PROXY STATEMENT PURSUANT TO
SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
SPEC'S MUSIC, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
---------------------------------------------------------------------
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[ ] 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 transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
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number, or the Form or Schedule and the date of its filing.
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<PAGE>
[SPEC'S LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
December 12, 1997
Notice is hereby given that the Annual Meeting of Shareholders of Spec's
Music, Inc. (the "Company") will be held on Friday, December 12, 1997, at 10:00
a.m., Eastern Daylight Time, at the Radisson Mart Plaza Hotel, Salon H, 711 N.W.
72nd Avenue, Miami, Florida 33126, for the following purposes, as described in
the attached proxy statement:
A. To elect a board of five directors to serve until the next
Annual Meeting of Shareholders or until their successors are elected
and qualified.
B. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 27, 1997,
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting and at any adjournment thereof. Accordingly, only
shareholders of record at the close of business on that date will be entitled to
vote at the meeting.
By order of the Board of Directors.
DOROTHY J. SPECTOR
Secretary
November 4, 1997
YOU ARE URGED TO COMPLETE, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY IN
THE ACCOMPANYING POSTAGE-FREE ENVELOPE.
<PAGE>
SPEC'S MUSIC, INC.
1666 Northwest 82nd Avenue
Miami, Florida 33126
P.O. Box 520248 Miami, Florida 33152-0248
(305) 592-7288
---------------------------
PROXY STATEMENT
---------------------------
ANNUAL MEETING OF SHAREHOLDERS
December 12, 1997
This Proxy Statement has been prepared and is furnished by the Board of
Directors of Spec's Music, Inc. (the "Company") in connection with the
solicitation of proxies for the Annual Meeting of Shareholders of the Company to
be held on December 12, 1997, and at any adjournment thereof, for the purposes
set forth in the accompanying notice of meeting.
It is anticipated that this Proxy Statement and the accompanying form of
proxy will be mailed to shareholders on or about November 7, 1997. The Company's
Annual Report, including audited financial statements for the fiscal year ended
July 31, 1997, is being mailed or delivered concurrently with this Proxy
Statement. The Annual Report is not to be regarded as proxy soliciting material.
Only holders of record of the Company's common stock, $.01 par value (the
"Common Stock"), on the books of the Company at the close of business on October
27, 1997, are entitled to vote at the meeting. On that date, there were
5,300,319 issued and outstanding shares of Common Stock. The holder of each
share of Common Stock is entitled to one vote on each matter to be presented at
the meeting.
Shares represented by a properly executed proxy received in time to permit
its use at the meeting or any adjournment thereof will be voted in accordance
with the instructions indicated therein. If no instructions are indicated, the
shares represented by the proxy will be voted for the election of all nominees
for director and, in the discretion of the proxy holders, as to any other matter
which may properly come before the meeting. A shareholder who has given a proxy
may revoke it at any time before it is voted at the meeting by giving written
notice of revocation to the Secretary, by submitting a proxy bearing a later
date, or by attending the meeting and voting in person.
The expense of soliciting proxies will be borne by the Company. Proxies
will be solicited principally by mail, but directors, officers and regular
employees of the Company may solicit proxies personally, by telephone or by
facsimile transmissions. The Company will reimburse custodians, nominees or
other persons for their out-of-pocket expenses in sending proxy material to
beneficial owners.
<PAGE>
In determining the presence of a quorum at the Annual Meeting, abstentions
are counted and broker non-votes are not. The Company's By-Laws provide that the
affirmative vote of a majority of the shares represented and entitled to vote on
a matter shall be the act of the shareholders, except as otherwise provided,
among other things, by Florida law. The current Florida Business Corporation Act
(the "Act") provides that directors are elected by a plurality of the votes cast
and all other matters are approved if the votes cast in favor of the action
exceed the votes cast against the action (unless the matter is one for which the
Act or the Company's Articles of Incorporation require a greater vote).
Therefore, under the Act as to all matters to be voted on by shareholders at the
Annual Meeting, abstentions and broker non-votes have no legal effect on whether
a matter is approved.
You are requested, regardless of the number of shares you hold, to sign the
proxy and return it promptly in the enclosed envelope.
-2-
<PAGE>
PRINCIPAL STOCKHOLDERS AND
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of November 1, 1997, by each person
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, by each director, by each named executive officer, and
by all directors and officers of the Company as a group. All shares were owned
directly with sole voting and dispositive power unless otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------ -------------------- --------
<S> <C> <C>
a) Directors and Officers
Ann Spector Lieff(1)(2)(3)................ 1,410,346 26.1%
President, Chief Executive
Officer and Director
1666 Northwest 82nd Avenue
Miami, Florida 33126
Rosalind Spector Zacks(1)(3)(4)............ 1,348,326 25.2%
Vice President and Director
1666 Northwest 82nd Avenue
Miami, Florida 33126
Jeffrey J. Fletcher(3)(5).................. 155,998 2.9%
Barry J. Gibbons(3)(6)..................... 136,878 2.5%
Arthur H. Hertz(3)......................... 23,990 *
Richard J. Lampen(7)....................... 3,314 *
Martin W. Spector(8)....................... 105,938 2.0%
All directors and officers as a group
(9 persons including those
named above)(9).......................... 3,067,784 52.8%
b) Other Beneficial Owners
AWM Investment Company, Inc.(10)........... 680,400 12.8%
153 East 53rd Street, 51st Floor
New York, New York 10022
- ----------------------------
(Notes on next page.)
</TABLE>
-3-
<PAGE>
* Represents ownership of less than 1%.
(1) Ms. Lieff and Ms. Zacks have entered into an agreement whereby each
has granted to the other certain first refusal rights with respect to
the Common Stock owned by each of them and certain rights to purchase
such stock in the event of death.
(2) Does not include 2,500 shares owned by Ms. Lieff's husband, as to
which Ms. Lieff disclaims beneficial ownership. Includes 8,300 shares
held by the minor children of Ms. Lieff, over which Ms. Lieff shares
voting and investment power with Mr. Lieff, and 122,055 shares held in
the Spec's Music, Inc. 401(k) Plan over which Ms. Lieff and Ms. Zacks
have shared voting and investment power in their capacities as trustees
of such plan.
(3) This number represents outstanding shares of Common Stock owned by such
person as of November 1, 1997 plus shares which may be purchased under
stock options held by such person and presently exercisable or exercis-
able within 60 days after November 1, 1997 as follows: Ann Spector Lieff,
102,581 options; Rosalind S. Zacks, 49,450 options; Arthur H. Hertz,
18,990 options; Richard J. Lampen, 1,665 options; Donald A. Molta, 55,750
options; Jeffrey J. Fletcher, 155,998 options; and Barry J. Gibbons
130,878 options.
(4) Includes 8,300 shares held by the minor children of Ms. Zacks and 122,055
shares held in the Spec's Music, Inc. 401(k) Plan over which Ms. Lieff
and Ms. Zacks have shared voting and investment power in their capacities
as trustees of such plan.
(5) Mr. Fletcher resigned as an officer of the Company effective July 22,
1997.
(6) Mr. Gibbons resigned as an officer and director of the Company effective
June 23, 1997 and June 30, 1997, respectively.
(7) Includes 1,649 shares held by Richard J. Lampen as Custodian for
Katharine and Caroline Lampen under the Florida Gift to Minors Act.
(8) Does not include 5,049 shares owned by a trust for which Mr. Spector's
wife, Dorothy J. Spector, acts as trustee, as to which Mr. Spector
disclaims beneficial ownership.
(9) Includes 515,312 shares which may be purchased pursuant to outstanding
stock options which are presently exercisable or exercisable within 60
days after November 1, 1997. Also includes the 122,055 shares held in the
Spec's Music, Inc. 401(k) Plan over which Ms. Lieff and Ms. Zacks have
shared voting and investment power in their capacities as trustees of
such plan.
(10) Based solely on information contained in Schedule 13G dated January 8,
1997 filed with the Securities and Exchange Commission. AWM Investment
Company, Inc., a Delaware corporation ("AWM") and Austin Marxe, the
President, Chief Executive Officer and primary shareholder of AWM, are
deemed to have beneficial ownership of 680,400 shares of the Company's
Common Stock as of December 31, 1996. AWM, a registered investment visor,
serves as the sole general partner of MGP Advisors Limited Partnership, a
Delaware limited partnership ("MGP"). MGP is a general partner of, and
investment advisor to, the Special Situations Fund III, L.P., a Delaware
limited partnership (the "Fund"). Both MGP and the Fund are deemed to
have beneficial ownership of 519,400 shares of the Company's Common Stock
as of December 31, 1996. AWM also serves as the investment advisor to,
and general counsel of, the Special Situations Cayman Fund, L.P., a
limited partnership formed under the laws of the Cayman Islands (the
"Cayman Fund"). The Cayman Fund is deemed to have beneficial ownership of
161,000 shares of the Company's Common Stock as of December 31, 1996.
AWM, Mr. Marxe, MGP and
-4-
<PAGE>
the Fund each have sole dispositive power with respect to the shares
of Common Stock beneficially owned by each of them. AWM also has sole
voting power with respect to the shares of Common Stock beneficially
owned by the Cayman Fund. The Fund has sole voting power with respect to
the shares of Common Stock beneficially owned by it. Mr. Marxe has shared
voting power with respect to 519,400 shares of Common Stock and sole
voting power with respect to 161,000 shares of Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on a review of the copies of the
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended July 31, 1997, the Company's
directors and executive officers complied with all applicable filing require-
ments of Section 16(a) of the Securities Exchange Act of 1934.
-5-
<PAGE>
ELECTION OF DIRECTORS
The persons named in the accompanying form of proxy intend to vote all valid
proxies received in favor of the election of each of the persons named below as
nominees for director unless authority is withheld. Directors elected at the
meeting will serve until the next Annual Meeting of Shareholders and until their
successors are elected and qualified. In the event that any nominee is unable or
unwilling to serve, discretionary authority is reserved to the persons named in
the accompanying form of proxy to vote for substitute nominees. Management does
not anticipate that such an event will occur. Each director shall be elected by
a plurality of the votes cast.
The five nominees are currently serving as directors of the Company.
<TABLE>
<CAPTION>
Business Experience
Age as of During Past Five Years Director
Name November 1, 1997 and Directorships Since
- -------- ---------------- ----------------------------- -------
<S> <C> <C> <C>
Arthur H. Hertz(1)(2)........ 64 Chairman of the Board and Chief 1985
Executive Officer of Wometco
Enterprises, Inc., f/k/a WOM Enter-
prises, Inc., an entertainment
services company, since 1985
Richard J. Lampen(1)(2)...... 43 Executive Vice President and a 1997
director of New Valley Corporation,
an investment banking and real
estate development firm, since 1995;
Executive Vice President of Brooke
Group Ltd., a New York Stock Exchange
listed holding company, and BGLS Inc.,
a subsidiary of Brooke Group Ltd.,
which engages indirectly in the
manufacture and sale of cigarettes,
since 1996; Partner at Steel Hector
& Davis, a law firm, between 1992
and 1995; Managing Director of
Salomon Brothers Inc, an investment
banking firm, between 1991 and 1992;
Director of PC411, Inc.
Ann Spector Lieff(3).............. 45 President and Chief Executive 1979
Officer of the Company since
1980
Martin W. Spector(3).............. 92 Chairman Emeritus since 1996; 1970
Chairman of the Board of Directors
of the Company from 1980 until 1996
Rosalind Spector Zacks(3)......... 47 Vice President since 1993; Executive 1979
Vice President and Treasurer of the
Company between 1981 and 1993
</TABLE>
- ---------------------------
(1) Member of Stock Option and Compensation Committee.
(2) Member of Audit Committee.
(3) Ann Spector Lieff and Rosalind Spector Zacks are sisters, and are the
daughters of Martin W. Spector and Dorothy J. Spector (the Secretary of
the Company). There are no family relationships between any other
directors or executive officers of the Company.
-6-
<PAGE>
BOARD OF DIRECTORS
GENERAL
The Board of Directors of the Company held six meetings during fiscal 1997
and acted by written consent three times. The Board has a Stock Option and
Compensation Committee and an Audit Committee. The Stock Option and Compensation
Committee met one time and acted by written consent three times. The Audit
Committee met one time during fiscal 1997. The Board does not have a Nominating
Committee. During fiscal 1997, each director attended at least 75% of the
meetings of the Board and any committee on which such director served.
The Stock Option and Compensation Committee sets salaries and bonuses for
officers of the Company, and determines the number of stock options to be
awarded to officers and eligible employees of the Company. The Audit Committee
performs the following principal functions: recommends to the Board of Directors
the engagement of independent auditors for the ensuing year; reviews the scope
of the annual audit; reviews with auditors the results of the audit engagement,
including review of the financial statements and the management letter; and,
reviews the scope of and compliance with the Company's internal controls.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company receives an
aggregate sum of $20,000, paid quarterly, for service on the Company's Board of
Directors, regardless of the number of meetings the Board holds or the amount of
time each director devotes to the Company. Directors who are officers or
employees of the Company receive no additional compensation for attendance at
Board or committee meetings. During fiscal 1997, the Company also paid $115,840
in consulting fees to Festina, a company controlled by the Company's former
Chairman, Barry J. Gibbons. Festina provided strategic planning, marketing, and
new business development services to the Company pursuant to the terms of a
consulting agreement with the Company. The consulting agreement was terminated
effective June 30, 1997. The Company did not make any other payments to
directors with respect to participation on Board committees or with respect to
special assignments during fiscal 1997.
Under the 1996 Non-Employee Directors Stock Option Plan, members of the
Board of Directors of the Company who are not employees of the Company or any of
its subsidiaries or affiliates ("Non-Employee Directors") receive stock options
to purchase Common Stock in the Company. Each Non-Employee Director received an
initial non-qualified option to purchase 20,000 shares on the date of
effectiveness of such plan. Thereafter, each new Non-Employee Director receives
a non-qualified option to purchase 20,000 shares when such person is first
elected to the Board of Directors. In addition, each Non-Employee Director
receives a non-qualified option to purchase 2,000 shares each subsequent year
that he or she is re-elected. The initial 20,000 share grant becomes exercisable
in monthly increments of 555 shares beginning thirty days after grant, with the
grant becoming fully exercisable one year after grant. The 2,000 share grants
became exercisable one year after grant. The exercise price of all options is
the fair market value of the Company's Common Stock on the date of grant.
-7-
<PAGE>
COMPENSATION OF OFFICERS
The following table summarizes the compensation paid or accrued by the
Company for services rendered during fiscal years 1995, 1996, and 1997 by (i)
the Company's Chief Executive Officer and (ii) each of the Company's four other
most highly compensated executive officers or significant employees whose total
annual salary and bonus exceed $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
LONG TERM
COMPENSATION
AWARDS
--------- ALL
OTHER SECURITIES OTHER
NAME & PRINCIPAL FISCAL SALARY BONUS ANNUAL UNDERLYING COMPENSATION***
POSITION** YEAR ($) ($) COMPENSATION OPTIONS ($)
- ------------------ ------ ------- ------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
ANN SPECTOR LIEFF 1997 125,000 0 * 100,000 2,963
PRESIDENT & CEO 1996 125,000 0 * 0 3,083
1995 173,250 0 * 15,000 3,897
ROSALIND SPECTOR 1997 107,550 3,000 * 19,200 3,572
ZACKS 1996 107,550 0 * 0 3,864
VICE PRESIDENT 1995 137,550 0 * 7,000 4,447
JEFFRY J. FLETCHER**** 1997 172,500 75,000 * --- 0
EXECUTIVE VICE PRESIDENT, 1996 131,342 0 * 208,000 0
CHIEF OPERATING AND 1995 --- --- --- --- ---
FINANCIAL OFFICER
BARRY J. GIBBONS***** 1997 115,840 0 * --- 0
CHAIRMAN OF THE BOARD 1996 70,000 0 * 267,766 0
1995 --- --- --- --- ---
- -------------------------
</TABLE>
* Aggregate amount of Other Annual Compensation for each other person is less
than $50,000 or 10% of such person's annual salary and bonus.
** Donald A. Molta, the Company's Vice President and Chief Financial Officer,
joined the Company in December 1996, and thus received compensation for
only a portion of fiscal 1997. If Mr. Molta had been employed for a full
fiscal year as of July 31, 1997, he would have been included in this table.
Mr. Molta's annualized salary is $110,000, and his fiscal 1997 bonus was
$10,000.
*** All Other Compensation includes:
(a) contributions to the 401(k) Plan for Ms. Lieff in the amounts of $938,
$851 and $2,135 for 1997, 1996 and 1995, respectively; and for Ms. Zacks
in the amounts of $1,605, $1,656 and $1,692 for 1997, 1996 and 1995,
respectively; (b) premiums paid for long-term disability insurance for Ms.
Lieff in the
-8-
<PAGE>
amounts of $735, $942 and $1,161 for 1997, 1996 and 1995,
respectively; and for Ms. Zacks in the amounts of $507, $748 and $922 for
1997, 1996 and 1995, respectively; and (c) premiums paid for life
insurance for Ms. Lieff in the amounts of $1,290, $1,290 and $1,215 for
1997, 1996 and 1995, respectively; and for Ms. Zacks in the amounts of
$1,460, $1,460 and $1,325 for 1997, 1996 and 1995, respectively.
**** Mr. Fletcher received such compensation as the principal shareholder of
Transition Strategies, Inc. ("TSI"), a consulting company with which the
Company contracted to receive services. The consulting contract between
the Company and TSI, as well as Mr. Fletcher's term as an executive
officer of the Company, terminated effective July 22, 1997.
***** Mr. Gibbons received such compensation at the principal of Festina. Mr.
Gibbons resigned as an executive officer on June 23, 1997 and the
consulting agreement between the Company and Festina was terminated
effective June 30, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding the grant of stock
options to the named executive officers in fiscal year 1997. In addition,
hypothetical gains of 5% and 10% are shown for these stock options. These
hypothetical gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the stock options were granted over the
full option term. No stock appreciation rights were granted during the 1997
fiscal year.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Number of Options Granted Exercise Price Appreciation for
Options to Employees in Price per Expiration Option Term(1)
Name(2) Granted Fiscal Year 1997 Share Date 5% 10%
- --------------------- -------- ----------- --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ann Spector Lieff(3) 100,000 24.8% $0.6875 May 31, 2007 $34,306 $99,609
Rosalind Spector Zacks(4) 19,200 4.8% $0.6250 February 13, 2007 $ 7,547 $19,125
Jeffrey J. Fletcher(5) 0 0% $ --- --- $ --- $ ---
Barry J. Gibbons(6) 0 0% $ --- --- $ --- $ ---
</TABLE>
- ------------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term, which is
assumed to be 5 years for this purpose. These gains are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from
the date that the respective options were granted through their assumed
expiration date. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock.
(2) If Mr. Molta had been employed for a full fiscal year as of July 31,
1997, he would have been included in this table. Mr. Molta received
options to purchase 36,000 shares of Common Stock at an exercise price of
$1.00 per share and options to purchase 75,000 shares of Common Stock at an
exercise price of $0.6875 per share.
(3) The options are exercisable in monthly increments of 8,333 beginning 30
days after grant.
(4) The options are fully exercisable effective June 30, 1997.
(5) Mr. Fletcher was not an employee of the Company, but rather an employee of
TSI, a consultant to the Company. The consulting agreement between the
Company and TSI was terminated effective July 22, 1997.
(6) Mr Gibbons resigned as an officer of the Company effective June 23, 1997.
-9-
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Set forth on the following page is certain information pertaining to stock
options held by the named executive officers as of July 31, 1997. None of the
named executive officers exercised any stock options in the year ended July 31,
1997.
<PAGE>
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End(1)
Name(2) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ann Spector Lieff 45,083 102,917 $ (3) $ (3)
Rosalind Spector Zacks 45,950 5,250 (3) (3)
Jeffrey J. Fletcher 155,998 0 (3) (3)
Barry J. Gibbons 130,878 0 (3) (3)
- ---------------------------
</TABLE>
(1) Based on a fair market value of $0.625 per share for the Common Stock, as
determined by using the closing bid quotation on July 31, 1997.
(2) If Mr. Molta had been employed for a full fiscal year as of July 31, 1997,
he would have been included in this table. Of the options held by Mr.
Molta, 13,250 were exercisable and 97,750 were unexercisable as of July 31,
1997. None of such options were in the money on July 31, 1997.
(3) Options were not in-the-money on July 31, 1997.
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
GENERAL. The Company's management compensation philosophy is to attract
and retain quality executives through a combination of competitive base salaries
and performance-based bonuses. The Company also believes that its officers and
key employees should have an equity interest in the Company, either through
direct stock ownership or through ownership of stock options. As a result, the
Company grants stock options to its officers and key employees.
BASE SALARY. The Company's approach to base compensation is to offer
competitive salaries in comparison to market standards. Increases in base
compensation are based on the performance of the Company's executives, the
performance of the Company and salaries paid to officers of similar companies.
Ms. Lieff's base salary has not been increased since 1990, and was decreased in
fiscal 1996.
-10-
<PAGE>
BONUS COMPENSATION. The Company rewards its executive officers with annual
bonuses based on the performance of the Company. Bonuses are generally based on
a percentage of each executive's base salary. The percentage increases as the
Company surpasses a certain financial target for annual net income. Both the
percentages and the financial target are generally established each year by the
Stock Option and Compensation Committee. During fiscal 1997, bonuses in the
amounts of $3,000 and $10,000 were paid to Ms. Zacks and Mr. Molta, respect-
ively. Ms. Lieff has asked the Stock Option and Compensation Committee not to
grant her a bonus during the last six fiscal years in order to maximize
shareholder value.
STOCK OPTIONS. Stock options are currently the Company's principal vehicle
for payment of long-term incentive compensation. Stock options generally are
granted at the prevailing market price on the date of grant and will have value
only if the Company's stock price increases. Options granted under the Company's
employee stock option plan vest in annual 25% increments beginning one year
after the date of the grant. Grants of stock options generally are based upon
the performance of the Company, the level of the executive's position within the
Company and an evaluation of the executive's past and expected future
performance. The Company generally grants stock options on an annual basis.
During fiscal 1997, the Stock Option and Compensation Committee awarded stock
options to a group of 12 employees, who were instrumental in the Company's
transition to its new broader role in the entertainment and leisure industry.
These employees included Ms. Lieff, Ms. Zacks and Mr. Molta.
Arthur H. Hertz
Richard J. Lampen
EXECUTIVE OFFICER CONSULTING AGREEMENTS
Effective January 1, 1996, the Company entered into a consulting agreement
(the "Festina Agreement") with Barry Gibbons d/b/a Festina ("Festina"). Pursuant
to the Festina Agreement, Barry J. Gibbons agreed to serve as Chairman of the
Board of the Company, devote 40% of his business time to the Company, and
provide advice on strategic planning, marketing and new business development for
the Company. The original term of the Festina Agreement was for three years,
however, either party could terminate the Festina Agreement on 30 days written
notice during the term. The Festina Agreement was terminated by mutual
agreement effective June 30, 1997.
Effective January 23, 1996, the Company entered into a consulting agreement
(the "TSI Agreement") with Transition Strategies, Inc. ("TSI"). Pursuant to the
TSI Agreement, TSI agreed to cause Jeffrey J. Fletcher to serve as Executive
Vice President and Chief Operating Officer for the Company on a full-time basis,
and to provide financial consulting services to the Company. The term of the TSI
Agreement was three years. The TSI Agreement was terminated, however, by mutual
agreement effective July 22, 1997.
-11-
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Stock Option and Compensation Committee which sets
compensation levels for the Company's executive officers. On December 12, 1996,
the Board of Directors appointed members of the Stock Option and Compensation
Committee to serve for the ensuing year. These persons were Arthur H. Hertz and
Cynthia Cohen. Ms. Cohen resigned from the Board of Directors effective May 1,
1997. On September 26, 1997, Mr. Richard J. Lampen was appointed to the Board of
Directors, and as a member of the Stock Option and Compensation Committee. None
of the members of the Stock Option and Compensation Committee during fiscal 1997
is or has been an officer of the Company.
STOCK PERFORMANCE GRAPH
In accordance with Securities and Exchange Commission regulations, the fol-
lowing graph compares the cumulative total shareholder return to the Company's
stockholders during the five year period ended July 31, 1997 to the Nasdaq Index
(U.S. Stocks) and the Nasdaq Retail Trade Stocks Index.
Comparison of Five Year Cumulative Total Return (1)
Among Spec's Music, Inc., Nasdaq (U.S.) and Nasdaq Retail
For the Five Fiscal Years Ended July 31, 1997
1992 1993 1994 1995 1996 1997
NASDAQ US 100 122 125 176 191 282
NASDAQ RETAIL 100 105 103 122 132 156
SPEC'S MUSIC 100 89 105 74 32 13
[INSERT GRAPH]
- ------------------------
(1) Assumes that the value of the investment in the Company and each index was
$100 on July 31, 1992, and that all dividends are reinvested.
-12-
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Company leases one of its stores from the Martin W. Spector Irrevocable
Trust (the "Trust"). Dorothy J. Spector, Secretary of the Company, is a trustee
of the Trust, along with her daughters, Ann Spector Lieff and Rosalind Spector
Zacks, and her two sons. Ms. Lieff, Ms. Zacks, and their two brothers are the
beneficiaries of the Trust. During the year ended July 31, 1997, the total rents
paid to the Trust were approximately $169,000. On March 1, 1996, the Company
entered into a new lease with the Trust, which extended the expiration date
until March, 1999. The lease provides for an annual minimum rent of approxi-
mately $164,000, subject to escalation based upon a percentage of sales.
During fiscal 1994, the Company, as lessee, and the Rosalind S. Zacks Family
1989 Trust and the Lieff Family 1989 Trust (collectively, the "1989 Trusts"), as
lessor, executed a lease for a store in St. Petersburg, Florida. Ms. Lieff is
the trustee, and Ms. Zacks' son is the beneficiary, of the Rosalind S. Zacks
Family 1989 Trust. William A. Lieff, the spouse of Ms. Lieff, is the trustee,
and Ms. Lieff's daughter is the beneficiary, of the Lieff Family 1989 Trust.
During the year ended July 31, 1997, the total rents paid to the 1989 Trusts
were approximately $169,000. The lease expires on July 31, 2000 and provides the
Company with the right to renew the lease for two additional five-year terms
under the same terms and conditions as set forth in the initial term. The lease
provides for an annual minimum rental of $140,000, plus capped cost-of-living
adjustments commencing in the fourth year of the lease term, and additional rent
based upon a percentage of gross sales from the leased premises.
In addition, under each of the leases described above, the Company is, or
will be, responsible for all expenses incurred in connection with maintenance,
real estate taxes and insurance of the respective properties. The Company
believes that the terms of the leases are, or will be, no less favorable to the
Company than would be obtainable from unaffiliated parties.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Deloitte & Touche LLP,
Certified Public Accountants, 100 Southeast Second Street, Suite 2500, Miami,
Florida 33131-2135, as independent public accountants of the Company for the
ensuing year. The firm was the independent public accountants of the Company for
the fiscal year ended July 31, 1997. A representative of Deloitte & Touche LLP
is expected to be present at the meeting with the opportunity to make a state-
ment if such representative desires to do so and is expected to be available to
respond to appropriate questions.
-13-
<PAGE>
SHAREHOLDER PROPOSALS
Shareholder proposals which are to be considered for inclusion in the proxy
materials of the Company for its 1998 Annual Meeting of Shareholders must be
received by the Company by July 6, 1998. Such proposals must comply with
requirements as to the form and substance established by applicable law and
regulations in order to be included in the proxy statement.
ADDITIONAL INFORMATION
The Board of Directors is not aware of any matters to be presented at the
meeting other than the matters described herein and does not intend to bring any
other matters before the meeting. However, if any other matters should come
before the meeting, or any adjournment thereof, the persons named in the
enclosed proxy will have discretionary authority to vote all proxies in
accordance with their best judgment.
Kindly date, sign and return the enclosed proxy card.
By Order of the Board of Directors
DOROTHY J. SPECTOR
<PAGE>
SPEC'S MUSIC, INC.
1666 NORTHWEST 82ND AVENUE
MIAMI, FLORIDA 33126
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Martin W. Spector and Dorothy J.
Spector, and each of them, with power of substitution, proxies of the
undersigned, to vote all the shares of common stock of Spec's Music,
Inc. which the undersigned would be entitled to vote at the Annual
Meeting of Shareholders to be held on December 12, 1997, or any
adjournment thereof, upon the matter referred to on the reverse side
and, in their discretion, upon any other business as may come before the
meeting.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
[FOLD AND DETACH HERE]
<PAGE>
<TABLE>
<CAPTION>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSALS.
Please mark
your votes as [X]
indicated in
this example
1. ELECTION OF DIRECTORS
<S> <C> <C> <C> <C>
FOR WITHHOLD Arthur H. Hertz Ann S. Lieff Richard J. Lampen
all nominees AUTHORITY Martin W. Spector Rosalind S. Zacks
except as to vote for
indicated all nominees
[ ] [ ] (INSTRUCTION: To withhold authority to vote
for any individual nominee, strike a line
through that nominee's name in the list above).
This Proxy when properly executed will be
voted in the manner directed herein by the
undersigned shareholder. If no direction is
made, this proxy will be voted FOR the
proposals as set forth herein.
The undersigned acknowledges receipt of Notice
of Annual Meeting of Shareholders dated
November 4, 1997, and the accompanying Proxy
Statement.
Dated:__________________________________, 1997
_____________________________________________
Signature
Please sign exactly as name appears herein.
When shares are held by joint tenants, both
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 other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
[FOLD AND DETACH HERE]
</TABLE>
