RELATED-PARTY TRANSACTIONS

Glenn, Stephen and Arlene Nussdorf owned an aggregate 7,742,282 shares or approximately 50.0% of the total number of shares of the Company’s outstanding common stock as of April 29, 2017, excluding shares issuable upon exercise of certain warrants and not assuming the exercise of any outstanding options. Stephen Nussdorf has served as the Chairman of the Company’s Board of Directors since February 2004 and Executive Chairman of the Board since April 2011. Glenn Nussdorf is a director of subsidiaries of the Company.

The Nussdorfs are officers and principals of Quality King, which distributes pharmaceuticals and health and beauty care products, and the Company’s President and Chief Executive Officer, Michael W. Katz, is also an executive of Quality King.

See Note 6 for a discussion of notes payable to affiliates.

Transactions With Affiliated Companies

Glenn Nussdorf has an ownership interest in Lighthouse Beauty Marketing, LLC, Lighthouse Beauty, LLC and Lighthouse Beauty KLO, LLC (collectively the "Lighthouse Companies"), all of which are manufacturers and distributors of prestige fragrances and have been suppliers to the Company.

The Company purchases merchandise from Jacavi Beauty Supply, LLC (“Jacavi”), a fragrance distributor. Jacavi's managing member is Rene Garcia. Rene Garcia, his family trusts and related entities are members of a group (the "Garcia Group") that owned an aggregate 2,211,269 shares, or approximately 14.3%, of the total number of shares of the Company's outstanding common stock as of April 29, 2017, excluding shares issuable upon exercise of certain warrants. See disclosures of merchandise purchases in the table below.

The Company sells merchandise to Reba Americas LLC ("Reba"), which distributes fragrances primarily in Puerto Rico and the Caribbean. Family trusts of Rene Garcia own 50% of Reba. Net sales to Reba were approximately $1.1 million and $0.7 million during the thirteen-week periods ended April 29, 2017 and April 30, 2016, respectively. The balance due from Reba as of April 29, 2017 and January 28, 2017 was approximately $0.6 million and $0.4 million, respectively, and is included in accounts receivable, net of allowances, on the accompanying condensed consolidated balance sheets. The Company also purchased certain merchandise from Reba during the thirteen-week periods ended April 29, 2017 and April 30, 2016.

The amounts due to these related companies are non-interest bearing and are included in accounts payable-affiliates in the accompanying condensed consolidated balance sheets. Transactions for merchandise purchases with these related companies during the thirteen-week periods ended April 29, 2017 and April 30, 2016 were as follows (in thousands):



	Total Purchases Thirteen Weeks Ended April 29, 2017		Total Purchases Thirteen Weeks Ended April 30, 2016		Balance Due April 29, 2017		Balance Due January 28, 2017

Lighthouse Companies	$	—	$	—	$	90	$	90
Jacavi	311		1,449		—		590
Quality King	—		13		—		—
Reba	—		122		357		337
	$	311	$	1,584	$	447	$	1,017

Glenn, Stephen and Arlene Nussdorf own GSN Trucking, Inc. (“GSN”) which provides general transportation and freight services. The Company periodically utilizes GSN to transport both inbound purchases of merchandise and outbound shipments to wholesale customers. There were no payments to GSN during the thirteen weeks ended April 29, 2017. During the thirteen weeks ended April 30, 2016, total payments to GSN for transportation services provided were less than $0.1 million. There was no balance due to GSN at April 29, 2017 or January 28, 2017.

Quality King leases a 560,000 square foot facility in Bellport, NY. The Company began occupying approximately half of this facility in December 2007 under a sublease that terminates on September 30, 2027 and this location serves as the Company’s principal offices. As of April 29, 2017, the monthly current sublease payments are approximately $240,000 and increase by 3% annually. Total payments by the Company to Quality King for this sublease were approximately $0.7 million during each of the thirteen-week periods ended April 29, 2017 and April 30, 2016, respectively.

The Company and Quality King are parties to a Services Agreement providing for the Company’s participation in certain third party arrangements at the Company’s respective share of Quality King’s cost, including allocated overhead, plus a 2% administrative fee, and the provision of legal services. The Company also shares with Quality King the economic benefit of the bulk rate contract that the Company has with UPS to ship Quality King’s merchandise and related items. The Services Agreement will terminate on thirty days’ written notice from either party. The expenses charged under these arrangements to the Company were $0.2 million during each of the thirteen-week periods ended April 29, 2017 and April 30, 2016. The balance due to Quality King for expenses charged under the Services Agreement was $0.1 million and less than $0.1 million at April 29, 2017 and January 28, 2017, respectively.

On April 18, 2012, Parlux, Artistic Brands Development LLC (“Artistic Brands”) (a company controlled by Rene Garcia), Shawn C. Carter (who is the beneficial owner of 10% of the Company’s common stock) and S. Carter Enterprises, LLC entered into a sublicense agreement and Artistic Brands, Shawn Carter and S. Carter Enterprises, LLC entered into a license agreement. In connection with these agreements, the Company issued to Artistic Brands and its designees, including Shawn Carter, warrants for the purchase of an aggregate of 1,599,999 shares of the Company's common stock at an exercise price of $8.00 per share. Pursuant to the license agreement, Artistic Brands obtained the exclusive right and license to manufacture, promote, distribute, and sell prestige fragrances and related products under the Jay-Z trademark. The initial term of the license agreement expires at the earlier of (i) five years following the first date on which licensed products are shipped and (ii) December 31, 2018. Artistic Brands has the right to renew the license agreement, so long as certain financial conditions are met and it has not otherwise breached the agreement. Pursuant to the license agreement, Artistic Brands agreed to make certain royalty payments, including certain guaranteed minimum royalties. Pursuant to the sublicense agreement, Artistic Brands sublicensed all rights granted under the license agreement to the Company, and in return the Company assumed all of Artistic Brands' obligations under the license agreement, including making all royalty payments and certain guaranteed minimum royalties owed to S. Carter Enterprises, LLC. No royalties have been paid during the thirteen weeks ended April 29, 2017 or April 30, 2016.

On January 25, 2016, the Company and Parlux filed a lawsuit against S. Carter Enterprises, LLC and Shawn C. Carter in the Supreme Court of the State of New York, County of New York. In general, the lawsuit alleges that the defendants have breached the license described above and related agreements by not acting timely or in good faith in approving products and launches under the license and not supporting the brand via personal appearances as required by the license. The lawsuit seeks a determination that such breaches undermine the essence of the license thereby warranting rescission of the license, return of the consideration paid on account of the license and related agreements, monetary damages, and other relief. On May 6, 2016, the defendants filed an answer in the nature of a general denial, with a counterclaim for, inter alia, amounts allegedly due to them under the license agreements in the amount of approximately $2.7 million. The Company has filed a reply to that counterclaim in the nature of a general denial. The Court has set a schedule which calls for the conclusion of fact and expert discovery by January 2018, with dispositive motion practice to follow. On May 5, 2017, the defendants filed a motion for partial summary judgment on their counterclaim. The Company submitted opposition papers on June 9, 2017, and defendants have until June 30 to submit reply papers. Thereafter, the motion will be presented to the Court on July 5, 2017.

The Company has announced that a special committee of our independent directors is considering various alternatives to address the Company’s financial condition. The special committee is considering the Company’s capital structure and possible alternatives that could result in value to all shareholders, and has contacted members of the Nussdorf family, our principal shareholders, to begin discussions over possible approaches. The Company does not have a defined timeline for the strategic review process, and there can be no assurance that it will result in any strategic alternative being announced or consummated.