SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
-----------------
Or______
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number: 0-15491
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PARLUX FRAGRANCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 22-2562955
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
3725 S.W. 30th Avenue, Ft. Lauderdale, FL 33312
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 954-316-9008
----------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate with an "X" 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 ____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate with an "X" whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15( d ) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 11, 2000, 10,622,256 shares of the issuer's common stock
were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
--------------------
See pages 9 to 20.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
The Company may periodically release forward-looking statements pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements, including those in this Form 10-Q, involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements of the Company or its industry to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These risks and
uncertainties include, among others, collectability of trade receivables, future
trends in sales and the Company's ability to introduce new products in a
cost-effective manner. Readers are cautioned not to place undue reliance on
these forward statements, which speak only as of the date thereof. The Company
undertakes no obligation to publicly release the result of any revisions to
those forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's ( the Company's ) financial
position and operating results during the periods included in the accompanying
financial statements and notes. This discussion and analysis should be read in
conjunction with such financial statements and notes.
Recent Developments
- -------------------
Effective January 1, 2000, the Company entered into an exclusive licensing
agreement with PEZ Candy, Inc. ("PEZ"), to manufacture and distribute men's and
women's fragrances and other related products under the PEZ trademark throughout
the Western Hemisphere. The Company anticipates launching the first PEZ
fragrances for the Spring 2001 season.
The Company had net sales of $22,677,549 and $16,546,782 during the nine-month
periods ended December 31, 1999 and December 31, 1998, respectively, to
Perfumania, Inc. (Perfumania), a company in which the Company's Chairman and
Chief Executive Officer has an ownership interest and holds identical management
positions. Net amounts due from Perfumania totaled $9,451,828 (after giving
effect to the stock transaction discussed below) and $18,258,213 at December 31,
1999 and March 31, 1999, respectively. Amounts due from related parties are
non-interest bearing and are realizable in less than one year, except for the
subordinated note receivable discussed below.
2
<PAGE>
During the period from April 1, 1999 through December 31, 1999, the Company
collected $22.3 million from Perfumania, including 100% of the total of the
outstanding receivable at March 31, 1999, excluding the effect of the stock
transaction discussed below.
On July 1, 1999, Perfumania and the Company's Board of Directors approved the
transfer of 1,512,406 shares of Perfumania treasury stock to the Company in
consideration for a partial reduction of the outstanding trade receivable
balance in the amount of $4,506,970. The transfer price was based on a per share
price of $2.98, which approximated 90% of the closing price of Perfumania's
common stock for the previous 20 business days. In connection with the transfer
of the shares, the parties executed a registration rights agreement whereby the
Company would be able to demand registration of the shares with the Securities
and Exchange Commission at any time after February 29, 2000. Both agreements
were consummated on August 31, 1999.
In addition, on October 4, 1999, the parties entered into an agreement which
converted $8 million of the outstanding trade receivable into a subordinated
secured note receivable. The note bears interest at prime plus one percent and
is repayable in installments of $3,000,000 in October 1999, six equal monthly
installments of $500,000 from November 1999 through April 2000, with the balance
of $2,000,000 due on May 31, 2000. As of December 31, 1999, $4,000,000 of the
note receivable had been repaid in accordance with its terms.
During the period of January 1, 2000 through February 11, 2000, the Company
received cash payments of $6.25 million from Perfumania, including the $500,000
installment due under the note receivable.
As indicated in various public press releases, Perfumania has reported both
aggregate and comparative store sales increases for each of the months during
the period February 1999 through January 2000. In addition during September
1999, its subsidiary, perfumania.com, successfully completed a public offering
in which Perfumania also sold one million of its perfumania.com shares,
subsequently selling an additional two million shares in January 2000,
generating over $18 million in cash from the two transactions. Based on the
factors described above, management believes that the receivable from Perfumania
is fully collectible.
Results of Operations
- ---------------------
Comparison of the three-month period ended December 31, 1999 with the
- ----------------------------------------------------------------------
three-month period ended December 31, 1998.
- -------------------------------------------
During the quarter ended December 31, 1999, net sales increased 40% to
$16,631,430 as compared to $11,909,529 for the same period for the prior year.
The increase is primarily attributable to the improvement in International
sales, which were negatively affected in the prior year period by global
economic difficulties, and the continuing strength of the Perry Ellis brand.
Approximately $2,578,000 of the increase related to the initial launch of the
Perry Ellis "Portfolio for Men" fragrance, which is expected to continue its
roll-out
3
<PAGE>
through the Spring of 2000. Total gross sales of all Perry Ellis brands
increased 67% compared to the same period in the prior year from $8,053,666 to
$13,442,926.
Sales to unrelated customers increased 52% to $11,198,555 in the current period,
compared to $7,357,850 in the same period in the prior year. Sales to related
parties increased 19% to $5,432,875 in the current quarter compared to
$4,551,679 during the comparable period.
Cost of goods sold increased as a percentage of net sales from 31% for the
quarter ended December 31, 1998 to 42% for the current quarter. The increase was
mainly attributable to the sale of certain closeout merchandise to international
customers at approximately cost. Cost of goods sold on sales to unrelated
customers and related parties approximated 44% and 36%, respectively, during the
quarter ended December 31, 1999, as compared to 25% and 40%, respectively, in
the prior year comparable quarter.
Operating expenses for the current quarter increased by 17% compared to the
prior fiscal year period from $7,677,681 to $8,984,179, decreasing as a
percentage of net sales from 64% to 54%. Advertising and promotional expenses
increased 12% to $4,913,635 compared to $4,381,908 in the prior year period, but
decreased as a percentage of net sales from 37% to 30%. Selling and distribution
costs increased 11% to $1,621,000 in the current quarter as compared to
$1,459,158 in the same period of the prior fiscal year, decreasing as a
percentage of net sales from 12% to 10%. General and administrative expenses
decreased by 6% compared to the prior year period from $987,215 to $928,913,
decreasing as a percentage of net sales from 8% to 6%. Depreciation and
amortization increased $342,038 as a result of increased amortization of
goodwill due to the cancellation of the Baryshnikov license agreement. Royalties
increased to $563,691 for the current period compared to $234,498 in the prior
year, and increased as a percentage of sales from 2% to 3%, primarily due to the
increase in sales of Perry Ellis brand products as a percentage of total sales.
As a result of the above, the Company had operating income of $698,740 or 4% of
net sales for the three-month period ended December 31, 1999, compared to
$567,373 or 5% of net sales for the comparable period in the prior year. The
current quarter includes a $541,013 gain on the sale of perfumania.com common
stock, which was originally purchased during October 1999. Net interest expense
decreased to $228,714 in the current quarter as compared to $427,099 in the same
period in the prior year, reflecting the reduction in average borrowings
outstanding coupled with interest earned on notes receivable during the period.
There were exchange losses of $3,355 in the current quarter as compared to
losses of $11,072 in the same period in the prior year. Income before taxes for
the current quarter was $1,007,684 or 6% of net sales compared to $129,202 or 1%
of net sales in the same period in the prior year.
Giving effect to the tax provision, net income amounted to $624,764 or 4% of net
sales for the current quarter ended December 31, 1999, as compared to $80,106 or
1% of net sales for the same quarter in the prior fiscal year.
4
<PAGE>
Comparison of the nine-month period ended December 31, 1999 with the nine-month
- -------------------------------------------------------------------------------
period ended December 31, 1998.
- -------------------------------
During the nine months ended December 31, 1999, net sales increased 18% to
$51,262,765 as compared to $43,353,260 for the same period for the prior year.
The increase is mainly attributable to the continuing strength of Perry Ellis
brand products. Approximately $5,496,000 of the increase is related to the
initial launch of the Perry Ellis "Portfolio for Men" fragrance, which is
expected to continue its roll-out through the Spring of 2000. Total sales of all
Perry Ellis brands increased 35% compared to the same period in the prior year
from $28,389,148 to $38,333,927.
Sales to unrelated customers increased 7% to $28,585,216 in the current period,
compared to $26,806,478 in the same period in the prior year. Sales to related
parties increased 37% to $22,677,549 in the current period compared to
$16,546,782 in the same period in the prior fiscal year.
Cost of goods sold increased as a percentage of net sales from 38% for the nine
months ended December 31, 1998 to 44% for the current period. The increase was
mainly attributable to the sale of certain close-out merchandise to
international customers at or below cost. Cost of goods sold on sales to
unrelated customers and related parties approximated 45% and 42%, respectively,
during the nine months ended December 31, 1999, as compared to 34% and 45%,
respectively, during the nine months ended December 31, 1998.
Operating expenses for the current nine-month period were slightly higher
compared to the prior fiscal year period from $23,550,941 to $23,700,259,
decreasing as a percentage of net sales from 54% to 46%. Advertising and
promotional expenses decreased 6% to $11,980,171 compared to $12,758,522 in the
prior year period, reflecting a decrease in print advertising and promotional
expenses in connection with the launch of Fred Hayman's "Hollywood for Women"
which occurred during the same period in the prior year. Selling and
distribution costs remained relatively constant at $4,487,176 in the current
fiscal period as compared to $4,526,177 in the same period of the prior fiscal
year, decreasing as a percentage of net sales from 10% to 9%. General and
administrative expenses decreased by 11% compared to the prior year period from
$3,189,925 to $2,843,065, decreasing as a percentage of net sales from 7% to 6%.
The above decreases reflect the effect of the Company's restructuring during the
quarter ended March 31, 1998, which was implemented during the quarter ended
June 30, 1998, coupled with certain non-recurring professional and consulting
fees which were incurred during the prior year period. Depreciation and
amortization increased $702,593 as a result of the increased amortization of
goodwill due to the cancellation of the Baryshnikov license agreement. Royalties
increased to $1,829,968 for the current period compared to $1,219,031 in the
prior year, and increased as a percentage of sales from 3% to 4% primarily due
to the increase in sales of Perry Ellis brand products as a percentage of total
sales.
As a result of the above, the Company had operating income of $4,990,056 or 10%
of net sales for the nine-month period ended December 31, 1999, compared to
$3,265,272 or 8% of net sales for the comparable period in the prior year. Net
interest expense
5
<PAGE>
decreased to $815,291 in the current fiscal year as compared to $1,436,818 in
the same period in the prior year, reflecting the reduction in average
borrowings outstanding coupled with interest earned on notes receivable during
the current period. There were exchange losses of $3,355 in the current year as
compared to losses of $108,111 in the same period in the prior year. The current
period includes a $541,013 gain on the sale of perfumania.com common stock,
which was originally purchased during October 1999. Income before taxes for the
current fiscal year was $4,712,423 or 9% of net sales compared to $1,720,343 or
4% of net sales in the same period in the prior year.
Giving effect to the tax provision, net income amounted to $2,921,702 or 6% of
net sales for the nine months ended December 31, 1999, as compared to $1,066,613
or 2% of net sales for the same period in the prior fiscal year.
Liquidity and Capital Resources
- -------------------------------
Working capital decreased to $35,530,771 as of December 31, 1999, compared to
$38,616,032 at March 31, 1999, reflecting the current period's net income and
unrealized gain on investment in affiliate, offset by the purchase of $7,502,000
in treasury stock as discussed below.
See "Recent Developments" for discussion of trade receivables from related
parties.
In September 1999, the Company completed the fourth phase of its common stock
buy-back program involving 2,000,000 shares. In connection therewith, the Board
of Directors authorized the repurchase of an additional 2,500,000 shares. As of
December 31, 1999, the Company had repurchased under all phases a total of
6,363,746 shares at a cost of $15,595,533. The accompanying consolidated balance
sheets also include an additional 39,000 shares of treasury stock purchased at a
cost of $133,472 prior to fiscal 1996.
In May 1997, the Company entered into a three-year loan and Security Agreement
(the Credit Agreement) with General Electric Capital Corporation (GECC). Under
the Credit Agreement, the Company is able to borrow, on a revolving basis,
depending on the availability of a borrowing base, up to $25,000,000 at an
interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal
prime rate, at the Company's option.
Substantially all of the domestic assets of the Company collateralize this
borrowing. The Credit Agreement contains customary events of default and
covenants which prohibit, among other things, incurring additional indebtedness
in excess of a specified amount, paying dividends, creating liens, and engaging
in mergers and acquisitions without the prior consent of GECC. The Credit
Agreement also contains certain financial covenants relating to net worth,
interest coverage and other financial ratios. As of March 31, 1999, the Company
was not in compliance with financial covenants relating to "Earnings Before
Interest, Taxes, Depreciation and Amortization" (EBITDA), minimum fixed charge
coverage ratio, maximum accounts receivable from related parties and employees,
minimum unrelated customer net sales, as well as a restricted payment covenant
concerning the amount of treasury stock which can be purchased by the Company.
GECC waived the violations of these debt covenants for the year ended March 31,
1999
6
<PAGE>
and through June 30, 1999, and amended the Credit Agreement to reflect changes
in certain covenants going forward.
Due to the significant treasury stock purchases under the Company's stock buy
back program, as of December 31, 1999, the Company was not in compliance with
financial covenants relating to tangible net worth and minimum fixed charge
coverage ratio, as well as the restrictive payment covenants exceeding the
amount of treasury stock which can be purchased as well as advances to related
parties and employees. Although the Company has not requested a waiver,
management anticipates negotiating a waiver of this non-compliance and a
modification of the covenants for future periods.
The Credit Agreement is scheduled to expire during May 2000. Management believes
that, based on current circumstances, the Company will be able to amend the
restrictive payment covenants and either extend the Credit Agreement or obtain
sufficient financing from alternative sources. However, there can be no
assurance that such amendments or waivers will be obtained and alternative
financing will be available in the future.
Year 2000 ("Y2K") Issues
- ------------------------
As of December 31, 1999, the Company's management information system hardware
consisted of an IBM AS/400, coupled with networked personal computer
workstations. The Company has upgraded its JD Edwards software to the latest
release, which is Y2K compliant. JD Edwards released its final Y2K upgrade
during September 1999 which the Company recently implemented. In connection
therewith, a hardware upgrade has been completed on its 9406 processor from a
model 310 to a model 620, which more than doubles the commercial processing
workload (CPW) to support the new release and other business applications. In
addition, the upgrade of the Company's Pitney Bowes shipping system was
completed during November 1999. The new upgrade interfaces fully with the AS/400
and JD Edwards software. The costs incurred in connection with the upgrades,
including outside consultants, amounted to approximately $300,000.
To date, the Company has not encountered any significant Y2K problem, and
continues to devote the necessary internal resources to ensure all Y2K issues
are addressed in a timely manner. Internal modifications to all personnel
computer operating systems have been completed. Testing of electronic data
interchange (EDI) modifications with all major customers has also been
completed. Verification of Y2K compliance with major suppliers continues,
however, no significant problems have been encountered.
Management believes that such processing issues, if any, will be resolved.
Nevertheless, if the Company, its customers or suppliers are unable to resolve
such processing issues, it could result in material financial risks such as the
inability to produce and distribute the Company's products. Contingency plans
for order processing are already in place.
Impact of Currency Exchange
- ---------------------------
The Company has completed the centralization of manufacturing in the United
States and closed its French operations which eliminated the currency exchange
risk associated therewith.
7
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risks
-----------------------------------------------------------
During the quarter ended December 31, 1999, there have been no material changes
in the information about the Company's market risks as of March 31, 1999, as set
forth in Item 7A of the 1999 Form 10-K.
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
There are no legal proceedings of any significance.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 12, 1999, the Company held its annual meeting. The following is a
summary of the proposals and corresponding votes.
Item No. 1 Nomination and Election of Directors
------------------------------------
The seven nominees named in the proxy statement were elected, with
each director receiving more than 98% of the votes cast.
Item No. 2 Ratification of PricewaterhouseCoopers LLP as Independent Accountants
---------------------------------------------------------------------
Over 99% of the votes were cast in favor of the proposal.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit No. Description
----------- -----------
10.51 Employment Agreement, with Ilia Lekach, dated as of November 1, 1999.
10.52 Employment Agreement, with Frank A. Buttacavoli, dated as of November
1, 1999.
10.53 Employment Agreement, with Ruben Lisman, dated as of November 1, 1999.
10.54 Consulting Agreement, with Cosmix, Inc., dated as of November 1, 1999.
10.55 Consulting Agreement, with Cambridge Development Corp., dated as of
November 1, 1999.
27 Financial Data Schedule (for SEC use only).
(b) There were no filings on Form 8-K during the period.
8
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1999 1999
- ------------------------------------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 439,653 $ 184,148
Receivables, net of allowance for doubtful accounts,
sales returns and advertising allowances of approximately
$4,834,000 and $2,113,000, respectively 7,969,077 7,649,397
Trade receivables from related parties 9,451,828 18,258,213
Note receivable from related party 4,000,000 --
Inventories, net 21,359,988 20,947,256
Prepaid expenses and other current assets 7,676,051 9,596,478
Investment in affiliate 4,877,358 --
Income tax receivable -- 140,000
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TOTAL CURRENT ASSETS 55,773,955 56,775,492
Equipment and leasehold improvements, net 1,609,283 1,692,732
Trademarks, licenses and goodwill, net 22,153,890 23,926,073
Other 109,166 112,949
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TOTAL ASSETS $ 79,646,294 $ 82,507,246
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
CURRENT LIABILITIES:
Borrowings, current portion $ 10,815,975 $ 10,885,068
Accounts payable 7,475,148 5,314,770
Accrued expenses 1,095,379 1,722,681
Income taxes payable 856,682 236,941
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TOTAL CURRENT LIABILITIES 20,243,184 18,159,460
Borrowings, less current portion 2,824,144 3,561,313
Deferred tax liability 505,783 505,783
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TOTAL LIABILITIES 23,573,111 22,226,556
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COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares authorized,
0 shares issued and outstanding at December 31 and March 31, 1999 -- --
Common stock, $0.01 par value, 30,000,000 shares
authorized, 17,462,978 and 17,462,478 shares
issued at December 31 and March 31, 1999, respectively 174,630 174,625
Additional paid-in capital 73,031,269 73,030,586
Accumulated deficit (1,424,247) (4,345,949)
Accumulated other comprehensive income (loss) 20,534 (351,505)
------------ ------------
71,802,186 68,507,757
Less - 6,402,746 and 3,655,031 shares of common stock in
treasury, at cost, at December 31 and March 31, 1999, respectively (15,729,003) (8,227,067)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 56,073,183 60,280,690
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 79,646,294 $ 82,507,246
============ ============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31, Nine months ended December 31,
--------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales:
Unrelated customers $ 11,198,555 $ 7,357,850 $ 28,585,216 $ 26,806,478
Related parties 5,432,875 4,551,679 22,677,549 16,546,782
------------ ------------ ------------ ------------
16,631,430 11,909,529 51,262,765 43,353,260
Cost of goods sold 6,948,511 3,664,475 22,572,450 16,537,047
------------ ------------ ------------ ------------
Gross margin 9,682,919 8,245,054 28,690,315 26,816,213
------------ ------------ ------------ ------------
Operating expenses:
Advertising and promotional 4,913,635 4,381,908 11,980,171 12,758,522
Selling and distribution 1,621,000 1,459,158 4,487,176 4,526,177
General and administrative, net of licensing
fees of $162,500 and $475,000 in 1999,
and $150,000 and $425,000 in 1998, for
the three and nine-month periods, respectively 928,913 987,215 2,843,065 3,189,925
Depreciation and amortization 956,940 614,902 2,559,879 1,857,286
Royalties 563,691 234,498 1,829,968 1,219,031
------------ ------------ ------------ ------------
Total operating expenses 8,984,179 7,677,681 23,700,259 23,550,941
------------ ------------ ------------ ------------
Operating income 698,740 567,373 4,990,056 3,265,272
Gain on sale of securities (541,013) -- (541,013) --
Interest expense and bank charges, net 228,714 427,099 815,291 1,436,818
Exchange losses 3,355 11,072 3,355 108,111
------------ ------------ ------------ ------------
Income before income taxes 1,007,684 129,202 4,712,423 1,720,343
Income tax provision 382,920 49,096 1,790,721 653,730
------------ ------------ ------------ ------------
Net income $ 624,764 $ 80,106 $ 2,921,702 $ 1,066,613
============ ============ ============ ============
Income per common share:
Basic $ 0.05 $ 0.01 $ 0.23 $ 0.07
============ ============ ============ ============
Diluted $ 0.05 $ 0.01 $ 0.22 $ 0.07
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
RETAINED
----------------------------- ADDITIONAL EARNINGS
NUMBER PAR PAID-IN (ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE at April 1, 1997 17,447,478 $ 174,475 $ 73,007,949 $ 2,922,519
Comprehensive loss:
Net loss -- -- -- (8,686,923)
Foreign currency translation adjustment
Total comprehensive loss
Purchase of 2,069,700 shares of treasury stock, at cost
------------ ------------ ------------ ------------
BALANCE at March 31, 1998 17,447,478 174,475 73,007,949 (5,764,404)
Comprehensive income:
Net income -- -- -- 1,418,455
Foreign currency translation adjustment -- -- -- --
Total comprehensive income
Issuance of common stock upon exercise of employee options 15,000 150 22,637 --
Purchase of 1,165,276 shares of treasury stock, at cost -- -- -- --
------------ ------------ ------------ ------------
BALANCE at March 31, 1999 17,462,478 174,625 73,030,586 (4,345,949)
Comprehensive income:
Net income -- -- -- 2,921,702
Unrealized holding gains on investment in affiliate, net -- -- -- --
Foreign currency translation adjustment -- -- -- --
Total comprehensive income
Issuance of common stock upon exercise of employee options 500 5 683 --
Purchase of 2,747,715 shares of treasury stock, at cost -- -- -- --
------------ ------------ ------------ ------------
BALANCE at December 31, 1999 17,462,978 $ 174,630 $ 73,031,269 $ (1,424,247)
============ ============ ============ ============
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TREASURY
(LOSS) INCOME (1) STOCK TOTAL
----------------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE at April 1, 1997 ($ 103,562) ($ 1,882,646) $ 74,118,735
Comprehensive loss:
Net loss -- -- (8,686,923)
Foreign currency translation adjustment (251,769) (251,769)
------------
Total comprehensive loss -- -- (8,938,692)
------------
Purchase of 2,069,700 shares of treasury stock, at cost (4,011,604) (4,011,604)
------------ ------------ ------------
BALANCE at March 31, 1998 (355,331) (5,894,250) 61,168,439
Comprehensive income:
Net income -- -- 1,418,455
Foreign currency translation adjustment 3,826 -- 3,826
------------
Total comprehensive income 1,422,281
------------
Issuance of common stock upon exercise of employee options -- -- 22,787
Purchase of 1,165,276 shares of treasury stock, at cost -- (2,332,817) (2,332,817)
------------ ------------ ------------
BALANCE at March 31, 1999 (351,505) (8,227,067) 60,280,690
Comprehensive income:
Net income -- -- 2,921,702
Unrealized holding gains on investment in affiliate, net 370,388 -- 370,388
Foreign currency translation adjustment 1,651 -- 1,651
------------
Total comprehensive income 3,293,741
------------
Issuance of common stock upon exercise of employee options 688
Purchase of 2,747,715 shares of treasury stock, at cost -- (7,501,936) (7,501,936)
------------ ------------ ------------
BALANCE at December 31, 1999 $ 20,534 $(15,729,003) $ 56,073,183
============ ============ ============
</TABLE>
(1) Accumulated other comprehensive (loss) income includes foreign currency
translation adjustments and unrealized holding gains on investment in
affiliate.
See notes to consolidated financial statements.
11
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended December 31,
---------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,921,702 $ 1,066,613
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,559,879 1,857,286
Provision for doubtful accounts 430,000 190,000
Reserve for prepaid promotional supplies and inventory obsolescence 850,000 754,974
Gain on sale of securities (541,013) --
Changes in assets and liabilities net of effect of sold brands:
(Increase) decrease in trade receivables - customers (749,680) 1,229,437
(Increase) decrease in trade receivables - related parties (3,700,585) 100,801
Decrease in note receivable - related party 4,000,000 --
(Increase) decrease in inventories (862,732) 459,196
Decrease in prepaid expenses and other current assets 1,520,427 79,432
Decrease in income tax receivable 140,000 4,161,259
Decrease in other non-current assets 3,783 1,486,956
Increase (decrease) in accounts payable 2,160,378 (3,794,060)
Decrease in accrued expenses (627,302) (856,734)
Increase in income taxes payable 619,741 244,697
----------- -----------
Total adjustments 5,802,896 5,913,244
----------- -----------
Net cash provided by operating activities 8,724,598 6,979,857
----------- -----------
Cash flows from investing activities:
Proceeds from sale of securities 2,276,018 --
Purchase of securities (1,735,005) --
Purchases of equipment and leasehold improvements (615,441) (334,745)
Purchase of trademarks (88,806) (101,305)
Cash received from brand licensing:
Bal a Versailles -- 200,000
----------- -----------
Net cash used in investing activities (163,234) (236,050)
----------- -----------
Cash flows from financing activities:
Payments - note payable to GE Capital (98,050) (5,298,559)
Payments - note payable to Fred Hayman Beverly Hills (442,159) (411,326)
Payments - note payable to Lyon Credit Corp. (135,717) (121,555)
Payments - note payable to Bankers Capital Leasing (90,736) --
Payments - note payable to International Finance Bank -- (185,472)
(Payments) proceeds - other notes payable (39,600) 81,279
Purchases of treasury stock (7,501,936) (983,466)
Proceeds from issuance of common stock 688 22,787
----------- -----------
Net cash used in financing activities (8,307,510) (6,896,312)
----------- -----------
Effect of exchange rate changes on cash 1,651 5,233
----------- -----------
Net increase (decrease) in cash and cash equivalents 255,505 (147,272)
Cash and cash equivalents, beginning of period 184,148 205,760
----------- -----------
Cash and cash equivalents, end of period $ 439,653 $ 58,488
=========== ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
A. Basis of Presentation
The consolidated financial statements include the accounts of Parlux Fragrances,
Inc. and subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were prepared in
accordance with generally accepted accounting principles for interim financial
information and the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The financial
information presented herein, which is not necessarily indicative of results to
be expected for the current fiscal year, reflects all adjustments which, in the
opinion of management, are necessary for a fair presentation of the interim
unaudited consolidated financial statements. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's March 31, 1999 Form 10-K
as filed with the Securities and Exchange Commission on July 14, 1999.
Certain reclassifications were made to the December 31, 1998 financial
statements to conform with the presentation of the December 31, 1999 financial
statements.
B. Inventories
Inventories are stated at the lower of cost ( first-in, first-out method ) or
market. The components of inventories are as follows:
December 31, 1999 March 31, 1999
----------------- --------------
Finished products $10,795,714 $10,609,272
Components and packaging material 7,253,273 7,033,339
Raw material 3,311,001 3,304,645
----------- -----------
$21,359,988 $20,947,256
=========== ===========
The cost of inventories includes product costs and handling charges, including
allocation of the Company's applicable overhead in the amount of $1,845,257 and
$2,830,000 at December 31, 1999 and March 31, 1999, respectively. The above
amounts are net of reserves for potential inventory obsolescence of
approximately $1,398,000 and $976,000 at December 31, 1999 and March 31, 1999,
respectively.
13
<PAGE>
C. Trademarks, Licenses and Goodwill
Trademarks, licenses and goodwill are attributable to the following brands:
December 31, 1999 March 31, 1999
----------------- --------------
Owned Brands:
Alexandra de Markoff $11,191,171 $11,190,926
Fred Hayman Beverly Hills 2,799,624 2,753,027
Bal A Versailles 3,248,569 3,243,855
Animale 1,481,725 1,452,929
Other 215,225 243,431
Licensed Brands:
Perry Ellis 7,962,786 7,957,567
Baryshnikov 2,470,241 2,470,241
---------- ----------
29,369,341 29,311,976
Less: accumulated amortization (7,215,481) (5,385,903)
----------- -----------
$22,153,890 $23,926,073
=========== ===========
On March 2, 1998, the Company entered into an exclusive agreement to license the
Alexandra de Markoff (AdM) rights to Cosmetic Essence, Inc. for an annual fee of
$500,000. The initial term of the agreement is ten years, automatically
renewable for additional ten and five year terms. The annual fee reduces to
$100,000 after the third renewal. As part of the Agreement, the Company sold the
inventory, promotional material and molds relating to AdM which resulted in a
loss of approximately $923,000 which was reflected in the consolidated statement
of operations for the year ended March 31, 1998. At closing, the purchaser
provided as consideration, $202,000 in cash and a $4,000,000 non-interest
bearing receivable due in periodic installments based on the purchaser's use of
the inventory, with any remaining balance originally due on January 1, 2000, but
subsequently extended to June 30, 2000. In accordance with generally accepted
accounting principles and based on the Company's current borrowing cost of
9.25%, the original note was reduced to a present value of $3,659,753.
On June 9, 1998, the Company entered into an exclusive agreement to license the
Bal A Versailles (BAV) rights to Genesis International Marketing Corporation for
an annual licensing fee of $100,000 during the initial year of the agreement,
increasing to $150,000 for subsequent years for the remainder of the initial
term, and to $200,000 each year thereafter. The initial term of the agreement is
for ten years, automatically renewable every five years. As part of the
agreement, the Company sold the inventory, promotional materials and molds
relating to BAV for its approximate book value. At closing, the purchaser
provided as consideration, $200,000 in cash and a $500,000 non-interest bearing
note due in quarterly installments of $83,333 through December 1999, which has
been paid in full in accordance with its original terms.
At December 31, 1999 and March 31, 1999, $874,610 and $2,413,990, respectively,
relating to the AdM and BAV receivables are included in other current assets.
14
<PAGE>
D. Borrowings - Banks and Others
The composition of borrowings is as follows:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Revolving credit facility payable to General Electric Capital Corporation,
interest at LIBOR (6.1875% at December 31, 1999) plus 2.50% or prime (8.50% at
December 31, 1999) plus .75%, at the Company's option, net of restricted cash of
$1,156,175 and $3,658,593, at December 31 and March 31, 1999, respectively $ 9,764,034 $ 9,862,084
Note payable to Fred Hayman Beverly Hills (FHBH), collateralized by the acquired
licensed trademarks, interest at 7.25%, payable in equal monthly installments of
$69,863, including interest, through June 2004 3,184,201 3,626,360
Note payable to Lyon Credit Corporation, collateralized by certain equipment,
interest at 11%, payable in equal monthly installments of $19,142, including
interest, through September 2001 363,912 499,629
Capital lease payable to Bankers Leasing, collateralized by certain computer
hardware and software, payable in quarterly installments of $36,378, including
interest, through January 2002. 304,589 395,325
Other notes payable 23,383 62,983
--------------- ---------------
13,640,119 14,446,381
Less: long-term borrowings (2,824,144) (3,561,313)
--------------- ---------------
Short-term borrowings $10,815,975 $10,885,068
=============== ===============
</TABLE>
In May 1997, the Company entered into a Loan and Security Agreement (the Credit
Agreement) with General Electric Capital Corporation (GECC), pursuant to which
the Company is able to borrow, on a revolving basis for a three-year period,
depending on the availability of a borrowing base, up to $25,000,000 at an
interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal
prime rate, at the Company's option. At December 31, 1999, based on the
borrowing base at that date, the credit line amounted to approximately
$12,861,000, and accordingly, the Company had approximately $1,941,000 available
under the credit line, excluding the effect of restricted cash of approximately
$1,156,000.
Substantially all of the domestic assets of the Company collateralize this
borrowing. The Credit Agreement contains customary events of default and
covenants which prohibit, among other things, incurring additional indebtedness
in excess of a specified amount, paying dividends, creating liens, and engaging
in mergers and acquisitions without the prior consent of GECC. The Credit
Agreement also contains certain financial covenants relating to net worth,
interest coverage and other financial ratios. As of March 31, 1999, the Company
was not in compliance with financial covenants relating to "Earnings
15
<PAGE>
Before Interest, Taxes, Depreciation and Amortization" (EBITDA), minimum fixed
charge coverage ratio, maximum accounts receivable from related parties and
employees, minimum unrelated customer net sales, as well as a restricted payment
covenant concerning the amount of treasury stock which can be purchased by the
Company. GECC waived the violations of these debt covenants for the year ended
March 31, 1999 and through June 30, 1999, and amended the Credit Agreement to
reflect changes in certain covenants going forward.
Due to the significant treasury stock purchases under the Company's stock buy
back program, as of December 31, 1999, the Company was not in compliance with
financial covenants relating to tangible net worth and minimum fixed charge
coverage ratio, as well as the restrictive payment covenants exceeding the
amount of treasury stock which can be purchased as well as advances to related
parties and employees. Although the Company has not requested a waiver,
management anticipates negotiating a waiver of this non-compliance and a
modification of the covenants for future periods.
The Credit Agreement is scheduled to expire during May 2000. Management believes
that, based on current circumstances, the Company will be able to amend the
restrictive payment covenants and either extend the Credit Agreement or obtain
sufficient financing from alternative sources. However, there can be no
assurance that such amendments or waivers will be obtained and alternative
financing will be available in the future.
E. Related Parties Transactions
As of December 31, 1999, the Company had loaned a total of approximately
$1,004,000 ($390,000 at March 31, 1999) to its Chairman/CEO, which is included
in accounts receivable. All of the notes bear interest at 10% per annum, and
unless indicated, are not collateralized. The composition of the notes is as
follows:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999
----------------- --------------
<S> <C> <C>
Note receivable, due on December 31, 1999 $ 379,287 $390,000
Note receivable, collateralized by 100,000 shares of the
Company's common stock, due on December 31, 1999 230,000 ----
Note receivable, due May 31, 2000 395,000 ----
---------- ---------
$1,004,287 $390,000
========== =========
</TABLE>
In February 2000, the Company received a payment on the notes in the amount of
$182,764, representing interest due through December 31, 1999, and a $139,287
principal reduction. The balance of the remaining notes due December 31, 1999,
were extended to May 31, 2000, at which time all notes are due.
The Company had net sales of $22,677,549 and $16,546,782 during the nine-month
periods ended December 31, 1999 and December 31, 1998, respectively, to
Perfumania, Inc. (Perfumania), a company in which the Company's Chairman and
Chief Executive Officer has an ownership interest and holds identical management
positions. Net amounts due from Perfumania totaled $9,451,828 (after giving
effect to the stock transaction discussed below) and $18,258,213 at December 31,
1999 and March 31,
16
<PAGE>
1999, respectively. Amounts due from related parties are non-interest bearing
and are realizable in less than one year.
During the period from April 1, 1999 through December 31, 1999, the Company
collected $22.3 million from Perfumania, including 100% of the total of the
outstanding receivable at March 31, 1999, excluding the effect of the stock
transaction discussed below.
On July 1, 1999, Perfumania and the Company's Board of Directors approved the
transfer of 1,512,406 shares of Perfumania treasury stock to the Company in
consideration for a partial reduction of the outstanding trade receivable
balance in the amount of $4,506,970. The transfer price was based on a per share
price of $2.98, which approximated 90% of the closing price of Perfumania's
common stock for the previous 20 business days. (In accordance with generally
accepted accounting principles, these securities are considered
available-for-sale securities and must be recorded at fair value. Changes in
unrealized gains and losses are charged or credited as a component of
accumulated other comprehensive income, net of tax, and are included in the
accompanying consolidated statement of changes in stockholders' equity at
December 31, 1999). In connection with the transfer of the shares, the parties
executed a registration rights agreement whereby the Company would be able to
demand registration of the shares with the Securities and Exchange Commission at
any time after February 29, 2000. Both agreements were consummated on August 31,
1999.
In addition, on October 4, 1999, the parties entered into an agreement which
converted $8 million of the outstanding trade receivable into a subordinated
secured note receivable. The note bears interest at prime plus one percent and
is repayable in installments of $3,000,000 in October 1999, six equal monthly
installments of $500,000 from November 1999 through April 2000, with the balance
of $2,000,000 due on May 31, 2000. As of December 31, 1999, $4,000,000 of the
note receivable had been repaid in accordance with its terms.
During the period of January 1, 2000 through February 11, 2000, the Company
received cash payments of $6.25 million from Perfumania, including the $500,000
installment due under the note receivable.
As indicated in various public press releases, Perfumania has reported both
aggregate and comparative store sales increases for each of the months during
the period February 1999 through January 2000. In addition, during September
1999, its subsidiary, perfumania.com, successfully completed a public offering
in which Perfumania also sold one million of its perfumania.com shares,
subsequently selling an additional two million shares in January 2000,
generating over $18 million in cash from the two transactions. Based on the
factors described above, management believes that the receivable from Perfumania
is fully collectible.
In October 1999, the Company purchased, in the open market, 250,000 shares of
perfumania.com common stock for $1,735,005. These shares were sold during
November 1999, resulting in a gain of $541,013, which is included in the
accompanying consolidated statements of income for the period ended December 31,
1999.
17
<PAGE>
F. Basic and Diluted Earnings Per Common Share
The following is the reconciliation of the numerators and denominators of the
basic and diluted net income per common share calculations:
<TABLE>
<CAPTION>
Three Months Ended December 31,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $ 624,764 $ 80,106
=========== ==========
Weighted average number of shares outstanding used in basic earnings per
share calculation 12,362,725 14,529,811
=========== ==========
Basic net income per common share $0.05 $0.01
=========== ==========
Weighted average number of shares outstanding used in basic earnings per
share calculation 12,362,725 14,529,811
Affect of dilutive securities:
Stock options and warrants, net of treasury shares acquired 782,075 ---
---------- ------------
Weighted average number of shares outstanding used in diluted earnings per
share calculation 13,144,801 14,529,811
=========== ==========
Diluted net income per common share $0.05 $0.01
=========== ==========
Antidilutive securities not included in diluted earnings per share computation:
Options and warrants to purchase common stock 1,170,109 1,867,750
=========== ==========
Exercise Price $4.00-$8.00 $1.75-$6.75
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine months Ended December 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income $2,921,702 $ 1,066,613
========== ===========
Weighted average number of shares outstanding used in basic earnings per share
calculation 12,713,318 14,707,497
========== ===========
Basic net income per common share $0.23 $0.07
========== ===========
Weighted average number of shares outstanding used in basic earnings per
share calculation 12,713,318 14,707,497
Affect of dilutive securities:
Stock options and warrants, net of treasury shares acquired 336,793 31,539
---------- -----------
Weighted average number of shares outstanding used in diluted earnings per
share calculation 13,050,111 14,739,036
========== ===========
Diluted net income per common share $0.22 $0.07
========== ===========
Antidilutive securities not included in diluted earnings per share computation:
Options and warrants to purchase common stock 1,553,354 1,608,500
=========== ===========
Exercise Price $1.88-$8.00 $1.75-$6.75
=========== ===========
</TABLE>
18
<PAGE>
G. Cash Flow Information
The Company considers temporary investments with an original maturity of three
months or less to be cash equivalents. Supplemental disclosures of cash flow
information are as follows:
Nine months ended December 31,
------------------------------
1999 1998
---- ----
Cash paid for:
Interest, net $ 821,714 $ 1,452,057
Income taxes $ 1,170,980 $ 237,546
In addition to the conversion of trade accounts receivable in the amounts of
$4,506,970 and $8,000,000, discussed in Note E, the following non-cash
transaction was entered into during the nine months ended December 31, 1998:
o The consideration received for the sale of inventory relating to the
license of the Bal a Versailles brand included a non-interest bearing
receivable from the licensee in the amount of $500,000.
H. Income Taxes
The provision for income taxes for the periods ended December 31, 1999 and 1998
reflects an effective tax rate of approximately 38%.
I. License and Distribution Agreements
As of December 31, 1999, the Company held exclusive worldwide licenses to
manufacture and sell fragrance and other related products under the trademarks
for Perry Ellis, Baryshnikov, Ocean Pacific ("OP"), and Phantom. Under each of
these arrangements, the Company must pay royalties at various dates and are
subject to renewal.
Effective January 1, 2000, the Company entered into an exclusive licensing
agreement with PEZ Candy, Inc. ("PEZ"), to manufacture and distribute men's and
women's fragrances and other related products under the PEZ trademark throughout
the Western Hemisphere. The Company anticipates launching the first PEZ
fragrances for the Spring 2001 season.
As discussed above, the Company is required to pay royalties under the Perry
Ellis ("Licensor") license agreement. The Licensor had asserted, through its
legal counsel, that the Company was in default of the license agreement in that
the sales of Perry Ellis brand products by an affiliate of the Company were not
properly included in sales for the purposes of calculating royalties. On August
12, 1999, a settlement was reached between the Company and the Licensor amending
the license agreement to redefine net sales for royalty calculation purposes.
The Company paid the Licensor $500,000, which had been fully accrued for as of
March 31, 1999.
19
<PAGE>
On October 13, 1999, the Company was notified by the Baryshnikov licensor of its
intent to immediately terminate the license agreement with the Company, which
was to expire on March 31, 2001, due to the Company's unwillingness to develop
and distribute a new women's fragrance by October 31, 1999, as stipulated in the
license agreement. On January 11, 2000, a settlement was reached which entitles
the Company to continue producing and selling Baryshnikov brand products until
April 30, 2000, at which time all remaining unsold inventory and advertising
material would be destroyed. Management believes that the effect of this matter
will not have a material adverse effect on the Company's financial position or
results of operations.
* * * * *
20
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARLUX FRAGRANCES, INC.
/s/ Ilia Lekach
- -----------------------------------------
Ilia Lekach, Chairman and Chief Executive Officer
/s/ Frank A. Buttacavoli
- -----------------------------------------
Frank A. Buttacavoli, Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Director
Date: February 14, 2000
21
EMPLOYMENT AGREEMENT
--------------------
Agreement (the "Agreement") dated as of November 1, 1999 between Parlux
Fragrances, Inc., a corporation of the State of Delaware with offices located at
3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter called the
"Company"), and Ilia Lekach, residing, at 137 Golden Beach Drive, Golden Beach,
Florida 33160 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to continue the employment of the
Executive and the Executive is willing to be employed by the Company and accepts
such employment;
WHEREAS, the Company and the Executive (hereinafter sometimes referred
to as "the parties") are parties to an existing Employment Agreement extending
through March 31, 2000, which is hereby terminated without liability to either
party.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. Employment. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on November 1, 1999 and ending on March 31, 2003 (the "Initial
Term") (unless terminated as specifically provided for in this Agreement). Upon
expiration of the Initial Term, the Executive's term of employment shall be
extended for an additional three (3) year period, unless either party gives
written notice of its intention not to renew this Agreement at least six (6)
months prior to the expiration of the Initial Term, in which case the
Executive's term of employment shall end upon such expiration.
2. Position and Duties. The Executive shall serve as Chief Executive
Officer and President of the Company and shall have the powers and duties as may
from time to time be prescribed by the Company's Board of Directors (the
"Board"), provided that the Executive's duties are consistent with the
Executive's position as a senior executive officer involved with the general
management of the Company. The Executive shall report to the Board.
3. Place of Performance. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executive's consent.
4. Compensation and Related Matters.
---------------------------------
(a) Base Salary: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing November 1, 1999 through March 31, 2000,
at the annual rate of $260,000; for the period commencing on April 1, 2000 and
ending on March 31, 2001, at the annual rate of $350,000; for the periods
commencing on April 1, 2001 and
<PAGE>
2002 and ending on March 31, 2002 and 2003, respectively, at the immediate prior
year's annual rate, plus an increase based on performance, to be determined by
the Board.
(b) Expenses: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business expenses incurred by him in accordance with the policies and
procedures of the Company for reimbursement of business expenses by its senior
executive officers, provided that the Executive accounts for the expenses in
accordance with the Company's policies.
(c) Other Benefits: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) Vacations: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than four weeks in any fiscal
year.
(e) Perquisites: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
(f) Stock Options: The Executive will be granted non qualified stock
options (warrants) to purchase 150,000 shares of the Company's common stock at
an exercise price of $2.4375 per share. The options (warrants) will be
exercisable at the rate of 50,000 shares each on March 31, 2001, 2002 and 2003,
respectively. The rights of the Executive with respect to any stock options
(warrants) granted to the Executive shall be determined exclusively by the plans
and agreements relating to the options (warrants) and this Agreement shall not
affect in any way the rights and obligations of the plans and agreements. Each
option shall be exercisable for a period of ten years after the date of grant
unless earlier terminated in accordance with its terms or those of the
Agreement.
5. Noncompetition; unauthorized disclosure:
----------------------------------------
(a) No material competition: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason other than a change in control as
defined in Section 6 (d) of this Agreement, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and such
competitive business activity is reasonably
2
<PAGE>
likely to materially affect in an adverse manner the consolidated sales, profits
or financial condition of the Company.
(b) Unauthorized disclosures: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as determined by him to be reasonably necessary in
connection with any business or activity in which he is then engaged.
(c) Certain Provisions: The limitations of Section 5 (a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. Termination. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) Death. Upon the Executive's death.
(b) Disability. If , as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) Cause. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to the
Company, or (C) the willful violation
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<PAGE>
by the Executive of Section 5 of this Agreement, provided that the violation
results in material injury to the Company, or (D) the conviction of the
Executive of a felony. For purposes of this paragraph, no act, or failure to
act, by the Executive shall be considered "willful" unless done or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the interest of the Company. The Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after a reasonable
notice to the Executive and an opportunity for him, together with his counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board the Executive was guilty of conduct set forth above in clause (A), (B),
(C) or (D) and specifying the particulars of the conduct in detail.
(d) Termination by the Executive. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive shall have furnished the
Company with a written statement from a qualified doctor to that effect and
provided further that at the Company's request and expense the Executive shall
submit to an examination by a doctor selected by the Company, and the doctor
shall have concurred in the conclusion of the Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13 (d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together
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 (within the meaning of Rule
13d-3 and Rule 13d-5 under the Exchange Act, whether or not applicable, except
that a person shall be deemed to have beneficial ownership of all securities
that such person has the right to acquire whether such right is exercisable
immediately or only after the passage of time) 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.
(e) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
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claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(f) Date of Termination. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
the 30 day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) above, the date specified in the Notice of Termination after
the expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. Compensation Upon Termination or During Disability:
---------------------------------------------------
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
for a period of six months after the date of his death in addition to any
payments the Executive's spouse, beneficiaries or estate may be entitled to
receive pursuant to any pension, stock option or Executive benefit plan or life
insurance policy or similar plan or policy then maintained by the Company. Upon
full payment of all amounts required to be paid under this subsection, the
Company shall have no further obligation under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6 (b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6 (d) (ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments")
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6 (b) or 6 (c) (it being
understood that a purported termination pursuant to Sections 6 (b) or 6 (c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of
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this Agreement, the Company shall pay severance pay to the Executive on the
fifth day following the date of termination, in a lump sum amount equal to the
entire salary due until the end of the term of this Agreement based on an annual
base salary at the highest rate in effect during the twelve (12) months
immediately preceding the date of Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6 (d), the Company shall pay in a lump sum payment (or in monthly
installments at the option of the Executive) the greater of twice the amount of
severance pay required in Section 7 (d) (ii) above, or three times the annual
base salary at the highest rate in effect during the twelve (12) months
immediately preceding the date of the termination.
(iv) In the event of a change in control of the Company as defined in
Section 6 (d) above, the total number of outstanding unexercised options
(warrants) granted to the Executive under this Agreement or any previous
employment or other agreements, shall be doubled in quantity while retaining the
original exercise price.
(v) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of the plans and programs. If the Executive's participation in any
plan or program is barred, the Company shall arrange to provide the Executive
with benefits substantially similar to those which the Executive would otherwise
have been entitled to receive under the plan and program from which his
continued participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7 (d) (ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. Successors; Binding Agreement:
------------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly
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<PAGE>
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain an assumption of this
Agreement prior to or simultaneously with the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to compensation from the Company in the same amount and on the same terms as he
would be entitled to under this Agreement if he terminated his employment for
Good Reason, except for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date of
termination. As used in this Agreement, "Company" shall mean the Company as
previously defined and any successor to its business and/or assets which
executes and delivers the agreement provided for in this Section 8 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. Notice: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Ilia Lekach
137 Golden Beach Drive
Golden Beach, Florida 33160
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Board of Directors
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. Entire Agreement: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly in this Agreement and this Agreement supersedes any other
employment agreement between the Company and the Executive.
11. Waiver of Breach: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other
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party shall be deemed a waiver of any other provision or condition at any prior
or subsequent time.
12. Headings: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
13. Governing Law: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. Severability: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frederick E. Purches /s/ Frank A. Buttacavoli
___________________________ By:________________________________________
Frank A. Buttacavoli,
Executive V.P./C.O.O./C.F.O.
WITNESS:
/s/ Tania N. Espinosa /s/ Ilia Lekach
- --------------------------- ----------------------------------------
Ilia Lekach, Executive
8
EMPLOYMENT AGREEMENT
--------------------
Agreement (the "Agreement") dated as of November 1, 1999 between Parlux
Fragrances, Inc., a corporation of the State of Delaware with offices located at
3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter called the
"Company"), and Frank A. Buttacavoli, residing at 5451 Alton Road, Miami Beach,
Florida 33140 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to continue the employment of the
Executive and the Executive is willing to be employed by the Company and accepts
such employment;
WHEREAS, the Company and the Executive (hereinafter sometimes referred
to as "the parties") are parties to an existing Employment Agreement extending
through March 31, 2000, which is hereby terminated without liability to either
party.
NOW THEREFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. Employment. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on November 1, 1999 and ending on March 31, 2003 (the
"Initial Term") (unless terminated as specifically provided for in this
Agreement). Upon expiration of the Initial Term, the Executive's term of
employment shall be extended for an additional three (3) year period, unless
either party gives written notice of its intention not to renew this Agreement
at least six (6) months prior to the expiration of the Initial Term, in which
case the Executive's term of employment shall end upon such expiration.
2. Position and Duties. The Executive shall serve as Executive Vice
President, Chief Operating Officer and Chief Financial Officer of the Company
and shall have the powers and duties as may from time to time be prescribed by
the Company's Chief Executive Officer and Board of Directors (the "Board"),
provided that the Executive's duties are consistent with the Executive's
position as a senior executive officer involved with the general management of
the Company. The Executive shall report to the Chief Executive Officer.
3. Place of Performance. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executive's consent.
4. Compensation and Related Matters.
---------------------------------
(a) Base Salary: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing November 1, 1999 through March 31, 2000,
at the annual rate of $205,000; for the period commencing on April 1, 2000 and
ending on March 31, 2001, at the annual rate of $250,000; for the periods
commencing on April 1, 2001 and
<PAGE>
2002 and ending on March 31, 2002 and 2003, respectively, at the immediate prior
year's annual rate, plus an increase based on performance, to be determined by
the Chief Executive Officer.
(b) Expenses: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business expenses incurred by him in accordance with the policies and
procedures of the Company for reimbursement of business expenses by its senior
executive officers, provided that the Executive accounts for the expenses in
accordance with the Company's policies.
(c) Other Benefits: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) Vacations: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than four weeks in any fiscal
year.
(e) Perquisites: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
(f) Stock Options: The Executive will be granted non qualified stock
options (warrants) to purchase 60,000 shares of the Company's common stock at an
exercise price of $2.4375 per share. The options (warrants) will be exercisable
at the rate of 20,000 shares each on March 31, 2001, 2002 and 2003,
respectively. The rights of the Executive with respect to any stock options
(warrants) granted to the Executive shall be determined exclusively by the plans
and agreements relating to the options (warrants) and this Agreement shall not
affect in any way the rights and obligations of the plans and agreements. Each
option shall be exercisable for a period of ten years after the date of grant
unless earlier terminated in accordance with its terms or those of the
Agreement.
5. Noncompetition; unauthorized disclosure:
----------------------------------------
(a) No material competition: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason other than a change in control as
defined in Section 6 (d) of this Agreement, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and
such competitive business activity is reasonably
2
<PAGE>
likely to materially affect in an adverse manner the consolidated sales, profits
or financial condition of the Company.
(b) Unauthorized disclosures: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as determined by him to be reasonably necessary in
connection with any business or activity in which he is then engaged.
(c) Certain Provisions: The limitations of Section 5 (a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. Termination. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) Death. Upon the Executive's death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) Cause. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to
the Company, or (C) the willful violation by the Executive of Section 5 of this
Agreement, provided that the violation results in material
3
<PAGE>
injury to the Company, or (D) the conviction of the Executive of a felony. For
purposes of this paragraph, no act, or failure to act, by the Executive shall be
considered "willful" unless done or omitted to be done, by him not in good faith
and without reasonable belief that his action or omission was in the interest of
the Company. The Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution, duly adopted by the affirmative vote of a majority of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after a reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Executive was guilty of conduct set forth
above in clause (A), (B), (C) or (D) and specifying the particulars of the
conduct in detail.
(d) Termination by the Executive. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive shall have furnished the
Company with a written statement from a qualified doctor to that effect and
provided further that at the Company's request and expense the Executive shall
submit to an examination by a doctor selected by the Company, and the doctor
shall have concurred in the conclusion of the Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13 (d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together 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 (within the meaning of Rule 13d-3
and Rule 13d-5 under the Exchange Act, whether or not applicable, except that a
person shall be deemed to have beneficial ownership of all securities that such
person has the right to acquire whether such right is exercisable immediately or
only after the passage of time) 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.
(e) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
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<PAGE>
(f) Date of Termination. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall
not have returned to the performance of his duties on a full-time basis during
the 30 day period), (iii) if the Executive's employment is terminated pursuant
to subsection (c) above, the date specified in the Notice of Termination after
the expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. Compensation Upon Termination or During Disability:
---------------------------------------------------
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
for a period of six months after the date of his death in addition to any
payments the Executive's spouse, beneficiaries or estate may be entitled to
receive pursuant to any pension, stock option or Executive benefit plan or life
insurance policy or similar plan or policy then maintained by the Company. Upon
full payment of all amounts required to be paid under this subsection, the
Company shall have no further obligation under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6 (b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6 (d) (ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments").
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6 (b) or 6 (c) (it being
understood that a purported termination pursuant to Sections 6 (b) or 6 (c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of this Agreement, the Company shall pay
severance pay to the Executive on the fifth day following the date of
termination, in a lump sum amount equal to the entire salary due until the
5
<PAGE>
end of the term of this Agreement based on an annual base salary at the highest
rate in effect during the twelve (12) months immediately preceding the date of
Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6 (d), the Company shall pay in a lump sum payment (or in monthly
installments at the option of the Executive) the greater of twice the amount of
severance pay required in Section 7 (d) (ii) above, or three times the annual
base salary at the highest rate in effect during the twelve (12) months
immediately preceding the date of the termination.
(iv) In the event of a change in control of the Company as defined in
Section 6 (d) above, the total number of outstanding unexercised options
(warrants) granted to the Executive under this Agreement or any previous
employment or other agreements, shall be doubled in quantity while retaining the
original exercise price.
(v) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of the plans and programs. If the Executive's participation in any
plan or program is barred, the Company shall arrange to provide the Executive
with benefits substantially similar to those which the Executive would otherwise
have been entitled to receive under the plan and program from which his
continued participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7 (d) (ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. Successors; Binding Agreement:
-------------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain an assumption of this Agreement prior to or
simultaneously with the
6
<PAGE>
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to under this Agreement if he
terminated his employment for Good Reason, except for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be
deemed the date of termination. As used in this Agreement, "Company" shall mean
the Company as previously defined and any successor to its business and/or
assets which executes and delivers the agreement provided for in this Section 8
or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(b) This Agreement and all rights of the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. Notice: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Frank A. Buttacavoli
5451 Alton Road
Miami Beach, Florida 33140
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Board of Directors
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. Entire Agreement: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by either party which are not
set forth expressly in this Agreement and this Agreement supersedes any other
employment agreement between the Company and the Executive.
11. Waiver of Breach: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any other provision or condition
at any prior or subsequent time.
12. Headings: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
7
<PAGE>
13. Governing Law: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. Severability: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frederick E. Purches /s/ Ilia Lekach
___________________________ By:________________________________________
Ilia Lekach, Chairman & Chief
Executive Officer
WITNESS:
/s/ Tania N. Espinosa /s/ Frank A. Buttacavoli
- --------------------------- ----------------------------------------
Frank A. Buttacavoli, Executive
8
EMPLOYMENT AGREEMENT
--------------------
Agreement (the "Agreement") dated as of November 1, 1999 between
Parlux Fragrances, Inc., a corporation of the State of Delaware with offices
located at 3725 S.W. 30th Avenue, Fort Lauderdale, Florida 33312 (hereinafter
called the "Company"), and Ruben Lisman, residing, at 19101 Mystic Point Drive,
Aventura, Florida 33180 (hereinafter called the "Executive").
WITNESSETH
WHEREAS, the Company desires to continue the employment of the
Executive and the Executive is willing to be employed by the Company and accepts
such employment;
WHEREAS, the Company and the Executive (hereinafter sometimes referred
to as "the parties") are parties to an existing Employment Agreement extending
through March 31, 2000, which is hereby terminated without liability to either
party.
NOW THERFORE, in consideration of the mutual promises and covenants
herein contained intending to be legally bound, the parties do hereby agree as
follows:
1. Employment. The Company agrees to employ the Executive and the
Executive hereby accepts the terms and conditions hereinafter set forth, for a
period commencing on November 1, 1999 and ending on March 31, 2003 (the
"Initial Term") (unless terminated as specifically provided for in this
Agreement). Upon expiration of the Initial Term, the Executive's term of
employment shall be extended for an additional three (3) year period, unless
either party gives written notice of its intention not to renew this Agreement
at least six (6) months prior to the expiration of the Initial Term, in which
case the Executive's term of employment shall end upon such expiration.
2. Position and Duties. The Executive shall serve as Vice President of
International Sales of the Company and shall have the powers and duties as may
from time to time be prescribed by the Company's President and Board of
Directors (the "Board"), provided that the Executive's duties are consistent
with the Executive's position as a senior executive officer involved with the
general management of the Company. The Executive shall report to the President.
3. Place of Performance. In connection with his employment by the
Company, the Executive shall be based, and the duties to be performed, shall be
performed at the Company's principal executive offices located in Broward County
or Dade County, South Florida. Such office shall not be further relocated
without the Executives consent.
4. Compensation and Related Matters.
---------------------------------
(a) Base Salary: The Executive shall receive a base salary, exclusive
of benefits (the "Base Salary"), in substantially equal monthly or bi-weekly
installments as follows:
(i) For the period commencing on November 1, 1999 through
March 31, 2000, at the annual rate of $195,000; for the period commencing on
April 1, 2000 and ending on March 31, 2001, at the annual rate of $210,000; for
the periods commencing on April 1, 2001 and 2002 and ending on March 31, 2002
and 2003, respectively, at the immediate prior year's
<PAGE>
annual rate, plus an increase based on performance, to be determined by the
Company's Chief Executive Officer.
(b) Expenses: During the term of his employment under this Agreement,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable business expenses incurred by him in accordance with the policies and
procedures of the Company for reimbursement of business expenses by its senior
executive officers, provided that the Executive accounts for the expenses in
accordance with the Company's policies.
(c) Other Benefits: The Executive shall be entitled to participate in
or receive benefits under all executive benefit plans and arrangements made
available by the Company at any time to its employees and key management
executives. Nothing paid to the Executive under any plan or arrangement
presently in effect or made available in the future shall be deemed to be in
lieu of the Base Salary or any other obligation payable to the Executive
pursuant to this Agreement.
(d) Vacations: The Executive shall be entitled to the number of paid
vacation days in each fiscal year determined by the Company from time to time
for its senior executive officers, but not less than four weeks in any fiscal
year.
(e) Perquisites: The Executive shall be entitled to receive all
perquisites and fringe benefits provided or available to senior executive
officers of the Company in accordance with present practice and as may be
changed from time to time with respect to all senior executive officers of the
Company.
(f) Stock Options: The Executive will be granted non qualified stock
options (warrants) to purchase 60,000 shares of the Company's common stock at an
exercise price of $2.25 per share. The options (warrants) will be exercisable at
the rate of 20,000 shares each on March 31, 2001, 2002, and 2003, respectively.
The rights of the Executive with respect to any stock options (warrants) granted
to the Executive shall be determined exclusively by the plans and agreements
relating to the options (warrants) and this Agreement shall not affect in any
way the rights and obligations of the plans and agreements. Each option shall be
exercisable for a period of ten years after the date of grant unless earlier
terminated in accordance with its terms or those of the Agreement.
5. Noncompetition; unauthorized disclosure:
----------------------------------------
(a) No material competition: Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
term of this Agreement or, for a period of one year immediately following any
termination of this Agreement for any reason, will he engage in any business if,
within thirty (30) days of the Executive advising the Company in writing of his
proposed business activity, the Board determines in good faith that such
proposed business activity is directly competitive with a material part of the
business of the Company and its subsidiaries (both present and future) and
such competitive business
2
<PAGE>
activity is reasonably likely to materially affect in an adverse manner the
consolidated sales, profits or financial condition of the Company.
(b) Unauthorized disclosures: During the period of his employment under
this Agreement, the Executive shall not, without the written consent of the
Board or a person authorized by the Board, disclose to any person, other than an
Executive of the Company or person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of his duties as
an executive of the company, any material confidential information obtained by
him while in the employ of the company with respect to any of the Company's
customers, suppliers, creditors, lenders, investment bankers or methods of
marketing, the disclosure of which he knows will materially damage the Company;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company. For the period ending one
year following the termination of employment under this Agreement for any
reason, the Executive shall not disclose any confidential information of the
type described above except as determined by him to be reasonably necessary in
connection with any business or activity in which he is then engaged.
(c) Certain Provisions: The limitations of Section 5 (a) shall
terminate if upon termination of this Agreement for any reason the Company does
not fulfill its obligations as required by Section 7 of this Agreement; however,
such termination shall not affect the rights of the Executive to receive all
payments he is entitled to receive under Section 7. The provisions of Section 5
shall apply during the time the Executive is receiving any payments from the
Company as a result of a termination of this Agreement pursuant to Section 6
(b).
6. Termination. The Company may terminate the Executive's employment
under this Agreement prior to the expiration of the term set forth in Section 1
only under the following circumstances:
(a) Death. Upon the Executive's death.
(b) Disability. If , as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his duties
under this Agreement on a full time basis for 120 calendar days during any
calendar year, then 30 days after written notice of termination is given to the
Executive (which may only be given after the end of the 120 day period),
provided that he has not returned to his duties under this Agreement on a full
time basis.
(c) Cause. For Cause. The Company shall have "Cause" to terminate the
Executive's employment under this Agreement upon (A) the willful and continued
failure by the Executive to substantially perform his duties under this
Agreement (other than any failure resulting from the Executive's incapacity due
to physical or mental illness) for thirty (30) days after written demand for
substantial performance is delivered by the Company specifically identifying the
manner in which the Company believes the Executive has not substantially
performed his duties, or (B) the willful engaging by the Executive in misconduct
(including embezzlement and criminal fraud) which is materially injurious to the
Company, or (C) the willful violation
3
<PAGE>
by the Executive of Section 5 of this Agreement, provided that the violation
results in material injury to the Company, or (D) the conviction of the
Executive of a felony. For purposes of this paragraph, no act, or failure to
act, by the Executive shall be considered "willful" unless done or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the interest of the Company. The Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of a majority of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after a reasonable
notice to the Executive and an opportunity for him, together with his counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board the Executive was guilty of conduct set forth above in clause (A), (B),
(C) or (D) and specifying the particulars of the conduct in detail.
(d) Termination by the Executive. The Executive may terminate his
employment under this Agreement (i) for Good Reason (as defined below) or (ii)
if his health should become impaired to any extent that makes the continued
performance of his duties under this Agreement hazardous to his physical or
mental health or his life, provided that the Executive shall have furnished the
Company with a written statement from a qualified doctor to that effect and
provided further that at the Company's request and expense the Executive shall
submit to an examination by a doctor selected by the Company, and the doctor
shall have concurred in the conclusion of the Executive's doctor.
"Good Reason" means the Company has (through its Board or otherwise)
(A) limited the powers of the Executive in any manner not contemplated by
Section 2, (B) failed to comply with Section 3 or 4, (C) failed to cause any
successor as contemplated in Section 8 of this Agreement to assume this
Agreement, or (D) a change in control. The Executive shall give the Company 30
days prior written notice of his intent to terminate this Agreement as a result
of clause (A), (B), (C) or (D) and the Company shall have the right to cure
within the 30 day period. For purposes of this Agreement, a change in control
means the occurrence of one or more of the following events (whether or not
approved by the Board): (i) an event or series of events by which any person or
other entity or group of persons or other entities acting in concert as
determined in accordance with Section 13 (d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not applicable, together 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 (within the meaning of Rule 13d-3
and Rule 13d-5 under the Exchange Act, whether or not applicable, except that a
person shall be deemed to have beneficial ownership of all securities that such
person has the right to acquire whether such right is exercisable immediately or
only after the passage of time) 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.
(e) Notice of Termination. Any termination of the Executive's
employment by the Company or by the Executive (other than termination pursuant
to subsection (a) above) shall be communicated by written Notice of Termination
to the other party of this Agreement. "Notice of Termination" means a notice
which indicates the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances
4
<PAGE>
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(f) Date of Termination. Date of termination means (i) if the
Executive's employment is terminated by his death, the date of his death, (ii)
if the Executive's employment is terminated pursuant to subsection (b) above, 30
days after Notice of Termination is given (provided that the Executive shall not
have returned to the performance of his duties on a full-time basis during the
30 day period), (iii) if the Executive's employment is terminated pursuant to
subsection (c) above, the date specified in the Notice of Termination after the
expiration of any cure periods, and (iv) if the Executive's employment is
terminated for any other reason, the date on which Notice of Termination is
given.
7. Compensation Upon Termination or During Disability:
---------------------------------------------------
(a) Upon the Executive's death, the Company shall pay to the person
designated by the Executive in a notice filed with the Company or, if no person
is designated, to his estate as a lump sum death benefit, his full Base Salary
for a period of six months after his death in addition to any payments the
Executive's spouse, beneficiaries or estate may be entitled to receive pursuant
to any pension, stock option or Executive benefit plan or life insurance policy
or similar plan or policy then maintained by the Company. Upon full payment of
all amounts required to be paid under this subsection, the Company shall have no
further obligation under this Agreement.
(b) During any period that the Executive fails to perform his duties
under this Agreement as a result of incapacity due to physical or mental
illness, the Executive shall continue to receive his full base salary until the
Executive's employment is terminated pursuant to Section 6 (b) of this
Agreement, or until the Executive terminates his employment pursuant to Section
6 (d) (ii) of this Agreement, whichever comes first. After termination, the
Executive shall receive in equal monthly installments 100% of his base salary at
the rate in effect at the time Notice of Termination is delivered for one year,
plus any disability payments otherwise payable by or pursuant to plans provided
by the Company ("Disability Payments")
(c) If the Executive's employment is terminated for Cause, the Company
shall pay the Executive his full base salary through the date of termination at
the rate in effect at the time Notice of Termination is delivered and the
Company shall have no further obligation to the Executive under this Agreement.
(d) If (A) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Sections 6 (b) or 6 (c) (it being
understood that a purported termination pursuant to Sections 6 (b) or 6 (c)
which is disputed and finally determined not to have been proper shall be a
termination by the Company in breach of this Agreement), or (B) the Executive
shall terminate his employment for Good Reason, then
(i) The Company shall pay the Executive his full base salary through
the date of termination at the rate then in effect at the time Notice of
Termination is given;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination and in consideration of the rights
of the Company under Section 5 of this
5
<PAGE>
Agreement, the Company shall pay severance pay to the Executive on the fifth day
following the date of termination, in a lump sum amount equal to the entire
salary due until the end of the term of this Agreement based on an annual base
salary at the highest rate in effect during the twelve (12) months immediately
preceding the date of Termination.
(iii) In the event of a change in control of the Company as defined in
Section 6 (d), the Company shall pay in a lump sum payment (or
in monthly installments at the option of the Executive) the
greater of twice the amount of severance pay required in Section
7 (d) (ii) above, or three times the annual base salary at the
highest rate in effect during the twelve (12) months immediately
preceding the date of termination.
(iv) In the event of a change in control of the Company as defined in
Section 6 (d), the total number of outstanding unexercised options (warrants)
granted to the Executive under this Agreement or any previous employment or
other agreements, shall be doubled in quantity while retaining the original
exercise price.
(v) The Company shall pay all reasonable legal fees and expenses
incurred by the Executive in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit in this Agreement.
(e) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the Executive
for the greater of the remaining term of this Agreement or eighteen (18)
months after termination of this Agreement, all Executive health and
hospitalization plans and programs in which the Executive was entitled to
participate in immediately prior to the Date of Termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of the plans and programs. If the Executive's participation in any
plan or program is barred, the Company shall arrange to provide the Executive
with benefits substantially similar to those which the Executive would otherwise
have been entitled to receive under the plan and program from which his
continued participation is barred.
(f) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
however, the amount of any payment provided for in this Section 7 shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer after the Date of Termination.
(g) In the event of a termination of this Agreement by the Executive
for Good Reason as a result of a change in control, the amount to be utilized in
Section 7 (d)(ii) shall be changed to the average compensation of the Executive
during this Agreement for the taxable years prior to such termination (all as
determined to compute the base amount for purposes of Section 280G of the
Internal Revenue Code of 1984, as amended).
8. Successors; Binding Agreement:
-------------------------------
6
<PAGE>
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain an assumption of this Agreement prior to or simultaneously
with the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as he would be entitled to under this
Agreement if he terminated his employment for Good Reason, except for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date of termination. As used in this Agreement,
"Company" shall mean the Company as previously defined and any successor to its
business and/or assets which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(b) This Agreement and all rights if the Executive under this Agreement
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 7, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
9. Notice: For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Mr. Ruben Lisman
19101 Mystic Point Drive
Apt. 2705
Aventura, Florida 33180
If to the Company: Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, Florida 33312
Attention: Ilia Lekach
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except with notices of change of address which
shall be effective only upon receipt.
10. Entire Agreement: No provisions of this Agreement may be modified,
waived or discharged unless such is signed by the Executive and the officer of
the Company which is specifically designated by the Board. No Agreements or
representations, oral or otherwise, expressed or implied, with respect to the
subject matter of this Agreement have been made by
7
<PAGE>
either party which are not set forth expressly in this Agreement and this
Agreement supersedes any other employment agreement between the Company and the
Executive.
11. Waiver of Breach: No waiver by either party to this Agreement of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of any other provision or condition
at any prior or subsequent time.
12. Headings: The section headings contained in this Agreement have
been inserted only as a matter of convenience or reference and in no way define,
limit or describe the scope or intent of any provisions of this Agreement nor in
any way affect any of these provisions.
13. Governing Law: The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Florida, without giving effect to conflict of law principles.
14. Severability: The invalidity or unenforceability of any provision
or provisions of this Agreement shall not effect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
ATTEST: PARLUX FRAGRANCES, INC.
/s/ Frank A. Buttacavoli /s/ Ilia Lekach
___________________________ By:_____________________________________
Ilia Lekach, Chief Executive Officer
WITNESS:
/s/ Tania N. Espinosa /s/ Ruben Lisman
- --------------------------- ----------------------------------
Ruben Lisman, Executive
8
CONSULTING AGREEMENT
This Consulting Agreement (hereinafter "Agreement") dated as of
November 1, 1999, between PARLUX FRAGRANCES, INC., a corporation organized and
existing under the laws of the State of Delaware (hereinafter "Corporation") and
COSMIX, INC. 333 East 69th Street, New York 10021 (hereinafter "Consultant"),
and Frederick Purches (hereinafter "Purches"), the President of Consultant
residing at 333 East 69th Street New York, New York 10021. Collectively
hereinafter referred to as "Parties".
WHEREAS, Corporation, Consultant and Purches are parties to a
Consulting Agreement extending through March 31, 2000 which is hereby terminated
without liability to either party.
WHEREAS, the parties wish to enter into a new Consulting Agreement
under revised terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual understanding set forth
herein, the Parties agree as follows:
1. Consultant's Duties: The Corporation hereby engages the Consultant as its
business and financial consultant. Subject at all times to the control and
direction of the Corporations's Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer (hereinafter Management), the Consultant shall have
the duties as the general advisor and consultant to Management on all matters
pertaining to the business and to render all other services relevant thereto.
The Consultant, by Purches, shall perform all other duties that may be
reasonably assigned to it by Management provided said duties be consistent with
the prestige and responsibility of Purches's position. The Consultant shall,
through its agents, servants and employees, devote its best efforts at all times
necessary to perform its duties and to advance the Corporation's best interests,
subject to reasonable vacations. The Consultant and the Corporation acknowledge
that the Consultant and its agents, servants and employees have other
business interests and shall not be required to devote its exclusive time and
attention to the performance of its duties hereunder.
2. Term: Unless sooner terminated as provided in Section 7 below, this Agreement
shall be for a term of three (3) years and five (5) months commencing as of
November 1, 1999 and ending on March 31, 2003; provided however, that the term
of this Agreement shall be automatically extended on the same terms and
conditions for a one year period and from year to year thereafter unless either
the Corporation or the Consultant shall give written notice of the termination
of this Agreement to the other at least six (6) months prior to the expiration
of said term or extended term.
3. Compensation: For all services rendered by the Consultant under this
Agreement, the Corporation shall pay to Consultant as compensation the sum of
$100,000 per annum, payable in equal bi-weekly installments of $3,846.15.
4. Health and Life Insurance: The Corporation shall, at no cost to the
Consultant or Purches, provide Purches with full health insurance, basic, major
medical and dental as well as group life insurance. Said coverage shall be
identical to that afforded the Corporation's Management.
<PAGE>
CONSULTING AGREEMENT
Page 2
5. Expenses: Consultant will be reimbursed by the Corporation for all reasonable
business expenses incurred by the Consultant in the performance of its duties.
Said reimbursement shall be made no less frequently than monthly upon submission
by the Consultant of a written request for same.
6. Stock Options (Warrants): Purches shall be granted non qualified stock
options (warrants) to purchase 30,000 shares of Corporation's common stock at an
exercise price of $2.25 per share being the closing price of the shares of
common stock on November 1, 1999. The options (warrants) shall be exercisable
at the rate of 10,000 on March 31, 2001, 10,000 on March 31, 2002 and 10,000 on
March 31, 2003. Each option (warrant) shall be exercised within a period of ten
(10) years after the date of the grant unless earlier terminated in accordance
with its terms or those of this Agreement. The rights of Purches with respect to
any stock option (warrant) granted to Purches shall be determined exclusively by
the plans and agreements relating to the options (warrants) and this Agreement
shall not affect, in any way, the rights and obligations of the plans and
agreements.
7. Early Termination: The Corporation may terminate the Consultant's
relationship under this Agreement prior to the expiration of the term set forth
in Section 2 above only under the following circumstances:
i. Death. Upon the death of Purches.
ii. Disability. If, as a result of Purches's incapacity due to
physical or mental illness, Purches having been unable to
perform his duties under this Agreement for a period of six
consecutive calendar months, then thirty (30) days after
written notice of termination is given to Consultant (which
may only be given after the end of the six consecutive
calendar month period) provided that Purches has not returned
to his duties under this Agreement.
iii. Cause. For Cause. The Corporation shall have "Cause"
to terminate this Agreement upon
(a) the willful and continued failure by Consultant
to substantially perform its duties under this
Agreement (other than any failure resulting from
Purches's incapacity due to physical or mental
illness) for thirty (30) days after written demand
for substantial performance is delivered by the
Corporation specifically identifying the manner in
which the Corporation believes Consultant has not
substantially performed its duties, or
(b) the willful engaging by Consultant or Purches in
misconduct (including embezzlement and criminal
fraud) which is materially injurious to the
Corporation, or
(c) the conviction of Purches of a felony. For
purposes of this paragraph, no act, or failure to
act, by the Consultant shall be considered "willful"
unless done or omitted to be done, by Consultant not
in good faith and without reasonable belief that its
action or omission was in the interest of the
Corporation. Consultant shall not be deemed to have
been terminated for Cause unless and until there
shall have been delivered to Consultant a copy of a
resolution,
<PAGE>
CONSULT1NG AGREEMENT
Page 3
duly adopted by the affirmative vote of a majority of
the entire membership of the Board of Directors
(Board) at a meeting of the Board called and held for
such purpose (after a reasonable notice to the
Consultant and an opportunity for Consultant,
together with its counsel, to be heard before the
Board), finding that in the good faith opinion of the
Board, Consultant was guilty of conduct set forth
above and specifying the particulars of the conduct
in detail.
iv. Termination by Consultant or Purches. Consultant or
Purches may terminate this Agreement (a) for Good Reason (as
defined below) or (b) Purches's health should become impaired
to any extent that makes the performance of his duties under
this Agreement hazardous to his physical or mental health or
his life, provided that Purches shall have furnished the
Corporation with a written statement from a qualified doctor
to that effect and provided further that at the Corporation's
request and expense Purches shall submit to an examination by
a doctor selected by the Corporation, and the doctor shall
have concurred in the conclusion of Purches's doctor.
Consultant shall give the Corporation thirty (30) days prior
written notice of its intent to terminate this agreement.
"Good Reason" means the Corporation has had a Change
in Control. For purposes of this Agreement, a Change
in Control means 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 as determined in
accordance with Section 12(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
whether or not applicable, together 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 (within the meaning of Rule 13d-3 and Rule 13d-5
under the Exchange Act, whether or not
applicable, except that a person shall be deemed to
have beneficial ownership of all securities that such
person has the right to acquire whether such right is
exercisable immediately or only after the passage of
time) of more than thirty (30) percent of the combined
voting power of the then outstanding common stock of
the Corporation or
(b) otherwise have the ability to elect, directly or
indirectly, a majority of the Board.
v. Notice of Termination. Any termination of this Agreement
shall be communicated by written Notice of Termination to the
other party of this Agreement. "Notice of Termination" means
a notice which indicates the specific termination provision
in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for the termination of the Consultant's
retention under the provision so indicated.
vi. Date of Termination. Date of termination means (a) if the
Agreement is terminated by Purches's death, the date of his
death,
(b) if the Consultant's retention is terminated pursuant to
subsection 7(iii)(a)
<PAGE>
CONSULTING AGREEMENT
Page 4
above, thirty (30) days after Notice of Termination is given
provided that Purches shall not have returned to the
performance of his duties during the thirty (30) day period,
(c) if the Consultant's retention is terminated pursuant to
subsection 7(iii)(c) above, the date specified in the Notice
of Termination after the expiration of any cure periods, and
(d) if the Consultant's retention is terminated for any other
reason, the date on which Notice of Termination is given.
8. Compensation Upon Termination or During Disability:
i. Upon Purches's death, the Corporation shall pay to the person
designated by Consultant in a notice filed with the
Corporation or, if no person is designated, to Purches's
estate as a lump sum death benefit, Consultant's full
compensation for a period of three months after the date of
Purches's death. Upon full payment of amounts required to be
paid under this subsection, the Corporation shall have no
further obligation under this Agreement.
ii. During any period that Purches fails to perform his duties
under this Agreement as a result of incapacity due to physical
or mental illness, Consultant shall continue to receive its
full compensation until the Consultant's relationship is
terminated pursuant to Section 7(ii) of this Agreement, or
until Consultant shall receive a lump sum of six months'
compensation.
iii. If the Consultant's retention is terminated for Cause as
defined in subsection 7(iii), the Corporation shall pay the
Consultant its compensation through the date of termination at
the rate in effect at the time Notice of Termination is
delivered and the Corporation shall have no further obligation
to Consultant under this Agreement.
iv. If (a) in breach of this Agreement, the Corporation shall
terminate the Consulting relationship other than pursuant to
Sections 7(iii)(b) or 7(iii)(c) (it being understood that a
purported termination pursuant to Sections 7(iii)(b) or
7(iii)(c) which is disputed and finally determined not to have
been proper shall be a termination by the Corporation in
breach of this Agreement), or (b) the Consultant shall
terminate the relationship for Good Reason, then
(1) The Corporation shall pay the Consultant its full
compensation through the date of termination at the
rate then in effect at the time Notice of Termination
is given through the end of the Term;
(2) In the event of a Change in Control as defined in
Section 7(iv), the Corporation shall pay Consultant,
in a lump sum, an amount equal to the greater of (a)
twice the amount then due through the end of the
Term; or (b) two times the annual compensation paid
to Consultant.
(3) In the event of a Change in Control of the
Corporation as defined in Section 7(iv) above, the
total number of outstanding unexercised options
(warrants) granted to Consultant under this Agreement
as well as any previous employment, consultant or
other agreements, shall be doubled in quantity while
retaining the original exercise price.
<PAGE>
CONSULTING AGREEMENT
Page 5
(4) The Corporation shall pay all reasonable legal fees
and expenses incurred by Consultant in contesting or
disputing any such termination or in seeking to
obtain or enforce any right or benefit in this
Agreement.
v. Unless the Consultant is terminated for Cause, the
Corporation shall maintain in full force and effect, for the
continued benefit of Consultant for the greater of the
remaining term of this Agreement or eighteen (18) months
after termination of this Agreement, all health and
hospitalization plans and programs in which Consultant was
entitled to participate in immediately prior to the Date of
Termination as defined in Section 4 of this Agreement,
provided that Consultant's continued participation is
possible under the general terms and provisions of the plans
and programs. If Consultant's participation in any plan or
program is barred, the Corporation shall arrange to provide
the Consultant with benefits substantially similar to those
which Consultant would otherwise have been entitled to
receive under the plan and program from which his continued
participation is barred.
9. Savings Clause: The determination that any provision of this Agreement is
unenforceable shall not terminate this Agreement or otherwise affect the other
provisions of this Agreement, it being the intention of the parties hereto that
this Agreement shall be construed to permit the equitable reformation of such
provision to permit the enforcement thereof, if possible, and otherwise to
permit the enforcement of the remaining provisions of this Agreement as if such
unenforceable provision were not included herein.
10. Equitable Relief: The parties hereto agree and declare that legal remedies
may be inadequate to enforce the provisions of this Agreement and that equitable
relief, including specific performance and injunctive relief, may be used to
enforce the provisions of this Agreement.
11. Notice: Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given and received on the
date when personally delivered or deposited in the United States Mail,
registered postage prepaid, addressed:
a. if to the Corporation to:
Mr. Ilia Lekach
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
b. if to the Consultant or Purches to:
Mr. Frederick Purches
333 East 69th Street
New York, New York 10021
or to such other address as the Corporation or the Consultant may designate in
writing.
12. Amendments: This Agreement may be amended or modified only by a writing.
<PAGE>
CONSULTING AGREEMENT
Page 6
13. Governing Law: This Agreement shall be governed and construed under the laws
of the State of Florida.
14. Entire Agreement: This Agreement constitutes the entire Agreement between
the Consultant, Purches and the Corporation, with respect to its subject matter,
and all prior and other agreements between them, oral or written concerning the
same subject matter are merged into this Agreement and thus extinguished.
15. Survival of Covenants: Any of the provisions in this Agreement which would
by their terms continue after the termination of this Agreement shall be deemed
to survive such termination.
16. Assignability and Binding Effect: This Agreement shall be binding upon and
inure to the benefit of the Corporation and its successors and assigns. This
Agreement may not be assigned by either party without the written consent of the
other party hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
as of the date first written above.
PARLUX FRAGRANCES, INC.
By: /s/ Ilia Lekach
--------------------
Ilia Lekach, Chief
Executive Officer
Consultant:
COSMIX INC
By: /s/ Frederick Purches
-------------------------
Frederick Purches, President
and Frederick Purches Individually
CONSULTING AGREEMENT
--------------------
This Consulting Agreement (hereinafter "Agreement")dated as of
November 1, 1999, between PARLUX FRAGRANCES, INC., a corporation organized and
existing under the laws of the State of Delaware (hereinafter "Corporation")and
CAMBRIDGE DEVELOPMENT CORPORATION, 14 Vanderventer Avenue, Port Washington, New
York 11050 (hereinafter "Consultant"), and Albert F. Vercillo (hereinafter
"Vercillo"), the President of Consultant residing at 74 Summit Road, Port
Washington, New York 11050. Collectively hereinafter referred to as "Parties".
WHEREAS, Corporation, Consultant and Vercillo are parties to a
Consulting Agreement dated April 1, 1997 and Consulting Agreement Amendment
dated December 1, 1998 which are hereby terminated without liability to either
party.
WHEREAS, the parties wish to enter into a new Consulting Agreement under
revised terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual understanding set forth
herein, the Parties agree as follows:
1. Consultant's Duties: The Corporation hereby engages the Consultant as its
business and financial consultant. Subject at all times to the control and
direction of the Corporations's Chief Executive Officer, Chief Operating Officer
and Chief Financial Officer (hereinafter Management), the Consultant shall have
the duties as the general advisor and consultant to Management on all matters
pertaining to the business and to render all other services relevant thereto.
The Consultant, by Vercillo, shall perform all other duties that may be
reasonably assigned to it by Management provided said duties be consistent with
the prestige and responsibility of Vercillo's position. The Consultant shall,
through its agents, servants and employees, devote its best efforts at all times
necessary to perform its duties and to advance the Corporation's best interests,
subject to reasonable vacations. The Consultant and the Corporation acknowledge
that the Consultant and its agents, servants and employees have other business
interests and shall not be required to devote its exclusive time and attention
to the performance of its duties hereunder.
2. Term: Unless sooner terminated as provided in Section 7 below, this Agreement
shall be for a term of three (3)years
<PAGE>
CONSULTING AGREEMENT
Page 2
and seven (7)months commencing as of November 1, 1999 and ending on May 31,
2003; provided however, that the term of this Agreement shall be automatically
extended on the same terms and conditions for a one year period and from year to
year thereafter unless either the Corporation or the Consultant shall give
written notice of the termination of this Agreement to the other at least six
(6)months prior to the expiration of said term or extended term.
3. Compensation: For all services rendered by the Consultant under this
Agreement, the Corporation shall pay to Consultant as compensation the sum of
$84,000 per annum, payable in equal bi-weekly installments of $3,230.76 for the
period from November 1, 1999 to May 31, 2000; thereafter, effective June 1, 2000
Consultant's compensation shall be increased to $96,200 per annum payable in
equal bi-weekly installments of $3,700.00.
4. Health and Life Insurance: The Corporation shall, at no cost to the
Consultant or Vercillo, provide Vercillo with full health insurance, basic,
major medical and dental as well as group life insurance. Said coverage shall be
identical to that afforded the Corporation's Management.
5. Expenses: Consultant will be reimbursed by the Corporation for all reasonable
business expenses incurred by the Consultant in the performance of its duties.
Said reimbursement shall be made no less frequently than monthly upon submission
by the Consultant of a written request for same.
6. Stock Options (Warrants): Vercillo shall be granted non qualified stock
options (warrants)to purchase 30,000 shares of Corporation's common stock at an
exercise price of $2.25 per share being the closing price of the shares of
common stock on November 1, 1999. The options (warrants)shall be exercisable at
the rate of 10,000 on May 31, 2001, 10,000 on May 31, 2002 and 10,000 on May 31,
2003. Each option (warrant)shall be exercised within a period of ten (10)years
after the date of the grant unless earlier terminated in accordance with its
terms or those of this Agreement. The rights of Vercillo with respect to any
stock option (warrant)granted to Vercillo shall be determined exclusively by
the plans and agreements relating to the options (warrants)and this Agreement
shall not affect, in any way, the rights and obligations of the plans and
agreements.
7. Early Termination: The Corporation may terminate the
<PAGE>
CONSULTING AGREEMENT
Page 3
Consultant's relationship under this Agreement prior to the expiration of the
term set forth in Section 2 above only under the following circumstances:
i. Death. Upon the death of Vercillo.
ii. Disability. If, as a result of Vercillo's
incapacity due to physical or mental illness,
Vercillo having been unable to perform his
duties under this Agreement for a period of six
consecutive calendar months, then thirty (30)
days after written notice of termination is
given to Consultant (which may only be given
after the end of the six consecutive calendar
month period)provided that Vercillo has not
returned to his duties under this Agreement.
iii. Cause. For Cause. The Corporation shall have
"Cause" to terminate this Agreement upon
(a) the willful and continued failure by
Consultant to substantially perform its duties
under this Agreement (other than any failure
resulting from Vercillo's incapacity due to
physical or mental illness) for thirty (30)
days after written demand for substantial
performance is delivered by the Corporation
specifically identifying the manner in which
the Corporation believes Consultant has not
substantially performed its duties, or
(b) the willful engaging by Consultant or
Vercillo in misconduct (including embezzlement
and criminal fraud) which is materially
injurious to the Corporation, or
(c) the conviction of Vercillo of a felony.
For purposes of this paragraph, no act, or
failure to act, by the Consultant shall be
considered "willful" unless done or omitted to
be done, by Consultant not in good faith and
without reasonable belief that its action or
omission was in the interest of the
Corporation. Consultant shall not be deemed to
have been terminated for Cause unless and until
there shall have been delivered to Consultant a
copy of a resolution, duly adopted by the
affirmative vote of a majority of the entire
membership of the Board of Directors (Board) at
a meeting of the Board called and held for such
purpose (after a reasonable notice to the
Consultant and an opportunity for Consultant,
together with its counsel, to be heard before
<PAGE>
CONSULTING AGREEMENT
Page 4
the Board), finding that in the good faith
opinion of the Board, Consultant was guilty of
conduct set forth above and specifying the
particulars of the conduct in detail.
iv. Termination by Consultant or Vercillo.
Consultant or Vercillo may terminate this
Agreement (a) for Good Reason (as defined
below) or (b) Vercillo's health should become
impaired to any extent that makes the
performance of his duties under this Agreement
hazardous to his physical or mental health or
his life, provided that Vercillo shall have
furnished the Corporation with a written
statement from a qualified doctor to that
effect and provided further that at the
Corporation's request and expense Vercillo
shall submit to an examination by a doctor
selected by the Corporation, and the doctor
shall have concurred in the conclusion of
Vercillo's doctor. Consultant shall give the
Corporation thirty (30) days prior written
notice of its intent to terminate this
agreement.
"Good Reason" means the Corporation has
had a Change in Control. For purposes of
this Agreement, a Change in Control means
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 as determined
in accordance with Section 12(d) of the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or
not applicable, together 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 (within the meaning of Rule 13d-3
and Rule 13d-5 under the Exchange Act,
whether or not applicable, except that a
person shall be deemed to have beneficial
ownership of all securities that such
person has the right to acquire whether
such right is exercisable immediately or
only after the passage of time) of more
than thirty (30) percent of the
<PAGE>
CONSULTING AGREEMENT
Page 5
combined voting power of the then
outstanding common stock of the
Corporation or (b) otherwise have the
ability to elect, directly or indirectly,
a majority of the Board.
v. Notice of Termination. Any termination of this
Agreement shall be communicated by written
Notice of Termination to the other party of this
Agreement. "Notice of Termination" means a
notice which indicates the specific termination
provision in this Agreement relied upon and
shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for
the termination of the Consultant's retention
under the provision so indicated.
vi. Date of Termination. Date of termination means
(a) if the Agreement is terminated by Vercillo's
death, the date of his death,
(b) if the Consultant's retention is terminated
pursuant to subsection 7(iii) (a) above, thirty
(30) days after Notice of Termination is given
provided that Vercillo shall not have returned
to the performance of his duties during the
thirty (30) day period,
(c) if the Consultant's retention is terminated
pursuant to subsection 7(iii) (c) above, the date
specified in the Notice of Termination after the
expiration of any cure periods, and
(d) if the Consultant's retention is terminated
for any other reason, the date on which Notice
of Termination is given.
8. Compensation Upon Termination or During Disability:
---------------------------------------------------
i. Upon Vercillo's death, the Corporation shall pay
to the person designated by Consultant in a
notice filed with the Corporation or, if no
person is designated, to Vercillo's estate as a
lump sum death benefit, Consultant's full
compensation for a period of three months after
the date of Vercillo's death. Upon full payment
of amounts required to be paid under this
subsection, the Corporation shall have no
further obligation under this Agreement.
ii. During any period that Vercillo fails to perform
his duties under this Agreement as a result of
incapacity due to physical or mental illness,
<PAGE>
CONSULTING AGREEMENT
Page 6
Consultant shall continue to receive its full
compensation until the Consultant's relationship
is terminated pursuant to Section 7(ii) of this
Agreement, or until Consultant shall receive a
lump sum of six months' compensation.
iii. If the Consultant's retention is terminated for
Cause as defined in subsection 7(iii), the
Corporation shall pay the Consultant its
compensation through the date of termination at
the rate in effect at the time Notice of
Termination is delivered and the Corporation
shall have no further obligation to Consultant
under this Agreement.
iv. If (a) in breach of this Agreement, the
Corporation shall terminate the Consulting
relationship other than pursuant to Sections
7(iii) (b) or 7(iii) (c) (it being understood that
a purported termination pursuant to Sections
7(iii) (b) or 7(iii) (c) which is disputed and
finally determined not to have been proper shall
be a termination by the Corporation in breach of
this Agreement), or (b) the Consultant shall
terminate the relationship for Good Reason, then
(1) The Corporation shall pay the Consultant its full compensation
through the date of termination at the rate then in effect at
the time Notice of Termination is given
through the end of the Term;
(2) In the event of a Change in Control as defined in Section 7(iv),
the Corporation shall pay Consultant, in a lump sum, an amount
equal to the greater of (a) twice the amount then due through the
end of the Term; or (b) two times the annual compensation paid to
Consultant.
(3) In the event of a Change in Control of the Corporation as defined
in Section 7(iv) above, the total number of outstanding
unexercised options (warrants) granted to Consultant under this
Agreement as well as any previous employment, consultant or other
agreements, shall be doubled in quantity while retaining the
original exercise price.
(4) The Corporation shall pay all reasonable
<PAGE>
CONSULTING AGREEMENT
Page 7
legal fees and expenses incurred by Consultant in contesting or
disputing any such termination or in seeking to obtain or enforce
any right or benefit in this Agreement.
v. Unless the Consultant is terminated for Cause,
the Corporation shall maintain in full force and
effect, for the continued benefit of Consultant
for the greater of the remaining term of this
Agreement or eighteen (18) months after
termination of this Agreement, all health and
hospitalization plans and programs in which
Consultant was entitled to participate in
immediately prior to the Date of Termination as
defined in Section 4 of this Agreement, provided
that Consultant's continued participation is
possible under the general terms and provisions
of the plans and programs. If Consultant's
participation in any plan or program is barred,
the Corporation shall arrange to provide the
Consultant with benefits substantially similar
to those which Consultant would otherwise have
been entitled to receive under the plan and
program from which his continued participation
is barred.
9. Savings Clause: The determination that any provision of this Agreement is
unenforceable shall not terminate this Agreement or otherwise affect the other
provisions of this Agreement, it being the intention of the parties hereto that
this Agreement shall be construed to permit the equitable reformation of such
provision to permit the enforcement thereof, if possible, and otherwise to
permit the enforcement of the remaining provisions of this Agreement as if such
unenforceable provision were not included herein.
10. Equitable Relief: The parties hereto agree and declare that legal remedies
may be inadequate to enforce the provisions of this Agreement and that equitable
relief, including specific performance and injunctive relief, may be used to
enforce the provisions of this Agreement.
<PAGE>
CONSULTING AGREEMENT
Page 8
11. Notices: Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given and received on the
date when personally delivered or deposited in the United States Mail,
registered postage prepaid, addressed:
a. if to the Corporation to:
Mr. Ilia Lekach
Parlux Fragrances, Inc.
3725 S.W. 30th Avenue
Fort Lauderdale, FL 33312
b. if to the Consultant or Vercillo to:
Mr. Albert Vercillo
74 Summit Road
Port Washington, NY 11050
or to such other address as the Corporation or the Consultant may designate in
writing.
12. Amendments: This Agreement may be amended or modified only by a writing.
13. Governing Law: This Agreement shall be governed and construed under the laws
of the State of Florida.
14. Entire Agreement: This Agreement constitutes the entire Agreement between
the Consultant, Vercillo and the Corporation, with respect to its subject
matter, and all prior and other agreements between them, oral or written
concerning the same subject matter are merged into this Agreement and thus
extinguished.
15. Survival of Covenants: Any of the provisions in this Agreement which would
by their terms continue after the termination of this Agreement shall be deemed
to survive such termination.
16. Assignability and Binding Effect: This Agreement shall be binding upon and
inure to the benefit of the Corporation and its successors and assigns. This
Agreement may not be assigned by either party without the written consent of the
other party hereto.
<PAGE>
CONSULTING AGREEMENT
Page 9
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals as
of the date first written above.
PARLUX FRAGRANCES, INC.
By: /s/ Ilia Lekach
------------------------
Ilia Lekach, Chief
Executive Officer
Consultant:
CAMBRIDGE DEVELOPMENT CORPORATION
By: /s/ Albert F. Vercillo
--------------------------
Albert F. Vercillo, President
and Albert F. Vercillo
Individually
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<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 439,653
<SECURITIES> 0
<RECEIVABLES> 26,255,051
<ALLOWANCES> (4,834,146)
<INVENTORY> (21,359,988)
<CURRENT-ASSETS> 55,773,955
<PP&E> 6,146,208
<DEPRECIATION> (4,536,925)
<TOTAL-ASSETS> 79,646,294
<CURRENT-LIABILITIES> 20,243,184
<BONDS> 0
0
0
<COMMON> 174,630
<OTHER-SE> 55,898,553
<TOTAL-LIABILITY-AND-EQUITY> 79,646,294
<SALES> 51,262,765
<TOTAL-REVENUES> 51,262,765
<CGS> 22,572,450
<TOTAL-COSTS> 22,572,450
<OTHER-EXPENSES> 22,732,601
<LOSS-PROVISION> 430,000
<INTEREST-EXPENSE> 815,291
<INCOME-PRETAX> 4,712,423
<INCOME-TAX> 1,790,721
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