<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Perfumania, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PERFUMANIA, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on September 30, 1997
To the Shareholders
of Perfumania, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders of
Perfumania, Inc., a Florida corporation (the "Company"), will be held at 10:00
a.m., local time, on Tuesday, September 30, 1997, at The Radisson Mart Plaza
Hotel, 711 N.W. 72nd Avenue, Miami, Florida 33126, for the following purposes:
(1) To elect seven members to the Company's Board of Directors to
hold office until the 1998 Annual Meeting or until their
successors are duly elected and qualified.
(2) To consider and vote upon a proposal to amend the Company's
1991 Stock Option Plan, including increasing to 2,500,000 the
number of shares of Common Stock reserved for issuance
pursuant to such Plan.
(3) To transact other business as may properly come before the
Annual Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on August 1,
1997 as the record date for determining those shareholders entitled to notice
of, and to vote at, the Annual Meeting and any adjournments or postponements
thereof.
Whether or not you expect to be present, please sign, date and return
the enclosed proxy card in the enclosed pre-addressed envelope as promptly as
possible. No postage is required if mailed in the United States.
By Order of the Board of Directors
/S/ Simon Falic
----------------
Simon Falic
Chairman of the Board
and Chief Executive Officer
Miami, Florida
August 29, 1997
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND ARE RESPECTFULLY
URGED TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE.
SHAREHOLDERS WHO EXECUTE A PROXY CARD MAY NEVERTHELESS ATTEND THE MEETING,
REVOKE THEIR PROXY AND VOTE THEIR SHARES IN PERSON.
<PAGE> 3
1997 ANNUAL MEETING OF SHAREHOLDERS
OF
PERFUMANIA, INC.
--------------------
PROXY STATEMENT
-----------------------
DATE, TIME AND PLACE
OF
ANNUAL MEETING
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Perfumania, Inc., a Florida corporation
("Perfumania" or the "Company"), of proxies from the holders of the Company's
Common Stock, par value $.01 per share (the "Common Stock"), for use at the 1997
Annual Meeting of Shareholders of the Company to be held on Tuesday, September
30, 1997 at the Radisson Mart Plaza Hotel, 711 N.W. 72nd Avenue, Miami, Florida
33126, or at any adjournment(s) or postponement(s) thereof (the "Annual
Meeting"), pursuant to the enclosed Notice of Annual Meeting. The approximate
date that this Proxy Statement and the enclosed form of proxy are first being
sent to holders of Common Stock is August 29, 1997. Shareholders should review
the information provided herein in conjunction with the Company's 1996 Annual
Report to Shareholders which accompanies this Proxy Statement. The Company's
principal executive offices are located at 11701 N.W. 101st Road, Miami, Florida
33178, and its telephone number is (305) 889-1600.
INFORMATION CONCERNING PROXY
The enclosed proxy is solicited on behalf of the Company's Board of
Directors. The giving of a proxy does not preclude the right to vote in person
should any shareholder giving the proxy so desire. Shareholders have an
unconditional right to revoke their proxy at any time prior to the exercise
hereof, either in person at the Annual Meeting or by filing with the Company's
Secretary at the Company's headquarters a written revocation or duly executed
proxy bearing a later date; however, no such revocation will be effective until
written notice of the revocation is received by the Company at or prior to the
Annual Meeting.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Annual Meeting of Shareholders and the enclosed proxy is to be borne
by the Company. In addition to the use of mail, employees of the Company may
solicit proxies personally and by telephone. The Company's employees will
receive no compensation for soliciting proxies other than their regular
salaries. The Company may request banks, brokers and other custodians, nominees
and fiduciaries to forward copies of the proxy material to their principals and
to request authority for the execution of proxies. The Company may reimburse
such persons for their expenses in so doing.
<PAGE> 4
PURPOSES OF THE MEETING
At the Annual Meeting, the Company's shareholders will consider and vote upon
the following matters:
(1) The election of seven members to the Company's Board of
Directors to serve until the next Annual Meeting of
Shareholders or until their successors are duly elected and
qualified.
(2) To consider and vote upon a proposal to amend the Company's
1991 Stock Option Plan, including increasing to 2,500,000 the
number of shares of Common Stock reserved for issuance
pursuant to such Plan.
(3) Such other business as may properly come before the Annual
Meeting, including any adjournments or postponements thereof.
Unless contrary instructions are indicated on the enclosed proxy, all
shares represented by valid proxies received pursuant to this solicitation (and
which have not been revoked in accordance with the procedures set forth above)
will be voted in favor of all proposals described in the Notice of Annual
Meeting. In the event a shareholder specifies a different choice by means of the
enclosed proxy, his shares will be voted in accordance with the specification so
made.
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Board of Directors has set the close of business on August 1, 1997
as the record date (the "Record Date") for determining shareholders of the
Company entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, there were 7,078,791 shares of Common Stock issued and outstanding,
all of which are entitled to be voted at the Annual Meeting. Each share of
Common Stock is entitled to one vote on all matters to be acted upon at the
Annual Meeting and neither the Company's Articles of Incorporation nor Bylaws
provide for cumulative voting rights.
The attendance, in person or by proxy, of the holders of a majority of
the shares of Common Stock entitled to vote at the Annual Meeting is necessary
to constitute a quorum. To be elected, nominees for Director must receive a
plurality of the votes cast by holders of shares of Common Stock present or
represented at the Annual Meeting. The proposal to amend the 1991 Stock Option
Plan will be approved if a majority of the votes cast by shares of Common Stock
present or represented at the Annual Meeting are voted in favor of that
proposal. Abstentions are considered as shares present and entitled to vote for
purposes of determining the presence of a quorum and for purposes of determining
the outcome of any matter submitted to the shareholders for a vote, but are not
counted as votes "for" or "against" any matter. The inspector of elections will
treat shares referred to as "broker or nominee non-votes" (shares held by
brokers or nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does not
have discretionary voting power on a particular matter) as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. For purposes of determining the outcome of any matter as to which the
proxies reflect broker or nominee non-votes, shares represented by such proxies
will be treated as not present and not entitled to vote on that subject matter
and therefore would not be considered by the inspectors when counting votes cast
on the matter (even though those shares are considered entitled to vote for
quorum purposes and may be entitled to vote on others matters). Accordingly,
abstentions and broker or nominee non-votes will not have the same effect as a
vote against the election of directors. With respect to the amendment of the
1991 Stock Option Plan, abstentions will have the same effect as a vote against
that proposal and broker or nominee non-votes will not have that effect. If less
than a majority of the outstanding shares of Common Stock are represented at the
Annual Meeting, a majority of the shares so represented may adjourn the Annual
Meeting from time to time without further notice
2
<PAGE> 5
ELECTION OF DIRECTORS; MANAGEMENT
INFORMATION CONCERNING THE NOMINEES
The Company's Articles of Incorporation provide that the number of
directors constituting the Company's Board of Directors shall be determined by
the Company's Bylaws. The Company's Bylaws provide that the number of directors
shall be fixed from time to time by the Board of Directors. The Board of
Directors has fixed at seven the number of directors that will constitute the
Board for the ensuing year. Each director elected at the Annual Meeting will
serve for a term expiring at the 1998 Annual Meeting of Shareholders or until
his or her successor has been duly elected and qualified.
The Board of Directors has no reason to believe that any nominee will
refuse to act or be unable to accept election; however, in the event that a
nominee for a directorship is unable to accept election or if any other
unforeseen contingencies should arise, it is intended that proxies will be voted
for the remaining nominees, if any, and for such other person as may be
designated by the Board of Directors, unless it is directed by a proxy to do
otherwise.
The executive officers and directors of the Company are as follows, and
each of such persons that is a director has been nominated by the Company for
re-election as a director at the Annual Meeting:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Simon Falic 37 Chairman of the Board and Chief Executive Officer
Ron A. Friedman 38 President, Chief Financial Officer, Chief Operating
Officer, Treasurer, Secretary and Director
Jerome Falic 33 Vice President and Vice Chairman of the Board
Marc Finer 36 President of the Retail Division and Director
Jose Retelny 36 Chief Information Officer
Claire Fair 38 Vice President of Human Resources
Daniel J. Manella 71 Director
Robert Pliskin 74 Director
Carole Ann Taylor 52 Director
</TABLE>
SIMON FALIC is a co-founder of the Company and has been a Director and
the President of the Company since its inception in February 1988. Mr. Falic
also became the Company's Chief Executive Officer and Chairman of the Board,
effective May 2, 1994. Effective April 4, 1997, Mr. Falic relinquished his
duties as President. Mr. Falic is a member of the Company's Stock Option
Committee.
RON A. FRIEDMAN has been Chief Financial Officer and Treasurer of the
Company since June 1991, the Secretary and a director of the Company since
October 1991. Mr. Friedman was appointed the Company's President and Chief
Operating Officer, effective April 4, 1997 and effective September 1, 1994,
respectively. From May 1981 through June 1991, Mr. Friedman was employed by KPMG
Peat Marwick, and was a Senior Manager from July 1987 to June 1991.
3
<PAGE> 6
JEROME FALIC has been Vice President of the Company since the Company's
inception and a Director of the Company since August 1994. Mr. Falic was
appointed the Company's Vice Chairman of the Board, effective September 1, 1994.
His principal responsibilities include purchases of all of the Company's
inventory needs and sales for the Company's wholesale division. Mr. Falic is the
brother of Simon Falic, the Company's Chairman of the Board, Chief Executive
Officer and President.
MARC FINER has been the President of the Company's Retail Division
since March 1994 and a Director since August 1994. Mr. Finer was the President
of Parfums Expresso, Inc. and Parfums D'Arte, wholesale distributors of
fragrances in Puerto Rico, from their inception in August 1986 until March 1994.
JOSE RETELNY joined the Company in March 1991 as the Company's MIS
Director and has been Chief Information Officer of the Company since February 1,
1995. Prior to joining the Company, Mr. Retelny was Senior Programmer at IBM's
Austin Programming Center working in communications and database analysis for
operating systems including DOS, OS/2 and AIX.
CLAIRE FAIR was appointed Vice President of Human Resources in August
1996. From November 1993 to August 1996, she served as the Company's Director of
Human Resources. Previously, Ms. Fair was the Director of Employee Relations
with Sterling, Inc.
DANIEL J. MANELLA was appointed a director of the Company in April
1992. Since December 1990, Mr. Manella has been engaged in personal investment
activities. From August 1989 to December 1990, he served as the Chairman of the
Board and Chief Executive Officer of McGregor Corporation, a manufacturer of
men's and boy's apparel. From 1984 to August 1989, Mr. Manella served as the
Chairman of the Board and Chief Executive Officer of Faberge Incorporated
("Faberge"), a manufacturer of toiletries and fragrances. In addition, from
December 1987 to August 1989, he served a the Chairman of the Board and Chief
Executive Officer of Elizabeth Arden, Inc., a manufacturer of cosmetics and
perfumes and a wholly owned subsidiary of Faberge. Mr. Manella is a member of
the Company's Audit Committee and Compensation Committee.
ROBERT PLISKIN was appointed a director of the Company in October 1991.
Mr. Pliskin served as President of Longines Wittnauer Watch Company from 1971 to
1980 when he became President of the Seiko Time Corporation, a position he held
until 1987. In 1987 Mr. Pliskin served as the President of Hattori Corporation
of America, a distributor of watches and clocks, until his retirement in 1990.
Mr. Pliskin is a member of the Company's Audit Committee and Compensation
Committee.
CAROLE ANN TAYLOR was appointed a director of the Company in June 1993.
From 1987 to present, Ms. Taylor has been the owner and president of the Bayside
Company Store, a retail souvenir and logo store at Bayside Marketplace in Miami,
Florida. During this time she has also been a partner of the Jardin Bresilien
Restaurant also located at the Bayside Marketplace. Currently, Ms. Taylor is
also the president of C.A. Taylor Enterprises, a public affairs and marketing
consulting firm in Miami, Florida. Ms. Taylor serves as president and a director
of the Bayside Merchants Assn., and as a director of the Miami-Dade Chamber of
Commerce, the Greater Miami Convention & Visitors Bureau and the Miami Film
Festival. Ms. Taylor is a member of the Company's Audit, Compensation and Stock
Option Committees.
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board. The Company's directors hold office
until the next annual meeting of shareholders and until their successors have
been duly elected and qualified.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the fiscal year ended February 1, 1997 ("fiscal year 1996") the
Company's Board of Directors took certain actions by unanimous written consent
and held two meetings. During fiscal year 1996, no director attended fewer than
75 percent of the aggregate of (i) the number of meetings of the Board of
Directors held during the period he served on the Board, and (ii) the number of
meetings of committees of the Board of Directors held during the period he
served on such committee.
The Board of Directors has three standing committees: the Audit
Committee, the Compensation Committee and the Stock Option Committee. The Board
does not have a Nominating Committee.
Ms. Taylor and Messrs. Manella and Pliskin are members of the Audit
Committee, which held one meeting during fiscal year 1996. The duties and
responsibilities of the Audit Committee include (a)
4
<PAGE> 7
recommending to the full Board the appointment of the Company's auditors and any
termination of engagement, (b) reviewing the plan and scope of audits, (c)
reviewing the Company's significant accounting policies and internal controls,
(d) having general responsibility for all related auditing matters, and (e)
reporting its recommendations and findings to the full Board of Directors.
Ms. Taylor and Mr. Simon Falic are members of the Board's Stock Option
Committee, which has held one meeting during fiscal year 1996. The Stock Option
Committee administers the Company's 1991 Stock Option and Directors Stock Option
Plans, and grants stock options to employees and directors.
Messrs. Manella and Pliskin and Ms. Taylor are members of the Board's
Compensation Committee which held one meeting during fiscal year 1996. The
Compensation Committee administers the Company's executive compensation program.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and the Company's four most highly
compensated executive officers other than the Chief Executive Officer whose
compensation exceeded $100,000 in fiscal 1996, for services rendered to the
Company during fiscal year 1996, 1995 and 1994. The Chief Executive Officer and
such other executive officers are sometimes hereafter collectively referred to
as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term Compensation
-------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------- ------------------------ ---------
Other Restricted
Name and Fiscal Annual Stock LTIP All Other
Principal Position Year Salary($) Bonus($) Compensation($)(1) Awards($) Options(#) Payouts($) Compensation($)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Simon Falic 1996 $287,163 $75,000 $ 0 $0 0 $0 $0
Chairman of the Board 1995 $283,120 $55,000 $ 0 $0 0 $0 $0
and Chief Executive 1994 $183,750 $ 0 $ 0 $0 100,000 $0 $0
Officer,
Ron A. Friedman 1996 $236,250 $61,000 $ 0 $0 100,000 $0 $0
President, Chief 1995 $232,261 $45,000 $ 0 $0 0 $0 $0
Financial Officer, Chief 1994 $161,785 $ 0 $ 0 $0 200,000 $0 $0
Operating Officer,
Treasurer and
Secretary
Jerome Falic 1996 $236,250 $61,000 $ 0 $0 0 $0 $0
Vice President and 1995 $232,261 $45,000 $ 0 $0 0 $0 $0
Vice Chairman of the 1994 $173,250 $ 0 $ 0 $0 100,000 $0 $0
Board
Jose Retelny 1996 $183,383 $ 0 $ 0 $0 0 $0 $0
Chief Information 1995 $162,742 $ 0 $ 0 $0 0 $0 $0
Officer 1994 $136,761 $ 0 $ 0 $0 50,000 $0 $0
Marc Finer 1996 $169,962 $ 0 $ 0 $0 0 $0 $0
President, Retail 1995 $147,646 $ 0 $ 0 $0 0 $0 $0
Division 1994 $ 98,827 $ 0 $ 0 $0 10,000 $0 $0
</TABLE>
(1) The column for "Other Annual Compensation" does not include any amounts for
executive perquisites and any other personal benefits, such as the cost of
automobiles, life insurance and disability insurance because the aggregate
dollar amount per executive is less than 10% of his annual salary and bonus.
5
<PAGE> 8
OPTION GRANTS DURING FISCAL YEAR 1996
The following table sets forth certain information concerning grants of stock
options made during fiscal 1996 to the Named Officer.
<TABLE>
<CAPTION>
INDIVIDUAL OPTION GRANTS IN FISCAL YEAR 1996
-------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
GRANTED STOCK PRICE APPRECIATION
NUMBER TO FOR OPTION TERM
OF EMPLOYEES EXERCISE ---------------------------
NAME OPTIONS IN FISCAL PRICE PER EXPIRATION
- ---- GRANTED (1) 1996 SHARE DATE 5% 10%
------------ -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ron A. Friedman 100,000 67.1% $3.25 2006 $204,000 $230,000
</TABLE>
(1) Each option is a non-qualified stock option granted pursuant to the
Company's 1991 Stock Option Plan, has an exercise price equal to the market
price of a share of Common Stock on the date of grant, and vests on the date of
grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth certain information concerning
unexercised stock options held by the Named Executive Officers as of February 1,
1997. No stock options were exercised by the Named Executive Officers during
fiscal year 1996.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-The-Money
Options at Fiscal Options at Fiscal
Year-End(#) Year-End($)
-----------------------------------------------
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
- -------------------------------------------------------------------------------
<S> <C> <C>
Simon Falic 100,000/0 $62,500/N/A
Ron A. Friedman 375,000/0 $121,875/N/A
Jerome Falic 100,000/0 $62,500/N/A
Marc Finer 10,000/0 $3,750/N/A
Jose Retelny 50,000/0 $12,500/N/A
</TABLE>
6
<PAGE> 9
LONG-TERM INCENTIVE AND PENSION PLANS
The Company does not have any long-term incentive or pension plans.
DIRECTOR COMPENSATION
The Company pays each nonemployee director a $6,500 annual retainer and
reimburses such persons for their expenses in connection with their activities
as directors of the Company. In addition, nonemployee directors are eligible to
receive stock options under the Directors Stock Option Plan.
The Directors Plan currently provides for an automatic grant of an
option to purchase 2,000 shares of Common Stock upon a person's election as a
director of the Company and an automatic grant of options to purchase 4,000
shares of Common Stock upon such persons re-election as a director of the
Company, in both instances at an exercise price equal to the fair market value
of the Common Stock on the date of grant.
EMPLOYMENT AGREEMENTS
Effective February 1, 1995, the Company entered into 3-year employment
agreements with each of Simon Falic, Jerome Falic and Ron Friedman, pursuant to
which they will receive annual salaries of $275,000, $225,000, and $225,000,
respectively, in each case subject to cost-of-living increases, or 5% if higher.
In addition, effective August 11, 1996, the Company entered into a 3-year
employment agreement with Marc Finer, pursuant to which he will receive an
annual salary of $175,000, with similar terms as above regarding increases. Each
employment agreement generally provides that the employee will continue to
receive his salary until the expiration of the term of the employment agreement
if his employment is terminated by the Company for any reason other than death,
disability or cause (as defined in the employment agreement). Each agreement
contains a performance bonus plan which provides for additional compensation and
grant of stock options, if the Company meets certain net income levels. Each
employment agreement also prohibits the employee from directly or indirectly
competing with the Company during the term of his employment and for one year
after termination of employment except in the case of the Company's termination
of employment without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Simon Falic, the Company's Chairman of the Board and Chief Executive
Officer, is a member of the Company's Stock Option Committee.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Company's executive
compensation program is structured to achieve the Company's goals as they relate
to maximizing corporate performance and stockholder return. In general,
executive compensation is made up of annual salaries, performance bonuses and
option grants; the Company's performance bonuses and option grants are intended
to help align executive and stockholder interests. The Company's performance is
assessed with respect to such considerations as sales growth, including
comparable sales growth, new store openings and the sales performance of new
stores against plan; gross profit and margin; net income and earnings per share
growth; and return on shareholders' equity. The Compensation Committee seeks to
attract, motivate and retain executive talent necessary to improve the Company's
performance and therefore increase shareholder returns.
7
<PAGE> 10
In February 1995, Simon Falic, the Company's Chief Executive Officer,
and Jerome Falic and Ron Friedman, two of the other Named Executive Officers,
entered into three-year employment agreements with the Company on terms and
conditions approved by the Compensation Committee. See "Employment Agreements,"
above. Based on the Company's performance during fiscal 1996, Simon Falic,
Jerome Falic and Ron Friedman were granted bonuses which totaled $197,000,
pursuant to the terms of their respective employment agreement. In determining
base salaries for other executives of the Company, the Compensation Committee
defines key executive positions in terms of scope, responsibilities, job
complexity, knowledge and experience required. Salary ranges are determined
using comparable companies and based on prior year performance. Individual
salary increases are based in part on an individual's contribution to Company
performance.
The Company's Stock Option Committee reviews and approves the grant of
options pursuant to the Company's 1991 Stock Option Plan. The Stock Option
Committee currently is made up of Mr. Simon Falic and Ms. Taylor. Pursuant to
the Company's executive compensation policies, stock options are considered as
part of an executive's overall compensation. An executive's compensation
pursuant to a stock option grant generally increases only to the extent the
value of Common Stock underlying the stock options increases, therefore aligning
the interest of the executive officers with its stockholders by tying long-term
compensation with growth of Company and appreciation of shares. During 1996, the
Company granted 100,000 stock options to Mr. Friedman.
In addition to base salaries and option grants, the Compensation
Committee may elect to award incentive bonuses as part of total compensation to
executive officers who have rendered services during the year that substantially
exceed those normally required or anticipated. These bonuses are intended to
reflect the Compensation Committee's determination to reward any executive who,
through extraordinary effort, has substantially benefited the Company and its
stockholders during the year. There were no incentive bonuses awarded during
fiscal 1996.
The Compensation Committee believes that the Company's compensation
programs are competitive with those of other specialty retailers of similar
size.
Robert Pliskin
Daniel J. Manella
Carole Ann Taylor
8
<PAGE> 11
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on the Company's Common Stock with the cumulative total
return of companies on the NASDAQ (US Companies) Stock Index and the NASDAQ
Miscellaneous Retail Stock Index for the period from December 19, 1991 to
February 1, 1997. The Company's initial public offering was December 19, 1991
and, as such, the graph assumes the investment of $100 in the Company's Common
Stock, the NASDAQ (US Companies) Stock Index and the NASDAQ Miscellaneous Retail
Stock Index on December 19, 1991 and assumes dividends are reinvested.
Measurement points are on the last trading day of each fiscal year.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
2/1/92 1/30/93 1/29/94 1/28/95 2/3/96 2/1/97
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Perfumania, Inc. 100 53.03 28.03 18.94 27.27 20.45
- ----------------------------------------------------------------------------------------------------------
NASDAQ Stock Market 100 113.08 130.05 124.07 175.34 229.82
- ----------------------------------------------------------------------------------------------------------
NASDAQ Miscellaneous Retail 100 90.26 96.83 85.37 96.49 118.64
- ----------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock. Officers, directors and greater than 10 percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended February 1, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 1997, information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer, and (iv) all directors and executive officers of the Company
as a group.
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
----------------------------------
Shares Percent
------------- -------
Name and Address of Beneficial Owner (1)
- ----------------------------------------
<S> <C> <C>
Ilia Lekach 1,621,775 (2)(3)(4)(5) 22.9%
Simon Falic 943,050 (2)(3)(5) 13.3%
Rachmil Lekach 675,125 (2)(5) 9.5%
Jerome Falic 718,730 (3)(5) 10.2%
Ron A. Friedman 396,725 (5) 5.6%
Marc Finer 60,000 (5) *
Jose Retelny 50,000 (5) *
Leon Falic 445,000 (2)(5) 6.3%
Robert Pliskin 16,250 (5) *
Daniel J. Manella 26,000 (5) *
Carole A. Taylor 14,000 (5) *
All directors and officers as a group (8 persons) 5,021,655 (5) 70.9%
</TABLE>
*Less than 1%.
(1) The address of each of the beneficial owners identified is 11701 NW 101st
Road, Miami, Florida 33178.
(2) Ilia Lekach, Simon Falic, Rachmil Lekach and Leon Falic jointly own with
their spouses the shares set forth opposite their respective names.
(3) Ilia Lekach has granted options to purchase 224,550 shares and 337,230
shares of Common Stock to Simon Falic and Jerome Falic, respectively,
exercisable through December 31, 1998 at an exercise price of $1.13 per share.
The share ownership set forth in the table above for Simon Falic and Jerome
Falic includes the shares of Common Stock subject to such options. If such
options were exercised, Ilia Lekach would own 1,059,995 shares of Common Stock.
(4) Includes 12,300 shares of Common Stock owned by Pacific Investment Group, a
corporation wholly owned by Mr. Lekach.
(5) Includes shares of Common Stock issuable upon the exercise of stock options
in the following amounts: Ilia Lekach (375,000); Rachmil Lekach (150,000); Simon
Falic (100,000); Jerome Falic (100,000); Ron A. Friedman (375,000); Robert
Pliskin (16,000); Marc Finer (60,000); Jose Retelny (50,000); Leon Falic
(195,000); Daniel J. Manella (14,000); and Carole A. Taylor (14,000).
10
<PAGE> 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Parlux. Parlux Fragrances, Inc. ("Parlux") is a
public company engaged in the manufacture of fragrances. Ilia Lekach, one of the
Company's principal shareholders, is the Chairman of the Board of Parlux. During
fiscal year 1996, the Company purchased approximately $30.7 million of
merchandise from Parlux, representing approximately 29% of the Company's total
purchases. The Company believes that its purchases of merchandise from Parlux,
were, except for credit terms, on terms no less favorable to the Company than
could reasonably be obtained in arm's length transactions with independent third
parties.
Relationship with L. Luria and Son, Inc. L. Luria and Son, Inc.
("Luria") is a public company that is a specialty discount retailer selling a
broad line of products. Ilia Lekach, one of the Company's principal
shareholders, is the Chairman of the Board of Luria. During fiscal year 1996,
The Company sold approximately $2.5 million of merchandise to Luria,
representing approximately 2% of the Company's total sales. The Company believes
that its sales of merchandise to Luria, were, except for credit terms, on terms
no less favorable to the Company than could reasonably be obtained in arm's
length transactions with independent third parties. On August 13, 1997, Luria
announced that it filed for relief under Chapter 11 of the United States
Bankruptcy Code. The Company is an unsecured creditor of Luria and the Company
currently has outstanding receivables from Luria in the amount of $1.5 million.
Accordingly, depending on the resolution of the Luria case, the Company may not
be paid the full amount due from Luria and there can be no assurance that any
portion of the amount due will be recovered by the Company. The Company is not
currently doing any business with Luria.
Related Party Indebtedness. From time to time the Company has borrowed
money for working capital purposes from its principal shareholders and executive
officers and members of their immediate families. The highest aggregate amounts
of the Company's indebtedness to such persons during fiscal year 1996, amount
outstanding at February 1, 1997, the maturity date of such indebtedness and the
interest rate payable by the Company at February 1, 1997, were as set forth in
the following table.
<TABLE>
<CAPTION>
HIGHEST AMOUNT AMOUNT ANNUAL
OUTSTANDING OUTSTANDING AT MATURITY INTEREST
DURING FISCAL YEAR FEBRUARY 1, 1997 DATE RATE
------------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Israel Friedman (1) $770,000 $770,000 Payable on demand 15%
</TABLE>
(1) Father of Ron A. Friedman, the Company's President, Chief Financial
Officer, Chief Operating Officer and Secretary.
As of February 1, 1997, Ilia Lekach was indebted to the Company
pursuant to an unsecured note, in the amount of $417,763 issued in connection
with his purchase of a condominium from the Company in October 1991. The note
accrues interest at the rate of 9.5% and matures on December 31, 1998.
11
<PAGE> 14
PROPOSAL TO INCREASE THE NUMBER OF SHARES RESERVED FOR
ISSUANCE PURSUANT TO THE COMPANY'S 1991 STOCK OPTION PLAN
GENERAL
In February 1997, the Company's Board of Directors adopted, subject to
approval by the Company's shareholders, a resolution to amend the Company's 1991
Stock Option Plan (the "Plan") to (i) increase to 2,500,000 the number of shares
reserved for issuance under the Plan and (ii) add a 500,000 share limit on the
number of shares that may be subject to options granted under the Plan to any
optionee during a two year period. The Plan presently authorizes 1,900,000
shares for issuance upon exercise of stock options. Options to purchase
1,675,100 shares of Common Stock have been granted under the Plan, 1,640,600 of
which are currently outstanding. The current text of the Plan, as modified
pursuant to this amendment, is attached hereto as Exhibit A. The only amendments
to the Plan are (i) the number of shares set forth in Section 3 of the Plan, and
(ii) the addition of paragraph (d) to section 5 of the Plan. The material
features of the Plan are discussed below, but the description is subject to, and
is qualified in its entirety by, the full text of the Plan, as amended.
The purpose of the Plan is to provide additional incentives to attract
and retain qualified and competent persons who provide management services and
upon whose efforts and judgment the success of the Company is largely dependent,
through the encouragement of stock ownership in the Company by such persons. In
furtherance of this purpose, the Plan authorizes (a) the granting of incentive
or nonqualified stock options to purchase Common Stock to regular employees of
the Company (approximately 1,500 persons) satisfying the description above, (b)
the provision of loans for the purpose of financing the exercise of options and
the amount of taxes payable in connection therewith, and (c) the use of already
owned Common Stock as payment of the exercise price for options granted under
the Plan (such provisions being at times referred to herein as the "Stock
Swap").
One of the reasons for submitting the Plan for shareholder approval is
the requirements for awards under the Plan to qualify as performance-based
compensation for purposes of Section 162(m) of the Internal Revenue Code ("the
Code"). That section, which became law in 1994, generally disallows a tax
deduction for certain compensation over $1 million paid, or otherwise taxable,
to persons named in the Summary Compensation Table and employed by the Company
at the end of the year for which the deduction is claimed. Qualifying
performance-based compensation is not subject to the deduction limit if certain
requirements are met, including shareholder approval in the case of the Plan.
Shareholder approval of the Plan will also satisfy any applicable requirements
of the Nasdaq Stock Market National Market System for shareholder approval.
Pursuant to the addition of Section 5(d) to the Plan, the Plan as
amended limits the total aggregate number of shares subject to options that any
one person can receive under the Plan to 500,000 shares of Common Stock during a
two year period. The purpose of this limit is to help facilitate compliance with
section 162(m) of the Code, so that the Company's tax deductions for
compensation expense under the Plan for Compensation expense under the Plan are
not limited by Section 162(m) of the Code.
The Plan is administered by a committee consisting of two or more
directors designated by the Board of Directors (the "Committee") or, if a
Committee is not designated, by the Board of Directors. The Committee in its
sole discretion determines the persons to be awarded options, the number of
shares subject thereto and the exercise price and other terms thereof. In
addition, the Committee has full power and authority to construe and interpret
the Plan, and the acts of the Committee are final, conclusive and binding upon
all interested parties, including the Company, its shareholders, its officers
and employees, recipients of grants under the Plan, and all persons or entities
claiming by or through such persons. The Board has designated its Stock Option
Committee to administer the Plan.
Assuming approval of the proposed amendment, an aggregate of 2,500,000
shares of Common Stock (subject to adjustment as discussed below) will be
reserved for the sale upon exercise of options granted under the plan. Options
to purchase 1,675,100 shares have already been granted under the Plan. The
shares acquired upon exercise of options granted under the Plan will be
authorized and unissued shares of Common Stock. The Company's shareholders will
not have any preemptive rights to purchase or subscribe for the shares reserved
for issuance under the Plan. If any option granted under the Plan should expire
or terminate for any reason other than having been exercised in full, the
unpurchased shares subject to that option will again be available for purposes
of the Plan.
12
<PAGE> 15
CERTAIN TERMS AND CONDITIONS
All options granted under the Plan must be evidenced by a written
agreement between the Company and the grantee. Such agreement shall contain such
terms and conditions, consistent with the Plan, relating to the grant, the time
or times of exercise and other terms of the options as the Committee shall
prescribe.
Under the Plan, the option price per share for incentive stock options
may not be less than the fair market value of the underlying shares on the date
of grant. For purposes of the Plan, and for so long as the Company's Common
Stock is listed on the Nasdaq National Market, the term "fair market value"
means the closing price of the Common Stock as reported on the Nasdaq National
Market on the business day immediately preceding the date of grant. The exercise
price of an option may be paid in cash, or at the sole discretion of the
Committee, by delivery of already owned shares of Common Stock having a fair
market value equal to the exercise price, or by a combination of the foregoing.
The Plan also authorizes the Company to make loans to optionees to enable them
to exercise their options. Such loans must (i) provide for recourse to the
optionee, (ii) bear interest at a rate no less than the prime rate of interest
of the Company's principal lender and (iii) be secured by the shares of Common
Stock purchased. Cash payments will be used by the Company for general corporate
purposes. Payments made in Common Stock must be made by delivery of stock
certificates in negotiable form.
The use of already owned shares of Common Stock applies to payment for
the exercise of an option in a single transaction and to the "pyramiding" of
already owned shares in successive, simultaneous option exercises. In general,
pyramiding permits an option holder to start with as little as one share of
Common Stock and exercise an entire option to the extent then exercisable (no
matter what the number of shares subject thereto). By utilizing already owned
shares of Common Stock, no cash (except for fractional share adjustments) is
needed to exercise an option. Consequently, the optionee would receive Common
Stock equal in value to the spread between the fair market value of the shares
subject to the option and the exercise price of the option.
No option granted under the Plan is assignable or transferable, other
than by will or by the laws of descent and distribution. During the lifetime of
an optionee, an option is exercisable only by such optionee. The expiration date
of an option will be determined by the Committee at the time of grant, but in no
event will an option be exercisable after the expiration of 10 years from the
date of grant. An option may be exercised at any time or from time to time or
only after a period of time or in installments, as the Committee determines. The
Committee may in its sole discretion accelerate the date on which any option may
be exercised.
The unexercised portion of any option granted to an employee under the
Plan shall automatically be terminated (a) three months after the date on which
the optionee's employment is terminated for any reason other than (i) Cause (as
defined in the Plan); (ii) mental or physical disability; or (iii) death; (b)
immediately upon the termination of the optionee's employment for Cause; (c) one
year after the date on which the optionee's employment is terminated by reason
of mental or physical disability; or (d) (i) one year after the date on which
the optionee's employment is terminated by reason of the death of the employee;
or (ii) three months after the date on which the optionee shall die if such
death shall occur during the one year period following the termination of the
optionee's employment by reason of mental or physical disability.
To prevent dilution of the rights of a holder of an option, the Plan
provides for adjustment of the number of shares for which options may be
granted, the number of shares subject to outstanding options and the exercise
price of outstanding options in the event of any subdivision or consolidation of
shares, any stock dividend, recapitalization or other capital adjustment of the
Company. Provisions governing the effect upon options of a merger, consolidation
or other reorganization of the Company are also included in the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Plan is not qualified under the provisions of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), nor subject to any of
the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
Nonqualified Stock Options. An optionee granted a nonqualified stock
option under the Plan will generally recognize, at the date of exercise of such
option, ordinary income equal to the difference between
13
<PAGE> 16
the exercise price and the fair market value of the shares of Common Stock
subject to the nonqualified stock option. This taxable ordinary income will be
subject to Federal income tax withholding and the Company will be entitled to a
deduction for Federal income tax purposes equal to the amount of ordinary income
recognized by the optionee provided that such amount constitutes an ordinary and
necessary business expense to the Company and is reasonable, and either the
optionee includes that amount in income or the Company timely satisfies its
reporting requirements with respect to that amount.
If the Committee permits an optionee to exercise a nonqualified stock
option under the Plan by delivering shares of the Company's Common Stock, the
optionee will not recognize gain or loss with respect to the exchange of such
shares, even if their then fair market value is different from the optionee's
tax basis. The optionee, however, will be taxed as described above with respect
to the exercise of the nonqualified stock option as if he had paid the exercise
price in cash, and the Company likewise generally will be entitled to an
equivalent tax deduction. Provided a separate identifiable stock certificate is
issued therefore, the optionee's tax basis in that number of shares received on
such exercise which is equal to the number of shares surrendered on such
exercise will be equal to his tax basis in the shares surrendered and his
holding period for such number of shares received will include his holding
period for the shares surrendered. The optionee's tax basis and holding period
for the additional shares received on exercise of a nonqualified stock option
paid for, in whole or in part, with shares will be the same as if the optionee
had exercised the nonqualified stock option solely for cash.
Incentive Stock Options. Incentive stock options are "incentive stock
options" as defined in section 422 of the Code. Under the Code, an optionee
generally is not subject to ordinary income tax upon the grant or exercise of an
incentive stock option. However, an employee who exercises an incentive stock
option by delivering shares of Common Stock previously acquired pursuant to the
exercise of an incentive stock option is treated as making a Disqualifying
Disposition (defined below) of such shares if the employee delivers such shares
before the expiration of the holding period applicable to such shares. The
applicable holding period is the longer of two years from the date of grant or
one year from the date of exercise. The effect of this provision is to prevent
"pyramiding" the exercise of an incentive stock option (i.e., the exercise of
the incentive stock option for one share and the use of that share to make
successive exercises of the incentive stock option until it is completely
exercised) without the imposition of current income tax.
The amount by which the fair market value of the shares acquired at the
time of exercise of an incentive stock option exceeds the purchase price of the
shares under such option will be treated as an item of adjustment included in
the optionee's alternative minimum taxable income for purposes of the
alternative minimum tax. If, however, there is a Disqualifying Disposition in
the year in which the option is exercised, the maximum amount of the item of
adjustment for such year is the gain on the disposition of the Common Stock. If
there is a Disqualifying Disposition in a year other than the year of exercise,
the dispositions will not result in an item of adjustment for such other year.
If, subsequent to the exercise of an incentive stock option (whether
paid for in cash or in shares), the optionee holds the shares received upon
exercise for a period that exceeds (a) two years from the date such incentive
stock option was granted or, if later, (b) one year from the date of exercise
(the "Required Holding Period"), the difference (if any) between the amount
realized from the sale of such shares and their tax basis to the holder will be
taxed as long-term capital gain or loss. If the holder is subject to the
alternative minimum tax in the year of disposition, such holder's tax basis in
his shares will be increased for purposes of determining his alternative minimum
tax for such year, by the amount of the item of adjustment recognized with
respect to such shares in the year the option was exercised.
In general, if after exercising an incentive stock option, an employee
disposes of the shares so acquired before the end of the Required Holding Period
(a "Disqualifying Disposition"), such optionee would be deemed in receipt of
ordinary income in the year of the Disqualifying Disposition in an amount equal
to the excess of the fair market value of the shares at the date the incentive
stock option was exercised over the exercise price. If the Disqualifying
Disposition is a sale or exchange that would permit a loss to be recognized
under the Code (were a loss in fact to be sustained), and the sales proceeds are
less than the fair market value of the shares on the date of exercise, the
optionee's ordinary income would be limited to the gain (if any) from the sale.
If the amount realized upon disposition exceeds the fair market value of the
shares on the date of exercise, the excess would be treated as short-term or
long-term capital gain, depending on whether the holding period for such shares
exceeded one year.
An income tax deduction is not allowed to the Company with respect to
the grant or exercise of an incentive stock option or the disposition, after the
Required Holding Period, of shares acquired upon
14
<PAGE> 17
exercise. In the event of a Disqualifying Disposition, a Federal income tax
deduction will be allowed to the Company in an amount equal to the ordinary
income to be recognized by the optionee, provided that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable, and
either the optionee includes that amount in income or the Company timely
satisfies its reporting requirements with respect to that amount.
AMENDMENTS
The Plan will expire on October 22, 2001, and any option outstanding on
such date will remain outstanding until it has either expired or has been
exercised. The Committee may amend, suspend or terminate the Plan at any time,
provided that such amendment may not adversely affect the rights of an optionee
under an outstanding option without the affected optionee's written consent. In
addition, the Committee may not amend the Plan without first obtaining
shareholder approval, to (a) increase the number of shares of Common Stock
reserved for issuance or change the class of persons eligible to receive
options, (b) permit the granting of options that expire beyond the maximum
10-year period, or (c) extend the termination date of the Plan.
15
<PAGE> 18
OPTIONS GRANTED UNDER THE PLAN
Through July 31, 1997, options for an aggregate of 1,575,100 shares had
been granted under the Plan, of which options for 1,540,600 shares remained
outstanding as of such date. The closing market price of the Common Stock on
July 31, 1997 was $3 3/8 per share, as reported on the Nasdaq National Market
System.
The table below indicates, as of July 31, 1997, certain information
about options that have been granted under the Plan since its inception to the
persons and groups indicated.
<TABLE>
<CAPTION>
Value of Outstanding
Options at July 31, (1)
Aggregate Number Exercisable (E)
Option Grantees of Options Granted Unexercisable (U)
- ------------------------------ ------------------ --------------
<S> <C> <C>
Simon Falic 100,000 $ 62,500 (E)
Chairman of the Board and - $ - (U)
Chief Executive Officer
Ron A. Friedman 375,000 $121,875 (E)
President, Chief Financial Officer, - $ - (U)
Chief Operating Officer,Treasurer
and Secretary
Jerome Falic 100,000 $ 62,500 (E)
Vice President and - $ - (U)
Vice Chairman of the Board
Marc Finer 60,000 $ 3,750 (E)
President, Retail Division - $ - (U)
Jose Retelny 50,000 $ 12,500 (E)
Chief Information Officer - $ - (U)
All current executive
officers as a group 691,500 $264,000 (E)
(6 persons) - $ - (U)
All current directors who are 44,000 $ 1,000 (E)
not executive officers as - $ - (U)
a group (3 persons) (2)
All employees as a group, other than
executive officers (options granted 771,700 $148,000 (E)
to 46 out of approximately 1,500 57,000 $ 4,000 (U)
persons)
</TABLE>
- ----------------
(1) For purposes of this table only, the value of each option is deemed
equal to the amount, if any, by which the closing market price of a share of
Common Stock on July 31, 1997 ($33/8) exceeds the option's exercise price. The
value is determined without regard to whether the option is currently
exercisable or not.
(2) These directors have received options under the Directors Stock Option
Plan. See "Director Compensation" on page 7.
16
<PAGE> 19
The Company's management believes that options granted under the Plan
will be awarded primarily to those persons who possess a capacity to contribute
significantly to the successful performance of the Company. Because persons to
whom future discretionary grants of options are to be determined from time to
time by the committee or the Board in their discretion, it is impossible at this
time to predict the precise number, name or positions of persons who will
hereafter receive such options or the number of shares for which options will be
granted.
VOTE REQUIRED AND RECOMMENDATION
The Board of Directors approved an increase to 2,500,000 in the number
of shares reserved for issuance under the Plan and is recommending its
ratification by the shareholders because it believes that the increase is in the
Company's best interest. The affirmative vote of a majority of the votes cast by
shares of Common Stock at the Annual Meeting will be required for ratification
of the increase to 2,500,000 in the number of shares of Common Stock reserved
for issuance under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO
INCREASE TO 2,500,000 THE NUMBER OF SHARES RESERVED FOR ISSUANCE UNDER THE PLAN.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Price Waterhouse LLP, independent public accountants,
served as the Company's independent public accountants for the fiscal year ended
February 1, 1997. The Board of Directors, on the recommendation of the Company's
Audit Committee, has selected Price Waterhouse LLP as the Company's independent
public accountants for the 1997 fiscal year. One or more representatives of
Price Waterhouse LLP are expected to be present at the Annual Meeting. Such
representatives will have the opportunity to make a statement if they desire to
do so and are expected to be available to respond to appropriate questions from
shareholders.
OTHER BUSINESS
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the Annual
Meeting, the persons named in the accompanying proxy will vote proxies as in
their discretion they may deem appropriate, unless they are directed by a proxy
to do otherwise.
INFORMATION CONCERNING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated by the Securities and Exchange
Commission, a shareholder intending to present a proposal to be presented at the
1998 Annual Meeting to Shareholders must deliver a proposal in writing to the
Company's principal executive offices on or before April 29, 1998.
By Order of the Board of Directors
/S/ Simon Falic
---------------
Simon Falic
Chairman of the Board
and Chief Executive Officer
Miami, Florida
August 29, 1997
17
<PAGE> 20
Exhibit A
PERFUMANIA, INC.
------------------------------------------
1991 STOCK OPTION PLAN AS AMENDED
------------------------------------------
1. Purpose. The purpose of this Plan is to advance the interests
of PERFUMANIA, INC., a Florida corporation (the "Company"), and its Subsidiaries
by providing an additional incentive to attract and retain qualified and
competent persons who provide management services or upon whose efforts and
judgment the success of the Company and its Subsidiaries is largely dependent,
through the encouragement of stock ownership in the Company by such persons.
2. Definitions. As used herein, the following terms shall have
the meaning indicated:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Committee" shall mean the stock option committee
appointed by the Board pursuant to Section 13 hereof or, if not appointed, the
Board.
(d) "Common Stock" shall mean the Common Stock, par value
$0.01 per share, of the Company.
(e) "Company" shall refer to Perfumania, Inc., a Florida
corporation.
(f) "Director" shall mean a member of the Board.
(g) "Fair Market Value" of the Common Stock on any date
of reference shall be the Closing Price on the business day immediately
preceding such date of the Common Stock, unless the Committee in its sole
discretion shall determine otherwise in a fair and uniform manner. For this
purpose, the Closing Price of the Common Stock on any business day shall be (i)
if the Common Stock is listed or admitted for trading on any United States
national securities exchange, or if actual transactions are otherwise reported
on a consolidated transaction reporting system, the last reported sale price of
Common Stock on such exchange or reporting system, as reported in any newspaper
of general circulation, (ii) if the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations System, or any similar
system of automated dissemination of quotations of securities prices in common
use, the mean between the closing high bid and low asked quotations for such day
of the Common Stock on such system, or (iii) if neither clause (i) or (ii) is
applicable, the mean between the high bid and low asked quotations for the
Common Stock as reported by the National Quotation Bureau, Incorporated if at
least two securities dealers have inserted both bid and asked quotations for
Common Stock on at least 5 of the 10 preceding days.
(h) "Incentive Stock Option" shall mean an incentive
stock option as defined in Section 422 of the Code.
(i) "Non-Statutory Stock Option" shall mean an Option
that is not an Incentive Stock Option.
(j) "Option Agreement" means the agreement between the
Company and the Optionee to evidence the grant of an Option.
(k) "Option" (when capitalized) shall mean any stock
option granted under this Plan.
18
<PAGE> 21
(l) "Optionee" shall mean a person to whom a stock option
is granted under this Plan or any person who succeeds to the rights of such
person under this Plan by reason of the death of such person.
(m) "Parent" means a "parent corporation" as defined in
Section 425(e) and (g) of the Code.
(n) "Plan" shall mean this 1991 Stock Option Plan for the
Company.
(o) "Share(s)" shall mean a share or shares of the Common
Stock.
(p) "Subsidiary" shall mean any corporation (other than
the Company) in any unbroken chain of corporations beginning with the Company
if, at the time of granting the Option, each of the corporations other than the
last corporattion in the unbroken chain owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
3. Shares and Options. Subject to Section 10 of this Plan, the
Company may grant to Optionees from time to time Options to purchase an
aggregate of up to 2,500,000 Shares from authorized and unissued Shares. If any
Option granted under the Plan shall terminate, expire, or be canceled or
surrendered as to any Shares, new Options may thereafter be granted covering
such Shares. An Option granted hereunder shall be either an Incentive Stock
Option or a Non-Statutory Stock Option as determined by the Committee at the
time of grant of such Option and shall clearly state whether it is an Incentive
Stock Option or Non-Statutory Stock Option.
4. Dollar Limitation. Options otherwise qualifying as Incentive
Stock Options hereunder will not be treated as Incentive Stock Options only to
the extent that the aggregate fair market value (determined at the time the
Option is granted) of the Shares, with respect to which Options meeting the
requirements of Section 422(b) of the Code are exercisable for the first time by
any individual during any calendar year (under all plans of the Company),
exceeds $100,000.
5. Conditions for Grant of Options.
(a) Upon the grant of such Option, the Company and the
Optionee shall enter unto an Option Agreement, which shall specify the grant
date and the exercise price and shall include or incorporate by reference the
substance of this Plan and such other provisions consistent with the Plan as the
Committee may determine. Optionees shall be those persons selected by the
Committee from the class of all regular employees of the Company and all
Directors, whether or not employees; provided, however, that no Incentive Stock
Option shall be granted to a Director who is not also an employee of the Company
or a Subsidiary.
(b) In granting Options, the Committee may take into
consideration the contribution the person has made to the success of the Company
or its Subsidiaries and such other factors as the Committee shall determine. The
Committee shall also have the authority to consult with and receive
recommendations from officers and other personnel of the Company and its
Subsidiaries with regard to these matters. The Committee may from time to time
in granting Options under the Plan prescribe such other terms and conditions
concerning such Options as it deems appropriate, including, without limitation,
(i) prescribing the date or dates on which the Option becomes exercisable, (ii)
providing that the Option rights accrue or become exercisable in installments
over a period of years, or upon the attainment of stated goals or both, or (iii)
relating an Option to the continued employment of the Optionee for a specified
period of time, provided that such terms and conditions are not more favorable
to an Optionee than those expressly permitted herein.
(c) The Options granted to employees under this Plan
shall be in addition to regular salaries, pension, life insurance or other
benefits related to their employment with the Company or its Subsidiaries.
Neither the Plan nor any Option granted under the Plan shall confer upon any
person any right to employment or continuance of employment by the Company or
its Subsidiaries.
19
<PAGE> 22
(d) Notwithstanding any other provision of this Plan, and
in addition to any other requirements of this Plan, the aggregate number of
shares subject to options granted to any one optionee during a two year period,
may not exceed 500,000, subject to adjustment as provided in Section 10 hereof.
6. Exercise Price. The exercise price per Share of any Option
shall be any price determined by the Committee; provided, however, that in no
event shall the exercise price per Share of any Incentive Stock Option be less
than the Fair Market Value of the Shares underlying such Option on the date such
Option is granted.
7. Exercise of Options. An Option shall be deemed exercised when
(i) the Company has received written notice of such exercise in accordance with
the terms of the Option, (ii) full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made, and (iii) arrangements
that are satisfactory to the Committee in its sole discretion have been made for
the Optionee's payment to the Company of the amount that is necessary for the
Company or Subsidiary employing the Optionee to withhold in accordance with
applicable Federal or state tax withholding requirements. Unless further limited
by the Committee in any Option, the option price of any Shares purchased shall
be paid in cash, by certified or official bank check or personal check, by money
order, with Shares or by a combination of the above. If the exercise price is
paid in whole or in part with Shares, the value of the Shares surrendered shall
be their Fair Market Value on the date the Option is exercised. The Company in
its sole discretion may, on any individual basis or pursuant to a general
program established by the Committee in connection with this Plan, lend money to
an Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to
obtain the cash necessary to exercise all or a portion of an Option granted
hereunder or to pay any tax liability of the Optionee attributable to such
exercise. If the exercise price is paid in whole or part with Optionee's
promissory note, such note shall (i) provide for full recourse to the maker,
(ii) be collateralized by the pledge of the Shares that the Optionee purchases
upon exercise of such Option, (iii) bear interest at the prime rate of the
Company's principal lender or such other rate as the Committee shall determine,
and (iv) contain such other terms as the Board in its sole discretion shall
reasonably require. No Optionee shall be deemed to be a holder of any Shares
subject to an Option unless and until a stock certificate or certificates for
such Shares are issued to such person(s) under the terms of this Plan. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior ot the date such stock certificate is issued, except as
expressly provided in Section 10 hereof.
8. Exercisability of Options. Any Option shall become exercisable
in such amounts, at such intervals and upon such terms as the Committee shall
provide in such Option, except as otherwise provided in this Section 8.
(a) The expiration date of an Option, shall be determined
by the Committee at the time of grant, but in no event shall an Option be
exercisable after the expiration of 10 years from the date of grant of the
Option.
(b) Unless otherwise provided in any Option, each
outstanding Option shall become immediately fully exercisable:
(i) if there occurs any transaction (which shall
include a series of transactions occurring within 60 days or occurring pursuant
to a plan), that has the result that shareholders of the Company immediately
before such transaction cease to own at least 51 percent of the voting stock of
the Company or of any entity that results from the participation of the Company
in a reorganization, consolidation, merger, liquidation or any other form of
corporation transaction;
(ii) if the shareholders of the Company shall
approve a plan of merger, consolidation, reorganization, liquidation or
dissolution in which the Company does not survive (unless the approved merger,
consolidation, reorganization, liquidation or dissolution is subsequently
abandoned); or
(iii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the Company (unless such plan is
subsequently abandoned).
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(c) The Committee may un its sole discretion accelerate
the date on which any Option may be exercised and may accelerate the vesting of
any Shares subject to any Option.
9. Termination of Option Period.
(a) The unexercised portion of any Option shall
automatically and without notice terminate and become null and void at the time
of the earliest to occur of the following:
(i) three months after the date on which the
Optionee's employment is terminated (or, in the case of a non-employee Director,
the date on which the Optionee ceases to be a Director) for any reason other
than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean
the termination of the Optionee's employment (or, in the case of a non-employee
Director, the removal of the Optionee as a Director) by reason of the Optionee's
willful misconduct or gross negligence, (B) a mental or physical disability as
determined by a medical doctor satisfactory to the Committee, or (C) death;
(ii) immediately upon the termination of the
Optionee's employment (or, in the case of a nonemployee Director, the removal of
the Optionee as a Director) for Cause;
(iii) one year after the date on which the
Optionee's employment is terminated (or, in the case of a non-employee Director,
the date the Optionee is removed as a Director) by reason of a mental or
physical disability (within the meaning of Section 22(e) of the Code) as
determined by a medical doctor satisfactory to the Committee;
(iv) (A) one year after the date of termination
of the Optionee's employment (or, in the case of a non-employee Director, the
date on which the Optionee ceases to be a Director) by reason of death of the
employee, or (B) one year after the date on which the Optionee shall die if such
death shall occur during the 1-year period specified in Subsection 9(a) (iii)
hereof.
(b) The Committee in its sole discretion may be giving
written notice ("Cancellation Notice") cancel, effective upon the date of the
consummation of any corporate transaction described in Subsections 8(b)(ii) or
(iii) hereof, any Option that remains unexercised on such date. Cancellation
Notice shall be given a reasonable period of time prior to the proposed date of
such cancellation and may be given either before or after shareholder approval
of such corporate transaction.
10. Adjustment of Shares.
(a) If at any time while the Plan is in effect or
unexercised Options are outstanding, there shall be any increase or decrease in
the number of issued and outstanding Shares through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of Shares, then and in such event:
(i) appropriate adjustment shall be made in the
maximum number of Shares available for grant under the Plan, so that the same
percentage of the Company's issued and outstanding Shares shall continue to be
subject to being so optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject to any
outstanding Option, so that the same percentage of the Company's issued and
outstanding Shares shall remain subject to purchase at the same aggregate
exercise price.
(b) Subject to the specific terms of any Option, the
Committee may change the terms of Options outstanding under this Plan, with
respect to the option price or the number of Shares subject to the Options, or
both, when, in the Committee's sole discretion, such adjustments become
appropriate by reason of a corporate transaction described in Subsections
8(b)(ii) or (iii) hereof.
(c) Except as otherwise expressly provided herein, the
issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefore, or upon
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conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to the number of or exercise price of Shares then subject
to outstanding Options granted under the Plan.
(d) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorized or consummate (I)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the Shares subject to
outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
11. Transferability of Options. Each Option shall provide that
such Option shall not be transferable by the Optionee otherwise than by will or
the laws of descent and distribution, and each Option shall be exercisable
during the Optionee's lifetime only by the Optionee.
12. Issuance of Shares. As a condition of any sale or issuance of
Shares upon exercise of any Option, the Committee may require such agreements or
undertakings, if any, as the Committee may deem necessary ot advisable to assure
compliance with any such law or regulation including, but not limited to, the
following:
(i) a representation and warranty by the Optionee to the
Company, at the time any Option is exercised, that he
is acquiring the Shares to be issued to him for investment and not with a view
to, or for sale in connection with, the distribution of any such Shares; and
(ii) a representation, warranty and/or agreement to be
bound by any legends that are, in the opinion of the Committee, necessary or
appropriate to comply with the provisions of any securities law deemed by the
Committee to be applicable to the issuance of the Shres and are endorsed upon
the Share certificates.
13. Administration of the Plan.
(a) The Plan shall be administered by the Committee,
which shall consist of not less than two Directors. The Committee shall have all
of the powers of the Board with respect to the Plan. Any member of the Committee
may be removed at any time, with or without cause, by resolution of the Board
and any vacancy occurring in the membership of the Committee may be filled by
appointment by the Board. The Committee, from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan.
(b) Any and all decisions or determinations of the
Committee shall be made either (i) by a majority vote of the members of the
Committee at a meeting or (ii) without a meeting by the unanimous written
approval of the members of the Committee.
14. Options for 10% Shareholders. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly or indirectly (through attribution under
Section 424(d) of the Code) at the date of grant, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or of
its Parent or Subsidiary at the date of grant) unless the option price of such
Option is at least 110% of the Fair Market Value of the Shares subject to such
Option on the date the Option is granted, and such Option by its terms is not
exercisable after the expiration of 5 years from the date such Option is
granted.
15. Interpretation. The Plan shall be administered and interpreted
so that all Incentive Stock Options granted under the Plan will qualify as
Incentive Stock Options under Section 422 of the Code. If any provision of the
Plan should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan shall be construed and enforced as if
such provision had never been included in
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<PAGE> 25
the Plan. If any provision of the Plan should be held invalid or illegal for any
reason, such determination shall not affect the remaining provisions hereof, but
instead the Plan shall be construed and enforced as if such provision had never
been included in the Plan. This Plan shall be governed by the laws of the State
of Florida. Headings contained in this Plan are for convenience only and shall
in no manner be construed as part of this Plan. Any reference to the masculine,
feminine, or neuter gender shall be a reference to such other gender as is
appropriate.
16. Term of Plan; Amendment and Termination of the Plan.
(a) This Plan shall become effective upon its adoption by
the Board, and shall continue in effect until all Options granted hereunder have
expired or been exercised, unless sooner terminated under the provisions
relating thereto. No Option shall be granted after 10 years from the date of the
Board's adoption of the Plan.
(b) The Plan shall be adopted by the Board and shall be
presented to the Company's shareholders for their approval by vote of a majority
of such shareholders present or represented at a meeting duly held, such
approval to be given within 12 month's after the date of the Board's adoption.
Options may be granted prior to shareholder approval of the Plan, but such
Options shall be contingent upon such approval being obtained and may not be
exercised prior to such approval.
(c) The Board may from time to time amend the Plan or any
Option; provided, however, that, except to the extent provided in Section 10, no
such amendment may, (I) without approval by the Company's shareholders, increase
the number of Shares reserved for Options or change the class of persons
eligible to receive Options, or involve any other change or modification
requiring shareholder approval under Rule 16b-3 of the Securities Exchange Act
of 1934, as amended, (ii) permit the granting of options that expire beyond the
maximum 10-year period described in Subsection 8(a), or (iii) extend the
termination date of the Plan as set forth in Section 16(a); and provided,
further, that except to the extent specifically provided in Section 9, no
amendment or suspension of the Plan or any Option issued hereunder shall
substantially impair any Option previously granted to any Optionee without the
consent of such Optionee.
(d) The Board, without further approval of the Company's
shareholders, may at any time terminate or suspend this Plan. Any such
termination or suspension of this Plan shall not affect Options already granted
and such Options shall remain in full force and effect as if the Plan had not
been terminated or suspended. No option may be granted while the Plan is
suspended or after it has been terminated. The rights and obligations under any
Option granted to any Optionee while the Plan is in effect shall not be altered
or impaired by the suspension or termination of the Plan without the consent of
such Optionee.
17. Reservation of Shares. The Company, during the term of the
Plan, will at all times reserve and keep available a number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
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EXHIBIT B
PERFUMANIA, INC.
PROXY FOR 1997 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder of shares of Common Stock of PERFUMANIA, INC., a
Florida corporation (the "Company"), hereby appoints Simon Falic and Jerome
Falic, and each or either of them, the proxy or proxies of the undersigned, with
full power of substitution to such proxy and substitute, to vote all shares of
Common Stock of the Company which the undersigned is entitled to vote at the
1997 Annual Meeting of Shareholders of the Company to be held at The Radisson
Mart Plaza Hotel, 711 N.W. 72nd Avenue, Miami, Florida 33126 at 10:00 A.M.,
local time, on September 30, 1997, and at any and all adjournments thereof with
authority to vote said Common Stock on the matters set forth below:
The shares of Common Stock represented by this Proxy will be voted in the
manner directed herein by the undersigned shareholder, who shall be entitled to
one vote for each share of Common Stock held. If no direction is made, this
Proxy will be voted for each item listed below.
The Board of Directors recommend a vote FOR each proposal.
(1) ELECTION OF DIRECTORS
[ ] FOR all nominees listed below (except as marked to the contrary below).
Simon Falic Jerome Falic Daniel J. Manella
Ron A. Friedman Marc Finer Robert Pliskin
Carole Ann Taylor
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
INSTRUCTION: To withhold authority for an individual nominee, strike a line
through the nominee's name above
(2) Proposal to amend the Company's 1991 Stock Option Plan, including
increasing to 2,500,000 the number of shares of Common Stock reserved for
issuance pursuant to such Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In their discretion, the proxies are authorized to vote upon such other
business as may be properly brought before the meeting and each adjournment
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE MATTERS
MENTIONED.
Dated: ,1997
-------------------
------------------------------
(Signature)
------------------------------
(Signature)
PLEASE SIGN YOUR NAME EXACTLY
AS IT APPEARS ON THE LEFT.
EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, ATTORNEYS
AND AGENTS SHOULD GIVE THEIR
FULL TITLES AND SUBMIT
EVIDENCE OF APPOINTMENT UNLESS
PREVIOUSLY FURNISHED TO THE
COMPANY OR ITS TRANSFER AGENT.
ALL JOINT OWNERS SHOULD SIGN.
PLEASE MARK, DATE, SIGN AND RETURN USING THE ENCLOSED ENVELOPE.
YOUR PROMPT ATTENTION WILL BE APPRECIATED.
