SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 10-K/A
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended September 27, 1996 or
___ Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period ___________
Commission file number 0-14756
THE COSMETIC CENTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1266697
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8839 Greenwood Place Savage, Maryland 20763
(Address of principal executive offices) (Zip Code)
(301) 497-6800
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
Class B Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K.
Yes X No
As of December 9, 1996, the aggregate market value of the Class B Common
Stock (voting) held by non-affiliates of the registrant was approximately
$4,252,000.
As of December 9, 1996, the number of shares of Class A Common Stock of the
registrant issued and outstanding was 2,717,104 and of Class B Common Stock was
1,582,780.
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal years ended September 27,
1996, September 29, 1995 and September 30, 1994, the annual and long-term
compensation for services in all capacities for Cosmetic and its subsidiaries of
Cosmetic's chief executive officer and the four most highly compensated
executive officers at September 27, 1996 whose cash compensation from Cosmetic
exceeded $100,000:
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- AWARDS
NAME AND SALARY ------------ ALL OTHER
PRINCIPAL POSITION YEAR $ BONUS $ OPTIONS # COMPENSATION
- --------------------------------- ---- ------- --------- ------------ ------------
<S> <C>
Ben S. Kovalsky 1996 314,644 -- 13,500 --
President, Chief Executive 1995 306,680 -- 13,500(1) --
Officer and Chief Operating 1994 299,943 32,500 4,500 --
Officer
Mark S. Weinstein 1996 241,416 -- 15,000 8,800(2)
Chairman of the Board 1995 232,045 -- 15,000(1) 8,800(2)
of Directors 1994 225,961 32,500 5,000 6,976(2)
Allan Goldman 1996 152,396 -- 7,500 --
Senior Vice President- 1995 81,237 -- -- --
Merchandising 1994 -- -- -- --
Michael J. Lewis 1996 159,233 -- 7,500 --
Vice President-Retail 1995 157,488 -- 6,700(1) --
Operations 1994 154,519 -- 2,500 --
Bruce E. Strohl 1996 120,075 -- 7,500 --
Vice President-Finance 1995 117,814 -- 8,000(1) --
Chief Financial Officer 1994 116,953 -- 2,500 --
</TABLE>
- ---------------
(1) In February 1995, the named executive officer received stock option grants
at the then fair market value of the Cosmetic Class A common stock upon
surrendering a like number of stock options.
(2) Includes insurance premiums paid in the amount of $8,800, $8,800 and $6,976
in 1996, 1995 and 1994, respectively, by Cosmetic with respect to
split-dollar life insurance polices for the benefit of Mark S. Weinstein.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of options
under the Cosmetic 1991 Stock Option Plan (the "1991 Option Plan") to each of
the executive officers named in the Summary Compensation Table during the fiscal
year ended September 27, 1996. All options issued under the 1991 Option Plan are
for Cosmetic Class A common stock.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (3)
OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED #(1) IN FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------ ------------ --------------- --------- ---------- ------- -------
<S> <C>
Ben S. Kovalsky 13,500(2) 14.5% $4.12 2/27/2006 $34,979 $88,644
Mark S. Weinstein 15,000(2) 16.1 4.53 2/27/2001 18,773 41,484
Allan Goldman 7,500(2) 8.1 4.12 2/27/2006 19,433 49,247
Michael J. Lewis 7,500(2) 8.1 4.12 2/27/2006 19,433 49,247
Bruce E. Strohl 7,500(2) 8.1 4.12 2/27/2006 19,433 49,247
</TABLE>
- ---------------
(1) All options issued during the 1996 fiscal year to the named executive
officers were granted as incentive stock options ("ISOs") under Section 422
of the Code. The option price with respect to ISOs may not be less than 100%
of the fair market value of the common shares on the date of grant of the
option. However, in the case of an ISO granted to a person owning over 10%
of the total combined voting power of all classes of stock of Cosmetic (a
"Ten Percent Stockholder"), the option price may not be less than 110% of
such fair market value. Mark S. Weinstein is a Ten Percent Stockholder. The
aggregate fair market value (determined as of the date or dates of grant) of
the common shares subject to ISOs
<PAGE>
granted to any one person which first become exercisable in any calendar
year may not exceed $100,000. ISOs are exercisable over a specified period
not to exceed ten years from the date of grant; provided, however, that in
the case of an ISO granted to a Ten Percent Stockholder, the exercise period
may not exceed five years from the date of grant. Subject to the terms of
the 1991 Option Plan and the option agreements, options will terminate no
later than thirty days after the termination of service as an employee or
director, except that options will terminate no later than nine months after
the termination of service due to death or disability.
(2) It is anticipated that all options will be vested upon the consummation of
the Merger. The options would have first become exercisable in each calendar
year as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C>
Ben S. Kovalsky.................................................. 6,750 3,375 3,375
Mark S. Weinstein................................................ 7,500 3,750 3,750
Allan Goldman.................................................... 3,750 1,875 1,875
Michael J. Lewis................................................. 3,750 1,875 1,875
Bruce E. Strohl.................................................. 3,750 1,875 1,875
</TABLE>
(3) The potential realizable value represents the estimated future gain in the
value of the options over their exercise price. The calculation assumes a 5%
and 10% appreciation rate, as dictated by the SEC, in the per share price of
the Cosmetic Class A common stock starting on the date of grant and further
assumes that the options will be exercised on the expiration date. These
return values are not intended to be a forecast of the Cosmetic Class A
common stock price and are not necessarily indicative of the actual values
which may be realized by the named executive officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information for each of the executive
officers named in the Summary Compensation Table with respect to the options
exercised during the fiscal year ended September 27, 1996 and the value of
outstanding and unexercised options held as of September 27, 1996.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-
MONEY
NUMBER OF OPTIONS AT
SHARES NUMBER OF UNEXERCISED OPTIONS AT FISCAL YEAR
ACQUIRED FISCAL YEAR END ENDED(1)
CLASS OF ON VALUE --------------------------------- -----------
NAME STOCK EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE(2) EXERCISABLE
- ------------------ --------- ---------- ------------- ------------ ----------------- -----------
<S> <C>
Ben S. Kovalsky A -- -- 47,750 6,750 $45,525
B -- -- 27,500 -- 32,400
Mark S. Weinstein A -- -- 22,500 7,500 8,175
B -- -- -- -- --
Allan Goldman A -- -- 3,750 3,750 5,625
B -- -- -- -- --
Michael J. Lewis A -- -- 10,450 3,750 5,625
B -- -- -- -- --
Bruce E. Strohl A -- -- 13,500 3,750 8,055
B -- -- 1,750 -- 2,430
<CAPTION>
NAME UNEXERCISABLE(2)
- ------------------ ----------------
<S> <C>
Ben S. Kovalsky $ 10,125
--
Mark S. Weinstein 8,175
--
Allan Goldman 5,625
--
Michael J. Lewis 5,625
--
Bruce E. Strohl 5,625
--
</TABLE>
- ---------------
(1) At September 27, 1996 the closing market price of the Cosmetic Class A
common stock was $5.63 per share and the closing market price of the
Cosmetic Class B common stock was $5.63 per share.
(2) It is anticipated that all options will be vested upon the consummation of
the Merger.
EMPLOYMENT AGREEMENTS
Cosmetic has employment agreements with Mr. Weinstein and Mr. Kovalsky that
provide for annual salaries of $227,625 and $298,721, respectively, subject to
annual increases. The agreements require that Cosmetic provide to the respective
employee a vehicle or vehicle allowance, as well as the right to participate in
certain of Cosmetic's benefit programs.
Each of the agreements has a four-year term, commencing March 1, 1991, and
is automatically extended for successive additional 12-month periods unless a
notice to terminate such contract is given by Cosmetic at least 24 months prior
to the expiration of the term of such agreement (including any extension
thereof). The agreements provide that if the respective employee is terminated
by Cosmetic other than for "good cause," or if there is a "change in control" of
Cosmetic (as defined in the agreements), Cosmetic is obligated to pay the
employee the balance of the salary due over the remaining term of the
<PAGE>
agreement. Additionally, upon death, expiration of term, change in control of
Cosmetic, or termination other than for "good cause," Cosmetic is obligated to
purchase all of the employees' options (vested or unvested), which totaled
112,000 options at January 24, 1997. Payments would be based upon the difference
between the market value of the Cosmetic Class A or Class B common stock, as the
case may be, on the termination date and the exercise prices of the options.
Each agreement provides that, during the term of the agreement and for two
years thereafter, the employee will not, directly or indirectly, own, control,
manage, or operate stores similar to those operated by Cosmetic in Maryland,
Virginia, Illinois, or the District of Columbia or within a 50 mile radius of
any other city where Cosmetic is operating retail stores.
The agreement with Mr. Weinstein requires that Cosmetic continue in effect
a life insurance policy in the face amount of $1,000,000. Cosmetic pays the
annual premium of $8,800 on the policy. Cosmetic is the beneficiary of the
policy to the extent of the premiums paid by it and the balance of the benefits
are payable to beneficiaries designated by Mr. Weinstein. The agreement with Mr.
Kovalsky requires that Cosmetic reimburse him, up to a maximum amount of $4,000,
for the annual premium cost of various personal insurance policies owned by him.
Cosmetic has employment agreements with Allan Goldman, Michael Lewis and
Bruce Strohl that currently provide for annual salaries of $150,000, $150,380,
and $140,000, respectively, subject to annual increases. Mr. Goldman's agreement
commenced on October 1, 1996. Mr. Lewis's and Mr. Strohl's agreements commenced
on August 1, 1995. The agreements have a one-year term and are automatically
extended for successive additional 12-month periods unless a notice to terminate
the agreement is given by Cosmetic at least 90 days prior to the expiration of
the term of the agreement (including any extension thereof). The agreements
provide that if Messrs. Goldman, Lewis or Strohl are terminated by Cosmetic
without cause or after the expiration of the term, Cosmetic is obligated to pay
the employee an amount equal to one year's salary. Upon the death of the
employee, the agreement is terminated and the Cosmetic's only obligation is the
payment of the unpaid portion of accrued compensation up to the date of death.
DIRECTOR COMPENSATION
Cosmetic pays each director who is not an officer or employee of Cosmetic
or any affiliate $2,000 as director fees for each Cosmetic Board meeting and
$1,000 for each audit committee meeting attended. Directors who are officers or
employees of Cosmetic or any affiliate receive no additional cash compensation
for service as directors. For the fiscal year ended September 27, 1996, Cosmetic
paid directors fees of $10,000 to each of Mr. Rogers and Mr. Hirschel and audit
committee fees of $2,000 to each of Mr. Rogers and Mr. Hirschel.
Anita J. Weinstein and Mr. Rogers are members of the stock option
committee. In that capacity, pursuant to the terms of the 1991 Option Plan, they
receive annually on January 15th non-discretionary, fully vested grants of
non-qualified options for 20,000 and 1,000 shares of Cosmetic Class A common
stock, respectively. Mrs. Weinstein's options are issued at 110% of fair market
value at the date of grant and terminate five years thereafter. Mr. Rogers'
options are issued at fair market value at the date of grant and terminate ten
years thereafter.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the beneficial
ownership of Cosmetic common stock as of January 27, 1997, (i) by each such
person who is known by Cosmetic to own beneficially more than five percent (5%)
of the Cosmetic Class A or Class B common stock, (ii) by each director and
officer of Cosmetic and (iii) by all directors and officers of Cosmetic as a
group. Except as indicated, each stockholder has sole voting and investment
power with respect to all shares shown as beneficially owned by such
stockholder. Currently exercisable options include 18,748 options which will
become exercisable as a result of the Merger.
<TABLE>
<CAPTION>
COSMETIC CLASS A COMMON COSMETIC CLASS B COMMON
STOCK STOCK
-------------------------- --------------------------
AMOUNT AND PERCENT OF AMOUNT AND PERCENT OF
NAME NATURE CLASS (1) NATURE CLASS (2)
- --------------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C>
Anita J. Weinstein............................................. 149,544(3) 5.3 605,995 38.3
Mark S. Weinstein.............................................. 146,519(4) 5.3 120,512(5) 7.6
Susan K. Magenheim............................................. 78,850(6) 2.7 86,843(7) 5.5
Weinstein Family Limited Partnership........................... 473,728(8) 17.4 -0- *
Ben S. Kovalsky................................................ 59,500(9) 2.1 32,500(10) 2.0
Donald R. Rogers............................................... 8,500(11) * 4,500(12) *
Ronald M. Hirschel............................................. 1,810(13) * 605(14) *
Allan Goldman.................................................. 8,500(15) * -0- *
Michael J. Lewis............................................... 14,200(16) * -0- *
Bruce E. Strohl................................................ 21,250(17) * 2,750(18) *
Brown Capital Management, Inc.................................. -0- * 210,200(19) 13.3
All directors and officers as a group (12 persons)............. 972,401(20) 32.7 854,205(21) 52.9
</TABLE>
- ---------------
* Less than 1% of the outstanding shares.
(1) Based on 2,717,104 shares of Cosmetic Class A common stock outstanding plus
256,850 currently exercisable options for the individual officers.
(2) Based on 1,582,780 shares of Cosmetic Class B common stock outstanding plus
30,750 currently exercisable options for the individual officers.
(3) Includes 100,000 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options. Excludes shares held by the
Weinstein Family Limited Partnership. See Note 8.
(4) Includes 30,000 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options, 2,036 shares of Cosmetic Class A
common stock owned by his wife and 26,260 shares of Cosmetic Class A
common stock held by him in trust for his nephews and niece, over which
shares he disclaims any beneficial interest. Also excludes shares held by
the Weinstein Family Limited Partnership. See Note 8.
(5) Includes 6,888 shares of Cosmetic Class B common stock owned by his wife
and 17,722 shares of Cosmetic Class B common stock held by him in trust for
his nephews and niece, over which shares he disclaims any beneficial
interest.
(6) Includes 12,400 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options, 2,424 shares of Cosmetic Class A
common stock owned by her husband and 37,453 shares of Cosmetic Class A
common stock held by her in trust for her nephew and niece, over which
shares she disclaims any beneficial interest. Also excludes shares held by
the Weinstein Family Limited Partnership. See Note 8.
(7) Includes 29,085 shares of Cosmetic Class B common stock held by her in
trust for her nephew and niece, over which shares she disclaims any
beneficial interest.
(8) Anita J. Weinstein, Mark S. Weinstein, and Susan K. Magenheim hold a
38.50%, 30.75% and 30.75% partnership interest, respectively, in the
Weinstein Family Limited Partnership.
(9) Includes 54,500 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(10) Includes 27,500 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options.
(11) Includes 6,000 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options and 2,000 shares of Cosmetic
Class A common stock owned by his wife, over which shares he disclaims any
beneficial interest.
(12) Includes 1,000 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options and 2,000 shares of Cosmetic
Class B common stock owned by his wife, over which shares he disclaims any
beneficial interest.
<PAGE>
(13) Includes 80 shares of Cosmetic Class A common stock owned by his wife and
1,170 shares of Cosmetic Class A common stock held by him in trust for his
children, over which shares he disclaims any beneficial interest.
(14) Includes 55 shares of Cosmetic Class B common stock owned by his wife.
(15) Includes 7,500 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(16) Includes 14,200 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(17) Includes 17,250 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options.
(18) Includes 1,750 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options.
(19) Based upon Schedule 13G filed with the SEC on April 15, 1996, Brown Capital
Management, Inc., 809 Cathedral Street, Baltimore, Maryland 21201, has sole
voting power with respect to 168,000 of these shares.
(20) Includes 256,850 shares of Cosmetic Class A common stock issuable upon
exercise of currently exercisable options, 63,713 shares of Cosmetic Class
A common stock held by Mark S. Weinstein or Susan K. Magenheim in trust for
their respective nephews or nieces and 1,170 shares of Cosmetic Class A
common stock held by Ronald M. Hirschel in trust for his children.
(21) Includes 30,750 shares of Cosmetic Class B common stock issuable upon
exercise of currently exercisable options and 46,807 shares of Cosmetic
Class B common stock held by Mark S. Weinstein or Susan K. Magenheim in
trust for their respective nephews and nieces.
Item 13. Certain Relationships and Related Transactions.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.
THE COSMETIC CENTER, INC.
By /s/ Mark S. Weinstein
Mark S. Weinstein
Date: January 28, 1997 Chairman of the Board of Directors
By /s/ Anita J. Weinstein
Anita J. Weinstein
Date: January 28, 1997 Vice Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
Date
<S> <C>
1/28/97 /s/ Mark S. Weinstein Chairman of the Board of Directors
Mark S. Weinstein
1/28/97 /s/ Anita J. Weinstein Vice Chairman, Vice President,
Anita J. Weinstein Secretary, and Director
1/28/97 /s/ Ben S. Kovalsky President, Chief Executive Officer, Chief
Ben S. Kovalsky Operating Officer and Director
1/28/97 /s/ Susan K. Magenheim Vice President, Assistant Secretary
Susan K. Magenheim and Director
1/28/97 /s/ Donald R. Rogers Director
Donald R. Rogers
1/28/97 /s/ Ronald M. Hirschel Director
Ronald M. Hirschel
1/28/97 /s/ Bruce E. Strohl Vice President - Finance
Bruce E. Strohl and Chief Financial Officer
1/28/97 /s/ Arlene H. Wright Controller and Chief Accounting Officer
Arlene H. Wright
</TABLE>
