the Company expands the size
of the Board of Directors subsequent to the date of this consent statement, Mr.
Nussdorf intends to supplement this consent statement.
If elected, the Nominees will be responsible for managing the business
and affairs of the Company. Each director of the Company has an obligation under
the DGCL to discharge his duties as a director on an informed basis, in good
faith, with the care an ordinarily careful and prudent person in a like position
would exercise under similar circumstances and in a manner the director honestly
believes to be in the best interests of the Company and the stockholders. In
this regard, circumstances may arise in which the interests of Mr. Nussdorf and
his affiliates, on the one hand, and the interests of other stockholders of the
Company, on the other hand, may differ. In any such case, Mr. Nussdorf expects
the Nominees to discharge fully their obligations to the Company and its
stockholders under Delaware law.
Each of Mr. Nussdorf's Nominees (other than Mr. Nussdorf and Michael
Katz), if elected, will be entitled to receive compensation customarily paid by
the Company to its directors, which is described in the Company's revised
definitive proxy statement filed with the Commission on August 25, 2006 (the
"2006 Proxy Statement").
Mr. Nussdorf has agreed to indemnify each Nominee, to the fullest
extent permitted by the DGCL and other applicable law, against, and to hold each
Nominee harmless from, any and all liabilities, losses, claims, damages, and
expenses (including reasonable attorneys' fees and expenses) (collectively,
"Losses") based upon or arising out of the matters set forth in this consent
solicitation; provided, however, that Mr. Nussdorf will not be liable in any
such case to the extent that any such Losses arise out of any inaccurate written
information supplied by the Nominees for inclusion in any filings made with any
federal or state governmental agency, including any consent solicitation
materials (including this consent statement), or is found in a final judgment by
a court, not subject to further appeal, to have resulted from bad faith, gross
negligence or willful misconduct on the Nominees' part.
BACKGROUND AND REASONS FOR THE CONSENT SOLICITATION
On May 19, 2003, QKD, a privately-held corporation owned by Mr.
Nussdorf, Stephen Nussdorf (Mr. Nussdorf's brother) and Arlene Nussdorf-Mark
(Mr. Nussdorf's sister), acting together with Ilia Lekach, the Chairman and
Chief Executive Officer of the Company, submitted a proposal to the Company to
acquire all the outstanding shares of the Company's Common Stock, pursuant to a
tender offer, at a price of $4.00 per share in cash. This proposal was
contingent on the approval of the Board and the approval of QKD's lenders. QKD
withdrew its proposal on June 12, 2003 because QKD was unable to obtain the
approval of its lenders.
Mr. Nussdorf has been generally familiar with the Company, its business
and operations for many years. In 2003, acting through QKD, Mr. Nussdorf was
prepared to acquire the Company with Ilia Lekach, but subsequent to that time,
Mr. Nussdorf has observed what he believes to be the poor financial performance
of the Company and the recent dramatic decline of the Company's stock price
resulting from what Mr. Nussdorf believes to be an inadequate senior management
team and a lack of Board oversight of senior management.
From time to time, Mr. Nussdorf has purchased and sold shares of the
Company's Common Stock. Commencing in August 2006, at which time Mr. Nussdorf
did not beneficially own any shares of the Company's Common Stock, Mr. Nussdorf
began acquiring shares of the Company's Common Stock, which he believed to be
undervalued. Mr. Nussdorf also believed the value of the investment in the
Company by all stockholders could be enhanced with a well-qualified and
highly-respected Board and senior management team addressing certain business
issues, as described below, in order to improve the Company's financial
performance. Mr. Nussdorf currently is the beneficial owner of 2,212,629 shares,
constituting approximately 12.0%, of the Company's Common Stock.
On August 16, 2006, the Company issued a press release announcing that
it had entered into a letter of intent to sell its Perry Ellis fragrance rights
to Victory International (USA) LLC ("Victory") for a total of up to $140
5
million. The terms of the sale were to include up to $20 million for inventory,
and $120 million for the fragrance rights paid in 60 equal monthly installments
of $2 million each, commencing ninety days after closing.
In a letter to the Board dated August 31, 2006, Mr. Nussdorf requested
that the Board approve purchases of the Company's Common Stock by Mr. Nussdorf
and Stephen Nussdorf of fifteen percent (15%) or more in the aggregate of the
Company's outstanding shares of Common Stock for purposes of Section 203 of the
DGCL. Mr. Nussdorf and Stephen Nussdorf sought the Board's approval because
Section 203 of the DGCL prohibits a Delaware corporation from engaging in a
"business combination" with a person owning 15% or more of the corporation's
voting stock for three years following the time that person becomes a 15%
stockholder, with certain exceptions, if such person became a 15% stockholder
without the Board's approval. Although Mr. Nussdorf has not determined whether
or not he will acquire 15% or more of the Company's outstanding shares of Common
Stock or make an acquisition proposal, the effect of the Board approval is that
Mr. Nussdorf has been given the flexibility to purchase 15% or more of the
Company's outstanding shares of Common Stock without becoming subject to the
three year moratorium on engaging in a "business combination" with the Company
pursuant to DGCL Section 203. By letter dated September 5, 2006, the Board
granted such approval for such purchases, subject to the condition that Mr.
Nussdorf and Stephen Nussdorf not become "interested stockholders" for purposes
of Section 203 of the DGCL by acquiring Shares directly from any of the
Company's directors.
On September 6, 2006, the Company issued a press release announcing
that it had engaged GLMAC (which had been the intermediary for the proposed sale
of the Perry Ellis fragrance business) to assist the Company in the sale of
certain non-core product lines.
On September 7, 2006, Mr. Nussdorf and Lillian Ruth Nussdorf (Mr.
Nussdorf's mother) filed a Schedule 13D with the Commission reporting that Mr.
Nussdorf may seek to influence or serve on the Board or designate nominees for
election to the Board. Subsequently, Mr. Nussdorf increased his beneficial
ownership to approximately 12.2% of the Company's then outstanding shares of
Common Stock.
Commencing in September 2006, Mr. Nussdorf and his representatives had
conversations with a limited number of other stockholders of the Company. Such
discussions related generally to the displeasure of Mr. Nussdorf and such other
stockholders with the Company's financial performance, the decline of the
Company's stock price, the Company's management, the Company's failure to file
required reports with the Commission on a timely basis, the Company's proposed
sale of the Perry Ellis fragrance rights and the potential sale by the Company
of other assets.
On September 26, 2006, Mr. Nussdorf sent the following letter to
the Board:
September 26, 2006
Members of the Board of Directors
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Ft. Lauderdale, FL 33312
Dear Board Members:
As you know, Lillian Ruth Nussdorf and I are major
shareholders of Parlux Fragrances, Inc. ("Parlux" or the "Company")
holding, at present, approximately 10.5%(1) of the outstanding shares
of the Company. As indicated in our Schedule 13D filing, we may seek to
influence or serve on the Board of Directors of the Company or
designate nominees for election to the Board. In view of the fact that
we are actively considering these actions in the foreseeable future, we
______________________
(1) On September 26, 2006, the date of the letter, Mr. Nussdorf owned
approximately 12.2% of the Company's then outstanding Shares. The
discrepancy was due to a record keeping error and subsequently was
corrected.
6
strongly urge the Board to act in a fully informed and deliberate
manner and not take any action that is inconsistent with the interests
of the Company's shareholders.
In its Form 8-K filing and August 16th press release, the
Company announced that it has "entered into a letter of intent to sell
its Perry Ellis fragrance rights to Victory International (USA) LLC
("Victory") for a total of up to $140 million: $120 million for the
fragrance rights and up to $20 million for inventory". In my view, this
proposed transaction is contrary to the best interests of the Company
and its shareholders for several reasons:
1. I have investigated the available information regarding
Victory's financial wherewithal to consummate a transaction of this
nature and to perform its obligations thereunder. As described in the
Company's press release, this transaction would require Victory to pay
$20 million at the outset and then make subsequent payments totaling
$24 million per year (in $2 million monthly installments) for the next
five years. Based on the financial information that Victory has made
available to the industry through credit reporting agencies, its sales,
profits and net worth do not appear to support such a payment
obligation, even with the additional income generated from the sale of
Perry Ellis fragrances. Moreover, there is no indication in the
Company's disclosures as to whether Victory has obtained the financing
necessary to fund its obligations to the Company.
It is likely that this transaction would transfer a
significant and valuable asset of the Company without adequate
assurances that its value would be realized, potentially resulting in a
tie-up of the Perry Ellis brand while the Company attempts to retrieve
the brand from Victory in the event of a failure by Victory to perform
its financial obligations to the Company. In this connection, since
Victory does not appear to have the means to fund this obligation, it
is likely that it will have to manufacture inordinately large
quantities of the Perry Ellis line and sell these quantities into mass
and discount markets, and possibly to other wholesalers domestically
and internationally, in order to fund this obligation. Such
overproduction and non-department and specialty store sales will erode
the value of the brand and strain relationships with the licensor,
thereby resulting in a much less valuable asset coming back to Parlux
in the event that Victory fails to meet its payment obligations to
Parlux.
2. It is highly unlikely that the licensor of the Perry Ellis
trademark would give their consent to a transaction such as this,
especially since the proposed sale is to a non-affiliate and it
constitutes, in effect, the sale of the entire Perry Ellis fragrance
brand. Moreover, even if consent were to be contemplated, it is likely
the licensor would demand a significant price for it, which would
reduce the economic value of this transaction to the Company.
3. The proposed transaction constitutes a sale of the
Company's principal asset, since sales of the Perry Ellis line over the
past several fiscal years have ranged from 81% to 41% of the Company's
total sales. In view of the significant contribution to sales and
profitability of the Perry Ellis asset, I believe that its sale might
well require approval of the Company's shareholders under Delaware
General Corporation Law Section 271, which requires that shareholders
vote on and approve a sale of all or substantially all of a company's
property and assets. In any event, in view of our stated intentions, as
well as the views of other large shareholders with whom we have spoken,
it is contrary to the best interests of the Company, and also
contravenes principles of responsible management and good corporate
governance, to proceed hastily with a transaction which could adversely
impact shareholder value and expose the Company to a myriad of issues
and problems.
We have retained as special counsel the firm of Skadden, Arps,
Slate, Meagher & Flom LLP to advise us in connection with our
investment in the Company and our available options relating thereto. I
again urge the Board to proceed prudently, deliberately and in
accordance with law in considering the proposed transaction. If the
Board or management take any action that is detrimental to the Company
or inconsistent with the best of interests of shareholders, we intend
7
to take all actions necessary to hold each director or executive
officer accountable and personally liable.
In view of the urgency of this matter, we are available to
meet with members of the Board immediately and would like to do so as
soon as possible, wherever and whenever is most convenient for the
members of the Board.
I look forward to hearing from you promptly.
Very truly yours,
/s/ Glenn H. Nussdorf
On October 9, 2006, the Company issued a press release disclosing that
it had been informed by Perry Ellis International of its decision not to consent
to the sale of the Perry Ellis fragrance rights to Victory.
On October 17, 2006, Mr. Nussdorf and Lillian Ruth Nussdorf filed an
amendment to their Schedule 13D indicating that as a result of Mr. Nussdorf's
ongoing review and evaluation of the Company's business, he and his
representatives had begun to communicate with the Company's management, Board
and other stockholders with respect to operational, strategic, financial or
governance matters, including the composition of the Board. The amended Schedule
13D also disclosed that Mr. Nussdorf was exploring the possibility of making an
acquisition proposal to acquire the Company in a business combination
transaction, and that he and his representatives had preliminary discussions
with potential financing sources to obtain the funds necessary for such a
transaction. Mr. Nussdorf has made no determination at this time as to whether
to submit an acquisition proposal and no assurances can be given as to whether
or not Mr. Nussdorf will submit such a proposal to the Company.
On November 21, 2006, Mr. Nussdorf sent the following letter to the
Board announcing his intention to commence a consent solicitation to replace the
members of the Board:
November 21, 2006
BY FACSIMILE AND
----------------
FEDERAL EXPRESS
---------------
Board of Directors of Parlux Fragrances, Inc.
c/o Mr. Ilia Lekach
Chairman of the Board, Chief Executive Officer and President
3725 S.W. 30th Avenue
Ft. Lauderdale, FL 33312
Dear Board Members:
I am writing to advise you that I intend to commence a consent
solicitation to remove all or a majority of the members of the Board of
Directors of Parlux Fragrances, Inc. ("Parlux" or the "Company") and to
fill vacancies created by such removal with individuals to be nominated
by me.
As the beneficial owner of a substantial percentage of the
outstanding shares of Parlux, I believe that much can be done to
increase shareholder value and that it is time for immediate change at
both the Board and management levels. The decline in the Company's
share price from a high closing price of $18.96 earlier this year
(after adjusting for a 2-for-1 split in June 2006) to the current $6.26
level (a decrease in shareholder value of 67%), the Company's recent
disclosure of decreased sales and earnings for the quarter ended
September 30, 2006, and the allegations in
8
the recently amended class action lawsuit that the Company
improperly recognized revenues on sales to related parties, have led me
to conclude that the Board of Directors is failing to act in the best
interests of the Company's shareholders and is not exercising
appropriate oversight of management. I am convinced that a continuation
of the status quo risks a further destruction of shareholder value and,
accordingly, I intend to protect the value of my significant investment
in the Company through a consent solicitation to replace members of the
Board of Directors.
As I have publicly disclosed in my Schedule 13D filing, I am
exploring the possibility of making an acquisition proposal to acquire
the Company in a business combination transaction. While I have not
made a decision at this time whether to pursue such a proposal, I
strongly urge the Board not to take any action (such as the previously
announced and subsequently abandoned sale of the Perry Ellis brand)
which would materially modify or impact the Company's business,
products or assets and could adversely effect the Company's value. In
addition, the consent solicitation will present Parlux shareholders
with a unique opportunity to express their views on the future
direction of the Company.
In view of the foregoing, I am putting each director and
executive officer on notice not to attempt to usurp the rights of
shareholders to determine the Company's future direction, including any
attempt to sell or otherwise dispose of or surrender any of its product
lines, including, without limitation, the Perry Ellis brand.
I intend to take all actions necessary to hold each director
and executive officer accountable if they approve or engage in any
transaction with respect to the foregoing or which is otherwise
inconsistent with the best interests of the Company and its
shareholders.
In addition, Mr. Lekach is aware of my serious concern about
the level of payments and benefits under existing severance agreements
with him and three other senior executives of Parlux. I am putting
Parlux's Board of Directors on notice that no payments should be made
or benefits granted under these agreements until they are subjected to
a thorough review by my nominees, if elected to the Board.
Sincerely,
/s/ Glenn H. Nussdorf
On November 22, 2006, the Company issued a press release disclosing
that it had been notified by the Nasdaq Stock Market that the Company's Common
Stock was subject to delisting pursuant to Nasdaq Marketplace Rule 4310(c)(14)
due to the Company's failure to make a timely filing of its Form 10-Q for the
period ended September 30, 2006. The Company stated in its press release that it
would request a hearing before the Nasdaq Listing Qualifications Panel (the
"Panel"), which request would automatically defer the delisting of its Common
Stock pending the Panel's review and determination. As of the date of this
consent statement, the Company's Common Stock continues to be traded on the
Nasdaq National Market.
Also, on November 22, 2006, the Company filed a Form 8-K with the
Commission disclosing the resignation of Isaac Lekach from the Company's Board
of Directors on November 16, 2006. Isaac Lekach is Ilia Lekach's 25-year old
son.
On December 6, 2006, the Company issued a press release disclosing the
completion of an all cash transaction in which Perry Ellis International
reacquired the license for its Perry Ellis Fragrance brand from the Company for
$63 million in cash, subject to price adjustments for inventory levels.
Mr. Nussdorf believes that the election of the Nominees to the Board of
Directors will provide the stockholders of the Company with a Board comprised of
individuals with integrity and extensive business experience. In addition, Mr.
Nussdorf, Michael Katz and Neil Katz have significant experience in the
fragrance
9
industry. Mr. Nussdorf also believes that the Nominees have the skills and
conviction to evaluate management performance and would be capable of
assisting with the selection of highly qualified senior executives. If
elected, the Nominees intend to terminate Mr. Lekach's employment and to
appoint Mr. Nussdorf as Chairman of the Board and Chief Executive Officer and
Michael Katz as Vice Chairman of the Board. Mr. Nussdorf believes the
replacement of Mr. Lekach, and possibly other members of the Company's senior
management, is necessary in order to take such actions as may be necessary to
stem the downward trend of the Company's stock price.
Mr. Nussdorf believes that there are numerous business issues that need
to be addressed at the Company in order to improve the Company's financial
performance, such as:
o Reviewing sales outside of the United States, including sales to any
parties affiliated with Mr. Lekach, in order to ascertain whether
such products are being diverted back into the United States at
lower prices, and if so, to minimize such diversions. The Company's
licensing agreements generally prohibit the Company from reselling
products in the domestic wholesale market, yet such products are
being found in the domestic wholesale market indicating such
diversion is taking place. Mr. Nussdorf believes that reducing the
amount of diverted products will enhance the value of the brands by
preventing the oversupply of these products in domestic markets,
which tends to cause downward pressure on retail prices by hurting
the exclusive image of and the ability to market these designer
brands as luxury items.
o Improving communications with stockholders and analysts to increase
transparency and to establish accurate and realistic expectations
for financial performance.
o Enhancing the Company's buying expertise with the expectation that
this will, over time, decrease the Company's cost of goods sold.
o Improving the Company's relationship with existing licensors, with a
focus on monitoring compliance with all licensing requirements.
o Suspending any further sales of important fragrance brands, pending
full review of the Company's business, to ensure that any sales that
do occur are for full and fair value.
The terms of Mr. Nussdorf's employment as Chairman and Chief Executive Officer
would be set by a newly-constituted Compensation Committee of the Board of
Directors, which is expected to consist of solely independent directors.
Neither Mr. Nussdorf nor the other Nominees have determined which independent
Nominees will serve on the Compensation Committee.
Mr. Nussdorf believes that prompt and decisive action is needed to
increase investor confidence in the Company and to enhance stockholder value,
and that the quickest and surest way to do so is to bring in a new,
well-qualified and highly-respected Board and senior management team. As
evidence of what he believes to be an increasing lack of confidence in the
current senior management team, Mr. Nussdorf cites the following:
o Since February 22, 2006, the price of the Company's Common Stock has
declined from $18.96 (adjusted for a 2-for-1 stock split in June 2006) to
$6.37 on January 4, 2007, which represents a dramatic decrease of 66%;
o The recent disclosure by the Company on November 13, 2006 in its Form
12b-25 notice of late filing of the Company's Quarterly Report on Form
10-Q for the three month period ended September 30, 2006 that its net
sales for the quarter ended September 30, 2006 are anticipated to
decrease by 1% compared to the comparable period in the prior year;
o The inability of the Company to timely file its required reports with the
Commission three times within the past twelve months, including the
Company's failure as of the date of this consent statement to file its
Form 10-Q for the period ended September 30, 2006, which should have been
filed with the Commission by November 9, 2006;
10
o The Company has now been threatened with delisting by the Nasdaq Stock
Market on three separate occasions within the past twelve months due to
the Company's failure to make timely filings of its Form 10-Qs for the
periods ended June 30, 2006 and September 30, 2006 and for its failure to
make a timely filing of its Form 10-K for the fiscal year ended March 31,
2006;
o The allegations of gross mismanagement, fraud and generation of
fictitious revenues contained in the amended complaint in Thomas Haugh v.
Parlux Fragrances Inc., Ilia Lekach and Frank A. Buttacavoli, and the
announced review of these new allegations by the Company's Audit
Committee; and
o The sales by Ilia Lekach, Chairman and Chief Executive Officer of the
Company, Frank Buttacavoli, Chief Financial Officer, Chief Operating
Officer and Executive Vice-President of the Company, and Esther Egozi
Choukroun, Glenn Gopman, Isaac Lekach and David Stone, each directors of
the Company at the time of the sales, between February 13, 2006 and March
24, 2006, of an aggregate of 488,200 shares of the Company's Common
Stock, at prices ranging from $15.80 to $19.01 (adjusted for a 2-for-1
split in June 2006), at a time when the Company's share price was near
the recent all time high. By contrast, on January 4, 2007, the Company's
stock price closed at $6.37.
Mr. Nussdorf expects that the Nominees, if elected, will provide a new
voice and fresh perspective to the Company, including a new perspective on
management direction, championing reform of executive compensation,
perquisites, related party transactions and management incentives and
generally bringing focus to the enhancement of stockholder value.
In addition to the removal of Mr. Lekach, the Nominees, if elected,
intend to appoint a Strategic Alternatives Committee of the Board of Directors
(the "Committee") which is expected to consist of Messrs. Angel, D'Agostino
and Neil Katz, who Mr. Nussdorf believes will be independent members of the
Board.
The Committee will be directed by the Board to actively review strategic
alternatives, such as third party acquisition proposals for the Company,
including any acquisition proposal which possibly may be made by Mr. Nussdorf
or any of his affiliates, in order to effectively protect and enhance
stockholder value. If Mr. Nussdorf's Nominees are elected, Mr. Nussdorf
intends to request the Board's approval to review and assess the financial
condition, results of operations, cash flows and prospects of the Company and
may explore the possibility of making an acquisition proposal. Mr. Nussdorf's
decision whether or not to make an acquisition proposal will depend primarily
on the results of Mr. Nussdorf's review of the Company's books and records and
his assessment of the financial condition, results of operations, cash flows
and outstanding litigation of the Company, as well as discussions with
officers, customers and suppliers of the Company and the interest of potential
financing sources to fund any such acquisition. No assurances can be given as
to whether or not Mr. Nussdorf will submit an acquisition proposal to the
Company after completing this review, or what the terms of any such proposal
might be. In the event that Mr. Nussdorf makes a proposal to acquire the
Company, it is anticipated that the Committee will entertain proposals from
third parties and that the Committee will only accept the acquisition proposal
that reflects the reasonably highest value for stockholders. The Committee
also will suspend any further sales of the Company's non-core product lines
pending full review of the Company's business and assurance that such sales
would be for full and fair value. In addition, the Committee will consider and
evaluate whether there are other transactions or alternatives, such as
acquisitions of additional brands or a share repurchase program, which could
be implemented to further their goal of enhancing stockholder value. The
Committee and the other Nominees, including Mr. Nussdorf, will not authorize
or otherwise cause the Company to enter into any strategic transaction,
including an acquisition with respect to the Company by Mr. Nussdorf or any of
his affiliates, unless the Nominees conclude that such transaction is in the
best interest of the Company's stockholders.
In the event that the Company enters into an acquisition transaction with
any third party, including Mr. Nussdorf or any of his affiliates, it is
expected, depending upon the structure of the transaction, that the Company's
stockholders would have the opportunity to approve any such transaction,
either by voting at a special meeting of stockholders or tendering their
shares into any acquiror offer, in each case after receiving detailed
disclosures and information about the proposed business combination
transaction. In the event that the acquiror is an "affiliate" of the Company
(which Mr. Nussdorf would be if the Nominees are elected), such transaction
may be subject to Rule 13e-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which is applicable to certain
11
"going private" transactions. If applicable, Rule 13e-3 would require, among
other things, that certain information concerning the fairness of the proposed
transaction and the consideration offered to stockholders be filed with the
Commission and disclosed to stockholders prior to the consummation of the
transaction.
The Nominees, if elected, also intend to immediately review the executive
compensation programs of the Company, including the appropriateness and
legality of the existing severance agreements with Messrs. Lekach, Buttacavoli
and two consultants (See "Certain Employment and Other Agreements"). The
Nominees do not intend to permit the Company to make payments or provide
benefits under these agreements until after such review is completed. If these
payments or benefits are made prior to the election of the Nominees to the
Board of Directors, the Nominees may authorize appropriate legal action to
recover any such payments or benefits and to hold the incumbent directors
responsible for permitting such payments and benefits to be made. Other than
the severance agreements referred to above, the Company has not disclosed any
employment agreements with any other executive, consultant or employee.
The Nominees, if elected, also intend to actively pursue and, if
appropriate, expand the ongoing investigation by the Audit Committee into the
allegations of a consolidated class action suit alleging improper revenue
recognition and undisclosed transactions with related parties, as announced by
the Company on November 13, 2006 in its Form 12b-25 notice of late filing of
the Company's Quarterly Report on Form 10-Q for the three month period ended
September 30, 2006.
CERTAIN EMPLOYMENT AND OTHER AGREEMENTS
EMPLOYMENT AGREEMENTS OF ILIA LEKACH AND FRANK BUTTACAVOLI
On June 1, 2005, the Company entered into an employment agreement with
each of Ilia Lekach, Chairman of the Board and Chief Executive Officer of the
Company (the "Lekach Agreement"), and Frank Buttacavoli, Chief Financial
Officer, Chief Operating Officer, Executive Vice President and a director of
the Company (the "Buttacavoli Agreement," together with the Lekach Agreement,
collectively, the "Agreements"). Subject to termination provisions
specifically set forth in the Agreements, the Agreements provide for an
initial term which will expire on March 31, 2009, and that upon the expiration
of the initial term, each Agreement will be extended for a period of three
years, unless either party gives a notice of non-renewal at least six months
prior to the expiration of the initial term.
The Lekach Agreement provides for annual base salaries of $400,000,
$475,000, $525,000 and $600,000 for the twelve-month periods ending on March
31, 2006, 2007, 2008 and 2009, respectively. The Buttacavoli Agreement
provides for annual base salaries of $285,000, $325,000, $350,000 and $400,000
for the twelve-month periods ending on March 31, 2006, 2007, 2008 and 2009,
respectively.
According to the 2006 Proxy Statement, as of August 25, 2006, Mr. Lekach
owned (a) immediately exercisable warrants to purchase 300,000 shares of
Common Stock of the Company at an exercise price of $1.21875 per share under
his employment agreement, dated as of November 1, 1999, (b) immediately
exercisable warrants to purchase 1,000,000 shares of Common Stock of the
Company at an exercise price of $1.22 per share granted on June 8, 2001 and
(c) immediately exercisable warrants to purchase 1,000,000 shares of Common
Stock of the Company at an exercise price of $0.93 per share under his
employment agreement, dated as of May 1, 2002; and Mr. Buttacavoli owned (a)
immediately exercisable warrants to purchase 120,000 shares of Common Stock of
the Company at an exercise price of $1.21875 per share under his employment
agreement, dated as of November 1, 1999, (b) immediately exercisable warrants
to purchase 200,000 shares of Common Stock of the Company at an exercise price
of $1.22 per share granted on June 8, 2001 and (c) immediately exercisable
warrants to purchase 400,000 shares of Common Stock of the Company at an
exercise price of $0.93 per share under his employment agreement, dated as of
May 1, 2002.(2)
- ------------------
(2) The number of outstanding stock options and exercise prices are adjusted
for a 2-for-1 stock split in June 2006.
12
According to his Form 4 filed with the Commission on December 5, 2006,
Mr. Lekach exercised certain of his outstanding options to acquire 700,000
shares of Common Stock for a purchase price of $0.93 per share.
Under the terms of the Agreements, each of Mr. Lekach and Mr. Buttacavoli
(each an "Executive," collectively, the "Executives") is entitled to a
severance payment in the event his employment is terminated by the Company
without "cause" or if the Executive terminates his employment for "good
reason." The occurrence of a change of control constitutes "good reason" under
the Agreements. In the event of a termination upon the occurrence of a change
of control, each Executive would be entitled to the following:
(a) Upon a termination of employment by the Company without cause
following a change of control, a lump sum payment (or at the
Executive's election, in installments) equal to the greater of
(i) twice the entire salary due to the Executive until the end
of the term of the Agreement based on an annual base salary at
the highest rate in effect during the twelve months immediately
preceding the termination or (ii) three (3) times the
Executive's annual salary, based on the highest salary rate in
effect during the twelve month period immediately prior to the
termination date;
(b) Upon a termination of employment by the Executive for "good
reason" as a result of a change of control, a lump sum payment
(or at the Executive's election, in installments) equal to the
greater of (i) twice the average compensation of the Executive
during the Agreement for the taxable years prior to such
termination or (ii) three (3) times the Executive's annual
salary, based on the highest rate in effect during the twelve
month period immediately prior to the termination date. In
determining the average compensation, the Company is required
to take into account, among other things, salary, bonus, values
realized upon option exercises or any other payments received
by the Executive during the five years prior to the date of the
change of control.
In addition to the payments and benefits described above, in the event of
a change of control, the Agreements require the Company to double the number
of each Executive's outstanding unexercised "options" (which term appears to
be used interchangeably with "warrants" in the Agreements) while retaining the
original exercise price. The table below summarizes the doubling of existing
warrants for Messrs. Lekach and Buttacavoli.
Summary of Ilia Lekach's Outstanding Warrants
Number of Number of Warrants
Warrants if Doubled Following
Date of Agreement Outstanding Exercise Price a Change of Control
- ------------------- --------------- ---------------- ------------------
November 1, 1999 300,000 $1.21875 600,000
- ------------------- --------------- ---------------- ------------------
June 8, 2001 1,000,000 $1.22 2,000,000
- ------------------- --------------- ---------------- ------------------
May 1, 2002 300,000 $0.93 600,000
- ------------------- --------------- ---------------- ------------------
Summary of Frank Buttacavoli's Outstanding Warrants
Number of Number of Warrants
Warrants if Doubled Following
Date of Agreement Outstanding Exercise Price a Change of Control
- ------------------- --------------- ---------------- -------------------
November 1, 1999 120,000 $1.21875 240,000
- ------------------- --------------- ---------------- -------------------
June 8, 2001 200,000 $1.22 400,000
- ------------------- --------------- ---------------- -------------------
May 1, 2002 400,000 $0.93 800,000
- ------------------- --------------- ---------------- -------------------
In the event of a change in control, the Company is required to (i)
provide each Executive with continuation of health and hospitalization
benefits until the later of (x) the end of the term of the Agreement or (y)
eighteen months following termination of employment, and (ii) pay each
Executive all of his legal fees and expenses incurred in contesting or
disputing any termination provision, regardless of the outcome. Also, upon a
change of control, each Executive is no longer subject to any restrictive
covenants under his Agreement.
Under the Agreements, a change of control is deemed to have occurred upon
the occurrence of an event or series of events (whether or not approved by the
Board) by which any person or other entity or group of persons or other
entities acting in concert together, as determined in accordance with Section
13(d) of the Exchange Act, with
13
its or their affiliates or associates shall, as a result of a tender offer or
exchange offer, open market purchases, privately negotiated purchases, merger
or otherwise (including pursuant to receipt of revocable proxies) (a) be or
become directly or indirectly the beneficial owner of more than 30% of the
combined voting power of the then outstanding Common Stock of the Company or
(b) otherwise have the ability to elect, directly or indirectly, a majority of
the members of the Board.
Accordingly, Mr. Nussdorf's solicitation of written consents to remove,
without cause, all existing members of the Company's Board and to elect the
Nominees, if successful, may constitute a change of control under the
Agreements, resulting in severance payments and the "doubling" of the
Executives' respective options. See "Background and Reasons for the Consent
Solicitation" for a description of certain actions which the Nominees intend
to take with respect to the Agreements.
CONSULTING AGREEMENTS OF ALBERT VERCILLO AND FREDERICK PURCHES
On June 1, 2005, the Company entered into consulting agreements with each
of Albert Vercillo (the "Vercillo Agreement") and Frederick Purches (the
"Purches Agreement," together with the Vercillo Agreement, collectively, the
"Consulting Agreements"). The Consulting Agreements provide for an initial
term which will expire on March 31, 2009, and that upon the expiration of the
initial term, each Consulting Agreement will be extended for a period of one
year, and from year to year thereafter, unless either party gives a notice of
non-renewal at least six months prior to the expiration of the initial or
extended term.
The Vercillo Agreement provides for annual compensation of $150,000,
$125,000 and $100,000 for the periods ending March 31, 2007, 2008 and 2009,
respectively. The Purches Agreement provides for annual compensation of
$125,000. The Company granted each of Mr. Vercillo and Mr. Purches (each a
"Consultant," collectively, the "Consultants") non-qualified stock options to
purchase 60,000 shares of the Company's Common Stock at an exercise price of
$1.125 per share under consulting agreements, each dated November 1, 1999. The
Company granted each Consultant additional non-qualified stock options to
purchase 60,000 shares of the Company's Common Stock at an exercise price of
$0.93 per share under consulting agreements, each dated May 1, 2002. (3)
Under the terms of the Consulting Agreements, in the event of a change of
control, as defined above in "Employment Agreements of Ilia Lekach and Frank
Buttacavoli," the Consultants are entitled to a lump sum payment equal to the
greater of (a) twice the amount then due through the end of their term under
the Consulting Agreements or (b) two times the annual compensation paid to the
Consultant. In addition to these payments, in the event of a change of
control, the Consulting Agreements require the Company to double the quantity
of each Consultant's outstanding unexercised options while retaining the
original purchase price. In addition, the Company is required to pay each
Consultant all of his legal fees and expenses incurred in contesting or
disputing any termination provision, regardless of the outcome.
Accordingly, Mr. Nussdorf's solicitation of written consents to remove,
without cause, all existing members of the Board and to elect the Nominees, if
successful, may constitute a change of control under the Consulting
Agreements, resulting in a lump sum payment and the "doubling" of the
Consultants' respective options.
REVOLVING CREDIT AND SECURITY AGREEMENT
On July 20, 2001, the Company entered into a revolving credit and
security agreement (the "Credit Agreement") with GMAC Commercial Credit LLC
("GMACCC"). As amended on January 10, 2006, the Credit Agreement enables the
Company to borrow up to $35,000,000 at an interest rate of 0.25% below the
prime rate with a maturity date of July 20, 2008.
- ------------------
(3) The number of outstanding stock options and exercise prices are adjusted
for a 2-for-1 stock split in June 2006.
14
The Credit Agreement's terms provide that the occurrence of any change of
control is an event of default that makes all obligations of the Company under
the Credit Agreement immediately due and payable at GMACCC's option. A change
of control is defined in the Credit Agreement as the occurrence of any event
that results in a transfer of control of the Company, including the power,
direct or indirect, (i) to vote 50% or more of the securities having ordinary
voting power for the election of Company's directors or (ii) to direct or
cause the direction of the management and policies of the Company by contract
or otherwise.
According to the Company's Form 10-Q for the three month period ended
June 30, 2006, the Company had $31,812,043 outstanding under the Credit
Agreement. Mr. Nussdorf does not have knowledge of the current level of debt
outstanding under the Credit Agreement, but to the extent that such outstanding
debt exists, Mr. Nussdorf's consent solicitation, if successful, may constitute
a change of control under the Credit Agreement. The Nominees intend to cause the
Company to seek a waiver from GMACCC for any event of default resulting from the
election of the Nominees, or if such waiver is not obtained, the Nominees intend
to cause the Company to seek refinancing of the Company's outstanding
indebtedness under the Credit Agreement. There can be no assurances that any
such waiver or refinancing, if necessary, will be obtained.
INTERESTS OF PARTICIPANTS IN THIS SOLICITATION AND CERTAIN BUSINESS
RELATIONSHIPS BETWEEN THE COMPANY AND MR. NUSSDORF, AND THEIR RESPECTIVE
AFFILIATES
This consent solicitation is being conducted by Mr. Nussdorf and certain
other Participants as identified in Annex A. Information in this consent
statement and in Annex A about each Participant was provided by that
Participant. There are various business and financial relationships between
Mr. Nussdorf and the Participants, on the one hand, and the Company and its
affiliates, on the other hand, as set forth below.
2003 ACQUISITION PROPOSAL
On May 19, 2003, Quality King Distributors, Inc. ("QKD"), a
privately-held corporation owned by Mr. Nussdorf, Stephen Nussdorf (Mr.
Nussdorf's brother) and Arlene Nussdorf-Mark (Mr. Nussdorf's sister), acting
together with Ilia Lekach, the Chairman and Chief Executive Officer of the
Company, submitted a proposal to the Company to acquire all the outstanding
shares of the Company's Common Stock, pursuant to a tender offer, at a price
of $4.00 per share in cash. This proposal was contingent on the approval of
the Board and the approval of QKD's lenders. QKD withdrew its proposal on June
12, 2003 because QKD was unable to obtain the approval of its lenders.
MODEL REORG, INC.
Mr. Nussdorf is a principal stockholder of Model. Model is a
privately-held holding corporation that is controlled by Mr. Nussdorf, Stephen
Nussdorf and Arlene Nussdorf-Mark. Model is the parent of a group of fragrance
companies, including Quality King Fragrance, Inc. ("QKF"), Scents of Worth,
Inc. ("Scents"), Northern Group, Inc. ("Northern Group"), and Five Star
Fragrance Company, Inc. ("Five Star") (collectively, the "Model Reorg Group").
QKF and Northern Group are wholesale distributors of fragrances selling
primarily to the mass retail store market and, to some extent, to other
wholesalers as well. These companies do not sell to the department store
market. Five Star is the owner of and licensee of several designer fragrance
brands that it resells to the mass retail store market. Scents is a consignor
of fragrance products that consigns fragrances on an exclusive basis to
several retail chains.
While the Company is not a supplier to the Model Reorg Group, the Company
has, for a limited time, been a customer of Five Star. Five Star had net sales
of $927,288 (which does not reflect a $150,000 credit issued to the Company
during 2006) to the Company during the period from September 2003 through
April 2006 (at which time the relationship terminated) representing the sale
of Royal Copenhagen branded fragrance merchandise, which the Company then
exclusively distributed to the department store market.
15
PERFUMANIA AND ECMV
Perfumania, Inc. ("Perfumania") is one of the Company's largest customers
and is a wholly-owned subsidiary of E Com Ventures, Inc. ("ECMV"). Mr.
Nussdorf and Stephen Nussdorf beneficially own an aggregate of approximately
45% of the shares of common stock of ECMV. According to the 2006 Proxy
Statement, the Company had net sales to Perfumania of $23,517,313,
$35,330,772, and $31,964,407 during the fiscal years ended March 31, 2006,
2005 and 2004, respectively.
On January 30, 2004, Mr. Lekach, IZJD Corp. and Pacific Investment Group,
Inc., each of which are wholly-owned by Mr. Lekach, and Mr. Lekach's wife,
Deborah Lekach (collectively, "Lekach Group"), entered into an option
agreement with Mr. Nussdorf and Stephen Nussdorf, pursuant to which Mr.
Nussdorf and Stephen Nussdorf were granted options to acquire up to an
aggregate 720,954 shares of ECMV's common stock beneficially owned by members
of the Lekach Group, for a purchase price of $12.70 per share exercisable in
specified installments. Mr. Nussdorf and Stephen Nussdorf have acquired all
720,954 shares of ECMV pursuant to such agreement from the Lekach Group. In
February 2004, Stephen Nussdorf was appointed Chairman of the Board and a
director of ECMV and Michael Katz became President, Chief Executive Officer
and a director of ECMV.
Mr. Lekach served as Chairman of the Board and Chief Executive Officer of
ECMV until his employment was terminated by ECMV's board of directors on
February 10, 2004. According to Mr. Lekach's most recent Schedule 13D filed
with the Commission on October 31, 2006, he beneficially owns an aggregate of
120,000 shares (approximately 4%) of ECMV's common stock. Mr. Lekach is not
currently an officer or director of ECMV.
On November 10, 2006, Model made a proposal to the Board of Directors of
ECMV whereby Model would be acquired by ECMV and all of Model's outstanding
common stock would be converted into 6,396,649 shares of ECMV common stock.
Following this conversion, Mr. Nussdorf and Stephen Nussdorf would
beneficially own an aggregate of approximately 80.20% of ECMV's outstanding
common stock. On November 17, 2006, ECMV issued a press release disclosing
that a special committee of independent directors had been formed to review
and evaluate the proposed offer.
On October 31, 2006, Model and Jacavi Holdings, Inc. ("Jacavi Holdings")
entered into a joint venture agreement under which, upon its consummation,
Jacavi Holdings will contribute its fragrance business and Model will provide
financing to Jacavi, LLC ("Jacavi"), a joint venture entity, of which Model
and Jacavi Holdings each own 50%. Model and Jacavi Holdings have agreed that
in the event Model enters into a merger agreement with ECMV, then Jacavi
Holdings will be merged into Model immediately prior to the effective time of
the merger of Model and ECMV.
Jacavi Holdings operates a wholesale fragrance business through two
entities owned by Jacavi Holdings, Integrated Global Resources, LLC
("Integrated Global") and Distribution Concepts, LLC. Integrated Global has
been a customer of the Company for the past two years. Integrated Global
purchased $1,840,901 and $1,259,380 in fragrance products from the Company in
calendar years 2005 and 2006, respectively.
STEPHEN NUSSDORF AND ILIA LEKACH
On July 14, 2003, Mr. Lekach issued a promissory note (the "Promissory
Note"), guaranteed by Mr. Ilia Lekach's wife, Deborah Lekach, in the amount of
$3,500,000 payable to Stephen Nussdorf, the brother of Mr. Nussdorf, bearing a
six percent (6%) annual interest rate. There is no guaranty or security for
the Promissory Note, other than the guaranty by Deborah Lekach. The principal
of the Promissory Note was to be due and payable in full on July 14, 2008 with
monthly interest payments to be made until that time. On September 25, 2006,
Stephen Nussdorf sent Mr. Lekach a letter notifying him that he was in default
of his payment obligations under the Promissory Note and that, as a result,
the outstanding principal balance was thereby accelerated and due immediately,
in accordance with the terms of the Promissory Note. The letter demanded
immediate payment of $4,153,916.66, representing the principal balance of the
note and the accrued interest. Mr. Lekach has not made any such payment and is
currently in default of the Promissory Note. On December 8, 2006, Stephen
Nussdorf filed a lawsuit in the United States District Court for the Southern
District of New York against Mr. Lekach and his wife to recover the unpaid
principal balance and accrued and unpaid interest under the Promissory Note
and guaranty thereof. This lawsuit was served on Mr. Lekach and his wife on
December 11, 2006.
16
CONSENT PROCEDURES
Section 228 of the DGCL states that, unless the certificate of
incorporation of a Delaware corporation otherwise provides, any action
required to be taken at any annual or special meeting of stockholders of that
corporation, or any action that may be taken at any annual or special meeting
of those stockholders, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
that action at a meeting at which all shares entitled to vote thereon were
present and voted, and those consents are delivered to the corporation by
delivery to its registered office in Delaware, its principal place of business
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Consents must also bear
the date of the signature of the stockholder who signs the written consent.
The Company's certificate of incorporation does not prohibit, and therefore
permits, the Company's stockholders to act by written consent.
Section 213(b) of the DGCL provides that the record date for determining
the stockholders of a Delaware corporation entitled to consent to corporate
action in writing without a meeting, when no prior action by the corporation's
board of directors is required and the board has not fixed a record date, will
be the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business or an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of the stockholders are recorded (the "Record Date").
Delivery of signed written consents made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
The Record Date for determining the stockholders entitled to consent to
corporate action in writing without a meeting in connection with Mr.
Nussdorf's consent solicitation is January [ ], 2007.
Consents representing a majority of all the Shares as of the close of
business on the Record Date entitled to be voted at a meeting of stockholders
on the Proposals (i.e., a majority of the issued and outstanding Shares) are
required in order to implement each of the Proposals.
The Company has furnished Mr. Nussdorf with a list of record holders as of
December 29, 2006. According to such list, it appears that the number of issued
and outstanding Shares as of such date was 18,430,332. Assuming that the number
of issued and outstanding Shares is 18,430,332 as reflected on the stockholder
list furnished to Mr. Nussdorf, the consent of at least 9,215,167 Shares would
be necessary to effect Proposal 1 and Proposal 2.. The actual number of consents
necessary to effect the Proposals will depend on the actual facts as they exist
on the Record Date.
Under Section 228(c) of the DGCL, no written consent shall be effective
to take the corporate action referred to therein unless, within 60 days of the
earliest dated consent delivered, written consents signed by the holders of a
sufficient number of shares are delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business or an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders or members are recorded.
If the Proposals are adopted pursuant to the consent procedures, prompt
notice will be given pursuant to Section 228(d) of the DGCL to stockholders
who have not executed consents.
An executed WHITE consent card may be revoked at any time before the
action authorized by the executed consent becomes effective by dating, signing
and delivering a written revocation. A revocation may be in any written form
validly signed by the record holder as long as it clearly states that the
consent previously given is no longer effective. The delivery of a
subsequently dated consent card which is properly completed will constitute a
revocation of any earlier consent. The revocation may be delivered either to
Mr. Nussdorf, care of Innisfree M&A Incorporated, 501 Madison Avenue, 20th
Floor, New York, New York 10022, or to the Company at 3725 S.W. 30th
17
Avenue, Fort Lauderdale, Florida 33312 or such other address as the Company
may provide. Although a revocation is effective if delivered to the Company,
Mr. Nussdorf requests that either the original or photostatic copies of all
revocations of consents be mailed or delivered to Mr. Nussdorf, care of
Innisfree, at the address set forth above, so that Mr. Nussdorf will be aware
of all revocations and can more accurately determine if and when consents to
the actions described herein have been received from the holders of record on
the Record Date of a majority of outstanding Shares.
Please note, however, if your Shares are held in the name of a brokerage
firm, bank or other nominee, only it can execute a revocation of a previously
executed consent representing your Shares and only on receipt of your specific
instructions. Accordingly, if you wish to revoke a previously executed
consent, you should contact the person responsible for your account and give
instructions to execute a written revocation on your behalf. You can also
revoke your consent by signing, dating and returning a later dated consent
card to your brokerage firm, bank or other nominee.
Mr. Nussdorf plans to present the results of any successful solicitation
with respect to the corporate actions proposed herein to the Company as soon
as possible.
SPECIAL INSTRUCTIONS
Record holders of Shares as of the close of business on the Record Date
may elect to consent to, withhold consent to or abstain from consenting by
marking the "CONSENT," "DOES NOT CONSENT" or "ABSTAIN" box, as applicable,
underneath each Proposal on the accompanying WHITE consent card and signing,
dating and returning it promptly in the postage-paid envelope provided.
In addition, stockholders may withhold consent to the removal of any
individual member of the Board or to the election of any individual Nominee by
writing such person's name on the consent card. However, Proposal 2 cannot be
effected unless Proposal 1 is adopted.
If the stockholder has signed, dated and returned Mr. Nussdorf's consent
card, but has failed to check a box marked "CONSENT," "DOES NOT CONSENT" or
"ABSTAIN" for one or both of the Proposals, such stockholder will be deemed to
have consented to such Proposal or Proposals, except that such stockholder
will not be deemed to have consented to the removal of any member of the Board
or the election of any Nominee whose name is written-in by such stockholder on
the consent card. A vote to "ABSTAIN" will have the same effect as withholding
your consent to a proposal.
MR. NUSSDORF RECOMMENDS THAT YOU CONSENT TO BOTH OF THE PROPOSALS.
YOUR CONSENT IS IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED WHITE
CONSENT CARD AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE PROMPTLY.
FAILURE TO RETURN YOUR CONSENT WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
PROPOSALS. PLEASE NOTE YOU MUST SIGN AND DATE THE WHITE CONSENT CARD IN ORDER
FOR IT TO BE VALID.
VOTING SECURITIES
According to publicly available information (including the Company's
certificate of incorporation and bylaws), the Shares constitute the only class
of outstanding voting securities of the Company. Accordingly, only holders of
Shares are entitled to execute consents. Each Share is entitled to one vote.
The Company's stockholders do not have cumulative voting rights.
SOLICITATION OF CONSENTS
Consents will be solicited by mail, telephone, telefax, telegraph, the
internet, e-mail, newspapers and other publications of general distribution
and in person. Mr. Nussdorf, his affiliates and the other Participants listed
on
18
Annex A hereto may assist in the solicitation of consents without any
additional remuneration (except as otherwise set forth in this consent
statement).
Mr. Nussdorf has retained Innisfree for solicitation and advisory
services in connection with the solicitation of consents, for which Innisfree
is to receive a fee of $125,000. Up to 30 people may be employed by Innisfree
in connection with the solicitation of consents. Mr. Nussdorf has also agreed
to reimburse Innisfree for out-of-pocket expenses and to indemnify Innisfree
against certain liabilities and expenses, including reasonable legal fees and
related charges. Innisfree will solicit consents from individuals, brokers,
banks, bank nominees and other institutional holders. Directors, officers and
certain employees of companies affiliated with Mr. Nussdorf may assist in the
solicitation of consents without any additional remuneration. The entire
expense of soliciting consents in connection with the Proposals by or on
behalf of Mr. Nussdorf is being borne by Mr. Nussdorf. To the extent legally
permissible, Mr. Nussdorf will seek reimbursement from the Company for the
costs of this solicitation. Mr. Nussdorf does not currently intend to submit
approval of such reimbursement to a vote of stockholders of the Company at a
subsequent meeting of stockholders unless required by applicable law.
If you have any questions concerning this consent statement or the
procedures to be followed to execute and deliver a consent, please contact
Innisfree at the address or phone number specified below.
FORWARD-LOOKING STATEMENTS
This consent statement contains certain "forward-looking" statements
which are within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995. Stockholders should be aware that any such forward-looking
statements are only predictions, subject to risks and uncertainties that exist
in the business environment which could render actual outcomes and results
materially different than predicted. In some cases, such forward-looking
statements may be identified by terminology such as "may," "will," "could,"
"should," "expects," "intends" or "believes" or the negative of such terms or
other comparable terminology.
OTHER INFORMATION
The information concerning the Company contained herein has been taken
from, or is based upon, publicly available documents on file with the
Commission and other publicly available information. Although Mr. Nussdorf has
no knowledge that would indicate that statements relating to the Company
contained in this consent statement in reliance upon publicly available
information are inaccurate or incomplete, he has not to date had access to the
books and records of the Company, was not involved in the preparation of such
information and statements and is not in a position to verify any such
information or statements. Accordingly, Mr. Nussdorf does not take any
responsibility for the accuracy or completeness of such information or for any
failure by the Company to disclose events that may have occurred and may
affect the significance or accuracy of any such information.
Annex A, attached hereto, sets forth information concerning
"participants" in Mr. Nussdorf's solicitation of consents from the Company's
stockholders.
Mr. Nussdorf expects that the Company will furnish stockholders with a
consent revocation statement which will set forth (a) information regarding
the Company's directors and management, including information relating to
management compensation, (b) information concerning security ownership of
certain beneficial owners, directors and management of the Company, (c)
information concerning the procedures for submitting stockholder proposals for
consideration at the Company's 2007 annual meeting of stockholders and (d)
information concerning the method by which votes are counted, including the
effect of abstentions and broker non-votes. Reference is hereby made to such
information which, to the extent it may be deemed required, is incorporated
herein pursuant to Rule 14a-5(c) under the Exchange Act.
If your Shares are held in the name of a brokerage firm, bank or other
nominee, only it can execute a consent representing your Shares and only on
receipt of your specific instructions. Accordingly, you should contact the
person responsible for your account and give instructions for a WHITE consent
card to be signed on your behalf. You can also sign, date and return the
enclosed WHITE consent card to your brokerage firm, bank or other nominee in the
postage paid envelope provided.
19
YOUR PROMPT ACTION IS IMPORTANT. MR. NUSSDORF URGES YOU TO SIGN, DATE AND
RETURN THE ENCLOSED WHITE CONSENT CARD TODAY. PLEASE NOTE YOU MUST SIGN AND
DATE THE WHITE CONSENT CARD IN ORDER FOR IT TO BE VALID.
January [ ], 2007
If you have any questions or require any assistance in voting your
Shares, please contact:
Innisfree M&A Incorporated
501 Madison Avenue
20th Floor
New York, NY 10022
Stockholders Call Toll Free: (877) 456-8847
Banks and Brokers Call Collect: (212) 750-5833
20
ANNEX A
CERTAIN INFORMATION CONCERNING THE NOMINEES
There are no material legal proceedings in which any of the Nominees or
any of their associates is a party adverse to the Company or any of its
subsidiaries, or proceedings in which such Nominees or associates have a
material interest adverse to the Company or any of its subsidiaries. There are
no family relationships among the Nominees or between any of the Nominees and
any director or executive officer of the Company.
None of the Nominees have been involved in any legal proceedings in the
preceding five years described in Item 401(f) of Regulation S-K ("Regulation
S-K") other than as set forth in this Annex A or in the consent statement.
Other than as disclosed in this consent statement, there are no arrangements
or understandings between any of the Nominees and any other party pursuant to
which any such Nominee was or is to be selected as a director or nominee.
Other than as disclosed in this consent statement, none of the Nominees nor
any of their associates has received any cash compensation, cash bonuses,
deferred compensation, compensation pursuant to plans, or other compensation,
from, or in respect of, services rendered on behalf of the Company, or is
subject to any arrangement described in Item 402 of Regulation S-K.
A-1
CERTAIN INFORMATION CONCERNING PERSONS WHO MAY BE PARTICIPANTS IN
MR. NUSSDORF'S SOLICITATION OF CONSENTS
The following sets forth the name and the present principal occupation or
employment, and the name and principal business address of any corporation or
other organization in which such employment is carried on, of persons who may
be deemed to be participants on behalf of Mr. Nussdorf in the solicitation of
consents from stockholders of the Company. Each person is a citizen of the
United States.
Nominees of Mr. Nussdorf for Election to the Board of Directors of the Company
The business address and present principal occupation or employment of
each of Mr. Nussdorf's Nominees listed below is set forth in this consent
statement under the heading "The Proposals - Proposal 2: Election of
Nominees."
Name
o Glenn Nussdorf
o Michael Katz
o Joshua Angel
o Anthony D'Agostino
o Neil Katz
o Robert Mitzman
Model Reorg, Inc.
Model is a privately held corporation controlled by Glenn Nussdorf,
Stephen Nussdorf and Arlene Nussdorf-Mark. Model's principal business address
is 1095 Long Island Avenue, Deer Park, New York 11732.
Lillian Ruth Nussdorf
Lillian Ruth Nussdorf is Mr. Nussdorf's mother and is retired. Ms.
Nussdorf's principal address is 17220 Coral Cove Way, Boca Raton, FL 33496.
Stephen Nussdorf
Stephen Nussdorf is Mr. Nussdorf's brother. His principal occupation is
serving as an executive officer of Model and its subsidiaries. He also serves
as the Chairman of the Board of ECMV. Stephen Nussdorf's principal business
address is 1095 Long Island Avenue, Deer Park, New York 11732.
Arlene Nussdorf-Mark
Arlene Nussdorf-Mark is Mr. Nussdorf's sister. She currently is an
officer of QKD and each of the Model Reorg Group companies. Ms. Nussdorf-Mark
is also a director of Model and its subsidiaries. Ms. Nussdorf-Mark's
principal business address is 2060 Ninth Avenue, Ronkonkoma, New York 11779.
Alfred Paliani
Alfred Paliani's principal occupation is General Counsel of QKD and its
subsidiary and affiliates. Mr. Paliani also serves as the Chief Legal Officer
and Assistant Secretary of Model. Mr. Paliani's principal business address is
2060 Ninth Avenue, Ronkonkoma, New York 11779.
A-2
Shares Held by Participants
The participants and their associates may be deemed to have beneficial
ownership of the Company's Shares as set forth below:
Common Stock
Beneficially Percentage
Owned (1) Ownership (1)
Joshua Angel 0 -
Anthony D'Agostino 0 -
Michael Katz 0 -
Neil Katz 0 -
Arlene Nussdorf-Mark 0 -
Robert Mitzman 0 -
Model 0 -
Glenn Nussdorf (2) 2,212,629 12.0%
Lillian Ruth Nussdorf 250,000 1.36%
Stephen Nussdorf 0 -
Alfred Paliani 0 -
(1) Based on information furnished to Mr. Nussdorf by the Company, it appears
that the Company had 18,430,332 shares of Common Stock outstanding as of
December 29, 2006.
(2) Includes (a) 1,962,629 shares owned directly by Glenn Nussdorf and (b)
250,000 shares which are also beneficially owned by Lillian Ruth
Nussdorf.
A-3
Transactions in the Company's Securities Involving Participants
Other than the transactions described below, no Participant has purchased
or sold any securities of the Company in the past two years.
Transactions in the Company's Common Stock by Glenn Nussdorf
Number of Shares
of the Company's
Date of Transaction Nature of Transaction Common Stock
- ---------------------- ----------------------- --------------------
January 11, 2005 Purchase 6,400
January 14, 2005 Sale 5,000
January 19, 2005 Purchase 3,254
January 24, 2005 Sale 3,254
February 15, 2005 Purchase 400
February 16, 2005 Sale 1,400
February 18, 2005 Sale 400
February 22, 2005 Purchase 5,000
February 25, 2005 Sale 5,000
March 8, 2005 Purchase 746
March 9, 2005 Purchase 4,200
March 11, 2005 Sale 746
March 14, 2005 Sale 4,200
March 16, 2005 Purchase 4,000
March 18, 2005 Purchase 13,000
March 21, 2005 Sale 4,000
March 22, 2005 Purchase 15,000
March 23, 2005 Sale 13,000
March 28, 2005 Sale 15,000
August 11, 2006 Purchase 650,000
August 16, 2006 Sale 500,000
August 18, 2006 Purchase 300,830
August 28, 2006 Purchase 276,188
August 29, 2006 Purchase 535,611
August 30, 2006 Purchase 100,000
September 06, 2006 Purchase 400,000
September 07, 2006 Purchase 200,000
Transactions in the Company's Common Stock by Lillian Ruth Nussdorf
Number of Shares
of the Company's
Date of Transaction Nature of Transaction Common Stock
- ---------------------- ----------------------- ----------------------
August 11, 2006 Purchase 250,000
Mr. Nussdorf effects purchases of securities primarily through margin accounts
maintained for him with Goldman, Sachs & Co. and Davis Securities, which may
extend margin credit to Mr. Nussdorf as and when required to open or carry
positions in the margin accounts, subject to applicable Federal margin
regulations, stock exchange rules and the respective firm's credit policies.
With respect to the Company's Common Stock, Mr. Nussdorf had margin loans of
$4,370,174 with Goldman, Sachs & Co. and $1,262,761 with Davis Securities as
of January 4, 2007.
A-4
Miscellaneous Information Concerning the Participants
Except as described in this Annex A or in the consent statement, no
Participant nor any of his or her respective associates or affiliates
(together, the "Participant Affiliates"), is either a party to any transaction
or series of transactions since April 1, 2005, or has knowledge of any
currently proposed transaction or series of proposed transactions, (i) to
which the Company or any of its subsidiaries was or is to be a participant,
(ii) in which the amount involved exceeds $120,000, and (iii) in which any
Participant or Participant Affiliate had, or will have, a direct or indirect
material interest. Furthermore, except as described in this Annex A or in the
consent statement, no Participant or Participant Affiliate (i) directly or
indirectly beneficially owns any securities of the Company or any securities
of any subsidiary of the Company, or (ii) has had any relationship with the
Company in any capacity other than as a stockholder.
Except as described in this Annex A or in the consent statement, no
Participant or Participant Affiliate has entered into any agreement or
understanding with any person respecting any future employment by the Company
or any of its affiliates or any future transactions to which the Company or
any of its affiliates will or may be a party. Except as described in this
Annex A or in the consent statement, there are no contracts, arrangements or
understandings by any Participant or Participant Affiliate within the past
year with any person with respect to any securities of the Company, including,
but not limited to, the transfer or voting of such securities, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans, guarantees
against loss or guarantees of profit, division of losses or profits, or the
giving or withholding of proxies, consents or authorizations.
In an order entered on February 9, 2006 by the Supreme Court of New York,
New York County, each of QKD, Pro's Choice Beauty Care, Inc. ("Pro's Choice"),
GSN Trucking Corp. and the officers and directors of such corporations,
Michael Katz and Marcy Blick, President of Pro's Choice, were preliminarily
enjoined, either directly or indirectly or by or through Lillian Ruth
Nussdorf, Mr. Nussdorf or Stephen Nussdorf, from purchasing, selling,
bartering or distributing any products bearing an ARTec trademark and/or brand
name. This order was entered in a lawsuit entitled L'Oreal USA, Inc. et al. v.
Quality King Distributors, Inc. et al., that is ongoing and in which the
parties are disputing the meaning and scope of the terms of a settlement
agreement relating to certain hair care products sold under the ARTec brand
name that was entered into in 1996.
A-5
REVISED PRELIMINARY COPY -SUBJECT TO COMPLETION DATED JANUARY 5, 2007
FORM OF CONSENT CARD--WHITE
THIS CONSENT IS SOLICITED BY GLENN NUSSDORF
AND NOT ON BEHALF OF THE BOARD OF DIRECTORS
OF PARLUX FRAGRANCES, INC.
Unless otherwise indicated below, the undersigned hereby consents
pursuant to Section 228(a) of the General Corporation Law of the State of
Delaware, as amended, with respect to all shares of common stock of Parlux
Fragrances, Inc., a Delaware corporation ("Parlux"), held by the undersigned
as of the record date for determining shares entitled to consent, to the
taking of the following actions without a meeting of the stockholders of
Parlux:
1. Remove, without cause, Ilia Lekach, Frank Buttacavoli, Glenn Gopman,
Esther Egozi Choukroun, David Stone and Jaya Kader Zebede, and any
other person (other than those elected pursuant to Glenn Nussdorf's
consent solicitation) elected or appointed to Parlux's Board of
Directors by such directors to fill any vacancy on Parlux's Board of
Directors or any newly-created directorships.
[ ] CONSENT [ ] DOES NOT CONSENT [ ] ABSTAIN
INSTRUCTION: IF YOU WISH TO CONSENT TO THE REMOVAL OF CERTAIN OF THE PERSONS
NAMED IN PROPOSAL 1, BUT NOT ALL OF THEM, CHECK THE "CONSENT" BOX ABOVE AND
WRITE THE NAME OF EACH PERSON YOU DO NOT WISH REMOVED IN THE SPACE PROVIDED
BELOW.
2. Elect Glenn Nussdorf, Michael Katz, Joshua Angel, Anthony
D'Agostino, Neil Katz and Robert Mitzman to serve as directors of
Parlux.
[ ] CONSENT [ ] DOES NOT CONSENT [ ] ABSTAIN
INSTRUCTION: IF YOU WISH TO CONSENT TO THE ELECTION OF CERTAIN OF THE
ABOVE-NAMED PERSONS, BUT NOT ALL OF THEM, CHECK THE "CONSENT" BOX ABOVE AND
WRITE THE NAME OF EACH SUCH PERSON YOU DO NOT WISH ELECTED IN THE SPACE
PROVIDED BELOW.
IN THE ABSENCE OF CONTRARY INSTRUCTIONS, OR IF NO INSTRUCTIONS ARE GIVEN, THE
UNDERSIGNED HEREBY CONSENTS TO EACH PROPOSAL LISTED ABOVE.
IN ORDER FOR YOUR CONSENT TO BE VALID, IT MUST BE DATED.
Dated: _____________, 2007
-----------------------------------------
Signature of Stockholder (title, if any)
--------------------------------------------
Signature of Stockholder (if held jointly)
Please sign exactly as your name or names
appear on the stock certificate or on the
attached label hereon. If shares are held
jointly, each stockholder should sign. When
signing as attorney, executor,administrator,
trustee or guardian, please give full title
as such. If a corporation, please sign in
full corporate name by president or
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD PROMPTLY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE TO INNISFREE M&A INCORPORATED, 501 MADISON AVENUE, 20TH FLOOR,
NEW YORK, NEW YORK 10022.