Subject to Completion, Dated May 14,1999
500,000 SHARES
[logo - HBD initials with an arrow symbol and the name of the company
spelled out]
HealthandBeautyDirect.com, Inc.
COMMON STOCK
This is the initial public offering of shares of our Common Stock.
Immediately prior to the closing of the sale of the minimum of [ ] shares
in this offering, we will acquire all of the assets and liabilities of a
direct response health and beauty products marketing business currently
being operated as a partnership. The terms "HealthandBeautyDirect.com",
"Company", "we" or "our" mean the corporation and its predecessor
partnership. The offering is being made directly by our management and our
Board of Directors determined the public offering price. See "Plan of
Distribution." The shares have been approved for listing on the Chicago
Stock Exchange after completion of this offering. The offering price may
not reflect the market price for the shares after this offering. See "Risk
Factors: There Is Currently No Public Market For Our Shares and The Market
Price Is Likely to Fluctuate."
All payments for shares will be deposited into an escrow account at
NationsBank, until we have sold the minimum number of shares. If we have
not sold the minimum number of shares by the termination date, all amounts
paid will be promptly refunded in full, with interest, and without any
deduction for expenses. The offering will end upon the earlier of: the sale
of the maximum of 500,000 Shares, 12 months after the date of this
Prospectus, or the earlier date on which we decide to close the offering. A
minimum purchase of 50 shares is required. We reserve the right to reject
any subscription in full or in part. See "Plan of Distribution."
This investment involves a high degree of risk. See "Risk Factors" on pages
4 - 12.
Neither The Securities And Exchange Commission Nor Any State Securities
Commission Has Approved Or Disapproved These Securities; Or Determined If
This Prospectus Is Truthful Or Complete. Any Representation To The Contrary
Is A Criminal Offense.
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
Per Share $8.00 - $12.00 None $8.00 - $12.00
Total Minimum (3)
([ ] shares) $[ ] None $[ ]
Total Maximum (3)
(500,000 shares) $6,000,000 None $6,000,000
(1) The shares are being sold directly by the Company's Chief Executive
Officer who will be registered as a sales representative, where required.
He will not receive any commissions. See "Plan of Distribution."
(2) Before deducting estimated expenses of $185,000 payable by the
Company, including registration fees, legal and accounting fees, costs of
printing, copying and postage and other offering costs.
(3) Assuming the maximum price of $12.00 per share.
The date of this Prospectus is May 14, 1999
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any jurisdiction in which such offer or solicitation is
unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary 3
Risk Factors 4
Use of Proceeds 13
Dividend Policy 13
Dilution 14
Management's Discussion & Analysis
of Financial Condition
and Results of Operations 14
Business 18
Management 32
Certain Transactions 34
Principal Shareholders 34
Description of Capital Stock 36
Shares Eligible for
Future Resale 37
Plan of Distribution 38
Legal Matters 39
Experts 39
Additional Information 39
Index to Financial Statements 40
We will furnish our shareholders with annual reports containing audited
financial statements after the end of each fiscal year. Our corporate
offices are located at 2328 West Joppa Road, Suite 100, Lutherville, MD
21093. Our telephone number is (410) 560-9000, our fax number is (410)
560-6999 and our web site is www.healthandbeautydirect.com. "Linda Seidel"
and "Natural Cover" are registered trademarks of the Company.
Until August 11, 1999 (90 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
PROSPECTUS SUMMARY
This is a brief summary of the information and Financial Statements (and
their Notes) in this Prospectus. We encourage you to read the entire
prospectus before you decide whether and how much to invest in our shares.
The Company
We market and distribute health and beauty-related products and services
directly to consumers through use of direct response advertising channels
such as television, direct mail, the Internet and direct sales. We provide
our clients with comprehensive direct response management services including
development of marketing campaigns, media placement and product fulfillment.
Currently, we market our own cosmetic products under the brand name Linda
Seidel Natural Cover. Our business strategy for achieving our objectives is
described in "Business: General Business Strategy."
Background
We are a Delaware Corporation formed to acquire all of the assets,
liabilities and business of Transforming Cosmetics, a general partnership.
The acquisition will be effective immediately prior to the closing of the
sale of the minimum number of shares. See "Business: Organization of the
Company."
Recent Financial Results and Current Position Years Ended
December 31,
1997 1998
Statements of Income Data:
Sales $7,687,626 $9,552,994
Cost of goods sold 5,631,565 7,429,250
Gross profit 2,056,061 2,123,744
Selling and administrative expenses 1,718,133 1,521,438
Operating Income 337,928 602,306
Interest Expense and Other Income 8,159 (6,503)
Income before provision
for taxes on income 329,769 608,809
Unaudited Provision
for income taxes (1) 115,419 213,083
Pro forma net income $214,350 $395,726
Pro forma earnings per share $0.03 $0.06
Pro forma weighted average
Common shares outstanding (2) 7,000,000 7,000,000
We have historically operated our business as a partnership and our income
was taxable only to the partners. The unaudited provision for income taxes
represents taxes that may have been reported for the Company based on a
combined 35% corporate federal and state income tax rate for these periods.
The number of shares issued upon acquisition of the assets, liabilities and
business of Transforming Cosmetics.
December 31, 1998
Actual As Adjusted (1)
Minimum Maximum
Balance Sheet Data:
Working capital $ 508,853 $[ ] $6,323,853
Total assets 2,883,370 [ ] 8,698,370
Long-term debt,
less current portion 0 0 0
Shareholders' equity 1,695,969 [ ] 7,510,969
(1) As adjusted to reflect the sale of the Minimum and the Maximum and
the application of the estimated net proceeds of this offering. See "Use
of Proceeds."
HOW TO BECOME A SHAREHOLDER
You may become a shareholder by filling out the Share Order Form and
returning it with your check for the amount of your investment (or credit
card number and signature.) When your order has been accepted, you will
receive a signed copy and an acknowledgment letter. Share certificates
will be sent, beginning shortly after sale of the minimum number of shares.
RISK FACTORS
AN INVESTMENT IN OUR SHARES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN
THIS PROSPECTUS BEFORE PURCHASING SHARES.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS RELATE
TO FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY," "WILL,"
"SHOULD," "COULD," "EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES,"
"ESTIMATES," "PREDICTS," "POTENTIAL," OR "CONTINUE" OR THE NEGATIVE OF SUCH
TERMS AND OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY
PREDICTIONS. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY
CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS
MAY CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD LOOKING
STATEMENT. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
WE MAY BE UNABLE TO IMPLEMENT OUR BUSINESS STRATEGY
We have experienced substantial growth in revenues, number of employees and
assets since beginning operations in April 1994. Our continued growth and
profitability will depend, in part, upon our ability to implement our
business strategy and successfully expand our channels of distribution.
This strategy is principally dependent upon our ability to cost effectively
acquire new customers through the use of various forms of direct response
marketing, including our web site currently under development. Continued
implementation of this strategy will depend in large part on:
* the level of customer acceptance of our products and services;
* our ability to create product and brand name awareness;
the effectiveness and efficiency of our direct response
advertising;
* our ability to identify health and beauty-related companies and
either acquire or form joint venture marketing relationships
with these companies;
* our ability to successfully identify and respond to emerging
trends in the health and beauty-related industry;
* developing internally, through joint venture or by acquisition,
expansion of our direct response infrastructure which includes
media buying, management information systems, telemarketing,
fulfillment and creative production;
* our ability to continue to expand in the face of increasing
competition from other companies in the distribution of health
and beauty-related products and services;
* successful hiring, training and retaining skilled employees, and
* general economic conditions and consumer confidence.
If we are unable to achieve our goals, our business, financial condition and
results of operations may be materially and adversely affected. See
"Business: General Business Strategy."
THERE IS CURRENTLY NO PUBLIC MARKET FOR OUR SHARES AND THE MARKET PRICE IS
LIKELY TO FLUCTUATE
Prior to this offering there has been no public market for our shares. Our
Board of Directors determined the public offering price for our shares. See
"Plan of Distribution." Our shares have been approved for listing on the
Chicago Stock Exchange after completion of this offering. Upon completion
of our offering, there may be limited trading and the market price of our
shares is likely to be highly volatile. The volatility may result from
factors including:
* fluctuations in our operating results;
* changes in stock market analysts' recommendations regarding our
business, similar companies in our industry or general market
and economic conditions;
* changes in market valuations of Internet, online service or
direct marketing companies;
* announcements of technological innovations or new services by
us or our competitors;
* announcements of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments; and
* additions or departures of our key personnel.
The market prices for stocks following an initial public offering,
frequently reach levels that bear no relationship to their operating
performance. Such market prices generally are not sustainable and are
subject to wide variations. If our shares trade to such levels following
this offering, it is likely they will later experience a material decline in
share price.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of
their securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources. See: "Business: Legal Proceedings."
OUR WEB SITE OPERATIONS ARE CURRENTLY BEING DEVELOPED
The success of our planned expansion will be dependent upon many factors,
including our ability to successfully develop and expand our web site
operations to increase sales and reduce costs. Some of the challenges are
to:
* complete development and testing of our web site within the next
six months;
* cost effectively drive traffic to our web site;
* develop an interesting and easy to navigate web site;
* implement and execute our Internet business and marketing
strategy successfully;
* attract and retain leading product manufacturers and service
providers as participants in our web site;
* develop strategic alliances with respect to product development,
marketing and distribution;
* continue to expand our product and service offerings;
* maintain and enhance recognition of our web site brand name;
* provide consumers with valuable information so that they continue
to frequent our web site;
* manage the interaction among our various direct response
channels of distribution;
* continue to develop and upgrade our technology and information-
processing systems;
* continue to enhance our services to meet the needs of a
changing marketplace; and
* provide superior customer service.
We are unable to assure you that we will be successful in meeting any of
these challenges. See "Business: Expanding Our Direct Response Channels of
Distribution: Internet Sales."
WE ARE LIKELY TO EXPERIENCE LOSSES AS WE DEVELOP AND EXPAND THE WEB SITE
DIRECT RESPONSE COMPONENT OF OUR BUSINESS MODEL
Although we have profitably managed the growth of our direct response
marketing business during the last two years, we are likely to experience
losses as we aggressively develop and expand our web site and build the
HealthandBeauty Direct.com brand name. These losses, if incurred, could be
attributable to investing in the following areas which may not generate
sufficient direct response revenues:
* hiring additional personnel to support the development,
maintenance and expansion of our web site;
* advertising and promotional efforts to drive traffic to our web
site;
* finding new health and beauty-related products and services to
offer on our web site;
* developing marketing materials to sell our new health and
beauty-related products and services;
* purchasing computers, telecommunications and other infrastructure
equipment to support our web site; and
* expanding our general office and administrative overhead.
Reporting such losses could result in a material reduction in our stock
price to levels below the initial offering price of our shares. In
addition, these losses could require us to raise additional capital to
execute our business strategy. Our ability to raise additional capital in
the future may be negatively affected by such losses. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation:
Liquidity and Capital Resources."
RISKS ASSOCIATED WITH DEVELOPMENT OF OUR WEB SITE BRAND
We believe that broader recognition and a favorable consumer perception of
the HealthandBeautyDirect.com brand are essential to our future success.
Accordingly, we will pursue an aggressive brand-enhancement strategy, which
will include mass market and multimedia advertising, promotional programs
and public relations activities. Successful positioning of our brand will
largely depend on:
* the success of our advertising and promotional efforts;
* a substantial number of e-commerce transactions conducted on our
web site;
* provision of high quality customer service and technical
support; and
* multiple visits to our web site by loyal customers.
To increase awareness of the HealthandBeautyDirect.com brand and expand it
to a wide range of products and services, we will need to spend significant
amounts on advertising and promotions. These expenditures may not result in
a sufficient increase in revenues to cover such advertising and promotions
expenses. In addition, even if brand recognition increases, the number of
new users or the number of transactions on our web site may not reach
significant numbers to justify our advertising and promotional expenditures.
See "Business: Capitalizing on Our Direct Response Marketing Expertise to
Grow Sales."
OUR WEB SITE CONCEPT WILL EXPERIENCE INTENSE COMPETITION
The number of web sites competing for the attention and spending of
consumers and advertisers has increased and we expect it to continue to
increase. We will compete for consumers and advertisers with the following
types of companies:
* online services or web sites that target consumers in search of
health and beauty-related products or services, such as
women.com, drugstore.com, iVillage.com, planetrx.com,
cosmeticscounter.com and many others;
* web retrieval and other web "portal" companies, such as AOL,
Inc., Excite, Inc., Infoseek Corporation, Lycos, Inc.,Yahoo! Inc.
and many others; and
* publishers and distributors of traditional media, such as
television, radio and print.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could adversely affect our business. To
be competitive, we must respond promptly and effectively to the challenges
of technological change, evolving standards and our competitors' innovations
by continuing to enhance our services, as well as our sales and marketing
channels. Competition is likely to increase significantly as new companies
enter the market and current competitors expand their services. Many of
these potential competitors are likely to enjoy substantial competitive
advantages, including:
* larger technical staffs;
* greater name recognition;
* larger customer bases; and
* substantially greater financial, marketing, technical and other
resources.
Any pricing pressures, reduced margins or loss of market share resulting
from increased competitionor our failure to compete effectively, could
seriously damage our business and have a material adverse effect on our
financial condition and operating results. See "Business: Competitive
Industry Overview."
OUR FUTURE EXPANSION WILL BE INFLUENCED BY CONTINUED GROWTH OF ONLINE
COMMERCE AND INTERNET INFRASTRUCTURE
The market for the purchase of products and services over the Internet is a
new and emerging market. Our future revenues and profits are dependent upon
the widespread acceptance and use of the Internet and online services as a
medium for commerce by consumers and sellers. Rapid growth in the use of and
interest in the Internet and online services is a recent phenomenon. This
growth may not continue. A sufficiently broad base of consumers may not
adopt, or continue to use, the Internet as a medium of commerce. Demand for
and market acceptance of recently introduced products and services over the
Internet are subject to a high level of uncertainty, and there are few
proven products and services. For us to expand, consumers who have
historically used traditional means of commerce will instead need to elect
to purchase health and beauty-related products and services online, and
sellers of these products and services will need to adopt or expand use of
the Internet as a channel of distribution.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend upon the development and maintenance of the Internet's
infrastructure to cope with this increased traffic. This will require a
reliable infrastructure with the necessary speed, data capacity and
security.
The Internet has experienced a variety of outages and delays as a result of
damage to portions of its infrastructure and could face such outages and
delays in the future. See "Risk Factors: Year 2000 Compliance." Outages and
delays are likely to affect the level of Internet usage and the processing
of transactions on our web site. In addition, the Internet could lose its
viability due to delays in the development or adoption of new standards to
handle increased levels of activity or due to increased government
regulation. The adoption of new standards or government regulation may,
however, require us to incur substantial compliance costs. See "Business:
Expanding Our Direct Response Channel of Distribution: Internet Sales."
OUR WEB SITE IS EXPOSED TO BUSINESS INTERRUPTION RISKS
Our web site will have to accommodate a high volume of traffic and deliver
frequently updated information. Our web site may experience slower response
times or decreased traffic for a variety of reasons. In addition, our users
will depend on Internet service providers, online service providers and
other web site operators for access to our web site. Many of them have
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to our
systems. Moreover, the Internet infrastructure may not be able to support
continued growth in its use. Any of these problems could adversely affect
our business. If our systems fail to perform or we cannot expand our
systems to cope with increased demand, we could experience:
* unanticipated disruptions in service;
* slower response times;
* decreased customer service and customer satisfaction; or
* delays in the introduction of new products and services;
any of which could impair our reputation and damage our web site brand name.
Any of these developments could have a material adverse effect on our
business, operating results and financial condition.
WE MAY NOT ACQUIRE OUR DOMAIN NAMES INTERNATIONALLY
We currently hold the Internet domain name "healthandbeautydirect.com," and
a number of other related names. Internet regulatory bodies generally
regulate domain names. The regulation of domain names in the United States
and in foreign countries is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result,
we may not acquire or maintain the "healthandbeautydirect.com" domain name
in all of the countries in which we may desire to conduct business. In
addition, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear.
Therefore, we could be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our trademarks and
other proprietary rights. See "Business: Intellectual Property Protection."
OUR SERVICE CENTER AND DIRECT SALES OPERATIONS HAVE ONLY A LIMITED HISTORY
Our planned expansion will be dependent upon many factors, including our
ability to successfully implement our service centers and direct sales
network to increase sales and reduce costs. Expansion depends upon
effectively executing a plan to open service centers and develop a direct
sales network in new geographic markets. Some of the challenges are to:
* recruit, hire, train, manage and retain health and beauty
professionals;
* manage the interaction among our multiple channels of
distribution;
* negotiate acceptable lease and operational terms;
generate additional direct marketing inquiries; and
* refer selected direct marketing inquiries to our service centers
and direct sales network.
See "Business: Expanding Our Direct Response Channels of Distribution:
Service Centers and Alternative Channels of Distribution."
WE HAVE ONLY BEGUN TO ASSEMBLE OUR INTERNATIONAL DIRECT RESPONSE
DISTRIBUTION NETWORK
Our long-term business plan incorporates international expansion of our
direct to consumer marketing strategy. There are many significant
obstacles, both known and unknown, to successfully expanding our business
internationally. To date, we have generated limited revenues through
product sales in Canada, Taiwan and Australia. To compete effectively
through direct response consumer marketing in other foreign markets we will
need to:
* identify and establish marketing partnerships or joint venture
relationships with international web site development and marketing
companies in multiple foreign markets;
* identify and establish vendor relationships to perform
direct marketing services such as telemarketing,
fulfillment, credit card processing and customer service in
multiple foreign markets;
* develop and produce marketing materials in various foreign
languages;
* determine how to effectively transact e-commerce in foreign
markets with use of multiple currencies;
* protect our intellectual property rights in other
countries;
determine what international trade or government
regulations apply to sales of our products in foreign
countries; and
* successfully extend the HealthandBeautyDirect.com brand name in
other countries.
These factors and others will influence the success of our international
marketing efforts. Over the next few years we will commit financial and
management resources to our international strategy. If we are unable to
achieve our objectives, our business, financial condition and results of
operations may be materially and adversely effected. See: "Business:
Expanding Our Direct Response Channels of Distribution: International Direct
Response Distribution Network."
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our aggressive growth strategy has placed, and will continue to place, a
significant strain on our management, creative production, information
systems and other resources. To manage growth effectively, we must:
* maintain a high level of product quality and efficiency;
* continue to enhance our operational, financial, management
information, inventory and fulfillment systems; and
* expand, train and manage our employees.
Our failure to effectively manage this expansion in any one or more of these
areas could have a material adverse effect on our business, financial
condition and operating results. See "Business: Operations and
Distribution."
OUR FUTURE GROWTH DEPENDS ON THE EFFECTIVENESS OF ADVERTISING EXPENDITURES
Our direct response advertising expenditures accounted for approximately 65%
and 52% of revenues in 1998 and 1997, respectively. We expect these
expenditures to continue to represent a significant percentage of revenues
for the foreseeable future. Our future growth and profitability will be
dependent in part on the efficiency of our advertising expenditures, our
ability to develop effective marketing messages and our ability to maintain
acceptable costs per inquiry, costs per order and operating margins.
Historically, our advertising expenditures have generated revenue benefits
beyond the actual duration of the advertisements. The Company may not
experience similar benefits from advertising expenditures in the future.
See "Business: Capitalizing on Direct Response Marketing Techniques."
OUR LINDA SEIDEL COSMETIC LINE WILL CONTINUE TO HAVE SIGNIFICANT COMPETITION
We own the rights to the Linda Seidel Natural Cover line of cosmetics, which
competes in the industry segment known as "corrective makeup." This product
line competes in an industry that is fragmented and highly competitive.
Participants in this industry compete primarily on price, quality, brand
name recognition, image, product availability and product performance. One
competitor, Derma Blend, is much larger and distributes its products through
various well-known retailers. There are several other companies in this
segment that compete directly with the Linda Seidel brand. In addition,
major cosmetic companies all provide a "concealer" line of products for
minor skin imperfections. Any of them, or some other business, could
quickly become a direct competitor. Increased competition may result in
price reductions, reduced margins or loss of market share which may have a
material adverse effect on our business, financial condition and operating
results. See "Business: Competitive Overview" and "Linda Seidel Cosmetics
Brand."
WE HEAVILY RELY ON OUR PRINCIPAL PRODUCT AND ITS DEVELOPER
A significant portion of our revenues and net income to date has been from
distribution of the Natural Cover cosmetic products. Our revenues and net
income in the short term will continue to be closely tied to the success of
this product line. The marketing strategy for the Linda Seidel Natural
Cover product line is to emphasize the performance qualities of its
foundation system and to maintain and enhance Linda Seidel's public image as
a credible and authoritative source on the use of cosmetics. The loss of the
services of Ms. Seidel, or a decline in her public image, would have a
material adverse effect on the Company. See "Business: Linda Seidel
Cosmetics Brand" and "Management."
OUR REVENUES ARE DEPENDENT ON A LIMITED NUMBER OF PRODUCTS AND SERVICES
Our revenues have been dependent upon the marketing of a limited number of
products and services. Although we have continued to expand our revenues by
providing various direct marketing services to third party clients, there is
no assurance that we will be able to continue to successfully do so in the
future. We do not maintain long-term contracts with our clients. We
anticipate that our results of operations in any given period will continue
to depend to a significant extent upon revenues from a small number of
clients. In addition, we anticipate that such clients will continue to vary
over time, so that the achievement of our long-term goals will require us to
obtain additional clients on an ongoing basis. The loss of one or more
clients or our inability to enter into new client relationships during a
particular period could have a material adverse effect on our business,
financial condition and results of operations. See "Business: Developing
Marketing Relationships with Health and Beauty-Related Companies."
WE NEED TO DEVELOP NEW PRODUCTS AND ENHANCEMENTS
Our growth and success will depend, in a significant part, upon our ability
to enhance existing products and services, to develop new products and
services and to assist new clients in marketing their products and services.
Each of our product and service offerings must be responsive to customer
needs to successfully achieve market acceptance. We will incur substantial
expense and use significant resources as we expand the type and range of the
products and services that we offer. However, we may not be able to attract
sellers to provide such products and services or consumers to purchase such
products and services through our channels of direct response distribution.
In addition, if we launch new products or services that are not favorably
received by consumers, our reputation and the value of our brand name,
HealthandBeautyDirect.com, could be damaged and have a material adverse
effect on our business, financial condition and results of operations. See
"Business: Growing Our Loyal Customer Database: Market Unique, Quality
Products."
WE OFFER A LIBERAL PRODUCT RETURN POLICY AND RELY ON CREDIT CARD PROCESSING
Part of our marketing and advertising strategy focuses on providing liberal
merchandise return policies of up to sixty days during which customers may
return products and obtain an unconditional full refund of the purchase
price less shipping and handling. Credit card processing companies provide
customers with up to six months to request and receive a credit card charge
back for their purchases. As we expand our revenues through new channels of
distribution and new product introductions, our return rates could increase.
Our current reserves for returns and credit card charge backs could become
inadequate to cover these claims. In order to continue accepting electronic
payment by credit card, we must maintain a merchant account with a bank or
finance company. Maintaining a merchant account is dependent upon our credit
rating and percentage of customer credit card charge backs. The loss of our
merchant account, and the inability to secure another merchant account,
would have a material adverse effect on our business and financial
condition. See "Business: Employ Cost Effective Operating Infrastructure:
Management Information Systems."
THE TIMING OF OUR EXPENDITURES MAY NOT MATCH WITH OR RESULT IN SUFFICIENT
GENERATION OF DIRECT MARKETING REVENUES
Our business involves a number of risks inherent in the operation of a
direct marketing business. The production of marketing materials and media
purchases for the Internet and television involve significant advance
expenditures. These expenditures cannot be adjusted based upon actual
performance. In addition, direct marketing operations involve significant
expenditures for the purchase of merchandise and the expenses associated
with our order processing, fulfillment and management information systems.
If our direct marketing campaigns are unsuccessful, we may not be able to
recoup these advance expenditures, which could have a material adverse
effect on our business, financial condition and results of operations. See
"Business: Capitalize on Direct Response Marketing Techniques."
WE ARE DEPENDENT ON MANUFACTURERS, VENDORS AND SUPPLIERS
We use various domestic and foreign suppliers to manufacture our products
and provide us with packaging components. In addition, our operations rely
on a number of different outside service providers, such as telemarketing
companies, credit card processing firms, marketing professionals,
fulfillment houses and delivery companies. We have no long-term contractual
assurances of continued supply, pricing or access to components with these
manufacturers, vendors or suppliers necessary for the operation of our
business. The existing relationships are based on short-term service
contracts that may be terminated by either party with little or no notice.
In addition, we must compete with other companies for the services provided
by these vendors. Certain components used in our products are available
from a limited number of sources. If alternative suppliers were needed in
the future, or if sufficient supplies could not be obtained from the
existing sources, there could be delays in shipments or cost increases. In
light of our emphasis on exceptional customer service, the efficient and
uninterrupted operation of our order processing and fulfillment functions
are critical to our business. Moreover, the successful operation of our
direct marketing business is dependent upon the timely and efficient
preparation of marketing materials and media purchases. Any interruption in
services from outside service providers, including delays or disruptions
resulting from labor disputes (such as the 1997 UPS strike), power outages,
human error, adverse weather conditions or natural disasters, could have a
material adverse effect on our business, operating results and financial
condition. See "Business: Employ Cost Effective Operating Infrastructure."
WE MAY BE UNABLE TO CONTROL EXTERNAL COSTS
Our business is affected by a number of external costs that are beyond our
control which have increased significantly and unexpectedly. Examples of
such costs include direct response media prices, telemarketing fees,
commercial production rates and postage charges. These costs have steadily
increased since our inception and we expect them to continue to increase in
the future. See "Business: Employ Cost Effective Operating Infrastructure:
Product Fulfillment."
WE ARE DEPENDENT ON MANAGEMENT INFORMATION SYSTEMS
Our business is largely dependent upon management information systems that
assist in processing orders, electronically charging customer credit cards,
analyzing direct response media results, shipping merchandise on a timely
basis, responding to customer service inquiries and analyzing data on the
operation of the business. Effective operation of both the existing
management information systems as well as newly developed systems to manage
our growth will be critical to our success. If we experience difficulties
in implementing or operating our management information systems, this could
have a material adverse effect on our business, operating results and
financial condition. See "Business: Employ Cost Effective Operating
Infrastructure: Management Information Systems."
ADDITIONAL SALES AND OTHER TAXES MAY BE IMPOSED AND REQUIRED TO BE COLLECTED
We collect sales and use taxes on transactions with residents of Maryland
only. In the future, we may have to collect taxes on sales to residents of
other states. In addition, one or more states or localities may seek to
impose sales and use tax collection obligations on out-of-state companies
that engage in electronic commerce (after the current three-year
Congressional moratorium). If we were required to collect additional sales
or use taxes, it would become more expensive to purchase our products and
would increase our administrative costs. See "Business: Regulatory Matters."
WE MAY HAVE FLUCTUATIONS IN OUR QUARTERLY RESULTS
Variations in the costs of direct response media, the dollar amount of
direct response media purchases and the dollar amount of direct response
media sales to third parties throughout the year can result in significant
increases or decreases in our revenues and profits from quarter to quarter.
In addition, other quarterly influences may develop which could impact our
quarterly results. Some of these influences are: (i) increases in return
rates; (ii) the timing of expenses; (iii) our ability to attract and retain
users at our web site; (iv) our ability to upgrade and develop our operating
infrastructure; (v) increases in competition; (vi) disruptions in
manufacturing and other third party suppliers; (vii) Internet system
downtime and (viii) general economic conditions. Any of these influences
could have a material adverse effect on our business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR BUSINESS
Our products, and our marketing and advertising practices, are subject to
regulation by various federal, state and local regulatory authorities,
including the Federal Trade Commission, Federal Communications Commission
and the U.S. Food and Drug Administration. We are also subject to other
federal, state and local regulatory requirements, including federal, state
and local environmental regulation and regulations issued by the U.S.
Occupational Safety and Health Administration. As we begin to market a
broader variety of products and services, we may become subject to
regulation by agencies other than those listed above. An alleged violation
of any of these regulations could have a serious adverse financial effect on
us and cause a major change or discontinuance of our business. See
"Business: Regulatory Matters."
WE ARE EXPOSED TO PRODUCT LIABILITY RISKS
Our business exposes us to potential product liability risks that are
inherent in the marketing and sale of health and beauty-related products. We
maintain general liability and business interruption insurance. However,
the loss of insurance coverage, or claims in excess of the insurance
coverage, could have a material adverse effect on our business, operating
results and financial condition. See "Legal Proceedings."
OUR GROWTH WILL DEPEND ON EXISTING AND ADDITIONAL KEY MANAGEMENT PERSONNEL
Our success will be dependent on the experience and abilities of the
existing shareholders of the General Partner of Venture Media Limited
Partnership, the majority shareholder of HealthandBeautyDirect.com. The
loss of these services could have a material adverse effect on our future
growth. Brian M. Fraidin is a shareholder in the General Partner of Venture
Media Limited Partnership and is the Chief Executive Officer of
HealthandBeautyDirect.com. In such capacity he is responsible for overseeing
all the day-to-day operating decisions for the business. Other shareholders
of the General Partner of Venture Media Limited Partnership participate in
the strategic, financial and legal decision-making. They are not employees
of HealthandBeautyDirect.com and each of them is actively involved with
various other business investments. The services of Mr. Fraidin and the
other shareholders of the General Partner of Venture Media Limited
Partnership are provided to HealthandBeautyDirect.com through a management
services agreement between the Company and Venture Media Limited
Partnership. We currently maintain a key man life insurance policy on Mr.
Fraidin in the amount of $2,500,000. There can be no assurance that we will
be able to maintain such key man life insurance in the future.
In addition to the General Partner of Venture Media Limited Partnership, our
performance is substantially dependent on:
* the continued employment and performance of our current
operating management team;
* our ability to retain and motivate our key employees; and
* our ability to identify, hire, train, retain and motivate
additional highly skilled technical, managerial and marketing
personnel.
Competition for personnel in our industry is intense. If we do not succeed
in attracting new personnel or retaining and motivating our current
personnel, the financial condition and operating results of our business
could suffer significantly. See "Management" and "Certain Transactions."
A SIGNIFICANT PERCENTAGE OF OUR SHARES IS CONTROLLED BY ONE SHAREHOLDER
Upon completion of this offering, Venture Media Limited Partnership will
continue to own or control in excess of 50% of the Common Stock of
HealthandBeautyDirect.com. Venture Media Limited Partnership will be in a
position to elect our Board of Directors and officers, control the
operations of the business and determine the outcome of matters submitted
for shareholder approval, including mergers, consolidations, the sale of
assets or a change in control of HealthandBeautyDirect.com. See "Principal
Shareholders" and "Description of Common Stock."
THE FOUNDERS WILL RECEIVE SUBSTANTIAL BENEFITS FROM THIS OFFERING
Our founders will receive substantial benefits from this offering, including
a possible public trading market for their shares, as well as an immediate
increase in the book value of their shares. They will receive their
respective equity interests at costs substantially below the offering price.
Upon completion of this offering we will seek to restructure our lines of
credit with NationsBank which may result in the release of personal
guarantees of the founders. See "Shares Eligible for Future Sale" and
"Certain Transactions."
OUR NEW INVESTORS PURCHASING SHARES IN THIS OFFERING WILL EXPERIENCE
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the pro forma
net tangible book value per share of our outstanding Common Stock
immediately after the Offering. Accordingly, assuming the maximum number of
shares are sold, if you purchase shares in the Offering, you will
immediately incur dilution of $10.97 or 91.4% in the pro forma net tangible
book value per share from the price you pay for the shares. See "Dilution."
THE ISSUANCE OF PREFERRED STOCK COULD BE ADVERSE TO COMMON SHAREHOLDERS
Our Board of Directors, without further vote or action by the shareholders,
is authorized to issue shares of Preferred Stock in one or more series.
They are also authorized to fix the terms and provisions of each series
including dividend rights, preferences over dividends on our Common Stock,
conversion rights, voting rights, (which may be senior to the voting rights
of the Common Stock), redemption rights, terms of any sinking fund and
rights upon liquidation, including preferences over our Common Stock. These
provisions could limit the price that investors might be willing to pay in
the future for shares of our Common Stock. Although they have no present
intention to issue any shares of authorized preferred stock, it could be
done in the future. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company's founders will own 7,000,000
shares of Common Stock, which will represent []%, at the minimum, and 93%,
at the maximum, of the then issued and outstanding shares of Common Stock.
Those shares would be eligible for resale after completion of this offering,
in accordance with Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). Any sales would be subject to the Company's meeting
the Rule's information requirements and sales being within volume
limitations. Sales could also be made through a future registration of the
shares under the Securities Act. Sales of significant amounts of Common
Stock by current shareholders in the public market after this Offering could
adversely affect the market price of the Common Stock. All of the current
shareholders have entered into "lock-in agreements," which limit any sales
of Common Stock up to 175,000 shares in each calendar quarter for a two-year
period after the closing of this Offering. See "Shares Eligible for Future
Sale" and "Principal Shareholders."
THE OFFERING PRICE WAS DETERMINED BY OUR BOARD OF DIRECTORS
Our Board of Directors determined the public offering price for our shares
of Common Stock. The factors considered in determining the public offering
price include our revenue growth since organization, the industry in which
we operate, our business potential and earning prospects and the general
condition of the securities markets at the time of this Offering. The price
at which our shares may trade at any time after this Offering could vary
considerably from the offering price. See "Plan of Distribution:
Determination of Offering Price."
WE DO NOT INTEND TO PAY DIVIDENDS
Although we have paid distributions in the past as a partnership, the Board
of Directors presently intends to retain all earnings for the expansion of
our business. Therefore, we do not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our Certificate of Incorporation and Bylaws substantially limit the personal
liability of our officers and directors. They also require indemnification
and advance payment of expenses incurred in defending any claim. These
provisions could make it more difficult for shareholders to recover any
losses on their investment from claims against our officers or directors.
See "Management: Limitation and Indemnification of Liability of Officers and
Directors."
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs written using year
identifiers, consisting of two digits, rather than four. Use of two digits
to identify years may cause certain systems to recognize a date using "00"
as the year 1900, rather than the year 2000. The year 2000 issue could
result in system failures or miscalculations causing disruption to the
operation of many businesses. We have not verified that the companies
doing business with us are year 2000 compliant. Additionally, the Internet
could face serious disruptions arising from the Year 2000 problem.
Significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance. Any year 2000 compliance problem
involving the Company, our current or any future strategic marketing
partners, our vendors or our users could have a material adverse effect on
our business, financial condition and results of operations. We also cannot
guarantee that consumers will be able to visit our web site without serious
disruptions arising from the Year 2000 problem. Given the pervasive nature
of the Year 2000 problem, we cannot guarantee that disruptions in other
industries and market segments will not adversely affect our business.
Moreover, the costs related to Year 2000 compliance could be significant.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations: Year 2000 Compliance."
INTELLECTUAL PROPERTY PROTECTION
We hold United States trademark registrations for the "Linda Seidel" and the
"Natural Cover" names. However, this will not prevent others from
developing products that are similar to or competitive with our products.
In addition, the laws of certain foreign countries may not protect our
intellectual property rights and confidential information to the same extent
as the laws of the United States. Although we are unaware of any basis for
an intellectual property infringement or invalidity claim against us,
competitors or others, could assert claims against us and the claims could
be upheld in court. Intellectual property litigation could result in
substantial cost to and diversion of efforts by our management team. Such
litigation may be necessary to enforce our rights, to protect trade secrets,
to defend us against claimed infringement of the rights of others and to
determine the scope and validity of the proprietary rights of others. See
"Business: Intellectual Property Protection."
WARNING REGARDING OUR USE OF FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not purely historical
are forward-looking statements, including statements regarding our
expectations, hopes, beliefs, intentions or strategies regarding the future.
Statements which use the words "expects," "will," "may," "anticipates,"
"believes," "intends" and "seeks" are also forward-looking statements.
These forward-looking statements, including statements regarding our efforts
to increase our channels of distribution and develop new products, represent
our predictions based on information currently available to us. We assume
no obligation to update any of these statements. It is important to note
that our actual results could differ materially from those in such forward-
looking statements. Among the factors that could cause our actual results
to differ materially are the factors set forth under the heading "Risk
Factors." In particular, our success will be dependent upon such factors
as:
* efficiently developing, testing and expanding our web site;
* the cost of generating traffic at our web site;
* the effectiveness and efficiency of our direct response
advertising;
* the effective implementation of our business strategy;
* the level of customer acceptance of our products and services;
* our ability to create product and brand name awareness;
* our ability to manage planned expansion;
* our ability to attract new products and services to our website;
* our ability to successfully identify and respond to emerging trends
in the health & beauty-related industry;
* the level of competition in that industry; and
* general economic conditions and consumer confidence.
HOW WE INTEND TO USE THE PROCEEDS OF THIS OFFERING
We estimate that the net proceeds to the Company will be $[] from the sale
of the minimum number of shares and $5,815,000 from sale of the maximum
number of shares, after deducting estimated offering expenses payable by the
Company. We currently intend to use the estimated net proceeds from this
offering approximately as follows:
Approximate Amount and Percentage
Category Description Minimum Maximum
Direct Response Marketing(1) $[ ] 00.0% $1,600,000 27.5%
Web Site Development (2) $[ ] 00.0% $1,200,000 20.6%
Service Centers
& Direct Sales(3) $[ ] 00.0% $ 800,000 13.8%
Product Line Expansion (4) $[ ] 00.0% $ 750,000 12.9%
Management Personnel (5) $[ ] 00.0% $ 600,000 10.3%
Capital Equipment (6) $[ ] 00.0% $ 450,000 7.7%
Inventory (7) $[ ] 00.0% $ 415,000 7.1%
Total Use of Net Proceeds $[ ] 00.0% $5,815,000 100.0%
(1) Production and advertising costs related to web site,
television and print campaigns.
(2) Web site development, expansion and marketing.
(3) Service Centers and Direct Sales Network expansion.
(4) Identifying and acquiring health and beauty-related
products and services.
(5) Additional management personnel associated with expansion.
(6) Purchases of telecommunications, computer and design equipment
systems.
(7) Financing inventory growth for product line expansion.
From time to time, we expect to evaluate possible acquisitions of or
investments in businesses, products and technologies that are complementary
to those of the Company, for which a portion of the net proceeds of this
Offering may be used. We are routinely contacted by product developers, and
in such capacity evaluate new product proposals, and we make new business
presentations as part of ordinary course of business. We presently have no
commitments or understandings for any such acquisitions or investments, and
are not presently engaged in any serious negotiations. No portion of the net
proceeds has been allocated for any specific acquisition or investment.
Based on currently proposed plans and assumptions relating to our
operations, we believe that the proceeds of this Offering, together with
projected cash flow from operations and available cash resources, including
our NationsBank line of credit, will be sufficient to satisfy our cash
requirements for at least 12 months following this Offering. If our plans
change (due to changes in market conditions, competitive factors or new or
different business opportunities), our assumptions change or prove to be
inaccurate or if cash resources prove to be insufficient to implement our
proposed expansion strategy (due to unanticipated expenses, operating
difficulties or otherwise), we may reallocate a portion of the proceeds
within these categories, use proceeds for other purposes, curtail our
expansion activities or seek additional financing (which may not be
available on commercially reasonable terms, or at all.)
We will invest proceeds not immediately required for the purposes described
above principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-
bearing investments.
DIVIDEND POLICY
We do not expect to pay any cash dividends on the Common Stock in the
foreseeable future. The Board of Directors currently plans to retain
earnings for the development and expansion of our business. Any future
determination as to the payment of dividends will be at the discretion of
the Board of Directors and will depend on a number of factors including
future earnings, capital requirements and financial condition.
Through December 31, 1998, the Company was treated for federal and state
income tax purposes as a general partnership under the Internal Revenue
Code. As a result, our earnings were subject to taxation at the partner
rather than the corporate level for federal and state income tax purposes.
DILUTION
The following table summarizes, on a pro forma basis as of December 31,
1998, the differences between founding shareholders and new shareholders
with respect to the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid
(assuming maximum public offering price):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER
SHARE
Minimum Sold:
Founding
Shareholders $0,000,000 00.0% $1,695,969 00.0% $0.00
New
Shareholders $0,000,000 00.0% $0,000,000 00.0% $12.00
Total
Shareholders $0,000,000 100.0% $0,000,000 100.0%
Maximum Sold:
Founding
Shareholders $7,000,000 93.3% $1,695,969 22.0% $0.24
New
Shareholders $ 500,000 6.7% $6,000,000 78.0% $12.00
Total
Shareholders $7,500,000 100.0% $7,695,969 100.0%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the Company's Financial Statements and their Notes included in this
Prospectus. This discussion contains certain forward-looking statements
that involve known and unknown risks and uncertainties, such as statements
of our plans, objectives, expectations and intentions. Our actual results
and the timing of certain events could differ materially from those
anticipated in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those
discussed below and in the section entitled "Risk Factors", especially the
paragraph headed: "Warning Regarding Our Use of Forward-Looking Statements."
OVERVIEW
The Company provides direct marketing services for specialty health and
beauty-related products. Since our inception, we have focused our efforts on
developing a direct response operating infrastructure and marketing
capabilities. These capabilities have enabled us to market our principal
products under the Linda Seidel Natural Cover brand name as well as offer
similar direct response marketing services to third party clients. In
addition, we have begun to expand our multiple direct response channels of
distribution. We have experienced growth in net sales (gross sales less
product returns) from $7.69 million in 1997 to $9.55 million in 1998, an
increase of 24%.
We have invested significant resources in terms of capital and senior
management time in developing our direct response infrastructure including
upgrading our proprietary management information systems to support our
customer service and fulfillment departments, enhanced telecommunications
equipment, media buying capabilities and streamlining operating facilities
to handle growth in net sales. This integrated operating infrastructure
enables us to significantly influence the execution of our marketing
strategy, advertising expenditures and fulfillment of customer purchases,
while maintaining valuable direct customer relationships.
Our net sales are generated through use of direct response advertising
techniques to market our products or the products of our clients. As we
have expanded our product lines and client base, we believe we have been
able to leverage our operating infrastructure and marketing capabilities.
We are executing a phased expansion of our channels of distribution,
including television, the Internet, direct mail, professional medical
offices, international markets, specialty service centers and independent
distributors.
Prior to 1997, the Linda Seidel Natural Cover product line accounted for
100% of our net sales. Recently, we have expanded by providing direct
response marketing services to third party clients, and these new clients
have represented an increased percentage of our net sales. The Linda Seidel
Natural Cover product line accounted for approximately 78% of net sales in
1997 and approximately 53% of net sales in 1998.
In addition, our marketing and sales strategy has been to expand our product
offerings and channels of distribution with the objective of a balance of
net sales among various products and channels of distribution. This will
reduce the Company's reliance on any one product or any one channel of
distribution. In 1997, purchases of Linda Seidel's Natural Cover products
directly from television accounted for approximately 68% of net sales,
purchases of Linda Seidel Natural Cover products from other channels of
distribution such as medical offices and reorder customers accounted for
approximately 10% of net sales and direct response media sales and services
to third party clients accounted for approximately 22% of net sales. This
diversification of net sales continued during 1998 with purchases from
television of Linda Seidel's Natural Cover products accounting for
approximately 41% of net sales, purchases of Linda Seidel Natural Cover
products from other channels of distribution accounting for approximately
12% of net sales and direct response media sales and services to third party
clients accounting for approximately 47% of net sales.
The prevailing market conditions, in addition to the successful development
and testing of our marketing materials and those of our clients, have caused
the volume and timing of our direct response advertising efforts to vary. As
a result, our financial results have fluctuated significantly from quarter-
to-quarter and year-to-year since the Company's inception, and may continue
to do so in the future.
We generally recognize revenues on product purchases when they are shipped
to customers and on direct response media sales and services when they are
provided to clients. We have created a reserve for product returns and
allowances and bad debts associated with product sales and credit card
receivables based on historical statistical trends. Third party clients
prepay for direct response media sales and services. The Company accounts
for these prepayments as a current liability until the services are
provided. Our gross profit margin has fluctuated from year-to-year based on
a combination of changes in the cost of goods percentage associated with our
current product mix, development of various channels of distribution
associated with expansion, increased revenues from direct response media
sales and services to clients and economies of scale achieved from our
manufacturing vendors.
We capitalize the production costs for development of our marketing
materials. At December 31, 1997, we had unamortized production costs
associated with marketing materials of $338,449. The Company had
unamortized production costs associated with marketing materials of $453,560
at December 31, 1998. These costs are being amortized over their expected
useful life based on management's current estimates.
We expense direct response advertising media costs in proportion to the
total future economic benefits directly attributable and traceable to those
costs. For the year ending 1997, we expensed $2,367,232 and capitalized
$256,927 of direct response advertising costs associated with the Linda
Seidel Natural Cover product line. For the year ending 1998, we expensed
$1,924,877 and capitalized $393,379 of direct response advertising costs
associated with the Linda Seidel Natural Cover product line. These
capitalized direct response advertising costs are being amortized over their
estimated future economic benefits, based on management's current estimates.
Since inception, we have operated as a general partnership, and as a result,
have not been subject to federal or certain state income taxes. Upon
incorporation and the acquisition of the business of the general
partnership, we will become subject to federal and state income taxes.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's statements of income as a percentage of net sales. Any
trends reflected in the following table may not be indicative of future
results.
YEAR ENDED DECEMBER 31,
1997 1998
Net sales 100.0% 100.0%
Cost of sales........................ 73.3 77.8
Gross profit 26.7 22.2
Marketing and selling expenses....... 13.1 9.9
General and administrative expenses.... 9.3 6.0
Income from continuing operations..... 4.4 6.3
Non-operating (expense) income, net... (0.1) 0.1
Net Income before taxes 4.3% 6.4%
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
NET SALES (GROSS SALES LESS PRODUCT RETURNS). Net sales increased 24% to
$9.55 million in the year ended December 31, 1998 from $7.69 million in
the year ended December 31, 1997. Net sales increased primarily due to
growth
in direct response media sales and services to third party clients to
approximately $4,300,000 in 1998 from approximately $1,700,000 in 1997.
GROSS PROFIT. Gross profit increased 4% to $2.14 million in 1998 from
$2.06 million in 1997. As a percentage of net sales, gross profit declined
to 22.2% in 1998 from 26.7% in 1997. The increase in gross profit dollars
is due to higher net sales. The decrease in gross profit as a percentage of
net sales is primarily due to the increase in net sales from direct response
media sales and services which have a lower gross profit percentage than the
Company's product sales.
MARKETING AND SELLING EXPENSES. Marketing and selling expenses decreased
6.6% to $0.9 million in 1998 from $1.0 million in 1997. The decrease in
marketing and selling expenses is due to a reduction in bad debt expense,
telemarketing fees, credit card processing charges and postage associated
with a lower volume of higher priced introductory product kits sold by the
Company during 1998 than were sold during 1997. As a percentage of net
sales, marketing and selling expenses decreased to 9.9% in 1998 from 13.1%
in 1997 due to the increase in net sales in 1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $142,133 or 24.9% to $0.57 million in 1998 from $0.71 million in
1997. As a percentage of net sales, general and administrative expenses
decreased to 6.0% in 1998 from 9.3% in 1997 reflecting the economies of
scale of the Company's operating infrastructure associated with the
Company's higher net sales in 1998.
OTHER NONOPERATING ITEMS. Non-operating items accounted for approximately
0.1% income in 1998 and approximately 0.1% expense in 1997. The non-
operating items did not have a significant effect on the Company in either
year ending 1997 or year ending 1998.
PROVISION FOR INCOME TAXES. During 1998 and 1997 the Company was operated
as a general partnership and as a result was not subject to federal or
certain state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have met our operating and cash requirements through
funds generated from operations, vendor credit terms, a line of credit from
NationsBank and Venture Media Limited Partnership's initial investment. We
had cash and cash equivalents of $634,108 as of December 31, 1998, compared
to cash and cash equivalents of $226,956 as of December 31, 1997.
Net cash provided by operating activities in the year ended December 31,
1998 was $1.4 million, consisting primarily of net income adjusted for
noncash charges related to depreciation, amortization and provision for bad
debts, decreases in accounts receivable, prepaid expenses and deposits, and
an increase in advanced client media deposits, offset in part by a reduction
in accounts payable, accrued expenses, due to affiliates, and the reserve
for returns and allowances and an increase in inventory. At year ended
December 31, 1998 we received advanced client media deposits of $541,983 for
direct response media sales and services to be provided in January 1999
which were included in the cash balance and accounted for as a current
liability. Net cash provided by operating activities in the year ended
December 31, 1997 was $496,292, consisting primarily of net income adjusted
for noncash charges related to depreciation, amortization and provision for
bad debts, a decrease in deposits, a net increase in current liabilities and
an increase in the reserve for returns and allowances, offset by increases
in accounts receivable, inventory, and prepaid expenses.
Cash used for investment in the production of marketing materials,
development of management information systems, purchases of direct response
advertising, disposal of fixed assets and expansion of property, plant and
equipment was $671,058 in 1998 and $626,947 in 1997. We plan to continue to
invest significant amounts on these various long-term assets as necessary to
expand the our net sales.
Cash advanced to employees/affiliates for the year ended December 31, 1998
was $61,113, compared to cash received from employees/affiliates for the
year ended December 31, 1997 of $474,230. The amounts received by the
Company during 1997 from employees/affiliates primarily consisted of cash
held in bank accounts and credit card processing facilities in the name of
the general partner, Venture Media Limited Partnership, which were changed
during 1997 to the name of the Company.
We believe that our cash on hand, together with cash generated by operations
and the net proceeds of this offering, will be sufficient to meet our
capital requirements through the end of the third quarter of 2000. The
amount and timing of our future capital requirements will depend on numerous
factors including, without limitation, the costs and timing of new product
development and introduction, development and expansion of our web site,
potential strategic acquisitions or joint ventures and the success of the
Company's marketing, sales and distribution efforts. As of December 31,
1997, we had a secured $500,000 revolving inventory and receivable credit
line NationsBank. As of December 31, 1998, the credit line had been
increased to $1,000,000. This bank line of credit has never been accessed
since its inception. There can be no assurance that if additional funds are
required they will be available to the Company on favorable terms, if at
all.
INFLATION
We do not believe that inflation, which has been limited for the Company's
entire operating history, has had a material effect to date on our net sales
or results of operations.
SEASONALITY
We do not believe that seasonality has had a material effect to date on our
net sales or results of operations. Seasonality may have an influence on our
net sales or results of operation in the future because we may provide our
direct marketing services to clients whose products or services have a
seasonal nature.
YEAR 2000 COMPLIANCE
During 1998, we formed a Year 2000 Project Group to identify and address
Year 2000 compliance matters. The Year 2000 Project Group is currently in
the process of identifying all material Year 2000 issues with the Company's
systems. In addition, we have initiated discussions with our significant
suppliers regarding their plans for Year 2000 material issues. We have
received assurances from many of our suppliers that they are or will become
Year 2000 compliant in a timely manner. We also rely upon governmental
agencies, utility companies, telecommunication service companies and other
service providers outside of the Company's control. There can be no
assurance that such governmental agencies or other third parties will not
suffer a Year 2000 business disruption that could have a material adverse
effect on our business, financial condition and operating results.
As the process of evaluating our systems proceed, we may identify systems
that present a Year 2000 risk. In addition, if any third parties who
provide goods or services essential to our business activities fail to
appropriately address their Year 2000 issues, such failure could have a
material adverse effect on our business, financial condition and operating
results. Examples could include a Year 2000 related disruption on the part
of the telemarketing firms which handle customer credit card purchases, the
financial institutions which process these credit card purchases or various
providers of aspects of our web site. The Year 2000 Project Group's
initiatives include the development of contingency plans in the event the
Company or one of our suppliers has not adequately addressed Year 2000
issues in a timely manner. The Year 2000 Project Group expects to conclude
developing these contingency plans by September of 1999.
BUSINESS
At HealthandBeautyDirect.com, we market and distribute health and beauty-
related products and services directly to consumers through use of direct
response advertising channels such as television, direct mail, the Internet
and direct sales. We provide our clients with comprehensive direct response
management services including development of marketing campaigns, media
placement and product fulfillment. Currently we market our own cosmetic
products under the brand name Linda Seidel Natural Cover. Management's
strategy for the Company's future is described below.
Organization Of The Company
Our Company was formed in April 1994 as a partnership doing business as
Transforming Cosmetics. Venture Media Limited Partnership provided the
initial capital for the formation and development of the business and its
general partners have provided various management services. See
"Management." At formation, Linda Seidel and her husband contributed their
trademarks, product formulations and a long-term employment contract with
Linda Seidel. See "Developing Marketing Relationships with Health and
Beauty-Related Companies." In 1998, Transforming Cosmetics purchased
Venture Media Buying Service from the partners of Venture Media Limited
Partnership. See "Certain Transactions." Transforming Cosmetics has been
owned 81% by Venture Media Limited Partnership and 19% by the Seidels,
through corporations they control. All of the assets and liabilities of the
Transforming Cosmetics partnership will be transferred to
HealthandBeautyDirect.com upon the sale of the minimum shares in this
offering. A total of 7,000,000 shares will be issued to the former partners
of Transforming Cosmetics in proportion to their respective partnership
interests. Shares will then be issued to new investors based on their share
purchases in this Offering.
Competitive Industry Overview
In recent years, retailing in the United States has been characterized by a
rapidly growing shift to non-store retail sales ("direct to consumer")
through such media as direct mail catalogs, broadcast and cable television
infomercials, home shopping channels and, recently, the Internet. These
alternative forms of non-store retailing, which in 1997 accounted for
approximately $382 billion in sales, are expected to grow approximately 8%
per annum for the next five years according to the Direct Marketing
Association. In particular, the Internet has experienced unprecedented
growth in recent years and this growth is expected to continue. According to
International Data Corporation ("IDC"), business to consumer commerce on the
Internet will grow from approximately $5 billion in 1997 to approximately
$95 billion in 2002. And the number of Internet users worldwide will grow
from an estimated 100 million in 1998 to an estimated 320 million in 2002.
This growth in direct to consumer marketing is attributed to the convenience
of alternative forms of shopping for time-constrained, dual-career consumer
households, the increasingly high level of customer service and reliability
offered by leading direct marketing firms and the expansion of the Internet
driven by continued advancements in computer technology.
We specifically compete through use of direct marketing techniques in the
health and beauty-related industry with various products that we market and
distribute. The health and beauty-related industry is fragmented and highly
competitive. Participants in the industry compete primarily on price,
quality, access to distribution, brand name recognition, image, inventory
availability and product performance. Within each of our specific health
and beauty-related product categories we compete against many companies who
may have longer operating histories, larger financial resources, broader
management depth, more sophisticated technology, greater name recognition
and access to various other critical resources.
Our direct marketing web site, HealthandBeautyDirect.com, is currently under
development and faces competition from other direct marketing web sites such
as women.com, drugstore.com, iVillage.com, planetrx.com, health4her.com
cosmeticscounter.com and many others. Our web site may also indirectly
compete with web retrieval and web "portal" companies who direct consumer
traffic to many other competitors. In addition, our Linda Seidel's Natural
Cover product line of cosmetics competes in the industry segment known as
"corrective makeup." There are several competitors in this segment. One
competitor, Derma Blend, has greater sales than Natural Cover and has
successfully distributed its products through various well-known retailers.
In addition, most major cosmetic companies provide a "concealer" line of
foundation products targeted for consumers with minor skin imperfections.
Any one of these companies, or some other business, could quickly become our
direct competitor.
We expect that we will face additional competition from new market entrants
and current competitors as they expand their direct marketing business
models. To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations. Increased competition could result in price reductions,
reduced margins or loss of market share, any of which could adversely affect
our business, financial condition and operating results.
General Business Strategy
Our objective is to be the country's leading direct response marketer and
distributor of high-quality health and beauty-related products and services.
We plan to accomplish this objective by:
* capitalizing on our direct response marketing expertise to grow
sales;
* expanding our direct response channels of distribution;
* employing our cost effective integrated operational infrastructure;
* growing our loyal customer database; and
* developing marketing relationships with health and beauty-related
companies.
Detailed descriptions of these five steps are outlined below:
CAPITALIZING ON OUR DIRECT RESPONSE MARKETING EXPERTISE TO GROW SALES
Advertising through a variety of mass-market direct response media venues
such as cable and broadcast television, catalogues and direct mail is our
primary channel of distribution. We utilize direct response marketing as a
means for distributing our products and we provide our direct response
marketing services to various clients. We have utilized direct response
marketing channels of distribution versus the traditional retail channel of
distribution for the following business reasons:
* low cost method to test and fine tune new product introductions;
* cost effective operational infrastructure to nationally
distribute consumer products;
* sophisticated analysis and monitoring of the efficiency of
advertising expenditures;
* ownership of a proprietary customer database for future marketing
efforts; and
* direct interaction with customers to provide them with
exceptional customer service.
We intend to continue to pursue opportunities to leverage our unique direct
response marketing infrastructure and expertise as we expand our presence on
the Internet, establish our service centers, develop alternative channels of
distribution and build our international distribution network. See
"Business: Expand Distribution Channels."
Direct Response Marketing Services. We spend a significant portion of our
net sales on advertising because of our direct response marketing methods of
consumer product distribution. In an effort to maintain the lowest possible
marketing costs per customer order, we have developed the capabilities to
produce a variety of direct response marketing materials including
television and radio commercials, video mailers, printed materials and web
sites. In addition to creative production, we are also able to execute the
associated direct response media advertising campaigns. Traditionally,
these services are performed on a contract basis with outside vendors.
However, we have developed the expertise to execute many of these tasks in-
house by utilizing our staff and the services of cost-effective free-lance
professionals.
Production of Direct Response Video, Print Marketing Materials and Web
Sites. Typically, a company would contract with a creative agency to
develop, manage and execute a marketing strategy for its products. The
agency would in turn hire writers, directors, graphic designers,
videographers and other professionals to produce the required marketing
videos, print pieces, web sites or radio commercials. By bringing the
development and management of the marketing strategy in-house and utilizing
free-lance professional production staff, we are able to produce effective
marketing materials at significantly lower costs. In addition, a dedicated
in-house staff and a large network of free-lance professionals affords us
the increased flexibility to respond quickly to changes in the marketplace
with new marketing materials when necessary. This will be particularly
helpful in developing, expanding and adjusting our web site on a continual
basis. In addition, by employing the services of a network of free-lance
creative and production professionals, we are able to develop several
projects simultaneously.
Having filmed at locations throughout the United States, we have established
an extensive network of free-lance professionals within the world of
commercial video production, including producers, directors, writers, audio
and lighting directors, camera and equipment suppliers, editors and music
composers. There are significant savings in utilizing local crews in areas
where filming is necessary as opposed to transporting vendors and equipment
to remote locations. In most cases, only one in-house staff person is
required on location to manage the activity and crew. Various post-
production facilities utilizing the services of an editor and video editing
equipment produce the Company's final video marketing materials. The use of
free-lance professionals provides us with increased flexibility to develop,
produce and test new video marketing materials.
As with video production, print production involves the services of several
vendors to develop printed marketing materials. We maintain a working
relationship with a group of graphic artists, photographers, printers, and
paper suppliers to produce the required materials at the lowest possible
costs. Brochures, postcards, newsletters and other direct mail pieces are
produced in-house utilizing a variety of software packages including
QuarkExpress, Adobe PhotoShop and Illustrator. The finished artwork is
provided to the printer on disk, or electronically, via modem.
The creative and technical skills developed by our internal staff and free-
lance professionals in the direct response world of commercial television
and print marketing have positioned us well to capitalize on direct to
consumer marketing over the Internet. Although new computer technologies
and business strategies are being developed and tested to determine how to
successfully generate e-commerce, many of the same design and marketing
fundamentals of communication will be utilized. These talents will be
applied as we develop and expand our HealthandBeautyDirect.com web site.
The experience gained by managing the video, print and web site production
processes in-house allows us to provide similar advice and assistance to
other entrepreneurial companies. Offering this marketing and creative
production expertise to clients is one of the most effective ways for us to
develop future joint-venture business opportunities.
Direct Response Media Buying. The purchase of direct response advertising
time is the largest expenditure associated with our business to date. Our
media buying strategy, and each of our media buying decisions, is made with
a concentrated focus on each campaign's profitability and long-term
corporate objectives. The key to the success of our direct response media
campaigns is micro-management of the entire process.
We have developed a fully integrated approach to managing each of our direct
response marketing campaigns including media buying, financial analysis and
project management. Our media team has over 20 years of combined experience
in the field of direct response media management, having purchased in excess
of $50 million in direct response media time for a variety of projects and
clients.
Effective media buying requires a combination of established industry
relationships and creative negotiation of advertising rates. We have
purchased television media time on every major national and regional cable
station, on hundreds of broadcast stations in all 50 states and on various
nationally syndicated programs. Customized media schedules are developed to
incorporate the right balance of media outlets distributed geographically
across the country. Media is purchased in numerous weekday, weekend and
overnight time slots based on its availability and cost. In addition, we
maintain a comprehensive proprietary database of media costs and performance
results from our direct response campaigns. Each of these factors are
evaluated on a project-by-project basis to minimize risk and maximize
opportunity.
Comprehensive financial analysis of direct response advertising requires
consideration of many factors. Our analysis includes the impact on our
direct response campaigns from costs such as media time, manufacturing,
credit card processing, inbound telemarketing, fulfillment, shipping,
product returns, delinquent accounts receivable, payments by check and other
costs that are unique to each project. A computer simulated financial model
of each direct response campaign is developed to provide management with
appropriate daily, weekly and monthly reports, financial statements and
projections.
We have assembled a competent team of service providers to assist in
maintaining a cost-effective operating structure to execute our various
direct response campaigns. Project management requires effective
coordination among each of these service providers. We have established and
maintained relationships with the industry leaders in the areas of tape
duplication and video trafficking, inbound telemarketing and credit card
processing.
Our comprehensive direct response media capabilities provide us with the
ability to effectively manage the advertising costs associated with our
various campaigns. In addition, we can efficiently interpret the results of
our media purchases to limit financial exposure or measure financial
profitability. Providing these media buying services to third party clients
accounted for approximately $1,700,000 of net sales during 1997 and
approximately $4,300,000 of net sales during 1998. Our expertise in direct
response media buying will be one of the key components to our successful
expansion through a variety of marketing partnerships and joint ventures.
Over the next few years, we plan to expand our direct response media buying
capabilities through a series of personnel additions and strategic
acquisitions.
EXPANDING OUR DIRECT RESPONSE CHANNELS OF DISTRIBUTION
We are expanding our customer database through development of multiple
direct response channels of distribution including the Internet, service
centers, alternative distribution channels and an international network. The
Company believes maintaining significant control over its various channels
of distribution provides competitive advantages that include the ability to:
* leverage investments in advertising and marketing programs across
multiple distribution channels to build
national consumer brand names;
* enhance customer satisfaction by providing professionally trained
staff to interact directly with customers in person or via the
telephone;and
* utilize information gathered from each channel of distribution to
develop and support the others.
In addition, these channels of distribution provide customers with greater
accessibility and convenience in their purchase of our health and beauty-
related products and services.
Internet Sales. As part of our direct to consumer business strategy, we are
currently in the process of developing our web site,
HealthandBeautyDirect.com, as a marketing and distribution mechanism to
facilitate growth in sales of our products and services. Similar to the
development and growth of catalog and television direct to consumer sales
over the last two decades, we believe that the Internet offers us unique
opportunities for sales growth in the future. Several factors have
contributed to the growth of direct to consumer marketing on the Internet
including: (i) a large installed base of personal computers in homes; (ii)
improvements in the network infrastructure; (iii) easy, low-cost access to
the Internet; (iv) awareness of the Internet among consumers; and (v) the
rapidly expanding availability of online content and commerce. As a result,
the Internet is dramatically affecting the methods by which consumers are
evaluating and buying goods and services because it provides consumers with
a broad selection, increased pricing power and unparalleled convenience.
The objective of our web site will be to provide our customers with an
efficient way to gain valuable information on numerous products and services
available in the health and beauty-related industries and a cost effective
means to purchase our products and services through electronic commerce.
Our web site will provide retailing over the Internet (e-tailing) of a broad
range of health and beauty-related products and services to the following:
(i) owners of unique entrepreneurial health and beauty-related products who
typically do not have access to the traditional retail channels of
distribution; (ii) major consumer product manufacturers who view the
Internet as a complementary channel of distribution to their existing retail
platform; and (iii) specialized health and beauty-related service providers
who would benefit from the advertising economies of scale of a coordinated
national direct response marketing campaign. At present, the following
categories of products and services are samples of what we expect to be
available to our customers through HealthandBeautyDirect.com:
* Beauty & Fashion - Cosmetics, Bath & Body, Skin Care,Hair,
Fragrances, Nails, Makeup Advice, etc.;
* Cosmetic Surgery - Face, Eyes, Neck, Hair, Body, Consultations,
etc.;
* Weight Management - Diet Programs, Foods, Books, Spas,
Dieticians, etc.;
* Fitness & Exercise - Equipment, Videos, Health Clubs, Personal
Trainers, etc;
* Nutritional & Health - Vitamins, Herbs, Supplements, Health Foods,
Nutritionists, etc.;
* Alternative Medicine - Wellness Centers, Herbalists, Aromatherapy,
Physical Therapists, Acupuncturists, etc.;
* Medical Products - Pharmaceutical products and information; and
* Specialty Products - Various specialty health and beauty-related
products.
In the United States through all channels of distribution, these categories
of health and beauty-related products and services represent in excess of
$150 billion in sales annually according to the following industry sources:
(i) Cosmetic, Hair and Personal Care - $13 billion, Goldman Sachs Investment
Research; (ii) Diet, Weight Loss & Nutrition - in excess of $30 billion,
Center for Science in Public Interest; (iii) Health & Fitness - Greater than
$50 billion, Standard and Poor's Industry Reports; (iv) Cosmetic Surgery -
in excess of $2 billion, American Society of Plastic & Reconstructive
Surgeons; and (v) Pharmaceutical - in excess of $100 billion, Standard and
Poor's Industry Reports. These numbers are estimates, are available in the
public marketplace and should only be used for a general understanding of
the size of the health and beauty-related industry. We have not
independently verified these estimates and have not requested permission
from their sources to publish them in this prospectus.
Based on our internal development projections, we expect that sections of
our HealthandBeautyDirect.com web site will be completed and made available
for use by our customers within the next six months. The execution steps
for the timely completion of our web site are detailed below:
* completion of the graphic and navigational design;
implementation of the textual, audio, video and interactive
elements;
* technical development of the internal structure to transact e-
commerce;
* coordination with various information content providers; nd
* arrangements for availability from multiple product and service
providers.
During this offering, prospective investors will be able to view the current
stage of development for our HealthandBeautyDirect.com web site by
contacting our offices at 1-888-560-9091 x [] and receiving a confidential
access code. In addition, prospective investors will have the opportunity
to interact with our web site management team and contribute their ideas and
suggestions during our web site development process.
Once we have completed development of sections of our web site and have made
them available to our customers, one of our most significant challenges will
be to cost effectively drive traffic to HealthandBeautyDirect.com. As with
many web sites, we will utilize internet marketing techniques such as banner
advertisements, sponsorships, e-mail campaigns, affiliation programs,
keyword searches and listings on the major "web portals" to create web site
traffic. We will also use traditional mass market advertising mediums such
as television, print and radio to create brand name recognition for our web
site. However, we believe that our most effective mechanism for driving
traffic to our web site will be utilizing various forms of direct response
marketing techniques.
The core of our advertising strategy is to capitalize on the experiences and
capabilities of our personnel, clients and vendors who have successfully
marketed products and services in the direct response television, print,
radio and database management industries. Our goal will be to develop unique
cost effective direct response advertising campaigns to promote the
HealthandBeautyDirect.com web site. As with all direct response marketing
campaigns, our challenge will be to develop clear marketing messages, design
marketing materials that communicate our message, test the effectiveness of
these marketing materials in the media and analyze the financial results of
our media expenditures. Based on the results of our analysis, we will
evaluate how we can fine tune our marketing message, marketing materials and
media purchases to cost effectively increase our ability to drive customers
to our web site.
Although Internet sales will represent only a small segment of our total
sales in the near future, marketing products directly to consumers through
other channels of distribution has enabled us to build the basic corporate
infrastructure necessary to capitalize on the business opportunity presented
by the Internet. Our preparation for effective use of the Internet includes
our approach to handling toll-free 800 number customer service,
sophisticated management information systems, credit card processing
capabilities, development of video and print marketing materials, tracking
and analysis of effective advertising expenditures and flexible
entrepreneurial management. As the Internet continues to develop, and more
consumers accept it as a safe, convenient way to purchase goods, we expect
that sales through our the web site, HealthandBeautyDirect.com, will
contribute significantly to our overall direct to consumer business model.
Service Centers. Our direct to consumer strategy also involves building a
nationwide network of service centers to reach those consumers who typically
purchase their health and beauty-related products and services through
traditional retail channels of distribution rather than television, direct
mail or the Internet. By combining the unique benefits of direct response
marketing, with cost efficient service center locations, we will be able to
provide our customers with an opportunity to receive professional
consultations while experiencing our products and services first hand.
While visiting our service centers, customers will be introduced to the ways
they can transact business with us in the future at our
HealthandBeautyDirect.com web site, via our toll-free 800 numbers and
through one of our catalogs.
The successful implementation of our service center distribution concept
will incorporate the following strategies. (i) We will use our unique
expertise in purchasing advertising and developing effective video and
printed marketing materials to educate customers as we develop new service
center locations. (ii) Our HealthandBeautyDirect.com web site will provide
information about new service center locations and how consumers may
schedule an appointment for a personal consultation. (iii) Each service
center location will be professionally staffed with individuals focused on
training and educating consumers about our products and services as well as
establishing personal relationships with our local customers in their
community. (iv) Each service center location will be structured to
incorporate our efficient operational procedures to minimize overhead costs.
(v) Customer names will be maintained in our proprietary management
information database to provide us with long-term marketing opportunities.
At the present time, we profitably operate one service center location and
are scheduled to open two new locations. In addition, we are currently in
discussions with several individuals about opening up other service center
locations and we have advertisements planned in two health and beauty
industry trade publications to locate other potential sites and personnel.
Once developed, our network of service centers will provide us with a unique
platform to cost effectively introduce and test market new health and
beauty-related products and services.
Alternative Channels of Distribution. Over the last two years, we have made
an effort to develop alternative channels of distribution for our health and
beauty-related products. Our Medical Office Network and our Direct Sales
Network are currently being expanded to provide us with additional methods
of selling our products and services. We have determined to focus some of
our marketing efforts on developing these channels of distribution because
they provide us with the opportunity to control our own product
distribution as well as build a loyal customer database.
Medical Offices. We currently distribute our products to over 600 plastic
surgery and dermatology offices in the United States. These offices are
able to provide our products directly to their patients as part of their
post-operative procedures. These offices are also furnished with
informational videos and literature to distribute free of charge to their
patients. The patients may purchase products from their physicians office
or they may order products directly from us via our toll-free 800 numbers.
In addition, the doctors' patients have direct access to our trained
professional staff from the privacy of their homes during their recovery
period. As we expand our product offerings, our network of medical offices
will provide us with another opportunity to cost effectively distribute
these products.
Direct Sales. We began test marketing a new consumer distributor network in
March of 1999. The marketing program has focused on evaluating whether
there are customers within our database who would be interested in
distributing our products and services. If successful, this may represent an
opportunity for us to develop a cost-effective means to generate new
customer leads and product orders with distributors utilizing our
HealthandBeauty.com web site to transact e-commerce. Expansion of our
consumer distributor network will be coordinated with openings of new
service center locations.
International Direct Response Distribution Network. The demographic and
technological trends that are driving the retail consumer shift to non-store
shopping in the United States are also present in many international
markets. We currently have direct response marketing efforts in Canada,
Taiwan and Australia. In addition, we have produced foreign language
marketing materials targeted for the Hispanic consumer market and we are
scheduled to begin testing direct response marketing efforts in Central and
South America. We are periodically presented with requests to expand into
other international markets and review these requests on a case-by-case
basis.
With the development of the Internet, global distribution of American
consumer products has become substantially more accessible. We are
currently in discussions with several international web site development
companies and evaluating with them the potential for translating and
marketing our HealthandBeautyDirect.com web site in their home countries. We
will likely test market this concept over the next twelve months through an
international network of marketing partnerships.
EMPLOYING OUR COST EFFECTIVE INTEGRATED OPERATING INFRASTRUCTURE
We have developed a vertically integrated operating infrastructure with
sufficient flexibility to handle the intricacies of direct to consumer
marketing. This operating infrastructure includes an internal professional
business management team, combined with specialized vendor relationships.
Its effectiveness is based on our management information systems which
enable us to handle toll-free 800# order taking, electronic credit card
processing, product fulfillment and shipping, customer service inquiries and
financial reporting. As sales volume increases through marketing
partnerships, joint ventures and strategic acquisitions of other health and
beauty-related products, we expect to use this specialized operating
infrastructure over larger volumes of business to reduce our marginal costs
per order. In addition, this vertically integrated operating infrastructure
enables us to maintain quality control, coordinate our various sales and
marketing efforts, manage the positioning and pricing of our products and
services, and develop valuable long-term relationships directly with our
customers. As we expand our web site marketing efforts and realize sales
volume increases, we will need to adapt our current management information
systems and develop new management information systems to address the
particular intricacies of conducting e-commerce.
Professional Business Management. We have developed a professional business
management structure that enables us to effectively assist and build
entrepreneurial companies by using direct response marketing techniques. The
management structure incorporates the expertise of the entrepreneur, an
operational management team, specialized vendor relationships and direction
from the General Partner of Venture Media Limited Partnership. We believe
that the complementary combined efforts of these components of the
management structure will enable us to continue to effectively compete in
the marketplace and further expand our business model. Additional
management personnel will be hired to support our operations as they expand.
The entrepreneur is primarily responsible for new product development and
assisting us in developing the marketing strategy to build our life-long
customer database. The entrepreneur is actively involved in the daily
activities of the business and receives a salary for his or her services as
well as stock ownership. The operational management team oversees the
effective execution of a variety of critical infrastructure requirements
associated with our direct response marketing efforts. These areas include
direct response marketing services, management information systems, contract
manufacturing and fulfillment, telemarketing, order processing, customer
service, accounting and finance. These managers, along with our specialized
vendor relationships, are responsible for our operational areas. They have
been intimately involved with our business since its inception, and their
operational experience has contributed to our successful growth in net sales
from $500,000 to over $9 million.
The General Partner of Venture Media Limited Partnership is responsible for
our long term strategic, marketing, legal and financial decision making.
Responsibilities include operational oversight, review of the financial
statements, evaluation of acquisition and joint venture investment
opportunities and raising the necessary debt and equity financing required
to expand the business. The General Partner consists of investors who have
contributed significant financial resources and time to the Company's
formation and development. These investors provide us with years of
experience in the fields of investment banking, business management and
securities law, as well as access to business relationships and sources of
capital. Their business experience and direction has been, and will continue
to be, critical to our future growth and financial success. They are
primarily compensated in the form of equity ownership of our Common Stock.
Management Information Systems. We have developed a proprietary management
information system that integrates our order entry, credit card processing
and product fulfillment operations. We believe that this system enables us
to operate efficiently and provide enhanced customer service. The key
features of this management information system are its ability to: (i)
rapidly process credit card orders; (ii) increase the efficiency of the
fulfillment and the shipping process; (iii) provide customer service
representatives with real-time information; and (iv) provide accurate
reporting for marketing and financial analysis.
We currently use an enterprise class Microsoft SQL database server. Our
hardware systems are based upon industry standard Microsoft Windows NT 4.0
operating systems. We have installed back-up systems capable of supporting
our entire network in the event of power failure to prevent data loss. All
critical data is written to a series of back-up drives at the end of each
day. Our proprietary database contains information on over 200,000 customer
transactions.
Proprietary Customer Database. Our customer database creates a customer
profile containing product information, mailing address, telephone number,
credit card number and payment history. The management information system
provides access to the records of prior contacts with our customers,
including relevant personal information on product usage, order history,
marketing source codes and notes of prior contact with the customer made by
phone, fax or mail. After an order has been entered into the database by a
customer service representative or by electronic file transfer from one of
several telemarketing vendors, the order is processed, invoiced and printed
for product fulfillment.
Electronic Credit Card Processing. The management information system
downloads orders daily from several inbound telemarketing firms located
throughout the country. We then utilize the services of a credit card
processor, First USA Paymentech, to verify and authorize the customer's
credit card charges. The verified credit card information is transmitted
back from the credit card processor and automatically updates our customer
database. The funds are then electronically transferred to our bank
accounts, typically within three business days. The efficiency of this
process minimizes our exposure to bad credit card debts and enables one
administrative employee to accomplish the necessary tasks in a few hours
daily.
Financial Reporting. Our accounting and financial records are maintained
using Macola 7.0 Accounting software. The program consists of separate
modules for each accounting function and provides the ability to produce the
detailed, periodic financial reports required to manage the business. In
addition, the system facilitates preparation of financial statements by
providing information for bank reconciliations, accounts payable, inventory,
accounts receivable and general ledger functions.
Customer Service. We believe that our ability to establish and maintain
long-term relationships with our customers and encourage repeat purchases
depends on the satisfaction of our customers. Delivering high quality,
courteous customer service has been a cornerstone of our strategy since
inception. We believe that we will increase our ability to attract and
retain customers by consistently providing them education on the benefits of
superior products, by responding quickly to their requests and by offering
individualized service.
Inbound Telemarketing. A successful direct response television campaign
ensures that a commercial will air many times within a given time frame on
several broadcast and national cable stations. Since the call volumes
generated by one airing can range from 50 to 2,000 calls, the services of a
large inbound telemarketing call center are required. We have contracted
with several inbound telemarketing vendors to ensure that when customer call
volumes are highest, customer information and orders can be successfully
captured with minimal waiting time experienced by our new customers. The
majority of our inbound calls are handled by the largest direct response
call centers in the country. We have also enlisted the services of several
smaller inbound telemarketing providers to handle specific direct response
campaigns and for callers who require Spanish speaking operators.
Customer Service. We provide our customers with toll-free telephone access
to our in-house customer service department. During non-business hours, a
recorded message informs customers of our hours of operation and callers are
invited to select the option of placing orders with an express order
processing service provided by a third party vendor. Incoming orders are
received from several inbound telemarketing vendors by telephone, Internet,
mail, fax and electronic transmission. In-house customer service
representatives can process orders directly into our proprietary management
information system. This system provides customer order history, product
availability, shipping dates and promotional offers. The representatives
are authorized to resolve most customer service issues immediately,
including technical product advice, billing questions, product exchanges,
and issuing return authorizations.
We believe that our customers are particularly sensitive to the way
merchants communicate with them. Therefore, we employ polite, considerate,
service-oriented customer service representatives who are able to understand
and relate well to consumers. All representatives participate in ongoing
training programs and are periodically monitored to review performance.
We recently installed an Intertel telephone system that provides detailed
reporting on agent performance and call volumes. This reporting enables
management to: (i) analyze the number and type of calls received daily; (ii)
determine the number of customer service representatives required per shift;
(iii) efficiently manage the utilization of our dedicated AT&T long distance
T1 lines; (iv) track the usage of proprietary toll-free numbers; and (v)
closely monitor the quality of service being provided by our
representatives.
Product Fulfillment. Cost-effective fulfillment is accomplished through
management of the costs associated with product manufacturing, assembly and
shipment. Maintaining in-house warehouse and shipping facilities enables
our staff to receive product shipments, maintain inventory, pack orders,
adhere to company quality control standards and process customized product
orders. We also have relationships with large national fulfillment houses
to handle exceptional needs on a project-by-project basis.
Manufacturing. The Company subcontracts with a variety of domestic and
international companies for the manufacture of our packaging and products.
Products are developed and manufactured according to our own specifications.
Each manufacturer maintains strict quality control standards to ensure
product safety and consistency. In-house specialists work with chemists to
produce new products based on input received directly from customers who use
our products personally and professionally.
Warehousing. We maintain a warehouse facility that houses packaging and
finished goods product inventories. We carry in inventory at any one time
in excess of 100 different products historically valued at over $500,000.
As customer orders are received, the warehouse personnel efficiently pick
and pack the products for shipment in accordance with the customer's
delivery schedule.
Shipping. Our management information system processes customer orders and
generates an invoice which is sent to fulfillment for assembly and shipment.
The system is specifically designed with a number of quality control
features to help ensure the accuracy of each order. Customers generally
receive orders within three to five business days after shipping depending
upon the method of delivery chosen by the customer. We have systems in place
to use the United States Postal Service and United Parcel Service. However,
since the UPS strike in 1997, substantially all of the shipments have been
transferred to the USPS Priority Mail Service. Federal Express, Airborne
and Express Mail overnight services are available by special request.
GROWING OUR LOYAL CUSTOMER DATABASE
We believe that building a large and loyal customer base is critical to our
growth strategy. We grow our customer database through direct response name
acquisition advertising campaigns using various forms of mass market
advertising such as television, the Internet, radio, direct mail and print
advertising. We are building the sales and productivity of our customer
database by focusing on expanding product offerings, developing additional
channels of distribution, use of catalog mailings and forming strategic
marketing alliances with companies with complementary health and beauty-
related products.
Build Life-Long Customer Relationships. Our marketing strategy is based
upon building a database of life-long customers that will enable us to
develop profitable national consumer brands in the health and beauty-related
industries. Critical to achieving this objective are the introduction of
high quality products, excellent customer service, an efficient operating
infrastructure and effective channels of distribution. Due to the high
costs associated with generating new customers, our marketing efforts are
focused on continuing to expand our valuable database of loyal customers who
place multiple product reorders. This customer database will also enable us
to cost effectively test market new health and beauty-related products
developed from our strategic marketing alliances with other companies.
Market Unique Quality Products. In order to continue to expand our customer
database, we actively search for entrepreneurs with unique, high quality
health and beauty-related products. We evaluate products on a regular basis
and currently provide our direct response marketing services to several
clients with complementary health and beauty-related products. The primary
product we have marketed is the Linda Seidel Natural Cover line of
cosmetics. These marketing efforts have produced a database of loyal,
repeat customers who regularly purchase the Linda Seidel cosmetic brand.
Over the last two years, we have examined a number of products that would be
suitable for marketing to our customers. As we expand through strategic
marketing alliances with other entrepreneurial companies, we will begin to
market additional products to our database of customers.
DEVELOPING MARKETING RELATIONSHIPS WITH HEALTH AND BEAUTY-RELATED COMPANIES
The direct marketing industry in the United States is highly fragmented,
consisting of thousands of companies, many of which are undercapitalized and
lack the operational infrastructure and management expertise to effectively
grow their businesses. In addition to our own internal growth in net sales,
we believe we are well-positioned to pursue partnerships, joint ventures
and acquisitions of other entrepreneurial companies marketing health and
beauty-related products and services. To successfully establish these
business relationships, we will need to find companies that :
* will benefit from utilizing direct response marketing;
* possess a unique product and marketing platform;
* provide exceptional customer service for their
products; and
* present substantial opportunity for sales growth.
We believe that HealthandBeautyDirect.com will be an attractive marketing
partner for many entrepreneurial companies because of the experience our
management team has gained by successfully building the Linda Seidel Natural
Cover brand from a local family business to a nationally recognized line of
cosmetics. Additionally, we can offer entrepreneurs: (i) access to various
direct to consumer channels of distribution; (ii) direct response marketing
expertise; (iii) a vertically integrated operating infrastructure; (iv)
access to established vendor relationships to assist in building their
businesses; and (v) investment capital necessary to develop, advertise and
build their products. These companies may also benefit from our ability to
cross-market their products to our existing customer database.
From our perspective, investing our capital and management expertise in
developing these consumer brands provides us with the business opportunity
of developing valuable long-term equity interests in entrepreneurial health
and beauty-related companies. Although we will be providing our direct
response marketing services and channels of distribution for numerous health
and beauty-related products and services, one of our principle objectives is
to build an equity portfolio of unique investments.
Outlined below is a description of our Linda Seidel Natural Cover line of
cosmetics, our first equity investment. In 1994 we invested approximately
$850,000 for the ownership rights to market this unique line of cosmetic
products and a long- term employment agreement with Ms. Linda Seidel, the
developer of Natural Cover. When we acquired these rights, the
entrepreneurs had been in business for approximately fifteen years and had
annual sales of less than $400,000. Through implementation of our direct
response marketing techniques, we have built their business to over
$4,000,000 in annual sales for both calendar years 1997 and 1998. We
believe that the expansion of the Natural Cover product line is indicative
of what we might experience with other successful equity investments in
entrepreneurial companies. Our marketing strategy, target audience and
channels of distribution are detailed for your review.
LINDA SEIDEL COSMETICS BRAND
STRATEGY FOR MARKETING LINDA SEIDEL NATURAL COVER
Linda Seidel. The credibility and expertise of Linda Seidel is central to
the marketing strategy and positioning of the Natural Cover brand of
cosmetics. As the creator of Natural Cover, Ms. Seidel is widely recognized
in the cosmetics industry as the pioneer in the development and application
of corrective makeup. Ms. Seidel has conducted training seminars and
lectures at such prestigious medical institutions as Johns Hopkins Hospital
and the Mayo Clinic. As a world renowned makeup artist and author of the
book The Art of Corrective Makeup, Ms. Seidel's advice and expertise has
been the focus of numerous magazine articles in such publications as Vogue,
People, Glamour, Cosmopolitan, Good Housekeeping, McCall's and Family
Circle. In addition, her compassion and the unique relationships she has
established with her clients have been profiled during interviews with Oprah
Winfrey, Sally Jessy Raphael and several other television programs. The
following are examples of the diversity of her media exposure:
TELEVISION COVERAGE
Sally Jessy Raphael Show; Maury Povich Show; How'd They Do That?; and the
Home Shopping Network.
AWARDS
National Association of Women Business Owners: Woman of Excellence Award
1993.
Beta Gamma Sigma National Medallion for Entrepreneurship 1994.
MAGAZINE ARTICLES
Allure: "Call to Order", "Something to Hide"
Cosmopolitan: "Flawed Skin Turns Perfect: Freckles, Sun Damage",
"Correcting Facial Flaws with Makeup"
Elle: "A Great Eye: New Concealers and How to Use Them", "Great Skin
Bottled"
Family Circle: "They're Not Makeovers, They're Miracles"
Glamour: "Gorgeous Eyes: Conceal Like an Expert", "Makeup for a Wedding"
Glamour: "Stress breakouts: How to Hide Them", "The New Superconcealers:
Which is Best?"
Good Housekeeping: "Makeover of the Month"
Mademoiselle: "The Great Cover Up: Birthmarks", "Varicose Veins -
Questions and Answers"
McCall's: "Joining the World Again: A Burn Survivor's Triumphant Story",
McCall's: "Your Most Embarrassing Beauty Problems Solved"
Mirabella: "Concealing Undereye Circles"
People: "Hiding Trauma's Scars"
The New York Times Magazine: "Camouflage"
Vogue: "Beauty Answers: Spider Veins", "Beauty Questions and Answers"
Woman's Day: "Cover Scars, Birthmarks, and Blemishes So They Don't Show",
"Spider Veins: Gone for Good!"
SYMPOSIA, LECTURES AND DEMONSTRATIONS
Johns Hopkins Hospital: Plastic Surgery Grand Rounds, Dermatology
Department, Cleft and Craniofacial Center;
Maryland Institute for Emergency Medical Services Systems: The Nursing
Perspective
Skin Care Association of America
American Aestheticians Education Association (AAEA)
Center for Plastic Surgery, PC: Craniomaxillofacial Symposium
International College of Dentists: Continuing Education Symposium
Mid-Atlantic Chapter of the Society of Cosmetic Chemists
Sigma Beta Delta "Power of One" Keynote Address
Bronson Methodist Hospital: Michigan Trauma Symposium
The Phoenix Society: World Burn Congress V
Natural Cover Products. The second element of our marketing strategy was to
emphasize the performance qualities of the cosmetic products. Natural Cover
is a cosmetic foundation that was initially developed for use by plastic
surgeons and others within the medical community throughout the United
States. This unique foundation was created to completely conceal any skin
discoloration, perfectly match any skin tone and look natural on the skin.
Its highly concentrated formula is hypoallergenic, non-irritating and gentle
enough to conceal bruising associated with sensitive, post-operative skin.
When combined with Performing Powder, Natural Cover is 100% waterproof and
durable enough to last all day without the need for touchups, an attribute
that is desirable to the average cosmetic consumer. The Linda Seidel
product line consists of three main product categories: Natural Cover,
Glamour Enhancers and Skin Conditioning.
NATURAL COVER LINE
Natural Cover Foundation: Available in 20 skin tone
shades; Cream, Oil Free and
Original Formula
Natural Cover Body Stick: Available in 5 shades; ideal
for use on legs, shoulders,
other body parts
Natural Cover Coversticks: Available in 4 shades; ideal
for use under eyes or touch-
ups
Performing Powder: Available in 6 shades; sets
and waterproofs Natural Cover
Liquefying Remover: Liquifies Natural Cover for
easy, gentle removal
Moisturizer: Water soluble, non-greasy
formula to apply before
foundation
GLAMOUR ENHANCERS
Blush: Mirrored compact containing 2
blushes; 5 shade combinations
Eye Shadow: Mirrored compact containing 4
shadows; 5 shade combinations
Eye Pencils: Soft formula glides on easily;
6 shades
Lipstick: Creamy semi-matte, long-
lasting formula; 12 classic
shades
Lip Pencils: Matte formula, complements
lipstick shades; 6 shades
Vitamin E Stick: Vitamin E and Cocoa Butter to
use on lips and under eye
SKIN CONDITIONING
Lathering Citrus Wash: Water-activated formula gently
cleanses without deter gents
Exfoliating Skin Polish: Removes dead skin cells; eliminates flaky
buildup
Invigorating Citrus Toner: Soothes skin; closes pores
Glycolic Treatment Cream: Gentle formula dissolves dead
skin cells exposing new skin
cells
Eye Recovery Cream: Helps moisturize and protect
delicate under eye skin
Triple Action Exfoliating Mask: Provides extra exfoliation and
deep cleansing
Retexturizing Body Lotion: Provides moisture and help
for flaky skin all over the
body
Oil Control Complex: Helps prevent oil-
breakthrough
Hydrating Mist: Herbal extracts to maintain
optimum moisture
Calming Toner: Alcohol free formula with
chamomile for sensitive skin
Moisturizer with SPF 15: Water-soluble moisturizer with
Vitamins A & D
Demonstrable Customer Testimonials. The third component of the marketing
strategy was client testimonials. One of the primary reasons for the
success of Linda Seidel's direct response advertising campaign has been the
emotional impact and credibility of her client testimonials. The ability to
demonstrate Natural Cover's performance, supported by real-life
testimonials, provides the Company with a unique, sustainable and cost-
effective marketing message. The consistent, simple message conveyed by each
testimonial to the targeted customer is: "if Natural Cover works for me, it
will work for you."
THE TARGET AUDIENCE FOR NATURAL COVER
General Market. The typical Linda Seidel customer is female, perceives that
she has a minor skin imperfection such as dark under eye circles, sun
damage, age spots or a blotchy uneven skin tone which she would like to
conceal, and she uses Natural Cover as her everyday foundation. A sampling
of our current customer database suggests that over 90% of these women
purchase Linda Seidel's products using a credit card; over 80% have
completed high school and attended college; over 50% work outside the home
in a service-related industry; and approximately 50% are between 30 to 50
years of age. Their ethnic composition closely mirrors that of the United
States and they reside in all 50 states with the highest concentration in
California, Texas and Florida.
Hispanic Market. The Natural Cover shade selections provide options to the
Hispanic marketplace who represent an extremely wide variety of skin tones,
ranging from very light olive shades to the deepest brown shades. The
product line also performs remarkably well in the demanding hot weather
conditions of Texas, California, Florida, New Mexico and Arizona, where a
significant portion of the Hispanic population resides. The Company
believes that its sales to this market will continue to grow because of the
combination of higher per capita usage of cosmetics by Hispanic women,
limited direct response advertising by competitors and the growth in
spending power by this demographic group.
Medical Practices. During 1997, the Company launched a comprehensive
outbound telemarketing and direct mail campaign which targeted the growing
cosmetic laser surgery industry. As of December 1998, the marketing
campaign has resulted in over 600 new medical practices who provide or refer
the Natural Cover line of cosmetics for their patients. The benefits to the
medical practice include a source of incremental revenue, cosmetic products
which effectively conceal post-operative redness or bruising and access to
the Company's professionally trained makeup artists. For the patient, the
primary advantage to using the Natural Cover Laser Foundation System is the
ability to return to normal activities within 10-14 days following their
surgical procedure.
Professional Makeup Artists. Natural Cover is highly recognized in the
field of professional makeup artistry. This community consists of
aestheticians who free-lance or are employed in medical practices and
professional makeup artists employed by spas, salons, television stations,
film studios or theatrical production companies. These professionals have
discovered the benefits of Natural Cover as a foundation product that
performs well in intense heat and moisture, conceals skin discoloration and
perfectly matches skin tone, making it ideal for professional use.
CHANNELS OF DISTRIBUTION
Direct Response. We utilize various forms of mass market advertising media
such as television, direct mail, the Internet, radio, print and catalog
inserts to generate new customer orders. Over 90% of these new customers
purchase products by credit card via a toll free 800 number. The primary
benefit of the direct response channel of distribution is the ownership and
control of the customer names that are maintained in a proprietary database
and available for cost-effective secondary marketing efforts.
The key components of the Linda Seidel Natural Cover direct response
marketing strategy include the following:
* demonstrable and credible marketing materials for the Natural
Cover cosmetic line;
* development of sophisticated internal financial models to
accurately measure performance of direct
response media purchases;
* efficient order processing execution through management of our
fulfillment, customer service and
management information systems; and
* cost effective video and print production capabilities to create
and test a variety of marketing strategies.
To date, most new customer orders have been generated through two thirty-
minute television infomercials. However, during 1998 other direct response
marketing campaigns have profitably generated new customer orders through
use of direct mail, international marketing and the Internet.
Hispanic Distribution. Our Hispanic distribution strategy targets Spanish
speaking customers via direct response marketing. We believe this niche
market represents a viable and profitable channel of distribution. During
1998, the Company began to market to the Hispanic consumer. These marketing
efforts have included production of two television commercials, direct mail
pieces in Spanish and the implementation of specialized inbound
telemarketing programs to process new customer orders. The initial media
tests in Puerto Rico and Florida have proven profitable. During 1999, we
will expand our direct response marketing campaign in the United States.
Beginning in 2000, we plan to use these efforts in the United States as a
platform to market the Linda Seidel product line in countries throughout
Central and South America.
Medical Distribution. We distribute products through a network of plastic
surgeons and dermatologists throughout the United States and Canada. During
1997, we launched a comprehensive outbound telemarketing and direct mail
campaign that targeted the growing cosmetic laser surgery industry within
the medical community. As of December 1998, the marketing campaign has
resulted in over 600 new medical practices either distributing or referring
the Natural Cover line of cosmetics.
For the medical practice, the benefits of the Natural Cover products include
a source of incremental revenue, unlimited access to the Company's
professionally trained makeup artists and a cosmetic product that
effectively conceals post-operative redness or bruising, thereby
complementing the laser surgery results. For the patient, the primary
advantage to using the Natural Cover Laser Foundation System is the ability
to return to normal activities within 10-14 days following the surgical
procedure. The medical channel of distribution offers several opportunities
for the Company. The first includes a continual source of new customers
that may be developed into long-term reorder customers. Secondly, support
from the established medical community is utilized throughout the Company's
marketing materials to build upon the credibility of Linda Seidel and the
Natural Cover line of cosmetics. Lastly, as the traditional lines between
the cosmetic industry and medical industry continue to become blurred,
consumers will increasingly demand products that incorporate attributes from
both industries. The Linda Seidel brand name and Natural Cover cosmetics
will be positioned to effectively take advantage of the shift in consumer
demand.
Service Centers. Our first service center location opened in late 1997 as
an extension to our existing facilities. This service center utilizes
approximately 600 square feet of space which includes a professional makeup
studio for personalized client consultations by appointment, and a product
testing area where walk in customers can freely sample the our cosmetic
products and view a variety of testimonials from satisfied customers,
medical professionals and makeup artists describing their experiences with
the Natural Cover cosmetic products.
International Sales. Natural Cover is currently distributed internationally
in Canada, Taiwan and Australia. We are contacted periodically by firms
interested in distributing in other international markets. We evaluate
these opportunities on a case-by-case basis and expect to continue to expand
international distribution through licensing agreements. In addition, we
plan to build upon our marketing efforts to the Hispanic community in the
United States as a platform to market our product lines in countries
throughout Central and South America.
Catalog. Each of the previously described Linda Seidel channels of
distribution provide initial customer name acquisition. Once a customer
purchases the Natural Cover line of products, their name, and all relevant
information concerning their account including address, telephone number and
credit card information, are logged into a proprietary customer database.
This information provides the backbone for our profitable and expanding
catalog reorder business. Each new customer is provided with one of our
catalogs which details the extensive product line. As we build our multiple
channels of distribution, this annuity reorder business should continue to
grow and contribute significantly in terms of both revenues and operating
profitability. Due to the operating efficiencies within the existing
infrastructure and the minimal incremental marketing costs associated with
each catalogue reorder, the reorder business represents a valuable source of
operating profits. In addition, we view the interaction between our
customer service representatives and our customers as an opportunity to
forge long-term relationships that will provide future marketing
opportunities and insight on new product development.
INTELLECTUAL PROPERTY PROTECTION
We hold United States trademark registrations for the "Linda Seidel" and the
"Natural Cover" names. However, these registrations, and other steps to
protect the names may not provide substantial protection and will not
preclude other companies from developing products that are similar to or
competitive with our products. In addition, the laws of certain foreign
countries may not protect the Company's intellectual property rights and
confidential information to the same extent as the laws of the United
States. Although we are unaware of any basis for an intellectual property
infringement or invalidity claim against us, there can be no assurance that
third parties, including competitors, will not assert claims against us or
that, if asserted, such claims will not be upheld. Intellectual property
litigation could result in substantial cost to and diversion of our efforts
and resources. Such litigation may be necessary to enforce our rights, to
protect trade secrets, to defend against claimed infringement of the rights
of others, and to determine the scope and validity of the proprietary rights
of others. There can be no assurance that we would prevail in any litigation
or that, if we were unsuccessful, we would be able to obtain any necessary
licenses on reasonable terms, or at all.
We currently hold the Internet domain name "healthandbeautydirect.com," and
various other related names. Internet regulatory bodies generally regulate
domain names. The regulation of domain names in the United States and in
foreign countries is subject to change. Regulatory bodies could establish
additional top-level domains, appoint additional domain name registrars or
modify the requirements for holding domain names. As a result, we may not
acquire or maintain the "healthandbeautydirect.com" domain name in all of
the countries in which we may desire to conduct business. In addition, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear. Therefore, we could be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our trademarks and other proprietary rights.
EMPLOYEES
As of December 31, 1998, the Company had 22 full-time and part-time
employees. At various times during the year temporary employees are
utilized for fulfillment and administrative functions. None of the
Company's employees is currently covered by collective bargaining
agreements. We consider our employee relations to be good.
FACILITIES
We currently operate a 2,635 square foot office facility and a 2,700 square
foot warehouse distribution facility in Baltimore, Maryland. The office
facility is under a lease that expires June 30, 2004 and the warehouse
distribution facility lease expires June 30, 2000. Both leases contain
renewal options and the office facility lease contains a termination option
on June 30 2002 at the request of the Company. These facilities include our
warehousing and fulfillment operations, customer service center, management
information systems, marketing department and administrative offices. The
Company also maintains a short-term monthly office sublease in Herndon,
Virginia.
REGULATORY MATTERS
Our products and marketing and advertising practices are subject to
regulation by various federal, state and local regulatory authorities,
including the Federal Trade Commission ("FTC"), Federal Communications
Commission ("FCC") and the U.S. Food and Drug Administration ("FDA"). We
are also subject to other federal, state, and local regulatory requirements,
including federal, state and local environmental regulations issued by the
U.S. Occupational Safety and Health Administration ("OSHA"). As we begin
to market a broader variety of products and services, we may become subject
to regulation by agencies other than those listed above. The effect of an
alleged violation of any of these regulations could cause a major change in
or discontinuance of our business. Since we currently do no manufacturing,
processing or packaging, we have not encountered any significant
environmental law compliance issues.
We collect sales and use taxes on sales to residents in Maryland only.
Opening of service centers in other states may necessitate collection of
taxes on sales to their residents. One or more states may seek to impose
such sales and use tax collection obligations on out-of-state companies,
such as ours, which engage in electronic commerce (after the current three-
year Congressional moratorium). If we were required to collect additional
sales or use taxes, it would increase our administrative costs. State tax
authorities could conduct a nexus audit of the Company, which could give
rise to a retroactive assessment for tax liabilities. State sales and use
tax laws typically provide for a lengthy statute of limitations, and any
assessment amount could be damaging.
LEGAL PROCEEDINGS
We are periodically involved in legal proceedings or litigation incident to
the ordinary course of our business operations. Our business exposes us to
potential product liability risks that are inherent in the marketing and
sale of health and beauty-related products. We are not a party to any
litigation or other legal proceeding that, in the opinion of management,
could have a material adverse effect on our business, financial condition or
results of operations. In the past, securities class action litigation has
often been brought against a company following periods of volatility in the
market price of their securities. We may in the future be the target of
similar litigation. Securities litigation could result in substantial costs
and divert management's attention and resources.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
The Company's executive officers, directors and principal shareholders of
the General Partner of Venture Media Limited Partnership, and their
respective ages, as of December 31, 1998 are as follows:
Brian Fraidin 34 Chief Executive Officer,
Chief Financial Officer,
Board of Directors
David Dougherty 49 Shareholder, General Partner
of Venture Media Limited
Partnership
Ananth Krishnamurthy 33 Shareholder, General Partner
of Venture Media Limited
Partnership
Alejandro Mendoza 42 Management Information
Systems Director
Vipul Munjal 32 Comptroller
Marion Jacques 34 International Marketing
Director
Steven Zwagil 41 Board of Directors
Steven Blaustein 34 Board of Directors
Linda Seidel 50 Board of Directors
Brian Fraidin has served as Chief Executive Officer of the Company since
April 1994. In such capacity Mr. Fraidin provides strategic, marketing and
financial planning direction for the business and is responsible for
overseeing all day- to-day operations. He is President of VenTech, Inc.,
the General Partner of Venture Media Limited Partnership, the majority
shareholder of HealthandBeautyDirect.com, Inc. Venture Media Limited
Partnership is a private equity fund based in Baltimore, Maryland. Mr.
Fraidin is a 1986 undergraduate of the University of Pennsylvania, Wharton
School of Finance. He earned his CPA in 1986 and graduated from University
of Baltimore Law School with a Juris Doctor degree in 1997.
David Dougherty is a shareholder of VenTech, Inc., the General Partner of
Venture Media Limited Partnership. Venture Media Limited Partnership is the
majority shareholder of HealthandBeautyDirect.com, Inc. Since 1991, he has
been a Partner in Dougherty and Company, Inc., a firm providing U.S.
mergers, acquisitions and general corporate finance advice to U.S. and
international firms and entrepreneurs. Mr. Dougherty's career, which spans
more than 25 years, includes senior level positions with Kidder, Peabody and
Company, Inc. and Bankers Trust Company. At Bankers Trust Company from 1980-
1990 his positions included Managing Director and Head of the Mergers and
Acquisitions and Merchant Banking groups. At Kidder, Peabody he was Vice
President of Public Finance through 1980. Mr. Dougherty is a 1971 graduate
of Georgetown University and holds a Juris Doctor degree from Temple
University.
Ananth Krishnamurthy is a shareholder of VenTech, Inc., the General Partner
of Venture Media Limited Partnership. Venture Media Limited Partnership is
the majority shareholder of HealthandBeautyDirect.com, Inc. He is currently
involved in the investment banking industry, responsible for structured
finance transactions with US corporations in the context of corporate
mergers and restructurings. Between 1991-1995, Mr. Krishnamurthy held
senior positions with Wasserstein Perella & Co. and The Goldman Sachs Group
where he was involved in the investment banking industry, including
strategic, transactional and financing aspects of mergers and acquisitions
engagements. He is a 1987 graduate of the University of Pennsylvania,
Wharton School of Finance and received his MBA from The Wharton School in
1988.
Alejandro Mendoza has served as Management Information Systems Director for
the Company since April 1994. He is responsible for coordinating the
development and maintenance of all aspects of our customer database
management, order processing and fulfillment systems. Mr. Mendoza received
his Masters of Science in computers and graphic design from The Pratt
Institute of New York in 1986 and graduated from the University of Florida,
Gainesville in 1978.
Vipul Munjal has served as Comptroller of the Company since June 1995. He is
responsible for overseeing all accounting and financial analysis for the
Company. From 1993 to May 1995, Mr. Munjal served as the Assistant
Comptroller for National Shipping Company of Saudi Arabia America, Inc. In
such capacity he provided accounting and financial planning for a variety of
international transactions. Mr. Munjal received his MBA from University of
Baltimore in 1993 and is a 1991 graduate of Edinboro University of
Pennsylvania.
Marion Jacques has served as International Marketing Director for the
Company since November 1996. She is responsible for coordinating
distribution of our products in markets outside of the United States and
overseeing our domestic Hispanic marketing efforts. From 1989 to October
1996, Ms. Jacques was employed at SunTrust Bank, Miami where she served as
Assistant Vice President in the commercial real estate lending division. In
such capacity she participated in loan origination, underwriting,
presentation to credit committee and construction project oversight. Ms.
Jacques is a 1987 graduate of the University of Pennsylvania, Wharton School
of Finance.
Steven Zwagil is a Director of HealthandBeautyDirect.com, Inc. and Chairman
of the Audit Committee. In such capacity he will oversee the Company's
auditing procedures and strategic financial planning for the business. From
1998 to the present, Mr. Zwagil has served as the Chief Financial Officer
for DPI Business Information Systems. From 1996 to 1997, he served as Chief
Financial Officer of Fidelity First Financial Corporation. Mr. Zwagil was a
senior partner with the accounting firm of Levin, Zwagil & Block, P.A. from
1988 to 1996 where he was responsible for the firm's litigation support,
business valuation and taxation groups. He has been a practicing Certified
Public Accountant since 1980.
Steven Blaustein is a Director of HealthandBeautyDirect.com, Inc. and
Chairman of the Compensation Committee. In such capacity he will oversee
the marketing and sales strategy for the Company. From 1987 to the present,
Mr. Blaustein has served as a District Account Manager for McKesson/General
Medical Corporation, the largest distributor of pharmaceuticals, medical
supplies and capital equipment in the country. McKesson/General Medical
Corporation is well established at every level of the healthcare industry
and maintains strong relationships with dermatology and plastic surgery
practices and other medical institutions to which the Company distributes
its product.
Linda Seidel is a Director of HealthandBeautyDirect.com, Inc. Ms. Seidel is
the Company's spokesperson for the Linda Seidel Natural Cover cosmetic
brand. She is prominently featured in the printed marketing materials and
television advertisements. She lectures frequently on behalf of the Company
throughout the country and has an extensive network of relationships with
professionals in the medical and cosmetics field. She has been personally
assisting clients through the use of corrective make-up and application
techniques for the over 25 years and is a licensed cosmetician.
DIRECTOR COMPENSATION
Directors who are officers or employees of the Company or any subsidiary of
the Company will receive no additional compensation for serving on the Board
of Directors or any of its committees. Directors who are not executive
officers of the Company will receive upon initial election to the Board an
option to purchase 5,000 shares of Common Stock for a purchase price equal
to 100% of the fair market value of the stock on the date of grant. Each
option is expected to have a term of 3 years and to vest in 3 equal
installments beginning on the first anniversary of the date of the grant.
Directors who are not executive officers of the Company will receive a
single annual retainer of $2,500 for service on the Company's Board and may
receive an additional fee for serving as chair on one of the committees of
the Board of Directors. All directors will be reimbursed for travel
expenses incurred in connection with attending board and committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Offering, the Company's Board of Directors will
establish an Audit Committee and a Compensation Committee. Each committee
will consist of at least two directors, neither of whom will be an officer
or employee of the Company.
The duties of the Audit Committee will be the following: (i) Recommend the
selection of independent certified public accountants to the entire Board of
Directors. (ii) Perform an audit of the financial statement of the Company.
(iii) Review the activities and report of the independent certified public
accountants. (iv) Report the results of such review to the entire Board of
Directors. The Audit Committee will also monitor the internal controls of
the Company.
The duties of the Compensation Committee will be to provide a general review
of the Company's compensation and benefit plans to ensure that they meet
corporate objectives and to administer or oversee the Company's Stock Option
Plan and other employee benefit plans. In addition, the Compensation
Committee will review the compensation of the officers of the Company, the
recommendations made by the Chief Executive Officer regarding compensation
of all employees of the Company and any major changes in the Company's
compensation policies and practices.
STOCK OPTION PLAN
The Company has reserved shares equal to 10% of its Common Stock outstanding
for issuance to employees, officers, directors and consultants pursuant to
an Incentive Stock Option Plan to be adopted.
EXECUTIVE COMPENSATION
The Company has not paid any of its employees or directors more than
$100,000 a year. Brian Fraidin, the President of the General Partner of
Venture Media Limited Partnership, the Company's predecessor, has served as
the Company's acting chief executive officer since 1994. His services, and
the services of other shareholders of the General Partner of Venture Media
Limited Partnership, have been provided in return for distributions made by
the Company. During 1998 and 1997 the distributions to Venture Media
Limited Partnership were $243,535 and $24,336, respectively.
Effective at the close of this Offering, executive management services
provided to the Company by Venture Media Limited Partnership will be covered
by a "Management Services Agreement." This Management Services Agreement
calls for payment by the Company to Venture Media Limited Partnership of
$175,000 for services to be provided for the twelve (12) months following
the closing of this Offering. The Management Services Agreement will be
automatically renewed annually under similar terms and conditions subject to
approval by both the Company and Venture Media Limited Partnership. The
nature of services to be provided and the compensation for those services
will be determined and approved by directors of the Company who are
independent of Venture Media Limited Partnership. See "Certain
Transactions."
EMPLOYMENT AGREEMENTS
The Company has an employment services agreement with Ms. Linda Seidel, a
director of the Company. Ms. Seidel's employment services agreement ends
on December 31, 2003 and may be renewed for an additional 5 year term. Ms.
Seidel receives compensation from the Company in the form of a base salary
of $60,000 per year, appearance fees for seminars and makeup consultation
fees. Ms. Seidel, through her management company, Corky, Inc., also owns
683,792 shares of Common Stock in the Company. As a director of the Company,
Ms. Seidel is entitled to benefits that the Company's Board of Directors or
its Compensation Committee may determine.
CERTAIN TRANSACTIONS
The Company historically has transacted business with its predecessor's
general partners and their affiliates in the ordinary course of managing the
business. These transactions have included provision of the following
business services by Venture Media Limited Partnership: computer design,
video production, leasehold improvements, short-term financing, legal
counsel, office cleaning, printing and media buying. Effective at the close
of this Offering, executive management services provided to the Company by
Venture Media Limited Partnership will be covered by a "Management Services
Agreement." This Management Services Agreement calls for payment by the
Company to Venture Media Limited Partnership of $175,000 for services to be
provided for the twelve (12) months following the closing of this Offering.
The Management Services Agreement will be automatically renewed annually
under similar terms and conditions subject to approval by both the Company
and Venture Media Limited Partnership. The nature of services to be
provided and the compensation for those services will be determined and
approved by directors of the Company who are independent of Venture Media
Limited Partnership. During 1998 and 1997, distributions in the amounts of
$243,535 and $24,336, respectively, were made by the Company to Venture
Media Limited Partnership.
During 1998, the Company purchased certain direct response media buying
assets from Venture Media Limited Partnership for $200,000 and made accrued
royalty payments to Ms. Linda Seidel of $80,000. During 1997, the Company
sold approximately $1,700,000 in direct response media at approximately cost
to clients of Venture Media Limited Partnership. Venture Media Limited
Partnership and Brian Fraidin are guarantors on the Company's $1,000,000
revolving line of credit with NationsBank. The Company believes that the
forgoing related party transactions were on terms at least as favorable to
the Company as those available from non-related parties. The disinterested
directors of the Company's Board will approve all future transactions with
affiliates and related parties of HealthandBeautyDirect.com.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the ownership of the Company's Common Stock assuming
the maximum number of shares are sold during this Offering. The information
is provided with respect to (i) each person who is known by the Company to
own beneficially more than five (5%) percent of the Company's Common Stock,
(ii) each of the Company's officers and directors and (iii) all officers and
directors as a group. Except as otherwise indicated below, to the knowledge
of the Company, each person listed below has sole voting power and
investment power with respect to the Common Stock beneficially owned by such
person.
Shares Owned Shares Owned
Before Offering After Offering
Name and Address of Number of Percent Number of Percent
Beneficial Owner Shares Owned Owned SharesOwned Owned
Venture Media
Limited Partnership (1) 4,453,619 63.62% 4,453,619 59.38%
3406 Fielding Road
Baltimore, MD 21208
Corky, Inc. (2) 683,792 9.77% 683,792 9.12%
2311 Falls Gable Lane
Baltimore, MD 21209
World Net
Communications, LLC. (3) 615,413 8.79% 615,413 8.21%
29 Cornbury Lane
Owings Mills, MD 21117
Alejandro Mendoza (4) 36,6560 0.52% 36,656 0.49%
Roberto del Rio 1839
Providencia, Santiago, Chile
Vipul Munjal (5) 16,083 0.23% 16,083 0.21%
29 Winter Berry Court
Hunt Valley, MD 21030
Marion Jacques (6) 16,083 0.23% 16,083 0.21%
7200 SW 110th Terrace
Pinecrest, FL 33156
Steve Zwagil (7) 14,892 0.21% 14,892 0.20%
2215 Sugarcone Road
Baltimore, MD 21209
Steven Blaustein (8) 34,823 0.50% 34,823 0.46%
36 Beecham Court
Owings Mills, MD 21117
Brian Fraidin (9) 0 0.00% 0 0.00%
3406 Fielding Road
Baltimore, MD 21208
Linda Seidel (10) 0 0.00% 0 0.00%
2311 Falls Gable Lane
Baltimore, MD 21209
All Officers
and Directors (11) 5,187,126 74.10% 5,187,126 69.16%
as a group (4 persons)
(1) Messr.'s Fraidin, Dougherty and Krishnamurthy are each
shareholders of the General Partner of Venture Media
Limited Partnership.
(2) Ms. Linda Seidel is the President and sole shareholder of
Corky,Inc.
(3) Mr. Michael Seidel is the President and sole shareholder of
World Net Communications, LLC.
(4) Mr. Alejandro Mendoza is the Management Information
Services Director for the Company.
(5) Mr. Vipul Munjal is the Comptroller for the Company.
(6) Ms. Marion Jacques is the International Marketing Director for the
Company.
(7) Mr. Steve Zwagil is a director of the Company.
(8) Mr. Steven Blaustein is a director of the Company.
(9) Mr. Brian Fraidin is the Chief Executive Officer and a director
of the Company. Does not include beneficial
ownership of shares owned in the General Partner of Venture
Media Limited Partnership.
(10) Ms. Linda Seidel is a director of the Company. Does not include
beneficial ownership of shares in Corky, Inc.
(11) Includes beneficial ownership of shares as described in the
notes above.
DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The Company's
authorized capital stock consists of 9,800,000 shares of Common Stock, $0.01
par value per share, and 200,000 shares of Preferred Stock, $0.01 par value
per share.
COMMON STOCK
Upon sale of the minimum in this offering, it is expected that the 7,000,000
shares of Common Stock to be initially issued in exchange for the
contribution of the business will be held by 30 persons of record. There
will be [ ] shares of Common Stock outstanding if the Minimum is sold in
this offering and 7,500,000 shares outstanding if the Maximum is sold.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. They are entitled to receive
their proportion of any dividends as may be declared from time to time by
the Board out of legally available funds, subject to preferences that may be
applicable to any Preferred Stock outstanding at the time. Common
shareholders are entitled to share proportionately in all assets remaining
after payment of the Company's liabilities and the liquidation preference,
if any, of any outstanding shares of Preferred Stock in the event of a
liquidation, dissolution or winding up of the Company. Common shareholders
have no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Common Stock.
All the shares of Common Stock now outstanding are, and the shares to be
issued in this offering will be fully paid and nonassessable. The rights,
preferences and privileges of holders of Common Stock are subject to, and
may be adversely affected by, the rights of holders of shares of any series
of Preferred Stock that the Company may designate and issue in the future.
PREFERRED STOCK
No shares of Preferred Stock have been issued and the Company's Board of
Directors does not presently intend to issue Preferred Stock. The Board has
the authority to issue up to 200,000 shares of Preferred Stock in one or
more series and to fix the shares' rights, including dividend rights,
conversion rights, voting rights, redemption terms, liquidation preferences
and the number of shares in each series, without any further vote or action
by the Company's shareholders. The issuance of Preferred Stock could have
one or more of the following effects: (i) restrict Common Stock dividends if
Preferred Stock dividends have not been paid, (ii) dilute the voting power
and equity interest of holders of Common Stock to the extent that any series
of Preferred Stock has voting rights or is convertible into Common Stock or
(iii) prevent current holders of Common Stock from participating in the
Company's assets upon liquidation until any liquidation preferences granted
to holders of Preferred Stock are satisfied. In addition, the issuance of
Preferred Stock may, under certain circumstances, have the effect of
delaying, deferring or preventing a change in control of the Company by, for
example, granting voting rights to holders of Preferred Stock that require
approval by the separate vote of the holders of Preferred Stock for any
amendment to the certificate of incorporation or any reorganization,
consolidation, merger or other similar transaction involving the Company. As
a result, the issuance of Preferred Stock may discourage bids for the
Company's Common Stock at a premium over the market price and could have a
material adverse effect on the market value of the Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company will be subject to the "Business Combination" provisions of the
Delaware General Corporation Law. In general, they prohibit a publicly held
Delaware corporation from engaging in various "business combination"
transactions with any "interested shareholder" for a period of three years
after the date of the transaction in which the person became an "interested
shareholder," unless (i) the transaction is approved by the Board of
Directors prior to the date the "interested shareholder" obtained that
status; (ii) upon consummation of the transaction which resulted in the
shareholder becoming an "interested shareholder," the "interested
shareholder," owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a)
persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) on or subsequent to such date the
"business combination" is approved by the Board of Directors and authorized
at an annual or special meeting of shareholders by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
"interested shareholder." A "business combination" is defined to include
mergers, asset sales and other transactions resulting in financial benefit
to a shareholder. In general, an "interested shareholder" is a person who,
together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit
or delay mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire
the Company.
LIMITATION AND INDEMNIFICATION OF LIABILITY OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware Corporation law, a director of the Company will
not be personally liable to the Company or its shareowners for money damages
for breach of fiduciary duty as a director. The Certificate also allows the
Company to indemnify, to the fullest extent permitted by law, any of its
directors, officers and employees, as well as anyone serving as a director
or officer of another enterprise at the Company's request. The Company's
Bylaws provide that the Company shall, to the maximum extent permitted by
Delaware Corporation Law, indemnify each of its directors and officers
(including persons who serve at its request as directors or officers of
another enterprise) against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed proceeding in which the
person was or is a party or is threatened to be made a party because of
being a director or officer of the Company. The Company is required to pay
the expenses, including attorney's fees, incurred by a director or officer
in connection with the defense or disposition of any proceeding, in advance
of the final disposition, if the person agrees to repay them if it is
ultimately determined that the person was not entitled to indemnification.
The Company's Bylaws also permit it to indemnify other employees and agents
of the Company (including persons who serve at its request as employees or
agents of another enterprise). The Company has been informed that, in the
opinion of the Securities and Exchange Commission, any indemnification for
liabilities arising under the Securities Act is unenforceable, as against
public policy expressed in the Securities Act.
TRANSFER AGENT
The transfer agent for the Company's securities will be The Registrar and
Transfer Company with offices located in Cranford, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Company's
securities. The shares have been approved for listing on the Chicago Stock
Exchange after completion of this Offering. We cannot make a prediction as
to the effect, if any, that market sales of shares of Common Stock or the
availability of shares for sale will have on the market price of the Common
Stock prevailing from time to time. Nevertheless, sales of substantial
amounts of Common Stock in the public market, including any sales after the
lapse of the restrictions described below, could adversely affect the
prevailing market price and the ability of the Company to raise equity
capital in the future.
Upon completion of the Offering, the Company would have [ ] shares of
Common Stock outstanding if the Minimum were sold and 7,500,000 if the
Maximum were sold. Shares sold in this offering will be freely tradable
without restriction under the Securities Act, except for any shares which
may be acquired by an "affiliate" of the Company, as that term is defined in
Rule 144 under the Securities Act ("Rule 144".) Any shares acquired by an
affiliate will be subject to the volume limitations and other restrictions
of Rule 144 described below. An aggregate of 5,802,539 shares of Common
Stock held by existing shareholders of the Company upon completion of the
Offering will be "restricted securities" (as that phrase is defined in Rule
144) and may not be resold in the absence of registration under the
Securities Act or an exemption from registration, including the exemption
provided by Rule 144.
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year is entitled to sell
within any three-month period, beginning 90 days after the date of this
Prospectus, a number of shares that is not more than the greater of (i) 1%
of the then-outstanding shares of Common Stock (approximately 75,000 shares
if the Maximum is sold in this offering) and (ii) the average weekly trading
volume during the four calendar weeks preceding the sale. Owners of
restricted securities who have not been affiliates of the Company at any
time during the 90 days immediately preceding their sale, who have
beneficially owned their shares for at least two years may sell those shares
pursuant to Rule 144(k) without regard to the limitations described above.
Affiliates must always sell pursuant to Rule 144, even after the applicable
holding periods have been satisfied. The Company is unable to estimate the
number of shares that will be sold under Rule 144, which depends on the
market price of the Common Stock, the personal circumstances of the sellers
and other factors.
All of the owners of outstanding shares of Common Stock prior to this
Offering have entered into a "lock-in agreement" with the Company, further
restricting the sale or other transfer of these shares for a period of 2
years after the completion of this Offering. With the prior approval of the
Board of Directors, up to a 175,000 of these shares of Common Stock can be
sold in to the public trading market in each calendar quarter.
PLAN OF DISTRIBUTION
We propose to offer and sell the shares directly to members of the public
residing in selected states. Announcements of this Offering, in the form
prescribed by Rule 134 of the Securities Act, will be communicated to
selected persons who are customers or have other relationships with the
Company or its officers and who reside in certain parts of the United
States. We will deliver a copy of this Prospectus to those who request it,
together with the Share Purchase Order. Assuming the maximum share price,
all shares will be sold at the public offering price of $12.00 per share and
a minimum purchase of 50 shares is required. We reserve the right to reject
any subscription or share purchase agreement in full or in part.
The Company will effect offers and sales of shares only through Brian M.
Fraidin, its Chief Executive Officer. Only Mr. Fraidin will sign
acceptances of Share Purchase Orders on behalf of the Company and he will be
the only individual to conduct activities that involve making oral
solicitations or approval of written communications. Under Rule 3a4-1 of
the Exchange Act, Mr. Fraidin will not be deemed a "broker," as defined in
the Exchange Act, solely by reason of participation in this Offering,
because (1) he is not subject to any of the statutory disqualifications set
forth in Section 3(a)(39) of the Exchange Act, (2) in connection with the
sale of the shares being offered, he will not receive, directly or
indirectly, any commissions or other remuneration based either directly or
indirectly on transactions in securities, (3) he is not an associated person
(partner, officer, director or employee) of a broker or dealer and (4) he
meets all of the following conditions: (A) primarily performs substantial
duties for the Company otherwise than in connection with transactions in
securities; (B) was not a broker or dealer, or as an associated person of a
broker or dealer, within the preceding 12 months; and (C) will not
participate in selling an offering of securities for any issuer more than
once every 12 months.
Determination of Offering Price
Because there has been no market for the common stock of the Company, the
public offering price has been determined by the Company's Board of
Directors. Among the factors they considered were the Company's results of
operations, its current financial condition, its future prospects, the state
of the markets for its products and services, the experience of management
and the economics of the industry segment in general. There can be no
assurance that an active trading market will develop for our Common Stock or
that our Common Stock will trade in the public market subsequent to this
Offering at or above the initial public offering price.
Escrow of Minimum Proceeds
We are making this Offering on a "Minimum/Maximum" basis subject to
subscription and payment for not less than [ ] shares (the "Minimum") and
not more than 500,000 shares (the "Maximum"). See "Use of Proceeds." All
subscription payments will be deposited into an escrow account at
NationsBank. If the Minimum is not sold in this Offering by the termination
date, all proceeds deposited in the escrow account will be promptly refunded
in full, with interest, but without any deduction for expenses.
During the Escrow Period, all subscription payments for shares must be
delivered with a completed Share Purchase Order to the Escrow Agent. The
Company will mail a copy of the Share Purchase Order to each purchaser
within fifteen business days of acceptance by the Company. Stock
certificates will not be issued to subscribers until the Minimum has been
sold. Until then, purchasers will be subscribers and not security holders
of the Company. During the Escrow Period, subscribers will have no right to
a return of their payment.
After the Minimum has been fully subscribed, the Company will continue to
offer the shares, not subject to payment for any further minimum amount, but
not for more than a total of 500,000 shares. This Offering will end upon
the earlier of the following: the sale of the Maximum amount, twelve months
after the date of this Prospectus or the date on which the Company decides
to close the offering. The Company reserves the right to reject any
subscription or share purchase agreement in full or in part and to terminate
the offering at any time prior to the sale of all the shares being offered.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Whiteford, Taylor & Preston LLP.
EXPERTS
The financial statements of the Company as of December 31, 1998 and December
31, 1997 have been included in this Prospectus and elsewhere in the
Registration Statement in reliance on the audit reports of Naden/Lean, LLC,
independent certified public accountants, given on the authority of such
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
of 1933, as amended, with respect to the securities being offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. For further information
about the Company and the securities offered hereby, reference is made to
the Registration Statement and to the exhibits filed as a part thereof. The
statements contained in this Prospectus as to the contents of any contract
or other document identified as exhibits in this Prospectus are not
necessarily complete, and in each instance, reference is made to a copy of
such contract or document filed as exhibit to the Registration Statement,
each statement being qualified in any and all respects by such reference.
The Registration Statement, including exhibits, may be inspected without
charge at the principal reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Office, located at Seven World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained
from the Commission upon payment of fees prescribed by the Commission from
the Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above. The Commission maintains a web site on
the Internet that will contain all future reports, proxy and information
statements and other information that the Company is required to file
electronically with the Commission. The address of the Commission's web
site is http://www.sec.gov.
INDEX TO FINANCIAL STATEMENTS
PAGE
Table of Contents F-1
Independent Auditors' Report F-2
Balance Sheets F-3
Statements of Income and Partners' Capital F-4
Statements of Cash Flows F-5
Notes to Financial Statements F6-11
INDEPENDENT AUDITORS' REPORT
To the Partners
Transforming Cosmetics
We have audited the accompanying balance sheets of Transforming Cosmetics (a
Partnership), as of December 31, 1997 and 1998, and the related statements
of income and partners' capital, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transforming Cosmetics,
as of December 31, 1998 and December 31, 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Naden/Lean, LLC
Baltimore, Maryland
February 5, 1999
TRANSFORMING COSMETICS
BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
ASSETS
1997 1998
CURRENT ASSETS
Cash $ 226,956 $ 634,108
Accounts receivable:
Trade - net 312,300 123,467
Credit card processor 151,328 53,185
Employees and affiliates 26,861 87,974
Inventory 687,246 724,355
Prepaid expenses 136,937 70,387
Total Current Assets 1,541,628 1,693,476
PROPERTY, PLANT AND EQUIPMENT
- - AT COST NET 182,451 210,135
OTHER ASSETS
Marketing materials and other - net 338,449 453,560
Direct response advertising 256,927 512,538
Deposits 17,161 13,661
Total Other Assets 612,537 979,759
TOTAL ASSETS $ 2,336,616 $ 2,883,370
LIABILITIES AND PARTNERS' CAPITAL
1997 1998
CURRENT LIABILITIES
Accounts payable
and accrued expenses $ 662,820 $ 562,505
Notes payable 5,026 -
Advanced client media deposits - 541,983
Obligations under capital lease 8,084 9,842
Due to affiliates 80,000 -
Reserve for returns
and allowances 228,424 70,293
Total Current Liabilities 984,354 1,184,623
NON-CURRENT LIABILITIES
Note payable 8,947 -
Obligations under capital lease 12,620 2,778
Total Non-Current Liabilities 21,567 2,778
TOTAL LIABILITIES 1,005,921 1,187,401
PARTNERS' CAPITAL 1,330,695 1,695,969
TOTAL LIABILITIES
AND PARTNERS' CAPITAL $ 2,336,616 $ 2,883,370
TRANSFORMING COSMETICS
INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
1997 1998
SALES - net of returns
and allowances $ 7,687,626 $ 9,552,994
COST OF GOODS SOLD 5,631,565 7,429,250
GROSS PROFIT 2,056,061 2,123,744
OPERATING EXPENSES
Selling 1,004,219 949,657
General and administrative 713,914 571,781
TOTAL OPERATING EXPENSES 1,718,133 1,521,438
INCOME FROM OPERATIONS
BEFORE OTHER
INCOME AND EXPENSES 337,928 602,306
OTHER INCOME AND EXPENSES
Interest income 4,496 698
Gain (Loss) on disposal
of fixed asset (14,430) 5,805
Miscellaneous income 1,775 -
TOTAL OTHER INCOME
AND EXPENSES (8,159) 6,503
NET INCOME 329,769 608,809
PARTNER'S CAPITAL -
BEGINNING OF YEAR 1,025,262 1,330,695
DISTRIBUTIONS (24,336) (243,535)
PARTNERS' CAPITAL -
END OF YEAR $1,330,695 $1,695,969
TRANSFORMING COSMETICS
CASH FLOW STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
1997 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $329,769 $608,809
Adjustments to reconcile
net income to net cash
Provided by operating
activities:
Depreciation and amortization 116,152 278,457
Provision for bad debts 37,038 33,175
(Gain)Loss on disposal of
fixed asset 14,430 (5,805)
(Increase) decrease in
operating assets:
Accounts receivable (343,594) 253,801
Inventory (143,564) (37,109)
Prepaid expenses (3,342) 66,550
Deposits 2,839 3,500
Increase (decrease)
in operating liabilities:
Overdraft (85,724) -
Accounts payable and
accrued expenses 465,554 (100,315)
Advanced client media deposits - 541,983
Due to affiliates - (80,000)
Reserve for returns
and allowances - (158,131)
Other liabilities 121,734 -
NET CASH PROVIDED BY
OPERATING ACTIVITIES 511,292 1,404,915
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (102,102)(90,624)
Proceeds from disposal of fixed asset - 16,878
Investment in marketing materials (267,918)(203,933)
Investment in direct
response advertising (256,927)(393,379)
Net cash advanced to
employees/affiliates 474,230 (61,113)
NET CASH USED IN
INVESTING ACTIVITIES (152,717)(732,171)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (24,336)(243,535)
Principal payments on notes payable (10,712) (13,973)
Principal payments on obligations
under capital leases (5,528) (8,084)
Net cash paid to affiliates (91,043) -
NET CASH USED IN
FINANCING ACTIVITIES (131,619) ( 265,592)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 226,956 407,152
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR - 226,956
CASH AND CASH EQUIVALENTS,
END OF YEAR $226,956 $634,108
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTSFINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Transforming Cosmetics (the Company) was formed as a Maryland general
partnership in April 1994. The Company markets and distributes a line of
cosmetic products under the name "Linda Seidel's Natural Cover" throughout
the United States. These products are marketed primarily through direct
response advertising campaigns. In addition, the Company purchases and
sells media on behalf of third party clients for use in their direct
response advertising campaigns.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with a maturity of three months or less to be cash
equivalents.
Accounts Receivable
Accounts Receivable - Trade consists primarily of second and third
installments from customers who have elected to pay in three installments.
The Company uses the allowance method for recognition of uncollectible
accounts receivable. The allowance for uncollectible accounts as of
December 31, 1998 and 1997 was $41,090 and $63,635, respectively.
Inventory
Inventory is stated at the lower of cost or market, using the first in,
first out (FIFO) method. The inventory consists primarily of various
cosmetic components included in kits, which are sold to customers.
Additionally, inventory includes packaging and printed marketing materials.
Prepaid Expenses
Prepaid Expenses consist primarily of cash payments to media vendors for
direct response advertising, typically made 15-45 days in advance to secure
placement.
Property and Equipment
Property and equipment is recorded at cost. Depreciation expense is
recognized using accelerated methods over the estimated useful lives of the
specific assets, which range from 3 to 39 years. Repairs and maintenance of
property and equipment are charged to operations when incurred. Betterments
and renewals are capitalized and depreciated over the estimated useful lives
of the respective improvements.
Revenue Recognition
Revenues from the sale of cosmetic products are recognized when the goods
are shipped. Revenues from the sale of media are recognized when the media
is aired on television. Payments received in advance are deferred until
such time as the media is aired. As of December 31, 1997 and 1998, the
Company's deferred revenues were $0 and $541,983, respectively.
Marketing Materials
Marketing Materials are recorded at cost. Amortization expense is
recognized based on a cost-pool-by-cost-pool basis, over the period during
which the future benefits are expected to be received. The amortization is
computed using the ratio that current period gross revenues for the
production cost pool bear to the total of the current and estimated future
period gross revenues for the production cost pool. The estimated gross
revenues for each production cost pool range from $1 million to $34 million.
The estimated gross revenues for a cost pool may increase or decrease over
time as a result of more accurate estimates based on current data. As a
result, the ratio is recalculated with adjustments accounted for in the
current and prospective periods.
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Computer Software Costs
The Company has internally developed a computer database to process and
track customer orders and to initiate and facilitate collections. These
costs are to be amortized using the straight-line basis over five (5) years.
As of December 31, 1997 and 1998, the Company has capitalized costs
associated with the development of this system of $46,000 and $106,500,
respectively. The system was operational in December 1998 and has started
to be amortized.
Design, Packaging, Organizational and Other Costs - Intangible Assets,
Packaging, Organizational and Other Costs
Design, packaging, organizational and other costs are amortized on the
straight-line basis over five (5) years.
Reserve For Returns and Allowances
Under the Company's sales policy, customers may return goods ordered for up
to 60 days after a sale is made. Accordingly, the Company has established a
reserve for returns and allowances as of December 31, 1997 and 1998 based on
historical trends.
Income Taxes
Pro rata income from the partnership is combined with the income and
expenses of the partners from other sources and reported in the partners'
individual federal and state tax returns. The partnership is not a tax-
paying entity for purposes of federal and state income taxes, and thus, no
income taxes have been recorded in the accompanying statements.
Concentration of Credit RiskCredit Risk
The Company occasionally maintains deposits in excess of federally insured
limits. Statement of Financial Accounting Standards No. 105 identifies these
items as a concentration of credit risk requiring disclosure, regardless of
the degree of risk. The risk is managed by maintaining all deposits in high
quality financial institutions.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1997 1998
Furniture, fixtures, equipment,
and computer software $ 156,545 $ 241,923
Transportation equipment 53,180 29,448
Leasehold improvements 34,234 34,235
Equipment held under capital lease 26,232 26,232
270,191 331,838
Less: accumulated depreciation (87,740) (121,703)
Property and Equipment - Net $ 182,451 $ 210,135
Depreciation expense for the years ended December 31, 1997 and 1998 was
$43,905 and $51,867, respectively.
NOTE 3 - MARKETING MATERIALS AND OTHER
Marketing materials and other consist of the following at December 31:
1997 1998
Direct response marketing materials $733,007 $903,292
Design, packaging, organizational
and other 99,037 136,270
832,044 1,039,562
Less: accumulated amortization (493,595) (586,002)
Marketing Materials and Other - Net $ 338,449 $ 453,560
Amortization expense for the years ended December 31, 1997 and 1998 was
$72,247 and $88,822, respectively.
NOTE 4 - DIRECT RESPONSE ADVERTISINGThe Company expenses the media costs of
advertising the first time the advertising takes place, except for direct
response advertising, which is capitalized and amortized over its expected
period of future benefits. Direct response advertising consist primarily of
television infomercials that include a specific toll-free number to order
the Company's products. The capitalized costs of the direct response
advertising are amortized based on the ratio of the cumulative revenue
generated to date versus the total cumulative revenue estimated to be
generated by the direct response advertising. The total anticipated
economic benefit from direct response advertising, as of December 31,1997
and 1998, is estimated to be $6,256,000 and $11,759,500 respectively.
Revenue generated as of December 31, 1997 and 1998 was approximately
$5,643,000 and $10,482,000, respectively.
At December 31, 1997 and 1998, unamortized direct response advertising cost
of $256,927 and $512,538, respectively, was reported in the accompanying
balance sheet as other assets. For the years ending December 31, 1997 and
1998, amortization expense applicable to direct response advertising totaled
$2,367,232 and $1,924,877, respectively.
F-8
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 5 - SALES
In addition to sales of cosmetic products, the Company provided various
direct response media buying services to third party clients. During 1998,
approximately $4,500,000 of media sales are included in the net sales of
$9,552,994 which were sold at approximately 5% gross profit. During 1997,
approximately $1,700,000 of media sales are included in the net sales of
$7,687,626 that were sold at approximately cost (see Note 9).
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following:
1997 1998
Term note, payable in monthly
installments of $453, including
Interest at 15.75% per annum
secured by an automobile. $ 12,652 $ -
Term note, payable in monthly
installments of $667,including interest
at 8.5% per annum secured by an automobile. 1,321 -
Total 13,873 -
Less: current maturities 5,026 -
Notes payable - noncurrent $ 8,947 $ -
NOTE 7 - OBLIGATION UNDER CAPITAL LEASE
In 1997, the Company entered into a lease agreement for a telephone
system expiring in the year 2000 that qualified as a capital lease.
The asset has been recorded at the present value of future minimum
lease payments, discounted using an interest rate of 19.8%. The capitalized
cost of $26,232 less accumulated depreciation of $13,640 is included in
property and equipment (Note 2- Property and Equipment). Depreciation expense
for the system for the years ended December 31, 1997 and 1998 was $5,246
and $8,394, respectively. Interest expense for the years ended December 31,
1997 and 1998 was $3,084 and $3,398, respectively.
Future minimum lease payments under the capital lease are as follows:
Year ending December 31,1999 $ 11,482
2000 2,871
Total future minimum lease payments 14,353
Less: Amount
representing interest (1,733)
Present value of future
minimum lease payments 12,620
Less: Current portion 9,842
Long Term Portion $ 2,778
TRANSFORMING COSMETICSNOTES TO FINANCIAL STATEMENTSFOR
THE YEARS ENDED DECEMBER 31, 1997 AND 1998NOTE 8 - COMMITMENTSOperating
LeaseOn January 31, 1997, the Company entered into a five year operating
lease for its office space, which expires January 31, 2002. The lease
provides for base annual rental of $80,000 for the first two years and
increases to $90,000 for the final three years. Additionally, the lease
provides that the Company pays its proportionate share of any increase in
real estate taxes and insurance over the base year costs. The lease
contains a 5-year renewal option. The Company also rents various other
space on a month to month basis. Rent expense for the years ended December
31, 1997 and 1998 was $71,648 and $94,260, respectively.
Line of Credit
In July 1998, the Company's line of credit was renewed and increased to
$1,000,000. The Note provides for interest at the Libor Rate plus 3.75%,
applied to balances borrowed against the line of credit. The Note is
secured by accounts receivable, inventory and prepaid media purchases, and
was guaranteed by the general partner. The Note has a maturity date of May
2000 and has never been borrowed against as of December 31, 1998.
NOTE 9 - RELATED PARTY TRANSACTIONS
The Company transacts business with several of its general partners and
their affiliates as summarized below:
1997 1998
Nature of Transaction Nature of Relationship Amount Amount
Purchase of
direct response media Partners and Affiliates $1,704,215 $0
Purchase of media
business assets Partners and Affiliates $0 $200,000
Operating expenditures
including rent, office
cleaning, royalties,
carpet purchase, and
computer design. Partners and Affiliates $59,929 $88,744
The Company's operating agreement provides for certain management services
to be provided by the general partner. No payments are due or payable to
the general partner for these services.
Balance due to/from related parties at December 31 are as follows:
1997 1998
Due from employees and affiliates $ 26,861 $ 87,974
Accrued royalties due general partner $ 80,000 $0
These transactions are payable on demand and without interest.
TRANSFORMING COSMETICS
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest expense paid by the Company for the years-ended December 31,1997
and 1998 was $5,808 and $4,473, respectively
Schedule of non-cash financing and investing activities for the year ended
December 31, 1997:
Purchase of property and equipment $128,334
Less: capital lease assumed 26,232
Cash paid for purchase of property and equipment $102,102
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Registrant's Certificate of Incorporation, Article Ninth, provide
that a director of the Registrant shall not be liable to the Registrant or
its stockholders for monetary damages for breach of fiduciary duty as a
director, to the fullest extent permitted by Delaware law. The Article aso
provides that the Registrant may indemnify anyone who is or was an officer,
director or employee of the Registrant (or who is or was an officer,
director or employee of any other enterprise at the request of the
Registrant), to the full extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the
Securities Act, indemnification may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing section. The
Registrant has been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows,
assuming the Maximum offering amount is sold:
Securities and Exchange Commission filing fee $ 1,668
Blue sky fees and expenses 12,000
Accountant's fees and expenses 25,000
Special Counsel's fees and expenses 50,000
General Counsel's fees and expenses 7,500
Printing 14,000
Postage 14,000
Marketing expenses 45,000
Chicago Stock Exchange listing fees 15,000
Miscellaneous 832
Total $ 185,000
(The Registrant will bear all expenses shown above.)
Item 26. Recent Sales of Unregistered Securities.
(a) The following information is given for all securities that the
Registrant sold within the past three years without registering the
securities under the Securities Act.
Date Title
Amount
Upon sale of the Minimum
in the offering described in
this Registration Statement Common stock, $.01 par value
7,000,000 shares
(b) No underwriters were used in connection with any of the issuances of
shares. The classes of persons to whom the Registrant issued shares were
the beneficial owners in the predecessor business, Transforming Cosmetics,
which was a partnership. Their names and the shares to be issued to them
are: Venture Media Limited Partnership, 5,700,795 shares, Corky, Inc.,
683,792 shares and World Net Communications, LLC, 615,413 shares.
(c) There were no underwriting discounts or commissions. The transactions
and the types and amounts of consideration received by the Registrant were
exchanges of shares of the Registrant for directly proportionate partnership
interests in Transforming Cosmetics. Of the shares distributed to Venture
Media Limited Partnership, as a partner in Transforming Cosmetics, 1,247,176
were distributed directly to 30 of its limited partners. There had been no
change of beneficial ownership by the distributees since 1995.
(d) The Registrant claims exemption for these transactions under Section
4(2). This was a transaction between the Registrant and the persons who had
owned the predecessor partnership in which the business was operated. The
Registrant believes that each of these investors (and each of the limited
partners to whom distribution is to be made) came within the categories of
Rule 501(a) at the time of the original transaction and at the time of
conversion.
Item 27. Exhibits
The exhibits listed below are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
3.1 Amended and Restated Certificate of Incorporation
3.2 Corporate By-laws
4.1 Article II, pages 1-6, of the By-laws (Reference is made to
Exhibit 3.2)
4.2 Text and description of the form of certificate of common
stock certificate
5 Form of opinion and consent of counsel, to be filed by
amendment
10.1 Employment Contract with Linda Seidel
*10.2 Management Services Agreement
23.1 Consent of Naden/Lean, LLC.
23.2 Consent of counsel (reference is made to Exhibit 5)
#24 Power of Attorney
27 Financial Data Schedule
99.1 Share Purchase Order Agreement
99.2 Impound Agreement
*99.3 Lock-In Agreement
# As filed in Part II of this Registration Statement
* To be filed by Amendment
Item 28. Undertakings.
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securi
ties Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
County of Baltimore, State of Maryland, on May 11, 1999.
HealthandBeautyDirect.com, Inc.
By
Brian M. Fraidin,
Chief Executive Officer & Director
Each person whose signature appears below appoints Brian M. Fraidin
his or her attorney-in-fact, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this registration statement on Form SB-2 of
HealthandBeautyDirect.com, Inc., and to file them, with all their exhibits
and other related documents, with the Securities and Exchange Commission,
ratifying and confirming all that their attorney-in-fact and agent or his or
her substitute or substitutes may lawfully do or cause to be done by virtue
of this appointment.
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
Chairman of the Board May 11, 1999
Brian M. Fraidin of Directors
Principal Executive Officer May 11, 1999
Brian M. Fraidin and Director
Principal Financial Officer May 11, 1999
Brian M. Fraidin
Principal Accounting Officer May 11, 1999
Vipul Munjal
Director May 11, 1999
Linda Seidel
Director May 11, 1999
Steve Zwagil
Director May 11, 1999
Steve Blaustein
As filed with the Securities and Exchange Commission on May 14, 1999
CIK No. 0001086500
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HealthandBeautyDirect.com, Inc.
(Name of small business issuer in its charter)
Delaware
(State or jurisdiction
of incorporation or organization)
5961
(Primary Standard Industrial
Classification Code Number)
I.R.S. Employer Identification No.
Applied for
2328 West Joppa Road, Suite 100
Baltimore, MD 21093
(410) 560-9000
(Address and telephone number of principal executive offices and principal
place of business)
Brian M. Fraidin, Chief Executive Officer
Health and Beauty Direct, Inc.
2328 West Joppa Road, Suite 100
Baltimore, MD 21093
(410) 560-9000 x160
(Name, address and telephone of agent for service)
Copies to:
Drew Field D. Scott Freed
534 Pacific Avenue Whiteford, Taylor & Preston, LLP
San Francisco, CA 94133 7 Saint Paul Street
(415) 296-9795 Baltimore, Maryland 21202-1626
(410) 347-8700
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
The securities on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933.
CALCULATION OF REGISTRATION FEE
Title of each Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering
to be registered registered per share price
Common stock,
$.01 par value 500,000 $12.00 $6,000,000
Amount of
registration fee
$1,668
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
HealthandBeautyDirect.com, Inc. Registration Statement, Form SB-2
EXPLANATORY NOTE
The offering for which this registration statement is filed is for a
minimum of [ ] shares and a maximum of 500,000 shares, all at a maximum
price of $12.00 per share.
The business described has been conducted since April 1994 and is in
the form of a partnership. The business will be incorporated upon sale of
the minimum [ ] shares. All of the assets, liabilities and ownership will
be transferred to the corporation upon its formation and shares will be
issued in the proportion of ownership by the partners. Shares will then be
issued as purchased in this offering.
All proceeds of the offering will be placed in a bank impound
account until the minimum shall have been sold. Should the
offering not result in sale of at least the minimum number of
shares, all of the proceeds will be returned to purchasers,
with interest. The business would not then become incorporated.
HealthandBeautyDirect.com, Inc.
Cross-reference Sheet Showing Location in Prospectus of:
PART I -- INFORMATION REQUIRED IN PROSPECTUS
Form SB-2 Item Number and Caption Caption in Prospectus
1. Front of Registration Statement and
Outside Front Cover of Prospectus Outside Front Cover Page
ofProspectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front Cover Page of
Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk
Factors
4. Use of Proceeds How We Intend to Use the Proceeds
of this Offering
5. Determination of Offering Price Plan of Distribution --
Determination of Offering Price
6. Dilution Dilution
7. Selling Security Holders Not applicable
8. Plan of Distribution Plan of Distribution
9. Legal Proceedings Business -- Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons Management
11. Security Ownership of Certain
BeneficialOwners and Management Principal Shareholders
12. Description of Securities Description of Capital Stock
13. Interest of Named Experts and Counsel Not applicable
14. Disclosure of Commission Position
on Management -- Limitation and
Indemnification for Securities Act Indemnification of
Liability of Officers and Directors
15. Organization Within Last Five Years Business - Organization of
the Company
16. Description of Business Prospectus Summary; Risk Factors;
Business; Certain Transactions
17. Management's Discussion and Analysis
or Plan of Operation Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property Business - Facilities
19. Certain Relationships and Related
Transactions Certain Transactions
20. Market for Common Equity and Related
Shareholder Matters Risk Factors; Shares Eligible
for Future Sale
21. Executive Compensation Management: Executive Compensation
22. Financial Statements Index to Financial Statements
23. Changes In and Disagreements With
Accountants on Accounting and
24. Financial Disclosure Not applicable
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
HEALTH AND BEAUTY DIRECT, INC.
HEALTH AND BEAUTY DIRECT, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware DOES HEREBY CERTIFY:
FIRST: That the Certificate of Incorporation of the Corporation
was filed on March 18, 1999 in the office of the Secretary of State of the
State of Delaware.
SECOND: That by the unanimous consent of the members of the
Board of Directors of Health and Beauty Direct, Inc., resolutions were duly
adopted in accordance with Section 141(f) of the General Corporation Law of
the
State of Delaware setting forth the following proposed amendment and
restatement of the Certificate of Incorporation of the Corporation:
RESOLVED: That the Certificate of Incorporation of the
Corporation
shall be amended by striking in their entirety all previous provisions of
the
Certificate of Incorporation and substituting in lieu thereof the following:
FIRST: The name of the corporation (the
"Corporation") is:
HealthandBeautyDirect.com, Inc.
SECOND: The address of the Corporation's registered
office in the State of Delaware is 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: 1. The Corporation is authorized to issue two
classes of shares of stock to be designated, respectively, Common
Stock, $.01 par value, and Preferred Stock, $.01 par value. The
total number of shares that the Corporation is authorized to issue
is 10,000,000 shares. The number of shares of Common Stock
authorized is 9,800,000. The number of shares of Preferred Stock
authorized is 200,000.
2. The Preferred Stock may be issued from
time to time in one or more series pursuant to a resolution or
resolutions providing for such issue duly adopted by the Board of
Directors (authority to do so being hereby expressly vested in the
board). The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred
Stock and to fix the number of shares of any series of Preferred
Stock and the designation of any such series of Preferred Stock.
The Board of Directors, within the limits and restrictions stated
in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series,
may increase or decrease (but not below the number of shares in
any such series then outstanding) the number of shares of any
series subsequent to the issue of shares of that series.
3. The authority of the Board of Directors
with respect to each such class or series shall include, without
limitation of the foregoing, the right to determine and fix:
(a) the distinctive designation of such
class or series and the number of shares to constitute such class
or series;
(b) the rate at which dividends on the
shares of such class or series shall be declared and paid, or set
aside for payment, whether dividends at the rate so determined
shall be cumulative or accruing, and whether the shares of such
class or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined, and
if so, on what terms;
(c) the right or obligation, if any, of
the corporation to redeem shares of the particular class or series
of Preferred Stock and, if redeemable, the price, terms and manner
of such redemption;
(d) the special and relative rights and
preferences, if any, and the amount or amounts per share, which
the shares of such class or series of Preferred Stock shall be
entitled to receive upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(e) the terms and conditions, if any,
upon which shares of such class or series shall be convertible
into, or exchangeable for, shares of capital stock of any other
class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if
any;
(f) the obligation, if any, of the
corporation to retire, redeem or purchase shares of such class or
series pursuant to a sinking fund or fund of a similar nature or
otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the
issuance of additional shares of such class or series or any
shares of any other class or series of Preferred Stock;
(h) limitations, if any, on the issuance
of additional shares of such class or series or any shares of any
other class or series of Preferred Stock; and
(i) such other preferences, powers,
qualifications, special or relative rights and privileges thereof
as the Board of Directors of the corporation, acting in accordance
with this Certificate of Incorporation, may deem advisable and are
not inconsistent with law and the provisions of this Certificate
of Incorporation.
FIFTH: The name and mailing address of the Incorporator
is D. Scott Freed, Esquire, Whiteford, Taylor & Preston L.L.P.,
Seven Saint Paul Street, Baltimore, Maryland 21202.
SIXTH: The powers of the Incorporator are to terminate
upon the filing of this Certificate of Incorporation. The names
and mailing addresses of the persons who are to serve as directors
until the first annual meeting of stockholders or until their
successors are elected and qualify are:
Name Address
Brian Fraidin 3406 Fielding Road
Baltimore, MD 21208
Linda Seidel 2311-H Falls Gable Lane
Baltimore, MD 21209
Steven Blaustein 36 Beecham Court
Owings Mills, MD 21117
Steven Zwagil 2215 SugarconeRoad
Baltimore, MD 21209
SEVENTH: The Corporation reserves the right at any time,
and from time to time, to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, and
other provisions authorized by the laws of the State of Delaware
at the time in force may be added or inserted, in the manner now
or hereafter prescribed by law; and all rights, preferences and
privileges of whatever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter
amended are granted subject to the rights reserved in this
article.
EIGHTH: The Corporation is to have perpetual existence.
NINTH: 1. Limitation of Liability. To the fullest
extent permitted by the General Corporation Law of the State of
Delaware as the same exists or as may hereafter be amended, a
director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The Corporation may
indemnify to the fullest extent permitted by law any person made
or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or
intestate is or was a director, officer or employee of the
Corporation, or any predecessor of the Corporation, or serves or
served at any other enterprise as a director, officer or employee
at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor
repeal of this Article Ninth, nor the adoption of any provision of
the Corporation's Certificate of Incorporation inconsistent with
this Article Ninth, shall eliminate or reduce the effect of this
Article Ninth, in respect of any matter occurring, or any action
or proceeding accruing or arising or that, but for this Article
Ninth, would accrue or arise, prior to such amendment, repeal, or
adoption of an inconsistent provision.
TENTH: Holders of stock of any class or series of this
corporation shall not be entitled to cumulate their votes for the
election of directors or any other matter submitted to a vote of
the stockholders.
ELEVENTH: 1. Number of Directors. The number of
directors which constitutes the whole Board of Directors of the
Corporation shall be designated in the Bylaws of the corporation.
2. Election of Directors. Elections of
directors need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
TWELFTH: In furtherance and not in limitation of
the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter, amend or repeal the Bylaws of
the corporation.
THIRTEENTH: Meetings of stockholders may be held within or
without the State of Delaware, as the Bylaws may provide. The
books of the Corporation may be kept (subject to any provision
contained in the statutes) outside of the State of Delaware at
such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
THIRD: That the Corporation has not received payment for any of its
stock and the amendment and restatement has been duly adopted in accordance
with the provisions of Section 241 of the General Corporation Law of the
State
of Delaware.
FOURTH: That said amendments were duly adopted in accordance with
the
provisions of Section 241 and 245 of the General Corporation Law of the
State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment and Restatement to be signed by Brian Fraidin, its President and
Chief Executive Officer, and attested by its Secretary, this 14TH day of May
1999.
Steven Blaustein, Secretary Brian Fraidin
President and Chief Executive
Officer
5
BYLAWS OF HEALTHANDBEAUTYDIRECT.COM, INC.
(a Delaware corporation)
ARTICLE I CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the Corporation shall be fixed in the
Certificate of Incorporation of the Corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or
subordinate offices at any place or places where the Corporation is
qualified to do business.
ARTICLE II MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or
outside the State of Delaware designated by the board of directors. In the
absence of any such designation, stockholders' meetings shall be held at the
principal executive office of the Corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a
date and at a time designated by the board of directors. In the absence of
such designation, the annual meeting of stockholders shall be held on the
last business day of May in each year at 11:00 a.m. However, if such day
falls on a legal holiday, then the meeting shall be held at the same time
and place on the next succeeding full business day. At the meeting,
directors shall be elected, and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time
by the board of directors, by the chairman of the board, or by the chief
executive officer.
If a special meeting is called by any person or persons other
than the board of directors, then the request shall be in writing,
specifying the time of such meeting and the general nature of the business
proposed to be transacted, and shall be delivered personally or sent by
registered mail or by telegraphic or other facsimile transmission to the
chairman of the board, the chief executive officer or the secretary of the
Corporation. The officer receiving the request shall cause notice to be
promptly given to the stockholders entitled to vote, in accordance with the
provisions of Sections 2.4 and 2.6 of these Bylaws, that a meeting will be
held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, then the person or persons
requesting the meeting may give the notice. Nothing contained in this
paragraph of this Section 2.3 shall be construed as limiting, fixing or
affecting the time when a meeting of stockholders called by action of the
board of directors may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or
otherwise given in accordance with Section 2.6 of these Bylaws not less than
ten (10) nor more than sixty (60) days before the date of the meeting. The
notice shall specify the place, date and hour of the meeting and (a) in the
case of a special meeting, the purpose or purposes for which the meeting is
called (no business other than that specified in the notice may be
transacted) or (b) in the case of the annual meeting, those matters which
the board of directors, at the time of giving the notice, intends to present
for action by the stockholders (but any proper matter may be presented at
the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at
the time of the notice, the board intends to present for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any
stockholder meeting,
may be made by the board of directors or proxy committee appointed by the
board of directors or by any stockholder entitled to vote in the election of
directors generally if such nomination or business proposed is otherwise
proper business before such meeting. However, any such stockholder may
nominate one (1) or more persons for election as directors at a meeting or
propose business to be brought before a meeting, or both, only if such
stockholder has given timely notice in proper written form of their intent
to make such nomination or nominations or to propose such business. To be
timely, such stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
one hundred twenty (120) calendar days in advance of the date specified in
the Corporation's proxy statement released to stockholders in connection
with the previous year's annual meeting of stockholders; provided, however,
that in the event that no annual meeting was held in the previous year or
the date of the annual meeting has been changed by more than thirty (30)
days from the date contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so received a
reasonable time before the solicitation is made. To be in proper form, a
stockholder's notice to the secretary shall set forth:
(i) the name and address of the stockholder who
intends to make the nominations or propose the business and, as the case may
be, of the person or persons to be nominated or of the business to be
proposed;
(ii) a representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such
meeting and, if applicable, intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice;
(iii) if applicable, a description of all
arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder;
(iv) such other information regarding each
nominee or each matter of business to be proposed by such stockholder as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission had the nominee been
nominated, or intended to be nominated, or the matter been proposed, or
intended to be proposed by the board of directors; and
(v) if applicable, the consent of each nominee
to serve as a director of the Corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the
nomination of any person or the proposal of any business not made in
compliance with the foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given
either personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges
prepaid and shall be addressed to the stockholder at the address of that
stockholder appearing on the books of the Corporation or given by the
stockholder to the Corporation for the purpose of notice. Notice shall be
deemed to have been given at the time when delivered personally or deposited
in the mail or sent by telegram or other means of written communication. An
affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The holders of a majority in voting power of the stock issued
and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, such quorum is
not present or represented at any meeting of the stockholders, then either
(a) the chairman of the meeting or (b) the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to
adjourn the meeting in accordance with Section 2.8 of these Bylaws.
When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the laws of
the State of Delaware or of the Certificate of Incorporation or these
Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of the question.
If a quorum be initially present, the stockholders may continue
to transact business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum, if any action taken is
approved by a majority of the stockholders initially constituting the
quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless
these Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which
the adjournment is taken. At the adjourned meeting the Corporation may
transact any business that might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
2.9 VOTING
The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of
Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and
218 of the General Corporation Law of Delaware (relating to voting rights of
fiduciaries, pledgors and joint owners, and to voting trusts and other
voting agreements).
Except as may be otherwise provided in the Certificate of
Incorporation or these Bylaws, each stockholder shall be entitled to one (1)
vote for each share of capital stock held by such stockholder and
stockholders shall not be entitled to cumulate their votes in the election
of directors or with respect to any matter submitted to a vote of the
stockholders.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation,
any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing setting forth the
action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Such consents shall be delivered to
the Corporation by delivery to its registered office in the state of
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice
of any meeting or to vote thereat, the board of directors may fix, in
advance, a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors and
which shall not be more than sixty (60) days nor less than ten (10) days
before the date of any such meeting, and in such event only stockholders of
record on the date so fixed are entitled to notice and to vote,
notwithstanding any transfer of any shares on the books of the Corporation
after the record date.
If the board of directors does not so fix a record date, the
record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the business
day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the business day next preceding the day
on which the meeting is held.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting unless the board of directors fixes a new record date for the
adjourned meeting, but the board of directors shall fix a new record date if
the meeting is adjourned for more than thirty (30) days from the date set
for the original meeting.
The record date for any other purpose shall be as provided in
Section 8.1 of these Bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one (1) or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the Corporation, but no such proxy shall be voted or acted upon
after three (3) years from its date, unless the proxy provides for a longer
period. A proxy shall be deemed signed if the stockholder's name is placed
on the proxy (whether by manual signature, typewriting, telegraphic
transmission, facsimile or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on
its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware.
2.13 ORGANIZATION
The chairman of the board, or in the absence of the chairman of
the board, the chief executive officer, shall call the meeting of the
stockholders to order, and shall act as chairman of the meeting. In the
absence of the chairman of the board and the chief executive officer, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the
procedures at the meeting, including such matters as the regulation of the
manner of voting and the conduct of business. The secretary of the
Corporation shall act as secretary of all meetings of the stockholders, but
in the absence of the secretary at any meeting of the stockholders, the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for
a period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and
kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder who is present.
2.15 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of
the General Corporation Law of Delaware or of the Certificate of
Incorporation or these Bylaws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the
Certificate of Incorporation or these Bylaws.
ARTICLE III DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be approved by the stockholders or by
the outstanding shares, the business and affairs of the Corporation shall be
managed and all corporate powers shall be exercised by or under the
direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The number of members of the board of directors shall be as
determined by the board of directors from time to time. No reduction of the
authorized number of directors shall have the effect of removing any
director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these Bylaws, directors
shall be elected at each annual meeting of stockholders to hold office until
the next annual meeting. Each director, including a director elected or
appointed to fill a vacancy, shall hold office until the expiration of the
term for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to
the chairman of the board, the chief executive officer, the president, the
secretary or the board of directors, unless the notice specifies a later
time for that resignation to become effective. If the resignation of a
director is effective at a future time, the board of directors may elect a
successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority
of the remaining directors, even if less than a quorum, or by a sole
remaining director; however, a vacancy created by the removal of a director
by the vote of the stockholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum). Each
director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation
or these Bylaws:
(a) Vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by
all of the stockholders having the right to vote as a single class may be
filled by a majority of the directors then in office, although less than a
quorum, or by a sole remaining director.
(b) Whenever the holders of any class or classes of
stock or series thereof are entitled to elect one (1) or more directors by
the provisions of the Certificate of Incorporation, vacancies and newly
created directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series thereof
then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other
cause, the Corporation should have no directors in office, then any officer
or any stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of the Certificate of
Incorporation or these Bylaws, or may apply to the Court of Chancery for a
decree summarily ordering an election as provided in Section 211 of the
General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority
of the whole board (as constituted immediately prior to any such increase),
then the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in office as aforesaid, which election shall be governed by the
provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire board of
directors may be removed, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors;
provided, however, that, if and so long as stockholders of the Corporation
are entitled to cumulative voting, if less than the entire board is to be
removed, no director may be removed without cause if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at
an election of the entire board of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any
place within or outside the State of Delaware that has been designated from
time to time by resolution of the board. In the absence of such a
designation, regular meetings shall be held at the principal executive
office of the Corporation. Special meetings of the board may be held at any
place within or outside the State of Delaware that has been designated in
the notice of the meeting or, if not stated in the notice or if there is no
notice, at the principal executive office of the Corporation.
Any meeting of the board, regular or special, may be held by
conference telephone or similar communication equipment, so long as all
directors participating in the meeting can hear one another; all such
participating directors shall be deemed to be present in person at the
meeting.
3.7 FIRST MEETINGS
The first meeting of each newly elected board of directors
shall be held at such time and place as shall be specified in a notice given
as hereinafter provided for special meetings of the board of directors, or
as shall be specified in a written waiver signed by all of the directors.
3.8 REGULAR MEETINGS
Regular meetings of the board of directors may be held without
notice at such time as shall from time to time be determined by the board of
directors. If any regular meeting day shall fall on a legal holiday, then
the meeting shall be held at the same time and place on the next succeeding
full business day.
3.9 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or
purposes may be called at any time by the chairman of the board, the chief
executive officer or any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first-class
mail, telecopy or telegram, charges prepaid, addressed to each director at
that director's address as it is shown on the records of the Corporation.
If the notice is mailed, it shall be deposited in the United States mail at
least four (4) days before the time of the holding of the meeting. If the
notice is delivered personally or by telephone, telecopy or telegram, it
shall be delivered personally or by telephone or to the telegraph company at
least forty-eight (48) hours before the time of the holding of the meeting.
Any oral notice given personally or by telephone may be communicated either
to the director or to a person at the office of the director who the person
giving the notice has reason to believe will promptly communicate it to the
director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of
the Corporation.
3.10 QUORUM
A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.12 of these Bylaws. Every act or decision done or
made by a majority of the directors present at a duly held meeting at which
a quorum is present shall be regarded as the act of the board of directors,
subject to the provisions of the Certificate of Incorporation and applicable
law.
A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any
action taken is approved by at least a majority of the quorum for that
meeting.
3.11 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (a) who
signs a waiver of notice, whether before or after the meeting, or (b) who
attends the meeting other than for the express purposed of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. All such waivers shall be filed
with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special
meeting of the board of directors.
3.12 ADJOURNMENT
A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting of the board to another time
and place.
3.13 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting of
the board need not be given unless the meeting is adjourned for more than
twenty-four (24) hours. If the meeting is adjourned for more than twenty-
four (24) hours, then notice of the time and place of the adjourned meeting
shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.9 of these Bylaws, to the directors who were not
present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of
directors may be taken without a meeting, provided that all members of the
board individually or collectively consent in writing to that action. Such
action by written consent shall have the same force and effect as a
unanimous vote of the board of directors. Such written consent and any
counterparts thereof shall be filed with the minutes of the proceedings of
the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such
compensation, if any, for their services and such reimbursement of expenses
as may be fixed or determined by resolution of the board of directors. This
Section 3.15 shall not be construed to preclude any director from serving
the Corporation in any other capacity as an officer, agent, employee or
otherwise and receiving compensation for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The Corporation may lend money to, or guarantee any obligation
of, or otherwise assist any officer or other employee of the Corporation or
any of its subsidiaries, including any officer or employee who is a director
of the Corporation or any of its subsidiaries, whenever, in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected
to benefit the Corporation. The loan, guaranty or other assistance may be
with or without interest and may be unsecured, or secured in such manner as
the board of directors shall approve, including, without limitation, a
pledge of shares of stock of the Corporation. Nothing contained in this
section shall be deemed to deny, limit or restrict the powers of guaranty or
warranty of the Corporation at common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
In the event only one (1) director is required by these Bylaws
or the Certificate of Incorporation, then any reference herein to notices,
waivers, consents, meetings or other actions by a majority or quorum of the
directors shall be deemed to refer to such notice, waiver, etc., by such
sole director, who shall have all the rights and duties and shall be
entitled to exercise all of the powers and shall assume all the
responsibilities otherwise herein described as given to the board of
directors.
ARTICLE IV COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority
of the authorized number of directors, designate one (1) or more committees,
each consisting of two (2) or more directors, to serve at the pleasure of
the board. The board may designate one (1) or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. The appointment of members or alternate
members of a committee requires the vote of a majority of the authorized
number of directors. Any committee, to the extent provided in the
resolution of the board, shall have and may exercise all the powers and
authority of the board, but no such committee shall have the power or
authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of
directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation), (b) adopt
an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, (d) recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution or (e) amend the Bylaws of the
Corporation; and, unless the board resolution establishing the committee,
these Bylaws or the Certificate of Incorporation expressly so provide, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and
held and taken in accordance with, the following provisions of Article III
of these Bylaws: Section 3.6 (place of meetings; meetings by telephone),
Section 3.8 (regular meetings), Section 3.9 (special meetings; notice),
Section 3.10 (quorum), Section 3.11 (waiver of notice), Section 3.12
(adjournment), Section 3.13 (notice of adjournment) and Section 3.14 (board
action by written consent without meeting), with such changes in the context
of those Bylaws as are necessary to substitute the committee and its members
for the board of directors and its members; provided, however, that the time
of regular meetings of committees may be determined either by resolution of
the board of directors or by resolution of the committee, that special
meetings of committees may also be called by resolution of the board of
directors, and that notice of special meetings of committees shall also be
given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
4.3 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
ARTICLE V OFFICERS
5.1 OFFICERS
The Corporate Officers of the Corporation shall be a president,
a secretary and a chief financial officer. The Corporation may also have,
at the discretion of the board of directors, a chairman of the board, a
chief executive officer, one or more vice presidents (however denominated),
one or more assistant secretaries, a treasurer and one or more assistant
treasurers, and such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be
held by the same person.
In addition to the Corporate Officers of the Company described
above, there may also be such Administrative Officers of the Corporation as
may be designated and appointed from time to time by the president or the
chief executive officer of the Corporation in accordance with the provisions
of Section 5.13 of these Bylaws.
5.2 ELECTION OF OFFICERS
The Corporate Officers of the Corporation, except such officers
as may be appointed in accordance with the provisions of Section 5.3 or
Section 5.5 of these Bylaws, shall be chosen by the board of directors,
subject to the rights, if any, of an officer under any contract of
employment, and shall hold their respective offices for such terms as the
board of directors may from time to time determine.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief
executive officer to appoint, such other Corporate Officers as the business
of the Corporation may require, each of whom shall hold office for such
period, have such power and authority, and perform such duties as are
provided in these Bylaws or as the board of directors may from time to time
determine.
The chief executive officer may from time to time designate and
appoint Administrative Officers of the Corporation in accordance with the
provisions of Section 5.12 of these Bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of a Corporate Officer under any
contract of employment, any Corporate Officer may be removed, either with or
without cause, by the board of directors at any regular or special meeting
of the board or, except in case of a Corporate Officer chosen by the board
of directors, by any Corporate Officer upon whom such power of removal may
be conferred by the board of directors.
Any Corporate Officer may resign at any time by giving written
notice to the Corporation. Any resignation shall take effect at the date of
the receipt of that notice or at any later time specified in that notice;
and, unless otherwise specified in that notice, the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the Corporation under any
contract to which the Corporate Officer is a party.
Any Administrative Officer designated and appointed by the
chief executive officer may be removed, either with or without cause, at any
time by the chief executive officer. Any Administrative Officer may resign
at any time by giving written notice to the president or chief executive
officer or to the secretary of the Corporation.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected,
shall, if present, preside at meetings of the board of directors and
exercise such other powers and perform such other duties as may from time to
time be assigned to him by the board of directors or as may be prescribed by
these Bylaws.
5.7 CHIEF EXECUTIVE OFFICER
The board of directors may designate a chief executive officer,
who shall have responsibilities for implementation of the policies of the
Corporation, as delivered by the Board of Directors, and for the
administration of the business affairs of the Corporation. If the chief
executive officer is not the president of the Corporation, the president
shall report to the chief executive officer.
5.8 PRESIDENT
In the absence of the designation of a chief executive officer
by the board of directors, the president shall be the chief executive
officer of the Corporation and shall, subject to the control of the board of
directors, have general supervision, direction and control of the business
and the officers of the Corporation. In the absence of both a chairman of
the board and a chief executive officer, he or she shall preside at all
meetings of the stockholders and at all meetings of the board of directors.
He or she shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board
of directors or these Bylaws.
5.9 VICE PRESIDENTS
In the absence or disability of the president, and if there is
no chief executive officer or chairman of the board, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors (or if there
be no such determination, then in the order of their election), shall
perform all the duties of the president and when so acting shall have all
the powers of, and be subject to all the restrictions upon, the president.
The vice presidents shall have such other powers and perform such other
duties as from time to time may be prescribed for them respectively by the
board of directors, these Bylaws, the president, the chief executive officer
or the chairman of the board.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of the
board of directors, committees of directors and stockholders. The minutes
shall show the time and place of each meeting, whether regular or special
(and, if special, how authorized and the notice given), the names of those
present at directors' meetings or committee meetings, the number of shares
present or represented at stockholders' meetings and the proceedings
thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares
held by each, the number and date of certificates evidencing such shares and
the number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the board of directors required to be
given by law or by these Bylaws. He or she shall keep the seal of the
Corporation, if one be adopted, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the board of
directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of
accounts of the properties and business transactions of the Corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, retained earnings and shares. The books of account
shall at all reasonable times be open to inspection by any director for a
purpose reasonably related to his position as a director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the board of directors. He or she
shall disburse the funds of the Corporation as may be ordered by the board
of directors, shall render to the president, the chief executive officer and
directors, whenever they request it, an account of all of his or her
transactions as chief financial officer and of the financial condition of
the Corporation, and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or these Bylaws.
5.12 ASSISTANT SECRETARY
The assistant secretary, if any, or, if there is more than one,
the assistant secretaries in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of
the secretary and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
5.13 ADMINISTRATIVE OFFICERS
In addition to the Corporate Officers of the Corporation as
provided in Section 5.1 of these Bylaws and such subordinate Corporate
Officers as may be appointed in accordance with Section 5.3 of these Bylaws,
there may also be such Administrative Officers of the Corporation as may be
designated and appointed from time to time by the chief executive officer of
the Corporation. Administrative Officers shall perform such duties and have
such powers as from time to time may be determined by the president, the
chief executive officer or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance
of such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the Corporation as
the board of directors shall establish, including but not limited to
limitations on the dollar amount and on the scope of agreements or
commitments that may be made by such Administrative Officers on behalf of
the Corporation, which limitations may not be exceeded by such individuals
or altered by the president or chief executive officer without further
approval by the board of directors.
5.14 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing powers, authority and duties, all
officers of the Corporation shall respectively have such authority and
powers and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the board of
directors.
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware as the same now exists
or may hereafter be amended, indemnify any person against expenses
(including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred in connection with any
threatened, pending or completed action, suit, or proceeding in which such
person was or is a party or is threatened to be made a party by reason of
the fact that such person is or was a director or officer of the
Corporation. For purposes of this Section 6.1, a "director" or "officer" of
the Corporation shall mean any person (a) who is or was a director or
officer of the Corporation, (b) who is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, or (c) who was a director or
officer of a corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
The Corporation shall be required to indemnify a director or
officer in connection with an action, suit, or proceeding (or part thereof)
initiated by such director or officer only if the initiation of such action,
suit, or proceeding (or part thereof) by the director or officer was
authorized by the Board of Directors of the Corporation.
The Corporation shall pay the expenses (including attorney's
fees) incurred by a director or officer of the Corporation entitled to
indemnification hereunder in defending any action, suit or proceeding
referred to in this Section 6.1 in advance of its final disposition;
provided, however, that payment of expenses incurred by a director or
officer of the Corporation in advance of the final disposition of such
action, suit or proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should
ultimately be determined that the director of officer is not entitled to be
indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter
acquire under any statute, provision of the Corporation's Certificate of
Incorporation, these Bylaws, agreement, vote of the stockholders or
disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this
Article shall not adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
repeal or modification.
6.2 INDEMNIFICATION OF OTHERS
The Corporation shall have the power, to the maximum extent and
in the manner permitted by the General Corporation Law of Delaware as the
same now exists or may hereafter be amended, to indemnify any person (other
than directors and officers) against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action,
suit, or proceeding, in which such person was or is a party or is threatened
to be made a party by reason of the fact that such person is or was an
employee or agent of the Corporation. For purposes of this Section 6.2, an
"employee" or "agent" of the Corporation (other than a director or officer)
shall mean any person (a) who is or was an employee or agent of the
Corporation, (b) who is or was serving at the request of the Corporation as
an employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the Corporation or of
another enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify him or her against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The Corporation shall, either at its principal executive office
or at such place or places as designated by the board of directors, keep a
record of its stockholders listing their names and addresses and the number
and class of shares held by each stockholder, a copy of these Bylaws as
amended to date, accounting books and other records of its business and
properties.
Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof,
have the right during the usual hours for business to inspect for any proper
purpose the Corporation's stock ledger, a list of its stockholders, and its
other books and records and to make copies or extracts therefrom. A proper
purpose shall mean a purpose reasonably related to such person's interest as
a stockholder. In every instance where an attorney or other agent is the
person who seeks the right to inspection, the demand under oath shall be
accompanied by a power of attorney or such other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
under oath shall be directed to the Corporation at its registered office in
Delaware or at its principal place of business.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine (and to make
copies of) the Corporation's stock ledger, a list of its stockholders and
its other books and records for a purpose reasonably related to his or her
position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of
the stockholders, a full and clear statement of the business and condition
of the Corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board or the chief executive officer, if
any, the president, any vice president, the chief financial officer, the
secretary or any assistant secretary of this Corporation, or any other
person authorized by the board of directors, the chief executive officer,
the president or a vice president, is authorized to vote, represent and
exercise on behalf of this Corporation all rights incident to any and all
shares of the stock of any other corporation or corporations standing in the
name of this Corporation. The authority herein granted may be exercised
either by such person directly or by any other person authorized to do so by
proxy or power of attorney duly executed by such person having the
authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these Bylaws, as amended or otherwise
altered to date, certified by the secretary, shall be kept at the
Corporation's principal executive office and shall be open to inspection by
the stockholders of the Corporation, at all reasonable times during office
hours.
ARTICLE VIII GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other
lawful action, the board of directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted and which shall not be more than sixty (60) days before any
such action. In that case, only stockholders of record at the close of
business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
Corporation after the record date so fixed, except as otherwise provided by
law.
If the board of directors does not so fix a record date, then
the record date for determining stockholders for any such purpose shall be
at the close of business on the day on which the board of directors adopts
the applicable resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the Corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these
Bylaws, may authorize and empower any officer or officers, or agent or
agents, to enter into any contract or execute any instrument in the name of
and on behalf of the Corporation; such power and authority may be general or
confined to specific instances. Unless so authorized or ratified by the
board of directors or within the agency power of an officer, no officer,
agent or employee shall have any power or authority to bind the Corporation
by any contract or engagement or to pledge its credit or to render it liable
for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
The shares of the Corporation shall be represented by
certificates, provided that the board of directors of the Corporation may
provide by resolution or resolutions that some or all of any or all classes
or series of its stock shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Notwithstanding the adoption
of such a resolution by the board of directors, every holder of stock
represented by certificates and, upon request, every holder of
uncertificated shares, shall be entitled to have a certificate signed by, or
in the name of the Corporation by, the chairman or vice-chairman of the
board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of the
Corporation representing the number of shares registered in certificate
form. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were
such officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the
board of directors may designate and shall state the name of the record
holder of the shares represented thereby; its number; date of issuance; the
number of shares for which it is issued; a summary statement or reference to
the powers, designations, preferences or other special rights of such stock
and the qualifications, limitations or restrictions of such preferences
and/or rights, if any; a statement or summary of liens, if any; a
conspicuous notice of restrictions upon transfer or registration of
transfer, if any; a statement as to any applicable voting trust agreement;
if the shares be assessable, or, if assessments are collectible by personal
action, a plain statement of such facts.
Upon surrender to the secretary or transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
The Corporation may issue the whole or any part of its shares
as partly paid and subject to call for the remainder of the consideration to
be paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated. Upon the declaration of any dividend on fully paid shares,
the Corporation shall declare a dividend upon partly paid shares of the same
class, but only upon the basis of the percentage of the consideration
actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the Corporation is authorized to issue more than one class
of stock or more than one series of any class, then the powers, the
designations, the preferences and the relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the Corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements there may be set forth on the face or back of the
certificate that the Corporation shall issue to represent such class or
series of stock a statement that the Corporation will furnish without charge
to each stockholder who so requests the powers, the designations, the
preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for
shares shall be issued to replace a previously issued certificate unless the
latter is surrendered to the Corporation and canceled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of
replacement certificates on such terms and conditions as the board may
require; the board may require indemnification of the Corporation secured by
a bond or other adequate security sufficient to protect the Corporation
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
The board of directors may appoint one or more transfer agents
or transfer clerks, and one or more registrars, each of which shall be an
incorporated bank or trust company, either domestic or foreign, who shall be
appointed at such times and places as the requirements of the Corporation
may necessitate and the board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions,
rules of construction and definitions in the General Corporation Law of
Delaware shall govern the construction of these Bylaws. Without limiting
the generality of this provision, as used in these Bylaws, the singular
number includes the plural, the plural number includes the singular, and the
term "person" includes both an entity and a natural person.
ARTICLE IX AMENDMENTS
The original or other Bylaws of the Corporation may be adopted,
amended or repealed by the stockholders entitled to vote or by the board of
directors of the Corporation. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power,
nor limit their power to adopt, amend or repeal Bylaws.
Whenever an amendment or new bylaw is adopted, it shall be
copied in the book of Bylaws with the original Bylaws, in the appropriate
place. If any bylaw is repealed, the fact of repeal with the date of the
meeting at which the repeal was enacted or the filing of the operative
written consent(s) shall be stated in said book.
Exhibit 4.1
See Article II, Pages 1 through 6 of the By Laws, Exhibit 3.2
Text and description of graphic and image material appearing on the form of
Certificate for shares of the Common Stock of
HealthandBeautyDirect.com, Inc.
Exhibit 4.2 to Registration Statement on Form SB-2
The borders around the edge of the certificate and around the space for
certificate number and number of shares are standard printer's forms, with
no text. The Company's corporate seal is reproduced at the bottom center of
the front. The Company's logo (HBD initials with an arrow symbol and the
name of the company spelled out) appear near the top. Facsimile signatures
of the Chief Executive Officer and Secretary of the Company are at the
bottom left and right, and the name and space for authorized signature of
the transfer agent are on the lower right side of the certificate face.
On the reverse side of the certificate, before the language and spaces for
use in effecting a transfer of the shares represented by the certificate,
are these words:
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares of stock of
the Corporation, and upon the holders thereof as established by the
Certificate of Incorporation or by any certificate of determination of
preferences, and the number of shares constituting each series or class and
the designations thereof, may be obtained by any shareholder of the
Corporation upon request and without charge from the Secretary of the
Corporation at the principal office of the Corporation.
[ ] ,1999
Board of Directors
HealthandBeautyDirect.com, Inc.
2328 W. Joppa Road, Suite 100
Baltimore, Maryland 21093
Dear Directors:
You have requested my opinion as to the legality of the securities to be
registered by HealthandBeautyDirect.com, Inc. (the Company) under the
Securities Act of 1933, as amended (the Act), by filing a registration
statement on Form SB-2, relating to the offering of up to 500,000 shares of
its common stock (the Shares) as described in the registration statement.
In connection with your request for my opinion, you have provided me and I
have reviewed the Company's Articles of Incorporation, as amended, Bylaws,
resolutions of the Board of Directors of the Company concerning the
offering, the registration statement and such other corporate documents as I
have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, it is my opinion that, when the
registration statement shall have become effective under the Act, when all
required registrations with state securities regulators shall have become
effective, when the Company has sold the minimum number of shares required,
and when the Shares shall have been duly issued and delivered to the
purchasers against payment of the considerations therefore, the Shares will,
when sold, be legally issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
registration statement.
Very truly yours,
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") dated as of May 11, 1999 is
entered into by and among HealthandBeautyDirect.com, a Delaware Corporation
(the "Company"), Linda Seidel (the "Employee") and Corky, Inc. ("Corky").
W I T N E S S E T H:
WHEREAS, Employee is a principal stockholder and officer of Corky, Inc., a
Maryland corporation and one of the principal shareholders of the Company;
WHEREAS, one of the principal objectives of the Company is to develop,
market and distribute a line of cosmetic products developed by the Employee
under the name "Natural Cover" or such other name as the Company shall
determine;
WHEREAS, the Employee has contributed all of the rights to such products and
certain other assets to the Company, including intellectual property,
relationships with vendors and suppliers and know-how, in exchange for an
interest in the Company and certain other payments; and
WHEREAS, in connection with the operation of the Company, the respective
parties desire to perform pursuant to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises which shall be incorporated
as a substantial part of this Agreement, the mutual promises herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, it is understood and agreed as follows:
1. Employment. The Company hereby engages Employee as a full-time
employee for the period (the "Employment Period") and as a part-time
consultant for the period (the "Consulting Period") specified in Section 4
hereof and Employee hereby accepts such employment upon the terms and
conditions set forth in this Agreement.
2. Duties and Status.
(a) Throughout the Employment Period, the Employee shall exercise such
authority and perform such duties as are assigned to her by the Company's
Board of Directors, which shall include but not be limited to the following:
(i) serve as spokesperson for the Company which shall include, but not be
limited to, appearing in infomercials, commercials, print advertisements and
any other form of advertisement or public relations as the Company shall
determine;
(ii) work on product development for the Company which shall include
developing new products, improving existing products and expanding the
existing line of products;
(iii) conduct lectures and seminars on such topics and at such times and
locations as may be determined by the Company; and
(iv) perform all other duties and responsibilities for the Company,
provided that such duties and responsibilities are reasonable and
commensurate with the Employee's status as a principal employee of the
Company.
(b) Throughout the Employment Period, the Employee shall (i) devote her
full time and efforts to the business of the Company and will not engage in
consulting work or any trade or business for her own account or for or on
behalf of any other person, firm or corporation which competes, conflicts or
interferes with the performance of her duties hereunder in any way and (ii)
accept such additional or different duties and responsibilities as are
assigned to her by the Company, provided that such duties and
responsibilities are reasonable and commensurate with the Employee's status
as a principal employee of the Company.
(c) The Employee shall be required to perform the services and duties
referred to in this Section 2 at the offices of the Company in Baltimore,
Maryland or at such other locations; provided that the Employee shall be
required to travel, at the Company's expense, to such regional offices as
shall be established from time to time as well as to seminar, client, job,
filming or any other locations as may be reasonably necessary in the
performance of her duties hereunder.
3. Compensation and General Benefits. As compensation for her services
under this Agreement, the Employee shall be compensated as follows:
(a) Salary. The Company shall pay to the Employee an annual base salary
of $60,000, subject to adjustment as discussed below, provided that, if due
to financial hardship, the [Company] requires a pay reduction for all senior
employees of the Company generally, the salary hereunder may be reduced
consistent with such pay decrease; provided that following any such decrease
and until such time as base salaries are restored to their levels
immediately prior to such decrease, all senior employees similarly situated
shall be treated on an equivalent basis. Such salary shall be payable at
least monthly or at shorter intervals as determined by the Company. Such
salary shall be subject to normal periodic review at least annually by the
Company's Board of Directors based on the salary policies of the Company and
the Employee's contributions to the business of the Company.
(b) Compensation Pursuant to Partnership Agreement. It is acknowledged
by the parties to this Agreement that a significant portion of Employee's
compensation is in the form of Common Stock of the Company. The Employee
has agreed to enter into this Employment Agreement.
(c) Vacation and Sick Leave. The Employee may take up to four weeks'
annual vacation provided an absence of such duration or at such time would
not adversely affect the operations, profitability, or growth prospects of
the Company's business and provided that the Employee may not take more than
two consecutive weeks of vacation at any time. Unused vacation time shall
not accumulate from year to year. The Employee shall be entitled to paid
sick leave and holidays in accordance with the Company's announced policy
for senior employees, as established by the Company's Board of Directors and
as in effect from time to time.
(d) Expenses. All reasonable business related expenses of the Employee
shall be reimbursed within thirty (30) days of submission of sufficient
evidence of such expenses to substantiate the Company's right to claim
income tax deductions for such expenses. Any individual expense item
exceeding $1,000 in amount must be approved by the Company in advance of the
incurrence of such expense.
(e) Perquisites and Other Benefits.
(i) Throughout the Employment Period, the Employee shall be entitled to
participate in such retirement plans, group and individual disability, group
and individual life, survivor income, sickness, accident, dental, medical
and health benefits and other similar plans of the Company which are in
effect from time to time for other employees of the Company and in any
successor or additional benefit programs, plans or arrangements of the
Company which may be established by the Company, as and to the extent any
such benefit programs, plans and arrangements are or may from time to time
be in effect, to the extent determined by the Company but subject to the
terms hereof and provided that the Employee is eligible to participate in
such plans under the terms of such plans. This paragraph (i) in no way
creates any obligation of the Company to adopt such employee benefit plans.
(ii) Throughout the Employment Period, the Employee shall be entitled to the
following additional benefits: (A) comprehensive medical insurance with
standard and reasonable deductibles or co-insurance, (B) long-term
disability insurance paying disability benefits of at least 50% of the
Employee's salary upon the termination of the Employee's employment by
reason of disability; and (C) annual physical examinations (as more fully
discussed in Section 11 hereof).
(f) Fees. All fees or other consideration paid or given to the Employee or
to the Company in respect of the services rendered in connection with the
Employee's employment shall be the property of the Company, and all such
services shall be performed by the Employee on behalf of the Company. The
Company reserves full right to bill for all services performed by the
Employee for the Company at such standard rates as the Company shall from
time to time establish, and the Employee agrees that all such fees, when
accrued and paid, are the sole property of the Company and that the Employee
has no interest in any such fees whatsoever, unless otherwise determined by
the Company's Board of Directors.
4. Employment Period and Consulting Period.The Employment Period shall
commence on the signing of this Agreement (the "Effective Date") and shall
continue for a period of five (5) years provided that each of the parties
hereto have the right to extend the Employment Period for an additional five
(5) year term upon written notice to the other provided at least ninety (90)
days prior to the end of the first term. If the Employee has been employed
by the Company for both five (5) year terms provided above, then the
Employee has the option, upon written notice to the Company provided at
least ninety (90) days prior to the end of the second term to extend the
Employment Period for an additional ten (10) years. In the event that the
Employee elects not to extend the Employment Period for the additional ten
(10) year term provided for in the preceding sentence, then the Consulting
Period shall commence immediately upon the end of the Employment Period if
either party has given written notice to the other no later than ninety (90)
days prior to the commencement of such period that it wishes to commence the
consulting arrangement described in Section 15 hereof. The Consulting
Period shall continue for a period of five (5) years provided that each of
the parties hereto have the right to extend the Consulting Period for an
additional five (5) year term upon written notice to the other provided at
least ninety (90) days prior to the end of the first term of the Consulting
Period.
5. Termination.
(a) This Agreement shall be terminable by the Company only upon cause.
In such event, the Company must give the Employee at least ninety (90) days
prior written notice. Cause shall be generally defined to mean the material
malfeasance or nonfeasance of the Employee, which is substantially
detrimental to the success of the business of the Company and which is not
corrected immediately, if possible, upon notice from the Company and in any
event within thirty (30) days of receipt of such notice.
(b) Notwithstanding anything herein to the contrary, this Agreement shall
terminate upon the happening of any of the following events or instances:
(i) the termination, liquidation or dissolution of the Company;
(ii) the Company is deemed to be insolvent, files for relief under federal
bankruptcy laws, makes an assignment for the benefit of creditors, or
otherwise becomes insolvent;
(iii) the death or incompetency of the Employee; or
(iv) at the option of the Company, the disability, mental or physical, of
the Employee as defined in Section 6 hereof.
(c) Upon termination of this Agreement, the Employee shall be bound by and
shall observe all covenants and obligations, which by their nature or
expressed agreement, are intended to survive the termination or expiration
of this Agreement including, without limitation, the covenants provided in
Section 8 hereof.
6. Disability.
(a) As used in this Agreement, the term "disability" shall mean the mental
or physical inability of the Employee to perform her duties as contemplated
in this Agreement which is sustained for a period of ninety (90) days.
(b) If the Employee is disabled, she shall be entitled to receive the
salary to which she otherwise would have been entitled, were she not
disabled, for a period of twelve (12) months from the onset of such
disability. Unless this Agreement is terminated at the option of the
Company upon the disability of the Employee, this Agreement will be
suspended, other than the obligation of the Company to make the payments for
twelve months pursuant to the preceding sentence and the provisions of
Sections 8, 9, 11, 12 and 14 which will remain in effect. Upon the end of
the disability, this Agreement will be reinstated with full force and effect
but the term of the Employment Period pursuant to this Agreement will not be
extended beyond the time that it would otherwise have expired without the
occurrence of the disability.
7. Termination Benefits.
(a) In the event of a termination of this Agreement as a result of the
disability of the Employee, (i) then to the extent the proceeds from the
disability insurance which the Company has maintained on the Employee are
paid directly to the Employee, such proceeds shall offset on a dollar-for-
dollar basis the payments due under Section 6, (ii) the Company shall at its
expense continue benefits under the Company's health and accident programs,
plans and arrangements, if the Company has adopted such a program, plan or
arrangement, for two years following the date of disability for the
Employee; and (iii) the Employee will receive such benefits as they may be
entitled under the terms of the benefit programs, plans, and arrangements
described in Section 3 which provide benefits upon disability of the
Employee.
(b) In the event of a termination of this Agreement as a result of the
normal expiration of this Agreement or for any other reason other than the
death, incompetence or disability of the Employee, the Company shall have no
further contractual obligations to pay the Employee any additional salary or
bonus or to continue any benefits under the Company's health and accident
programs, plans and arrangements except to pay or provide for the payment of
any statutory or vested benefits such as COBRA benefits or 401(k) amounts,
if any, and except for the obligation to pay the bonus in respect of the
current year during which the Agreement was terminated pro rated for the
portion of the year that the Agreement was in effect.
8. Confidential Information and Non-Competition.
(a) The Employee and the Company recognize that, due to relationship of the
Employee to the Company, the Employee will have access to and will acquire,
and may assist in developing, confidential and proprietary information
relating to the business and operations of the Company. The Employee
acknowledges that such information has been and will continue to be of
central importance to the business of the Company p and that disclosure of
it to or its use by others could cause substantial loss to the Company. The
Employee and the Company also recognize that an important part of the
Employee's duties will be to develop goodwill for the Company as a
spokesperson and through her personal contact with customers, agents and
others having business relationships with the Company and that there is a
danger that this goodwill, a proprietary asset of the Company, may follow
the Employee if her relationship with the Company is terminated.
Accordingly, the Employee agrees to the following provisions relating to
confidential information and non-competition with the Company as provided in
this Section 8.
(b) The Employee agrees that, during the term of this Agreement, and for a
period of two (2) years after the termination of this Agreement for any
reason whatsoever, she shall not, anywhere in the United States (or the
world if during the term of the Employee's employment, the Company shall
have engaged in operations or conducted sales or marketing efforts outside
of the United States), participate or engage in any business in competition
with the business of the Company, whether directly or indirectly, as a
partner, director, officer, proprietor, employee, consultant, agent or
otherwise. The Employee further agrees that during the term of this
Agreement, and for a period of two (2) years following the termination of
this Agreement for any reason whatsoever, she shall not anywhere in the
United States (or those foreign countries in which the Company shall have
engaged in operations or conducted sales or marketing efforts during the
term of the this Agreement), solicit (directly or indirectly, for her own
account or for the account of others) orders for services or products of a
kind or nature like or similar to services performed or products sold by the
Company during the term of this Agreement. The Employee further agrees that
she shall not, at any time, directly or indirectly, urge any client or
customer or potential client or potential customer of the Company to
discontinue business, in whole or in part, or not to do business, with the
Company.
(c) The Employee expressly acknowledges and agrees (i) that the
restrictions set forth herein are reasonable, in terms of scope, duration,
geographic area and otherwise, (ii) that the protections afforded to the
Company are necessary to protect its legitimate business interests, and
(iii) that the agreement to observe such restrictions form a material part
of the consideration for this Agreement, the Employee's employment by the
Company and the Common Stock interest of Corky, Inc. The restrictions set
forth in this Section 8 will not apply subsequent to the termination of this
Agreement in the event that (x) the Company is not in compliance with all of
the material obligations to the Employee under this Agreement (and fails to
take all reasonable action to correct such non-compliance within ninety (90)
days of receipt of notice from the Employee of such non-compliance), (y) the
Company is no longer diligently pursuing the business of the Company or (z)
the Employee was terminated by the Company in violation of this Agreement.
(d) The Employee agrees that during the term of this Agreement, and for a
period of two years after the termination of this Agreement for any reason
whatsoever, she shall not disclose to any person, other than in the
discharge of her duties under this Agreement, any trade secret or
confidential or proprietary information relating to (i) the business,
operations or internal structure of the Company, (ii) the clients or
customers or potential clients or potential customers of the Company, (iii)
any method or procedure (such as records, programs, systems, correspondence
or other documents) relating or pertaining to projects developed by the
Company or contemplated to be developed by the Company or (iv) the Company's
business. Further, upon leaving the employ of the Company for any reason
whatsoever, the Employee shall not take with her, without prior written
consent of the Company's Board of Directors, any documents, forms, or other
reproductions of any data or any information relating to or pertaining to
the Company, any of the clients or customers or potential clients or
potential customers of the Company or any other confidential information or
trade secrets. For purposes of this Agreement, "trade secrets or
confidential or proprietary information" means information unique to the
Company which has a significant business purpose and is not known by or
generally available from sources outside the Company or typical of industry
practice.
(e) In the event that the Employee violates the provisions of this Section
without knowledge of such violation, upon written notice from the Company
informing her of the nature of such violation, the Employee shall
immediately terminate any actions which constitute such violation.
(f) It is recognized that damages in the event of breach of this Section 8
by the Employee would be difficult, if not impossible, to ascertain, and it
is therefore agreed that the Company, in addition to and without limiting
any other remedy or right it may have, shall have the right to an injunction
or other equitable relief, in any court of competent jurisdiction, enjoining
any such breach, it being agreed that the Employee shall submit to any
federal or state court located in Baltimore, Maryland, and the Employee
hereby waives any and all defenses she may have on the ground of lack of
jurisdiction or competence of the court to grant such an injunction or other
equitable relief. The existence of this right shall not preclude any other
rights and remedies at law or in equity which the Company may have.
9. Intellectual Property. Any improvements, inventions, new techniques,
processes, programs or products made or developed by the Employee during the
course of her employment, within or after normal business hours, relating to
the business of the Company, shall be deemed to have been made or developed
by her solely for the benefit of the Company and shall be the sole and
exclusive property of the Company. In order to further effectuate the terms
of this Agreement, the Employee agrees to assign to the Company all her
rights to patents, copyrights, trademarks and all other proprietary
interests which she might have in any process, program, technique, product,
research item, invention or other improvement which she develops during the
course of her employment by the Company. The Employee shall not, during or
after the course of her employment, use or disclose to any other person or
entity any such process, program, technique, product, research item,
invention or other improvement except as expressly authorized in writing by
the Company.
10. Other Agreements. Any earlier employment agreements or arrangements,
whether oral or written, between the Employee and the Company are hereby
terminated and shall be of no further effect after the effective date
hereof.
11. Public Image, Health and Well-Being of Employee. As discussed in
Section 2 hereof, one of the principal duties of the Employee will be act as
public spokesperson for the Company and certain products and services to be
marketed and distributed by the Company. The parties hereto agree that the
public image, health and well-being of the Employee are critical to the
ability of the Employee to perform such duties for and on behalf of the
Company and to the ultimate success of the Company's business. Accordingly,
the Employee agrees not to make any statements or take any actions which
could in any way adversely affect her public image, health and well-being.
In the event that the Employee violates the provisions of this Section
without knowledge of such violation, upon oral or written notice from the
Company informing her of the nature of such violation, the Employee shall
immediately terminate any actions which constitute such violation and will
make any statements or take any actions which the Company's Board of
Directors requests in order to repair any damage incurred due to the prior
violation of this Section. In addition, the Employee agrees to submit
annually to a physical examination by her current physician or a physician
jointly selected by the Employee and the Company and will follow any
reasonable medical recommendations or advice provided by such physician. In
the event that the Employee incurs any health problem, then the Employee may
be required to submit to a physical examination more frequently than on an
annual basis. The Employee shall have the right to obtain a second opinion
from a physician mutually agreeable to the Employee and the Company
regarding the medical recommendation or advice provided by the primary
physician. The Employee further agrees not to consume any medication or
drugs (prescription or otherwise) without the approval of the Employee's
physician. The Employee further agrees to refrain from any action which the
Company's Board of Directors reasonably requests in order to maintain the
Employee's public image, health and well-being.
12. Indemnification, Holdback and Right of Set Off. The Employee shall
indemnify and hold harmless the Company, the Company's Board of Directors
and their Affiliates from any liability, damage, loss, penalty, cost or
expense, including reasonable attorney's fees and costs of investigating and
defending against lawsuits, complaints, actions or other pending or
threatened litigation arising from, related to or attributable to the assets
or properties contributed to the Company by the Employee, an affiliate of
the Employee, or the predecessor company of the Employee. The Employee
agrees, that, upon a final adjudication or arbitrator's determination that
the Employee is liable for indemnity payments, the Company may holdback and
set off the amount of any claim made by the Company against the Employee
pursuant to such indemnification provisions against the amount of any
payment due the Employee hereunder, except that the Company shall not be
entitled to holdback or set off against up to $50,000 of the Employee's
compensation. Any indemnification obligation arising pursuant to this
Section 12 shall be limited to the amounts payable to the Employee pursuant
to this Agreement (excluding up to $50,000 in compensation) and the
Employee's Common Stock interest in the Company through Corky, Inc. or any
affiliated Company of the Employee.
13. Key Man Insurance. At any time during the term of this Agreement,
the Company shall have the right to insure the life of the Employee for the
Company's sole benefit, and to determine the amount of insurance and the
type of policy. The Company shall be required to pay all premiums due on
such policies. The Employee shall cooperate with the Employee in taking out
the insurance by submitting to a physical examination, by supplying all
information required by the insurance company and by executing all necessary
documents. The Employee, however, shall incur no financial obligation by
executing any required document, and shall have no interest in any such
policy. In the event of the termination of this Agreement, then Employee
shall have the right to buy any insurance policies on her life purchased by
the Company for a price agreed upon between the Company and the Employee.
14. Endorsements; Exclusivity. The Employee agrees that, during the term
of this Agreement, and for a period of two (2) years after the termination
of this Agreement for any reason whatsoever, she shall not endorse any other
products or services or permit the use of her name or likeness in any
advertisements or marketing materials without the express written consent of
the Company. In the event that the Company consents to such endorsements or
advertising, then the Company will act as exclusive agent for the Employee
representing her in all negotiations regarding such endorsements and
advertising and all fees and other compensation to be paid to the Employee
will be paid to the Company and will constitute gross receipts of the
Company.
15. Consulting Arrangement. Under the terms of the consulting
arrangement, the Employee will remain employed by the Company but will not
be required to devote more than 25% of her time to the Company and will be
paid an annual base salary equal to 50% of her annual base salary paid
during the last year of the Employment Period. The Employee will perform
all the same duties and responsibilities as she did during the Employment
Period, subject to adjustment or modification to reflect the reduced time
commitment of the Employee. During the Consulting Period, the Employee
shall be subject to all the restrictions and obligations referred to in this
Agreement, including specifically those contained in Sections 8, 9, 11, 12
and 14. Any other matters not specifically included herein regarding the
consulting arrangement will be agreed to between the Employee and the
Company upon the commencement of the Consulting Period.
16. Miscellaneous.
(a) Any notices required by this Agreement shall, unless otherwise provided
herein, (i) be made in writing and mailed by certified mail, return receipt
requested, with proper postage prepaid; (ii) be deemed given when so mailed;
(iii) be deemed received by the addressee within five (5) days after given
or when the certified mail receipt for such mail is executed, whichever is
earlier; and (iv) in the case of the Company, be mailed to its principal
office, or in the case of the Employee, be mailed to the last address that
the Employee has given to the Company.
(b) This Agreement shall be effective as of the date hereof and shall be
binding upon and inure to the benefit of the Employee, her executors,
administrators and personal representatives. The Employee acknowledges that
her services are unique and personal. Accordingly, the Employee may not
assign her rights or delegate her duties or obligations under this
Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the Company, and
shall be transferred to and be binding upon any successor of the Company as
defined by applicable laws as now are in effect, including, but not limited
to, any successor of the Company pursuant to the sale by the Company of all
or substantially all of its assets to another entity or the sale by all of
the Common Stock to another entity; provided, that in the case of a
successor by transfer of all or substantially all of the assets of the
Company, or any other successor in connection with which the Company does
not cease to exist by operation of the transaction in question as a matter
of law, the Company shall not be relieved of its obligations hereunder.
(c) If any term or provision of this Agreement is held to be illegal or
invalid, said illegality or invalidity shall not affect the remaining terms
or provisions hereof, and each term and provision of this Agreement shall be
enforced to the fullest extent permitted by law.
(d) As monetary damages may not be an adequate remedy for the breach by
either party of its obligations under this Agreement, each party agrees that
it may be subjected to a decree of specific performance, injunction or other
appropriate equitable or legal relief, for the enforcement of its
obligations hereunder.
(e) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware.
(f) This Agreement may not be changed, modified or discharged orally, but
only by an instrument in writing signed by the parties.
(g) Headings in this Agreement are for convenience only and shall not be
used to interpret or construe its provisions.
(h) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(i) The Parties hereby agree to execute, file, seal, deliver and
acknowledge any and all certificates, documents or applications and to take
or cause to be taken any and all other actions necessary to effect the terms
and conditions herein.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.
HeathandBeautyDirect.com, INC.
a Delaware Corporation
Witness: By: Brian Fraidin
Chief Executive Officer and Director
HeathandBeautyDirect.com, INC.
a Delaware Corporation
Witness: By: Linda Seidel
Employee and Director
Corky, Inc.
a Maryland Corporation
Witness: By: Linda Seidel
President of Corky, Inc.
[Form of consent by independent accountants]
We consent to the use of our report dated February 5, 1999 and to the
reference to our firm under the caption "Experts" in the Registration
Statement (Form SB-2) and related Prospectus of Transforming Cosmetics.
Exhibit 23.2
See Consent of Counsel, Exhibit 5.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and authorized
this Registration Statement to be signed on its behalf by the
undersigned, in the County of Baltimore, State of Maryland, on May 11,
1999.
HealthandBeautyDirect.com, Inc.
By Brian M. Fraidin,
Chief Executive Officer &
Director
Each person whose signature appears below appoints Brian M. Fraidin
his or her attorney-in-fact, with full power of substitution and
resubstitution, to sign any and all amendments (including post-
effective amendments) to this registration statement on Form SB-2 of
HealthandBeautyDirect.com, Inc., and to file them, with all their
exhibits and other related documents, with the Securities and Exchange
Commission, ratifying and confirming all that their attorney-in-fact
and agent or his or her substitute or substitutes may lawfully do or
cause to be done by virtue of this appointment.
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated.
Signature Title Date
Chairman of the Board May 11, 1999
Brian M. Fraidin of Directors
Principal Executive Officer May 11, 1999
Brian M. Fraidin and Director
Principal Financial Officer May 11, 1999
Brian M. Fraidin
Principal Accounting Officer May 11, 1999
Vipul Munjal
Director May 11, 1999
Linda Seidel
Director May 11, 1999
Steven Zwagil
Director May 11, 1999
Steven Blaustein
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JAN-1-1998
<CASH> 634,108
<SECURITIES> 0
<RECEIVABLES> 305,716
<ALLOWANCES> 41,070
<INVENTORY> 724,355
<CURRENT-ASSETS> 1,693,476
<PP&E> 331,838
<DEPRECIATION> 121,703
<TOTAL-ASSETS> 2,833,370
<CURRENT-LIABILITIES> 1,184,623
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,695,969
<TOTAL-LIABILITY-AND-EQUITY> 2,833,370
<SALES> 0
<TOTAL-REVENUES> 9,552,974
<CGS> 7,429,250
<TOTAL-COSTS> 1,521,438
<OTHER-EXPENSES> (6,503)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 608,807
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608,809
<EPS-PRIMARY> 0
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</TABLE>
SHARE PURCHASE ORDER AGREEMENT
(For assistance in filling out this form, please see the reverse side)
To : HealthandBeautyDirect.com, Inc., 2328 West Joppa Road, Suite 100,
Baltimore, MD 21093:
Please deposit into "NationsBank, N.A., Escrow Acct No. [ ] " the
attached payment. Upon release of the impound condition, issue shares of
HealthandBeautyDirect.com, Inc. Common Stock in the amount(s) and name(s)
shown below. My signature acknowledges that I have received the Prospectus
by which the shares are offered and that I am purchasing these shares for
investment.
Signature:
Date
Enclosed is payment for [ ] (minimum 50) shares, at $12.00 per share,
totaling $ [ ].
PLEASE MAKE CHECK PAYABLE TO: NationsBank, N.A. Escrow Account No. [ ]
10 Light Street, Baltimore, MD 21202
VISA [ ] MASTERCARD [ ]
Number: [ ] Expiration Date: [ ] Signature: [ ]
The only role of NationsBank, N.A. (the "Bank") in this offering is
that of Escrow Agent. The Bank has not reviewed the Prospectus or any of
the offering materials. It makes no representation at all about the nature
of this offering or whether it complies with any legal requirements. The
Bank does not represent the interests of investors. Its duties are limited
to those in the Subscription Escrow Agreement. You may get a copy of that
Agreement from HealthandBeautyDirect.com.
Register the shares in the following name(s) and amount(s):
Name(s) Number of
shares
As (check one):
Individual Joint Tenants Trust
Tenants in Common Corporation Custodial (UGMA)[ ]
Other
For the person(s) who will be registered shareowner(s):
Mailing Address:
City, State & Zip Code:
Telephone Number: Business: ( )
Home: ( )
Social Security or Taxpayer ID Number:
(Please attach any special mailing instructions other than shown above)
NO SUBSCRIPTION IS EFFECTIVE UNTIL ACCEPTANCE
(You will be mailed a signed copy of this agreement to retain for your
records.)
Subscription accepted by HealthandBeautyDirect.com and its sales
representative:
Brian M. Fraidin, Chief Executive Officer
Date
How to Complete the Share Purchase Agreement
How can I purchase shares? Personal check, bank check, money order or credit
card are all acceptable.
Who should sign it? The person who is making the decision to buy shares.
This may be different from the persons in whose names the shares are being
registered.
Whose check can be used for payment? It should be either an account in the
name of the person signing this Share Purchase Order or the name(s) in which
the shares are to be registered. We can not, for instance, accept a check
on a corporate bank account, where the registered shareowner is to be an
individual--unless there is an accompanying certified corporate resolution
authorizing the use of corporate funds for that purpose.
Can I buy shares for more than one person on the same form? Yes, you can
either squeeze in the other names and numbers of shares, or put "see
attached" next to "Name(s)" on the form and put the names and number of
shares on another sheet.
How can I buy shares for a person who is under 18 years old? There are
Uniform Gift to Minors Acts in the states. The "Custodial" box can be
checked and the shares can be registered in a form like: "Jane Doe, as
custodian for Minor Doe, under UGMA." The effect is that Jane Doe can sell
the shares, receive dividends and otherwise manage the investment, until
Minor Doe becomes 18. Then, Jane Doe can request a replacement certificate
in Minor Doe's name. If Jane Doe wants some other legal arrangement, such
as holding the shares until Minor Doe is older than 18, she would have to
create a trust agreement, using a lawyer or a do-it-yourself guide. She
would then check the "Trust" box and fill in the name something like: "Jane
Doe, trustee for Minor Doe," or "Jane Doe, Trustee under Trust Agreement
dated [month,date,year.]"
CanI buy shares for an IRA or other retirement account? If the trust
agreement permits it--that's between you and the trustee. If your trust
agreement does not permit it (many brokerage, mutual fund or bank trustees
will not permit it), then you may be able to "roll over" or open a new
account with another trustee. The check needs to be from the trustee. You
would check "Trust" on the form and write in something like: "[name of
trustee company], trustee for Jane Doe IRA."
Guide to registering investments
Joint Tenants: Two or more persons jointly own Shares. If one person
passes away, all of the shares are transferred to the
surviving partner(s).
Tenants In Common: Two or more persons jointly own Shares. If one person
passes away, half (or whatever individual
fraction) automatically goes to the deceased's estate and not to the
surviving partner(s).
Trust: If you have established a Trust for yourself, Family or Children.
Please be sure to include exact name of Trust and
the Trust's taxpayer ID number.
Custodial: Usually established for a minor, so that an adult can maintain
control/voting rights of the stock until the minor
becomes of legal age (18). Registration should read as follows: Jane Doe as
Custodian for Minor Doe under UGMA. Make
sure to list the minor's social security number, not yours.
Other: 1) Partnership - Make sure to list Tax ID #
2) IRA (Keogh, SEP or other retirement plan): Make sure your IRA allows for
investments of this kind, check with your plan administrator. Registration
for all IRA's should read as follows: [(Trustee or name of Plan) as Trustee
for Jane Doe IRA Account # [ ].
IMPOUND AGREEMENT
This agreement dated May , 1999 is between NationsBank, N.A., (the
"Impound Agent") and HealthandBeautyDirect.com, Inc., a Delaware corporation
(the "Company").
The Company proposes to offer directly for sale to investors (the
"Offering") up to 500,000 shares of its Common Stock (the "Shares") at a
price of up to $12.00 per share (the "Proceeds") as described in its
Prospectus. The Company desires to establish an escrow account in which
funds received from investors will be deposited pending completion of the
escrow period. NationsBank, N.A. agrees to serve as Impound Agent in
accordance with the terms and conditions of this agreement and certifies
that it is not affiliated with the Company.
1. Establishment of Escrow Account. Effective as of the date of
the commencement of the Offering, the Company establishes an interest
bearing escrow account with the Impound Agent, entitled "NationsBank, N.A.
Escrow Account No. [ ]" (the "Escrow Account").
2. Impound Period. The Impound Period shall begin with the commencement
of the Offering and shall terminate upon the earlier to occur of: (a) the
date upon which the Impound Agent has received in the Escrow Account gross
proceeds of $[ ]in deposited funds (the "Minimum"), (b) one year after
the commencement of the Offering, or (c) the date upon which a determination
is made by the Company to terminate the offering prior to the sale of the
Minimum.
During the Impound Period the Company is aware and understands that
it is not entitled to any funds received into the Escrow Account, such funds
are not assets of the Company and no amounts deposited in the Escrow Account
shall become property of the Company or any other entity, or be subject to
the debts of the Company or any other entity.
3. Deposits into the Escrow Account. The Company agrees that it
shall properly deliver, within 48 hours of its receipt, all monies received
from investors for the payment of the Shares to the Impound Agent for
deposit in the Escrow Account, accompanied with a copy of the attached form
of "Share Purchase Order," executed by the Company and the investor. Checks
payable to the Company shall be endorsed by the Company for deposit to the
Escrow Account. If checks are delivered to the Impound Agent unendorsed,
the Impound Agent may supply the Company's endorsement and deposit them into
the Escrow Account. All payments to the Company by reason of credit card
purchases of the Shares shall be forwarded into the Escrow Account. The
Company shall date and number-stamp each Share Purchase Order and shall also
provide the Escrow Agent with, and maintain for its own records, a copy of
the form of consideration.
4. Disbursements from the Escrow Account. A. In the event the
Impound Agent does not receive the Minimum deposits totaling $[ ] prior to
the termination of the Impound Period, the Impound Agent shall promptly
refund to each investor the amount received from such investor, without
deduction, penalty or expense to such investor, and the Impound Agent shall
notify the Company of such distribution. The purchase money returned to
each
investor shall be free and clear of any and all claims of the Company or any
of its creditors.
B. In the event the Impound Agent receives the Minimum prior to
the termination of the Impound Period, the Escrow Amount will not be
released to the Company until such amount is received by the Impound Agent
in collected funds. For purposes of this Agreement, the term "collected
funds" shall mean all funds received by the Impound Agent which have cleared
normal banking channels and are in the form of cash, plus any interest
accrued on such funds. The Minimum may be met by funds that are deposited
from the effective date of the offering up to and including the date on
which the contingency must be met.
5. Collection Procedure. The Company agrees that if a deposited
check is returned unpaid for any reason, the Impound Agent may charge the
Escrow Account for the amount of the check. However, the Impound Agent may
represent a returned check for payment by the financial institution on which
it is drawn, but the Impound Agent is not required to do so. The Impound
Agent may represent the check without notifying the Company that it is doing
so or that the check was not paid. Any check returned unpaid to the Impound
Agent shall be returned to the Company.
6. Interest on Funds in Escrow Account. Refunds to investors
pursuant to paragraph 4A shall include each investor's pro-rata share of any
interest earned while the investor's funds were on deposit.
7. Records to be Maintained by the Impound Agent. Records and
accounts of the transactions kept by the Impound Agent shall include records
of all transactions in the Escrow Account and copies of all Share Purchase
Orders. The Company shall maintain the original Share Purchase Orders,
along with any other records of transactions for a period of five years
after the termination of the Impound Period.
8. Compensation of Impound Agent. The Company shall pay the
Impound Agent a fee for its escrow services in an amount of $ [ ]. If it
is necessary for the Impound Agent to return funds to investors, the Company
shall pay to the Impound Agent an additional amount sufficient to reimburse
it for its actual cost for disbursing such funds.
9. Protection of the Impound Agent from Liability. The Impound
Agent may conclusively rely on, and shall be protected, when it acts in good
faith upon, a writing signed by Brian M. Fraidin, Chief Executive Officer of
the Company. Provided it uses due care, the Impound Agent shall have no
duty or liability to verify any such statement, certificate, notice,
request, consent, order or other document and its sole responsibility shall
be to act only as expressly set forth in this Agreement. The Impound Agent
shall be under no obligation to institute or defend any action, suit or
proceeding in connection with the Agreement unless it is indemnified to its
satisfaction. The Impound Agent may consult counsel in respect of any
questions arising under this Agreement and the Impound Agent shall not be
liable for any action taken, or omitted, in good faith upon advise of such
counsel.
10. Indemnification of the Impound Agent. The Company hereby
agrees to defend, indemnify, and to hold the Impound Agent harmless against,
any loss, liability or expense incurred without gross negligence or bad
faith on the part of Impound Agent arising out of or in connection with its
entering into this Agreement and carrying out its duties hereunder,
including the cost and expense of defending itself against any claim or
liability.
11. Direction by Court. In the event the Impound Agent shall be
uncertain as to its duties or rights hereunder or it shall receive
instructions, claims or demands from any of the parties hereto or from third
parties with respect to the property held hereunder, which, in its opinion,
are in conflict with any provision of this Agreement, it shall be entitled
to refrain from taking any action (other than to keep safely the funds in
the Escrow Account) until it shall be directed to act by order or judgment
of a court of competent jurisdiction.
12. Binding upon Successors. This Agreement shall be binding upon,
and inure to, the benefit of the parties hereto, their heirs, successors and
assigns.
13. Termination of Agreement. This agreement shall terminate in
its entirety when all funds in the Escrow Account have been distributed as
provided in paragraph 4., above.
14. Notices. All statements and other notices produced by the
Impound Agent related to the Escrow Account shall be mailed to the Company
as follows:
HealthandBeautyDirect.com, Inc.
2328 West Joppa Road, Suite 100
Baltimore, MD 21093
Attn: Brian M. Fraidin, Chief Executive Officer
Except for deposits, all notices and other communications from the
Company shall be made to the Impound Agent as follows:
NationsBank, N.A.
10 Light Street
Baltimore, MD 21202
Attn:
The Impound Agent shall be entitled to rely on all notices and instructions
received from Brian M. Fraidin, Chief Executive Officer of the Company.
15. Governing Law. This Agreement shall be governed by
Maryland law and any action or proceeding, including arbitration, arising in
connection with this Agreement shall be brought and held in Maryland.
NationsBank, N. A. HealthandBeautyDirect.com, Inc.
By: By:
Brian M. Fraidin
[title] Chief Executive Officer
