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:
|_| Revised Preliminary Consent Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| 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:
GLENN NUSSDORF
CONSENT SOLICITATION STATEMENT
This consent solicitation 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 18, 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" for
additional information regarding the removal and election of directors.
Mr. Nussdorf beneficially owns an aggregate of 2,212,629 Shares
(approximately 12.0%) of the Company's Common Stock and intends to deliver a
consent in favor of each of the Proposals. Other than Mr. 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 and Alfred Paliani, together with the Nominees, are
participants in this solicitation of written consents by Mr. Nussdorf from the
stockholders of the Company (collectively, the "Participants," and each, a
"Participant"). Alfred Paliani is the General Counsel of Quality King
Distributors, Inc., a privately-held corporation controlled by Mr. Nussdorf,
Stephen Nussdorf and Arlene Nussdorf-Mark ("QKD"). 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 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.
1
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
2
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. See "Consent
Procedures" for further details on the requirements to remove an individual
director.
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.
See "Consent Procedures" for further details relating to the election of the
Nominees if fewer than all the existing directors are removed pursuant to
Proposal 1.
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.
3
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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 Officer of QKD and
2060 Ninth Avenue, its subsidiary and affiliates, a group of companies engaged in the business
Ronkonkoma, New York 11779 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 Reorg, Inc. ("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 of fragrances and
2060 Ninth Avenue, related products, in February 2004 as its President, Chief Executive Officer
Ronkonkoma, New York 11779 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 of Angel & Frankel,
460 Park Avenue P.C., a specialty law firm. This firm merged its practice into Cole,
New York, New York 10022 Schotz, Meisel, Forman & Leonard, P.A. ("Cole Schotz") on January 1, 2006.
Mr. Angel was Of Counsel to Cole Schotz until January 12, 2007. He is
currently Of Counsel to Herrick, Feinstein LLP, a law firm. Also, Mr. Angel
serves as a director of Cellular Technical Services Company, Inc. He has
from time to time provided legal services to certain companies affiliated
with Mr. Nussdorf. Mr. Angel was paid $32,686, $19,391 and $37,358 for the
twelve month periods ended October 31, 2004, 2005, and 2006, respectively,
for legal services he rendered to companies affiliated with Mr. Nussdorf.
- ----------------------------------------------------------------------------------------------------------------------
Anthony D'Agostino 49 Since 2004, Mr. D'Agostino has been a consultant, assisting the chief
24 Newport Drive financial officers and boards of directors of private and public companies,
Plainview, New York 11803 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 December 2006, Mr.
9 Michael Drive Katz served as the President and Chief Executive Officer of Gemini
Scarsdale, New York 10583 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 Officer of Quick
212 Fifth Avenue International Courier, a privately held courier company, with over 600
New York, New York 10010 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.
- ----------------------------------------------------------------------------------------------------------------------
4
There is no family relationship between Michael Katz and Neil Katz.
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 $2.00 per share in cash (adjusted for a 2-for-1
stock split in June 2006). 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
5
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
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:
6
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 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,
- ----------------
(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.
7
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
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 did not obtain, and has not obtained, any financing
commitments. 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 13, 2006, the Company filed a Form 12b-25 notice of late
filing with respect to its Quarterly Report on Form 10-Q for the three-month
period ended September 30, 2006.
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
8
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 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)
9
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. On January 9, 2007, the
Company issued a press release disclosing that Nasdaq had set a hearing date of
February 1, 2007 in response to the Company's request for a hearing before the
Panel. The Company's Common Stock will continue to be traded on the Nasdaq
National Market pending the Panel's decision.
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.
Subsequent to sending his November 21, 2006 letter to the Board, Mr.
Nussdorf decided to terminate his efforts to obtain financing for a possible
acquisition of the Company in view of the Company's failure to file its
Quarterly Report on Form 10-Q for the three-month period ended September 30,
2006. Mr. Nussdorf believed then, and continues to believe, that his efforts to
obtain financing on terms acceptable to him would be dependent on the
availability of current financial information about the Company. As stated
above, Mr. Nussdorf did not obtain, and has not obtained, any financing
commitments. At this point in time, Mr. Nussdorf has not determined whether he
will submit an acquisition proposal, and is unable to determine, if he were to
pursue an acquisition proposal, whether he would be able to obtain financing on
terms acceptable to him. Mr. Nussdorf has not sought any equity investors to
participate with him in any possible acquisition of the Company.
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.
On January 9, 2007, the Company issued a press release disclosing,
among other things, that the Company's Board had authorized stock repurchases
of up to 10 million Shares of Common Stock, constituting almost 55% of the
Company's currently outstanding Shares.
On January 10, 2007, Mr. Nussdorf and Lillian Ruth Nussdorf filed an
amendment to their Schedule 13D disclosing that Mr. Nussdorf sent the following
letter to the Board expressing his concern that stock repurchases may be made
for the purpose of, and in a manner designed to, entrench the Company's current
management and Board:
January 10, 2007
VIA FACSIMILE AND OVERNIGHT MAIL
Board of Directors of Parlux Fragrances, Inc.
c/o Mr. Ilia Lekach
Chairman of the Board and Chief Executive Officer
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
Dear Board Members:
On Monday, January 8, 2007, Parlux Fragrances, Inc. (the
"Company") issued a press release announcing a record date of January
17, 2007 in connection with my solicitation of consents from the
Company's stockholders for the purposes of removing, without cause,
all members of the Company's Board of Directors and electing myself
and my five other nominees as directors of the Company.
On Tuesday, January 9, 2007, the Company issued a press
release announcing that you, the Company's Board of Directors, have
authorized stock repurchases of up to 10 million shares of the
10
Company's common stock. This is an extraordinarily large stock
repurchase authorization, covering almost 55% of the Company's
approximately 18,430,000 outstanding shares.
In light of the fact that my consent solicitation will be
commencing very shortly, that the record date is one week from today,
and that the Board has just authorized massive stock repurchases, I am
understandably concerned that the stock repurchases may be made for
the purpose of, and in a manner designed to, entrench the Company's
current management and Board of Directors. I believe that any use of
corporate funds for such purpose would constitute an unconscionable
breach of fiduciary duty and misuse of corporate assets and, in such
event, I intend to hold you responsible.
I demand that the Company make immediate, full and clear
public disclosure of the purposes of the massive stock repurchase
authorization and how it is intended that any shares repurchased by
the Company, whether prior to, on, or after the record date, will be
treated for purposes of my consent solicitation.
Very truly yours,
/s/ Glenn H. Nussdorf
On January 11, 2007, Mr. Nussdorf received the following letter from
the Board which purported to invite him to submit an acquisition proposal:
January 11, 2007
Glenn H. Nussdorf
2060 Ninth Avenue
Ronkonkoma, NY 11779
Dear Mr. Nussdorf:
According to your SEC filings, for almost three months you have been
"exploring the possibility of making an acquisition proposal for
Parlux" and you and your representatives have "had preliminary
discussions with potential financing sources to obtain the funds
necessary for such a transaction." Yet to date, no acquisition
proposal has been forthcoming. We want to take this opportunity to
invite you to submit a bona fide acquisition proposal to the Board of
Directors of Parlux. Although Parlux is not currently for sale, we are
focused on enhancing value for all of our stockholders. Consistent
with our fiduciary duties to Parlux shareholders, your acquisition
proposal would be given full and fair consideration by the Board.
We believe that the interests of all Parlux stockholders are best
served if your proposal is considered by Parlux's duly-elected
independent Board of Directors. Notwithstanding your statements to the
contrary, we find it unreasonable to believe that your hand-picked
nominees, all but one of whom are business associates of you or your
affiliates, will exercise any real independent oversight over an
acquisition proposal submitted by you.
We find it disingenuous, after three months of "exploring the
possibility of making an acquisition proposal," to ask stockholders to
give you control of the company as you continue your evaluation
process. If you are truly interested in acquiring the company, as
stated above, you are welcome to submit a bona fide proposal. However,
should you continue your efforts to take control of Parlux without
compensating stockholders for their investment in the company, we will
vigorously oppose your efforts.
On behalf of the Board of Directors,
/s/ Ilia Lekach
Ilia Lekach
Chairman and Chief Executive Officer
Parlux Fragrances, Inc.
11
In response, on January 16, 2007, Mr. Nussdorf sent the following
letter to the Board:
January 16, 2007
VIA FACSIMILE AND OVERNIGHT MAIL
--------------------------------
Board of Directors of Parlux Fragrances, Inc.
c/o Mr. Ilia Lekach
Chairman of the Board and Chief Executive Officer
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
Dear Board Members:
Given the current state of affairs at Parlux, your January 11
letter to me appears to be nothing more than public posturing in an
effort to influence votes in my solicitation of consents to remove
each of you from office and elect a new Board of Directors.
My position on a possible acquisition of Parlux is entirely
clear, and is set out in detail in several SEC filings I have made
during the past few weeks. I also have explicitly stated in my SEC
filings that any acquisition proposal I might make would be considered
by a committee of independent directors and that, in such event, it is
anticipated that the "committee will entertain proposals from third
parties" and "will only accept the proposal that reflects the
reasonably highest value for stockholders."
This is important information for Parlux stockholders and the
investing public, and should not have been omitted from your letter,
your press release and your SEC filings.
I cannot imagine that you seriously believe that anyone would
make a bona fide acquisition proposal at the present time. Among other
things:
o Parlux has failed, for the third time in the past 12 months, to
make a timely filing of its financial information with the SEC.
Parlux's last published financial statements are for the period
ended June 30, 2006 -- a period that ended more than six months
ago;
o As a result of Parlux's failure to file timely financial
reports, the company faces possible delisting by Nasdaq, and
faces a hearing on potential delisting on February 1; and
o Due to allegations of financial improprieties in a class action
lawsuit, Parlux's Board has found it necessary, as stated in
your SEC filings, to "engage experienced Special Audit Committee
Counsel" and such counsel "engaged experienced independent
forensic accountants to investigate the allegations." These
investigations by special counsel and forensic accountants are
pending and Parlux has not announced their results, which
results could be material to any buyer of the company.
Under these circumstances, your "invitation" that I make an
acquisition proposal cannot be serious.
If you, as a Board, really want to protect and enhance
stockholder value, I would suggest that you focus immediately on the
appropriateness and legality of the existing severance agreements with
12
Messrs. Lekach, Buttacavoli, Vercillo and Purches. I have stated that
my nominees, if elected, intend to immediately review these agreements
and do not intend to permit Parlux to make payments or provide
benefits until after such review is completed.
It appears that the minimum cash payments under the four
severance agreements would be $1,425,000 to Mr. Lekach, $975,000 to
Mr. Buttacavoli, $300,000 to Mr. Vercillo and $250,000 to Mr. Purches.
The actual amounts, as you know, could be substantially greater. In
addition, Messrs. Lekach and Buttacavoli would be awarded a total of
2,320,000 additional options at exercise prices ranging from 93 cents
to $1.22. This, of course, would result in very substantial dilution
to other stockholders. These payments and benefits are very unusual
and, in view of the substantial amounts involved, could have a
significant impact on the value to be received by Parlux stockholders
in any acquisition.
Sincerely,
/s/ Glenn H. Nussdorf
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 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.
13
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)
(the highest closing price during the last twelve months) to $5.90 on
January 17, 2007, which represents a dramatic decrease of 69%;
o The recent disclosure by the Company on January 9, 2007 in a press
release disclosing selected financial results for the three month
period ended September 30, 2006 that its net sales for the quarter
ended September 30, 2006 decreased by approximately 1% compared to the
same period in the prior year and its net income for the quarter ended
September 30, 2006 decreased by approximately 20% compared to the same
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;
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 974,200 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 its recent all time high. By contrast, on January 17, 2007,
the Company's stock price closed at $5.90.
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
14
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. At this point in time, Mr. Nussdorf has
not determined whether he will submit an acquisition proposal, and is unable to
determine, if he were to pursue an acquisition proposal, whether he would be
able to obtain financing on terms acceptable to him. 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 "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. Messrs. Lekach, Buttacavoli and two consultants may take legal
action against the Company to compel the Company to make severance payments
and/or provide benefits under their respective agreements. According to their
employment and consulting agreements, the Company is required to pay the legal
fees of Messrs. Lekach, Buttacavoli and two consultants regardless of the
outcome of any such litigation. While Mr. Nussdorf cannot predict the amount of
any such legal fees, such legal fees, in the aggregate, may be significant. In
the event of such litigation, the Nominees intend to challenge the provision
requiring the payment of legal fees regardless of the outcome (See "Employment
Agreements of Ilia Lekach and Frank Buttacavoli" and "Consulting Agreements of
Albert Vercillo and Frederick Purches"). 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.
15
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)
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
- ------------------
(2) The number of outstanding stock options and exercise prices are adjusted
for a 2-for-1 stock split in June 2006.
16
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
Warrants Number of Warrants if Doubled
Date of Agreement Outstanding Exercise Price Following 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
Warrants Number of Warrants if Doubled
Date of Agreement Outstanding Exercise Price Following 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 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.
17
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.
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. On January 9, 2007, the Company issued a press release stating that
it had paid down its bank debt. To the extent that outstanding debt exists
under the Credit Agreement in the future, 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 to the
extent that any outstanding indebtedness exists. There can be no assurances
that any such waiver or refinancing, if necessary, will be obtained.
- ------------------
(3) The number of outstanding stock options and exercise prices are adjusted
for a 2-for-1 stock split in June 2006.
18
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 with the
assistance of 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 certain of his affiliates and family members, 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
$2.00 per share in cash (adjusted for a 2-for-1 stock split in June 2006). 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 Reorg, Inc.
("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.
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
19
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 80.90% 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 was a
customer of the Company during the Company's fiscal year ended March 31, 2006.
The Company sold $3,100,281 in fragrance products to Integrated Global during
the fiscal year ended March 31, 2006, which constituted approximately 1.7% of
the Company's total net sales for the period.
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.
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
20
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.
On January 8, 2007, the Company issued a press release announcing that
the Board had set a record date of January 17, 2007 (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.
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.
In order for an existing director to be removed, without cause,
consents to that director's removal representing a majority of all Shares
outstanding on the Record Date entitled to be voted at a meeting of
stockholders (i.e., a majority of the issued and outstanding Shares) are
required. A stockholder may consent to the removal of only certain existing
directors by designating the names of one or more directors who are not to be
removed on the WHITE consent card. Accordingly, it is possible that some, but
not all, of the existing directors may be removed pursuant to Proposal 1. It is
Mr. Nussdorf's intention that if fewer than all of the existing directors are
removed, then the Nominees who are standing for election to fill the vacancies
resulting from the removal of such existing directors be elected in the
following order: 1) Mr. Nussdorf, 2) the four independent Nominees (Messrs.
Angel, D'Agostino, Neil Katz and Mitzman) with the independent Nominee
receiving the most consents filling the next available vacancy and 3) Michael
Katz. If fewer than four existing directors are removed pursuant to Proposal 1,
then Mr. Nussdorf's Nominees, if elected, will not constitute a majority of the
Board and will not be able to cause the Board to take (or not take) any
specific action. In such an event, the Nominees will seek to influence the
Board and management to address the issues they believe need to be addressed as
set forth under the caption "Background and Reasons for the Consent
Solicitation." There can be no assurance that the Nominees, if they constitute
less than a majority of the Board, will be able to persuade other directors to
join with them in addressing such issues.
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 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.
21
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. Mr. Nussdorf will not be able
to elect any of the Nominees unless stockholders also approve the removal,
without cause, of one or more of the existing members of the Board.
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
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
22
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. Mr. Nussdorf's
expenses related to the solicitation of consents are currently estimated to be
approximately $600,000, of which approximately $300,000 has been incurred to
date. 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 statements which are "forward
looking" in nature, and 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, (d)
information concerning the method by which votes are counted, including the
effect of abstentions and broker non-votes and (e) the number of Shares
outstanding as of the Record Date. 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.
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 18, 2007
23
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
24
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
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 -
Robert Mitzman 0 -
Glenn Nussdorf (2) 2,212,629 12.0%
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 (1)
Number of Shares
of the Company's
Date of Transaction Nature of Transaction Common Stock
- -------------------------------------------------------------------------------
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 11, 2006 Purchase 250,000 (2)
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
(1) 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 $4,370,173 with Goldman, Sachs &
Co. and $987,602 with Davis Securities as of January 16, 2007.
(2) These Shares were purchased by and are beneficially owned by Lillian Ruth
Nussdorf, Mr. Nussdorf's mother. Lillian Ruth Nussdorf shares with Mr.
Nussdorf voting and dispositive power with respect to the 250,000 Shares
beneficially owned by her.
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
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.
The nominees identified in Proposal 2 above and Alfred Paliani are deemed to be
"participants" in Glenn Nussdorf's solicitation of consents.
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.